Court Opinion

ID: 2765969
Source: CourtListenerOpinion
Date Created: 2014-12-31 19:02:38.391765+00
Date Added: 2024-06-11T11:26:21.320788
License: Public Domain

COURT OF CHANCERY
                                  OF THE
                            STATE OF DELAWARE
 JOHN W. NOBLE                                             417 SOUTH STATE STREET
VICE CHANCELLOR                                            DOVER, DELAWARE 19901
                                                          TELEPHONE: (302) 739-4397
                                                          FACSIMILE: (302) 739-6179

                               December 30, 2014

Robert W. Mallard, Esquire                         Danielle Gibbs, Esquire
Dorsey & Whitney (Delaware) LLP                    Young Conaway Stargatt
300 Delaware Avenue, Suite 1010                         & Taylor, LLP
Wilmington, DE 19801                               1000 North King Street
                                                   Wilmington, DE 19801

      Re:    Prokupek v. Consumer Capital Partners LLC
             C.A. No. 9918-VCN
             Date Submitted: September 22, 2014

Dear Counsel:

      Plaintiff David Prokupek (“Prokupek” or the “Plaintiff”) seeks to inspect

certain   financial   documents   of   Defendant    Smashburger     Master    LLC

(“Smashburger” or the “Company”).1 His demand arises in the context of a dispute

over the amount that Smashburger owes him because of its redemption of his units

in the Company.2

1
  Plaintiff voluntarily dismissed the Verified Complaint for Inspection of Business
Records (the “Complaint”) as against Consumer Capital Partners LLC, which was
initially the first-named defendant.
2
  Smashburger has filed a related action in this Court dealing with valuation of
those units. Smashburger Master LLC v. Prokupek, C.A. No. 9898-VCN.
Prokupek v. Consumer Capital Partners LLC
C.A. No. 9918-VCN
December 30, 2014
Page 2

      Whether Prokupek may inspect Smashburger’s business and financial

records depends on (i) whether he was a member of the Company, with

concomitant inspection rights pursuant to Smashburger’s LLC Agreement or the

Delaware Limited Liability Company Act (the “LLC Act”),3 when he made his

demand and (ii) whether, because he was at least once a member, that status

provides him with certain inspection rights.

                               I. BACKGROUND

A. Prokupek’s Interest in Smashburger

      Prokupek served as Smashburger’s Chairman and Chief Executive Officer

(“CEO”) until his termination “without cause” on February 3, 2014.4 Smashburger

is a Delaware limited liability company that franchises fast-casual hamburger

restaurants. In addition to holding office with the Company, Prokupek owned a

substantial amount of Smashburger’s equity. The rights of Smashburger’s equity

3
  6 Del. C. ch. 18.
4
  The facts are drawn from the Complaint, exhibits attached to and incorporated
into the Complaint, and the Stipulation and Order Regarding Case Schedule (the
“Stipulation”).
Prokupek v. Consumer Capital Partners LLC
C.A. No. 9918-VCN
December 30, 2014
Page 3

holders are governed by the Sixth Amended and Restated Limited Liability

Company Agreement (the “LLC Agreement”).5

      Some of Prokupek’s equity was obtained subject to two agreements entered

into on June 25, 2013: the Restricted Unit Agreement6 and the Unit Option

Agreement.7 Pursuant to the Restricted Unit Agreement, Smashburger granted him

667,527 restricted Class B Units (“Units”). Slightly under one-third of those Units

immediately vested.     The rest would only vest if Smashburger met certain

“performance hurdles.”      The Restricted Unit Agreement provided for five

performance hurdles and reaching each was contingent on Smashburger’s

achieving a certain level of EBITDA.

      Prokupek also received options under the Unit Option Agreement, which

provided him a potential right to acquire an additional 235,728 Units at an exercise

price of $6.58 per Unit. However, the majority of those options would only vest

on the same conditions as laid out in the Restricted Unit Agreement.

5
  Compl. Ex. 1 (LLC Agmt.).
6
  Compl. Ex. 2 (Restricted Unit Agmt.).
7
  Compl. Ex. 3 (Unit Option Agmt.).
Prokupek v. Consumer Capital Partners LLC
C.A. No. 9918-VCN
December 30, 2014
Page 4

B. Smashburger Calls Prokupek’s Units

         In late November 2013, Smashburger informed Prokupek that it would be

ending his employment as of December 23, 2013. He ultimately remained with the

Company until February 3, 2014, when Smashburger terminated him “without

cause.”

         On April 18, 2014, Smashburger informed Prokupek (the “First Call

Notice”) that

         pursuant to Section 8.7(b) of the LLC Agreement, the Company is
         hereby exercising the Terminated Member Call to redeem 1,039,900
         of the Class B Units owned by you. The Company has determined
         that Company Fair Market Value for all of the Units subject to this
         Terminated Member Call, as determined in accordance with the LLC
         Agreement, is $6,842,542.00.8

         Smashburger valued Prokupek’s Units at $6.58 each and indicated that the

redemption would close “on Friday, April 25, 2014 at 10:00 a.m. in the Second

Floor Public Conference Room, 3900 East Mexico Avenue, Suite 215[,] Denver,

CO 80210.” On April 25, Smashburger issued and delivered to Prokupek a check

in the amount of $307,001.18. According to the Company, Prokupek retained

8
    Stip. Ex. 1.
Prokupek v. Consumer Capital Partners LLC
C.A. No. 9918-VCN
December 30, 2014
Page 5

179,632 unvested Units, which had failed to vest under the Restricted Unit

Agreement, and 39,288 vested but unexercised options.9

      On May 6, 2014, Smashburger issued a second Terminated Member Call

(the “Second Call Notice”) with respect to the 39,288 Units issued upon

Prokupek’s exercise of his vested option rights.10     On May 9, 2014, the day

identified as closing in the Second Call Notice, Smashburger issued and delivered

to Prokupek a check in the amount of $86,171.68.

      Prokupek disagreed with Smashburger’s valuation of $6.58 per Unit. He

had retained an investment banking firm that had valued his Units at $36.93 each.

According to him, the Company intentionally manipulated its financials so that

(i) it would appear to have fallen short of the fourth and fifth performance hurdles

under the Restricted Unit and Unit Option Agreements and (ii) it could justify

undercompensating him for his Units.

9
   Smashburger was not obligated to redeem unvested Units because Section 7.1.5
of the Restricted Unit Agreement provides, “a Participant shall not be entitled to
any privilege or right of unit ownership as to any Class B Units that have not
become vested and held of record by the Participant on the books of the
Company.”
10
   Stip. Ex. 2.
Prokupek v. Consumer Capital Partners LLC
C.A. No. 9918-VCN
December 30, 2014
Page 6

C. Current Proceedings

         On June 11, 2014, Prokupek sent a letter through counsel to Smashburger,

demanding that it provide him with documents from specific categories of business

and financial records. Prokupek based his demand on Section 18-305(a) of the

LLC Act and the LLC Agreement.             His stated purpose was to evaluate

Smashburger’s financial performance, which (i) determines how many Units

vested under the Restricted Unit Plan and (ii) impacts the proper valuation of his

Units.

         On June 23, 2014, Smashburger refused Prokupek’s request. Two days

later, Prokupek reiterated his demand. However, Smashburger asserts that it had

already redeemed all of Prokupek’s Units, thus terminating his status as a member

of Smashburger and precluding him from properly demanding inspection.           It

further argues that former members have no standing to demand inspection under

either the LLC Act or the LLC Agreement. Accordingly, it has moved to dismiss
Prokupek v. Consumer Capital Partners LLC
C.A. No. 9918-VCN
December 30, 2014
Page 7

the Complaint pursuant to Court of Chancery Rule 12(b)(6) for Prokupek’s lack of

standing.11

      Because the Court can conclude that Prokupek was no longer a member of

Smashburger when he demanded inspection and Delaware law does not provide

pertinent inspection rights to former LLC members, Smashburger’s Motion to

Dismiss is granted.

                                  II. ANALYSIS

A. Standard for Dismissal under Rule 12(b)(6)

      In considering a motion to dismiss under Court of Chancery Rule 12(b)(6),

the Court takes well-pled factual allegations in the complaint as true and draws all

reasonable inferences in favor of the nonmoving party.12 A motion will be granted

if, despite these interpretive benefits, the Court concludes that the “plaintiff would

not be entitled to recover under any reasonably conceived set of circumstances

11
   “[W]here, as here, the issue of standing is so closely related to the merits, a
motion to dismiss based on lack of standing is properly considered under
Rule 12(b)(6).” Appriva S’holder Litig. Co., LLC v. EV3, Inc., 937 A.2d 1275,
1285-86 (Del. 2007). In its motion, Smashburger does not otherwise challenge
Prokupek’s purpose for seeking inspection.
12
   Schuss v. Penfield P’rs, L.P., 2008 WL 2433842, at *4 (Del. Ch. June 13, 2008).
Prokupek v. Consumer Capital Partners LLC
C.A. No. 9918-VCN
December 30, 2014
Page 8

susceptible of proof.”13 However, the Court “need not accept every interpretation

of the allegations proposed by the plaintiff; instead, [it] will accept those

reasonable inferences that logically flow from the face of the complaint.”14

Conclusory allegations unsupported by specific factual allegations have no force.15

      While the Court’s analysis is generally confined to the pleadings, it may

consider documents that are integral to the plaintiff’s claim and incorporated into

the complaint.16 If the complaint refers to part of an extrinsic document, the Court

may consider the document in its entirety.17

B. Prokupek Was Not a Member of Smashburger When He Made His Demand

      While Plaintiff argues that he retains Unit-holder rights under the LLC

Agreement and the LLC Act, the issues that he frames as factual disputes are

fundamentally matters of contract interpretation. “Under Delaware law, questions

of contract interpretation can be pure questions of law that are appropriate to

13
   Id. (internal quotation marks omitted).
14
   Id. (internal quotation marks omitted).
15
   In re Gen. Motors (Hughes) S’holder Litig., 897 A.2d 162, 168 (Del. 2006).
16
   Allen v. Encore Energy P’rs, L.P., 72 A.3d 93, 96 n.2 (Del. 2013).
17
   White v. Panic, 783 A.2d 543, 547 n.5 (Del. 2001).
Prokupek v. Consumer Capital Partners LLC
C.A. No. 9918-VCN
December 30, 2014
Page 9

consider on a motion to dismiss.”18 However, if two opposing interpretations are

reasonable, the Court may not choose between them at this preliminary stage.

“The proper application of ambiguous contract provisions is a question of fact that

cannot be determined on a motion to dismiss.”19

      Plaintiff claims that he retains equity in Smashburger because the Company

(i) paid too little for his Units and (ii) even if the Company had tendered the

correct price, it did not call approximately 180,000 of his Units.        Because

Smashburger’s numbers were allegedly incorrect, Plaintiff maintains that he still

owns Units in the Company. Accordingly, he allegedly remains a member, with

concomitant inspection rights.

      However, the purchase price that Smashburger tendered and the number of

Units that it called are undisputed facts. Whether Smashburger properly called all

of Plaintiff’s Units, or paid him adequate consideration, are questions that cannot

be answered without reference to the LLC Agreement, the Restricted Unit

18
    MCG Capital Corp. v. Maginn, 2010 WL 1782271, at *8 (Del. Ch. May 5,
2010).
19
   Id.
Prokupek v. Consumer Capital Partners LLC
C.A. No. 9918-VCN
December 30, 2014
Page 10

Agreement, and the Unit Option Agreement.20        While the Court must accept

Plaintiff’s factual allegations as true, it need not blindly credit his legal

conclusions.

      1. The LLC Agreement

      Section 8.7(b) of the LLC Agreement allows Smashburger to call and

redeem all of an employee-member’s Units when the employee is terminated.

      Upon or at any time after an employee of the Company . . . who is a
      Member . . . is no longer employed by . . . the Company[,] . . . the
      Company may call and exercise the right to redeem all, but not less
      than all, of the Units . . . owned by the Terminated Member . . . at a
      price equal to (i) Fair Market Value . . . .

      Fair Market Value is “the value that would be obtained for the applicable

asset in an arm’s length sale for cash between an informed and willing purchaser

and an informed and willing seller, neither being under any compulsion to buy or

sell, determined by the Manager.”21 The Manager is “the Person(s) designated as

20
   These documents are considered on this motion because they are “integral to
[Plaintiff’s claim], referred to throughout the Complaint, and attached to the
Complaint as . . . exhibit[s].” Schuss, 2008 WL 2433842, at *4.
21
   LLC Agmt. Definition W (emphasis added).
Prokupek v. Consumer Capital Partners LLC
C.A. No. 9918-VCN
December 30, 2014
Page 11

Manager under the terms of [the LLC Agreement]. Icon Burger Development

Company LLC (“IBDC”) shall be the initial Manager.”22

        Section 8.7(b) further provides

        The redemption of these Units by the Company shall close at the time
        and place set forth in the written notice by the Company to the
        Terminated Member of its Exercise of the Terminated Member Call,
        but no later than sixty (60) days from the date of such notice. The
        Company shall pay the purchase price of the Units acquired, in the
        sole discretion of the Company, either in cash at closing, or in three
        equal annual installment payments . . . with the first payment due at
        closing . . . .

        The parties do not dispute that Prokupek was an employee-member of

Smashburger and that he was terminated in early 2014. As discussed supra,

Section I. B., Smashburger exercised the Terminated Member Call on April 18,

2014.    On that date, IBDC sent Prokupek a letter on Smashburger’s behalf,

indicating that the Fair Market Value of Prokupek’s Units subject to redemption

was $6,842,542.00.23 In accordance with 8.7(b), the First Call Notice specified the

time and place for the closing of the redemption and stated that Smashburger

22
  Id. Definition BB.
23
   As the designated Manager under the LLC Agreement, IBDC was responsible
for certifying whether the Company had achieved the performance hurdles under
the Restricted Unit Agreement and the Unit Option Agreement.
Prokupek v. Consumer Capital Partners LLC
C.A. No. 9918-VCN
December 30, 2014
Page 12

would pay the purchase price in three equal annual installments. On April 25,

2014, the date for closing, Smashburger issued and delivered to Prokupek a check

for $307,001.18.

      On May 6, 2014, Smashburger sent the Second Call Notice, calling Units

totaling a Fair Market Value of $258,515.04, with May 9 set for closing.24 On

May 9, Smashburger tendered to Prokupek an $86,171.68 check. According to

Smashburger, the two call notices called all of Prokupek’s Units and terminated his

status as a member.25 Prokupek argues that the attempted notices were defective

because they did not call all of his Units and paid too little for the Units that were

called.

24
    Unlike the First Call Notice, this notice did not explicitly state the time and
place for closing. However, closing was set for May 9, 2014, immediately upon
the issuance of the Units being redeemed.
25
   Prior to the calls, Prokupek was a Class B Member, defined in the LLC
Agreement as “a Member who holds Class B Units.” LLC Agmt. Definition J.
Plaintiff suggests that the LLC Agreement does not require unit ownership as a
prerequisite to membership. However, it is clear that one is no longer a Class B
Member once all of his Units are redeemed.
Prokupek v. Consumer Capital Partners LLC
C.A. No. 9918-VCN
December 30, 2014
Page 13

         2. The Restricted Unit Agreement

         The first alleged flaw in Smashburger’s calls was its failure to call all of

Prokupek’s Units. Prokupek claims to own 179,632 Units that Smashburger never

attempted to redeem. Those Units represent 26.91% of the 667,527 Units granted

to him under the Restricted Unit Agreement that were to vest if the Company

achieved the fourth and fifth performance hurdles. Prokupek believes that the

Company would have met those hurdles had it not improperly made one-time

adjustments and reclassifications to its fourth quarter financials.

         While there is no dispute that those 179,632 Units were never redeemed,

under the Restricted Unit Agreement, Units vest “upon the Administrator

certifying that the Company has achieved the applicable performance hurdles.”

The Administrator “means the Manager or one or more committees appointed by

the Manager or another committee . . . to administer all or certain aspects of [the

Restricted Unit Agreement].”26 IBDC, as Manager, served as Administrator and

determined that Smashburger never reached the fourth or fifth performance

hurdles. Therefore, IBDC determined that 179,632 Units never vested and did not

26
     Restricted Unit Agmt. § 2.1.
Prokupek v. Consumer Capital Partners LLC
C.A. No. 9918-VCN
December 30, 2014
Page 14

need to be called.27    Whether Smashburger’s EBITDA figures, which impact

whether it met performance hurdles, were unreliable is a separate factual question

that does not change this result.

      In other words, Smashburger’s First and Second Call Notices were facially

valid exercises of its redemption power. Prokupek may have legitimate concerns

that he was undercompensated, perhaps intentionally.           His allegations of

insufficient value may potentially be brought in an action seeking damages for

breaches of contract.28 However, that damages might ultimately be forthcoming

does not prevent the Court from concluding that Prokupek was no longer a member

of Smashburger when he demanded inspection.29

3. Section 8.8 of the LLC Agreement

      Plaintiff argues that even if Smashburger called all of his Units, its calls

were nonetheless defective because the Company paid less than Fair Market Value.

27
   See id. § 5.3.2. An employee’s unvested Units are cancelled as of the date of his
termination.
28
   Prokupek has in fact asserted such counterclaims in the related action that
Smashburger brought to this Court.
29
   By exercising the Terminated Member Call, Smashburger became obligated to
“redeem all, but not less than all” of Prokupek’s Units.
Prokupek v. Consumer Capital Partners LLC
C.A. No. 9918-VCN
December 30, 2014
Page 15

He claims to retain his Units pending a Fair Market Value determination pursuant

to Section 8.8 of the LLC Agreement, which provides a dispute mechanism “[f]or

purposes of determining Fair Market Value . . . [if] a Terminated Member does not

agree with the Company’s determination.” Under that section, a former employee

whose Units are called can object to Smashburger’s determination of Fair Market

Value within thirty days of the Company’s call notice. The former employee and

the Company then have fifteen days to agree on the Fair Market Value.          If

unsuccessful, the parties must retain a mutually acceptable independent firm to

value the Company. The independent firm’s valuation is due within thirty days of

its appointment. Section 8.8 thus provides a window of up to seventy-five days

from Smashburger’s initial Fair Market Value determination to resolve a valuation

dispute.

      Prokupek argues that because he has invoked Section 8.8, Smashburger can

only purchase his Units once a price is determined pursuant to that section.

Smashburger contends that a redemption may close pursuant to section 8.7(b)
Prokupek v. Consumer Capital Partners LLC
C.A. No. 9918-VCN
December 30, 2014
Page 16

despite the existence of a valuation dispute— Section 8.8 applies to debates over

whether additional money is owed after redemption has closed.30

      “In deciding a motion to dismiss, [this Court] cannot choose between two

differing reasonable interpretations of ambiguous provisions. . . . Ambiguity exists

when the provisions in controversy are reasonably or fairly susceptible of different

interpretations.”31 However, in considering whether a contract contains ambiguity,

the Court must recognize accepted principles of contract interpretation.

30
   Prokupek argues that Smashburger’s interpretation of the LLC Agreement would
allow the Company to call all of a former employee’s Units for the arbitrary price
of a dollar, send that single dollar to the former member, and thereby divest him of
his rights as a Unit holder.
   As a preliminary matter, Smashburger’s valuation was not necessarily
arbitrary—even if it undervalued Prokupek’s Units, it was at least based on
historical financials. More importantly, this Court has recognized that a unit
holder may lose his equity-related rights when a limited liability company redeems
his shares in accordance with its operating agreement, despite conceivable claims
that the company valued the units in bad faith. See Stewart v. BF Bolthouse
Holdco, LLC, 2013 WL 5210220, at *11 (Del. Ch. Aug. 30, 2013).
   In Stewart, the Court determined that the plaintiff no longer had rights as an
LLC member after the company redeemed his units, despite the fact that the
company paid nothing for the units. Plaintiff could still bring a claim alleging bad
faith, but the adequacy of the price paid was an issue separate from whether stock
had been effectively redeemed pursuant to the operating agreement.
31
   VLIW Tech., LLC v. Hewlett-Packard Co., 840 A.2d 606, 615 (Del. 2003)
(internal quotation marks omitted).
Prokupek v. Consumer Capital Partners LLC
C.A. No. 9918-VCN
December 30, 2014
Page 17

“Contractual interpretation operates under the assumption that the parties never

include superfluous verbiage in their agreement, and that each word should be

given meaning and effect by the court.”32

      When read in relation to Section 8.7(b), Section 8.8 cannot reasonably be

interpreted so as to delay a redemption’s closing until the “dispute mechanism”

procedure is complete.    Section 8.7(b) is clear: the redemption of all Units called

“shall close at the time and place set forth in the written notice by the Company to

the Terminated Member of its exercise of the Terminated Member Call, but no

later than sixty (60) days from the date of such notice.” Section 8.7 provides no

exception for ongoing disputes pursuant to Section 8.8. Further, disputes under

Section 8.8 may take up to seventy-five days (or even longer in practice) from the

date of Smashburger’s determination of Fair Market Value to resolve, while

closing under Section 8.7 must occur within sixty days. The only way to give

effect to both contractual provisions, without altering the LLC Agreement’s

32
  NAMA Hldgs., LLC v. World Mkt. Ctr. Venture, LLC, 948 A.2d 411, 419 (Del.
Ch. 2007), aff’d, 945 A.2d 594 (Del. 2008).
Prokupek v. Consumer Capital Partners LLC
C.A. No. 9918-VCN
December 30, 2014
Page 18

express terms, is to recognize that valuation disputes may continue after a

member’s Units have been validly called.33

      Even if Prokupek retained rights as an equity holder for a period of time

after Smashburger sent redemption notices, he was divested of his rights no later

than May 9, 2014, the closing date specified in the Second Call Notice. While

Prokupek may have damages claims related to the two closings, any recovery will

be monetary, not restoration of an equity interest in Smashburger.

C. Prokupek’s Status as a Former Smashburger Member Does Not Provide
   Him with Statutory Inspection Rights

      Section 18-305(a) of the LLC Act provides inspection rights to “[e]ach

member of a limited liability company.”34 Section 18-305’s corporate analogue,

33
   Prokupek’s argument that as an equity holder, he retains legal title to his Units
until the purchase price is paid is also contradicted by Section 8.7 which allows
Smashburger to pay the purchase price in three equal installments, with the last
installment on the second anniversary of closing. It would not be reasonable to
conclude that a terminated employee continues to possess Unit holders’ rights for
two years after the Company closes on the redemption of his Units.
34
   Prokupek makes no argument that Section 6.2 of the LLC Agreement, which
governs members’ access to records and accounting, provides inspection rights to
former members. Because of the “considerable deference to and lack of restriction
upon the terms of [an LLC’s] governing instrument . . . all of the rights afforded to
interest holders under [Section 18-305] are made subject to such reasonable
Prokupek v. Consumer Capital Partners LLC
C.A. No. 9918-VCN
December 30, 2014
Page 19

8 Del. C. § 220, provides guidance on its scope.35 Section 220 “plain[ly] and

unambiguous[ly]” limits inspection rights to current stockholders and directors.36

The Court narrowly construes Section 220 in contrast to “other states [that] have

conferred limited books and records inspection rights on former directors.”37

Nothing in Delaware case law “suggests . . . such a broad reading of

Section 220(d)[;] . . . if the General Assembly intended to confer Section 220(d)

inspection rights on former directors, it could have done so in the statute, but it did

standards as may be set forth in the agreement.” Donald J. Wolfe, Jr. &
Michael A. Pittenger, Corporate and Commercial Practice in the Delaware Court
of Chancery, § 8.06[a][2], at 8-116 (2014).
   The effect that Section 6.2 might have on altering Section 18-305(a)’s default
rights can be ignored here because Section 18-305 fails to provide Prokupek with
inspection rights regardless of any potential limitations on its application.
35
   Because of the relative lack of guiding precedent in the LLC context, “the Court
may look to cases interpreting similar Delaware statutes concerning corporations
and partnerships.” Somerville S Trust v. USV P’rs, LLC, 2002 WL 1832830, at *5
n.4 (Del. Ch. Aug. 2, 2002).
36
   See King v. DAG SPE Managing Member, Inc., 2013 WL 6870348, at *6 (Del.
Ch. Dec. 23, 2013).
37
   Id.
Prokupek v. Consumer Capital Partners LLC
C.A. No. 9918-VCN
December 30, 2014
Page 20

not.”38 A Delaware director’s right to inspect corporate books and records under

Section 220(d) thus ends upon his removal from office.39

      By its plain language, Section 18-305(a) of the LLC Act confers inspection

rights only on current members of an LLC.         Plaintiff has cited no Delaware

authority holding that former members retain residual inspection rights under the

statute. While Plaintiff was recently a member of Smashburger and believes that

he has a proper purpose in making his demand, these circumstances do not justify

stretching the LLC Act’s plain language in order to find standing. As noted,

Section 220 is strictly construed in the corporate context. If Prokupek had been a

former stockholder in a Delaware corporation, he could not have properly

demanded inspection or brought a Section 220 action.             Given that “LLC

agreements can grant members inspection rights that exceed the rights provided for

38
   Id.
39
    Id. Further, in the stockholder Section 220 demand context, standing is
determined as of the time that a stockholder makes demand. See Deephaven Risk
Arb Trading Ltd. v. UnitedGlobalCom, Inc., 2005 WL 1713067, at *7 (Del. Ch.
July 13, 2005) (“[Plaintiff] has established that it was a stockholder at the time of
its demand and therefore has standing to maintain this action.”).
Prokupek v. Consumer Capital Partners LLC
C.A. No. 9918-VCN
December 30, 2014
Page 21

in the statute,”40 there is no reason to expand the LLC Act’s plain language when

the parties refrained from doing so themselves.41

                               III. CONCLUSION

      Because Prokupek was not a member of Smashburger when he made his

demand and because his status as a former member provides no current right to

inspect the Company’s business records, Smashburger’s Motion to Dismiss is

granted.

      IT IS SO ORDERED.

                                       Very truly yours,

                                       /s/ John W. Noble

JWN/cap
cc: Register in Chancery-K

40
   Mickman v. Am. Int’l Processing, L.L.C., 2009 WL 2244608, at *1 (Del. Ch.
July 28, 2009).
41
   It may be worth noting that when a beneficial, but not record, stockholder
demands inspection pursuant to 8 Del. C. § 220, a failure to attach documentary
evidence of beneficial ownership mandates dismissal of the inspection demand.
See, e.g., Cent. Laborers Pension Fund v. News Corp., 45 A.3d 139, 141 (Del.
2012). While this is a statutory requirement, it reflects a policy carefully guarding
who may properly demand inspection. In the alternative entity context, inspection
rights should not be unduly expanded beyond plain contractual and statutory
language.