Judge Davis Denies Motion to Dismiss Breach of Contract Claims Stemming from LLC Dispute
February 21, 2023
Publication| Commercial Litigation
In Connorex-Lucinda, LLC v. Rex Res Holdings, LLC, et al., C.A. No. N22C-01-186 EMD CCLD, Judge Davis denied the defendants’ motion to dismiss the plaintiff’s breach of contract claims. The underlying dispute arose after Connorex-Lucinda, LLC and REX Res Holdings, LLC entered into an LLC agreement to create joint venture Rex Residential Venture, LLC (“Venture”). As part of the agreement, REX Holdings agreed to fund 98% of Venture’s anticipated capital in exchange for the exclusive right to make business decisions on the company’s behalf. Connorex, on the other hand, agreed to fund the remaining 2% and supervise Venture’s day-to-day operations. After Venture sold all its assets for a sizable sum, Connorex sent a letter to Venture and REX Holdings requesting reimbursement for certain property-related expenses. Connorex alleged that Venture expended all its anticipated capital and that Connorex had to borrow money from its affiliates to cover Venture’s expenses. Both Venture and REX Holdings refused to reimburse Connorex, and litigation ensued.
In seeking dismissal of Connorex’s breach of contract claims, the defendants raised three primary arguments: (1) Connorex lacked standing, as it did not suffer an injury in fact; (2) Connorex failed to join its creditor affiliates, whom the defendants alleged were necessary and indispensable parties; and (3) Connorex’s claims were barred under the Delaware Limited Liability Company Act and the parties’ LLC agreement. The Court disagreed.
First, Judge Davis determined that Connorex had standing because Connorex’s injury in fact was its newfound responsibility to repay its affiliates. Second, Judge Davis determined that joinder of Connorex’s creditors was not required because the Court could grant complete relief against the currently named parties. Finally, Judge Davis found that Connorex’s breach of contract claims were well pled. After reading the plain language of the LLC Act, Judge Davis determined that the parties’ LLC agreement controlled whether the defendants could be held liable for Connorex’s debt. The Court found that, at such an early stage of the proceedings, Connorex’s allegations of incurred expenses, if taken as true, would entitle Connorex to recover under the parties’ agreement. Accordingly, the Court denied the defendants’ motion.
Analysis: As the sister court to Delaware’s Court of Chancery, the CCLD typically handles disputes arising under LLC agreements where money damages are the requested remedy. While parties had historically sought to manufacture Chancery jurisdiction over such disputes, the CCLD has seen an increase in such cases as the Court of Chancery confirms the limits on its jurisdiction.