On May 29, 2012, the Delaware Court of Chancery issued a decision in a case that concerned whether the language in the operating agreement of a limited liability company (LLC) prescribed the sole manner by which the LLC's members could vote, preempting the statutory default provisions that allow for action by written consent.
The plaintiff and the three defendants were the members of a Delaware LLC, with each owning 25 percent of the LLC's interests. The LLC's operating agreement provided that a member could be terminated without cause by a vote of 75 percent of the company's interests. In early 2011, the three defendants, representing 75 percent of the interests, voted by written consent to terminate the plaintiff's membership in the LLC.
The operating agreement contained provisions for voting at meetings but was silent as to actions by written consent. The plaintiff contended that the operating agreement required a members' meeting for any vote to be effective, whereas the defendants argued that they could act by written consent under Section 18-302 of the Delaware Limited Liability Company Act (DLLCA), which states that members may act by written consent unless "otherwise provided" by an operating agreement.
In its analysis, the court noted that Delaware law provides that LLCs are contractual in nature and that an LLC's members have wide latitude to craft the members' rights and obligations. The court noted that the DLLCA, on the other hand, exists as a "gap filler," supplying terms not fully explicated in an operating agreement. The court stated that the default rule of the DLLCA may be displaced by the provisions of an operating agreement, but in the event of a conflict, the operating agreement prevails.
Finding that nothing in the operating agreement specifically disallowed votes by written consent, the court held that the operating agreement did not "otherwise provide" so as to preempt actions by written consent, and therefore the action by written consent to terminate the plaintiff was effective.