Court Opinion

ID: 9928205
Source: CourtListenerOpinion
Date Created: 2024-01-30 23:02:26.025572+00
Date Added: 2024-06-11T09:50:35.850262
License: Public Domain

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

JOHN KLEIN,                                    )
                                               )
            Plaintiff/Counterclaim Defendant, )
                                               )
      v.                                       )
                                               )
JILL SUSSMAN and DOUBLE J.R., LLC, a           )
Delaware limited liability company,            )
                                               )
            Defendants/Third-Party Plaintiffs, )
                                               )
      v.                                       ) C.A. No. 2020-0189-PAF
                                               )
BLUE WATER TRUST and SEQUEL )
INVESTMENTS, INC.,                             )
                                               )
                   Third-Party Defendants.     )

                         MEMORANDUM OPINION

                       Date Submitted: October 30, 2023
                        Date Decided: January 30, 2024

Gary E. Junge, Scott E. Chambers, SCHMITTINGER & RODRIGUEZ, P.A.,
Dover, Delaware; Attorneys for Plaintiff John Klein.

Donald L. Gouge, Jr., DONALD L. GOUGE, JR., LLC, Wilmington, Delaware;
Attorney for Defendants Jill Sussman and Double J.R., LLC.

Stephen A. Spence, MELUNEY ALLEMAN & SPENCE, LLC, Lewes, Delaware;
Attorney for Third-Party Defendants Blue Water Trust and Sequel Investments, Inc.

FIORAVANTI, Vice Chancellor
      In 2018, John Klein and Jill Sussman decided to go into business together to

buy residential properties, renovate them, and then rent or sell them. Each brought

their own strengths to the endeavor. Klein was a carpenter and was willing to front

cash. Sussman was an experienced real estate agent and had access to credit. They

agreed to, and later did, divvy up the responsibilities of their new enterprise

accordingly.

      Shortly after discussing their new enterprise and identifying their first

property, Sussman delivered to Klein a proposed limited liability company

agreement. The name of the business was to be “DOUBLE Jr LLC” or something

similar, which was derived from the first initial in Sussman and Klein’s first names.

The agreement identified each of them as 50% owners and co-managers of the

business. Days later, Sussman formed Double J.R., LLC (the “Company” or “DJR”)

as a Delaware limited liability company. When the Company purchased its first

property later that month, Sussman and Klein each attended the closing and signed

several documents identifying themselves as managing members of the Company.

Thereafter, through the Company, Klein and Sussman purchased, renovated, and

rented several other properties in Delaware.

      In 2019, the parties’ relationship became strained, devolving into a dispute

over whether Klein is a member or manager of the Company. In this litigation over

Klein’s status vis-à-vis the Company, Sussman maintains that Klein was never a
member or manager of the Company. She points to, among other things, the absence

of a fully executed limited liability company agreement identifying Klein as a

member or manager of the Company. Instead, she relies on a limited liability

agreement for Double J.R., LLC that she executed in May 2018, but never mentioned

or provided to Klein, which identifies Sussman as the only member and manager of

the Company.

      In this opinion, which at the parties’ request addresses only one aspect of the

dispute, the court concludes that Klein is a co-equal member and manager of the

Company.

I.    BACKGROUND
      What follows are the facts as the court finds them after trial. To avoid

repetition, additional factual findings are included in the analysis portion of this

opinion. The court generally resolved any conflict between witness testimony and

contemporaneous communications in favor of the latter. The court generally found

Sussman’s testimony to lack credibility. Although Klein’s recollection of events

was not precise, the court generally found him to be credible on the material factual

issues and more believable than Sussman.

                                         2
          A.     The Parties
          John Klein is a carpenter who formerly owned a business that installed custom

stair rails and staircases.1 In 2012, Klein formed Heritage Investment Properties,

LLC (“Heritage”), a Delaware LLC of which Klein is the sole member. 2 Through

Heritage, Klein began to flip houses full-time.3 “Flipping” is essentially when an

individual buys undervalued or run-down property, renovates the property, and

resells it for a profit. 4 Klein has flipped around 70 properties since 2012. 5 To finance

these flips, Heritage borrowed cash from Blue Water Trust (“Blue Water”) and

Sequel Investments, Inc. (“Sequel”). 6 Blue Water and Sequel were owned by Steven

A. Sell, and later by Steven’s son, Joshua S. Sell.7

          Jill Sussman is a real estate broker and investor.8 Sussman began purchasing

properties to rent in the early 2000s and has some experience with renovating those

properties.9

1
    Tr. 5:11–22 (Klein).
2
    Id. at 7:4–17.
3
    Id.
4
    Id. at 6:18–22.
5
    Id. at 9:16–18.
6
    Id. at 9:19–10:1.
7
    Id. at 10:2–6.
8
    Id. at 114:1–3 (Sussman).
9
    Id. at 111:15–18; id. at 114:13–18.

                                            3
         B.     Klein and Sussman Enter into a Business Relationship
         Klein and Sussman met on January 5, 2017 when Klein contacted Sussman

about a property for which Sussman was the listing agent. 10 Over the next nine

months or so, Sussman showed Klein a number of homes.11 During this period,

Klein and Sussman discussed the possibility of working together to flip and rent

homes.12 Klein could offer his access to a hard-money lender and his extensive

hands-on renovation expertise, while Sussman had experience with managing

tenants, had access to long-term loans and other debt financing, and could handle

the paperwork and accounting for the business. 13 In these discussions, Klein

informed Sussman that he had unpaid back taxes and a low credit score.14

         In early 2018, Klein and Sussman identified a property on David Street in

Frederica, Delaware (the “David Street Property”) as their first acquisition. On

March 23, 2018, Sussman sent a text message to Klein with the address of the

property. 15 On March 25, 2018, Sussman sent a text message to Klein indicating

that she would email to him “the usual partnership agreement I use,” adding: “We

10
     Id. at 12:6–13:6 (Klein).
11
     Id. at 12:18–13:6.
12
     Id. at 13:7–13.
13
     Id. at 13:14–15:6.
14
     Id. at 15:2–17; id. at 115:14–23 (Sussman).
15
     JX 50.

                                              4
can tweak it, but I just want you to see it/get an idea of it.”16 Later that day, Sussman

sent an email to Klein attaching an operating agreement (the “March 25 Operating

Agreement”), which provided for the formation of “a limited liability company (or

other corporate entity)” named “‘DOUBLE Jr LLC’ and/or a variation of same.”17

The name, Double J.R., LLC, stood for “Jill and John’s Rentals.” 18

          The March 25 Operating Agreement is dated April 2, 2018.19 It identifies

Klein and Sussman as the “current members,” with each owning a 50% membership

interest, and has signature blocks with each of their names typed below the

applicable signature lines.20 The March 25 Operating Agreement states that “[t]he

purpose of the LLC shall be to purchase, manage, distribute, collect and otherwise

derive income from an investment business with a focus on real estate purchases,

acquisitions, rentals, real property improvement and other legal enterprises.”21 It

further provided that all firm decisions would be unanimous and that “[a]greed

expenses incurred by members on behalf of the firm are subjected to reimbursement

by the firm. The LLC shall be responsible for any and all expenses related to subject

16
     JX 55.
17
     JX 47 at 3.
18
     Tr. 117:19–21 (Sussman).
19
     JX 47 at 1.
20
     Id. at 5.
21
     Id. at 1.

                                           5
properties and/or any expenses mutually agreed upon.” 22 Klein forwarded the

attachment to a nearby Staples office supplies store for printing. 23

           On March 27, 2018, Sussman texted Klein: “Got a verbal agreement on

Frederica.” 24 On March 28, Sussman wrote to Klein that she would “get the LLC

done maybe tomorrow.”25 On March 29, 2018, Sussman asked Klein if he had a

chance to look over the operating agreement or whether they should look at it

together. 26

           Klein contends that after March 29, he met Sussman outside of her house and

that they both signed the operating agreement on the top of a car. 27 Under Klein’s

narrative, Sussman took the signed original and was supposed to send him a copy.28

Sussman never returned a signed copy to Klein. Sussman denies that this meeting

ever occurred.29

22
     Id. at 2.
23
     See JX 47.
24
     JX 55.
25
     JX 57.
26
     Id.
27
     Tr. 70:18–21 (Klein).
28
     Id. at 74:21–22.
29
     Id. at 222:16–19 (Sussman).

                                            6
           Sussman contends that she sent the email with a form of operating agreement

to Klein to begin the discussion about a potential LLC. 30 Sussman maintains that

the version of the operating agreement that she sent to Klein did not reflect the terms

of their arrangement, which was instead intended to be a vesting agreement under

which Klein would eventually become a 50% member of the LLC after “he handled

his tax situation.” 31 There are no contemporaneous communications reflecting any

type of vesting arrangement.

           In an April 11, 2018 text message exchange, Klein and Sussman discussed

business logistics, such as obtaining insurance and legal representation. 32 Klein

asked when the LLC would be “completed,” to which Sussman assured him, “no

later than tomorrow afternoon!”33 She immediately followed up by informing Klein

that, “then we have to open a bank account,” because “the LLC needs a bank

account.”34

           Later that day, Sussman filed a certificate of formation with the Delaware

Secretary of State forming a Delaware limited liability company named Double J.R.,

30
     Id. at 118:10–119:8.
31
     Id. at 121:2–7.
32
     JX 51.
33
     Id.
34
     Id.

                                            7
LLC. 35 Sussman is identified in the certificate of formation as the Company’s

registered agent, and she signed the document as the “Authorized Person.” 36 The

certificate of formation does not identify any members or managers of the Company.

           C.     DJR Acquires Properties

                  1.   The West David Street Property

           On April 30, 2018, DJR purchased the David Street Property.37        Klein

submitted a financing application to Blue Water and Sequel on behalf of himself and

Sussman, requesting a loan of $80,000. 38 In a handwritten note attached to the

application, Klein noted that “Jill is forming our LLC. Says it should be completed

by tomorrow.”39 Subsequent documentation noted a personal guarantee by both

Klein and Sussman, as well as a note that Blue Water had “done multiple loans with

John Klein the owner of Double JR, LLC.”40

           Both Klein and Sussman were physically present for the closing on the David

Street Property. At closing, Klein and Sussman each signed several documents,

35
     JX 52.
36
     Id.
37
     JX 1.
38
     JX 3 at 1.
39
     Id. at 2.
40
     JX 2.

                                            8
including a guaranty agreement,41 a mortgage, 42 a disclosure regarding their “deed

in lieu of foreclosure” provision,43 and a real estate tax return.44 Klein and Sussman

signed each of these documents as the managing members of DJR. 45 The Guaranty

of Payment and Performance, the Disclosure Regarding “Deed in Lieu of

Foreclosure,” and the Mortgage each contained notarized statements affirming that

Klein and Sussman were signing as the managing members of DJR.46 Joshua Sell

testified that there was no discussion about excluding Klein from these documents.47

         After purchasing the David Street Property, Sussman suggested that Klein’s

low credit score and unpaid back taxes may be having a negative effect on their

41
     JX 1.
42
     JX 6.
43
     JX 4.
44
     JX 33.
45
   See JX 1 (Guaranty of Payment and Performance); JX 4 (Disclosure Regarding “Deed
in Lieu of Foreclosure”); JX 5 (Deed in Lieu of Foreclosure); JX 6 (Mortgage); JX 7 (Note);
JX 18 (Land Management Records Routing Form); JX 33 (Real Estate Tax Return
Declaration of Estimated Income Tax); JX 34 (Realty Transfer Tax Return and Affidavit
of Gain and Value).
46
   JX 1; JX 5; JX 6. Sussman testified that she “vaguely remember[s]” telling the attorney
at the time that Klein was not supposed to be signing these documents, that she wasn’t
paying attention, and that she assumed that it would be fixed. Tr. 133:17–134:20
(Sussman). This testimony was not credible.
47
     JX 88 at 32:3–10 (Joshua Sell).

                                            9
subsequent refinancing efforts.48 They agreed to leave Klein’s name off of future

refinancing documents to avoid any potential issue in that regard. 49

         On May 5, 2018, Sussman opened a bank account for DJR with WSFS Bank.50

According to Sussman, WSFS required DJR to provide a copy of the operating

agreement in order to open the account.51 Sussman did not have a copy of an

operating agreement at that time, so she accepted a form LLC agreement from the

WSFS bank teller, who inserted “Double JR LLC” on the first page of the form.52

While at the bank, Sussman wrote her name and address on the pages that listed the

members and managers and signed and dated the document May 5, 2018. 53 Sussman

did not identify Klein as a member or a manager of the Company in the WSFS form

operating agreement and she did not inform Klein that she had executed the WSFS

form operating agreement for DJR. 54

48
     Tr. 40:4–13 (Klein).
49
     Id. at 39:23–40:19.
50
     Id. at 226:10–15 (Sussman).
51
     Id. at 226:16–18.
52
     Id. at 226:23–227:6.
53
     Id. at 227:7–17.
54
  JX 64. Sussman testified that she provided a copy of the signed WSFS form operating
agreement to real estate counsel in connection with future property purchases. Tr. 224:16–
22 (Sussman). No written operating agreement is included in the closing documents
submitted in this case. Sussman also admitted to telling Steven Sell, the principal of Blue
Water and Sequel, that there was no written operating agreement for DJR. Id. at 209:9–
15.

                                            10
                 2.     The South Governors Avenue Property
           In early August 2018, Klein and Sussman submitted another loan application

to Blue Water and Sequel, this time to purchase a property on South Governors

Avenue in Dover, Delaware (the “South Governors Property”). 55 The application

sought a loan of $74,000, to be wired in advance of the settlement date, August 16,

2018. 56 Both Klein and Sussman personally guaranteed the loan. 57 The loan from

Sequel was approved, and the approval letter noted that the borrower would be

required to provide approximately $13,000 in cash.58            The HUD-1 settlement

statement for the property indicated that $10,655.58 was due in cash from the

borrower, an amount that was paid via a loan from Blue Water to Klein. 59 Klein

took out a mortgage on one of his personal properties in order to secure this loan.60

Klein repaid the loan, but DJR never reimbursed him for this expenditure.61

55
     JX 25.
56
     Id.
57
     Id.
58
   JX 26 at 2. The loan approval letter was addressed only to Sussman, which Klein
testified was a result of his conversation with Joshua Sell that Klein no longer wanted his
name on paperwork due to the impediments with refinancing. Tr. 44:5–14 (Klein).
59
     JX 28; Tr. 45:12–47:8 (Klein).
60
     Tr. 45:12–47:8 (Klein).
61
     Id. at 49:10–15.

                                            11
                  3.   The North New Street Property
          On August 29, 2018, DJR purchased a property on North New Street in Dover,

Delaware (the “New Street Property”). Klein and Sussman again sought financing

from Blue Water. 62 Sussman personally guaranteed the Blue Water loan. 63 For this

property, DJR was required to deliver approximately $12,000 at closing. 64 Klein

approached Sussman about her contributing half of the cash amount, but she

declined. Sussman held Klein to his original agreement to supply all the cash up-

front.65 At closing, Klein delivered a $14,166.09 cash payment.66 Klein secured the

cash from Blue Water by once again borrowing against his home, which he owned

through Heritage. 67 Klein collected the rent from the New Street Property, managed

renovations, and handled repairs to the occupied unit.68

                  4.   The North Governors Street Property
          At the same time as the purchase of the New Street Property, DJR purchased

a property on North Governors Street in Dover, Delaware (the “North Governors

62
     JX 8; JX 35.
63
     JX 9 ¶ 13.
64
     Id. ¶ 12.
65
     Tr. 52:4–13 (Klein).
66
     JX 37.
67
     Tr. 52:19–53:22 (Klein).
68
     Id. at 54:10–55:12.

                                          12
Property”). Sussman again applied for a loan from Sequel, which it granted. 69 The

loan approval letter specified that DJR should bring approximately $12,000 to

closing.70 At closing, Klein supplied $12,775.97 in cash to meet this obligation.71

Consistent with his past practices, Klein obtained the cash by borrowing against his

home. 72 After DJR purchased the property, Klein facilitated the renovations on the

North Governors Property and collected rent.73

                   5.     The Peach Basket Road Property
          DJR purchased a final property in May 2019 located on Peach Basket Road

in Felton, Delaware (the “Peach Basket Property”).         DJR once again sought

financing from Blue Water, this time in the amount of $198,000.74 The loan was

approved, and Blue Water indicated that the borrower would need to bring

approximately $40,000 to closing. 75 Blue Water’s principal, Joshua Sell, suggested

that Sussman should be required to contribute to the down payment. 76 When Klein

communicated Sell’s comment to Sussman, she responded: “I don’t do that in my

69
     JX 21.
70
     Id. ¶ 12.
71
     JX 24.
72
     Tr. 58:4–9 (Klein).
73
     Id. at 58:17–59:8.
74
     JX 13.
75
     JX 14 § 12.
76
     Tr. 62:19–63:3 (Klein).

                                           13
partnerships, and you were supposed to supply all the money.” 77 She refused to

provide any money for closing. Klein supplied all $38,321.83 in cash necessary to

close, which he again obtained through a loan on a property he owned through

Heritage.78

         The Peach Basket Property included three homes as well as a garage and was

larger than DJR’s previous purchases.79 Sussman and Klein planned to subdivide

the property after the acquisition. 80 While working on the Peach Basket Property,

Klein and Sussman began to disagree about the amount they were paying to

undertake this project. 81 Sussman believed that Klein was inflating his renovation

costs and shirking responsibility for duties within his domain.82

         D.      Refinancing
         As Sussman and Klein had agreed, Sussman endeavored to refinance the loans

that DJR obtained for the properties. Sussman refinanced the South Governors

Property and North Governors Property in early spring 2019.83          After those

77
     Id. at 63:3–8.
78
     Id. at 62:3–18.
79
     Id. at 59:21–50:3.
80
     Id. at 60:4–20.
81
     Id. at 64:4–65:19; JX 42.
82
     JX 43; Tr. 157:13–160:11 (Sussman).
83
     Tr. 225:10–14 (Sussman).

                                           14
properties were refinanced, DJR had $36,000 in available cash.84 Despite significant

work remaining on the David Street Property, Sussman allocated only $20,000 to

complete the work on the project.85 Sussman used the remaining $16,000 to pay her

personal credit card debt.86

           E.    The Parties’ Relationship Breaks Down.

           Shortly before purchasing the Peach Basket Property, the parties’ business

relationship was showing signs of stress. In March 2019, Klein began demanding

information from Sussman about the business.87 In a March 13, 2019 email, Klein

requested documents related to the recent refinancing and the company’s general

finances.88 Sussman then demanded information from Klein to document his

renovation expenses. 89 She even refused to attend the closing for the Peach Basket

Property until Klein answered her questions regarding rehabilitation costs. 90

           Around the time of the closing on the purchase of the Peach Basket Property,

Klein and Sussman were also exploring the possibility of purchasing a property on

84
     Id. at 198:12–199:3.
85
     Id.
86
     Id.
87
     JX 40.
88
     Id.
 Tr. 188:17–18 (Sussman) (“Well, I started asking for more documentation, so I guess it
89

was, like, tit for tat.”).
90
     JX 44.

                                            15
Heald Street in Wilmington, Delaware. In an exchange on May 19, 2019, Klein

objected to the prospect of Sussman receiving a 3% commission on the sale,

contending that the commission should go to DJR rather than Sussman’s

brokerage. 91 Klein argued: “I don’t charge any money for any time I apply to this

business and you shouldn’t either.”92            Sussman simply responded that she

disagreed.93       The parties also disputed whether they had agreed to purchase

properties only through DJR. 94 Sussman threatened to buy the property without

Klein and noted that even if she chose to purchase the property with Klein, “this is

the last one.” 95

           F.    Sussman Reneges on her Agreements with Klein.
           Sussman took a hard line with Klein after their relationship had soured. She

denied that Klein was ever a member or manager of DJR. Rather, she maintained

that the agreement from the outset was for Klein to potentially attain a membership

interest in DJR after he resolved his tax issues. Sussman testified that in either May

or June of 2019, she and Klein decided to document their arrangement in a “vesting

91
     JX 45.
92
     Id. (cleaned up).
93
     Id.
94
     JX 46.
95
     Id.

                                            16
agreement.”96 She contends that there are text messages and a written vesting

agreement which acknowledge that Klein is not a member of DJR and document the

parties’ long-held agreement that Klein’s interest in the Company would vest over

time. Sussman’s testimony regarding this agreement was not credible. 97 She was

likewise unable to produce any text messages to support her testimony.98

         G.    Procedural History
         On March 12, 2020, Plaintiff filed a verified complaint seeking an order

declaring him to be a 50% member and co-equal manager of DJR, an accounting,

and other equitable relief. 99 On August 6, 2021, Defendants answered the complaint

96
    Tr. 183:17–184:12 (Sussman). At trial, Kristin Collison, Esquire testified as to the
negotiations between Sussman and Klein in 2019 in trying to paper the deal. Plaintiff
objected to the testimony as containing inadmissible settlement communications under
Delaware Rule of Evidence 408. After sustaining the objection once, the court noted that
it would “allow this line of questioning, but [would] most likely to strike it and not consider
it in post-trial briefing.” Tr. 261:10–12. The court concludes that these communications
are inadmissible. Wright v. Moore, 931 A.2d 405, 407 (Del. 2007) (“Rule 408 of the
Delaware Rules of Evidence provides that evidence of a settlement is inadmissible to prove
liability for or invalidity of the claim or its amount.”). In any event, they do not persuade
the court that Klein and Sussman agreed to anything other than an equal 50-50 ownership
interest in DJR in 2018.
97
  When shown a draft vesting agreement dated in July 2019, Sussman testified that it did
not reflect the terms of her original agreement with Klein. Tr. 254:2–255:1 (Sussman)
(denying that JX 67 was the vesting agreement to which she referred).
98
   Id. at 186:24–187:11 (“A. That’s all in the texts as well. Q. Okay. And are you going
to provide any of them today or . . . ? A. Sure. I can. I can fire it off for you. I’d prefer to
send it to you tomorrow, because I don’t feel good. Q. That’s too late. It had to be
submitted already, but -- A. They were -- they were sent in with discovery. Q. Okay. I’ll
talk to your attorney about it.”).
99
     Dkt. 1.

                                              17
and asserted counterclaims for breach of contract and tortious interference with

contract.100 On the same day, Defendants asserted third-party claims against Blue

Water and Sequel for breach of contract, bad faith/willful misconduct, and breach of

fiduciary duties in the same amount and to the same degree of any damages that the

Defendants are ordered to pay to Plaintiff. 101

         On May 23, 2022, the court approved a stipulation bifurcating the trial. In the

first phase, the parties would try Counts I, II, and V of Plaintiff’s complaint, which

asserts claims for declaratory judgment, accounting, and breach of fiduciary duty.102

The court held a one-day trial on June 16, 2022. Following post-trial argument, the

parties requested that the court withhold decision while they sought a potential

resolution. In October 2023, the parties requested that the court decide the threshold

question of whether Klein is a member and manager of DJR. This opinion is limited

to those issues.

II.      ANALYSIS
         The question for decision following trial is whether Klein is a 50% member

and a coequal manager of DJR. Klein, as the plaintiff, bears the burden of proof as

to his entitlement to relief by a preponderance of the evidence. Osborn ex rel.

100
      Dkt. 15.
101
      Dkt. 16.
102
      Dkt. 44.

                                           18
Osborn v. Kemp, 2009 WL 2586783, at *4 (Del. Ch. Aug. 20, 2009), aff’d, 991 A.2d

1153 (Del. 2010).

      Section 18-301(a) of the Delaware Limited Liability Company Act provides:

      In connection with the formation of a limited liability company, a
      person is admitted as a member of the limited liability company upon
      the later to occur of:

      (1) The formation of the limited liability company; or

      (2) The time provided in and upon compliance with the limited liability
      company agreement or, if the limited liability company agreement does
      not so provide, when the person’s admission is reflected in the records
      of the limited liability company or as otherwise provided in the limited
      liability company agreement.
6 Del. C. § 18-301(a).

      The Delaware LLC Act seeks “to give maximum effect to the principle of

freedom of contract and to the enforceability of limited liability company

agreements.” 6 Del. C. § 18-1101(b). Delaware’s LLC Act defines a limited liability

company agreement as “any agreement (whether referred to as a limited liability

company agreement, operating agreement or otherwise), written, oral or implied, of

the member or members as to the affairs of a limited liability company and the

conduct of its business.” 6 Del. C. § 18-101(9). A limited liability company

agreement is not subject to the statute of frauds. Id. The LLC Act further provides:

“A member or manager of a limited liability company or an assignee of a limited

liability company interest is bound by the limited liability company agreement

                                        19
whether or not the member or manager or assignee executes the limited liability

company agreement.” Id.

      “When analyzing an LLC agreement, a court applies the same principles that

are used when construing and interpreting other contracts.” Holifield v. XRI Inv.

Hldgs. LLC, 304 A.3d 896, 923–24 (Del. 2023). “Limited liability companies are

creatures of contract, and the parties have broad discretion to use an LLC agreement

to define the character of the company and the rights and obligations of its

members.” Kuroda v. SPJS Hldgs., L.L.C., 971 A.2d 872, 880 (Del. Ch. 2009).

      A.     Contract Formation.

      “[A] valid contract exists when (1) the parties intended that the contract would

bind them, (2) the terms of the contract are sufficiently definite, and (3) the parties

exchange legal consideration.” Osborn ex rel. Osborn v. Kemp, 991 A.2d 1153,

1158 (Del. 2010). “Overt manifestations of assent rather than subjective intent

control contract formation.” Ramone v. Lang, 2006 WL 905347, at *10 (Del. Ch.

Apr. 3, 2006). In determining whether a party intended that a contract would bind

them, “the court reviews the evidence that the parties the evidence that the parties

communicated to each other up until the time that the contract was signed --- i.e.,

their words and actions --- including the putative contract itself.” Eagle Force

Hldgs., LLC v. Campbell, 187 A.3d 1209, 1229–30 (Del. 2018). To prevail, plaintiff

                                          20
must prove that a contract exists by a preponderance of the evidence. Morton v.

Evans, 1998 WL 276228, at *2 (Del. Ch. May 15, 1998).

      Delaware follows the mirror-image rule. Friel v. Jones, 206 A.2d 232, 233–

34 (Del. Ch. 1964), aff’d, 212 A.2d 609 (Del. 1965). An offer is a manifestation of

assent that empowers another to enter into a contract and confers upon the offeree

the power to create a contract. L-5 Healthcare P’rs, LLC v. Alphatec Hldgs., Inc.,

2020 WL 6021536, at *6 (Del. Ch. Oct. 12, 2020). “A valid offer contains sufficient

finality such that an offeree’s acceptance of an offer constitutes the last step in

forming a contract.” Id. To accept an offer, the contractual counterparty must

convey an expression of commitment that is not conditioned on further action by

either party and that does not vary the terms proposed by the offer. Ramone, 2006

WL 905347, at *11. “The fact that the parties to an oral agreement manifest an

intention to prepare and adopt a written memorial will not prevent contract formation

if the evidence reveals manifestations of assent that are in themselves sufficient to

conclude a contract.” Sarissa Cap. Domestic Fund LP v. Innoviva, Inc., 2017 WL

6209597, at *21 (Del. Ch. Dec. 8, 2017). Of course, this rule does not apply if the

parties “positively agree that there will be no binding contract until the formal

document is executed.” Anchor Motor Freight v. Ciabattoni, 716 A.2d 154, 156

(Del. 1998).

                                         21
            Klein argues that he and Sussman signed the operating agreement on the hood

of a car prior to purchasing the David Street Property.103 Klein contends that after

they executed the agreement, Sussman took the original and was supposed to send

him a copy. No fully executed version of the March 25 Operating Agreement has

been produced in this litigation, and Sussman denies Klein’s version of events. The

court need not reach the question of whether the parties actually signed the March

25 Operating Agreement because even if they did not, the court finds that the parties

agreed that Klein would own 50% of the DJR membership interests and would be a

co-manager of the Company as described in the March 25 Operating Agreement.

            Sussman sent Klein an operating agreement on March 25, 2018.104 The

agreement provided for the governance of “a limited liability company (or other

corporate entity)” named “Double Jr LLC,” which would commence as of April 2,

2018. 105 The recitals declared that Klein and Sussman “are equal partners in an

investment business focusing on real estate purchases, acquisitions, rentals, real

property improvement and other legal enterprises.”106

103
      Tr. 70:18–21 (Klein).
104
      JX 47.
105
      Id. at 3.
106
      Id.

                                             22
            On March 27, 2018, Sussman texted Klein, “[g]ot a verbal agreement on

Frederica.” 107 On March 28, Sussman told Klein she would “get the LLC done

maybe tomorrow.” 108 On March 29, 2018, Sussman asked Klein if he had a chance

to look over the operating agreement or whether they should look at it together.109

On April 11, 2018, Klein asked Sussman via text when the LLC would be completed,

and she replied that it would be finished by the afternoon of the 12th at the latest.110

She then immediately responded to Klein that “then we have to open a bank

account,” confirming to Klein that “yes the LLC needs a bank account.”111

            Through her conduct and her conversations with Klein, Sussman agreed that

she and Klein would form an LLC with each of them being equal members and co-

managers. Sussman’s email to Klein attaching the March 25 Operating Agreement

noted that the form could be “tweaked,” not that the material terms—including the

identities of the managers, members, and their membership interests (which

Sussman specifically included) were open issues. Bluntly stated, taking someone

from being a member with a 50% interest in the entity to having no equity or

managerial interest in the Company is not a “tweak.” It would amount to a complete

107
      JX 55.
108
      JX 57.
109
      Id.
110
      JX 51.
111
      Id. (emphasis added).

                                            23
abandonment of the parties’ agreement. The business would not be Double JR, but

instead Single JR. Even if the parties did not execute the March 25 Operating

Agreement, they agreed to those standard terms as governing their member and

management rights in DJR.           Indeed, there are no other contemporaneous

communications between Klein and Sussman indicating that they intended to

proceed with their business venture other than as equal owners and managers of DJR.

      Sussman’s subsequent conduct also manifested her intent to be bound by the

material terms of the March 25 Operating Agreement. “[A] court may consider a

reneging party’s post-signing conduct if it reflects an objective manifestation of the

reneging party’s intent to be bound by the agreement.” Restanca, LLC v. House of

Lithium, Ltd., 2023 WL 4306074, at *21 (Del. Ch. June 30, 2023); see Sarissa, 2017

WL 6209597, at *24 n.264 (“‘The parties’ actions following the deal are also

informative’ in determining whether they mutually assented to be bound.” (quoting

Trexler v. Billingsley, 166 A.3d 101, 101 (Del. 2017) (TABLE)); see also

Restatement (Second) of Contracts § 202 cmt. g (1981) (“The parties to an

agreement know best what they meant, and their action under it is often the strongest

evidence of their meaning.”); 17A C.J.S. Contracts § 427 (“A party’s conduct may

be evidence of its intent . . . so long as that conduct evinces an interpretation contrary

to that party’s interest.”). After confirming with Klein that he agreed with the terms

of the operating agreement on March 29, Sussman formed the LLC, named to reflect

                                           24
Klein and Sussman’s joint ownership, on April 11.                Based on their mutual

understanding that they had reached an agreement, the parties discussed the division

of responsibility as to opening a checking account and obtaining insurance. The

parties settled all material terms to their agreement and evinced mutual assent to be

bound by the terms of their agreement. Accordingly, the parties entered into an

enforceable operating agreement.

         Under their arrangement, Klein was responsible for providing all upfront

financing. Over the course of Klein and Sussman’s relationship, Klein provided

over $75,000 in upfront cash for DJR to purchase properties. Sussman and Klein

signed multiple documents in connection with the purchase of their first property

indicating that they both were managing members of DJR.112 Sussman also referred

to Klein as a “partner” in DJR. 113 Not only did Klein provide the up-front cash to

purchase the properties, but Sussman actually insisted upon it under the terms of

their agreement.

112
      See JX 1; JX 5; JX 6; JX 7; JX 18; JX 33; JX 34.
113
   See JX 56 (referring to their relationship as a partnership); Tr. 123:23–24 (Sussman) (“I
was treating him as a partner from day one.”); id. at 63:3–8 (Klein) (repeating Sussman’s
statement that “I don’t do that in my partnerships”). Consistent with her understanding of
Klein’s role as a member and manager of the LLC, Sussman supplied books and records
of DJR to Klein upon his request. Tr. 187:19–188:7 (Sussman); JX 40.

                                             25
            B.    The March 25 Operating Agreement Controls.
            “In governance disputes among constituencies in an LLC, the starting (and

end) point almost always is the parties’ bargained-for operating agreement, and the

court’s role in these disputes is to interpret the contract and effectuate the parties’

intent.” A&J Cap., Inc. v. Law Office of Krug, 2018 WL 3471562, at *5 (Del. Ch.

July 18, 2018) (cleaned up). The parties’ operating agreement is reflected in the

March 25 Operating Agreement. 114

            Section 1.8 of that agreement, which Sussman drafted, states: “The current

members and their respective interest are as follows: JILL SUSSMAN 50%[,]

JOHN KLEIN 50%.” 115 The parties voiced no intention to alter this term, and

instead, incorporated that term into their operating agreement. Likewise, Section

1.3 provides that “All firm decisions shall be unanimous, with the exception of a

decision to dissolve said membership.” 116 The recitals also noted that the parties

intended to be “equal members.”117           Consistent with these terms, the parties

discussed their intention to split responsibilities between them, with Klein

responsible for providing upfront funding and managing renovations, and Sussman

responsible for refinancing DJR’s debt and collecting rent. They proceeded in

114
      JX 47.
115
      Id. at 4.
116
      Id. at 3.
117
      Id.

                                            26
accordance with that agreement. Indeed, Sussman was quick to remind Klein that

Sussman was not obligated to contribute cash to DJR’s acquisitions, stating: “[I]f

your [sic] asking me to put cash in the [a]nswer is no. It was on you to get the deals

done with no cash until the business can do it on its own. It was on me to get them

financed.”118 The evidence overwhelmingly demonstrates that Klein and Sussman

intended to operate DJR as equal members and managers as reflected in the March

25 Operating Agreement.

         C.    The WSFS Form Operating Agreement Is Not Operative.
         Sussman only fleetingly asserts that the WSFS form operating agreement is

DJR’s controlling agreement.119 It is not. The March 25 Operating Agreement,

which predates the WSFS form operating agreement, provides that “This operating

agreement may be amended from time to time by a unanimous agreement of the

members. Any amendments shall be done in writing, signed by each member and

provided to each member.”120 Klein did not agree to the terms of the WSFS form

operating agreement, and there is no writing reflecting any amendment to the March

118
      JX 48.
119
   In August 2019, Steven Sell asked Sussman for an operating agreement to show who
makes the decisions for DJR, and he “was told that there is no operating agreement.” JX
30. Sussman’s statement to Sell undermines Sussman’s assertion that the WSFS form
operating agreement was the Company’s operative agreement.
120
      JX 47.

                                          27
25 Operating Agreement.      Accordingly, the March 25 Operating Agreement

controls, and the WSFS form operating agreement does not.

III.   CONCLUSION
       For the foregoing reasons, Klein and Sussman are each co-managers of DJR

and each owns a 50% membership interest in the Company. The parties are directed

to confer and submit an implementing order within five business days.

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