Delaware Court of Chancery
2008 WL 1961156 (Del. Ch.)
The Limited Liability Company (LLC) Agreement (Agreement) for Genitrix, LLC (Genitrix) effectively divided the power over the company equally among Class A membership, which was controlled by Dr. Andrew Segal (defendant), and Class B membership, which was controlled mainly by Dr. Fisk Johnson and his LLC, Fisk Ventures, LLC (Fisk) (plaintiffs). The Agreement required a 75 percent vote for Genitrix to take certain actions. The Class B members had a “Put Right” clause in their contracts, which stated that at anytime, they could sell back to Genitrix any or all of their Class B interests for a price determined by an independent entity. Since it was formed, Genitrix continually had financial difficulty and trouble attracting investors. Segal felt that the Put Right contractual clauses scared off potential investors, but despite his multiple requests, the Class B members refused to suspend their Put Rights. Segal then drafted a private placement memorandum he planned to use to attract investors, but the Class B members refused to approve it. Throughout this time, the plaintiffs infused Genitrix with operating cash, but not enough to allow Genitrix to succeed. Genitrix soon ran out of operating cash and was eventually left with Segal as the only employee, no office, no funds, and no revenue. Fisk brought suit in the Delaware Court of Chancery, seeking dissolution of Genitrix. Segal filed counterclaims, charging that Fisk breached the Agreement and the covenant of good faith and fair dealing implied in the Agreement by allegedly blocking Genitrix’s chances at funding. Fisk filed a motion to dismiss Segal’s counterclaims.
Rule of Law
Holding and Reasoning (Chandler, J.)
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