Author Archives: Patricia

April 2010 — Issue 50

LLC Cases: PT China LLC v. PT Korea LLC

C.A. No. 4456-VCN, 2010 WL 761145 (Del. Ch. Feb. 26, 2010)

Wang, a Singapore resident, sought dismissal of breach of fiduciary duty and breach of contract claims against him on the basis that he was not subject to personal jurisdiction in Delaware. Wang was the sole member and manager of a Delaware LLC which was one of two members of another Delaware LLC, Pine Tree Holdings I LLC (“PT Holdings”). Wang was a member of the management committee of PT Holdings, which was the managing member and minority interest holder of yet another Delaware LLC, Pine Tree Equity LLC (“PT Equity”). The agreements governing these entities included a master joint venture agreement to which Wang was a party. The claims in issue against Wang were various Continue reading →

March 2010 — Issue 49

LLC Cases: Whittington v. Dragon Group, L.L.C.

991 A.2d 1 (Del. 2009)

The Delaware Supreme Court decided, as a matter of first impression, that the typed word “seal” next to an individual signatory’s name was sufficient to create a “specialty contract,” i.e., a contract under seal, which is subject to a twenty-year statute of limitations under Delaware law rather than the three-year statute of limitations applicable to regular contracts. The dispute in this case involved the rights of family members with respect to a Delaware LLC. The plaintiff brought this action against the LLC, the plaintiff’s siblings, and other family members to enforce his rights as an alleged member of the LLC, and the chancery court concluded that the plaintiff’s rights were ultimately predicated on a global settlement agreement entitled “Agreement in Principle” (“AIP”) entered into by the plaintiff and his siblings in 2001 during prior litigation between the parties. Continue reading →

February 2010 — Issue 48

LLP Cases: Evanston Ins. Co. v. Dillard Dep’t Stores, Inc.,

602 F.3d 610 (5th Cir. 2010)

Dillard Department Stores, Inc. (“Dillard’s”) sued a law firm, Chargois & Ernster, L.L.P., in 2003 for federal and state trademark infringement, cyberpiracy, and various business torts based on the law firm’s use of the Dillard’s name and logo on a website developed by the law firm to solicit clients with claims against Dillard’s. The law firm was registered as a Texas limited liability partnership. Early in 2004, while the litigation with Dillard’s was ongoing, the partners executed a separation agreement providing for dissolution of the partnership, and they did not renew the firm’s LLP registration when it expired in July, 2004. In November, 2004, the court entered a final judgment against “Chargois & Ernster, L.L.P.” Continue reading →

January 2010 — Issue 47

LLC Cases: Vichi v. Koninklijke Philips Electronics N.V.

2578-Vcp, 2009 WL 4345724 (Del. Ch. Dec. 1, 2009)

Vichi made a loan to a Delaware LLC which was a subsidiary of a joint venture between two foreign companies. The LLC went bankrupt and defaulted on the loan to Vichi. Vichi then sued various parties. Among other claims, Vichi brought breach of fiduciary duty claims against an individual citizen of Singapore who resided in China and was an officer of the joint venture and employed by a subsidiary of the joint venture that was the sole member and manager of the LLC. The individual successfully moved for dismissal of the claims against him for lack of personal jurisdiction because neither the Delaware long-arm statute nor the implied consent provision of the LLC statute provided a basis to exercise jurisdiction over him. Continue reading →

December 2009 — Issue 46

LLP Cases: In re Promedicus Health Group, LLP (Wallach v. Douglas)

416 B.R. 389 (Bankr. W.D.N.Y. 2009)

In this dispute over what definition of “insolvent” applies to a New York LLP under the Bankruptcy Code, the court determined that there are no “general partners” in a New York LLP so that the provision requiring “the sum of the excess of the value of each general partner’s non-partnership property” to be added to the assets of the LLP did not apply. The trustee argued that the definition of a corporation in Section 101(9)(A)(ii) applied to the LLP because the term includes a “partnership association organized under a law that makes only the capital subscribed responsible for the debts of such association.” Continue reading →

November 2009 — Issue 45

Julian v. Julian

Civil Action No. 4137-VCP, 2009 WL 2937121 (Del. Ch. Sept. 9, 2009)

Three brothers owned and operated several LLCs together, and the plaintiff (“Gene”) sued his brothers (“Francis” and “Richard”) after he resigned as a member of several of the LLCs. The case involved two different versions of Section 18-603 of the Delaware Limited Liability Company Act. For LLC agreements entered into before July 31, 1996, the statute permitted a member to resign with six months’ notice. For LLC agreements entered into after July 31, 1996, the statute prohibits resignation before dissolution and winding up unless the LLC agreement states otherwise. Continue reading →

October 2009 — Issue 44

Pierre v. Commissioner of Internal Revenue

133 T.C. No. 2 (U.S. Tax. Ct. 2009)

The court decided that transfers of interests in a single member LLC should be valued for gift tax purposes as transfers of interests in the LLC (and thus subject to valuation discounts for lack of marketability and control) rather than transfers of the assets of the LLC. The IRS argued that the transfers should be treated as transfers of cash and marketable securities, i.e., proportionate shares of the LLC’s assets, for federal gift tax purposes because the LLC was disregarded Continue reading →

September 2009 — Issue 43

Securities and Exchange Commission v. Lowery

633 F.Supp.2d 466 (W.D. Mich. 2009)

The SEC brought an action for violation of anti-fraud and registration provisions of the federal securities laws based on the sale of unregistered units in Colorado LLPs engaged in the online casino business. After the death of one of the two individual promoters of the venture, the SEC sought summary judgment against the other individual, a 77-year-old retired lawyer whose role was to develop and manage the online casinos. The court concluded that the LLP units were investment contracts, and thus securities, as a matter of law. Continue reading →

August 2009 — Issue 42

Garnett v. Commissioner of Internal Revenue

132 T.C. No. 19, 2009 WL 1883965 (U.S. Tax Ct. 2009)

The taxpayers held interests in seven LLPs and two LLCs engaged in agribusiness operations, and the issue was whether the taxpayers’ interests should be considered interests in limited partnerships held as a limited partner so as to be treated as presumptively passive under the special rule of IRC Section 469(h)(2). The court rejected the taxpayers’ argument that limited liability was the controlling issue. The court stated that it was necessary Continue reading →

May 2009 — Issue 39

Mickman v. American International Processing, L.L.C.

Civil Action No. 3869-VCP, 2009 WL 891807 (Del. Ch. March 23, 2009)

Mickman sought to inspect the books and records of an LLC, and the LLC opposed her efforts and sought summary judgment on the basis that she was not a member or manager of the LLC. The Delaware LLC statute confers inspection rights upon each member and manager of an LLC, and the written operating agreement did not identify Mickman as a member. The LLC argued that the court should look for guidance to Continue reading →

April 2009 — Issue 38

LLP Cases: Evanston Insurance Company v. Chargois & Ernster, LLP,

Civil Action No. H-03-4888, 2009 WL 490013 (S.D. Tex. Feb. 25, 2009).

Chargois and Ernster registered their law firm as an LLP in 2002. In 2003 Dillard Departments Stores, Inc. (“Dillard’s”) sued the firm for trademark infringement. Later in 2003, the firm’s insurer brought suit against the partners and Dillard’s for indemnity, and Dillard’s cross-claimed against the firm. In 2004, Chargois withdrew from the firm, and the partners dissolved the firm through a separation agreement but did not wind it up. Continue reading →

March 2009 — Issue 37

American Electric Power Company v. Affiliated FM Insurance Company

556 F.3d 282 (5th Cir. 2009)

In this case, the court held that an insurance policy that covered “any subsidiary corporation now existing or hereafter acquired” was unambiguous and did not include LLCs. American Electric Power Company (“AEP”) sued its insurer after it discovered losses that occurred in 1999 due to employee theft at two LLC subsidiaries of Central & Southwest Corporation (“CSW”), a conglomerate acquired by AEP in 2000. Continue reading →