This case summary was prepared in substantive part by Megan O'Neil
In Durham v. Grapetree, LLC, the Court of Chancery considered whether an LLC’s operating agreement provided the basis for shifting attorney’s fees. In particular, the dispute focused on whether the Plaintiff substantially achieved the full remedy he sought, which was the determining factor under the LLC agreement for the LLC to be reimbursed by the Member who brought the action. Ultimately, Vice Chancellor Sam Glasscock III determined only a minority of the Plaintiff’s requests were successful, and therefore the LLC was entitled to reasonable attorney’s fees and costs.
Grapetree, LLC (“Grapetree”), a family LLC, holds one asset, a piece of rental property located in Saint Lucia. Four of the siblings are member-managers, while the fifth, the Plaintiff, is only a member, not a manager. The Plaintiff brought this litigation to compel the inspection of books and records under Section 18-305 of the Delaware Limited Liability Company Act. On January 31, 2019, Vice Chancellor Glasscock III issued a Letter Opinion, granting in part and denying in part the Plaintiff’s books and records requests. Grapetree sought attorney’s fees but the Vice Chancellor did not opine on attorney’s fees at that time. Instead, the Vice Chancellor stated that if Grapetree continued to seek fees, their counsel should inform him and he would later address the issue. On February 20, 2019, Grapetree, filed a Motion for Attorney’s Fees and Costs.
Grapetree cited to the LLC’s Operating Agreement as the basis for shifting attorney’s fees. The Operating Agreement states that in the event any Member initiates any action against the Company and the 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[s]”. Grapetree argues the Operating Agreement warrants fee shifting because the Plaintiff did not substantially achieve the result he sought in filing this action. The Plaintiff was only granted 6 out of his 32 claims, leaving Grapetree successful against over 80% of the Plaintiff’s demands.
In his answering brief, the Plaintiff did not address the LLC’s Operating Agreement. Instead, he opposed the award of attorney’s fees on a variety of grounds, including ongoing misappropriation within the LLC.
The Vice Chancellor considered the language of the Operating Agreement, and determined the language was explicit and without ambiguity. While the Plaintiff was successful on some of his demands, the January 31, 2019 Opinion “denied the greater part of Andrew’s requests, as unnecessary to a proper purpose”. The Vice Chancellor also stated the Plaintiff’s choice to proceed pro se was not a defense, but instead led to inefficient litigation and the cost of that choice should not fall on the LLC, under the terms of the LLC agreement. Therefore, Grapetree was entitled to its reasonable attorney’s fees and costs. The Vice Chancellor also clarified that he did not shift fees under the bad faith exception to the American Rule, but did so solely under the LLC agreement.