Saturday, August 31, 2019
Today marks the anniversary of the death, in 1422, of King Henry V of England. His death would set in motion the events that would eventually play out as what was then referred to as the Cousins War and is today referred to as the War of the Roses.
Henry V, the victor of Agincourt, died young. His only child, also named Henry, was nine months oldat the time of his father’s death. Upon his father’s death, and subject of course to a Regency, young Henry, now Henry VI, was elevated to the English throne. Henry VI’s mother was Catherine of Valois, a French princess who after Agincourt married Henry V; under the Treaty of Troyes, Henry V was to inherit the French throne. Of course, that did not come to pass as the civil war aspect of the Hundred Years War was ultimately resolved (the enemy of my enemy is my friend). So now sitting on the throne was Henry VI, whose mother was a member of the house in Valois. That particular house was troubled with some sort (today it cannot be entirely diagnosed) of mental instability. At various times in his life this instability would manifest in Henry VI. In some of the later experiences he would be effectively catatonic while at other times he would appear to have no appreciation of where he was or what he was doing. Regardless of the degree of expression from time to time, these were not characteristics of an effective medieval king. In addition, Henry VI would go on to marry Margaret of Anjou. Being French, she brought no natural allies to Henry’s household and, for herself, was generally disliked.
And so the stage was set; following the highly effective and well liked war hero Henry V, the country was plunged into a minority kingship with a regency and all of the instability that flows therefrom. The Duke of York, who had aspirations to the throne, served as a regent. Meanwhile nothing to bring stability to Henry VI’s position flowed from his marriage to Margaret of Anjou.
Ultimately, the Cousins War would erupt. York would, in one of its earlier battles, be killed (Wakefield in 1460), but ultimately his son, Edward IV, would prevail in that conflict (Towton, 1461), taking the throne and then protecting it (except when he lost it for a period) through the balance of the War of the Roses.
But then after his death the throne would pass to Richard III, it in turn being taken from him at the Battle of Bosworth Field by Henry Tudor, known to history as Henry VII.
Thursday, August 29, 2019
In his blog New York Business Divorce, Peter Mahler has reviewed a recent New York decision (in which he served as counsel for the prevailing parties), Matter of Shiel (Cool Frames, LLC) (not on Westlaw).
In this instance, an individual with whom discussions had once taken place as to him becoming a member in the company brought an action for judicial dissolution when the company sued him for embezzling its’ funds. As the capacity for bringing an action for judicial dissolution is premised upon status of a member, whether he was or was not a member was the initial consideration.
Holding he was not a member, the court looked to a number of factors including that there was no signed written operating agreement identifying him as a member, he had engaged in conduct inconsistent with being a member, and had never been identified as a member on the tax or accounting records of the company.
The title of that blog posting is Court Looks to Partnership Law in Ruling Against Petitioner’s Status as LLC Member; HERE IS A LINK to that posting.
Wednesday, August 28, 2019
Parent Corporation Is Not Bound by Subsidiary’s Agreement
In a decision from the Sixth Circuit Court of Appeals, there was an affirmed the principle that a parent corporation is not subject to the obligations of its subsidiary. In this instance, the subsidiary entered into a nondisclosure agreement; the parent was not a party to that agreement. As such, there could be no claim that the parent subsequently violated that agreement. Knight Capital Partners Corporation v. Henkel AG & Company, KGaA, 930 F.3d 775 (6th Cir. July 16, 2019).
Knight Capital Partners Corp. (“KCP”) and Henkel Corporation entered into a non-disclosure agreement (the “NDA”) as part of their negotiations with respect to a potential distribution deal of a product that KCP hoped to bring to market. Henkel’s parent company, Henkel AG & Company, KGaA (“Henkel KGaA”), was not a party to the NDA.
As recounted by the court, “Following a year of exchanging information and engaging in negotiations, the NDA lapsed, no deal was consummated, and the parties discontinued commercial communications. KCP asserts that Henkel Corporation’s parent company, Henkel KGaA, used confidential information it acquire through the NDA to develop the product on its own and also interfered with the potential distribution deal.” 930 F.3d at 778. KCP brought this action alleging that Henkel KGaA had breached the NDA and for tortious interference in its prospective contractual relationship with Henkel Corporation.
The court made short shrift of the breach of contract action, noting that as Henkel KGaA was not a party to the NDA, it could not be bound by its terms. The court as well reviewed and rejected claims that Henkel KGaA agreed to be bound by the terms of the NDA.
As for the claim with tortious interference with business expectancy, and applying Michigan law, the rule was repeated that “a parent company cannot tortuously interfere with the affairs of its wholly-owned subsidiary.” 930 F.3d at 783. On that basis, the claim for interference was likewise rejected.
The Slaughter of the Jewish Community in Mainz
Today marks the anniversary of the tragic event in the year 1349. In the midst of what was then referred to as the Great Mortality and is today referred to as the Bubonic Plaque, the Jewish ghetto in Mainz, Germany was attacked. To modern ears, the basis for the attack is ludicrous, including the notion that the Great Mortality was God’s punishment upon the Catholic community for permitting the Jewish community to live amongst them and the assertion that the Jews themselves started the plaque by poisoning wells. The fact that the members of the Jewish community were dying with the same frequency as others did not seem to hinder this latter rationale.
On the first day of the attack the Jewish community fought back, and some 200 of their attackers were killed. The next day, whose anniversary is today, an augmented force attacked the ghetto, killing all of the approximately 6000 Jews who lived therein. See Robert S. Gottfried, The Black Death: Natural and Human Disaster in Medieval Europe at 74.
Tuesday, August 27, 2019
Court Rejects “Untenable” Reading of Operating Agreement as To Removal of Manager
In his blog New York Business Divorce, Peter Mahler has reviewed a decision from California, Hillsboro Development Co., LLC v. Annen, Case D074818, 2019 WL 3758948 (Ca. Ct. App. 4th Dist. (August 9, 2019), wherein the court was called upon to interpret the applicable operating agreement and the controlling California LLC Act to determine whether or not a manager had been removed. That posting is titled Statute Trumps LLC Agreement’s Voting Rights Provision In Dispute Over Manager’s Removal; HERE IS A LINK to his posting.
Essentially, the California LLC Act provides that a manager may be removed by a majority vote of the members. The Hillsboro operating agreement did not directly address the removal of a manager. The operating agreement did, however, contain a general voting rights section that provided, inter alia, that all decisions would require the consent of all members. Annen objected when a majority of the holders of the membership interests, by written consent, removed him as a manager of the LLC. He asserted that could take place only with a unanimous vote. The court rejected this suggestion, finding that the statutory rule requiring only majority consent had not been overridden and that it would not endorse the “untenable” notion that Annen could be removed as a manager only with his consent.
At the end of the posting, which of course goes into far more detail than does this summary, Peter identified a number of other cases from New York that have addressed the removal of a manager. Simply seeking to add to that listing, another case of which you should be aware is Young v. Ellis, 172 Wash. App. 1014 (Wash. Ct. App. Div. 2, Dec. 4, 2012). Therein, the managing member of an LLC was named in the operating agreement, and the operating agreement required unanimity for its amendment. The court rejected as “absurd” the suggestion that the managing member could be removed only by unanimous consent of the members, in effect requiring the managing member’s consent to his own removal. Rather, the court found that the operating agreement’s general rule of the majority consent of the members would apply to the removal of a managing member.
Monday, August 26, 2019
LLC’s Members, and Not Managers, Relevant for Purposes of Diversity Jurisdiction
In a recent decision from Florida, while assessing conflicting factual statements, it was made clear that the citizenship of the managers of an LLC, as contrasted with that of its members, is not relevant for purposes of determining the LLC’s citizenship for purposes of diversity jurisdiction. Kleiman v. Wright, Case No. 18-CV-80176-Bloom/Reinhart, 2019 WL 3841931 (S. D. Fla. Aug. 15, 2019).
At this juncture of the litigation, there were numerous facially conflicting statements by Wright as the ownership of an LLC involved in this dispute, namely W&K Info Defense Research, LLC. Relevant for this discussion, there was the question as to whether an individual, a citizen of Vietnam whose citizenship in the LLC would have destroy diversity jurisdiction, was in fact a member. Finding the evidence to be that this individual, if anything, was a manager, and not a member, of the LLC, the court found that diversity could not on that basis be determined. Rather:
For purposes of diversity jurisdiction, it is the citizenship of the LLC’s members, not its managers, that is relevant. Silver Crown Investments, LLC v. Team Real Estate MGMT LLC, 349 F.Supp. 3d 1316, 1324 (S.D. Fla. 2018) (Martinez J.) (citing Rolling Greens MHP, L.P.D. Comcast SCH Holdings, L.L.C., 374. F.3d 1020, 1022 (11th Cir. 2004).
2019 WL 3841931, *4.
Friday, August 23, 2019
The Last Ptolemy
Today marks the anniversary of the death well, execution, of Caesarion, the last member of the Ptolemiac Dynasty.
Ptolemy XV Philopator Philometor Caesar was the son of Cleopatra VII and Julius Caesar. As one of the final acts of the civil war fought between Octavian (ultimately Caesar Augustus) and Mark Antony, Octavian’s forces captured Alexandria and with it Egypt. Thereafter, Mark Antony and Cleopatra each committed suicide. When subsequently captured by Octavian's forces, Caesarion was executed, thereby bringing to an end the Ptolemaic Dynasty.
Ptolemy had been a companion to and a general of Alexander the Great. When Alexander died in 323 BC, Ptolemy and the other generals fought for control of portions of Alexander’s empire. In 305 BC, Ptolemy declared himself the new Pharaoh of Egypt. His family would rule until the death of Caesarion in 30 BC.
So ended the Ptolemiac Dynasty in Egypt.
The Death of William Wallace
Today marks the anniversary of the death (execution), in 1305, of William Wallace.
Most people in this age, to the extent they know anything about William Wallace, learned it from the movie in which Mel Gibson played that role. The movie is entirely correct that William Wallace lived and fought for an independent Scotland. The movie is correct in that the he was opposed by King Edward I, who was known by the nickname “long shanks” (he was quite tall for the age). It is true, as depicted in the movie, that William Wallace was executed by being drawn and quartered, that being the accepted method of execution for traitors.
Almost everything else in the movie is incorrect. For example:
► Piers Galveston, the “friend” of Edward II, was never thrown from a window by Edward I. Rather, Galveston lived well into the reign of Edward II, although he was ultimately killed as a component of a revolt of the nobles upset about their relationship and Piers’ access to royal largess.
► In all likelihood, William Wallace and Robert the Bruce (the 7th) never met.
► Isabella of France did not marry Edward II until 1308, well after the death of William Wallace.
► Likewise, Isabella of France never negotiated with William Wallace for the treatment of York or anything else; she was born in 1295 and in consequence would have been less than 10 years old at the time of Wallace’s death.
► The moniker “Braveheart” was attributed not to Wallace, but rather to Robert the Bruce. In fact, after his death, his heart was cut out and carried in a chest by Scottish forces going into battle.
Thursday, August 22, 2019
A Horse, a Horse, My Kingdom for a Horse
Today is the anniversary of the Battle of Bosworth, the final major battle of that English civil war titled The War of the Roses (this conflict was at the time sometimes referred to as the Cousin’s War). It was at this battle that King Richard III, variously identified as the last King from the House of Plantagenet or the House of York, was killed. He was the last English King to die in battle. Henry Tudor, the victor at Bosworth, then became King Henry VII.
Henry’s victory in battle was if anything surprising. Richard’s forces outnumbered those of Henry. Meanwhile, Lord Stanley (William Stanley) held back his own force; if combined with that of Henry, that of Richard would have been out-numbered. Conversely, if Stanley joined with Richard, the weight of the forces arrayed against Henry would have been overwhelming. Richard held Stanley’s son as a hostage. As battle was about to commence, Richard sent word to Stanley that if Stanley did not join with him, he would execute Stanley’s son. Stanley replied, “I have other sons.” Stanley’s brother Thomas was married to Margaret Beaufort, mother of Henry Tudor.
To provide but a taste as to why this conflict was referred to as the Cousins War, consider that William Stanley was the brother of Thomas Stanley, husband of Margaret Beaufort, she being the mother of Henry Tudor. Ergo, William Stanley was the brother-in-law to Henry’s mother. Thomas Stanley had previously been married to Eleanor Neville, sister to Warwick the Kingmaker and aunt to Richard III’s recently deceased wife Anne Neville. That wife was a daughter of Warwick.
Richard’s attack upon Henry’s position nearly succeeded; Henry’s standard-bearer William Brandon was killed at Henry’s side. Polydore Virgil, a contemporary historian/chronicler, recorded that Richard fought well. However, Richard’s fate was sealed when the William Stanley and his troops, having until then not committed to either side, rode against Richard’s infantry as his cavalry was separately moving against Henry. Thomas Stanley would place the coronet (crown) of Richard III on Henry Tudor’s head.
William Brandon’s son Charles, ultimately Duke of Suffolk, would become the best friend of Henry VIII.
In 2012, Richard’s remains were located in the course of excavations under a parking lot that now covers part of what was the Blackfriars (Dominican) Church in Leicester, England; early 2013 saw the announcement that testing had confirmed the remains were those of Richard. In sad testimony to the modern age, litigation ensued as to whether Richard should be re-buried in Leicester Cathedral, apparently consistent with the terms of the agreement by which the archaeological work was performed and other British law, or in York where certain claimed descendants of Richard assert he would want to have been buried. That question was resolved in favor of Leicester, and in 2016 Richard III was laid to rest in Leicester Cathedral.
Notwithstanding Polydore Virgil’s positive comments as to Richard III, in proof of the adage that the winners write the history, his reputation was besmirched by various Tudor affiliates such as St. Thomas More and William Shakespeare. He is currently being reassessed by historians who are not so indebted to supporting the legitimacy of the House of Tudor.
Tuesday, August 20, 2019
Attorney for LLC Not Attorney for its Members
In a recent decision from Kansas, there was considered and rejected the suggestion that the attorney for an LLC was as well an attorney for each of its members. Green v. Blake, 2019 WL 3776009 (D. Kan. Aug. 12, 2019).
Green, Blake and Leonard were all members in an LLC organized in Oregon, 63rd St., Enterprises, LLC. Green filed suit against the Blake and Leonard asserting claims including fraudulent misrepresentation with respect to his having joined the LLC as a member. Green, in bringing that suit, utilized the services of Laner, an attorney who it was asserted had previously advised Blake and Leonard with respect to the LLC. On that basis, they sought his disqualification from the matter.
The court rejected that suggestion. Rather, it found that to the extent Laner had been involved with the LLC, it had been as counsel to the LLC and not the individual members. In addition, they could not bring forth evidence of particularized communications and representation with respect to the LLC. Falling back on the Kansas adoption of Rule 1.13 and the principle that the attorney for the organization is not as well the attorney for the constituent members, the motion to disqualify Laner as plaintiff’s counsel was denied.
Monday, August 19, 2019
An LLC’s Member is not a Party to its Contracts
A decision rendered last December in Louisiana highlights that the member of an LLC is not a party to the agreements that the LLC enters into. DeJohn v. Delta Faucet Company, Civil Action No. 18-13410, 2018 WL 6725393 (E.D. La. Dec. 21, 2018).
Woolf-Harris, LLC had a contract with Delta Faucets to serve as its representative in Louisiana, Mississippi and Western Tennessee, a relationship that dated back to 1975. DeJohn purchased Woolf-Harris in September, 2016. DeJohn would allege that, before he made that purchase, a representative of Delta “promised him, ‘outside of and in addition to any agreement Delta had with Woolf-Harris generally,’ that Delta would not terminate its contract with Woolf-Harris if DeJohn remained the owner and Woolf-Harris maintained its level of performance.” Te written agreement betweek Woolf-Harris and Delta provided that either party could terminate it at any time with or without cause and as well contained an integration clause. In September, 2018, two years after Dejohn had completed his purchase of Woolf-Harris, Delta gave notice that it was terminating the sales representative agreement effective December 31 of that year. DeJohn filed this action seeking injunctive relief precluding Delta from effecting that termination, arguing “detrimental reliance” upon Delta’s alleged agreement that the agreement would not be terminated.
In light of the court having already quoted the termination clause and the merger clause, the reader could reasonably have been expecting a discourse on the inability of a later oral statement to modify a written agreement and the relationship of merger clauses to subsequent oral statements. However, in fact the court would go in a different direction, namely that of standing.
Essentially, DeJohn could not make his claims for detrimental reliance with respect to a contract to which he was not a party. The court wrote:
DeJohn does not have standing to pursue injunctive relief relating to the dissolution of the contract. Because the personalty of a [LLC] is distinct from its members, the principle of such a company cannot assert rights on the company’s behalf.
DeJohn, in his individual capacity, seeks injunctive relief preventing Delta from terminating a contract with a third-party, Woolf-Harris. DeJohn is not a party to the contract in his individual capacity and Woolf-Harris is not a party to this litigation, which does not involve a claim for breach of the contract. DeJohn cannot bootstrap the personal harm he might face as a result of the termination into standing to seek relief that clearly belongs to Woolf-Harris. Therefore, DeJohn lacked standing to assert claims for injunctive relief that would affect the rights of the parties to the contract. Id., ** 2-3 (citations omitted).
The opinion does not explain why Woolf-Harris was not a party to this particular action. In footnote 8 to the opinion, is recited that Delta had brought a suit against Woolf-Harris in Indiana seeking a determination that it's termination of the agreement was proper.
Professor Daniel S. Kleinberger is the 2019 Recipient of the Martin I. Lubaroff Award
The votes have been counted, and the overwhelming view of the Committee is that the recipient of the 2019 Martin I. Lubaroff Award will be Professor Daniel S. Kleinberger.
While it is almost inconceivable that anyone reading this message would not be already familiar with Dan’s numerous contributions to our shared field of unincorporated entity law, here are a few highlights:
- Co-author of a multi-volume treatise on LLCs;
- Co-reporter on the Revised Uniform Limited Liability Company Act (2006);
- Reporter on the Revised Uniform Limited Partnership Act (2001);
- Reporter on the Uniform Protected Series Acts
- Author of Examples & Explanations: Agency Partnerships & LLC;
- Author of innumerable law review articles; and
- The source of the category “the bare naked assignee.”
Dan has been a contributor to our Committee in numerous other ways including organizing programs and participating in our webinars.
The 2019 Martin I. Lubaroff Award will be presented to Dan at the 2019 LLC Institute. In the meantime, please feel free to send him your congratulations.
About the Martin I. Lubaroff Award
The Martin I. Lubaroff Award recognizes a nationally regarded business attorney and member of the ABA Business Law Section’s Committee on LLCs, Partnerships and Unincorporated Entities who has consistently demonstrated leadership, scholarship and outstanding service in business entity law. The award was established in 2001 in honor of the memory of Marty Lubaroff, a well-known and highly regarded Delaware attorney who made substantial contributions to the field of partnerships and unincorporated entities. He was a distinguished lecturer, writer and attorney.
Friday, August 16, 2019
California Board Composition Statute Challenged
Last year, California passed a statute requiring, for any public corporation either incorporated or having its principal place of business in California, that it have on its Board of Directors a minimum number of women. That minimum number is set on a sliding scale based upon the total number of directors. HERE IS A LINK to my earlier posting on that statute.
The legislative review of the statute indicated that there was a significant risk of litigation, Then Governor Brown, when signing the legislation, noted that “serious legal concerns have been raised” with respect to its requirements. He also noted that “I don’t minimize the potential flaws that indeed may prove fatal to its ultimate implementation.”
Those observations have turned out to be prophetic; suit has been filed in California challenging are their requirements. The complaint asserts that “the legislation’s quota system for female representation on corporate boards employees express gender classifications. As a result, SP 826 is immediately suspect and presumptively invalid and triggers strict scrutiny review.“