Searching over 5,500,000 cases.


searching
Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.

Vinton v. Grayson

Superior Court of Delaware

June 13, 2018

BROCK J. VINTON, R. ROBERT RUGGIO, DONALD S. ROBITZER, JR., TIMOTHY L. JONES, AND ROUTE 9 ASSOCIATES LLC, Plaintiffs,
v.
DAVID J. GRAYSON, Defendant.

          Submitted: March 16, 2018

         Upon Defendant David J. Grayson's Motion to Dismiss, DENIED.

          Neil R. Lapinski, Esquire, Gordon Fournaris & Mammarella, Attorney for Defendant.

          David B. Anthony, Esquire, Sean A. Meluney, Esquire, Berger Harris LLP, Attorneys for Plaintiff.

          MEMORANDUM OPINION AND ORDER

          Paul R. Wallace, Judge.

         I. INTRODUCTION

         Plaintiffs Brock J. Vinton ("Vinton"), R. Robert Ruggio ("Ruggio"), Donald S. Robitzer, Jr. ("Robitzer"), and Timothy L. Jones ("Jones"; collectively, "Member Plaintiffs") formed Route 9 Associates LLC ("Route 9"; together with Member Plaintiffs, "Route 9 Plaintiffs") with Defendant David J. Grayson ("Grayson") on November 22, 2005.[1] This suit arises from Grayson's failure to contribute his pro rata share of a capital call to repay Route 9's debts.

         II. FACTUAL AND PROCEDURAL BACKGROUND

         Route 9 is a limited liability company organized under Delaware law.[2]Vinton, Route 9's designated Manager, owns a 28% membership interest in the company; Ruggio owns a 27% interest; Grayson owns a 27% interest; Robitzer owns a 9% interest; and Jones owns a 9% interest.[3] Each member executed an "Agreement of Limited Liability Company of Route 9 Associates LLC" (the "Route 9 Agreement") that, together with the Delaware Limited Liability Company Act, [4]governs the company's operations.[5]

         Formed as a land development company, Route 9 repurposed defunct brown field sites into industrial and warehouse lots; its work included the installation of utilities, roadways and entrances to the properties.[6] While developing these properties, Vinton, as Route 9's Manager, made several capital calls gathering funds to repay a loan taken out by the company.[7] Each member paid his pro rata share of these capital calls.[8] Although Route 9 developed several lots, the company never became profitable, [9] and once work was completed in 2009 it began to wind down operations.[10]

         In 2017, the Department of Transportation redeemed a completion bond that required Route 9 to pay $146, 700.00 to a third-party financier. Route 9 also then owed another $ 12, 900.00 on a different outstanding construction loan.[11] At the time of the bond's redemption, Route 9 had less than $6, 500.00 in its accounts.[12] The owed money put Route 9 at a deficit of $153, 121.31.[13] Vinton issued a capital call requiring that each member pay his pro rata share of Route 9's debt, and sent a "first notice" on July 12, 2017, informing each member of his owed share.[14]

         On July 14, 2017, Grayson responded to the first notice, stating that he would "only be making the call required for the loan" and directing further communications to his attorney.[15] A second notice was issued to Grayson on August 3, 2017, listing his total owed share as $41, 850.00.[16] Grayson never paid.

         A. The Route 9 Agreement

Article I of the Route 9 Agreement provides that Route 9 was formed "under the Delaware Limited Liability Company Act, and ... the rights, duties, and liabilities of the Members shall be as provided in the Act, except as otherwise provided herein."[17] Article IV of the Route 9 Agreement addresses capital contributions, and Section 4.2, subtitled "Additional Capital Contributions, " states that:
No additional Capital Contributions to the Company shall be required of any Member except as follows:
In the event the Company requires funds in addition to the Capital Contributions set forth in Section 4.1 [upon the formation of the Company], the Members agree to make additional Capital Contributions from time to time in accordance with their Units as a percentage interest in the Company. The need for any such additional contributions shall be determined in good faith solely by the Manager [Vinton], If additional Capital Contributions are so required to be made, the Manager shall give notice writing to each Member (the "First Notice") which First Notice shall provide reasonable evidence of the Company's requirement of additional funds, and each Member within forty-five (45) days of the receipt of the First Notice, shall deposit in the Company the additional Capital Contribution required. In the event a Member fails to make the Capital Contribution within the time frame of the First Notice, a second notice (the "Second Notice") shall be sent to the Member who has failed to contribute (the "Non-Contributing Member"). If the Non-Contributing Member fails to make the required Capital Contribution within forty-five (45) days following the First Notice, the Non-Contributing Member shall be deemed to have automatically, immediately and irrevocably, without further notice or action, transferred fifty percent (50%) of the Non-Contributing Member's Units to the Members who have made their (but not the Non-Contributing Member's) respective Capital Contributions (the "Contributing Members["]). The Units of the Non-Contributing Members so transferred shall be allocated among the Contributing Members in accordance with their respective Units as a percentage interest in the Company and the records of the Company shall be adjusted by the Contributing Members to reflect this transfer. In the event a Non-Contributing Member fails to make the Capital Contribution in full prior to the one hundred eighty (180) days following the First Notice, the Non-Contributing Member shall be deemed to have automatically], immediately and irrevocably, without further notice or action, transferred the balance of the Non-Contributing Member's units to the Contributing Members and the Contributing Members shall be obligated to make the entirety of the Capital Contribution that had been required of the Non-Contributing Member, in accordance with their Units as a percentage interest in the Company. The Units of the Non-Contributing Member so transferred shall be allocated among the Contributing Members in accordance with their respective Units as a percentage interest in the Company and the records of the Company shall be adjusted by the Contributing Members to reflect this transfer.[18]

         The Route 9 Agreement further provides in Article VI, "Allocation of Revenues and Expenses, " that Route 9's losses "shall be allocated to the Members in proportion to their Membership Interests."[19] And Article XII- "Miscellaneous"-includes a "Rights and Remedies Cumulative" clause that states:

[t]he rights and remedies provided by this Agreement are given in addition to any other rights and remedies any Member may have by law, statute, ordinance or otherwise. All such rights and remedies are intended to be cumulative and the use of any one right or remedy by any Member shall not preclude or waive such Member's right to use any or all other rights or remedies.[20]

         B. Procedural Background

         Member Plaintiffs filed a Complaint in August 2017. Grayson filed a Motion to Dismiss that Complaint, arguing that the Member Plaintiffs had no standing to pursue their claim without joining Route 9. Route 9 Plaintiffs thereafter filed an Amended Complaint alleging one count of breach of contract (between Member Plaintiffs and Grayson), one count of breach of good faith and fair dealing (between Member Plaintiffs and Grayson), and an additional count of breach of contract (between Route 9 and Grayson), Grayson now brings this Motion to Dismiss Plaintiffs' Amended Complaint.[21]The Court heard arguments on the motion and then allowed the parties supplemental briefing to identify relevant case law regarding which remedies an LLC or its members can pursue against a member who is delinquent in paying a capital call.[22]

III. STANDARD OF REVIEW

         "In Delaware, the interpretation of a contract is a question of law suitable for determination on a motion to dismiss."[23] But, on a motion to dismiss, '"[d]ismissal is proper only if the defendants' interpretation is the only reasonable construction as a matter of law. "'[24]

         A motion to dismiss for lack of standing presents "a threshold question relating to jurisdiction."[25] "[T]he interpretation of a contract as a prerequisite to [a party's] standing is ... a determination involving the merits."[26] And "where 'the issue of standing is so closely related to the merits, a motion to dismiss based on lack of standing' is properly evaluated for its failure to state a claim rather than a lack of jurisdiction."[27]

         Under Superior Court Civil Rule 12(b)(6), "[t]he legal issue to be decided is, whether a plaintiff may recover under any reasonably conceivable set of circumstances susceptible of proof under the complaint."[28] When considering a motion to dismiss for failure to adequately state a claim, the Court will:

(1) accept all well pleaded factual allegations as true, (2) accept even vague allegations as "well pleaded" if they give the opposing party notice of the claim, (3) draw all reasonable inferences in favor of the non-moving party, and (4) [not dismiss the claims] unless the plaintiff would not be entitled to recover under any reasonably conceivable set of circumstances.[29]

         If any reasonable conception can be formulated to allow Plaintiffs' recovery, the motion must be denied.[30]

         IV. DISCUSSION

         Grayson proposes that the several breach-of-contract and fair dealing claims should be dismissed both because Member Plaintiffs lack standing to bring any claim, and for failure of any plaintiff to state any claim upon which relief can be granted.

         A. Member Plaintiffs Have Standing to Assert a Breach-of-Contract Claim Against Grayson

         Grayson argues that none of the Member Plaintiffs have an individual or collective cause of action under the Route 9 Agreement and the Delaware Limited Liability Company Act. Plaintiffs counter that Grayson's view is cabined by a statutory misunderstanding; and, more directly, that the Route 9 Agreement's Cumulative Remedies clause preserves their right to bring breach-of-contract claims against Grayson.

         The Delaware Limited Liability Company Act provides:

Except as provided in a limited liability company agreement, a member is obligated to a limited liability company to perform any promise to contribute cash or property or to perform services .... If a member does not make the required contribution of property or services, the member is obligated at the option of the limited liability company to contribute cash equal to that portion of the agreed value ... of the contribution that has not been made. The foregoing option shall be in addition to, and not in lieu of, any other rights, including the right to specific performance, that the limited liability company may have against such member under the limited liability company agreement or applicable law.[31]

         Grayson suggests that this provision of the Act applies solely to Route 9, as the limited liability company, and does not grant an individual right to the several Member Plaintiffs. Member Plaintiffs point to the provision's prefatory language- "[e]xcept as provided in a limited liability company agreement"-and assert that because Section 12.9 of the Route 9 Agreement expressly provides that the rights bestowed to Member Plaintiffs by the Route 9 Agreement are given "in addition to any other rights and remedies any Member may have by law, statute, ordinance or otherwise, "[32] Member Plaintiffs' common-law right to pursue a breach-of-contract claim is preserved.[33]

         As the discussion below reveals, neither side has provided the Court with case law support or other authority that is squarely on point.

         In Cline v. Grelock, the Delaware Court of Chancery noted that where a member wrongfully dissolved an LLC, he no longer had "any legitimate basis" for his claim for an outstanding capital contribution.[34] Member Plaintiffs contend that the inverse must hold true for them: because Grayson has not alleged wrongful conduct, Grayson is not relieved of his obligation to make the delinquent capital contribution in the ongoing venture.

         Afremov v. Jarayan, [35] a Minnesota federal district case interpreting Delaware law, lends some support to Member Plaintiffs' argument. In Afremov, Afremov and Jarayan entered into the "AM Plaza Agreement" establishing AM Plaza, LLC.[36] The AM Plaza agreement specified that AM Plaza would be owned in equal shares by Afremov and Object of Vertu, LLC, an entity solely owned by Jarayan, and designated Jarayan as Manager of the newly-formed LLC.[37] When the planned project fell through, Afremov brought suit against Jarayan and Object of Vertu. Jarayan filed counterclaims against Afremov asserting, in part, breach of contract for failure to make capital contributions to AM Plaza.[38] Afremov moved to dismiss, arguing that only AM Plaza had the right to assert such a claim.[39] The Court denied Afremov's motion, holding that, as a signatory to the AM Plaza Agreement, Jarayan had the right to sue Afremov for breach of contract.[40]

         Here, as signatories to the Route 9 Agreement, each of the Member Plaintiffs has standing to sue Grayson for his breach.

         B. Route 9 Plaintiffs May Seek Money Damages from Grayson

         Grayson next contends that Route 9 Plaintiffs fail to state a claim, as Grayson had no obligation under either the Route 9 Agreement or the LLC Act to meet the capital call. Route 9 Plaintiffs argue that under the Route 9 Agreement's terms, Grayson was obligated to meet the capital call. Further, they say, the Route 9 Agreement preserved their right to pursue a breach-of-contract claim against Grayson.

         Because the relevant language of Kansas's LLC Act mirrors Delaware's, [41]Route 9 Plaintiffs and Grayson rely principally on two Kansas Court of Appeals cases to support of their arguments.

         In Canyon Creek Development, LLC v. Fox,[42] four individuals signed an operating agreement forming Canyon Creek Development, LLC, with the intent of developing residential real estate.[43] One member, Fox, failed to meet capital calls, forcing two other members to cover with additional contributions and loans to the company.[44] The members ultimately demanded the outstanding amount of the former capital calls from Fox, and brought suit for breach of the operating agreement ...


Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.