Richards Layton & Finger

Delaware LLC & Partnership Law Update

April 6, 2011

In two recent decisions, the Delaware Supreme Court addressed the fiduciary duties of controlling persons of a Delaware limited liability company, and the Delaware Chancery Court considered a request for access to a Delaware limited liability company's books and records. Each decision is discussed below.

William Penn Partnership v. Saliba, C.A. No. 111 (Del. Feb. 9, 2011): Burden of Demonstrating Entire Fairness Falls on Defendants in an Interested Transaction

In William Penn, the Delaware Supreme Court considered whether the Delaware Court of Chancery erred when it held that William Lingo and Bryce Lingo (jointly, the "Lingos"), through their ownership in William Penn Partnership, a Delaware limited partnership ("WP LP"), breached their fiduciary duties to the members of Del Bay Associates, LLC, a Delaware limited liability company ("Del Bay"), and awarded attorneys' fees and costs to the plaintiff members of Del Bay due to the pre-litigation conduct of the Lingos.

Sanders v. Ohmite Holding, LLC, C.A. No. 5145-VCL (Del. Ch. Feb. 21, 2011): Plaintiff Demonstrates Proper Purpose in Requesting Inspection of an LLC's Books and Records

In Sanders v. Ohmite, the Delaware Court of Chancery considered whether plaintiff Max Sanders ("Sanders"), as a member of Ohmite Holding, LLC, a Delaware limited liability company (the "Company"), was entitled to inspect certain books and records of the Company pursuant to Section 18-305 of the Delaware Limited Liability Company Act (the "LLC Act"). The Company denied Sanders's request for books and records, in part, on the grounds that Sanders was requesting books and records that pre-dated his admission as a member of the Company. The Court held that Sanders had a proper purpose for inspecting the books and records of the Company and was entitled "to inspect those books and records that are necessary for him to fulfill his purpose, regardless of whether they pre-date when he formally acquired member status." As a result, summary judgment was granted for Sanders.