Document: Huatuco v. Satellite Healthcare, Civil Action No. 8465-VCG (Del. Ch. Dec. 9, 2013)

A member of a Delaware limited liability company (the “LLC”) filed a complaint seeking to judicially dissolve the LLC under the Delaware Limited Liability Company Act (the “Act”) on the basis that it was not reasonably practicable to carry on the business due to a deadlock between its two members. The defendant member moved to dismiss. The Court granted the motion, agreeing with the defendant member that the express language of the LLC agreement (the “Agreement”) prevented a member from seeking judicial dissolution.

Section 2.2 of the Agreement contained the statement: “Except as otherwise required by applicable law, the Members shall only have the power to exercise any and all rights expressly granted to the Members pursuant to the terms of this Agreement.” While the member seeking dissolution contended that this provision dealt solely with economic rights based on the language surrounding it, the court disagreed with this interpretation. The Court noted that the provision pertained to “any and all rights under the Agreement.” Moreover, unlike the covenant of good faith a fair dealing, which cannot be contracted away, a right to judicial dissolution is not required by law. The Court cited R & R Capital, LLC v. Buck & Doe Run Valley Farms, LLC, 2008 WL 3846318 (Del. Ch. Aug. 19, 2008), in which it “upheld a provision in an LLC agreement purporting to eliminate certain parties’ rights to judicial dissolution otherwise expressly granted in the LLC agreement.” The Court noted that such interpretations are “consistent with the broad policy of freedom of contract underlying” the Act.

The member seeking dissolution also argued that public policy considerations supported his action, but the Court stated that only where the public policy interest is even stronger than the interest in freedom of contract would the Court forego the clear language of an agreement. Moreover, the member seeking dissolution did have a remedy: to pursue an action against the defendant member for breach of the LLC Agreement.