Business Associations, Pages 1037–1045

Walker v. Resource Development Co. Ltd., LLC

Court of Chancery of Delaware, 2000

Facts:

Defendants Cox, Baron, and Liedtke all had considerable expertise in the oil and gas industries and were discussing producing oil and gas in Moldova through an LLC REDECO. Plaintiff Walker had missed his flight and overheard the Baron talking about this in a hotel bar. He informed Baron that he was the first cousin of H.W. Bush and that he had valuable business connections. He met and impressed the other defendants and introduced them to Norris, a potential investor, who had defendants make Walker a member.

However, Walker had misrepresented his experience (it came from photographing at banking conferences) and committed various acts of misconduct, including, not paying for trips, not actually securing any funding, and missing three official meetings with the senior officials of the Moldovan government. After financing with Norris fell through, the defendants attempted to remove Walker from the firm and terminate his ownership interest by sending a letter purporting to terminate his membership and demanding his outstanding $4,179.43 of debt to the LLC. Defendant ignored the letter because there was no provision allowing this in the operating agreement.

Eventually, REDECO obtained funding from another company, and the defendants traded their holdings for shares of a publicly traded corporation.

Issues:

  • Could defendants expel Walker from the LLC?

  • If not, what recovery does Walker have?

Reasoning:

Their is neither a provision in the operating agreement nor a law that provide for the removal of a member in these circumstances. Nor could Walker's interest have been diluted to zero, and even if it could have, this was not a purported reason for his removal. Nor was fraud proven or even cited as a basis for Walker's removal.

Holding:

Defendants were not allowed to expel Walker from the LLC, so he retained his interest. As the LLC no longer exists, Walker can exchange his interest for a proportionate amount of stock in the corporation as the other defendants did. However, as REDECO was in debt, he must first pay his $29,199.43 of REDECO's debt.

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