Court Opinion

ID: 9364971
Source: CourtListenerOpinion
Date Created: 2023-01-20 20:02:38.474862+00
Date Added: 2024-06-11T17:15:41.644757
License: Public Domain

COURT OF CHANCERY
                                     OF THE
                               STATE OF DELAWARE

MORGAN T. ZURN                                                LEONARD L. WILLIAMS JUSTICE CENTER
VICE CHANCELLOR                                                  500 N. KING STREET, SUITE 11400
                                                                WILMINGTON, DELAWARE 19801-3734

                                  January 19, 2023

 Francis G.X. Pileggi, Esquire                 Matthew W. Murphy, Esquire
 Lewis Brisbois Bisgaard & Smith, LLP          Richards, Layton & Finger, P.A.
 500 Delaware Avenue, Suite 700                920 North King Street
 Wilmington, DE 19801                          Wilmington, DE 19801

      RE: In re: Dissolution of T&S Hardwoods KD, LLC,
          Civil Action No. 2022-0782-MTZ

Dear Counsel:

      I write to resolve the pending motion to dismiss. For the reasons set forth

below, I deny the respondents’ motion to dismiss and consolidate this case with

Robinson Lumber Company, Inc. v. Lawrence N. Thompson, III, et al., C.A. No.

2022-0423-MTZ (Del. Ch.).

      A lumber supplier and a lumber wholesale distributor joined forces and

formed a limited liability company. While the venture was initially profitable, the

supplier and wholesaler’s relationship splintered and then collapsed. The supplier

filed for dissolution of the LLC. The wholesaler moved to dismiss for failure to state

a claim for dissolution. In this letter decision, I conclude the supplier’s allegations

of deadlock, inability to function, and lack of any equitable exit mechanism state a

claim for dissolution, and so I deny the motion to dismiss.
In re: Dissolution of T&S Hardwoods KD, LLC,
C.A. No. 2022-0782-MTZ
January 20, 2023
Page 2 of 26

     The parties are engaged in litigation over their split in two other pending

actions, including one before me in this Court.            With the parties’ consent, I

consolidate this case with the other pending Delaware action.

       I.   BACKGROUND1

       In 2016, petitioner T&S Hardwoods, Inc. (“T&S”) and respondent Robinson

Lumber Company, Inc. (“RLC”) began working together to produce and sell lumber.

T&S is a lumber processor and manufacturer, and its majority stockholder and

manager is petitioner Lawrence N. Thompson (together with T&S, “Petitioners”).

RLC is a lumber wholesaler, and is owned by its president respondent William

Garner Robinson (together with RLC, “Respondents”).

       On October 1, 2016, the parties joined forces: T&S would provide a steady

lumber supply for RLC to resell, and the endeavor would provide T&S with

financing between when it cut the lumber and when the end customers paid their

invoices. The parties formed T&S Hardwoods KD, LLC (the “Company”), and

1
  On this motion to dismiss, I draw the following facts from Petitioners’ Petition, available
at Docket Item (“D.I.”) 1 [hereinafter “Pet.”], as well as the documents attached and
integral to it. See, e.g., Himawan v. Cephalon, Inc., 2018 WL 6822708, at *2 (Del. Ch.
Dec. 28, 2018); In re Gardner Denver, Inc. S’holders Litig., 2014 WL 715705, at *2 (Del.
Ch. Feb. 21, 2014). Citations in the form of “LLC Agreement ––” refer to the Company’s
Limited Liability Company Agreement, dated October 1, 2016, attached as Exhibit 1 to the
Petition and available at D.I. 1. Citations in the form of “JV Agreement –– ” refers to the
Joint Venture Agreement between RLC, T&S, and the Company, dated October 1, 2016,
attached as Exhibit 2 to the Petition and available at D.I. 1.
In re: Dissolution of T&S Hardwoods KD, LLC,
C.A. No. 2022-0782-MTZ
January 20, 2023
Page 3 of 26

executed a Limited Liability Company Agreement (the “LLC Agreement”) and Joint

Venture Agreement (the “JV Agreement”).2

         Under the LLC Agreement, RLC and T&S each own a 50% interest in the

Company.3 The Company is manager-managed; its two managers are, and always

have been, Thompson and Robinson.4 The LLC Agreement provides, that for most

decisions, the managers must reach a unanimous agreement.5 But Robinson and

RLC were charged with control over the Company’s books, records, finances,

financial report, bank accounts and banking relationships. Robinson and RLC’s

responsibilities include deciding when and in what amounts to pay T&S for lumber,

controlling T&S’s access to information about the Company’s bank accounts, and

preparing the Company’s financial statements and tax returns.

         The JV Agreement provided that the Company would have the option to

purchase all of T&S graded lumber at the prevailing market price.6 The Company

also paid T&S a service fee to dry, package, store, and load the lumber onto trucks

2
    LLC Agr.; JV Agr.
3
    Pet. ¶¶ 3, 7–8, 24–25; LLC Agr. § 3.1.
4
    Pet. ¶¶ 4–5; LLC Agr. § 5.1.
5
    LLC Agr. Art. V.
6
    JV Agr. § 3.2.
In re: Dissolution of T&S Hardwoods KD, LLC,
C.A. No. 2022-0782-MTZ
January 20, 2023
Page 4 of 26

for shipment to the Company’s customers.7 The Company did not pay T&S in full

for the lumber when it took title. Instead, the Company paid T&S a portion of the

money owed when it took title and paid T&S the remainder of any balance due, four

to six months later, when it received payment from its customer.

         So the Company and T&S could operate under this arrangement, the

Company became a party to RLC’s credit agreement and pledged substantially all

of its assets as collateral for loans to the Company.8 Thompson provided a personal

guaranty for any funds the Company borrowed. The Company used the loan

proceeds to pay T&S a portion of the purchase price for the lumber. As customers

paid the Company, the Company paid T&S the balance of the purchase price and

pay down the loan balance. These operations worked well for a period of time.

         But over the last eighteen months, the parties’ relationship has deteriorated.

T&S alleges that Robinson caused the Company to stop paying T&S by March 2022.

T&S states the Company owes it for over $9 million in lumber bought between

October 2021 to May of 2022, even as the Company resold a substantial portion of

that lumber and has over $5.2 million in cash on hand and over $700,000 in customer

receivables. Robinson and RLC have not explained the Company’s refusal to pay

7
    Id. § 3.3; LLC Agr., Ex. E.
8
    JV Agr., Recital C.
In re: Dissolution of T&S Hardwoods KD, LLC,
C.A. No. 2022-0782-MTZ
January 20, 2023
Page 5 of 26

T&S, despite repeated inquiries.         Thompson has tried to negotiate to resume

operations, offering to resume T&S lumber sales to the Company if the Company

would authorize payment and assure future payments, but Robinson did not respond.

         Then, in April, Robinson unilaterally terminated T&S’s viewing access to the

Company’s bank and loan accounts. T&S (and therefore Thompson) has not been

able to view information about the Company’s bank and loan accounts since April

4. Thompson has made several requests that such access be restored, but Robinson

has either failed or refused to do so.

         On May 5, as a result of the Company’s nonpayment, T&S stopped selling

lumber to the Company.          On May 13, RLC filed a derivative action against

Thompson and T&S based on T&S’s lack of sales, alleging Thompson has breached

his fiduciary duties (the “Derivative Action”).9 The Derivative Action seeks an order

requiring Thompson and T&S to continue to sell lumber to the Company pursuant

to the Company’s option in the JV Agreement. In the Derivative Action, RLC

recognized that T&S’s refusal to continue to sell lumber to the Company

“eliminate[s] the entire purpose of the [j]oint [v]enture.”10 RLC initially sought a

9
    Pet. ¶¶ 16, 46; Robinson Lumber Co., Inc. v. Thompson, No. 2022-0423-MTZ (Del. Ch.).
10
  Pet. ¶ 50; Verified Complaint Asserting Breach of Fiduciary Duty ¶ 40, Robinson
Lumber Co., No. 2022-0423-MTZ (Del. Ch. May 13, 2022) (D.I. 1).
In re: Dissolution of T&S Hardwoods KD, LLC,
C.A. No. 2022-0782-MTZ
January 20, 2023
Page 6 of 26

temporary restraining order, but withdrew that request; the Derivative Action has

been quiet since.11

         The parties have other disputes. They disagree as to whether, and to what

extent, the Company has been damaged by alleged “overstatements of grade and

footage” for green lumber T&S sold to the Company.12 T&S maintains RLC raised

these issues only after T&S became vocal about being paid, as an after-the-fact effort

to justify nonpayment. Thompson and T&S allege Robinson and RLC have made

improper distributions and management fee payments in violation of the LLC

Agreement and to T&S’s detriment. They also allege RLC has used the Company’s

inventory and receivables as collateral for loans made solely to RLC, manipulated

the books and records of the Company to falsely appear profitable to the Company’s

lender, withheld financial information about the Company and its finances from

T&S, and directed the lender not to communicate with T&S or Thompson.

         In an effort to resolve all of these disputes, on July 8, 2022, T&S sent RLC a

buy-sell purchase option notice as provided by Article VIII of the LLC Agreement.

The “Buy-Sell Purchase Option” provides,

11
 Order, Robinson Lumber Co., No. 2022-0423-MTZ (Del. Ch. Aug. 4, 2022) (granting
motion to withdraw motion for temporary restraining order) (D.I. 30).
12
     Pet. ¶ 51.
In re: Dissolution of T&S Hardwoods KD, LLC,
C.A. No. 2022-0782-MTZ
January 20, 2023
Page 7 of 26

          Each member shall have the right, but not the obligation, to give written
          notice to any other Member offering to purchase all of the Membership
          Interests owned by the other Member or to sell all of his or her
          Membership interest to the other Member in accordance with the
          procedures in this Article VIII (a “Purchase or Sale Notice”).13

Once a valid purchase or sale notice is received, the non-offering member has ten

days to elect “(i) to sell all of the Non-Offering Member’s Membership Interest to

the Offering Member, or (ii) to buy all of the Offering Member’s Membership

Interest, in either case for the purchase price per percentage interest and upon the

other terms and conditions specified in the Purchase or Sale Notice.”14 But Robinson

and RLC rejected T&S’s offer outright without making any election.

          Then, on August 31, while the Derivative Action remained pending, T&S

filed its own lawsuit against Robinson. T&S filed a complaint in the Superior Court

of Baldwin County, Georgia, against Robinson for breach of fiduciary duty in his

role with T&S, relating to the nonpayment of T&S, unequal distributions made to

RLC, and management and other fees paid to RLC but not T&S (the “Georgia

Action”).15

13
     LLC Agr. § 8.1.
14
     Id. § 8.3.
15
  D.I. 13, Ex. 1. This Court may take judicial notice of the Georgia Action for the purpose
of establishing its “existence and content.” See Indem. Ins. Corp., RRG v. Cohen, 2018
WL 487246, at *2 (Del. Ch. Jan. 18, 2018); see also In re Rural Metro Corp. S’holders
Litig., 2013 WL 6634009, at *8–9 (Del. Ch. Dec. 17, 2013) (stating a court may take
In re: Dissolution of T&S Hardwoods KD, LLC,
C.A. No. 2022-0782-MTZ
January 20, 2023
Page 8 of 26

       Finally, on September 2, T&S and Thompson filed this action, petitioning for

dissolution of the Company (the “Petition”). Petitioners seek dissolution of the

Company as provided by 6 Del. C. § 18-802 and request permission to wind up the

Company’s affairs pursuant to 6 Del. C. § 18-803. The Petition alleges dissolution

is appropriate based on: (i) RLC and Robinson causing the Company not to pay

T&S nearly $9 million for lumber T&S sold the Company; (ii) the managers’

inability to agree on whether the Company has been harmed by lumber “grade and

footage yield” claims; (iii) RLC and Robinson using the Company’s assets to

facilitate loans to RLC; (iv) RLC using its exclusive control over Company finances

to freeze T&S out, including removing T&S’s access to the Company’s bank

accounts and records and directing the lender not to communicate with T&S; and,

(v) the absence of trust between the parties. The Petition claims it is no longer

reasonably practicable to carry on the business of the Company—buying lumber

from T&S and reselling it to RLC and other third parties—in conformity with the

parties’ agreements. Once the Company’s current lumber inventory is sold, it will

have no more lumber to sell and no more business in which to engage.

judicial notice of filings in other courts for limited purposes such as “understand[ing] the
nature and grounds for rulings” in those courts, establishing the dates of filings, or
identifying the statements made therein).
In re: Dissolution of T&S Hardwoods KD, LLC,
C.A. No. 2022-0782-MTZ
January 20, 2023
Page 9 of 26

         On September 9, Respondents filed a motion to dismiss for failure to state a

claim upon which relief may be granted, or, in the alternative, dismiss or stay

pending resolution of the other litigation.16 The parties fully briefed the matter, and

I held oral argument on the motion on November 17.17

         II. ANALYSIS

         I conclude Petitioners have stated a claim for dissolution and, therefore, I deny

the portion of Respondents’ motion seeking dismissal. I agree with Respondents

that the parallel proceedings in this Court raise some efficiency concerns. Thus, with

the parties’ consent, I consolidate this action into the Derivative Action.

         A.     Petitioner Has Stated A Claim For Dissolution.

         Respondents argue the Petition fails to state a claim for judicial dissolution

because (1) the Petition does not adequately allege it is not reasonably practicable to

carry on the business of the company, (2) the allegations do not constitute deadlock,

and (3) the LLC Agreement’s Buy-Sell Purchase Option is a valid exit mechanism

that precludes dissolution.

         The standards governing a motion to dismiss under Court of Chancery Rule

12(b)(6) for failure to state a claim for relief are well settled:

16
     D.I. 4; D.I. 13 (hereinafter, “MTD OB”).
17
     D.I. 20 (hereinafter, “MTD AB”); D.I. 23 (hereinafter, “MTD RB”); D.I. 25.
In re: Dissolution of T&S Hardwoods KD, LLC,
C.A. No. 2022-0782-MTZ
January 20, 2023
Page 10 of 26

         (i) all well-pleaded factual allegations are accepted as true; (ii) even
         vague allegations are “well-pleaded” if they give the opposing party
         notice of the claim; (iii) the Court must draw all reasonable inferences
         in favor of the non-moving party; and ([iv]) dismissal is inappropriate
         unless the “plaintiff would not be entitled to recover under any
         reasonably conceivable set of circumstances susceptible to proof.”18

Thus, the touchstone “to survive a motion to dismiss is reasonable

‘conceivability.’”19 This standard is “minimal”20 and “plaintiff-friendly.”21 “Indeed,

it may, as a factual matter, ultimately prove impossible for the plaintiff to prove his

claims at a later stage of a proceeding, but that is not the test to survive a motion to

dismiss.”22 Despite this forgiving standard, the Court need not “accept conclusory

allegations unsupported by specific facts” or “draw unreasonable inferences in favor

18
  Savor, Inc. v. FMR Corp., 812 A.2d 894, 896–97 (Del. 2002) (citations omitted); accord
In re Baker Hughes Inc. Merger Litig., 2020 WL 6281427, at *5 (Del. Ch. Oct. 27, 2020).
19
  Cent. Mortg. Co. v. Morgan Stanley Mortg. Cap. Hldgs. LLC, 27 A.3d 531, 537 (Del.
2011).
20
     Id. at 536 (citing Savor, 812 A.2d at 896).
21
  See, e.g., Clouser v. Doherty, 175 A.3d 86 (Del. 2017) (TABLE); In re Trados Inc.
S’holder Litig. (Trados I), 2009 WL 2225958, at *9 (Del. Ch. July 24, 2009).
22
     Cent. Mortg. Co., 27 A.3d at 536.
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C.A. No. 2022-0782-MTZ
January 20, 2023
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of the non-moving party.”23 “Moreover, the court is not required to accept every

strained interpretation of the allegations proposed by the plaintiff.”24

         Petitioners seek dissolution under Section 18-802 of the Delaware LLC Act.

Under Section 18-802, this Court may decree dissolution “[o]n application by or for

a member or manager . . . of a limited liability company whenever it is not reasonably

practicable to carry on the business in conformity with a limited liability company

agreement.”25 “Given its extreme nature, judicial dissolution is a limited remedy

that this court grants sparingly.”26 Dissolution is appropriate in situations where the

“LLC’s management has become so dysfunctional . . . that it is no longer practicable

to operate the business,” such as the case of deadlock.27 “In the context of judicial

23
  Price v. E.I. du Pont de Nemours & Co., 26 A.3d 162, 166 (Del. 2011) (citing Clinton v.
Enter. Rent-A-Car Co., 977 A.2d 892, 895 (Del. 2009)), overruled on other grounds by
Ramsey v. Ga. S. Univ. Advanced Dev. Ctr., 189 A.3d 1255, 1277 (Del. 2018).
24
  Trados I, 2009 WL 2225958, at *4 (internal quotation marks omitted) (quoting In re
Gen. Motors (Hughes) S’holder Litig., 897 A.2d 162, 168 (Del. 2006)).
25
     6 Del C. § 18-802.
26
   In re Arrow Inv. Advisors, LLC, 2009 WL 1101682, at *2 (Del. Ch. Apr. 23, 2009)
(citations omitted).
27
  In re: GR BURGR LLC, 2017 WL 3669511, at *6 (Del. Ch. Aug. 25, 2017) (citing In re
Arrow Inv. Advisors, 2008 WL 1101682, at *3) (emphasis omitted); see also Mehra v.
Teller, 2021 WL 300352, at *19 (Del. Ch. Jan. 29, 2021) (“‘[S]erious managerial issues,’
such as strategic visions, major initiatives, and the operation and control of a company, will
typically satisfy the qualitative requirements imposed by statute and common law [for
dissolution].” (citing Vila v. BVWebTires LLC, 2010 WL 3866098, at *7 (Del. Ch.
Oct. 1, 2010); and then In re Shawe & Etling LLC, 2015 WL 4874733, at *26–28 (Del. Ch.
Aug. 13, 2015) (finding deadlock over issues including distributions to members, pursuit
In re: Dissolution of T&S Hardwoods KD, LLC,
C.A. No. 2022-0782-MTZ
January 20, 2023
Page 12 of 26

dissolution, ‘[d]eadlock refers to the inability to make decisions and take

action[.]’”28 But “[t]he court will not dissolve an LLC merely because the LLC has

not experienced a smooth glide to profitability or because events have not turned out

exactly as the LLC’s owners originally envisioned.”29 “Allegations than an LLC is

currently failing to achieve its business plan, goals, and objective [or] that [its]

managers have breached their fiduciary duties fall far short of this threshold.”30

         Delaware LLCs are creatures of contract.31 “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.’”32 In interpreting LLC

of acquisitions, expense true-ups to reconcile personal uses of company funds, and the
hiring and retention of personnel)).
28
   In re: GR BURGR, 2017 WL 3669511, at *6 (citing Meyer Nat. Foods LLC v. Duff, 2015
WL 3746283, at *3 (Del. Ch. June 4, 2015)) (alterations in original); accord Acela Invs.
LLC v. DiFalco, 2019 WL 2158063, at *26 n.276 (Del. Ch. May 17, 2019) (“In the context
of a dissolution claim, ‘deadlock’ means disagreement and discord between the parties.”)
citations omitted)).
29
     In re Arrow Inv. Advisors, 2009 WL 1101682, at *2 (citations omitted).
30
  Bet FRX LLC v. Myers, 2022 WL 1236955, at *6 (Del. Ch. Apr. 27, 2022) (citing In re
Arrow Inv. Advisors, 2009 WL 1101682, at *2).
31
  E.g., TravelCenters of Am., LLC v. Brog, 2008 WL 1746987, at *1 (Del. Ch.
Apr. 3, 2008).
32
  A & J Cap., Inc. v. L. Office of Krug, 2018 WL 3471562, at *5 (Del. Ch. July 18, 2018)
(alterations in original) (quoting GRT, Inc. v. Marathon GTF Tech., Ltd., 2012 WL
2356489, at *7 (Del. Ch. June 21, 2012)).
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C.A. No. 2022-0782-MTZ
January 20, 2023
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agreements, Delaware courts treat them as any other contract,33 aiming to “give

priority to the parties’ intentions as reflected in the four corners of the agreement,

construing the agreement as a whole and giving effect to all its provisions.”34

“Delaware adheres to the ‘objective’ theory of contracts, i.e. a contract’s

construction should be that which would be understood by an objective, reasonable

third party.”35 In doing so, the Court will “give effect to the plain-meaning of the

contract’s terms and provisions,”36 will “read a contract as a whole and . . . will give

each provision and term effect, so as not to render any part of the contract mere

surplusage.”37

33
   See Mickman v. Am. Int’l Processing, L.L.C., 2009 WL 2244608, at *2 (Del. Ch.
July 28, 2009).
34
  Salamone v. Gorman, 106 A.3d 354, 368 (Del. 2014) (internal quotation marks omitted)
(quoting GMG Cap. Inv., LLC. v. Athenian Venture P’rs I, L.P., 36 A.3d 776, 779 (Del.
2012)).
35
  Osborn ex rel. Osborn v. Kemp, 991 A.2d 1153, 1159 (Del. 2010) (footnotes and internal
quotation marks omitted) (quoting NBC Universal v. Paxson Commc’ns, 2005 WL
1038997, at *5 (Del.Ch. Apr. 29, 2005)).
36
  Id. at 1159–60; see also Alta Berkeley VI C.V. v. Omneon, Inc., 41 A.3d 381, 385
(Del. 2012) (“Unless there is ambiguity, Delaware courts interpret contract terms
according to their plain, ordinary meaning.”).
37
     Kuhn Constr., Inc. v. Diamond State Port Corp., 990 A.2d 393, 396–97 (Del. 2010).
In re: Dissolution of T&S Hardwoods KD, LLC,
C.A. No. 2022-0782-MTZ
January 20, 2023
Page 14 of 26

                 1.    Petitioners Adequately Plead Deadlock.

       Respondents argue there are no allegations showing “extreme dysfunction

amongst an LLC’s management,” to evidence deadlock.38 I disagree. As pled,

Company managers Thompson and Robinson are no longer able to work together or

make decisions for the Company, which has a 50/50 ownership structure and

requires unanimity for most decisions.39

       Having gone unpaid from October 2021 to March 2022, T&S has refused

since May 2022 to sell lumber to the Company. Once the Company sells its current

inventory, it will have no more lumber to sell unless the managers unanimously

decide to source it from someone other than T&S. The managers’ attempts to resume

38
   MTD OB at 16 (internal quotation marks, citations, and alterations omitted); see also id.
at 14 (“As a preliminary matter, and fatally to this entire proceeding, the Petition does not
plead that the Company is suffering a deadlock that prevents it from operating.” (footnote
omitted)); MTD RB at 5–9.
39
   In re: GR BURGR, 2017 WL 3669511, at *6–7 (“Where there are two 50% owners of a
company, an unbreakable deadlock can form a basis for dissolution even if the company is
still engaged in marginal operations.” (citing Phillips v. Hove, 2011 WL 4404034 (Del. Ch.
Sept. 22, 2011); Vila, 2010 WL 3866098; and Haley v. Talcott, 864 A.2d 86 (Del. Ch.
2004))); see also id. at *7 (explaining dissolution is appropriate where there are no
circumstances indicating that the parties would want to associate with each other in the
future); Fisk Ventures, LLC v. Segal, 2009 WL 73957, at *4 (Del. Ch. Jan. 13, 2009) (“If
a board deadlock prevents the limited liability company from operating or from furthering
its stated business purpose, it is not reasonably practicable for the company to carry on its
business.”); In re Silver Leaf, L.L.C., 2005 WL 2045641, at *10 (Del. Ch. Aug. 18, 2005)
(explaining a company that has a 50/50 ownership split and requires a majority for
decisions cannot continue to function as a business where the two sides disagree on how to
run it).
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C.A. No. 2022-0782-MTZ
January 20, 2023
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operations through compromise have failed—Thompson has offered to resume sales

on the condition that T&S is paid what it is owed and receives future assurances

regarding payment, but Robinson and RLC have not responded. And ancillary

disputes abound: RLC accuses T&S of overstating grade and footage, and T&S

accuses RLC of financial wrongdoing and secrecy. T&S endeavored to trigger a

buyout under the LLC Agreement, but the parties could not bring that to fruition.

Instead of working through their issues as Company managers, Robinson and

Thompson have filed lawsuits against one another. Robinson admits there is no

longer any trust among the managers.40 These allegations support the reasonable

inference that the Company’s managers and owners cannot resolve their disputes

and cannot work together.41

         The untenable situation between the two members is amplified by the 50/50

partnership structure of the LLC and the symbiotic nature of the joint venture. The

LLC cannot take any meaningful action without the two sides reaching unanimous

40
     Pet. ¶ 17.
41
  See Fisk Ventures, 2009 WL 73957, at *4 (finding dissolution is appropriate given the
parties’ history of discord and disagreement); Symbiont.io, Inc. v. Ipreo Hldgs., LLC, 2021
WL 3575709, at *58–59 (Del. Ch. Aug. 13, 2021) (explaining dissolution is appropriate
where any suggestion the parties could work together to operate the business is a
“fantasy”); In re Shawe, 2015 WL 4874733, at *26–28 (finding deadlock over issues
including distributions to members, pursuit of acquisitions, expense true-ups to reconcile
personal uses of company funds, and the hiring and retention of personnel).
In re: Dissolution of T&S Hardwoods KD, LLC,
C.A. No. 2022-0782-MTZ
January 20, 2023
Page 16 of 26

decisions, and the Company cannot operate unless T&S supplies lumber and the

managers work together to sell it. In the context of such an LLC structure, this Court

has found dissolution of a joint venture proper where the petitioner “has

demonstrated an indisputable deadlock between the two 50% members of the

LLC.”42 Dissolution is appropriate where, like here, the two members here have

stopped interacting and are instead engaged in litigation to resolve the disputes,

further demonstrating the need for judicial dissolution.43

          Respondents point to the fact that the Company can sell its current inventory

and continue operating for a time.44 But the existence of some ongoing business

does not preclude a finding of deadlock.45          Respondents also argue that the

42
  Haley, 864 A.2d at 88–89 (holding that dissolution is appropriate where 50/50 members
of an LLC involved in creating a business for their mutual benefit and profit were
deadlocked about the business strategy and future of the LLC).
43
     Id. at 96.
44
   In the Derivative Action, RLC acknowledges that T&S’s refusal to sell lumber to the
Company prevents the Company from fulfilling its purpose and continuing to operate. See
Verified Complaint Asserting Breach of Fiduciary Duty ¶ 62, Robinson Lumber Co., C.A.
No. 2022-0423-MTZ (Del. Ch. May 13, 2022) (D.I. 1) (“The Company was purposefully
built to purchase and process lumber only from T&S Inc. and cannot make ‘open market’
purchases of raw material. . . . [T&S and Thompson] possess several means to functionally
deny the Company from purchasing any lumber at all, posing a very real threat of driving
the Company into insolvency.”).
45
  Fisk Ventures, 2009 WL 73957, at *4 (explaining this Court has found dissolution
appropriate even where the LLC was still receiving rent checks and paying a mortgage
because the Company’s activity was “purely residual, inertial status quo”) (citing Haley,
864 A.2d at 91, 96).
In re: Dissolution of T&S Hardwoods KD, LLC,
C.A. No. 2022-0782-MTZ
January 20, 2023
Page 17 of 26

informational asymmetry Petitioners complain of is not new: the Company has

always operated with RLC and Robinson in charge of the Company’s books and

records.46 But Petitioners allege a new level of asymmetry, accusing Respondents

of ceasing to provide information about the Company’s finances, and terminating

T&S’s viewing access to the Company’s bank and loan accounts. Far from being

business as usual, these allegations reflect a continuing breakdown in the members’

and managers’ relationships. The Petition adequately alleges the managers are

deadlocked.

                  2.   As Pled, It Is Not Reasonably Practicable To Carry On The
                       Business In Conformity With The Parties’ Agreements.

         Respondents also argue the Petition should be dismissed because T&S “does

not adequately allege that is it not reasonably practicable to carry on the business of

the company in conformity with the LLC Agreement.”47 Respondents point to the

language in the LLC Agreement stating the Company’s purpose is “to engage in any

lawful activities for which limited liability companies may be formed under the Act,”

and asserts this broad purpose has not been frustrated.48 This technical argument

fails in the face of the JV Agreement and other evidence that the Company’s purpose

46
     MTD RB at 7–9.
47
     MTD OB at 13–18; see also MTD RB at 14–16.
48
     MTD OB at 16 (quoting LLC Agr. § 1.3).
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January 20, 2023
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is to buy lumber from T&S and sell it to RLC and other third parties. The Petition

alleges it is not reasonably practicable to carry on this business.

           Judicial dissolution is appropriate “where the defined purpose of the entity

was fulfilled or impossible to carry out.”49 “When analyzing purpose, the Court

looks to the parties’ foundational contractual agreement and asks whether it is

reasonably practicable to carry on the business in line with that purpose, not whether

‘the purpose . . . has been completely frustrated.’”50 While the purpose clause in an

organizational document provides evidence of an LLC’s purpose, other additional

evidence may be used to inform the analysis.51 The analysis should not be limited

to the purpose clause of an LLC agreement where doing so would resolve the dispute

on a technicality.52

           The LLC Agreement’s purpose clause is broad, stating the Company’s

purpose is “to engage in any lawful activities for which limited liability companies

49
  Meyer Nat. Foods, 2015 WL 3746283, at *3 (quoting In re Seneca Invs. LLC, 970 A.2d
259, 262–63 (Del. Ch. 2008) (footnote omitted)).
50
     Id. (quoting Fisk Ventures, 2009 WL 73957, at *4 (internal quotation marks omitted)).
51
   See id. (explaining, under this Court’s precedent, “the purpose clause is of primary
importance, but other evidence of purpose may be helpful as long as the Court is not asked
to engage in speculation”).
52
     Id.
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January 20, 2023
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may be formed under the Act.”53 But the JV Agreement provides that the parties

entered into it “[t]o induce [the Company], RLC and T&S to enter into the LLC

Agreement.”54 The LLC Agreement is subordinate to the JV Agreement in this

way.55 And the JV Agreement lays out logistics related to T&S’s provision of

lumber to the Company and RLC’s ability to purchase that lumber, making clear that

the Company’s purpose was to buy lumber from T&S and sell it to RLC and third

parties.56 Indeed, Respondents have recognized that the failure of the Company to

pay T&S for lumber sold to the Company and T&S’s corresponding refusal to

continue to sell lumber to the Company “eliminate[s] the entire purpose of the [j]oint

[v]enture.”57

         The Company’s purpose was to operate a joint venture between T&S and

RLC, based on a supply and distribution arrangement of lumber between T&S and

53
     LLC Agr. § 1.3 (emphasis added).
54
     JV Agr., Recital C.
55
   Simon v. Navellier Series Fund, 2000 WL 1597890, at *7–8 (Del. Ch. Oct. 19, 2000)
(explaining agreements entered into contemporaneously must be viewed together and in
their entirety and finding that an indemnification agreement is subordinate to a declaration
of trust where the indemnification agreement was entered into because of the declaration
of trust).
56
     JV Agr. §§ 3.2, 3.3.
57
  Pet. ¶ 50; Verified Complaint Asserting Breach of Fiduciary Duty ¶ 40, Robinson
Lumber Co., C.A. No. 2022-0423-MTZ (Del. Ch. May 13, 2022) (D.I. 1).
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the Company. Because the Company is not paying T&S, T&S will no longer provide

the Company with lumber.            Petitioners have made a prima facie case for

dissolution.58

               3.     The LLC Agreement Does Not Offer An Exit Mechanism
                      That Precludes Dissolution.

         Respondents contend the LLC Agreement’s Buy-Sell Purchase Option

requires dismissal of the petition because it offers an exit mechanism that resolves

the deadlock.59 Respondents point to the Buy-Sell Purchase Option in Article VIII

of the LLC Agreement as a valid exit mechanism, requiring dismissal of this action.

The Buy-Sell Purchase Option provides,

         Each Member shall have the right . . . to give written notice to any other
         Member offering to purchase all of the Membership Interest owned by
         the other Member or to sell all of his or her Membership Interest to the
         other Member in accordance with the procedures in this Article VII.60

After receiving the notice, the non-offering member may elect to either sell all of its

membership interest to the offering member or to buy all of the offering member’s

58
   Meyer Nat. Foods, 2015 WL 3746283, at *5; see also In re Silver Leaf, 2005 WL
2045641, at *11 (finding a company as formed for the specific purpose of making Tasty
Fries vending machines and that the purpose was frustrated when that opportunity no
longer existed).
59
     MTD OB at 14 n.7; MTD RB at 9–14.
60
     LLC Agr. § 8.1
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membership interests, at the price and upon the other terms and conditions specified

in the notice.61

          Respondents are correct that “the presence of a reasonable exit mechanism

bears on the propriety of ordering dissolution under 6 Del. C. § 18-802.”62 In

deciding whether Petitioners have pled a claim for dissolution, I must consider

whether a viable exit mechanism exists.63 The exit mechanism must also be

equitable in its operation.64 That is, “[t]o obtain dismissal of a petition for judicial

dissolution based on a contractual exit plan, however, the movant must demonstrate,

61
     Id. at § 8.3.
62
  Seokoh, Inc. v. Lard-PT, LLC, 2021 WL 1197593, at *12 (Del. Ch. Mar. 30, 2021)
(quoting Haley, 864 A.2d at 96).
63
     Id. at *10 (citing Haley, 864 A.2d at 96).
64
   See Haley, 864 A.2d at 95 (“[T]he presence of a reasonable exit mechanism bears on the
propriety of ordering dissolution under 6 Del. C. § 18-802. When the agreement itself
provides a fair opportunity for the dissenting member who disfavors the inertial status quo
to exit and receive the fair market value of her interest, it is at least arguable that the limited
liability company may still proceed to operate practicably under its contractual charter
because the charter itself provides an equitable way to break the impasse.”); Seokoh, 2021
WL 1197593, at *8 (explaining this Court “has emphasized that a judicial decree of
dissolution is typically inappropriate when the entity’s constitutive documents provide an
equitable and effective means of overcoming the deadlock.” (citations omitted) (emphasis
supplied)); Vila, 2010 WL 3866098, at *8 (“Of course, the existence of a deadlock would
not necessarily justify a dissolution if the LLC Agreement provided a means to resolve it
equitably.” (citations omitted) (emphasis added)).
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as a matter of law, that the exit mechanism ‘can actually extract [the parties]

fairly.’”65

         Respondents rely on In re Doehler Dry Ingredient Solutions, LLC66 to argue

the Buy-Sell Provision is a valid exit mechanism.67 The LLC agreement in that case

also provided a buy-sell option that, upon exercise by one member, triggered an

obligation in the non-offering members to either purchase the offering member’s

units or sell their own. But importantly, the buy-sell provision in In re Doehler was

mandatory “in the event that the Members become deadlocked with respect to any

decision that materially and adversely affects the Corporation’s business as a result

of their dispute.”68

         Here, the Company’s Buy-Sell Provision is optional at all times, even in the

case of deadlock. The LLC Agreement does not force a buyout of any member upon

deadlock. Instead, it gives each member an option that it may exercise at any time—

or not.69 As this Court explained in Fisk Ventures, LLC v. Segal, “[i]t would be

inequitable for this Court to force a party to exercise its option when the party deems

65
     Seokoh, 2021 WL 1197593, at *12 (citing Haley, 864 A.2d at 96).
66
     2022 WL 4281841 (Del. Ch. Sept. 15, 2022).
67
     MTD RB at 10–11.
68
     In re Doehler, 2022 WL 4281841, at *8.
69
     Fisk Ventures, 2009 WL 73957, at *5.
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it in its best interest not to do so.”70 The Buy-Sell Purchase Option does not provide

an exit mechanism that the parties agreed, ex ante, would resolve their deadlock.

They simply agreed either member could exercise the option if and when it suited

that member.

           Finally, the Buy-Sell Purchase Option would not allow Thompson to separate

himself from the Company. In Haley v. Talcott, even though the exit mechanism

allowed a member to sell his interest to the other member at fair market value, this

Court found the exit mechanism was not equitable because the member would

continue to be personally liable on a bank guaranty.71 Because the leaving member

“would still be left holding the bag on the guaranty,” this Court determined it would

be inequitable to force the member to use the exit mechanism in this circumstance

and, therefore, it was not an adequate remedy.72 Similarly, here, even if the Court

were to force T&S and Thompson to exercise its option in the Buy-Sell Provision,

Thompson would still be personally liable as a guarantor on the Company’s credit

agreement. That is, the Buy-Sell Provision is not an adequate remedy at law because

it will not “equitably effect the separation of the parties” as it could leave Thompson

70
     Id.
71
     864 A.2d at 97–98.
72
     Id.
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as a departing member “with no upside potential, and no protection over the

considerable downside risk” of having to cure any default by the Company.73

          In sum, it would be inequitable and against the contract language to force the

parties to engage in the optional Buy-Sell Provision, so it does not foreclose

dissolution.74

                  B.   The Delaware Actions Are Consolidated.

          In the alternative, Respondents argue this case should be stayed in favor of

the first-filed Derivative Action and Georgia Action, which they contend require the

settlement of the same factual and legal questions at issue in the petition.75

Petitioners oppose any stay of this action. The Court shares Respondents’ concerns

to some extent and recognizes the extensive factual overlap between the cases—

73
     Id. at 98.
74
   The fact the parties are deadlocked and there is no mechanism in the LLC Agreement to
resolve the deadlock also provides another reason the parties cannot operate the Company
in conformity with the LLC Agreement. See Vila, 2010 WL 3866098, at *7 (“[W]hen an
LLC agreement requires that there be agreement between two managers for business
decisions to be made, those two managers are deadlocked over serious issues, and the LLC
agreement provides no alternative basis for resolving the deadlock, it is not ‘reasonably
practicable’ to continue to carry on the LLC business ‘in conformity with [its] limited
liability company agreement.’” (second alteration in original) (citations omitted)).
75
     MTD OB at 18–22; MTD RB at 23–26.
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especially the two Delaware cases. Petitioners acknowledged this overlap and risk

of inconsistent factual findings.76

          As a result of these concerns and the discussion at the hearing, the Court

proposed that in lieu of a stay, the Delaware actions be consolidated.77 The parties

agreed consolidation would be both efficient and appropriate given the unique

circumstances of the case.78          Because the parties agree consolidation is an

appropriate way to address the concerns underlying Respondents’ request to stay, I

deny this portion of Respondents’ motion. I will consolidate this case with the

Derivative Action and provide the parties with an opportunity to propose a schedule

and amend any pleadings as necessary, including requesting dissolution as relief.

        III.   CONCLUSION

        For the foregoing reasons, the motion is DENIED. Additionally, this case will

be consolidated with Robinson Lumber Company, Inc. v. Thompson, No. 2022-0423-

MTZ (Del. Ch.). The parties should confer on a schedule to proceed in that case.

76
     D.I. 27 at 61.
77
     Id. at 78–82.
78
     Id. at 79, 82.
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                                            Sincerely,

                                            /s/ Morgan T. Zurn

                                            Vice Chancellor

MTZ/ms

cc: All Counsel of Record, via File & ServeXpress