SOPHISTICATED PARTY OR NOT, LLC AGREEMENT STILL GOVERNS

Jul 10 2019

In Durham v. Grapetree, LLC, Civil Action No. 2018-0174-SG (Del. Ch. June 4, 2019), the Delaware Court of Chancery granted the request made by Grapetree, LLC ( “Grapetree”) to shift its fees incurred in defending this litigation to the mostly unsuccessful plaintiff, Andrew Durham (“Durham”). In shifting Grapetree’s fees under this litigation, the Court reinforced the longstanding principal that Delaware law is contractarian in nature, and that parties shall be held to their bargains regardless of their legal sophistication. The underlying litigation and the Court’s initial findings (the “Books and Records Action”) were previously summarized by this blog here.

Following the Books and Records Action, Grapetree sought fees from Durham, citing the company operating agreement (the “LLC Agreement”). The Agreement provided:

In the event that any Member (the “Claiming Member”) asserts or initiates any action, suit or proceeding, whether of a civil or criminal nature, against the Company and/or any Managing Member… and the Claiming Member does not obtain a judgment on the merits that substantially achieves, in substance and amount, the full remedy sought, the Claiming Member shall be obligated to reimburse the Company… for all fees, costs, and expense of every kind and description (including, but not limited to, all reasonable attorneys’ fees and other [] litigation expenses) that the Company may incur in connection with such action, suit or proceeding.

Durham, a non-managing member of Grapetree, brought the underlying Books and Records Action and made 32 requests, of which the Court granted just 6. In his response, Durham did not address the LLC Agreement, but instead presented a variety of arguments as to why fees should not be shifted, including that because he had chosen to proceed pro se, he should receive leniency as a consequence of the difference in sophistication between the parties.

The Court disagreed, and, citing that there was no ambiguity in the LLC Agreement, shifted the LLC’s fees under this litigation to Durham, despite Durham prevailing on 6 of his claims, because the Court “denied the greater part of [the] requests.” The Court wrote that Durham’s choice to proceed pro se is not a defense, and led to significantly inefficient litigation, which ballooned the costs for both parties. The Court made clear that, because a minority of Durham’s requests were granted, the shifting of fees was not pursuant to the bad faith exception to the American Rule and was solely based on the applicable LLC Agreement language.