R&R Capital, LLC v. Buck & Doe Run Valley Farms, LLC

The Russet brothers formed and managed two New York LLCs (the New York Entities) (plaintiffs). They also contributed funding to nine other entities, all Delaware LLCs. The New York Entities were not themselves members of two of the Delaware entities, Pandora Racing, LLC and Pandora Farms, LLC (the Pandora Entities) (defendants). The New York Entities were, however, members of the other seven entities (the Waiver Entities) (defendants). The Waiver Entities had identical LLC agreements. Each noted that the members recognized that “irreparable damage would occur” if a member sued for judicial dissolution of the company. Therefore, the agreements stated, each member “waives and renounces such Member’s right to seek” a court-ordered dissolution. All of the Delaware LLCs were managed exclusively by Linda Merritt. The relationship between the Russets and Merritt deteriorated. The Russets caused the New York Entities to petition the court for either dissolution of the Delaware LLCs or appointment of a receiver. They alleged that many of the Delaware LLCs had had their certificates of formation revoked. They also argued that Merritt had defrauded the entities and had refused to provide an accounting. The Pandora Entities filed a motion to dismiss, arguing that since the New York Entities were not members of the Pandora Entities, they lacked standing to seek dissolution under the Delaware LLC Act (DLLCA). The Waiver Entities also moved to dismiss on the grounds that the New York Entities had waived their right to seek dissolution in the LLC agreements. The New York Entities countered that waiver of the right to seek dissolution is prohibited by the DLLCA and also against public policy.