Date Submitted: September 22, 2014
Plaintiff David Prokupek ("Prokupek" or the "Plaintiff") seeks to inspect certain financial documents of Defendant Smashburger Master LLC ("Smashburger" or the "Company"). His demand arises in the context of a dispute over the amount that Smashburger owes him because of its redemption of his units in the Company.
Whether Prokupek may inspect Smashburger's business and financial records depends on (i) whether he was a member of the Company, with concomitant inspection rights pursuant to Smashburger's LLC Agreement or the Delaware Limited Liability Company Act (the "LLC Act"),  when he made his demand and (ii) whether, because he was at least once a member, that status provides him with certain inspection rights.
A. Prokupek's Interest in Smashburger
Prokupek served as Smashburger's Chairman and Chief Executive Officer ("CEO") until his termination "without cause" on February 3, 2014. Smashburger is a Delaware limited liability company that franchises fast-casual hamburger restaurants. In addition to holding office with the Company, Prokupek owned a substantial amount of Smashburger's equity. The rights of Smashburger's equity holders are governed by the Sixth Amended and Restated Limited Liability Company Agreement (the "LLC Agreement").
Some of Prokupek's equity was obtained subject to two agreements entered into on June 25, 2013: the Restricted Unit Agreement and the Unit Option Agreement. Pursuant to the Restricted Unit Agreement, Smashburger granted him 667, 527 restricted Class B Units ("Units"). Slightly under one-third of those Units immediately vested. The rest would only vest if Smashburger met certain "performance hurdles." The Restricted Unit Agreement provided for five performance hurdles and reaching each was contingent on Smashburger's achieving a certain level of EBITDA.
Prokupek also received options under the Unit Option Agreement, which provided him a potential right to acquire an additional 235, 728 Units at an exercise price of $6.58 per Unit. However, the majority of those options would only vest on the same conditions as laid out in the Restricted Unit Agreement.
B. Smashburger Calls Prokupek's Units
In late November 2013, Smashburger informed Prokupek that it would be ending his employment as of December 23, 2013. He ultimately remained with the Company until February 3, 2014, when Smashburger terminated him "without cause."
On April 18, 2014, Smashburger informed Prokupek (the "First Call Notice") that
pursuant to Section 8.7(b) of the LLC Agreement, the Company is hereby exercising the Terminated Member Call to redeem 1, 039, 900 of the Class B Units owned by you. The Company has determined that Company Fair Market Value for all of the Units subject to this Terminated Member Call, as determined in accordance with the LLC Agreement, is $6, 842, 542.00.
Smashburger valued Prokupek's Units at $6.58 each and indicated that the redemption would close "on Friday, April 25, 2014 at 10:00 a.m. in the Second Floor Public Conference Room, 3900 East Mexico Avenue, Suite 215[, ] Denver, CO 80210." On April 25, Smashburger issued and delivered to Prokupek a check in the amount of $307, 001.18. According to the Company, Prokupek retained 179, 632 unvested Units, which had failed to vest under the Restricted Unit Agreement, and 39, 288 vested but unexercised options.
On May 6, 2014, Smashburger issued a second Terminated Member Call (the "Second Call Notice") with respect to the 39, 288 Units issued upon Prokupek's exercise of his vested option rights. On May 9, 2014, the day identified as closing in the Second Call Notice, Smashburger issued ...