C.A. No. 3751-CC (Del. Ch. December 5, 2008)

TravelCenters of America LLC (“Plaintiff”) brought suit against Timothy E. Brog (“Brog”), E2 Investment Partners LLC, Locksmith Value Opportunity Fund LP, The Edward Andrews Group Inc. and Pembridge Value Advisors LLC (collectively, “Defendants”), claiming that Defendants, who owned stock in Plaintiff, owed indemnification to Plaintiff for their faulty notice (the “Notice”) that purported to nominate Brog and Jeffrey S. Walk for election to Plaintiff’s board of directors (the “Board”). Section 9.7 of Plaintiff’s Amended and Restated Limited Liability Company Agreement (the “LLC Agreement”) detailed specific requirements for a shareholder to nominate a person to the Board. A previous declaratory judgment held that the Notice violated Section 9.7 in several respects, and Plaintiff sought indemnification under the section of the LLC Agreement providing for recovery of fees and expenses relating to the breach of any provision of the LLC Agreement.

The court distinguished between promises and conditions under a contract. Promises give rise to a duty to perform, and conditions are events that must occur before a party is obligated to perform. The court concluded that the provisions of Section 9.7 of the LLC Agreement were conditions to Plaintiff’s performance but not promises made by shareholders (as the members were called in the LLC Agreement). While proper notice was a condition to nominating a person for election as a director, giving proper notice was not an independent promise made by Defendants to Plaintiff. Both a “common sense” reading of the text of Section 9.7 of the LLC Agreement and the absence of any promise made by Defendants, as shareholders, led to the conclusion that Defendants did not “breach” Section 9.7 of the LLC Agreement by failing to meet the technical requirements of that section when purporting to nominate the new directors. Rather, their failure to meet the conditions of a proper notice simply made the notice invalid and insufficient and therefore of no force or effect.

The full opinion is available here.