Delaware Chancery Court’s contractarian approach to all things LLC, embedded statutorily in Section 18-1101(b) of the Delaware LLC Act (“It is the policy of this chapter to give the maximum effect to the principle of freedom of contract and to the enforceability of limited liability company agreements”), has been no less forceful in its rich body of caselaw tethering LLC members to the text of their operating agreement when addressing applications for judicial dissolution of LLCs under Section 18-802 of the Act.

Section 18-802, which closely resembles New York’s LLC Law Section 702, authorizes Chancery to decree dissolution of an LLC “whenever it is not reasonably practicable to carry on the business in conformity with a limited liability company agreement.” In a string of seminal decisions including Haley (2004), Silver Leaf (2005), Seneca (2008) Fisk Ventures (2009), and Arrow (2009), Chancery developed a two-prong standard for judicial dissolution either where there exists deadlock that prevents the LLC from operating with no mechanism in the operating agreement to break deadlock, or where the LLC’s purpose as defined in the operating agreement cannot be carried out.

In Vice Chancellor Laster’s 2015 Carlisle opinion, which I wrote about here, the court broke new, not-so-contractarian ground by holding that it could order the dissolution of an LLC under the court’s traditional equity jurisdiction at the behest of a non-member assignee of a membership interest who otherwise lacked standing to seek dissolution under Section 18-802.

But that’s not the sort of equitable dissolution I want to focus on. The sort I have in mind is where the court entertains and grants a statutory claim for judicial dissolution of an LLC where the facts don’t fit neatly or at all the articulated standard yet the equities as between the parties demand dissolution as a matter of good old-fashioned fairness. Delaware’s contractarian LLC jurisprudence does not welcome that definition of equitable dissolution, nor can I point to any examples of Chancery decisions that fit that bill.

Until now, at least arguably.

In a post-trial opinion handed down earlier this month by Vice Chancellor Will in Gibson v Konick, the court ordered dissolution of an LLC formed for the purpose of owning a vacation home. The LLC had two, formerly romantically involved, 50/50 members. The operating agreement named one of them sole manager, hence there was no deadlock as that term is normally used to refer to the contractual inability to exercise managerial authority. The operating agreement’s stated purpose was to acquire, develop, and own residential property. Those purposes either were achieved or remained attainable.

So how did the court conclude grounds for dissolution under Section 18-802? As I see it, in a word: fairness.Continue Reading Did Chancery Court Just Crack Open the Door to Equitable Dissolution of LLCs?