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Florida R&D Fund Investors, LLC v. Florida BOCA/Deerfield R&D Investors LLC

Court of Chancery of Delaware

August 30, 2013

Florida R&D Fund Investors, LLC
v.
Florida BOCA/Deerfield R&D Investors, LLC, et al.

Submitted: May 10, 2013

Dear Counsel:

Plaintiff Florida R&D Fund Investors, LLC ("R&D"), a member of Defendant Florida BOCA/Deerfield R&D Investors, LLC (the "Joint Venture"), brought a books and records action under 6 Del. C. § 18-305 and the Joint Venture's limited liability company agreement. R&D seeks two categories of books and records that are in the possession and control of Defendant HDG Mansur Investment Services, Inc. ("Investment Services"), which, until recently, managed the Joint Venture's assets. R&D offers two reasons to support its inspection requests: appointing a new asset manager and investigating and determining the extent of possible mismanagement at the Joint Venture.

The primary question focuses on whether this Court has jurisdiction over Investment Services, an Indiana corporation, under either Delaware's long-arm statute or its Limited Liability Company Act (the "LLC Act").[1] Whether the LLC Act confers jurisdiction will depend upon whether Investment Services is a manager of the Joint Venture or whether its asset management activities constitute material participation in the management of the Joint Venture.

Defendants, other than the Joint Venture, have moved to dismiss under Court of Chancery Rules 12(b)(2) and 12(b)(6).

I. BACKGROUND[2]

A. Parties

R&D holds an approximately 87% interest as a member in the Joint Venture. The Joint Venture, a Delaware limited liability company, "was formed to invest in, own, develop, and operate a real estate project" in Florida (the "Project").[3] The other Defendants (the "HDG Defendants") are companies affiliated with, and under the control of, Harold D. Garrison ("Garrison").[4] The HDG Defendants' primary location is Indianapolis, Indiana.[5]

Defendant HDG Florida Research, LLC ("HDG Florida") and Defendant HDG Florida Research II, LLC ("HDG Florida II") are Delaware limited liability companies and members of the Joint Venture (collectively, the "HDG Members"). The HDG Members hold an approximately 13% interest in the Joint Venture. Defendant HDG Mansur Properties, Inc. ("HDG Properties") is an Indiana corporation. Defendant HDG Mansur Capital Group, LLC ("HDG Capital") is a Delaware limited liability company. HDG Capital guaranteed certain obligations of the HDG Members and HDG Properties. Investment Services, until its recent termination, served as asset manager for the Joint Venture and its subsidiary companies (collectively, the "Group Companies").[6]

B. The Relevant Agreements

1. The LLC Agreement

The Joint Venture was created in March 2008 and is governed by the LLC Agreement, [7] which allows for the books and records of the Joint Venture to be maintained by a third party selected by the Board of Directors.[8] Section 5.3 of the LLC Agreement provides that:

• The Board of Directors shall cause to be kept full and accurate records of the Group Companies' affairs.
• The Group Companies' books and records, this Agreement and the Certificate of Formation and all amendments thereto, the Master Lease Financing Documentation, and all other records required to be maintained by [the Joint Venture] and the other Group Companies pursuant to the LLC Act shall be maintained or caused to be maintained by the Board of Directors and shall be made available to the Members at a reasonable location.
• The Members, their internal staff and their counsel and accountants shall have the right at any time during normal business hours to inspect and audit all such books and records, to make copies thereof and to take extracts therefrom.
• The Board of Directors shall ensure that all deeds, Leases, contracts, title matters, surveys and other documentation, records and financial information relating to the ownership, maintenance, development and sale of Properties are maintained in safekeeping and organized and accessible to the Members.
• The Board of Directors shall promptly deliver to the Members, upon request, and at the expense of [the Joint Venture], a copy of the information required to be maintained by the LLC Act and this Agreement.

2. The Asset Management Agreement

The LLC Agreement anticipated that Investment Services would provide asset management services for the Group Companies.[9] In March 2008, the Joint Venture and Investment Services executed the Asset Management Agreement, [10] which was then incorporated into the LLC Agreement.[11]

Investment Services was required under the Asset Management Agreement to "advise [the Joint Venture] and the other Group Companies on how best to preserve and enhance the asset value of the Properties and to provide asset management services to the Joint Venture and the other Group Companies."[12] The Asset Management Agreement states that Investment Services "is an independent contractor and is not acting as agent, partner, joint venturer, lessee, coprincipal, or associate of any Group Company or any person claiming by, through or under any Group Company, in the conduct of any Group Company's businesses."[13]

Although R&D characterizes Section 3 of the Asset Management Agreement as imposing an "obligation" on Investment Services to maintain the books and records of the Joint Venture, [14] the Defendants instead contend that there is no such obligation, because Section 3: "(1) only addresses certain financial reporting requirements which are not at issue in this case; (2) does not mention maintenance of the Joint Venture's books and records; [and] (3) does not cite to or reference the LLC Agreement's Section 5.3 books and records clause."[15]

The parties do not dispute that, to the extent of R&D's knowledge, the two categories of books and records sought by R&D are currently in the possession of Investment Services, [16] and physically located in either ...


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