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Durham v. Grapetree, LLC

Court of Chancery of Delaware

May 16, 2014

Durham
v.
Grapetree, LLC

Date Submitted: March 12, 2014

Andrew Durham, pro se

John G. Harris David B. Anthony Berger Harris LLP

Dear Counsel and Litigant:

This Letter Opinion is the latest installment of dolorous and protracted litigation among siblings fortunate enough to have inherited resort rental properties from their father and unfortunate enough to therefore be condemned to attempt to cooperate in management of those properties; a task to which they have heretofore proved unequal. Below, I address whether the Plaintiff, Andrew Durham, is entitled to reimbursement for expenses that he, a member of Defendant Grapetree, LLC ("Grapetree" or "the LLC")—the vehicle through which the siblings manage the properties—incurred, purportedly to benefit the LLC. This Letter Opinion also addresses the Defendant's Motion for Sanctions against Andrew.[1]

A. Background

Andrew is one of five siblings who each hold a twenty-percent stake in Grapetree, an informally managed, family-owned Delaware limited liability company. Grapetree operates two vacation rental properties, one in St. Lucia and one in Costa Rica. The St. Lucian property, "Les Chaudieres, " is both owned and managed by the LLC. The second villa, "La Paila, " is managed, but not owned, by Grapetree. This property was previously owned by a Costa Rican corporation, La Paila de Carrillo Limitada; it was purchased by Andrew in December 2013, during the pendency of this litigation.

Grapetree was formed in the early 2000s; however, no Operating Agreement was adopted at the time of its formation. Rather, the first Operating Agreement was adopted in September 2005 (the "2005 Operating Agreement"). Pursuant to this Agreement, each of the five Durham siblings—Andrew, Davis, Dee, James, and Jeffrey ("Jeff")—was a member of the LLC. This Agreement also espoused a "Limitations on Authority" provision that stated:

The conduct of the affairs of the Company shall be subject to the following limitations. Unless stated otherwise, a majority vote of three fifths (3/5) of the members will be required to determine major issues, including issues pertaining to making any expenditure exceeding $1, 000 or amending the Operating Agreement.[2]

In 2008, the Operating Agreement was amended (the "2008 Operating Agreement"); that Agreement governs here.[3] Pursuant to the 2008 Operating Agreement, Andrew is the sole non-managing member of the LLC. Grapetree contends that Andrew was removed from management because of his "unrelenting pattern of abusive and disruptive conduct."[4] In fact, in November 2005—merely two months after the 2005 Operating Agreement was enacted—Andrew's siblings sent him a letter expressing

. . . your threats, unfounded allegations and actions have continued to disrupt operations of the company, distracted valuable resources and jeopardized relationships with clients. They have jeopardized income, caused increased expense, and will potentially cause financial harm to the company. They have also jeopardized the reputation of the family and the company in the community. . . .
The [2005] Operating Agreement, recently signed by four out of the five shareholders, lays out the basic procedures for voting and transacting business. All Member shareholders can play a valuable role in managing the operations and improvements of the company. However, this letter is to notify you that if you take any action from this date forward which causes or threatens loss of income; harms ongoing or potential relationships with clients, vendors, other shareholders, or charities; is libelous to the reputation of other shareholders or the company; intentionally fails to respect the approved policies and agreements currently in effect; and/or causes unusual and/or unnecessary expense(s) of either Grapetree LLC or La Paila De Carrillo Limitada, your input will no longer be sought by the other Members. Although you would retain your rights as a Member of the LLC, you would no longer be asked to participate in the ongoing management of the LLC.[5]

Apparently, Andrew did not heed his siblings' warning, and the 2008 Operating Agreement removed him from Grapetree's management.

The Limitations on Authority provision in the 2008 Operating Agreement was also amended, raising the expenditure cap from $1, 000 to $2, 000, and adding a third sentence to provide that, "[f]or all routine operational issues[, ] the majority vote of (3/5) [sic] of the managing members may make all decisions."[6] Specifically, the amended Limitations on Authority provision provides that:

The conduct of the affairs of the Company shall be subject to the following limitations. Unless stated otherwise, the majority vote of three fifths (3/5) of the members will be required to determine major issues, including issues pertaining to making any expenditure exceeding $2, 000. For all routine operational issues[, ] the majority vote of (3/5) [sic] of the managing members may make all decisions.[7]

The intent of the parties in enacting this amendment and, in particular, adding that third sentence, is disputed here.

In practice, the LLC is informally run, and predominately managed by Jeff and Dee Durham, who are actively involved in the day-to-day affairs of the LLC. James, Davis, and Andrew are more passive LLC members. Nevertheless, Andrew, a self-employed landscape architect, has made several expenditures over the years to maintain and improve the properties. While he has been reimbursed for some of these expenses, he insists that he is ...


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