Law School Case Brief
In re Carlisle Etcetera Ltd. Liab. Co. - 114 A.3d 592 (Del. Ch. 2015)
By default under the Delaware Limited Liability Company Act, only a member can petition for statutory dissolution, not an assignee. Del. Code Ann. tit. 6, § 18-702(b)(1) reinforces this reading by stating that unless otherwise provided in a limited liability company (LLC) agreement, an assignment of an LLC interest does not entitle the assignee to exercise any rights or powers of a member. Section 18-702(a) similarly provides that the assignee of a member's LLC interest shall have no right to participate in the management of the business and affairs of an LLC except as provided in an LLC agreement or, unless otherwise provided in the LLC agreement, upon the affirmative vote or written consent of all of the members of the LLC.
Petitioner Well Union Capital Limited ("WU Parent") and respondent Tom James Company ("James") formed Carlisle Etcetera LLC, a Delaware limited liability company ("Carlisle" or the "Company"). They executed a simple form of operating agreement (the "Initial LLC Agreement") in which they committed to work promptly on a more detailed operating agreement to replace the original one. After the Company was formed, WU Parent transferred its member interest to a wholly owned subsidiary called Well Union U.S. Holdings, Inc. ("WU Sub"). James knew about the transfer, did not object, and treated WU Sub as a member from that point on. For purposes of the Delaware Limited Liability Company Act (the "LLC Act"), however, the transfer rendered WU Sub an assignee, rather than a member. WU Parent and James never reached agreement on a replacement operating agreement. Other disputes arose, and the relationship deteriorated. Both sides eventually recognized that they could not manage the Company jointly and that one side needed to buy out the other. WU Sub filed this action to dissolve the Company. James moved to dismiss on the grounds that WU Sub was an assignee, not a member, and that an assignee lacked standing to petition for statutory dissolution under Section 18-802 of the LLC Act. 6 Del. C. § 18-802.
Did WU Parent or WU Sub have the standing to dissolve the Company?
Petitioners WU Parent or WU Sub both lacked standing to seek statutory dissolution of the LLC because Del. Code Ann. tit. 6, § 18-802 permitted only members and managers to do so. Neither WU Parent and WU Sub was a manager. WU Parent lost its status as a member when it assigned its member interest to the subsidiary. The transfer made the subsidiary an assignee, not a member. Also, James did not vote or give written consent to admit the subsidiary as a member. However, § 18-802 was not the sole extra-contractual means of dissolving an LLC. WU Sub had standing to seek dissolution in equity because the real relationship between it and James, the sole remaining member, was a joint venture in which they were equal participants.
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