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LLC v. AWH Orlando Member, LLC

Court of Chancery of Delaware

February 28, 2018

REJV5 AWH Orlando, LLC
AWH Orlando Member, LLC

          Submitted: February 23, 2018

          John M. Seaman, Esquire Abrams & Bayliss LLP 20 Montchanin Road, Suite 200 Wilmington, DE 19807

          Richard P. Rollo, Esquire Richards, Layton & Finger, P.A. 920 North King Street Wilmington, DE 19801


         Dear Counsel:

         On February 1, 2018, the Court issued an oral ruling (the "Ruling") granting Plaintiff, REJV5 AWH Orlando, LLC's, Amended Motion for Partial Judgment on the Pleadings (the "Motion") as to Counts I, II, III and V of the Verified First Amended Complaint (the "Complaint"), and reserving judgment on Count IV.[1] The Court also granted Defendant, AWH Orlando Member, LLC, leave to amend its Amended Answer and Counterclaim ("Amended Answer") to address certain deficiencies in its pleading identified in the Ruling.[2] Rather than amend, Defendant filed the Application for Certification of an Interlocutory Appeal or, Alternatively, For Entry of Partial Final Judgment Pursuant to Rule 54(b) (the "Application") sub judice on February 12, 2018.[3] Plaintiff filed its opposition on February 22, 2018, and Defendant filed a reply on February 23, 2018.[4] For the reasons that follow, the Application is DENIED.

         Thus far, this litigation has proceeded on an expedited schedule. Plaintiff filed its initial complaint on October 3, 2017.[5] I granted the parties' stipulation governing expedited briefing of Plaintiff's motion for judgment on the pleadings on November 17, 2017.[6] Plaintiff amended its complaint on November 21, 2017.[7] I granted a Status Quo Order on November 22, 2017.[8] Defendant answered the complaint that same day.[9] Plaintiff initially filed a motion for judgment on the pleadings as to the Complaint on December 4, 2017, but subsequently amended that motion to conform to the Defendant's Amended Answer, which was filed on December 12, 2017.[10] The parties presented argument on the Motion on January 22, 2018, and in keeping with the expedited schedule that has governed this litigation, the Court issued the Ruling on February 1, 2018.[11]

         The parties' dispute centers on the Limited Liability Agreement entered into by and between Defendant and Plaintiff's predecessor-in-interest on May 19, 2015 (the "LLC Agreement").[12] The LLC Agreement contemplates a venture by which the parties will pursue a hotel re-development project (the "Project"). Plaintiff argues the LLC Agreement grants it an unqualified right to remove Defendant as Manager if Defendant fails to complete the Project by a designated Completion Deadline.[13] Defendant disagrees and relies on several affirmative defenses raised in the Amended Answer to support an argument that Plaintiff cannot remove Defendant as Manager when Plaintiff's own conduct causes Defendant's failure to complete the Project by the Completion Date.

         In the Ruling, I held that Plaintiff is entitled to remove Defendant as Manager of the Project under the express terms of the LLC Agreement. I also granted Defendant leave to amend the Amended Answer to plead that Plaintiff's violation of the implied covenant of good faith and fair dealing should prevent it from exercising its removal rights.[14] As noted, Defendant has opted to forego any amendments in favor of filing the Application.

         I. Certification of an Interlocutory Appeal

         Delaware Supreme Court Rule 42(b)(i) provides that "[n]o interlocutory appeal will be certified by the trial court or accepted by [the Delaware Supreme] Court unless the order of the trial court decides a substantial issue of material importance that merits appellate review before a final judgment." Instances where the trial court certifies an interlocutory appeal "should be exceptional, not routine, because [interlocutory appeals] disrupt the normal procession of litigation, cause delay, and can threaten to exhaust scarce party and judicial resources."[15] For this reason, "parties should only ask for the right to seek interlocutory review if they believe in good faith that there are substantial benefits that will outweigh the certain costs that accompany an interlocutory appeal."[16] When certifying an interlocutory appeal, "the trial court should identify whether and why the likely benefits of interlocutory review outweigh the probable costs, such that interlocutory review is in the interests of justice. If the balance is uncertain, the trial court should refuse to certify the interlocutory appeal."[17]

         The existing Status Quo Order maintains Defendant as the Manager pending the resolution of this expedited litigation.[18] The Court is scheduled to hear argument on the parties' cross-motions for summary judgment relating to unadjudicated aspects of this dispute on April 5, 2018.[19] The litigation is active and ongoing and the parties show no signs of easing off the gas pedal. What Defendant proposes now is a piecemeal approach to the litigation that will not advance the interests of justice but will increase costs and burdens.[20] Moreover, as discussed below, it is clear that the seven appeal issues (each an "Appeal Issue" and collectively, the "Appeal Issues") that Defendant raises do not meet the strictures of Delaware Supreme Court Rule 42 to warrant certification of an interlocutory appeal.[21]

         A. The Court's Ruling on the Prevention Doctrine

         The Defendant argues that the Court improperly construed and applied the so-called "prevention doctrine."[22] Whether true or not, this aspect of the Ruling does not justify interlocutory review. The Ruling did not extend or restrict the prevention doctrine under Delaware law but rather simply applied the doctrine to the facts as pled and to the contractual language at issue. Specifically, the Court held that the express terms of the LLC Agreement defined those instances where the contractual bases for removal of the Manager would account for, or would be conditioned upon, the reasons why the Manager was unable to perform as required to avoid removal. Removal based on failure to complete the project by the Completion Date is clearly unconditional.[23] Accordingly, applying the clear terms of the parties' agreement, the Court determined that the prevention doctrine did not apply.[24] This holding neither "determine[d] a substantial issue" nor "established a legal right" under Supreme Court Rule 42(b).

         B. The Court's Construction of the LLC Agreement

         As a general matter, issues of contract interpretation are not worthy of interlocutory appeal.[25] The third, fourth and fifth Appeal Issues identified in the Application all address this Court's construction of discrete provisions of the LLC Agreement. Accordingly, these three issues do not meet any Rule 42(b)(iii) criteria and are not fit for interlocutory appeal.

         While Defendant seeks to characterize its sixth Appeal Issue as something other than a challenge to the Court's construction of the LLC Agreement, the characterization does not reflect the essence or impact of the Ruling. Specifically, Defendant argues that the Court erroneously determined as a matter of law that certain delays in the progress of the Project attributable to Plaintiff were "routine."[26]The Court made no such finding. The Ruling states the delays did not appear to extend beyond those contemplated by the approval regime set forth in the LLC Agreement, not that they were routine (or not routine).[27] Here again, the Court was simply interpreting what it viewed as clear and unambiguous terms of the LLC Agreement. This exercise in contract construction does not implicate any of the criteria in Rule 42(b)(iii) to warrant interlocutory appeal.

         C. The Court's Refusal to Find Waiver

         Defendant urged the Court to find that certain of Plaintiff's arguments had not been properly raised in the briefs and were, therefore, waived. The Court disagreed. The determination of whether vel non an argument is waived is highly contextual and ultimately a matter within this Court's discretion; as such, it is classically not an issue for interlocutory appeal.[28]

         D. The Court's Holding Regarding the Implied Covenant

         Finally, the second Appeal Issue, which Defendant attempts to tie to Rule 42(b)(iii)(B), [29] posits that the Court's "holding that bad faith is necessary to state an implied covenant claim conflicts with other Court of Chancery decisions."[30]Specifically, Defendant asserts the Ruling requires Defendant to plead a culpable mental state in order to plead bad faith sufficient to invoke the implied covenant defense.[31] Once again, Defendant has mischaracterized the Ruling. What the Court actually observed and held is that:

[O]ur Supreme Court held that the Court should view whether the covenant of good faith has been breached through the lens grounded by our entity law, which is to say that the [Defendant] must plead facts that support a reasonable inference that the [Plaintiff] failed to act in a manner that ...

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