FISK VENTURES, LLC V. SEGAL
2008 WL 1961156 (Del. Ch. 2008)


PROCEDURAL POSTURE: The chief executive officer of a limited liability company claimed that representatives of the company breached their fiduciary duties and tortiously interfered with the officer's employment contract. After the court denied the claims, the officer filed a motion for reargument pursuant to Del. Ch. Ct. R. 59(f).

FACTS: Dr. Segal (D) the defendant and counter-claimant in this case, formed Genitrix, a biomedical LLC of which Fisk Ventures, LLC (P) was a member. Fisk (P) and other members failed to cooperate with Segal's (D/CC) financing efforts and the company ultimately failed. Fisk (P) and other members sought to dissolve the company and Segal (D/CC) counterclaimed, contending that the Genitrix members breached the LLC Agreement and their fiduciary duties to the company by standing in the way of the
proposed financing. The members moved to dismiss the counterclaims, arguing that Segal's (D/CC) allegations reflected nothing more than their exercise of their contractual rights.

ISSUE: Did the Genitrix LLC members breach their contractual or fiduciary obligations?

RULE Because LLCs are not a creature of the state but of contract, the duties and obligations of the LLC members are as set forth in the LLC agreement.

HOLDING: The Court of Chancery, Chandler, Chancellor, held that:
1 third-party claims did not provide basis for personal jurisdiction over nonresident class B shareholder;
2 failure of class B representatives on LLC board to accede to class A member's proposals did not constitute gross negligence, willful misconduct, bad faith, or knowing violation of law;
3 class B representatives did not breach a duty to company, or tortiously interfere with employment contract of class A member, by replacing him as chief executive officer; and
4 class B representatives did not breach implied covenant of good faith and fair dealing.
Motions granted.

ANALYSIS: The gist of the officer's motion for reargument on the breach of fiduciary duty claims was that the representatives of the company had different duties under the limited liability company agreement than members. The officer argued that the court ignored this distinction and therefore erred. Additionally, the officer argued that the court misunderstood facts and misapplied the law with respect to the officer's claim of tortious interference with contract. Specifically, he argues that the court misunderstood the limitations imposed by the officer's employment agreement or otherwise misapplied the law by choosing between two reasonable interpretations of the contract. The court found that its prior opinion clearly addressed the duties of the representatives. Therefore, because the officer failed to demonstrate that the court's decision was predicated upon a misunderstanding of a material fact or a misapplication of the law, the motion for reargument on the fiduciary duty claim failed. Finally, regardless of whether the court misinterpreted the employment contract, the tortious interference claim failed because the representatives were not strangers to the contract.