This case arose out of a dispute between an optometrist who sold a majority stake in his company to a private equity buyer, with the business restructured into a parent company and a wholly owned subsidiary. The doctor retained an approximately 1/3 ownership interest in the parent, held one of the parent’s three board seats, and served as the subsidiary’s initial manager. The other members later tried to remove him from the subsidiary manager role by amending the subsidiary’s LLC agreement, but, as the Court of Chancery held in related litigation, they failed to comply with a term of the LLC agreement requiring the doctor’s involvement in amendments. As a workaround, the other members merged the subsidiary with a newly formed entity and amended the LLC agreement to adopt a member-managed LLC structure, effectively removing the doctor from his manager role.
In the resulting suit, the doctor challenged the removal and amendment on multiple grounds, but the Court ruled against him. The Delaware LLC Act expressly permitted the merger and associated amendments. And nothing in the LLC agreement prohibited them. The parent board properly acted by written consent of the majority of its managers to approve the merger, and neither the Act nor the LLC agreement required any prior notice. A majority of the parent members approved the merger, as permitted by the Act. And the Act permits amendments of an LLC agreement in connection with a merger unless the agreement otherwise provides, which was not the case here. The Court also rejected the doctor’s additional arguments, based on the implied covenant, laches, waiver, unclean hands, and breach of fiduciary duties.
