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MONTH-IN-BRIEF (Jun 2019)

Limited Liability Companies

Ineffective Removal of Managers of LLC

By Huston Firment and Michael Maxwell

In Llamas  v. Titus, C.A. No. 2018-0516-JTL, 2019 WL 2505374 (Del. Ch. June 18, 2019), the Delaware Court of Chancery (the “Court”) determined the proper composition of the board of managers of a Delaware limited liability company (the “LLC”) pursuant to Section 18-110(a) of the Delaware Limited Liability Company Act.  Stuart Titus (“Titus”) served as the sole member and manager of the LLC.  Pursuant to pressure from an interested third party, Titus executed a written consent appointing additional managers (collectively, the “Additional Managers”) of the LLC.  However, soon after executing the consent, Titus attempted to amend the LLC’s limited liability company agreement (the “Amendment”) to make clear that Titus was the sole manager of the Company.  Shortly after the Amendment, Titus executed a written consent (the “Consent”) appointing two new managers (the “Replacement Managers”) to fill the manager positions that Titus alleged the Additional Managers vacated due to the Amendment. The Court found the proper composition of the LLC’s board consisted of Titus and the Additional Managers because the Additional Managers were not properly removed by the Amendment or the Consent and therefore the Replacement Managers were not properly appointed.  The Court rejected the argument that references to Titus as “the sole Manager and sole Member” contained in the Amendment were effective to remove the Additional Managers, in part, because such references were contained in the introductory clauses and the recitals and did not have “substantive” or “operative” effect.  The Court also rejected, as “internally inconsistent,” the argument that the Amendment served as a “governance reset.” Finally, the Court rejected the argument that the Consent served as a “managerial bump-out” (i.e. automatically removing the Additional Managers, without explicitly stating so, and replacing them with the Replacement Managers), noting that the theory “lack[ed] any support under Delaware law…an individual cannot be appointed to a board with no vacancies.” 

Judicial Dissolution of Delaware LLC Due to Manager Deadlock

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