On April 30, 2015, Vice Chancellor Laster of the Delaware Court of Chancery issued an opinion denying a motion to dismiss a petition for dissolution. In In re Carlisle Etcetera LLC[1], the respondent sought to dismiss the petition on the grounds that the petitioners lacked standing to seek judicial dissolution under 6 Del. C. § 18-802 (which is limited to an application by "a member or manager," as neither petitioner was a member of the LLC. Petitioner argued that the original member's assignment of all of its interests meant neither the assignor and assignee were properly "members" of the LLC and neither, therefore had standing to seek dissolution.  6 Del. C. § 18-702(b) states:

Unless otherwise provided in a limited liability company agreement:
(1) An assignment of a limited liability company interest does not entitle the assignee to become or to exercise any rights or powers of a member;
(2) An assignment of a limited liability company interest entitles the assignee to share in such profits and losses, to receive such distribution or distributions, and to receive such allocation of income, gain, loss, deduction, or credit or similar item to which the assignor was entitled, to the extent assigned; and
(3) A member ceases to be a member and to have the power to exercise any rights or powers of a member upon assignment of all of the member's limited liability company interest. Unless otherwise provided in a limited liability company agreement, the pledge of, or granting of a security interest, lien or other encumbrance in or against, any or all of the limited liability company interest of a member shall not cause the member to cease to be a member or to have the power to exercise any rights or powers of a member.

The Court agreed with the respondent that neither petitioner was properly a "member" of the LLC:

WU Parent lost its status as a member of the Company when it assigned all of its interest in the Company to WU Sub. Under Section 702(b)(3) of the LLC Act, [u]nlessotherwise provided in a limited liability company agreement: . . . (3) [a] member ceases to be a member and to have the power to exercise any rights or powers of a member upon assignment of all of the member‘s limited liability company interest. Id. § 18-702(b)(3). By operation of law, once WU Parent assigned its interest in the Company to WU Sub, WU Parent cease[d] to be a member and could no longer exercise a member‘s right to seek statutory dissolution. See Eureka VIII LLC v. Niagara Falls Hldgs. LLC, 899 A.2d 95, 114 (Del. Ch. 2006) (Strine, V.C.) (noting that an assignment typically results in the statutory divestiture of a membership interest). Under the facts as pled, WU Parent cannot petition for statutory dissolution.

The analysis for WU Sub is more complex. As an initial matter, James is correct that WU Sub did not automatically become a member by receiving WU Parent‘s interest. Under Section 18-702(b)(1) of the LLC Act, ―[u]nless otherwise provided in a limited liability company agreement: . . . (1) [a]n assignment of a limited liability company interest does not entitle the assignee to become . . . a member. 6 Del. C. § 18-702(b)(1). The Initial LLC Agreement did not provide otherwise, so under the facts as pled, the transfer of WU Parent‘s interest made WU Sub an assignee, not a member.[2]

The Court followed, however, with an unorthodox solution that surprised many observers:

[Respondent] argues that because neither WU Parent nor WU Sub can seek statutory dissolution under Section 18-802, this case must be dismissed. In my view, James errs in contending  that Section 18-802 is the exclusive extra-contractual means of obtaining dissolution of an LLC. Under the facts of this case, WU Sub has standing to seek dissolution in equity.

[T]his Court, as a court of equity, has the power to order the dissolution of a solvent company and appoint a receiver to administer the winding up of those assets. Justice Story described the power to dissolve the partnership during the term for which it is stipulated as one of the strongest cases to illustrate the beneficial operation of the jurisdiction of a court of equity. The implementation of a dissolution decree would require the appointment of a receiver, which is likewise an equitable remedy that forms part of this court‘s equitable powers. Courts of equity have long had the power to appoint receivers in cases where the partners themselves are wholly unable to agree as to the management of the property and the settlement of the partnership affairs…

For Section 18-802 to provide the exclusive method of dissolving an LLC, it would have to divest this court of a significant aspect of its traditional equitable jurisdiction. Section 18-802 does not state that it establishes an exclusive means to obtain dissolution, nor does it contain language overriding this court‘s equitable authority. To the contrary, the LLC Act elsewhere recognizes that equity backstops the LLC structure by providing generally that the rules of law and equity shall govern in any case not provided for in this chapter.  6 Del. C. § 18-1104.
 
If Section 18-802 did purport to establish an exclusive means to obtain dissolution and override a significant portion of this court‘s traditional equitable jurisdiction, then the validity of that aspect of the provision would raise serious constitutional questions. Article IV, Section 10 of the Delaware Constitution provides that this court shall have all the jurisdiction and powers vested by the laws of this State in the Court of Chancery.
 
…
 
Although this court‘s equitable jurisdiction is measured by the the general equity jurisdiction of the High Court of Chancery of Great Britain as it existed prior to the separation of the colonies, the Delaware Supreme Court has recognized that the scope of that jurisdiction is not limited by the extent of British scientific, technological, and legal knowledge at the time of the handover… It is the complete system of equity that this court inherited and administers, not the temporally specific subject matter of eighteenth century cases.[3]

Vice Chancellor Laster indicated a jaundiced view toward the “purely contractarian” philosophy of limited liability companies:
 

Of particular relevance to dissolution, the purely contractarian view discounts core attributes of the LLC that only the sovereign can authorize, such as its separate legal existence, potentially perpetual life, and limited liability for its members. See 6 Del. C. §§ 18-201, 18-303. To my mind, when a sovereign makes available an entity with attributes that contracting parties cannot grant themselves by agreement, the entity is not purely contractual. Because the entity has taken advantage of benefits that the sovereign has provided, the sovereign retains an interest in that entity. That interest in turn calls for preserving the ability of the sovereign‘s courts to oversee and, if necessary, dissolve the entity. Put more directly, an LLC agreement is not an exclusively private contract among its members precisely because the LLC has powers that only the State of Delaware can confer. Those powers affect the rights of third parties, who at a minimum must take into account the LLC‘s separate legal existence and its members‘ limited liability shield. Just as LLCs are not purely private entities, dissolution is not a purely private affair.[4]

 
On the strength of this analysis, the Court denied the motion to dismiss and held that a party without statutory standing to pursue a dissolution action could still, under the right circumstances, seek such relief in equity.

Subsequently, on May 4, 2015, Vice Chancellor Laster entered an order granting summary judgment in favor of the petitioners and concisely articulated the standard for dissolution applied in this case as calling for dissolution where "(1) the managers are deadlocked; (2) the operating agreement provides no means of navigating around the deadlock; and (3) the deadlock is threatening harm to the business."