Del. Chancery Declines Books Records Dispute Move, Despite NY Venue Clause

In Joseph Stanco v. Rallye Motors Holding LLC, C.A.  No. 2019-0751-SG (Del. Ch. Dec. 23, 2019), a former managing member of a Delaware restricted legal responsibility firm (“LLC”) introduced an motion to compel inspection of the corporate’s books and information within the Delaware Courtroom of Chancery (the “Courtroom”).  The corporate moved to dismiss the motion on the premise that (i) its LLC Settlement designated New York because the venue for dispute decision and (ii) a unique plaintiff was concurrently pursuing an analogous motion with respect to the identical paperwork in New York.  The Courtroom was not persuaded by both of the corporate’s arguments and denied its movement to dismiss.

Defendant Rallye Motors Holding LLC (“Rallye”) is a Delaware LLC that acts as a holding firm for 5 auto dealerships on Lengthy Island, New York.  Plaintiff Joseph Stanco (“Stanco”) started working for Rallye round 1980.  Stanco was promoted to President and CEO of Rallye in 2006, and joined the board of administrators as Managing Member in 2011.  In 2017, Stanco was fired with out trigger, however continued to carry 5.5% of Rallye’s membership models.

In August 2019, Stanco demanded inspection of Rallye’s books and information underneath Part 18-305 of the Delaware Restricted Legal responsibility Firm Act and Part 8.three of Rallye’s LLC Settlement.  Via the inspection, Stanco sought to find out the standing and worth of his possession curiosity in Rallye, in addition to Rallye’s enterprise and monetary situation, the efficiency and independence of its administration, the propriety of its public disclosures, and the present enterprise being transacted by it.  Rallye moved to dismiss.

In reviewing the movement, the Courtroom discovered that the LLC Settlement didn’t represent a contractual waiver of Stanco’s proper to make an data demand in Delaware.  Beneath Delaware legislation, members of an LLC typically have the statutory proper to enter books and information calls for with the Courtroom, besides as could also be restricted by contractual waiver.  To be enforceable, such a waiver should embody (i) a data of the fitting and (ii) a transparent expression of intent to relinquish the fitting.  Right here, the LLC Settlement’s New York venue provision utilized to “any and all disputes arising out of” the LLC Settlement, however the Courtroom reasoned that the dispute within the current matter as a substitute associated to Stanco’s statutory data rights.  The LLC Settlement didn’t explicitly waive such statutory rights.  Additional, the Courtroom discovered that, in coming into into the LLC Settlement, Stanco had not meant to vindicate his rights as a member of Rallye.  Part 18-109(d) of the Delaware Restricted Legal responsibility Firm Act supplies {that a} member not exercising administration rights can not waive its skill to convey an motion within the Courtroom.  Right here, Stanco was a supervisor and a member of Rallye on the time of execution of the LLC Settlement, however was solely a member on the time of the demand.  The Courtroom noticed that, because the Managing Member of Rallye, Stanco would have had entry to Rallye’s books and information, and it was solely as a result of Stanco was eliminated as a supervisor that he sought to implement his statutory proper as a member.  As such, the Courtroom discovered that the New York venue provision within the LLC Settlement couldn’t have been meant to use to Stanco at current, when he was a non-managing member.  On these two bases, the courtroom held that the LLC Settlement didn’t require Stanco to convey the dispute in New York, regardless of the New York venue provision.

Subsequent, the Courtroom held that it could not dismiss the movement on grounds of discussion board non conveniens on account of there being a previous motion pending elsewhere, in a courtroom able to doing immediate and full justice, involving the identical events and the identical points.  Within the current case, Stanco and one other member of Rallye had filed a breach of contract motion towards Rallye in New York with respect to the phrases of their employment agreements and alleged unpaid or underpaid distributions (the “NY Breach of Contract Motion”).  On the identical time, the opposite member had filed an motion in New York with respect to Rallye’s books and information (the “NY Books and Data Motion”), and Stanco had filed this motion in Delaware.  The Courtroom discovered that the NY Breach of Contract Motion involved Stanco’s contractual employment rights, whereas the current motion involved his statutory and contractual pursuits as a member of Rallye.  With respect to the NY Books and Data Motion, the Courtroom reasoned that the intent of controlling precedent was to advertise environment friendly litigation the place a celebration to an motion seeks to defeat the plaintiff’s alternative of discussion board by later submitting one other motion in one other jurisdiction.  Right here, the NY Books and Data Motion concerned a 3rd social gathering’s contemporaneous submitting in one other jurisdiction, and the Courtroom didn’t discover adequate proof that the 2 issues concerned the identical events and the identical points. Due to this fact, the Courtroom discovered that neither the NY Breach of Contract Motion nor the NY Books and Data Motion had a adequate connection to the current motion for the Courtroom to train its discretion.