Court of Chancery of Delaware
2008 WL 1961156 (2008)
Dr. Segal (defendant) founded Genitrix, LLC, a Delaware limited liability company, and retained 55 percent of Genitrix’s Class A membership interest. H. Fisk Johnson held much of the Class B membership interest, along with Fisk Ventures, LLC (Fisk) (plaintiff), Stephen Rose, and William Freund. Fisk is owned and controlled by Johnson. Under Genitrix’s LLC agreement, the board of member representatives, which manages the company’s business and affairs, consists of five members, two appointed by Johnson, one by Fisk, and two by Segal. Johnson appointed Rose and Freund, his employees, to the board. Section 9.1 of the LLC agreement states that no member has any duty to any other member, except as expressly set forth in the LLC agreement itself, and that no member is liable for damage to the company, unless it is the result of gross negligence, fraud, or intentional misconduct. The LLC agreement also requires approval of 75 percent of the board for most actions, thus requiring the cooperation of both the Class A and the Class B members. Genitrix ran into funding difficulties, and the Class A and Class B members of the board could not agree on how to finance the company. The Class B board members rejected several financing opportunities proposed by Segal. Genitrix ran out of funds, stopped producing revenue, and was reduced to a single employee, Segal. Fisk initiated an action to dissolve Genitrix. Segal filed counterclaims against Fisk and third-party claims against Johnson, Rose, and Freund, claiming that they breached the LLC agreement, the implied covenant of good faith and fair dealing, and their fiduciary duties to Genitrix. Fisk, Johnson, Rose, and Freund moved to dismiss Segal’s claims against them.
Rule of Law
Holding and Reasoning (Chandler, C.)
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