Haley v. Talcott

864 A.2d 86 (Del.Ch. 2004)

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Nature of the Case

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Facts

P and D each have a 50% interest in Matt & Greg Real Estate, LLC, a Delaware limited liability company they formed in 2003. P and D have known each other since the 1980s. In 2001 P was the manager of the Rehoboth location of The Third Edition, a restaurant owned by D that also had a location in Washington, D.C. In 2001, P found the location for what would become the Redfin Grill. D contributed substantial start-up money, and P managed the Redfin Grill without drawing a salary for the first year. P and D chose to create and operate the Redfin Grill as an entity solely owned by D, with P's rights and obligations being defined by a series of contracts. Those agreements, all dated November 30, 2001, included an Employment Agreement, a Retention Bonus Agreement, and a Side Letter Agreement (together, the 'Employment Contract'), as well as an Agreement regarding an option to purchase real estate (the 'Real Estate Agreement'). The Employment Contract makes clear that the parties were operating the business as a joint venture. P reported to D and D had the right to reevaluate and revise P's decisions, but indicated that 'such action is not anticipated.' P's 'bonus' would be one-half of the net profits of the Redfin Grill, after the initial loan from D was repaid. D would materially breach the Employment Contract, and P could end his employment for cause if D amended P's duties such that his position as 'Operations Director' became one of 'less dignity, responsibility, importance or scope.' P was to be awarded one-half of any proceeds from any sale of the Redfin Grill. The Employment Contract limited D's ability to remove P from his active role. About the only reason for termination would be for the sale of the company. The Real Estate Agreement. granted P the right to participate in an option to purchase the property for the nominal price of $10.00. The agreement provided that if the option were exercised, P would shoulder 50% of the burden of the purchase, and would be either a 50% owner of the land or a 50% owner of the entity formed to hold the land. By the second year of its existence, the start-up money had been repaid to D with interest, both parties were drawing salaries (D's substantially smaller since he was not participating in day-to-day management), and the parties each received approximately $150,000 in profit sharing. In 2003, they formed Matt & Greg Real Estate, LLC to take advantage of the option to purchase the Property that was the subject of the Real Estate Agreement. The option price was $720,000, and the new LLC took out a mortgage from County Bank in Rehoboth Beach, Delaware, for that amount, exercised the option, and obtained the deed to the Property on or about May 23, 2003. P and D individually signed personal guarantees for the entire amount of the mortgage in order to secure the loan. The Redfin Grill continued to operate at the site, paying the LLC $6,000 per month in rent, a payment sufficient to cover the LLC's monthly obligation under the mortgage. P believed that the relationship would be reformulated to provide him a direct stock ownership interest in the Redfin Grill at some point. This caused a rift to develop between the parties. D sent a letter of understanding to P dated October 27, 2003, purporting to accept his resignation and forbidding him to enter the premises of the Redfin Grill. P asserts that he did not resign and that he regarded D's October 27, 2003 letter of understanding as terminating him without cause in breach of the Employment Contract. P then purported to take several positions expressly as a 50% member in the LLC including: 1) rejecting the new lease proposed by D for the Redfin Grill; 2) voting to revoke any consent to possession by the Redfin Grill and terminating any lease by which the Redfin Grill asserts the right to possession; and 3) voting that the Property be put up for sale on the open market. Because each was a 50% owner a stalemate resulted in D's favor. Absent intervention by a court, P is stuck, unless he chooses to avail himself of the exit mechanism provided in the LLC Agreement. P filed suit and moved for summary judgment of his claim seeking dissolution of Matt and Greg Real Estate, LLC ('the LLC').