Wednesday, August 14, 2019

Delaware Chancery Court Addresses Attorney Fee Provision in LLC Operating Agreement

Delaware Chancery Court Addresses Attorney Fee Provision in
LLC Operating Agreement

In a decision rendered in June, the Delaware Court of Chancery had opportunity to apply an attorney fee provision of an operating agreement. In this instance, consequent to the provision’s expansive language and the plaintiff’s limited recovery, the plaintiff was required to cover the LLC’s attorney fees. Durham v. Grapetree, LLC, 2019 WL 2337475 (Del. Ch. June 4, 2019).

Grapetree, LLC held a single asset, a rental property on the island of St. Lucia. The LLC had five siblings as the members; four of those siblings served as well as member-managers. The plaintiff was the only member who was not as well a manager. That member sought to inspect company books and records under section 18-305 of the Delaware LLC Act. Vice Chancellor Glasscock granted in part and denied in part that request. In that order, the plaintiff was granted limited relief; six of his 32 claims for documents were granted.

In reliance upon the operating agreement, the LLC sought its attorney’s fees. Specifically, the operating agreement at issue provided in part that if any member brought an action against the company and that member “does not obtain a judgment on the merits that substantially achieves, in substance and amount, the full remedy sought, the Claiming Member [i.e., the plaintiff] shall be obligated to reimburse the Company … for all fees, costs and expense” incurred by the company. Id., *2.

On the facts, Vice Chancellor Glasscock found that the operating agreement was unambiguous and explicit as to the point. While the plaintiff had been successful on certain of his demands, most were denied “as unnecessary to a proper purpose.” Id., *4. On that basis, applying this particular operating agreement, it was held that of the LLC was entitled to its reasonable attorneys’ fees and expenses.
           The Vice Chancellor rejected the suggestion that as the plaintiff was proceeding pro se, that should militate the fee shifting. Rather, that was the plaintiff’s decision, and should not reduce his exposure for the LLC’s costs and expenses.

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