Court Opinion

ID: 4363704
Source: CourtListenerOpinion
Date Created: 2019-01-31 22:05:56.897172+00
Date Added: 2024-06-11T14:49:01.447013
License: Public Domain

COURT OF CHANCERY
                                          OF THE
    SAM GLASSCOCK III               STATE OF DELAWARE                        COURT OF CHANCERY COURTHOUSE
     VICE CHANCELLOR                                                                  34 THE CIRCLE
                                                                               GEORGETOWN, DELAWARE 19947

                              Date Submitted: November 19, 2018
                                Date Decided: January 31, 2019

    Andrew C. Durham, pro se                              John G. Harris, Esquire
    4805 Randolph Drive                                   Berger Harris LLP
    Annandale, VA 22003                                   1105 N. Market Street, 11th Floor
                                                          Wilmington, DE 19801

                  Re: Durham v. Grapetree, LLC, Civil Action No. 2018-0174-SG

Dear Counsel:

          This is the latest installment of persistent litigation among five siblings who

had the misfortune to inherit property. That property is currently being held by an

LLC. Four of the siblings are manager-members, and the fifth, Plaintiff Andrew C.

Durham, is a member and not a manger. Before me is his suit to compel books and

records under Section 18-305 of the Delaware Limited Liability Company Act, filed

against Grapetree, LLC (“Grapetree”). Grapetree is owned by Andrew and his four

siblings, James, Jeff, Dee, and Davis, Jr. 1 The LLC is registered in Delaware, and it

has a sole asset: a rental property in St. Lucia known as “Les Chaudieres.” Andrew

has previously served books and records inquiries on Grapetree, and some of those

1
    I use first names for the five siblings to avoid confusion; no disrespect is intended.
inquiries culminated in litigation before this Court. In 2011, Grapetree settled a

books and records case filed by Andrew and his brother, Davis, Jr.

       In this litigation, Andrew appears pro se. The ability of a litigant to represent

himself civilly is a fundamental right; exercise of that right, however, comes with

responsibilities to understand and to follow court rules, and to not make frivolous

arguments. Andrew appears to fundamentally misunderstand the purposes and

limitations of a books and records action. He seeks documents as though he were

entitled to plenary discovery—and beyond. He seeks to compel “explanations” and

“statements” that are not records of Grapetree. To the extent he seeks documents

related to a proper purpose, his demands are often overbroad. These reasons would

support a dismissal of the action. 2 Nonetheless, Andrew has made some demands

that are within the bounds of records subject to inspection under Section 18-305.3 In

the interest of justice, I proceed in this Letter Opinion to go through Andrew’s

demand, winnow the proper purposes and records necessary thereto, as stated by

Andrew, from the chaff of improper purposes and demands, and identify the

categories of documents to which he is entitled. I then address the LLC’s request to

shift fees.

2
   See generally Cook v. Hewlett-Packard Co., 2014 WL 311111 (Del. Ch. Jan. 30, 2014)
(concerning analogous Section 220 of the DGCL).
3
  6 Del. C. § 18-305.
                                           2
         Andrew filed his Complaint on March 12, 2018. In it, he sought to compel

Grapetree to produce numerous documents, including some that are not records of

the LLC, and sought to compel Grapetree to “explain” or “show cause” for a number

of its actions. Among the documents Andrew seeks are individuals’ (at least one of

whom is not a Grapetree member) tax returns; copies of text and email

correspondence between Grapetree members and various non-parties; a list of all

decisions made by the “Managing Members,” with various additional information;

a detailed accounting relating to three members; Grapetree’s employment agreement

with one individual; records for “Managing Member” pre-approvals for a variety of

expenditures; three years’ worth of guest records for Les Chaudieres; costs related

to “acquiring four POAs and apostilles;” copies of checks cashed by Grapetree

members; receipts, along with “proof all the items ended up at Les Chaudieres;”

Grapetree’s business plan; “explanations” of how weeks at Les Chaudieres are

distributed to Grapetree’s members; explanation of various expenses; explanation of

various bills; explanation of Dee’s activity on Grapetree’s bank account;4 and

passwords for LLC-related email accounts.5       The full statement of documents

demanded is set out at Exhibits 1 and 2 to this Letter Opinion.

4
    See Compl., Ex. A.
5
    Id. Subex. A.
                                         3
       Andrew’s stated purpose for the demand is “to better understand the reasons

the business continues to be failing, whether there continues to be fraudulent

bookkeeping, whether embezzlement and misappropriation continues by [other

members], whether the assets of the LLC . . . are being properly administered or

abused, whether corporate documents that protect the owners are in order . . . and to

obtain information and compliance previously agreed to in the [settlement

agreement] and other information available [for unstated reasons] under [Section 18-

305].”6

       On September 18, 2018, Andrew filed a Motion to Supplement the Pleadings;

that is, he filed a motion seeking to augment his initial books and records request.

       I note that, for purposes of legal analysis, a books and records demand served

on an LLC under Section 18-305 functions in the same manner as a books and

records demand served on a corporation under Section 220 of the Delaware General

Corporation Law.7 Under Section 220, a plaintiff must establish by a preponderance

of the evidence that, along with complying with the statutory formalities, she

possesses a proper purpose for conducting the inspection. 8 Likewise, Section 18-

305 requires compliance with statutory formalities and requires a plaintiff to state a

6
  Id.
7
  8 Del. C. § 220; see also, e.g., Sanders v. Ohmite Holds., LLC, 17 A.3d 1186, 1193 (Del. Ch.
2011).
8
  Amalgamated Bank v. Yahoo! Inc., 132 A.3d 752, 775 (Del. Ch. 2016) (citing Cent. Laborers
Pension Fund v. News Corp., 45 A.3d 139, 144 (Del. 2012)).
                                              4
“purpose reasonably related to the member’s interest as a member of the limited

liability company.” 9 The LLC member is entitled to obtain:

     (1) True and full information regarding the status of the business and
     financial condition of the limited liability company;
     (2) Promptly after becoming available, a copy of the limited liability
     company's federal, state and local income tax returns for each year;
     (3) A current list of the name and last known business, residence or
     mailing address of each member and manager;
     (4) A copy of any written limited liability company agreement and
     certificate of formation and all amendments thereto, together with
     executed copies of any written powers of attorney pursuant to which the
     limited liability company agreement and any certificate and all
     amendments thereto have been executed;
     (5) True and full information regarding the amount of cash and a
     description and statement of the agreed value of any other property or
     services contributed by each member and which each member has
     agreed to contribute in the future, and the date on which each became a
     member; and
     (6) Other information regarding the affairs of the limited liability
     company as is just and reasonable. 10

     As with a demand under Section 220, a books and records demand under

Section 18-305 can be disruptive to the business affairs of the entity; for that reason,

this Court must exercise its discretion so that “the interests of the [entity are]

balanced with those of the inspecting [member].” 11 Once a proper purpose is found,

this balance is struck in the scope of production permitted: the Court must direct the

entity to produce all records essential to the purpose, “but stop at what is

9
  6 Del. C. § 18-305.
10
   Id.
11
    KT4 Partners, LLC v. Palantir Techs., Inc., 2019 WL 347934, at *7 (Del. Jan. 29, 2019)
(addressing Section 220).
                                            5
sufficient.”12   Section 18-305 allows “reasonable” modification of inspection

rights,13 but the LLC agreement here does not contain any such restriction.14

     With these principles in mind, I turn to the books and demand in this case. As

an initial matter, I must deny Andrew’s motion to supplement his initial books and

records request. A plaintiff seeking books and records must first afford the company

the opportunity to avoid litigation by making a written demand and allowing the

company to comply;15 accordingly, she may not add new requests for documents,

absent a demand, by pleading during the course of the litigation. 16 Corporate

stockholders or LLC members are always able to file additional books and records

demands; however, each of those resulting legal actions is a summary litigation. To

allow additional requests via amendment would hinder the summary nature of these

actions, and could encourage litigation that could be avoided by a proper demand.

Accordingly, Andrew’s request to supplement his books and records request is

denied. Andrew attached two books and records demands to his Complaint, his

demand of November 23, 2017, and his demand of December 4, 2017. I will

consider the records as requested in those demands.

12
   Id. at *9 (internal quotation omitted).
13
   § 18-305.
14
   See Grapetree’s Trial Br., Ex. A.
15
   § 18-305.
16
   See, e.g., KT4 Partners, LLC v. Palantir Techs., Inc., 2018 WL 1023155 (Del. Ch. Feb. 22,
2018), aff’d in part, rev’d in part on other grounds, 2019 WL 347934 (Del. Jan. 29, 2019).
                                             6
      I now turn to the substance of Andrew’s initial books and records demand, to

the extent I understand it. The demand recited several purposes; I must determine

which, if any, are proper. First, Andrew seeks documents to vindicate the terms of

a settlement in an earlier action. If he believes settlement obligations persist but are

unmet, he is free to bring an enforcement action, but may not use this summary

proceeding to vindicate those rights. His other reasons, as explained in the course

of this litigation, involve investigating wrongdoing on the part of the managers in

support of a derivative action, and valuation of his interest. Those are proper

purposes. Andrew’s allegations of breach of duty by the managers, however, appear

to be wholly conclusory. 17 I therefore examine the documents sought as relating to

his purpose regarding the value of his asset, including “why the business continues

to be failing.”18 That purpose requires records explicitly available under the statute;

those “regarding the status of the business and the financial condition of the limited

liability company.” 19 I note that, per the Complaint, the LLC is near bankruptcy. It

has a single asset, the rental property, Les Chaudieres. To the extent the documents

demanded are necessary to Andrew’s proper purpose, they must be produced. I

17
   Andrew has suggested in the pleadings that he has sufficient evidence to bring breach of
fiduciary duty actions against certain managers, or to seek a receivership for the LLC. Nothing in
this Letter Opinion should be read as prejudicial to his ability to so proceed.
18
   Compl., Ex. A.
19
   § 18-305.
                                                7
examine each request in turn, as I understand them from the Demand of November

23, 2017.

     1) Tax returns of Dee and “Barry Evans.” These are not records of the LLC,

        nor are they necessary to the purpose. This request is denied.

     2) All correspondence among a number of named individuals. These are

        not records of the LLC, nor are they necessary to the purpose. This request

        is denied.

     3) A “list” of all decisions made by the “Managing Members” in the last

        three years, whether in writing, by text, and/or by email. This is a

        demand for the LLC to create a document, not a proper demand to inspect

        corporate records. In any event, it is overbroad. This request is denied.

     4) Create and provide an audited accounting “of all amounts due by or to

        Jeff, Davis and Dee.” This is not a request for a corporate record, and is

        denied.

     5) Provide Basil Kollias’ employment agreement. Andrew has failed to

        demonstrate that this document is necessary to a proper purpose, and the

        request is denied.

     6) Records concerning approval by the Managing Members of the

        following expenses: Jeff and Jim Poole’s construction trip; all Best Buy

        purchases in which the aggregate of purchases is over $1,000 per

                                         8
  month; new credit card line of $15,000; Dee’s initial cash advance of

  $1,500 from the credit line; Dee’s ongoing cash advances raising the

  credit line balance to -$3,960.54; [D]ee’s landscaping purchases; each

  one of Dee’s and Jeff’s discounts to 25 separate friends and charities;

  roof repair receipts, estimates, quotes and warranty; purchases of

  ‘artwork’ from Aztec copies.”          These documents are pertinent to

  understanding the operation and value of the LLC, which I have found to

  be Andrew’s proper purpose. To the extent there exist documents evincing

  Managers’ Meetings at which these topics were discussed, and

  presentations made at the meetings and minutes of the meetings referencing

  them, they must be produced to Andrew.

7) Documents showing the tenants of Les Chaudieres for the past three

  years, and rental amounts generated from these tenants. This request is

  granted, because it relates to the value of the LLC’s asset.

8) Records relating to obtaining of certain powers of attorney and

  apostilles. Andrew has failed to show that these records are related to a

  proper purpose, and the request is denied.

9) All bills from “Basil Kollias and Michelle Desir” together with all

  emails and texts from Davis Jr. to those individuals. Andrew has failed

                                   9
   to show that these records relate to a proper purpose, and the request is

   denied.

10) “[A]ll correspondence between the LLC and FOWP, Kidney

   Foundation, Westtown school, Brian Fahey, etc., etc.” Andrew has

   failed to show that these records relate to a proper purpose, and the request

   is denied.

11) Copies of client checks cashed directly by Jeff and/or Dee. This request

   is granted.

12) All receipts for “pool purchases” and Bed Bath and Beyond receipts.

   Andrew has failed to show that these records are neccesary to a proper

   purpose, and the request is denied.

13) Grapetree’s “business plan” for two upcoming years. To the extent this

   is an existing corporate record, it should be produced.

14) A copy of “Phillip Serra’s December 2015” payment to the LLC,

   allegedly made directly to Jeff. This is redundant of documents in demand

   #11, which I have granted. The demand also seeks correspondence between

   Grapetree and Serra regarding the payment, which is granted.

15) “New” accounting of Jeff and Jim Poole’s “December trip.” This does

   not seek an existing record of the LLC.

                                   10
      16) Copies of all correspondence to and from “Longwood Rotary”

          regarding a donation from the LLC to that organization. This request

          is granted. 20

      Andrew makes numerous further demands, including that the LLC create

documents, “explanations,” or “commentary.”21 These are not appropriate demands

for corporate records, and they are denied.

      In his December 4, 2017 demand, Andrew requested access to Grapetree’s

email account, as well as “login information and passwords to all email accounts

used to conduct the LLC’s business.”22 His stated purpose was the same as in his

previous demand, “to better understand the reasons the business continues to be

failing.”23 These are not appropriate demands for corporate records, and they are

denied.

      Grapetree, in anticipation of prevailing in this action, seeks fees under the LLC

agreement, which (per Grapetree) calls for an award of fees to the prevailing party.24

I have ordered certain books and records produced, but have denied the greater part

of Andrew’s requests, as unnecessary to a proper purpose or overbroad, or as not

seeking existing documents. Grapetree argues that this litigation was, at least in part,

20
   These demands are listed in Exhibit A of the Complaint; additionally, they are attached as
Exhibit 1 to this Opinion.
21
   Compl., Ex. A.
22
   Compl., Subex. A. The December 4, 2017 demand is also attached as Exhibit 2 to this Opinion.
23
   Id.
24
   Grapetree’s Trial Br., at 25.
                                              11
no more than Andrew’s attempt cause distress to his sister, Dee, one of the managers

of Grapetree. I note that the degree of animus among the members here is

considerable, and must, to some extent, have formed an incentive for some of

Andrew’s more far-fetched demands in this litigation. I presume that this animus

runs both ways.

     This litigation has been unfortunately complicated and lengthy for a summary

action. Mr. Durham filed a complaint styled “Complaint Motion to Compel Books

and Records from Grapetree”—that is, this books-and-records action—on March 12,

2018. On April 30, Mr. Durham filed for a Motion for Default Judgment against

Grapetree; on May 1, John G. Harris, Esquire entered his appearance on behalf of

Grapetree. On June 14, 2018, Mr. Durham filed a letter seeking to supplement his

original books and records demand. On July 17, 2018, Mr. Durham filed a letter

seeking default judgment, on improper service and other procedural grounds. On

July 19, 2018, Mr. Durham filed a Motion Requesting Voluntary Mediation. On

July 20, Mr. Durham moved to disqualify Mr. Harris as Grapetree’s Counsel, on the

grounds that Mr. Harris would be a necessary witness at trial. In a July 23, 2018

teleconference, I ordered that Mr. Durham properly serve the Complaint on

Grapetree, which service, prior to that time, had not been made. On July 30,

Grapetree answered Mr. Durham’s Motion to Disqualify. Also on July 30, 2018, I

held a follow-up teleconference regarding the case status and ordered limited

                                        12
discovery. On July 31, a letter from Mr. Durham was filed, accusing Mr. Harris of

malfeasance in advance of the July 30 teleconference. On August 14, 2018, Mr.

Durham filed an “Answer to Defendant’s Opposition to Motion to Disqualify.” On

August 22, 2018, I heard telephonic oral argument on the Motion to Disqualify,

which I denied in a bench ruling. The parties agreed to resolve this matter through

a paper trial, and a schedule was set for trial briefs.

     On September 5, 2018, Grapetree filed its trial brief. On September 18, 2018,

Mr. Durham filed a Motion to Supplement the Pleadings, seeking additional books

and records.     On September 20, 2018, Mr. Durham filed an Answer to the

Defendant’s trial brief; on that same day, he filed a letter requesting a trial and

requesting discovery. On October 4, 2018, I held a status teleconference, and the

parties agreed to proceed on a paper record. On October 17, Mr. Durham filed a

letter with a status update, informing the Court that “misappropriation appears to be

ongoing” and reiterating books and records demands. On November 5, 2018,

Grapetree filed a Memorandum of Points and Authorities. On November 19, 2018,

Mr. Durham filed a “final submission,” and the case was submitted on the papers.

     This is a one-asset family LLC that is ill-equipped to respond to ongoing

litigation from a pro se member, in which it must be represented. On the other hand,

the Plaintiff here has prevailed to some extent, and had good will persisted among

all parties—as unfortunately it does not—much expense and effort could have been

                                           13
avoided. If Grapetree, in light of my decision here, continues to seek fees, counsel

should so inform me, and I will address that request.

     In conclusion, the Plaintiff’s books and records requests are granted in part and

denied in part. To the extent the foregoing requires an Order to take effect, IT IS

SO ORDERED.

                                              Sincerely,

                                              /s/ Sam Glasscock III

                                              Sam Glasscock III

                                         14
EXHIBIT 1
EXHIBIT 2