Largo Legacy Group, LLC v. Evens Charles

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

LARGO LEGACY GROUP, LLC, )
)
Plaintiff, )
)
v. ) C.A. No. 2020-0105-MTZ
)
EVENS CHARLES and CD FD )
VENTURES LLC, a Delaware )
limited liability company, )
)
Defendants, )
)
and )
)
LARGO HOTEL, LLC, )
a Delaware limited liability company, )
)
Nominal Defendant. )

MEMORANDUM OPINION
Date Submitted: March 11, 2021
Date Decided: June 30, 2021

Steven T. Margolin, Lisa Zwally Brown, and Samuel L. Moultrie, GREENBERG
TRAURIG, LLP, Wilmington, Delaware, Attorneys for Plaintiff.

Jason Jowers, BAYARD, P.A., Wilmington, Delaware, Attorney for Defendants.

ZURN, Vice Chancellor.
 The plaintiff in this matter is an investor in a hotel development company, the

principals of which launched a parallel venture on an adjacent parcel. The

company’s principals established the parallel venture in a newly formed entity they

owned and controlled. The parallel venture’s land and initial funds came from the

company in which the plaintiff had invested. According to the plaintiff, the

principals transferred the land on the false assumption that it was valueless, failed to

reimburse the transferor company for its expenses, and engaged in some sleight of

hand in the company’s bookkeeping to siphon additional funds from the company

for the new venture. The plaintiff brings four claims, primarily contending that the

company’s principals engaged in a fraudulent scheme that advantaged the new

venture and themselves to the plaintiff’s detriment. The defendants moved to

dismiss. This opinion concludes the plaintiff’s broad theory successfully states a

claim for the principals’ breaches of fiduciary duty and the company’s operating

agreement, but not fraud. The motion is granted and denied in part.

I. BACKGROUND 1

Nominal Defendant Largo Hotel, LLC (the “Company”) is a closely held

Delaware limited liability company. Under its Operating Agreement dated

1
The complaint “ordinarily defines the universe of facts from which the trial court may
draw in ruling on a motion to dismiss.” Malpiede v. Townson, 780 A.2d 1075, 1082 (Del.
2001). Accordingly, I draw the following facts from the Verified Complaint, available at
Docket Item (“D.I.”) 1 [hereinafter “Compl.”], as well as the documents attached to and
integral to it. See, e.g., Himawan v. Cephalon, Inc., 2018 WL 6822708, at *2 (Del. Ch.

1
October 22, 2014 (the “Operating Agreement”), the Company is manager-managed

by manager Defendant CD FD Ventures, LLC (“Manager”). 2 Manager directs the

Company’s operations, 3 and is obligated to provide Members with certain Company

Dec. 28, 2018); In re Gardner Denver, Inc. S’holders Litig., 2014 WL 715705, at *2 (Del.
Ch. Feb. 21, 2014). Such documents include certain of Defendants’ exhibits in support of
their motion to dismiss, available at D.I. 16 [hereinafter “Defs.’ Ex. —”]. Defendants’
Exhibits A, B, D, F, and G are cited or explicitly referenced in the Complaint and therefore
incorporated by reference into it. I consider those documents “to ensure that the plaintiff
has not misrepresented [their] contents and that any inference the plaintiff seeks to have
drawn is a reasonable one.” Amalgamated Bank v. Yahoo! Inc., 132 A.3d 752, 797 (Del.
Ch. 2016), abrogated on other grounds by Tiger v. Boast Apparel, Inc., 214 A.3d 933 (Del.
2019).
I do not consider Defendants’ Exhibits C, E, H, or I, which are not integral to or
incorporated by reference into the Complaint. Rather, those exhibits insert “[m]atters
extrinsic to a complaint,” which “generally may not be considered in a ruling on a motion
to dismiss” even if the moving party claims the evidence contradicts allegations in a
complaint. Wal-Mart Stores, Inc. v. AIG Life Ins. Co., 860 A.2d 312, 320 (Del. 2004).
Nor do I consider Defendants’ contentions that the Complaint’s allegations are false
in an effort to “correct” the narrative at the motion to dismiss stage. See D.I. 16 at 12, 13,
28. The Court may not consider a defendant’s denials of disputed facts at the pleading
stage. See Leased Access Pres. Ass’n v. Thomas, 2020 WL 108563, at *1 n.2 (Del. Ch.
Jan. 8, 2020) (citing Cent. Mortg. Co. v. Morgan Stanley Mortg. Cap. Hldgs. LLC, 27 A.3d
531, 536 & 538 (Del. 2011) (explaining that when ruling on a motion to dismiss, the Court
must “accept all well pleaded factual allegations as true” and that “[a]t the motion to
dismiss stage . . . it matters not which party’s assertions are actually true.”)).
2
See Defs.’ Ex. A §§ 3.1, 5.5(a) & Sched. A [hereinafter “Op. Agr.”].
3
See id. § 5.5(a) (“Subject to the provisions of this Agreement, the Manager shall have the
exclusive right to control the business of the Company and the Members shall not have any
right to take part in the management or control of the business of the Company or to transact
any business in the name of the Company.”).

2
financial information. 4 Manager also provides asset management services for the

Company pursuant to an October 22, 2014, Asset Management Agreement. 5

Manager is owned and controlled by its managing member, Defendant Evens

Charles. Charles is not a signatory to the Operating Agreement in his individual

capacity, but at all relevant times, Manager acted through Charles. Charles also

owns and controls nonparty Frontier Largo LLC (“Frontier”), which holds a 35%

membership interest in the Company. Plaintiff Largo Legacy Group LLC

(“Plaintiff”) has, at all relevant times, held a 15% membership interest in the

Company; Plaintiff is managed by nonparty Tracy Prigmore. The remaining 50%

of the Company’s membership interests are held by nonparty Largo Galilee LLC

(“Galilee,” and together with Frontier, the “Majority Members”), which is owned

and controlled by nonparty Maiser Aboneaaji. I refer to Plaintiff, Frontier, and

Galilee as “Members.” 6

Section 5.6 of the Operating Agreement saddles Manager with “a fiduciary

responsibility to the [Company’s] Members.” 7 Section 5.2 vests the Members with

a consent right over certain “Major Decisions,” which require the consent of 70% of

4
See id. § 10.4.
5
See id. Sched. C.
6
See id. § 3.2 & Sched. A.
7
Id. § 5.6.

3
the Company’s Membership Interests.8 Such Major Decisions include, inter alia,

capital calls; selling or conveying any interest in the Company’s property; and

approving “transactions with Affiliates of the Manager, except as provided in

Section 5.4.”9 The Members also agreed under Section 5.4(a) that the Manager or

its Affiliates could receive a “salary or other direct or indirect compensation for any

services or goods provided in connection with the Company,” subject to the consent

of 70% of the Company’s Membership Interests “to the precise terms thereof.”10

Section 5.4(b) permits “any Member” to “engage independently or with others in

other business ventures of every nature and description including the ownership,

operation, management, syndication and development of competing real estate, and

neither the Company nor any other Member shall have any rights in and to such

independent ventures or the income or profits derived therefrom.” 11

A. The Company Developed And Operates A DoubleTree Hotel On
Its Property; Charles Proposes Developing The Adjacent Land
Into A Homewood Suites.

The Company is a special purpose vehicle that owns a real estate parcel

located at 9100 Basil Court, Largo, Maryland (the “Property”), together with the

8
See id. § 5.2; see also id. § 3.5 (allowing Members to act by written consent).
9
Id. § 5.2(2), (16), (27).
10
Id. § 5.4(a).
11
Id. § 5.4(b).

4
184-room DoubleTree Hotel located thereon (the “DoubleTree”). 12 The Company

also owned the adjacent 3.47-acre, vacant parcel located at 9104 Basil Court

(the “Adjacent Land”). The Company acquired the Property and the Adjacent Land

at the same time. At the time of purchase, the Adjacent Land was appraised for

approximately $900,000.13

In the transaction giving rise to this litigation, Charles and the Majority

Members transferred the Adjacent Land to a new entity they owned and controlled

for development into another hotel. In January 2016, the Company’s Members

began discussing the Adjacent Land’s subdivision and development. On January 18,

Charles proposed subdividing it to develop a 115-room Homewood Suites hotel (the

“Project”). 14 Once the Project was developed, Charles would manage the

Homewood Suites and receive an asset management fee in perpetuity in the amount

of 2% of the hotel’s gross revenue.

According to Charles, Project synergies like cross-selling and shared

resources would add value to the Company. 15 Charles proposed spending Company

12
See id. § 2.3 (“The purpose of the Company is to acquire, own, improve, lease, manage,
sell and/or otherwise dispose of, hypothecate and/or otherwise deal with the Property and
all activities necessary, useful or convenient to carry out the foregoing.”).
13
Although the parcels were purchased together, the Adjacent Land was separately
assessed for real property tax purposes.
14
See Defs.’ Ex. B at 2.
15
See id.

5
funds on the Project’s predevelopment. 16 While Company funds would get the

Project underway, Charles planned to sell the Project to a new entity with the same

ownership structure as the Company, and to market the new venture to the

Company’s Members and other potential investors. 17 The Company’s Members

would have the opportunity to invest additional funds to obtain a membership

interest in the new entity. 18 Charles asked Members to “re-invest in accordance with

[the Member’s] ownership interest in the Company.”19

The Adjacent Land would be the Company’s and current Members’ baseline

investment in the Project. 20 Members that did not invest would retain their interest

in the Adjacent Land that housed the Project. 21 The value of that interest would not

16
See id.
17
See id.; Defs.’ Ex. F at 2; see also Compl. ¶¶ 13–16, 20, 22.
18
See Defs.’ Ex. B at 2; Comp. ¶¶ 21, 22.
19
Compl. ¶ 10.
20
See Defs.’ Ex. B at 2 (“Largo Hotel LLC owns the land which we valued at around
$800K when we purchased but a final evaluation will come later and this will be our equity
in the new hotel. I anticipate about a $15MM project therefore we are going in somewhere
between 5-6% collective ownership with the land and I anticipate a total equity check
between $4.5-$5M minus our land value.”); see also Compl. ¶¶ 13–16, 20, 22.
21
See Compl. ¶¶ 10, 17. By Plaintiff’s allegations, it is unclear whether this interest in the
Adjacent Land corresponded to equity in the Project. But Defendants’ Exhibit B indicates
that Charles’s proposed plan contemplated Plaintiff retaining its interest in the Adjacent
Land, rather than retaining an independent interest in the Project. See Defs.’ Ex. B at 2
(“Just a very rough estimate, your portion to retain your same ownership stake will be
somewhere in the $600K range. I ask you this now to see if you are interested in a similar
stake in this project? . . . If you do not want to participate, then you will still own your
portion of the land value and I will replace your equity but so far I anticipate the group
staying in tack [sic].”).

6
be determined by the Adjacent Land’s appraised value at the time the Company

purchased it; rather, it would be based on the parcel’s “final evaluation” that

“w[ould] come later.”22

Under this framework, if Plaintiff did not invest in the Project, it would retain

its 2 to 3% interest in the Adjacent Land.23 If Plaintiff did invest, Plaintiff would

need to pay approximately $600,000 to retain a 15% interest in the Project,

duplicating its stake in the Company.24 Plaintiff expressed interest in the proposal

and requested more information, including financial projections and a site plan, to

assess the Project’s prospects before making a firm commitment.

B. Charles Starts The Project And Offers To Buy Out Plaintiff’s
Interest In The Adjacent Land.

With Charles at the helm, the Project progressed through 2016. At that time,

the Company still owned the Adjacent Land that would house the Project. Charles

expended Company funds for the Project’s predevelopment and other expenses, as

contemplated in his January 18 proposal. Plaintiff was periodically informed that

funds were available for Project expenditures, but was not told the source of the

funds or how they were spent. And because Charles was directing the Project,

22
See Defs.’ Ex. B at 2.
23
See Compl. ¶¶ 10, 16, 17.
24
Id. ¶ 10.

7
Plaintiff did not have authority or approval over how or whether the funds would be

allocated.

Charles asked Plaintiff to assist with the Project by creating an offering

memorandum to recruit more investors. Plaintiff considered Charles’s request. On

May 16, after months of discussions with Plaintiff, Charles provided his proposed

financial model for the Project. It contained few concrete details, but did include a

value assigned to the land; an acquisition plan for the land and the Project through

the new entity; and a developer fee for Frontier Development & Hospitality Group,

LLC (“Frontier Development”), which Charles owns and controls.

In the following months, Charles and Plaintiff reached an impasse, and

Plaintiff began expressing doubts about investing in the Project. As a result, on

August 5, Charles offered to buy out Plaintiff’s interest in the still-undeveloped

Adjacent Land for $100,000. The offer was not based on the Adjacent Land’s

valuation or other objective metrics, and Charles did not provide Plaintiff a way to

assess the offer’s fairness. Charles explained,

The land is still not subdivided, entitled or capitalized therefore I’m
risking the project never materializing by paying you now. As a result,
I do not want to base this offer off of the previous appraised value.
Otherwise, maintaining your ownership in the land will only be around
2-3% of the [Project]. 25

25
Id. ¶ 16.

8
Therefore, Plaintiff had three options: (1) accept the buyout offer without any

indication of whether it was fair; (2) invest an additional $600,000 in the Project; or

(3) do neither and simply hold its interest in the Adjacent Land.

Plaintiff asked Charles for more information to assess the buyout offer,

specifically the valuation metrics for the Adjacent Land and the corresponding

$100,000 offer price, and the timing of any proposed transaction. Charles did not

respond. Plaintiff declined the buyout and declined to invest.

At some point, Charles represented to Plaintiff that the Adjacent Land had no

value, such that the Members would receive no value for their interest in it, and so

the Company would only be reimbursed for the Project’s predevelopment costs. 26

C. Charles Subdivides And Conveys The Adjacent Land.

On January 20, 2017, Charles emailed Plaintiff stating, “[w]e will be

transferring the excess land (we recently subdivided) to a new entity soon for the

Homewood Suites development within the next month and each of you will obtain

an email as it relates to your interest.” 27 Manager and the 85% Majority Members

caused the Company to subdivide the Adjacent Land (the “Subdivision”) in

26
Plaintiff does not specifically allege that Charles made these representations, let alone
identify the specific time and place at which Charles made them. Rather, the Complaint’s
allegations require the inference that Charles represented these facts to Plaintiff sometime
before the January 24 conference. See Compl. ¶¶ 23–24; see also D.I. 21 at 8–9.
27
Defs.’ Ex. D.

9
preparation to transfer it to the new entity. The Majority Members, together with

new investors, formed that entity as 9103 Basil Court Partners LLC (“9103 LLC”),

invested in it, and held membership interests in it. Manager and the Majority

Members then conveyed the subdivided Adjacent Land to 9103 LLC for $700,000

(the “Conveyance”).28

Plaintiff alleges the Subdivision and Conveyance were done at Charles’s

direction and without Plaintiff’s consent. Plaintiff did not know the value assigned

to the Adjacent Land in the Subdivision and Conveyance.

On January 24, at a hotel investment conference, Plaintiff confronted Charles

about the Subdivision, the Conveyance, the Adjacent Land’s value, and the

Company’s reimbursement for Project costs. Plaintiff also pushed for more

information about Charles’s earlier buyout offer. Charles told Plaintiff, without

elaboration, that the Project would not be financially feasible if any value was placed

on the Adjacent Land. Charles also stated that as of that date, the Company had

spent approximately $700,000 in predevelopment costs in connection with the

Project; that the Company would be reimbursed for those predevelopment costs; and

that further details were forthcoming. The $700,000 the Company spent in

Tax records indicate that the assigned value for the Conveyance of the Adjacent Land
28

was approximately $700,000. Compl. ¶ 30 n.4.

10
predevelopment costs was equal to the $700,000 9103 LLC paid the Company for

the Adjacent Land.

Charles did not tell Plaintiff that 85% of the Company’s Members authorized

the Conveyance until March 23, 2018. Charles refused to disclose further details

about the Conveyance.

D. Charles Offers To Reimburse Plaintiff’s Contributions To The
Project; Plaintiff Scrutinizes The Adjacent Land’s Value.

On March 12, 2017, after several more inquiries from Plaintiff, Charles sent

Plaintiff a document titled “Payoff Letter and Sources and Uses for Homewood Suite

Project” (the “Payoff Letter”). 29 The Payoff Letter offered Plaintiff $105,000,

calculated as 15% of the Company’s $700,000 investment in 9103 LLC, which in

turn constituted the Adjacent Land (valued at $0) plus $700,000 in predevelopment

costs. 30 This offer deprived Plaintiff of its interest in the Adjacent Land, as well as

any profits from the Project’s development or reimbursement of additional

development costs.

Charles maintained that for the Project to be financially feasible, the Adjacent

Land had to carry no value because the Project’s predevelopment costs went over

budget. Plaintiff alleges those costs were inflated due to Charles’s self-dealing:

29
See Defs.’ Ex. F.
30
See id.

11
Charles planned to pay Frontier Development, an entity he owns, an $800,000

developer fee. Further, Charles’s valuation did not account for the Adjacent Land’s

standalone value as a vacant parcel.

After receiving the Payoff Letter, Plaintiff asked for more information,

including support for Charles’s determination that the Adjacent Land had no value,

and information underlying the flow of money among the Company, its Members,

and 9103 LLC. Charles did not fulfill Plaintiff’s requests.

On April 6, Plaintiff confronted Charles about his claim that the Adjacent

Land was worth nothing. Plaintiff was concerned Charles had conveyed the

Adjacent Land to 9103 LLC for no consideration, and repaid only the

predevelopment costs. Charles remained steadfast that the “deal would not work if

he assigned a land value.” 31

E. Plaintiff Discovers That Charles Misused Company Funds To
Pay For The Project.

On July 24, Plaintiff received an email from Charles purportedly providing

“official notice” of a capital call to the Company’s Members to pay a general

contractor, affiliated with Majority Member Galilee, in connection with a 2015

DoubleTree renovation project that was closed out before the final payment was

31
Compl. ¶ 33.

12
made.32 Charles provided each of the contractor payment applications; a summary

of each payment made for the renovation and the discovery of the missing payment;

and the Member resolution authorizing the capital call, signed by Frontier and

Galilee.33

Plaintiff asked for more information about the capital call, as the funds for

that renovation project were escrowed before it broke ground, and the project stayed

within budget. Based on the information received, Plaintiff concluded the Company

had deposited the funds to pay for the 2015 renovation in the Company’s

membership accounts, rather than using them to pay the contractor. As a result, the

Company had excess cash on hand. Plaintiff alleges upon information and belief

that Charles used that excess cash to fund the Project’s predevelopment, to benefit

9103 LLC and Charles, rather than the 2015 renovation. Then, Charles caused the

Company to make a capital call to cover its deficit and pay the 2015 contractor.

These actions were taken without Plaintiff’s knowledge or approval.

Given Plaintiff’s growing distrust of Charles, Plaintiff asked to be diluted

rather than make a capital contribution. That request was denied. On September 8,

Plaintiff received notice that Frontier, through Charles, elected to make a deficiency

32
Id. ¶ 36; see Defs.’ Ex. G at 1.
33
See Defs.’ Ex. G.

13
loan for Plaintiff’s portion in the amount of $67,480. Plaintiff has since paid off the

loan plus interest through withheld Membership distributions.

F. Charles Again Offers To Buy Out Plaintiff And Stonewalls
Plaintiff’s Request For More Information.

In May 2018, Prigmore, on Plaintiff’s behalf, informally met with Charles at

a trade reception. Charles offered to buy out Plaintiff’s interest in the Company for

the same amount of its initial investment, $750,000. Prigmore asked about

Plaintiff’s $105,000 share of reimbursed Project predevelopment costs, and the

Conveyance of the Adjacent Land to 9103 LLC. At that point, the discussions

became contentious and ended.

In July 2018, Plaintiff asked for more information about the Subdivision and

Conveyance, including documentation evidencing the value of the Adjacent Land.

Plaintiff also asked for monthly Company financial information as required by the

Operating Agreement, which had abruptly stopped. Charles responded that he was

withdrawing his buyout offer and that the Company would be producing financial

information on a quarterly basis, notwithstanding the Operating Agreement’s terms.

To date, Plaintiff has not received any consideration in connection with the

Conveyance of the Adjacent Land. Plaintiff has also not received its portion of the

reimbursement owed to the Company in connection with the predevelopment of the

14
Adjacent Land. 34 Plaintiff contends that Charles engaged in a self-dealing,

fraudulent scheme in which he conveyed the subdivided Adjacent Land to 9103

LLC—an entity he controls—for no consideration. Charles’s scheme was facilitated

by the Company’s failure to provide monthly financial information to its Members,

through Manager and Charles, despite Plaintiff’s repeated requests for such

information.

G. Plaintiff Seeks Further Information And Files Suit.

Given the dearth of information provided pursuant to the Operating

Agreement or in response to Plaintiff’s direct requests, Plaintiff made a books and

records demand on the Company pursuant to 6 Del. C. § 18-305. The Company

denied Plaintiff’s demand. Plaintiff then filed a books and records action in this

Court on October 10, 2019 (the “Books and Records Action”). 35 The Company filed

its Answer in the Books and Records Action on December 5, and provided some,

but not all, of the information Plaintiff demanded.36

34
On March 7, 2018, Charles provided Plaintiff with its 2017 K-1 which was incorrect
because it reported a distribution valued at $105,000 of non-cash proceeds. Plaintiff
immediately consulted an accounting professional, who requested a copy of the 1065
Partnership tax return to determine the validity of the reporting. When Plaintiff requested
the tax return, Charles provided only an amortization worksheet. Compl. ¶ 35 n.5.
35
See Largo Legacy Gp., LLC v. Largo Hotel, LLC, C.A. No. 2019-0869-MTZ. I refer to
entries on the docket in the Books and Records Action as “BR D.I. —.”
36
Compl. ¶ 47; see BR D.I. 9.

15
 On February 18, 2020, while the Books and Records Action was pending,

Plaintiff filed the Verified Complaint in this action (the “Complaint”). 37 Count I

asserts Manager and Charles breached their fiduciary duties, alleging:

Manager, by and through the actions of Charles, and Charles, have
breached those duties by, among other things, causing the Company to:
(i) expend funds in connection with the pre-development of the
Adjacent [Land] without reimbursement; (ii) subdivide and convey the
Adjacent [Land] to an entity owned and controlled by the Majority
Members for no consideration; (iii) fail to adhere to its contractual
obligations to distribute monthly financial information in accordance
with the Operating Agreement; (iv) allow Charles to perpetuate his
fraudulent scheme to use Company funds in connection with the pre-
development of the Adjacent Land and then convey such land to the
Majority Members for no consideration; (v) fraudulently deposit funds
into the Company’s membership accounts to then later be used in
connection with the pre-development of the Adjacent [Land], creating
the need for a capital call; and (vi) make a capital call as part of
Charles’[s] fraudulent scheme to recoup funds that were used in
connection with the pre-development of the Adjacent [Land].38

Count III asserts a claim against Charles, in the alternative, for aiding and abetting

Manager’s breaches of fiduciary duty. Count II asserts Manager and Charles

defrauded Plaintiff by (1) concealing facts and information material to the

Subdivision, Conveyance, and Project predevelopment costs, and (2) misusing

Company funds earmarked for the 2015 renovation; creating the need for a capital

call and noticing that call to recoup the misused funds; and falsely representing to

37
See generally Compl.
38
Id. ¶ 54.

16
Plaintiff that Company funds expended in connection with the Project’s

predevelopment would be reimbursed to the Company. And Count VI asserts that

Manager and Charles breached the Operating Agreement by failing to provide

monthly financial information.

On May 8, Defendants moved to dismiss (the “Motion”). 39 The parties

briefed the Motion as of July 2. 40 I held argument on August 19.41 I asked whether

the plenary action should be stayed pending resolution of the related Books and

Records Action. 42 In response, the parties agreed to pursue voluntary mediation in

the Delaware Court of Chancery pursuant to Rule 174, in lieu of proceeding with

argument on the Motion.43 Accordingly, I stayed both this action and the Books and

Records Action and tabled the Motion. 44

The parties mediated before a Court of Chancery judicial officer, but were

unsuccessful. 45 I held a status conference on January 15, 2021, to inquire as to

whether Plaintiff intended to pursue the still-pending Books and Records Action

39
D.I. 16.
40
See id.; D.I. 21; D.I. 25.
41
See D.I. 31.
42
See id.
43
See id.
44
See id.; D.I. 33.
45
See D.I. 34.

17
before proceeding on the merits. 46 Plaintiff elected to voluntarily dismiss the Books

and Records Action and pursue this plenary action.47 I entered an order dismissing

the Books and Records Action on January 21, and this action proceeded. 48 The

Motion was therefore revived; because the parties did not reach argument on the

merits at the August 2020 hearing, I held argument on the Motion on March 11, 2021

and took the Motion under advisement. 49

II. ANALYSIS

The Motion turns on Plaintiff’s overarching theory of the case, which I view

through the lens of Court of Chancery Rule 12(b)(6). The standards governing a

motion to dismiss under Rule 12(b)(6) for failure to state a claim for relief are well

settled:

(i) all well-pleaded factual allegations are accepted as true; (ii) even
vague allegations are “well-pleaded” if they give the opposing party
notice of the claim; (iii) the Court must draw all reasonable inferences
in favor of the non-moving party; and ([iv]) dismissal is inappropriate
unless the “plaintiff would not be entitled to recover under any
reasonably conceivable set of circumstances susceptible to proof.” 50

46
See BR D.I. 16; BR D.I. 19.
47
See BR D.I. 17.
48
See BR D.I. 18.
49
See D.I. 37; D.I. 38.
50
Savor, Inc. v. FMR Corp., 812 A.2d 894, 896–97 (Del. 2002) (citations omitted).

18
Thus, the touchstone “to survive a motion to dismiss is reasonable

‘conceivability.’”51 This standard is “minimal”52 and plaintiff-friendly. 53 “Indeed,

it may, as a factual matter, ultimately prove impossible for the plaintiff to prove his

claims at a later stage of a proceeding, but that is not the test to survive a motion to

dismiss.”54 Despite this forgiving standard, the Court need not accept conclusory

allegations unsupported by specific facts or draw unreasonable inferences in favor

of the nonmoving party. 55 “Moreover, the court is not required to accept every

strained interpretation of the allegations proposed by the plaintiff.” 56

Defendants argue Plaintiff’s claims are time-barred by laches and the

analogous statute of limitations. And Defendants contend Plaintiff’s claim for

breach of fiduciary duty fails because the challenged transactions were approved

pursuant to the Operating Agreement. As to Plaintiff’s aiding and abetting claim,

Defendants press that Charles, as Manager’s agent, cannot be liable for aiding and

abetting the entity’s alleged breach. Defendants further contend Plaintiff has failed

51
Cent. Mortg. Co., 27 A.3d at 537.
52
Id. at 536.
53
See, e.g., Clouser v. Doherty, 175 A.3d 86 (Del. 2017) (TABLE); In re USG Corp.
S’holder Litig., 2021 WL 930620, at *3–4 (Del. Ch. Mar. 11, 2021); In re Trados Inc.
S’holder Litig., 2009 WL 2225958, at *8 (Del. Ch. July 24, 2009).
54
Cent. Mortg. Co., 27 A.3d at 536.
55
See, e.g., Clinton v. Enter. Rent-A-Car Co., 977 A.2d 892, 895 (Del. 2009).
Trados Inc., 2009 WL 2225958, at *4 (internal quotation marks omitted) (quoting In re
56

Gen. Motors (Hughes) S’holder Litig., 897 A.2d 162, 168 (Del. 2006)).

19
to state a claim for breach of the Operating Agreement, as Plaintiff has not

demonstrated a need for the routine provision of financial information under Section

10.4 and has abandoned the Books and Records Action. Finally, Defendants argue

that Plaintiff has failed to plead a fraud claim with the requisite particularity,

specifically failing to plead reliance.

In view of these arguments, I conclude that the Motion must be granted and

denied in part. Count I for breach of fiduciary duty survives, but is dismissed to the

extent it is duplicative of Count IV for breach of contract. Counts III and IV likewise

overcome the Motion. And Count II for fraud is dismissed in its entirety, as

Plaintiff’s conclusory allegations fail to carry the claim past the pleading stage.

A. Plaintiff’s Breach Of Fiduciary Duty Claim Is Not Time-Barred.

Defendants contend Count I’s breach of fiduciary duty claim is time-barred to

the extent it relies on paying predevelopment expenses using Company funds, as that

cause of action accrued between January and August 2016 when Plaintiff learned

Company funds would be used for predevelopment expenses and when those

expenses were paid.57 Plaintiff argues Defendants misstate the theory of breach with

57
Defendants argue that “the Court should dismiss all of Plaintiff’s claims involving the
predevelopment expenses on the Adjacent Land, because those claims arose sometime
between January and August of 2016 and, thus, are barred by the statute of limitations as
applied through the doctrine of laches.” D.I. 16 at 3. But Defendants only briefed that
statute of limitations issue with respect to Count I. See id. at 18–23. Therefore, I only
consider Defendants’ statute of limitations argument with respect to the breach of fiduciary
duty claim, even though Count II also invokes the predevelopment expenses.

20
respect to the predevelopment expenses and that its claims are not barred. In view

of the allegations, I agree with Plaintiff.

The equitable doctrine of laches “prevent someone who slumbers on her rights

and delays unreasonably in filing suit from being permitted to prosecute her

claims.”58 While laches is a standalone doctrine, “[e]quity follows the law and in

appropriate circumstances will apply a statute of limitations by analogy.”59 “[F]iling

after the expiration of the analogous limitations period is presumptively an

unreasonable delay for purposes of laches.” 60 For cases in equity alleging breach of

fiduciary duty, fraud, or breach of contract, like this one, Delaware courts have

looked to the analogous three-year statute of limitations period established by

10 Del. C. § 8106. 61 Thus, “[u]nless timely filing is excused by a recognized tolling

doctrine, a plaintiff must file a claim for breach of fiduciary duty within three years

of the conduct that gives rise to the claim.” 62 “The statute of limitations begins to

run at the time that the cause of action accrues, which is generally when there has

58
E.g., TrustCo Bank v. Mathews, 2015 WL 295373, at *5 (Del. Ch. Jan. 22, 2015).
59
In re Tyson Foods, Inc. Consol. S’holder Litig., 919 A.2d 563, 584 (Del. Ch. 2007).
60
E.g., Levey v. Brownstone Asset Mgmt., LP, 76 A.3d 764, 769 (Del. 2013).
See, e.g., Vichi v. Koninklijke Philips Elecs. N.V., 2009 WL 4345724, at *15–16 (Del.
61

Ch. Dec. 1, 2009).
62
In re Sirius XM S’holder Litig., 2013 WL 5411268, at *4 (Del. Ch. Sept. 27, 2013).

21
been a harmful act by a defendant. This is true even if the plaintiff is unaware of the

cause of action or the harm.”63

“Absent a tolling of the limitations period, a party’s failure to file within the

analogous period of limitations will be given great weight in deciding whether the

claims are barred by laches.”64 “The Delaware courts recognize three doctrines that

may toll the statute of limitations: (1) inherently unknowable injuries, (2) fraudulent

concealment, and (3) equitable tolling following a breach of fiduciary duties.”65

Whether the analogous statute of limitations bars a plaintiff’s claims “is

properly raised on a motion to dismiss.”66 At this stage, the Court conducts a three-

part analysis to determine whether a claim is time-barred.

63
Tyson Foods, Inc., 919 A.2d at 584.
64
Whittington v. Dragon Gp., L.L.C., 991 A.2d 1, 9 (Del. 2009).
65
Vichi, 2009 WL 4345724, at *17.
66
Tyson Foods, Inc., 919 A.2d at 584; see also Vichi, 2009 WL 4345724, at *15. However,
“[t]he defense of laches is ‘not ordinarily well-suited’ for treatment on a Rule 12(b)(6)
motion.” CMS Inv. Hldgs., LLC v. Castle, 2015 WL 3894021, at *10 (Del. Ch.
June 23, 2015) (quoting Reid v. Spazio, 970 A.2d 176, 183 (Del. 2009)). Thus, “[u]nless
it is clear from the face of the complaint that an affirmative defense exists and that the
plaintiff can prove no set of facts to avoid it, dismissal of the complaint based upon an
affirmative defense is inappropriate.” Reid, 970 A.2d at 183–84.

22
 From the pleadings, the Court determines (1) the date of accrual of the
cause of action based on the allegations, (2) if the plaintiff has pleaded
facts sufficient to create a reasonable inference that the statute of
limitations has been tolled, and (3) assuming a tolling exception has
been pleaded adequately, when the plaintiff was on inquiry notice of a
claim based on the allegations.67

Defendants’ argument fails under this analysis.

1. As Alleged, Plaintiff’s Breach Of Fiduciary Duty
Claim Did Not Accrue Until 2017, When Charles
Refused To Reimburse The Company For
Predevelopment Expenses.

Defendants’ statute of limitations theory assumes that the underlying breach

is the mere expenditure of Company funds for the Project’s predevelopment, which

Charles disclosed in his initial Project proposal and Plaintiff knew about by early to

mid-2016. 68 This theory miscasts and oversimplifies Plaintiff’s allegations and

breach theory. Drawing all inferences in Plaintiff’s favor, any cause of action based

on the predevelopment expenses did not accrue until 2017, when Plaintiff learned

via the Payoff Letter that the Company would not be reimbursed those funds.

With respect to the predevelopment expenses, Count I alleges that Manager,

by and through Charles, breached its fiduciary duties by “expend[ing] funds in

connection with the pre-development of the Adjacent [Land] without

Vichi, 2009 WL 4345724, at *15 (quoting Winner Acceptance Corp. v. Return on Cap.
67

Corp., 2008 WL 5352063, at *14 (Del. Ch. Dec. 23, 2008)).
68
See D.I. 16 at 20–23 (citing Compl. ¶¶ 9, 12–16 & Defs.’ Ex. B).

23
reimbursement”; “allow[ing] Charles to perpetuate his fraudulent scheme to use

Company funds in connection with the pre-development of the Adjacent Land and

then convey such land to the Majority Members for no consideration”; and

“fraudulently deposit[ing] funds into the Company’s membership accounts to then

later be used in connection with the pre-development of the Adjacent [Land],

creating the need for a capital call.” 69

Plaintiff’s claims with respect to reimbursement of the predevelopment

expenses did not accrue until March 2017 when Charles shirked reimbursement;

Plaintiff’s claims with respect to the source of the predevelopment funds did not

accrue until July 2017 when Charles issued the capital call. In 2016, Charles

represented that Company funds would be used for predevelopment and then

reimbursed. In his initial January 18, 2016 proposal, Charles “indicated that funds

from the DoubleTree Hotel—e.g., the Company’s funds—would be allocated for

predevelopment costs associated with the [Project].” 70
Thereafter, Charles

represented to Plaintiff on multiple occasions, or at a minimum did not correct

Plaintiff’s belief, that the Company would be reimbursed. For example, at the

January 24, 2017 hotel conference, Charles again represented to Plaintiff that the

69
Compl. ¶ 54 (emphasis added).
70
Id. ¶ 9.

24
Adjacent Land had no value and that the Company would be reimbursed for the

predevelopment costs.

Then, on March 12, 2017, Plaintiff received the Payoff Letter, which indicated

the Company would not be reimbursed the predevelopment funds, contrary to

Charles’s previous promises. Rather, Plaintiff’s share of the predevelopment costs

would be reimbursed only as a payoff because Plaintiff declined to invest in 9103

LLC. In July 2017, Plaintiff received the capital call notice and learned that Charles

applied funds that were earmarked for a Company 2015 renovation to the Project’s

predevelopment costs.

Because Plaintiff sued in February 2020, within the analogous three-year

limitations window, Count I’s predevelopment cost claims are timely.

2. Even Assuming The Cause Of Action Accrued In
2016, Plaintiff Has Pled Facts Triggering The
Tolling Doctrines And Indicating That Plaintiff
Was On Inquiry Notice Of Claims Regarding The
Predevelopment Expenses By March Or July 2017.

Even assuming Defendants are correct that the cause of action accrued in early

to mid-2016, Plaintiff has pled facts sufficient to implicate equitable tolling. The

Court “does not strictly apply statutes of limitations,” and recognizes that “the

limitations period can be tolled in certain limited circumstances.” 71 Under all three

71
Weiss v. Swanson, 948 A.2d 433, 451 (Del. Ch. 2008) (quoting Franklin Balance Sheet
Inv. Fund v. Crowley, 2006 WL 3095952, at *6 (Del. Ch. Oct. 19, 2006)).

25
recognized tolling doctrines, the statute begins to run “upon the discovery of facts

constituting the basis of the cause of action or the existence of facts sufficient to put

a person of ordinary intelligence and prudence on inquiry which, if pursued, would

lead to the discovery of such facts.” 72 Inquiry notice does not require that the

plaintiff have actual knowledge of the wrong, but merely an objective awareness of

the facts giving rise to the wrong. 73

[A] plaintiff bears the burden of showing that the statute was tolled, and
relief from the statute extends only until the plaintiff is put on inquiry
notice. That is to say, no theory will toll the statute beyond the point
where the plaintiff was objectively aware, or should have been aware,
of facts giving rise to the wrong. Even where a defendant uses every
fraudulent device at its disposal to mislead a victim or obfuscate the
truth, no sanctuary from the statute will be offered to the dilatory
plaintiff who was not or should not have been fooled. 74

Here, Plaintiff’s allegations support application of the equitable tolling doctrine at

this stage.

Manager is a fiduciary whose misconduct, via Charles, may be subject to

equitable tolling. “The doctrine of equitable tolling suspends the statute of

limitations for the duration of a plaintiff’s reasonable reliance upon the competence

and good faith of a fiduciary.”75 “No evidence of actual concealment is necessary

72
Vichi, 2009 WL 4345724, at *17 (quoting Wal-Mart Stores, Inc., 860 A.2d at 319).
73
Id.
74
Tyson Foods, Inc., 919 A.2d at 585 (footnote omitted).
Seiden v. Kaneko, 2015 WL 7289338, at *8 (Del. Ch. Nov. 3, 2015) (internal quotation
75

marks omitted) (quoting Tyson Foods, Inc., 919 A.2d at 585).

26
in such a case, but the statute is only tolled until the investor knew or had reason to

know of the facts constituting the wrong.” 76 And “[c]ertainly at this stage of the

litigation, plaintiffs are entitled to the reasonable inference of conduct inconsistent

with a fiduciary duty.” 77

In this case, Plaintiff was entitled to rely upon the competence and good faith

of those protecting its interests, namely the Company’s Manager. Equitable tolling

would preserve Plaintiff’s claims regarding the source and reimbursement of the

predevelopment expenses. Plaintiff operated under the assumption that the Adjacent

Land would be attributed its fair value when conveyed to the new entity as

contemplated by Charles’s Project proposal, and did not learn that Charles assessed

it as valueless until shortly before January 24, 2017. Until Plaintiff received the

March 12, 2017 Payoff Letter, Plaintiff reasonably relied on Charles’s repeated

representations that the Company would be reimbursed for its predevelopment

expenditures. Only through the Payoff Letter did Plaintiff learn that Charles had no

intention to reimburse the Company for the predevelopment costs. And Plaintiff did

not discover the full extent of Charles’s self-dealing with respect to the

predevelopment costs until July 24, 2017, when Plaintiff received notice of the

Tyson Foods, Inc., 919 A.2d at 585 (internal quotation marks omitted) (quoting In re
76

Dean Witter P’ship Litig., 1998 WL 442456, at *6 (Del. Ch. July 17, 1998)).
77
Id. at 591.

27
capital call to pay for the 2015 DoubleTree renovation. At that point, Plaintiff

learned that Manager, through Charles, spent Company funds on the Project rather

than allocating those escrowed funds for the Company’s renovation as planned.

Charles’s correspondence put Plaintiff on inquiry notice of its claims, and Plaintiff

brought them timely.

*****

Accepting the Complaint’s allegations as true, Plaintiff’s claims were timely

brought or equitably tolled, at least for purposes of a motion to dismiss. 78 At trial,

Defendants will have the opportunity to present evidence to demonstrate that no

tolling doctrine applies or that Plaintiff was on inquiry notice of its claims with

respect to the predevelopment expenses before March 2017. 79 But I may not infer

such knowledge at this point in the proceedings. Accordingly, the laches doctrine

and analogous three-year statute of limitations do not bar Count I at the pleading

stage.

B. With One Exception, Plaintiff Has Stated A Claim For Breach
Of Fiduciary Duty Against Charles And Manager.

Having determined that Count I is not time-barred, I now turn to its sufficiency

in view of Rule 12(b)(6). It is well-settled that “[a] claim for breach of fiduciary

78
See id. at 590–91.
79
See id. at 591.

28
duty requires proof of two elements: (1) that a fiduciary duty existed and (2) that

the defendant breached that duty.”80 Plaintiff contends that Manager and Charles

each owed fiduciary duties to the Company and its Members, and that they breached

those duties by misdirecting Company funds toward the Project’s predevelopment;

valuing the Adjacent Land at zero, due in part to Charles’s self-interested budget

overruns; using that valuation to justify conveying the Adjacent Land to an entity

Charles owned and controlled for no consideration; and issuing a capital call to

rebalance the Company’s ledgers in view of the overall scheme, which enriched

Charles and his entities at Plaintiff’s expense. Plaintiff also alleges Defendants

breached their fiduciary duties by failing to provide financial information as required

under the Operating Agreement. In response, Defendant contends that certain of the

aforementioned actions are permitted under the Operating Agreement and that

Plaintiff has failed to allege that the remainder were motivated by self-interest.

“[T]o have any fiduciary duties to an entity, the affiliate must exert control

over the assets of that entity.” 81 In keeping with that principle, Delaware law

presumes that managers of limited liability companies owe fiduciary duties unless

80
Beard Rsch., Inc. v. Kates, 8 A.3d 573, 601 (Del. Ch. 2010), aff’d sub nom. ASDI, Inc.
v. Beard Rsch., Inc., 11 A.3d 749 (Del. 2010).
81
Bay Ctr. Apartments Owner, LLC v. Emery Bay PKI, LLC, 2009 WL 1124451, at *9
(Del. Ch. Apr. 20, 2009).

29
explicitly disclaimed. 82 Given the primacy of freedom of contract, Delaware’s

limited liability company jurisprudence begins with the basic premise that, unless

limited by the operating agreement, the manager has a fiduciary duty to manage the

entity in its interest and in the interests of its members.83 “Without language in an

[operating] agreement to the contrary, the managers of a Delaware LLC owe

traditional fiduciary duties of care and loyalty.”84

Such agreements can disclaim fiduciary duties, but drafters “must do so

clearly, and should not be incentivized to obfuscate or surprise investors by

ambiguously stripping away the protections investors would ordinarily receive.”85

“[I]f the parties have not unambiguously disavowed common law fiduciary duties, I

82
See, e.g., Triple H Fam. Ltd. P’ship v. Neal, 2018 WL 3650242, at *18 (Del. Ch.
July 31, 2018) (stating that the traditional duties of loyalty and care are owed by managers
of Delaware LLCs).
83
See 6 Del. C. § 18-1101(b) (adopting the policy “to give the maximum effect to the
principle of freedom of contract and to the enforceability of limited liability company
agreements”); In re Seneca Invs. LLC, 970 A.2d 259, 261 (Del. Ch. 2008) (“An LLC is
primarily a creature of contract, and the parties have wide contractual freedom to structure
the company as they see fit.”); Sonet v. Timber Co., L.P., 722 A.2d 319, 322 (Del. Ch.
1998) (acknowledging the primacy of freedom of contract); 77 Charters, Inc. v. Gould,
2020 WL 2520272, at *10 (Del. Ch. May 18, 2020) (stating “Delaware law recognizes the
primacy of contract when addressing governance issues in the alternative entity space”).
84
77 Charters, Inc., 2020 WL 2520272, at *9; see also CSH Theatres, L.L.C. v.
Nederlander of S.F. Assocs., 2018 WL 3646817, at *27 (Del. Ch. July 31, 2018), aff’d in
part, rev’d in part on other grounds sub nom. In re Shorenstein Hays-Nederlander Theatres
LLC Appeals, 213 A.3d 39 (Del. 2019).
85
77 Charters, Inc., 2020 WL 2520272, at *8–9 (internal quotation marks omitted)
(quoting Ross Hldg. & Mgmt. Co. v. Advance Realty Gp., LLC, 2014 WL 4374261, at *15
(Del. Ch. Sept. 4, 2014)).

30
must look to corporate law principles by analogy when determining whether and to

what extent fiduciary duties are owed.” 86 But “[p]rinciples of contract preempt

fiduciary principles where the parties to a limited [liability company] have made

their intentions to do so plain,”87 and “[the Company] may not saddle Defendants

with common law fiduciary duties if doing so would contradict the plain language

of the relevant LLC agreement.”88

Regarding Manager’s fiduciary duties, Section 5.6 of the Operating

Agreement provides:

The Manager shall manage the affairs of the Company to the best of its
ability, shall use its good faith efforts to carry out the purpose of the
Company, and shall devote to the Company such time and effort as may
be necessary for the proper performance of its duties and the business
of the Company. The Manager shall have a fiduciary responsibility to
the Members hereof.89
86
Id. at *10.
87
Sonet, 722 A.2d at 322; see also Douzinas v. Am. Bureau of Shipping, Inc., 888 A.2d
1146, 1149–50 (Del. Ch. 2006) (“Delaware’s Limited Liability Company and Limited
Partnership Acts[] permit the contracting parties to expand or restrict . . . fiduciary duties
. . . . As a result, in the alternative entity context, it is frequently impossible to decide
fiduciary duty claims without close examination of the governing instrument of the entity
giving rise to what would be, under default law, a fiduciary relationship.” (footnote and
internal quotation marks omitted) (quoting 6 Del. C. § 18-1101(c)(2))); Metro Commc’n
Corp. BVI v. Advanced Mobilecomm Techs. Inc., 854 A.2d 121, 153 (Del. Ch. 2004) (“In
addition to any contractual duties owed by Fidelity Brazil and its managers, the managers
owed a fiduciary duty of loyalty and care to Fidelity Brazil.”).
88
77 Charters, Inc., 2020 WL 2520272, at *10 (citing Related Westpac LLC v. JER
Snowmass LLC, 2010 WL 2929708, at *8 (Del. Ch. July 23, 2010) (“When . . . parties . . .
cover a particular subject in an express manner, their contractual choice governs and cannot
be supplanted by the application of inconsistent fiduciary duty principles that might
otherwise apply as a default.”)).
89
Op. Agr. § 5.6.

31
Section 5.6 does not unambiguously disavow default fiduciary duties and

acknowledges that Manager shall have fiduciary obligations to the Company’s

Members, so Manager owes default fiduciary duties to the extent they are not

supplanted by the Operating Agreement’s specific terms.90 At a minimum, Manager

owes the default duties of loyalty and care. 91

Plaintiff primarily alleges Defendants breached their duty of loyalty. In the

limited liability context, as in the corporate context, the duty of loyalty mandates

that the best interest of the company and its stakeholders take precedence over any

interest possessed by the manager and not shared by the stakeholders generally.92 A

manager is “not permitted to use their position of trust and confidence to further their

private interests. Nor can fiduciaries intentionally act with a purpose other than that

of advancing the best interests of the corporation.” 93 “Specifically, and very

pertinently to this case, such fiduciary duties include the duty not to cause the

corporation to effect a transaction that would benefit the fiduciary at the expense of

90
See 77 Charters, Inc., 2020 WL 2520272, at *10; Related Westpac LLC, 2010 WL
2929708, at *8; Sonet, 722 A.2d at 322.
91
See, e.g., Mehra v. Teller, 2021 WL 300352, at *28 (Del. Ch. Jan. 29, 2021) (“By default,
limited liability company managers owe fiduciary duties akin to those owed by directors
of a corporation.” (citing 6 Del. C. § 18-1104)).
92
See, e.g., CSH Theatres, L.L.C., 2018 WL 3646817, at *27.
93
Id. (alteration and internal quotation marks omitted) (quoting Guth v. Loft, Inc., 5 A.2d
503, 510 (Del. 1939), and then quoting In re Walt Disney Co. Deriv. Litig., 906 A.2d 27,
67 (Del. 2006)).

32
the minority stockholders.” 94 And “a fiduciary may not play ‘hardball’ with those

to whom he owes fiduciary duties.” 95

Turning to Charles, the parties here agree the duty of loyalty extends to him

personally under In re USACafes, L.P. Litigation, which held that the duty of loyalty

may extend to the individuals and entities that control a managing entity if such

persons exercise control over the entity’s property. 96 Plaintiff concedes Count I

Kelly v Blum, 2010 WL 629850, at *12 (Del. Ch. Feb. 24, 2010) (internal quotation
94

marks omitted) (quoting Gentile v. Rossette, 906 A.2d 91, 103 (Del. 2006)).
95
CSH Theatres, L.L.C., 2018 WL 3646817, at *27 (quoting Auriga Cap. Corp. v. Gatz
Props., 40 A.3d 839, 870 (Del. Ch. 2012), aff’d, 59 A.3d 1206 (Del. 2012)).
96
In re USACafes, L.P. Litig., 600 A.2d 43, 48–49 (Del. Ch. 1991); see also Fannin v.
UMTH Land Dev., L.P., 2020 WL 4384230, at *18–19 (Del. Ch. July 31, 2020); Feeley v.
NHAOCG, LLC, 62 A.3d 649, 670–72 (Del. Ch. 2012). Chancellor Allen developed this
rule by looking to fundamental principles of equity, stating that “the principle of fiduciary
duty, stated most generally,” is that “one who controls property of another may not, without
implied or express agreement, intentionally use that property in a way that benefits the
holder of the control to the detriment of the property or its beneficial owner.” USACafes,
600 A.2d at 48. Nonetheless, Chancellor Allen recognized that, subject to contextual
caveats, “the same result might be rationalized as aider and abettor liability.” Id. at 49. He
also left as an open question “the full scope of that duty.” Id. This Court has cabined the
USACafes fiduciary obligation to the duty of loyalty. See 77 Charters, Inc., 2020 WL
2520272, at *9 (“USACafes recognizes remote controllers (such as Gould) will owe limited
fiduciary duties . . . .”); Feeley, 62 A.3d at 671 (holding USACafes duties do not include
the duty of care and have only been extended to “classic self-dealing” transactions); Bay
Ctr., 2009 WL 1124451, at *10 (“In practice, the cases applying USACafes have not
ventured beyond the clear application stated in USACafes: the duty not to use control over
the partnership’s property to advantage the corporate director at the expense of the
partnership.” (internal quotation marks omitted)); Martin I. Lubaroff et al., Lubaroff &
Altman on Delaware Limited Partnerships § 14.01[C], at 14-19 (2d ed. 2020) (“USACafes,
L.P. does not fully define the scope of a common law fiduciary duty of a director of a
corporate general partner to a limited partnership and to its limited partners.”).

33
cannot survive against Charles for any breach of the duty of care. 97 So

circumscribed, “Charles, as Manager’s managing member, and by reason of the fact

that Charles controls all the Company’s operations and activities, owes fiduciary

duties to Plaintiff.”98

“To plead a claim for breach of the duty of loyalty that will overcome a motion

to dismiss, a plaintiff must plead sufficient facts to support a rational inference that

the [] fiduciary acted out of material self-interest that diverged from the interests of

the [Company or its members].” 99 Plaintiff alleges Defendants breached their duties

of loyalty by causing the Company to (i) expend funds in connection with the

predevelopment of the Adjacent Land without reimbursement; (ii) subdivide and

convey the Adjacent Land to an entity owned and controlled by the Majority

Members for no consideration; (iii) fail to adhere to its contractual obligations to

distribute monthly financial information in accordance with the Operating

Agreement; (iv) allow Charles to perpetuate his fraudulent scheme to use Company

funds in connection with the predevelopment of the Adjacent Land and then convey

such land to the Majority Members for no consideration; (v) fraudulently deposit

funds into the Company’s membership accounts to be used in connection with the

97
See D.I. 21 at 32 n.10.
98
Compl. ¶ 53.
E.g., In re Saba Software, Inc. S’holder Litig., 2017 WL 1201108, at *21 (Del. Ch.
99

Apr. 11, 2017).

34
predevelopment of the Adjacent Land, creating the need for a capital call; and (vi)

make that capital call. Accepting the Complaint’s allegations as true and drawing

all reasonable inferences in Plaintiff’s favor, I conclude that Plaintiff has stated a

claim based on an overarching theory of misconduct aimed at depriving Plaintiff of

information and fair value.

The Complaint describes an orchestrated series of self-interested actions by

Charles and Manager, taken to the detriment of the Company and Plaintiff. Charles

and his entity 9103 LLC would receive financial gain from the Project, paid for by

the Company and its Members; Charles and his entity, Frontier Development, would

receive a developer fee from erecting the Project; and Charles would collect a

continual asset management fee from managing the Project upon its completion. He

was therefore incentivized to push the Project, and to “contrive a means to complete

the project and convey the Adjacent Land without expending any additional

resources.”100

In particular, the Complaint alleges that Defendants caused the Company to

expend approximately $700,000 in Company funds for the predevelopment of the

Adjacent Land before the Conveyance. Those funds were available because

Defendants had deposited certain funds, intended to pay for a 2015 renovation

project, into the Company’s membership accounts. Defendants then used those

100
Compl. ¶ 29.

35
misdirected funds to pursue the Project and secure Charles unique benefits that were

not shared with the Company and its Members. Plaintiff has alleged Defendants did

so on the cheap by ignoring the Adjacent Land’s actual value (in which Plaintiff had

a legitimate interest) and failing to reimburse the Company for the predevelopment

expenses.

Instead of reimbursing the Company $700,000 for the Project’s

predevelopment costs, conveying the Adjacent Land to 9103 LLC for fair

consideration, and allotting to Plaintiff its rightful share from the Company’s returns

from both transactions, Charles offered Plaintiff $105,000, or Plaintiff’s share of the

predevelopment costs, but did not offer anything to account for value in the

conveyed Adjacent Land. To support his self-dealing, Charles repeatedly fell back

on his conclusion that the Adjacent Land was valueless.

At bottom, Plaintiff alleges that Defendants took two sources of Company

assets in which Plaintiff had a stake (the Adjacent Land and the $700,000 of

Company funds), and moved them over to a new entity that Charles owned and

controlled. Charles used Company funds earmarked for the 2015 Company

renovation to pay for his self-serving overruns on the Adjacent Land’s

predevelopment costs, and compensated for those overruns by assigning the

Adjacent Land zero value. By alleging that Charles paid himself and his entities,

36
rather than retaining value for the Company and its Members, Plaintiff states a claim

for breach of fiduciary duty.

Defendants push back on Plaintiff’s theory of breach, taking a more

segmented view of the Complaint’s allegations. Specifically, Defendants argue that

their actions, including the Conveyance, Subdivision, and business dealings between

the Company and Charles, are permitted under the Operating Agreement’s specific

provisions. Defendants point to Sections 5.2(16) and 5.4, which allow 70% of the

Membership Interests to authorize a transaction with Manager and its affiliates;

Section 5.2(20), which authorizes Manager to subdivide the Adjacent Land; and

Section 5.2(27), which allows 70% of the Membership Interests to authorize a

conveyance of the Adjacent Land. According to Defendants, Manager received the

requisite 70% Member approval before proceeding with each step in the challenged

transaction, so those approved steps cannot contribute to a breach of fiduciary duty.

Defendants are correct that “one needs to read the Agreement as a whole, and

not just concentrate on one provision that mentions one of the ‘magic words.’”101

101
Sonet, 722 A.2d at 324; see also R.S.M. Inc. v. All. Cap. Mgmt. Hldgs. L.P., 790 A.2d
478, 497–98 (Del. Ch. 2001) (“[W]here the use of default fiduciary duties would intrude
upon the contractual rights or expectations of the general partner or be insensible in view
of the contractual mechanisms governing the transaction under consideration, the court will
eschew fiduciary concepts and focus on a purely contractual analysis of the dispute. Put
somewhat differently, the irreconcilability of fiduciary duty principles with the operation
of the partnership agreement can itself be evidence of the clear intention of the parties to
preempt fiduciary principles.” (footnote omitted)).

37
When parties “cover a particular subject in an express manner, their contractual

choice governs and cannot be supplanted by the application of inconsistent fiduciary

duty principles that might otherwise apply as a default.” 102 Thus, “[w]hen a

fiduciary duty claim is plainly inconsistent with the contractual bargain struck by

parties to an LLC or other alternative entity agreement, the fiduciary duty claim must

fall, otherwise the primacy of contract law over fiduciary law in matters involving

contractual rights and obligations would be undermined.” 103

Here, Plaintiff’s theory of breach is not “plainly inconsistent” with the

Operating Agreement provisions Defendants invoke. Although the Majority

Members may have authorized the Subdivision and Conveyance under the Operating

Agreement, that authorization does not preclude Plaintiff’s broader claims. Plaintiff

generally alleges that Defendants “caus[ed] the Company” to pursue each of the

events giving rise to Plaintiff’s breach theory.104 More specifically, Plaintiff alleges

that the Majority Members “act[ed] at the direction of Charles” when they approved

the Subdivision and Conveyance.105

102
Related Westpac LLC, 2010 WL 2929708, at *8.
103
Id. (emphasis added) (alterations and internal quotation marks omitted) (quoting
Madison Realty P’rs 7, LLC v. Ag ISA, LLC, 2001 WL 406268, at *6 (Del. Ch.
Apr. 17, 2001)).
104
Compl. ¶ 54.
105
Id. ¶¶ 21, 22.

38
 And more fundamentally, the Majority Members’ approval does not preclude

a breach of fiduciary duty claim because of the breadth of Plaintiff’s theory, and

because of the breadth of Defendants’ duties. 106 As the Delaware Supreme Court

famously recognized in Schnell v. Chris-Craft Industries, Inc., “inequitable action

does not become permissible simply because it is legally possible.” 107 Here, while

Defendants press that their conduct cannot be challenged because they technically

complied with Section 5.2, that does not mean that their default fiduciary duties drop

out as a check on their conduct. 108 Plaintiff’s issues with the Subdivision and

Conveyance are not the acts themselves, but their attendant circumstances: the

Adjacent Land was subdivided so that it could be conveyed “to an entity owned and

106
See Schnell v. Chris-Craft Indus., Inc., 285 A.2d 437, 439 (Del. 1971); see also DG BF,
LLC v. Ray, 2021 WL 776742, at *25 (Del. Ch. Mar. 1, 2021) (relying on Schnell, 285
A.2d at 439, and holding that “technical compliance with the Operating Agreement’s
removal procedures d[id] not foreclose Plaintiffs’ claim” that the manager was wrongfully
removed); Solar Cells, Inc. v. True N. P’rs, LLC, 2002 WL 749163, at *4 (Del. Ch.
Apr. 25, 2002) (“Even if waiver of liability for engaging in conflicting interest transactions
is contracted for, that does not mean that there is a waiver of all fiduciary duties to Solar
Cells. Indeed, § 4.18(a) expressly states that the True North Managers must act in ‘good
faith.’ . . . Th[e challenged] actions do not appear to be those of fiduciaries acting in good
faith. As the Supreme Court and this Court have made clear, it is not an unassailable
defense to say that what was done was in technical compliance with the law.” (citing
Schnell, 285 A.2d at 437)); Sample v. Morgan, 914 A.2d 647, 672 (Del. Ch. 2007)
(“Corporate acts thus must be ‘twice-tested’—once by the law and again by equity.”);
Robert L. Symonds, Jr. & Matthew J. O’Toole, Delaware Limited Liability Companies
§ 9.04[B][3], at 9-47 n.229 & § 10.04[D][1], at 14-28 n.182 (2d ed. 2019) (citing Schnell
and noting that “[t]he tenent that action legally taken remains subject to equitable
considerations is a pervasive and powerful principle under Delaware law”).
107
285 A.2d at 439.
108
See DG BF, LLC, 2021 WL 776742, at *25; Solar Cells, Inc., 2002 WL 749163, at *4.

39
controlled by the Majority Members for no consideration.”109 Sections 5.2 and 5.4

of the Operating Agreement do not expressly govern circumstances in which the

Majority Members are alleged to have approved actions at Manager’s direction,

rather than their own volition, and for no consideration. As alleged, Plaintiff’s

theory exceeds the Operating Agreement’s specific approval procedures in Sections

5.2 and 5.4 and enters the area in which the default duties memorialized in Section

5.6 are intended to operate. In that context, Plaintiff has alleged Defendants

breached their duty of loyalty by pursuing a series of actions to Charles’s benefit,

and mishandling Company assets along the way.

Holding Defendants to equitable standards and their fiduciary duties

regardless of technical approvals is also required by the Operating Agreement.

Section 5.2’s procedural safeguards for particular transactions do not obviate

Manager’s fiduciary duties in performing those transactions. Ross Holding &

Management Co. v. Advance Realty Group, LLC is instructive. 110 There, the

defendants argued that a provision mandating that the “Managing Board shall act

reasonably and in good faith in its management of the Company” provided a standard

of conduct that supplanted default duties, 111 and that a majority vote provision acted

109
E.g., Compl. ¶ 54 (emphasis added).
110
2014 WL 4374261 (Del. Ch. Sept. 4, 2014).
111
Id. at *13.

40
as a “safe harbor from judicial review for certain acts which might otherwise violate

the traditional duty of loyalty.”112 Ross rejected both positions, as Delaware law

requires that “fiduciary duties, if they are to be disclaimed, must be disclaimed in

the operating agreement.” 113 “[A]greements’ drafters must do so clearly, and should

not be incentivized to obfuscate or surprise investors by ambiguously stripping away

the protections investors would ordinarily receive.” 114 Even if a provision sets

procedural conditions for managerial action, in the absence of such an express

disclaimer, “the drafters may not have intended to modify in any way the

[manager’s] ability to engage in conflicted transactions.” 115 Said another way, the

inclusion of certain procedural checks “does not necessarily imply a reciprocal

understanding that all other duties, which traditionally apply, are being

disclaimed.” 116 Thus “[a] failure to mention a duty or to contemplate a given

conflicted transaction is not an adequate disclaimer of it. Such a rule, which resolves

ambiguities in favor of the full panoply of duties, is sensible.”117

112
Id. at *14.
113
Id. at *15.
114
Id. (citing In re Atlas Energy Res., LLC, 2010 WL 4273122, at *10 (Del. Ch.
Oct. 28, 2010) (“[P]arties to a limited liability company agreement bear the risk that they
have drafted it incompletely.”)).
115
Id. at *14.
116
Id.
117
Id. at *15.

41
 The Operating Agreement does not alter Manager’s default duties with a

specified managerial standard of conduct. As in Ross, Sections 5.2 and 5.4 do not

clearly eliminate or modify the traditional fiduciary duties. Nothing in those

provisions explicitly supplants the traditional duty of loyalty and permits Manager’s

self-dealing without the risk of liability. 118 It is not plain from the Operating

Agreement that the parties intended the 70% Membership approval safeguard to

operate as a standard-of-conduct check on Manager, displacing Section 5.6’s

fiduciary duty mandate as that check. 119 Rather, “the plain import of the[se]

section[s] is to specify certain special circumstances in which the parties agreed that

118
See id. at *14; see Op. Agr. §§ 5.2(16) (providing that Manager may not “approve
transactions with Affiliates of the Manager, except as provided in Section 5.4 of this
Agreement” unless it receives consent of 70% of the Membership Interests), 5.4(a) (“No
Manager or Affiliate thereof shall receive any salary or other direct or indirect
compensation for any services or goods provided in connection with the Company except
as expressly provided herein, or as to which the Consent of holders of seventy percent
(70%) of the Interests in the Company has been obtained to the precise terms thereof. Any
such salary or other compensation shall be comparable to what would be paid to an
independent third party in an arms’ length transaction, unless the Consent of holders of
seventy percent (70%) of the Interests in the Company is specifically obtained to the
particular salary or compensation.”).
119
Compare Op. Agr. § 5.2, with Sonet, 722 A.2d at 324 (clearly adopting in the company’s
operating agreement contractual standards of conduct applicable to the manager and adding
as an additional check on that conduct the mandate that certain transactions be approved
by a supermajority vote). For example, Section 5.2 was not drafted using terms that
traditionally indicate a contractual standard of conduct that trumps default duties, stating
only that the Manager “shall not do any of the following acts without in each and every
instance the Consent of holders of 70%” of the Company’s Membership Interests.
Op. Agr. § 5.2; compare id., with CelestialRX Invs., LLC v. Krivulka, 2017 WL 416990, at
*18 (Del. Ch. Jan. 31, 2017) (construing a provision to offer a safe harbor for conflicted
transactions displacing the default duty of loyalty).

42
additional approvals would be necessary.”120 They do not “grant[] a broad right and

explain[] that if certain procedures were complied with the transaction could be

immune from challenge.” 121 In other words, nothing in the Operating Agreement

explicitly absolved Manager of any fiduciary breach simply because it received 70%

Membership approval under Section 5.2. Section 5.6 enshrines default fiduciary

duties, and Sections 5.2 and 5.4 grant additional procedural protection without

expressly modifying the applicable standard of conduct and without including

“language immunizing these acts from challenges” based on default duties. 122

Defendants’ interpretation therefore “overlooks our law’s requirement that the

drafters’ intent to eliminate such duties be plain and unambiguous.” 123

Consequently, the Motion is denied on those grounds.

However, to the extent Count I depends on Defendants’ failure to provide

financial information under the Operating Agreement, Count I must be dismissed as

duplicative of Count IV. A contractual breach of a duty to disclose financial

information does not constitute a breach of fiduciary duty, and a plaintiff must

articulate why a breach of a contractual obligation amounts to a fiduciary breach and

120
Ross, 2014 WL 4374261, at *14.
121
Id. (citing Zimmerman v. Crothall, 62 A.3d 676, 702–03 (Del. Ch. 2013) (applying a
provision that supplanted default standards of conduct)).
122
Id.
123
Id. at *13.

43
is not merely duplicative of a breach of contract claim.124 “[T]o permit a fiduciary

duty claim based entirely on a breach of contract to proceed alongside the primary

contract claim would undermine the primacy of contract law over fiduciary law in

matters involving contractual rights and obligations.” 125 Accordingly, Plaintiff

cannot replead Count IV as a breach of fiduciary duty claim without alleging

additional or different facts to support Count I. 126 Plaintiff has not done so here, and

so Count I is dismissed in part.

C. Subject To Count I, Plaintiff Has Stated An Aiding And
Abetting Claim Against Charles.

Plaintiff included a count for aiding and abetting against Charles, in the

alternative, in the event that the Court should determine that Charles does not owe

124
See Albert v. Alex. Brown Mgmt. Servs., Inc., 2005 WL 2130607, at *4 (Del. Ch.
Aug. 26, 2005) (“There is not, of course, a general fiduciary duty to provide financial
statements. Instead, under the Partnership Agreements, the Managers had a contractual
duty to provide the unitholders with such reports. The plaintiffs have not articulated why
the violation of this contractual right amounted to a breach of fiduciary duty. Thus, this
factual allegation does not state a claim for breach of fiduciary duty.” (footnotes omitted));
MHS Cap. LLC v. Goggin, 2018 WL 2149718, at *8 (Del. Ch. May 10, 2018) (“Delaware
law is clear that fiduciary duty claims may not proceed in tandem with breach of contract
claims absent an independent basis for the fiduciary duty claims apart from the contractual
claims. This rule stems from the primacy of contract law over fiduciary law in this state.”
(internal quotation marks omitted) (quoting Renco Gp., Inc. v. MacAndrews AMG Hldgs.
LLC, 2015 WL 394011, at *7 (Del. Ch. Jan. 29, 2015), and then quoting Stewart v. BF
Bolthouse Holdco, LLC, 2013 WL 5210220, at *12 (Del. Ch. Aug. 30, 2013))).
125
Veloric v. J.G. Wentworth, Inc., 2014 WL 4639217, at *18 (Del. Ch. Sept. 18, 2014)
(alterations and internal quotation marks omitted) (quoting Gale v. Bershad, 1998 WL
118022, at *5 (Del. Ch. Mar. 4, 1998)).
126
See id. at *19.

44
fiduciary duties to the Company in his role as the managing member of Manager.127

For an aiding and abetting claim to survive, a plaintiff must plead “(1) the existence

of a fiduciary relationship, (2) the fiduciary breached its duty, (3) a defendant, who

is not a fiduciary, knowingly participated in a breach, and (4) damages to the plaintiff

resulted from the concerted action of the fiduciary and the non-fiduciary.”128

Although I have noted the undisputed premise that Charles owes a duty of

loyalty under USACafes, Count III survives to the extent discovery reveals that

Charles should not be deemed to owe fiduciary duties, or that Manager has breached

its duty of care.

Defendants argue that Plaintiff’s claim fails because Charles is the managing

member of Manager, and Manager is alleged to have committed the breach of

fiduciary duties. “[L]ike civil conspiracy, officers and agents cannot aid and abet

their principal or each other in the commission of a tort.”129 But there is an exception

127
See Compl. ¶ 64.
128
E.g., Gotham P’rs, L.P. v. Hallwood Realty P’rs, L.P., 817 A.2d 160, 175 (Del. 2002)
(quoting Fitzgerald v. Cantor, 1999 WL 182573, at *1 (Del. Ch. Mar. 25, 1999)).
129
Cornell Glasgow, LLC v. La Grange Props., LLC, 2012 WL 2106945, at *11 (Del.
Super. Ct. June 6, 2012); see also Hartsel v. Vanguard Gp., Inc., 2011 WL 2421003, at
*10 (Del. Ch. June 15, 2011) (“To the extent Plaintiffs argue that a conspiracy existed
between certain Individual Defendants and their respective corporate employers, e.g.,
between Sauter and Vanguard, these claims are legally deficient because a corporation
generally cannot be deemed to have conspired with its officers and agents for purposes of
establishing jurisdiction under the conspiracy theory.” (internal quotation marks omitted)),
aff’d, 38 A.3d 1254 (Del. 2012); Allied Cap. Corp. v. GC-Sun Hldgs., L.P., 910 A.2d 1020,
1038 (Del. Ch. 2006) (assessing the basic rule in the context of commonly-controlled
entities); In re Transamerica Airlines, Inc., 2006 WL 587846, at *6 (Del. Ch.

45
to this rule where an agent steps out of his role as an officer or agent and acts pursuant

to personal motives.130 This exception applies here at the pleading stage. To the

extent Charles does not himself owe fiduciary duties, Plaintiff has pled that he

knowingly participated in those breaches, as Manager acted by and through

Charles. 131 Through Charles, Manager expended Company resources to develop a

parcel of property, without the promised reimbursement to the Company, and

subsequently gave valuable Company property to an entity Charles controlled for no

consideration to the detriment of the Company and Plaintiff. Plaintiff has pled facts

that permit the Court to reasonably infer that Charles caused the Company to pursue

Feb. 28, 2006); Amaysing Techs. Corp. v. Cyberair Commc’ns, Inc., 2005 WL 578972, at
*7 (Del. Ch. Mar. 3, 2005) (“It is basic in the law of conspiracy that you must have two
persons or entities to have a conspiracy. A corporation cannot conspire with itself any
more than a private individual can, and it is the general rule that the acts of the agent are
the acts of the corporation.”).
130
Amaysing Techs. Corp., 2005 WL 578972, at *7 (“An exception exists to this general
rule, however, when the officer or agent of the corporation steps out of her role as an officer
or agent and acts pursuant to personal motives.”).
131
See Quadrant Structured Prods. Co. v. Vertin, 102 A.3d 155, 204 (Del. Ch. 2014) (“The
Complaint adequately alleges that ASIA is controlled by EBF such that for pleading
purposes, [] EBF’s knowledge should be imputed to ASIA.”); Carlson v. Hallinan, 925
A.2d 506, 542 (Del. Ch. 2006) (holding that plaintiff “satisf[ied] the knowing participation
element of the claim because Hallinan’s knowledge as a director and officer of both Main
Street and TC is imputed to them” (footnote omitted)); Carlton Invs. v. TLC Beatrice Int’l
Hldgs., Inc., 1995 WL 694397, at *16 (Del. Ch. Nov. 21, 1995) (stating that “[f]or the
purpose of assessing this motion to dismiss, this court infers their ‘knowing’ participation
from the factual allegations in the complaint as to the overarching control of Lewis over
these entities,” and that defendants’ “receipt of improper benefits suffices to prove their
participation in the alleged breaches of fiduciary duties”).

46
the Project and self-interested transactions for personal gain. The Motion is denied

as to Count III.

D. Plaintiff Has Stated A Claim For Manager’s Breach Of The
Operating Agreement.

Count IV contends that Manager breached the Operating Agreement by

failing to prepare and distribute monthly financial information as required under

Section 10.4. “Under Delaware law, a breach of contract claim comprises three

elements: (1) the existence of a contract; (2) a breach of an obligation imposed by

that contract; and (3) resultant damages.”132 Plaintiff has alleged sufficient facts to

state a claim.

Section 10.4 of the Operating Agreement provides that the Manager “shall

cause to be prepared and distributed” to each member monthly financial information

as set forth in that section.133 Plaintiff alleges that in July 2018, it requested that the

Company provide the monthly financial reporting information required under the

Operating Agreement. Plaintiff further alleges that “[a]t that point, regular

communications and delivery of the required financial information abruptly

ended.”134 Manager, via Charles, responded that the Company would be moving to

132
E.g., Wenske v. Blue Bell Creameries, Inc., 2018 WL 3337531, at *9 (Del. Ch.
July 6, 2018).
133
Op. Agr. § 10.4.
134
Compl. ¶ 42.

47
producing financial information on a quarterly basis, rather than on a monthly basis

as required by the Operating Agreement. 135 As a result of these actions, Plaintiff

alleges it has been damaged in an amount to be proven at trial.136 These allegations

are sufficient to put Manager on notice of its breach of Section 10.4.

Nonetheless, Defendants push back, arguing Count IV should be dismissed

because Plaintiff has failed to allege an injury.137 In support, Defendants argue that

Plaintiff has not alleged “what it could have seen from monthly financial statements

that it did not have from the information it was provided.”138 Defendants also look

to the Books and Records Action, claiming Plaintiff abandoned it and refused to

inspect documents at the Manager’s office, and therefore “admitted that it has all of

the documents it needs to attempt to state a claim in the plenary action.” 139

Defendants conclude Plaintiff’s chosen course of conduct “shows that it has not been

135
Id. ¶ 43.
136
Id. ¶¶ 76, 77.
137
See McCoy v. Cox, 2007 WL 1677536, at *5 (Del. Super. Ct. June 11, 2007) (“Even if
the evidence established that the Coxes’ breached the contract by failing to disclose this
information (which it does not), McCoy’s claims fail, because he did not prove by a
preponderance of the evidence that he suffered any damages as a proximate result of this
breach.”).
138
D.I. 16 at 51.
139
Id. at 51–52.

48
damaged by any alleged failure of Manager and Charles to distribute financial

information.”140

Although I recognize Defendants’ frustration with Plaintiff’s choice to

abandon the Books and Records Action, I must look to the Complaint’s allegations

and accept those as true at this stage. Defendants do not dispute that Section 10.4 of

the Operating Agreement obliged Manager to provide monthly financial information

to the members. The Operating Agreement does not condition the provision of this

information upon a member demonstrating a need for the financial information. And

whether Plaintiff received the information sought in the Books and Records Action

has no bearing at the pleading stage on Plaintiff’s right to receive the information

under the Operating Agreement, nor on Manager’s contractual obligation to provide

the information.

Manager did not fulfill its obligation to provide that information, and Plaintiff

proceeded in the dark and has alleged that, as a result, it was damaged in an amount

to be proven at trial. The Motion is denied as to Count IV.

E. Plaintiff Has Failed To State A Claim For Fraud.

Count II asserts fraud against Charles and Manager. Specifically, Plaintiff

alleges that Defendants engaged in a scheme to defraud Plaintiff by (i) causing the

Company to fail to distribute monthly financial information under the Operating

140
Id. at 52.

49
Agreement, and thereby concealing from Plaintiff information necessary to

understand the full extent of Defendants’ wrongful conduct; (ii) failing to disclose

all information related to the Subdivision and Conveyance to an entity owned and

controlled by the Majority Members for no consideration, despite Plaintiff’s

repeated requests; (iii) depositing funds into the Company’s membership accounts

to later be used for the predevelopment of the Adjacent Land, creating the need for

a capital call; (iv) making that capital call; and (v) falsely representing to Plaintiff

that Company would be reimbursed for funds expended for predevelopment. While

Plaintiff has demonstrated at the pleading stage that Defendants’ conduct was not

above-board, Plaintiff has failed plead fraud with the requisite particularity.

To state a claim for fraud, the facts pled must “support[] an inference that:

(1) the defendant falsely represented or omitted facts that the defendant had a duty

to disclose; (2) the defendant knew or believed that the representation was false or

made the representation with a reckless indifference to the truth; (3) the defendant

intended to induce the plaintiff to act or refrain from acting; (4) the plaintiff acted in

justifiable reliance on the representation; and (5) the plaintiff was injured by its

reliance.”141 Under Court of Chancery Rule 9(b), the elements of a fraud claim must

be pled with particularity, although “[m]alice, intent, knowledge and other condition

141
Abry P’rs V, L.P. v. F & W Acq. LLC, 891 A.2d 1032, 1050 (Del. Ch. 2006).

50
of mind of a person may be averred generally.” 142 Thus, “[t]o satisfy Rule 9(b), a

complaint must allege: (1) the time, place, and contents of the false representation;

(2) the identity of the person making the representation; and (3) what the person

intended to gain by making the representations.” 143

Plaintiff hangs Count II on its own characterization of Defendants’ actions as

a fraudulent scheme. 144 But “conclusory allegations of a ‘scheme’ are insufficient,

and do not excuse the [p]laintiffs from their burden of properly stating a claim upon

which relief may be granted.” 145 Plaintiff’s fraud theory divines a plot among

Manager, Charles, the general contractor, and other Members dating back to 2015

to intentionally not pay the general contractor hundreds of thousands of dollars it

was owed for nearly two years; use Company funds for predevelopment efforts on

the Adjacent Land; later “discover” the payment error and make a capital call; and

transfer the Adjacent Land to a new entity for no consideration, all while hoping

Plaintiff would not invest in 9103 LLC. Plaintiff’s “scheme” hangs on two

unreasonable and insufficiently pled assumptions: that Defendants began the scheme

with Galilee in 2015, and that Defendants somehow knew Plaintiff would not invest

142
Ct. Ch. R. 9(b).
143
Abry P’rs, 891 A.2d at 1050; see also Metro Commc’n Corp. BVI, 854 A.2d at 144.
144
See D.I. 21 at 46–47.
145
Thermopylae Cap. P’rs, L.P. v. Simbol, Inc., 2016 WL 368170, at *15 (Del. Ch.
Jan. 29, 2016).

51
in 9103 LLC. At this stage, in the absence of supporting particularized facts, it

would be unreasonable to draw those inferences in Plaintiff’s favor.

Further, under Rule 9(b), Plaintiff has not pled any specific misrepresentation

or omission by Manager or Charles that was intended to prevent or induce action.

Although Plaintiff’s Complaint frequently uses the word “fraud” or “fraudulently,”

Plaintiff specifically alleges only that Charles told Prigmore on January 24, 2017,

that “the Company would only be reimbursed for the predevelopment costs.” 146

Plaintiff does not specify what action Defendants’ statements were intended to

induce, how they induced it, or why it was reasonable to rely on those statements.

Nor does Plaintiff plead facts sufficient to satisfy the reliance element of the claim:

Plaintiff fails to allege that it took any action in reliance on Charles’s purported

concealment of the source of the predevelopment funds; alleged promise that the

Company would be reimbursed; alleged use of the capital call to recoup those funds;

or the Subdivision and Conveyance. To the contrary, Plaintiff pleads that it rejected

Charles’s proposal to invest in the 9103 LLC and the Project as early as August

2016, well-before many of the actions and discoveries that allegedly constitute a

fraud. 147 Accordingly, Count II is dismissed.

146
See Compl. ¶ 23.
147
See id. ¶¶ 16, 19.

52
 III. CONCLUSION

The Motion is GRANTED in part and DENIED in part. The parties shall

submit an implementing order with twenty days of this decision.

53