Date Submitted: November 25, 2013
Michael W. McDermott, Esquire Berger Harris, LLC
Vernon R. Proctor, Esquire Proctor Heyman LLP
In this summary proceeding to determine the rightful controller of a Delaware limited liability company, Plaintiff has moved for summary judgment based upon his argument that the Defendant made certain factual admissions which entitle Plaintiff to that relief. Plaintiff contends that the Defendant has conclusively indicated that a certain version of the company's operating agreement, under which Plaintiff would control the company, is the execution copy. In addition, Plaintiff argues that Defendant admitted that such agreement has not otherwise been amended. Plaintiff also accuses the Defendant of improperly seeking to create an issue of fact by denying his initial admissions in later affidavits. For the reasons that follow, Plaintiff's motion for summary judgment is denied.
Plaintiff Douglas Graven ("Graven") and Defendant Frank L. Lucero, Jr. ("Lucero") are two founding principals of Launchpad Healthcare Solutions, LLC, a Delaware limited liability company (the "Company"), who disagree about which one of them is the proper managing principal of the entity. Their dispute does not arise from conflicting interpretations of the Company's operating agreement, but rather arises from a disagreement as to which members of the Company are founding principals and which are not. The operating agreement permits two-thirds of the founding principals to remove and replace the managing principal, who is responsible for managing the business and affairs of the Company. Lucero currently serves as the managing principal.
The Company's records have not been perfectly maintained. The parties dispute which version of the operating agreement was fully executed and is therefore operative. Graven argues that in early December 2011, Lucero sent the operating agreement to twenty individuals and requested that they execute the operating agreement by signing it with electronic signatures (the "December Email"). On December 7, 2011, Graven and Lucero both executed the attached operating agreement and exchanged it by email (the "December Operating Agreement"). Graven argues that this version of the agreement lists John Baj ("Baj") as a founding principal, along with Lucero, Graven, Frank Gray ("Gray"), and Jeff Field ("Field"). Graven also argues that Lucero has admitted there has been no "unanimous written agreement" to amend the operating agreement and thus the terms of the December Operating Agreement remain in effect.
Graven asserts that Gray and Field resigned from their roles as founding principals before September 5, 2013. Thus, when Graven and Baj executed written consents on September 6 which purported to replace Lucero as managing principal with Graven, two of the three founding principals complied with Section 5.1 of the operating agreement to deliver operational control of the Company to Graven.
Lucero argues that there were several drafts of the operating agreement and the version signed by only Graven and Lucero is not the final version. Furthermore, there is no evidence that the December Email was received by Baj or that Baj executed the December Operating Agreement. Lucero also asserts that Baj declined to become a founding principal sometime between December 2011 and February 2012 and that the only version of the operating agreement that Baj signed was executed in his capacity, not as a founding principal, but as a "Principal/Team Builder." Lucero claims it took months to obtain all of the signatures to execute a version of the operating agreement fully, which was the version in existence when the Company's certificate of formation was filed with the Delaware Secretary of State on April 23, 2012. That version is signed by Baj only as a principal/team builder. Lucero argues that because Baj was not designated as a founder, he had no authority to sign the written consent as such. Thus, only one founder, Graven, voted for Lucero's removal, which did not fulfill the two-thirds vote requirement.
Lucero also disputes that Field resigned in February 2013. He argues that Graven produced a backdated resignation form dated February 15, 2013, which was executed on September 8, 2013. Thus, Lucero contends, a factual dispute over the timing of the resignation is present. This is so despite the fact that Field was removed from the Company's website on March 21, 2013, because Lucero had requested that Field remain available to serve as a "below the radar" founding principal. Field's status as a "below the radar" founder, Lucero argues, also creates some debate as to whether Field validly resigned as a co-founder. If Field did not validly resign and instead remained with the Company as a founding principal, then even if Baj was a founding principal only two of four founders would have voted. Such a vote would have also failed to satisfy the two-thirds vote requirement of Section 5.1.
A motion for summary judgment may be granted pursuant to Court of Chancery Rule 56(c) if the record shows that "there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law."The moving party bears the initial burden and the Court must view the evidence in the light most favorable to the nonmoving party. A fact is material if it "might affect the outcome of the suit under the governing law." A genuine issue of material fact is present "if the evidence is such that a reasonable jury could return a verdict for the nonmoving party."
Graven's argument relies on a conclusion that the December Operating Agreement is the sole, fully-executed operating agreement. He states that Lucero admitted as much in his interrogatory response indicating that Baj was among those individuals who "executed the Operating Agreement in the months following the initial [December Email]." Graven then argues that because Lucero admitted that he was not aware of any amendment of the Company's operating agreement according to ...