Cadwalader, Wickersham & Taft LLP
MONTH-IN-BRIEF (Sep 2023)
Business Litigation
Delaware Supreme Court Reaffirms Broad Contractual Freedom Concerning Remedies for Parties to LLC Agreements
In Holifield v. XRI Investment Holding LLC, the Delaware Supreme Court upheld the Delaware Court of Chancery’s finding that a transfer of units was invalid under the applicable limited liability company agreement, which also, per the terms of the agreement, rendered the noncompliant transfers “void,” meaning that affirmative defenses did not apply. In so doing, the Supreme Court reaffirmed its prior ruling in CompoSecure, L.L.C. v. CardUX, LLC, 206 A.3d 807, 816 (Del. 2018), which permits parties to an LLC agreement to contract for incurable voidness. Though the Court of Chancery acknowledged that it was bound by CompoSecure, it urged the Supreme Court to adopt an alternative framework that would preclude parties from contracting for incurable voidness and reserve such a remedy for violations of state-imposed limits. The Supreme Court declined to accept that invitation, largely relying on the text and underlying policies of the Delaware Limited Liability Company Act, which establishes broad contractual freedoms for Delaware limited liability companies. The Court also found that the parties’ intent to contract for incurable voidness must be clear, though it declined to require that any “talismanic magic words” be included to establish such a remedy.
