Sean Brennecke Pens Article For Delaware Business Court Insider On Satisfying Standard To Overcome Motion To Dismiss A Dissolution Petition
Wilmington, Del. (April 21, 2023) – Wilmington Partner Sean Brennecke recently authored an article for the Delaware Business Court Insider (part of Law.com) titled, "Chancery Court Clarifies What Is Required to Defeat a Motion to Dismiss a Dissolution Petition." The article describes a Delaware Court of Chancery opinion that provides guidance on how parties may overcome a motion to dismiss a dissolution petition.
Mr. Brennecke opens the article by explaining, "There are times in the life of an LLC where the relationship between the members or managers becomes so dysfunctional that it is not reasonable to continue the business." He further notes that in these cases, the Delaware Limited Liability Company Act provides that the Delaware Court of Chancery "'may decree dissolution of a limited liability company whenever it is not reasonably practicable to carry on the business in conformity with a limited liability company agreement.'"
Next, Mr. Brennecke describes a recent matter – In re Dissolution of T&S Hardwoods KD – in which the court concluded that the LLC's management had become so dysfunctional that it was no longer practicable to operate the business. The author summarizes the salient portions of the opinion, which provided that: (1) the various allegations that the LLC was unable to operate, that one or more managers refused to communicate with the other, that the managers were engaged in several contentious lawsuits against each other, and that one manager had unilaterally frozen the other manager out created a reasonable inference that dissolution was necessary; (2) when considering whether an LLC's purpose is frustrated, courts will consider not only the contents of the operating agreement but also other related, contemporaneously executed agreements; and (3) a contractual exit mechanism may preclude dissolution only if it is more than a simple option to buy or sell, is equitable in its operation, and actually extracts the parties fairly and completely.
The author closes the article by noting, "Determining when it 'is not reasonably practicable to carry on the business [of an LLC] in conformity with a limited liability company agreement' is clearly a fact-intensive inquiry." He further observes that the Chancery Court's recent decision "provides a helpful example of the types of allegations which satisfy that standard for purposes of overcoming a motion to dismiss."
Mr. Brennecke is a member of the firm's Complex Business & Commercial Litigation, Corporate, and Bankruptcy & Insolvency Practices. For more than 15 years, he has represented corporations and alternative entities as well as their respective directors, officers, shareholders, members, and managers in complex litigation matters. Mr. Brennecke is a regular contributor to the Delaware Business Court Insider, most recently co-authoring an "18th Annual Review of Key Del. Corporate and Commercial Decisions" with Wilmington Managing Partner Francis G.X. Pileggi.
Read the full Delaware Business Court Insider article here (subscription may be required).
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