VGS, Inc. v. Castiel
Delaware Court of Chancery
2000 WL 1277372 (Del. Ch.)
David Castiel (plaintiff) formed Virtual Geosatellite LLC (the LLC) to pursue an FCC license. The only member of the LLC was Virtual Geosatellite Holdings, Inc. (Holdings). Subsequently, Ellipso, Inc. (Ellipso) and Sahagen Satellite Technology Group LLC (Sahagen Satellite) joined the LLC as members. Castiel controlled Holdings and Ellipso. Peter Sahagen controlled Sahagen Satellite. The LLC agreement provided that Holdings received 660 units (63 percent of the equity in the LLC), Sahagen received 260 units (25 percent), and Ellipso received 120 units (12 percent). The LLC was controlled by a board of three managers. Castiel had the power to appoint and remove two of the managers, and Sahagen had the powers with regards to the third manager. Castiel named himself and Tom Quinn as managers and Sahagen named himself as the third manager. Soon after, the relationship between Castiel and Sahagen soured as the two had different ideas as to how the LLC should be run. Sahagen convinced Quinn that Castiel could not run the LLC properly and Sahagen and Quinn, without notice to Castiel, merged the LLC into VGS, Inc. (VGS) (defendant). The LLC thus ceased to exist and Sahagen took control of VGS. VGS issued stock in such a way that reduced Holdings’s and Ellipso’s combined interest from 75 percent in the LLC to 37.5 percent in VGS. Meanwhile, Sahagen went from owning 25 percent of the LLC to 62.5 percent of VGS. The only reason that Sahagen and Quinn did not give Castiel notice of the merger was because Castiel had the ability to remove Quinn as manager and certainly would have if he had been given notice of the merger. Castiel brought suit.
Rule of Law
Holding and Reasoning (Steele, V.C.)