Id. at 13.Chancellor Chandler has handed down another Memorandum Opinion in Fisk Ventures, LLC v. Segal, C.A. No. 3017-CC (Del Ch. Ct. January 13, 2009). In the latest opinion, Chancellor granted a request to judicially dissolve a Delaware LLC under Section 18-802 of the Delaware Limited Liability Company Act, which allows the Court of Chancery to dissolve an LLC
[o]n application by or for a member or manager … whenever it is not reasonably practicable to carry on the business in conformity with a limited liability company agreement.
The basis for the dissolution was deadlock, and the distressed financial and operating condition of the LLC:
When such a company has no office, no employees, no operating revenue, no prospects of equity or debt infusion, and when the company’s Board has a long history of deadlock as a result of its governance structure, more than ample reason and sufficient evidence exists to order dissolution.
Fisk Ventures, LLC, slip op. at 1. Apparently, the LLC’s Operating Agreement provided for management by a four-person Board, with each member appointing half of the Board. Action by the Board required approval by 75% of the Board. Id. at 10-13.
Apart from the general discussion of the "not reasonably practicable to carry on" standard, the opinion deals with an interesting wrinkle: the party asking for judicial dissolution had a contractual "put" that would let them sell their interest to the LLC at an adjusted book value, based on "an independent valuation … by a nationally recognized, reputable investment banker." Id. at 3-4. If the put price was more than half of the LLC’s tangible assets, the price would be paid in three equal installments over two years. The court rejected the argument that the existence of this unexercised put made judicial dissolution unnecessary:
… it would be inequitable for this Court to force a party to exercise its option when that party deems it in its best interests not to do so.
Id. at 13.
Prof. Larry Ribstein has a good discussion of the opinion. He focuses on judicial dissolution as a remedy for oppression. But Section 18-802 only allows dissolution when it is "not reasonably practicable to carry on business in conformity with the [LLC] agreement." Where the agreement provides for majority control, I’m not sure that abuse of control would make it not reasonably practicable to continue to carry on business under the agreed management structure. Of course, there might be a breach of fiduciary duty claim, but only if the agreement didn’t waive all fiduciary duties. That would leave only the breach of the good faith and fair dealing contractual obligation.
posted by Gary Rosin