This is the story of a deadlock resolution provision that backfired. It is a long story — 94 pages long to be exact. That is the length of Chancellor Bouchard’s characteristically detailed and thorough post-trial opinion issued last week in Acela Investments v DiFalco, C.A. No. 2018-0558-AGB [Del Ch May 17, 2019], in which he ordered the dissolution of a deadlocked start-up developer of abuse-deterrent opioid pain medications after finding that the LLC agreement’s deadlock resolution provision had planted the seeds of its own demise.
The Delaware limited liability company involved in Acela is named Inspirion Delivery Services (IDS) which owns two FDA-approved drugs. The venture was co-founded by a chemical engineer (DiFalco), a pharmaceutical industry scientist (Shah), and a pharmaceutical industry executive (Aigner). IDS attracted tens of millions of private equity dollars to fund drug development and the long and taxing drug-approval process. By the time of the lawsuit, only one of IDS’s two approved drugs was in production with limited commercial success.
IDS’s “Bespoke Governance Structure”
IDS’s LLC agreement contains what Chancellor Bouchard described as a “bespoke governance structure” in which Aigner as CEO and DiFalco as President performed their duties subject to each other’s “advice and consent,” and either Aigner alone or DiFalco and Shah together can veto any action of the IDS board of managers.