October 01, 2019

MONTH-IN-BRIEF: Corporations, LLCs & Partnerships

Tarik Haskins

Limited Liability Companies

Executed LLC Agreement Deemed Invalid

By Ryan Maerz

In Eagle Force Hldgs., LLC et al. v. Campbell, C.A. No. 10803-VCMR, 2019 WL 4072124 (Del. Ch. Aug. 29, 2019), the Delaware Court of Chancery (the “Court”), on remand from the Delaware Supreme Court (see Eagle Force Hldgs., LLC et al. v. Campbell, No. 399, 2017, 187 A.3d 1209 (Del. May 24, 2018), held that a limited liability company agreement signed by the parties (the “LLC Agreement”) was invalid.  The Court based its determination on the “standard for determining whether a valid contract exists” set forth in Osborn ex rel. Osborn v. Kemp, 991 A.2d 1153 (Del. 2010), which requires that “(1) the parties intended that the contract would bind them, (2) the terms of the contract are sufficiently definite, and (3) the parties exchange legal consideration” (the “Osborn Test”).  The Supreme Court’s guidance on remand instructed to the Court to disregard “post-signing evidence,” and indicated that “a signed writing … generally offers the most powerful and persuasive evidence of the parties’ intent to be bound.”  Applying the Osborn Test and the Supreme Court’s guidance, the Court nevertheless determined, based on the conduct of the parties prior to and contemporaneous with the signing of the LLC Agreement, that they “had not completed their negotiation” of the LLC Agreement despite having signed it; and therefore, the LLC Agreement was not a valid contract.

Tarik Haskins

Partner; Morris, Nichols, Arsht & Tunnell LLP

Tarik is a partner in the Commercial Law Counseling Group. His practice covers a range of commercial transactions including mergers and acquisitions, secured financings, joint ventures, and business counseling.