Poppiti v. Conaty: Chancery Court Declines to Apply the Doctrine of Quantum Meruit When There Is an Express Agreement
May 22, 2013
In a brief letter opinion, the Court of Chancery granted partial summary judgment to the liquidating trustee of a dissolved LLC and instructed him to distribute the assets of the LLC in accordance with Section 18-804 of the Delaware LLC Act, as contemplated by the LLC’s liquidation agreement. In so holding, the Court declined to apply the doctrine of quantum meruit where the evidence showed the existence of an express agreement among the parties.
The dispute arose from the 2010 dissolution of a law firm in which Thomas Conaty and James Curran had been the sole members. Under the firm’s operating agreement, Conaty and Curran split the firm’s profits evenly between them. On September 24, 2010, Conaty and Curran entered into a liquidation agreement under which a liquidating trustee was appointed. The liquidation agreement provided, in relevant part, that the liquidating trustee should distribute firm assets in accordance with Section 18-804 of the LLC Act.
The parties disputed the distribution of a substantial award of fees resulting from the 2011 settlement of litigation. The liquidating trustee sought to distribute the award equally between Conaty and Curran. Conaty objected, however, and argued that he was entitled to receive the full award because he had done substantial post-dissolution work on behalf of his clients in connection with the litigation. The Court found that Curran had not waived his interest in the fees.
In his brief, Conaty conceded that the award was a firm asset. The Court concluded that the liquidating trustee’s decision to distribute firm assets to members in proportion to their interests in the firm was “consistent with his obligations under the Liquidation Agreement.” The Court noted that contrary to Conaty’s assertion that the liquidation agreement did not address the distribution issue, the liquidation agreement plainly provided that the liquidating trustee should distribute firm assets in compliance with Section 18-804 of the LLC Act. Thus, as the Court explained, the liquidating trustee should make distributions first to the firm’s creditors, second to reimburse members’ capital contributions, and then third to the members in proportion to their interests in the firm.
Similarly, in declining to apply the doctrine of quantum meruit, the Court found no evidence to support Conaty’s claim that his post-dissolution work rendered him a creditor of the firm. Quantum meruit, a quasi-contractual principle of restitution, serves as a basis for recovery to prevent unjust enrichment. In order to recover in quantum meruit, “the performing party under a contract must establish that it performed services with an expectation that the receiving party would pay for them, and that the services were performed under circumstances that should have put the receiving party on notice that the performing party expected the recipient to pay for those services.” Avantix Laboratories, Inc. v. Pharmion, LLC, 2012 WL 2309981, at *10 (Del. Super. June 18, 2012) (internal citations omitted). Typically, the doctrine of quantum meruit only applies where there is no express agreement between the parties. Here, the Court found that the liquidation agreement expressly vested the liquidating trustee with the sole authority to act on the firm’s behalf in winding up the affairs of the firm, including with regard to the distribution of profits. As such, the Court held that the application of the doctrine of quantum meruit would be improper and ordered the liquidating trustee to distribute residual firm assets to the members in proportion to their membership interests.