In Gill v. Genency Holdings, LLC, C.A. No. 2023-0349-BWD (Del. Ch. June 26, 2023), a Master in Chancery recommended that LLC members established standing to inspect books and records by relying on the company's membership ledger, and declined to litigate the company's challenge to the validity of the members' interests in a summary books and records action.
Plaintiffs were alleged to be members of Genency Holdings, LLC (the Company or the LLC) and former managers of the Company's subsidiaries. The LLC was formerly wholly-owned by Plaintiffs' father, who appointed Plaintiffs managers of the operating subsidiaries and assigned them 46% of the LLC's membership interests.
Following their father's unexpected death, Plaintiffs' mother removed Plaintiffs from their positions of managers of the LLC and its subsidiaries. Plaintiffs were replaced by their sister, who purportedly discovered that plaintiffs had misappropriated LLC funds and engaged in self-interested transactions. Plaintiffs then began to suspect their sister of misappropriating funds, so they demanded inspect of the Company's books and records.
The LLC opposed inspection, arguing, among other things, that plaintiffs lacked standing because they were not LLC members. In the post-trial Final Report, a Master in Chancery recommended permitting inspection because Plaintiffs established prima facie standing as LLC members by relying on the LLC's membership ledger and stated a proper, non-pretextual purpose for inspection. The court also declined to litigate the validity of Plaintiffs' membership in the LLC because a "books and records proceeding is not the appropriate forum to litigate the validity of the underlying transactions through which Plaintiffs acquired their membership interests."
This article is presented for informational purposes only and is not intended to constitute legal advice.
