In her first true Opinion for the Court, In re Coinmint, LLC, Vice Chancellor Zurn delved deeply into the tortured relationship between the two founders (and sole members) of Coinmint, LLC, a bitcoin mining firm, and ultimately held that Delaware’s strong preference for private ordering is not unlimited where the parties fail entirely to follow the formalities set out in the founding documents to which they collectively agreed.
A recent opinion issued by the Delaware Court of Chancery in Stone & Paper Investors LLC v. Blanch resolved dueling allegations of corporate mismanagement and fraud that pitted a pair of long-time business partners against their protégé and his associates. In the 100+ page opinion, Vice Chancellor Paul A. Fioravanti, Jr., described a years-long scheme to induce a multi-million dollar investment in a new stone-based paper venture and then, when that venture fizzled, to drain the invested funds for personal gain in a series of undisclosed interested transactions. The facts of this case are extreme and involve an extended pattern of intentional wrongdoing. However, as an illustration of what can happen when bad actors take control, Stone & Paper provides important guidance to honest managers and other interested parties who draw salaries from, or otherwise transact with, the companies they control. Interested parties who engage in such transactions should take care that the material facts underlying any interested transactions have been fully disclosed and that they have complied with the requirements of the operating agreement, including documenting any necessary approvals. And if, by inadvertence or mistake, managers fail to secure the necessary approval for these transactions in advance, they should disclose all of the material facts as promptly as possible after the fact, such that the Board may be deemed to have acquiesced in the transactions.
A recent Texas Court of Appeals case held that members of a Delaware limited liability company (LLC) can contract around (i.e., waive) the general principle protecting against usurpation of corporate opportunities. This decision is of particular importance to private equity owners that may hold other investments in companies in the same industry and closely follows recent Delaware case law. The case also should limit the ability for parties to forum shop and seek to obtain a different outcome on Delaware legal issues by filing in another forum, in this case Texas.