Fisk Ventures, LLC v. Segal

2008 WL 1961156 (2008)

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Fisk Ventures, LLC v. Segal

Delaware Court of Chancery
2008 WL 1961156 (2008)

  • Written by Mary Pfotenhauer, JD
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Facts

Andrew Segal (plaintiff) founded Genitrix, LLC, a Delaware limited-liability company (LLC). Segal owned the majority of Genitrix’s Class A membership interests. Genitrix’s Class B membership interests were owned by H. Fisk Johnson individually, Johnson’s company Fisk Ventures, LLC (Fisk), and two of Johnson’s employees, Stephen Rose and William Freund (defendants). Genitrix’s managing board had five seats: two appointed by Segal, two by Johnson, and one by the Class B members generally. Genitrix’s LLC agreement also established a power-sharing arrangement between the Class A and Class B members that required a supermajority vote of 75 percent of the Genitrix board for all important business decisions. The supermajority requirement essentially gave each class a veto power. The LLC agreement further stated that the members had no duties except as expressly set forth in the LLC agreement itself. The LLC agreement did not expressly set forth any fiduciary duties for the LLC’s members. Finally, the LLC agreement gave the Class B members a put-option right, which permitted the Class B members to sell all their interests back to Genitrix. If exercised, this so-called put right would give Class B members a higher-priority claim to Genitrix’s assets than any new investor. Genitrix continually had financial difficulties and trouble attracting investors. Segal believed that potential investors were scared off by the put rights. Despite multiple requests from Segal, the Class B members would not agree to suspend or give up their contractual put rights. The Class B members also did not approve a private-placement memorandum Segal wanted to use to attract investors. Genitrix eventually ran out of operating cash. Fisk filed a lawsuit to dissolve Genitrix. Segal filed counterclaims alleging that the four Class B members had blocked Genitrix’s chances at getting funding, which breached the LLC agreement’s express terms, the LLC agreement’s implied covenant of good faith and fair dealing, and the members’ fiduciary duties to Genitrix. The Class B members moved to dismiss Segal’s counterclaims.

Rule of Law

Issue

Holding and Reasoning (Chandler, C.)

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