Dear Counsel:

SAM GLASSCOCK III, VICE CHANCELLOR.

The matter before me concerns whether the language of an LLC agreement prescribed the sole manner by which the company's members could vote their shares, preempting the statutory default, which favors action by written consent, as found in the Delaware Limited Liability Company Act (the "Act").

I. FACTS

Dr. Leena Paul, the Plaintiff, was a shareholder and member of Delaware Coastal Anesthesia, LLC (the "LLC") from at least June 5, 2007 to August 17, 2011. The LLC members comprised the Plaintiff and the three individual Defendants. Dr. Paul and the individual Defendants each owned 25% of the LLC.

Exhibit E, Section 8(a), of the LLC's operating agreement (the "Operating Agreement") states that a member of the LLC can be terminated without cause "at any time upon ninety (90) days written notice by . . . the Company acting by vote of seventy-five percent (75%) of the holders of the Company's Shares."1 On April 25, 2011, the three individual Defendants, representing 75% of the shares, voted or agreed by written consent to terminate Dr. Paul's membership in the LLC. The individual Defendants then sent Dr. Paul written notice of her termination.

II. STANDARD OF REVIEW

The issue is whether the individual Defendants' vote was effective to terminate Dr. Paul's membership. Dr. Paul contends that the Operating Agreement required a member meeting for any vote to be effective; the Defendants argue that they could act by written consent under the Act. Accordingly, the question before me is a matter of contract and statutory law.2 As this issue is purely one of law, a decision on a motion to dismiss is, therefore, appropriate.3

The pleading standard at the motion to dismiss stage is a minimal one.4 It requires this Court to deny the motion if there is any reasonably conceivable set of circumstances under which the plaintiff would be entitled to recover.5 In making my determination, I draw all reasonable inferences in favor of the Plaintiff, and accept all well pled factual allegations as true.6 I also consider documents "integral to [the P]laintiff's claim and incorporated into the complaint."7

III. ANALYSIS

Dr. Paul asserts that the individual Defendants breached the Operating Agreement because that agreement does not allow the LLC members to vote by written consent. She argues that the Operating Agreement only allows members to vote their shares at a member meeting. Dr. Paul specifically points to Section 7.8, which addresses "Notice of Meetings", and Section 7.12, which addresses "Voting of Membership Shares".

Section 7.8 provides that notice of meetings must be given to each member "not less than seven (7) days before the date of the meeting" and that the notice must state the "place, date, and hour of the meeting, and in the case of a special meeting, the purpose or purposes for which the meeting is called."8 Section 7.12 states:

Dr. Paul contends that the individual Defendants' vote is void because no membership meeting was held and because proper notice of the action was not given to the members.10

The Defendants assert that the individual Defendants' action by written consent is effective under § 18-302 of the Act, which provides:

If § 18-302 controls, the "vote" by which members (representing 75% of the interest in the LLC) could terminate a member could be taken by written consent, and the termination of Dr. Paul was therefore effective. The only question before me is whether the Operating Agreement "otherwise provided" for the manner in which votes must be taken, thus preempting the statute. In making my determination of whether the Operating Agreement controls how the members may vote, or whether the statutory default applies, I note that our law provides that LLCs are contractual in nature11 and that an LLC's members have wide latitude to craft the members' rights and obligations.12 The Act, on the other hand, exists as a "gap filler," supplying terms not fully explicated in an LLC agreement.13 As this Court noted in Achaian, Inc. v. Leemon Family LLC, "the default rule [of the Act] may be displaced by the provisions of an LLC agreement itself[, but] in the event of a conflict, the LLC agreement prevails."14

Citing sections 7.8 and 7.12 of the Operating Agreement, which provide the procedure by which meetings of the members may be held, Dr. Paul argues that the Operating Agreement prohibits action by written consent. But this argument begs the question of whether votes must be taken only at such meetings, preempting the statutory default. The Defendants argue that the Operating Agreement does not prevent the individual Defendants from acting by written consent, and in fact contemplates action by that method. The Defendants point to Section 7.9 of the Operating Agreement, which addresses "Fixing of Record Date," and Section 7.11, which addresses "Proxies," both of which state that members can "express consent to Company action in writing without a meeting." Beyond requiring a vote of 75% of the membership interest, the provision under which Dr. Paul's interest was purportedly terminated, Exhibit E, Section 8(a), of the Operating Agreement, is by contrast silent as to the method by which voting members may terminate a member. Reading the Operating Agreement as a whole, I do not find that it dictates the method by which votes terminating membership must be taken. Certainly nothing in the Operating Agreement specifically disallows votes by written consent.

In other words, I find that the Operating Agreement does not "otherwise provide," so as to preempt, actions by written consent to terminate a member.15 Accordingly, with respect to a vote to terminate, as "on any matter that is to be voted on . . . the members may take such action without a meeting, without prior notice and without a vote if consented to, in writing . . . by members having not less than the minimum number of votes that would be necessary" to take the action. Having found that the members could act by written consent, I therefore find that the vote by written consent of 75% of the members to terminate Dr. Paul as a member was valid under Exhibit E, Section 8(a), of the Operating Agreement. There being no conceivable set of facts under which Dr. Paul could recover, the motion to dismiss is granted.

IT IS SO ORDERED.