In this memorandum opinion, the Court of Chancery granted the plaintiffs’ request under 6 Del. C. Section 18-802 for judicial dissolution of BVWebTies LLC (“WebTies”), a Delaware limited liability company, where, due to a deadlock between WebTies’ co-equal owners and managers and the absence of any mechanism in the WebTies LLC agreement (the “LLC Agreement”) by which to break the deadlock, it was not reasonably practicable for WebTies to continue operating in conformity with the LLC Agreement and judicial dissolution was warranted.
The plaintiffs, Robert J. Vila (“Vila”) and BV.com LLC, owners of a 49% interest in WebTies, and defendants George J. Hill (“Hill”) and JHill.com LLC, also owners of a 49% interest in WebTies, formed WebTies to run BobVila.com, a home improvement website premised on building around the name and reputation of home improvement expert Bob Vila. To help further WebTies’ goal, Vila executed a licensing agreement (the “License Agreement”) with WebTies, thereby allowing WebTies to use Vila’s name, image, and likeness, as well as a trademark in the name “Bob Vila” in WebTies’ operations. The License Agreement provided that Vila could terminate the License Agreement for any reason or no reason. Hill agreed to this provision of the License Agreement on WebTies’ behalf.
The LLC Agreement named Vila and Hill as WebTies’ initial managers. No additional managers were ever named. Under the terms of the LLC Agreement, any actions taken by WebTies’ managers required the affirmative vote of a majority of the managers. Thus, Vila and Hill needed to agree for WebTies to take any action or make any decision regarding the course of WebTies’ business.
Following the cancellation of Vila’s syndicated home improvement television show, WebTies experienced several years of declining sponsorship and declining income. In response to these deteriorating conditions, Vila sought to reinvent BobVila.com and expand WebTies’ operations. Vila’s vision included hiring an experienced manager, investing additional capital in WebTies, and relocating WebTies’ offices. Hill, on the other hand, wanted to maintain the status quo. Unable to reach an agreement with Hill regarding WebTies’ operations, Vila terminated the License Agreement and sought judicial dissolution of WebTies in the Court of Chancery. Hill, however, continued managing WebTies in the direction Hill saw fit, without Vila’s approval, and continued using Vila’s intellectual property in WebTies’ operations.
Finding that Hill had unilaterally taken sole decision-making authority over WebTies and that Hill was pursuing a business strategy that Vila opposed, Vice Chancellor Strine agreed with the plaintiffs that it was not reasonably practicable for Vila and Hill to agree on a business strategy as the LLC Agreement required. Vice Chancellor Strine explained that even though WebTies was operating at a profit under the business strategy Hill imposed, the Court of Chancery rejects the notion that a co-equal fiduciary may ignore the terms of an operating agreement and take unilateral authority over the entity’s operations. Thus, because WebTies’ co-equal managers were deadlocked about serious strategic initiatives and the LLC Agreement failed to provide any means to equitably resolve the deadlock, the Court of Chancery found that judicial dissolution of the limited liability company was warranted.
In addition, the Court of Chancery rejected Hill’s counterclaims for breach of the express and implied terms of the LLC Agreement and breach of fiduciary duty against Vila. The Court of Chancery found that Hill acquiesced in Vila’s conduct that allegedly violated the LLC Agreement, Vila did not impermissibly compete with WebTies, Hill failed to allege or establish any damage to WebTies resulting from Vila’s actions, and Vila did not seek dissolution in bad faith.
The Court of Chancery, however, denied Vila’s post-trial motion for injunctive relief to permanently enjoin WebTies from using Vila’s intellectual property. Vila’s failure to raise the issue pre-trial did not allow the court to address the balance of the harms between the parties, thereby leaving the court unsure about the consequences of an injunction.
The full opinion is available here.