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In re Weekapaug Groove LLC

Court of Chancery of Delaware

April 15, 2019

IN THE MATTER OF: WEEKAPAUG GROOVE LLC, a Delaware limited liability company,
CHARLES GALLANTI, INC., a New York corporation, Counterclaim Defendant. and SEAN AVERY, individually and derivatively on behalf of Weekapaug Groove LLC, a Delaware limited liability company, Counterclaim Plaintiff,



         1. Respondent Weekapaug Groove LLC (the "Company") is a dissolved Delaware limited liability company with two members: counterclaim-plaintiff Sean Avery and counterclaim-defendant Charles Gallanti, Inc. ("CGI"). The Company's operating business has been wound up. This order makes post-trial findings of fact and reaches conclusions of law that address (i) certain litigation assets of the Company that the parties have asserted as derivative claims in this proceeding, (ii) a disputed liability that CGI asserted as a creditor, and (iii) the proper distribution of the Company's cash.

         2. The evidence at trial supported the following findings of fact:

         a. CGI is a successful building contractor in the New York area. After Charles Gallanti, the eponymous principal of CGI, worked on a vacation home that Avery owned, the two men became friendly and discussed going into business flipping houses. CGI would provide the construction and renovation services. Avery would provide the bulk of the capital. Over the long run, Avery would learn about construction from Gallanti.

         b. In October 2014, Avery and CGI formed the Company. Through the Company, they entered into an agreement to purchase a single-family home in Southampton, New York (the "Property"), which they planned to renovate and sell.

         c. Contemporaneously, Avery and CGI entered into an oral agreement regarding the renovation process (the "Renovation Agreement"). Under the Renovation Agreement, CGI agreed to provide, at cost, the labor and materials needed to renovate the Property. In exchange, Avery agreed to contribute to the Company all of the funds necessary to pay CGI for the renovations.

         d. The initial construction budget contemplated a total project cost of $647, 439. Avery understood that the initial budget was not a guaranteed maximum price. He also understood that the actual cost could change due to multiple factors and that it likely would change if there were modifications to the renovations.

         e. As work progressed, Avery and Gallanti worked collaboratively on the project. Avery was closely involved and approved changes to the renovations.

         f. During the course of the project, CGI informed Avery of increases to the total project cost through invoices and revised budgets. In doing so, CGI operated in its ordinary course of business and followed the same procedure it uses with all clients.

         g. On August 31, 2015, CGI submitted a draft final invoice in the amount of $114, 963.67. At the time, CGI had not received all of the invoices it expected to receive from subcontractors and suppliers. The August 2015 invoice estimated the total project cost at $738, 727.86. Avery refused to pay the invoice. Before this point, Avery had paid all of CGI's invoices without objection.

         h. On December 30, 2015, CGI sent a revised final invoice that increased the amount sought to $ 190, 481.52 (the "Final Invoice"). With this increase, the total project cost rose to $746, 655.53. Avery continued to refuse to pay.

         i. In February 2016, CGI filed this action. CGI sought dissolution of the Company on grounds of deadlock and the appointment of a liquidating trustee. Avery opposed dissolution and asserted counterclaims against CGI. The existence of a deadlock was readily apparent. Among other things, although the renovations were complete, the parties were unable to agree how to manage, sell, or maintain the Property. Because the deadlock jeopardized the value of the Property, I appointed a trustee pendente lite to manage the Property, sell it, and hold the proceeds in escrow pending the outcome of the parties' disputes. Dkt. 24.

         j. The trustee carried out his charge. As of April 8, 2019, the trustee held $1, 526, 108.41 in escrow. The Company's operating account held another $7, 110.90.

         3. The Company has litigation assets in the form of derivative claims that the parties have asserted on CGI's behalf. The first four derivative claims, which Avery asserted against CGI, lack merit. One other ...

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