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Stanco v. Rallye Motors Holding, LLC

Court of Chancery of Delaware

December 23, 2019


          Submitted: November 26, 2019

          John P. DiTomo, Elizabeth A. Mullin, and Emily Bryant-Alvarez of MORRIS, NICHOLS, ARSHT & TUNNELL LLP, Wilmington, Delaware; OF COUNSEL: Michael C. Marsh, Ryan Roman, Donnie King, and Chanelle Artiles, of AKERMAN LLP, Miami, Florida, Attorneys for Plaintiff Joseph Stanco.

          Timothy R. Dudderar and Robert J. Kumor, of POTTER ANDERSON & CORROON LLP, Wilmington, Delaware, Attorneys for Defendant Rallye Motors Holding LLC.


          GLASSCOCK, Vice Chancellor

         The Plaintiff brings this Action for entity records under 6 Del. C. § 18-305- the analog of a DGCL Section 220 action applicable to limited liability companies- and the entity's LLC agreement (the "LLC Agreement"). The Plaintiff is the former Managing Member of the Defendant, Rallye Motors Holding LLC ("Rallye" or the "Company").[1] The matter is scheduled for trial on February 27, 2019. Rallye has moved to dismiss, pointing to language in the LLC Agreement providing that disputes arising therefrom "shall be venued"[2] in the courts of two counties of the State of New York. In the alternative, Rallye points to a New York action by a plaintiff similarly situated to the Plaintiff here, seeking, among other things, to compel inspection of the same Rallye documents the Plaintiff seeks in this litigation. Rallye argues that this Action should be dismissed in favor of the first-filed New York action under the rationale of McWane Cast Iron Pipe Corp. v. McDowell-Wellman Engineering Co.[3]

         I find neither argument persuasive; accordingly, the Motion to Dismiss is denied.

         I. BACKGROUND[4]

         A. The Parties

         Defendant Rallye is a Delaware limited liability company that acts as a holding company for five automobile dealerships on Long Island, New York.[5]

         Plaintiff Joseph Stanco is a member of Rallye, and owns 5.5% of Rallye's membership units.[6]

         B. Factual Background

         Rallye, founded in 1958, is composed of five auto dealerships on Long Island, New York.[7] The Plaintiff began working for the Company around 1980.[8] The Plaintiff first acquired an ownership interest in Rallye in 2000, when one of the Company's founders departed, selling a portion of his membership interest to the Plaintiff.[9] In 2006, the Plaintiff was promoted to President and CEO of Rallye.[10] In 2007, the Plaintiff acquired additional membership units from a departing employee, bringing him to his current ownership level of 5.5%.[11] In 2011, the Plaintiff joined Rallye's Board of Managers and became the Managing Member of the Company.[12]The Plaintiff's employment at Rallye ended when Rallye fired the Plaintiff without cause in 2017.[13]

         On August 27, 2019, the Plaintiff demanded inspection of Rallye's books and records (the "Demand") under § 18-305 of Delaware's LLC Act and § 8.3 of the LLC Agreement.[14] The Plaintiff seeks to inspect Rallye's books and records to evaluate: (1) the status of his ownership interest in Rallye, (2) the value of his ownership interest in Rallye, (3) the business and financial condition of Rallye, (4) the performance of Rallye's management after failing to make distributions to Stanco and other shareholders, (5) the independence of Rallye's management, (6) the propriety of Rallye's disclosures, [15] and (7) the current business being transacted by Rallye.[16]

         C. Procedural History

         As noted, the Plaintiff made the Demand on August 27, 2019. On September 19, 2019, the Plaintiff filed a Verified Complaint for Inspection of Books and Records (the "Complaint"). On October 2, 2019, Rallye filed its Motion to Dismiss the Complaint. I heard Oral Argument on the Motion to Dismiss on November 26, 2019 and considered the Motion submitted for decision on that date.

         II. ANALYSIS

         Rallye has moved to dismiss this action under Chancery Court Rules 12(b)(3) and 12(b)(6).[17] In considering such a motion:

(i) all well-pleaded factual allegations are accepted as true; (ii) even vague allegations are well-pleaded if they give the opposing party notice of the claim; (iii) the Court must draw all reasonable inferences in favor of the nonmoving party; and (iv) dismissal is inappropriate unless the plaintiff would not be entitled to recover under any reasonably conceivable set of circumstances susceptible of proof.[18]

         When reviewing a motion to dismiss, the Court may take into consideration documents "incorporated into the pleadings by reference and may take judicial notice of relevant public filings."[19]

         A. The LLC Agreement Does Not Require the Plaintiff to Bring his Dispute in New York

         The Plaintiff seeks to vindicate his right to books and records under § 8.3 of the LLC Agreement and 6 Del. C. § 18-305(a). Section 8.3 of the LLC Agreement provides, in part:

Each Member shall have the right, at all reasonable times during usual business hours, to audit, examine and make copies of; or extracts from, the books of account and other financial records of the Company at its principal place of business. Such right may be exercised through any agent or employee of a Member designated by such Member or ...

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