Touch of Italy Salumeria & Pasticceria, Ltd. Liab. Co. v. Bascio - Civil Action No. 8602-VCG, 2014 Del. Ch. LEXIS 2 (Ch. Jan. 13, 2014)

Rule:

A limited liability company's (LLC's) agreement defines when members of the LLC can be liable for breach of provisions of that agreement. Thus, a court must look to the language of an LLC agreement among the parties in order to determine whether a claim for breach of contract exists. Pursuant to well-established principles of contract interpretation, and recognizing that LLCs are creatures of contract, a court must enforce LLC agreements as written.

Facts:

In 2009, Robert Ciprietti, Diane Bascio, Frank Bascio, and Louis Bascio entered into an LLC agreement to form Touch of Italy Salumeria & Pasticceria, LLC ("Touch of Italy") which operated a specialty Italian grocery in Rehoboth Beach. In support of this venture, Ciprietti provided $100,000 in initial capital, while Louis provided labor and goodwill. In 2011, Ciprietti, Louis, and Joseph Curzi III entered into an Amended and Restated Limited Liability Company Agreement of Touch of Italy Salumeria & Pasticceria, LLC (the "Amended LLC Agreement"), resulting in both Ciprietti and Louis holding a one-third interest in the LLC. The business had been successful and profitable; nevertheless, in October 2012, Louis, exercising his right under Section 19(b) of the Amended LLC Agreement, provided his fellow members with notice of his withdrawal from the LLC. Ten weeks later, Louis and his brother, Frank Bascio, formed their own LLC, Bascio Bros. Italy, LLC ("Bascio Bros."), which then opened a competing Italian grocery, doing business as Frank and Louie's Italian Store ("Frank and Louie's"). In May 2013, the plaintiffs - Touch of Italy, Ciprietti, and Curzi— filed a complaint against Louis Bascio and Frank Bascio, seeking injunctive and monetary relief. The plaintiffs alleged the following nine counts: conversion (Count I); fraudulent misrepresentation (Count II); breach of contract (Count III); negligent misrepresentation (Count IV); fraudulent concealment (Count V); breach of the implied covenant of good faith and fair dealing (Count VI); breach of fiduciary duty (Count VII); prayer for punitive damages (Count VIII); and injunctive relief (Count IX). The defendants moved to dismiss all nine counts of the plaintiffs' Complaint, emphasizing the lack of a covenant not to compete in the Amended LLC Agreement.

Issue:

Under the circumstances, should plaintiffs’ complaint be dismissed?

Answer:

Yes.

Conclusion:

The court noted that Delaware’s law with respect to LLC’s was explicitly contractarian; it allowed those associating under this business format to structure their relationship in the way they believe would best suit them and their business. In this case, the parties’ LLC agreement was written to allow members to readily withdraw, without triggering any obligation to forgo competition thereafter. Thus, Louis faced no legal impediment to withdrawing and opening Frank and Louie's as a competing grocery. Moreover, the LLC and current members did not allege that Louis breached the Agreement, to which he was no longer a party, by opening a competing business after he resigned from the LLC. The court further held that the LLC and its current members failed to sufficiently plead a breach of fiduciary duties claim against Louis because the LLC and the current members did not allege any actionable conduct by Louis during his time of membership and Louis did not owe any fiduciary duties once he resigned from the LLC. According to the court, the complaint was an attempt to achieve a result—restraint on post-withdrawal competition—that the members could have but chose not to forestall by contract. Hence, the court concluded that the complaint failed to state a claim, and must be dismissed.