Elf Atochem North America, Inc. v. Jaffari
727 A.2d 286 (Del. 1999)


PROCEDURE: Plaintiff appealed an order of the Court of Chancery of the State of Delaware in and for New Castle County, granting defendants' motion to dismiss based on lack of subject matter jurisdiction, plaintiff's complaint which was a purported derivative suit brought on behalf of a Delaware limited liability company in a case of first impression.

FACTS: Atochem North America, Inc., (P) engaged in a joint venture with Cyrus A. Jaffari (D), the president of Malek, Inc., and the two entities formed a limited liability company, but the company did not sign its operating agreement.

ISSUE: Are contractual provisions in an LLC operating agreement stating that all disputes would be resolved by arbitration valid if the LLC that the agreement formed did not sign the agreement?

RULE: A limited liability company (LLC) is bound by the terms of an operating agreement that is signed by some of its members and that defines the LLC's governance and operation, even if the LLC did not execute the agreement.

HOLDING:Affirmed.
The Court of Chancery, New Castle County, dismissed suit for lack of subject matter jurisdiction. Member appealed. The Supreme Court, held that: (1) limited liability company was bound by agreement defining its governance and operation, even though company did not itself execute agreement, and (2) contractual provisions directing that all disputes be resolved exclusively by arbitration or court proceedings in California were valid under Limited Liability Company Act.

Analysis: a purported derivative suit on behalf of a Delaware limited liability company (LLC) calling into question whether: (1) the LLC, which did not itself execute the LLC agreement in this case (Agreement) defining its governance and operation, was nevertheless bound by the Agreement; and (2) contractual provisions directing that all disputes be resolved exclusively by arbitration or court proceedings in California were valid under the Delaware Limited Liability Company Act (Act).