Obeid v. Hogan

Facts

P contends that D, a retired federal judge, cannot serve as the sole member of two parallel special litigation committees, one for nominal defendant Gemini Equity Partners, LLC (Corporate) and the other for nominal defendant Gemini Real Estate Advisors, LLC (LLC). Corporate adopted a governance structure paralleling that of a corporation. LLC adopts a manager-managed governance structure. The Corporate and LLC jointly manage over $1 billion in real estate assets, including eleven hotels and twenty-two commercial properties. P managed the day-to-day operations of the hospitality division. Non-parties Christopher S. La Mack and Dante A. Massaro managed the day-to-day operations of the commercial division. Corporate is a Delaware limited liability company. Obeid, La Mack, and Massaro are its only members, with each holding a one-third member interest. The internal affairs of Corporate are governed by its limited liability company agreement. The agreement establishes a governance structure paralleling that of a corporation in which power over the entity is vested in a board of directors. P managed the day-to-day operations of the hospitality division. Non-parties Christopher S. La Mack and Dante A. Massaro managed the day-to-day operations of the commercial division. Corporate is a Delaware limited liability company. P, La Mack, and Massaro are its only members, with each holding a one-third member interest. The internal affairs of Corporate are governed by its limited liability company agreement. The agreement establishes a governance structure paralleling that of a corporation in which power over the entity is vested in a board of directors. (the 'Corporate Board'). Until P's removal P, La Mack, and Massaro comprised the Corporate Board. The LLC is a Delaware limited liability company. P, La Mack, and Massaro are the only members, with each again holding a one-third member interest. The LLC's internal affairs are governed by its limited liability company agreement. P, La Mack, and Massaro serve as the entity's only managers. La Mack and Massaro voted to remove P as President and Operating Manager of the LLC and to install Massaro in his place. They did not attempt to remove P as a manager. Section 5.2.1 of the LLC Agreement provides that P, La Mack, and Massaro are each 'entitled to serve as a Manager of the Company for so long as he is a Member of the Company.' La Mack and Massaro filed an action in North Carolina state court asserting claims against P relating to his tenure as Operating Manager of the LLC. P filed an action against La Mack and Massaro in New York. P claims that La Mack and Massaro had started competing companies using assets belonging to Corporate and LLC. P asserts claims based on his rights as a member of the entities and derivatively on behalf of the entities themselves. The court in North Carolina Action stayed that action in deference to the New York Federal Action. P filed a second action in New York in state court, against a third party that competed with Corporate and LLC. P claimed La Mack and Massaro were improperly selling properties belonging to the Corporate and LLC to a competitor in return for side benefits. La Mack and Massaro asserted counterclaims against D in the federal action. They claimed fraud and breach of the agreements governing the entities. Corporate and LLC owned the properties that were the subject of the New York State Action through subsidiaries. La Mack and Massaro caused the subsidiaries to file for bankruptcy. The bankruptcy court later approved a stipulated order which lifted the automatic stay to allow the New York Federal Action and the New York State Action to proceed. The claims asserted in the New York state action were brought into federal court. P contended that demand was futile for purposes of the derivative claims because La Mack and Massaro 'suffer from conflicts of interest and divided loyalties that preclude them from exercising their independent business judgment on this matter.' Eventually a special meeting of both Corporate and LLC took place. the law firmed retained by La Mack and Massaro proposed that a retired federal judge should be hired to function as a special litigation committee for each entity. The proposal was not formally adopted. La Mack and Massaro executed an engagement letter with D. La Mack and Massaro signed D's engagement letter as a 'member-manager' of Corporate and LLC. D is not a director of Corporate nor a manager of LLC. Formal resolutions have never been approved that would establish or empower parallel special litigation committees and appoint Judge Hogan to that dual role. D acknowledged that he had not been formally appointed as a director of Corporate a manager of LLC and that he was serving in an advisory capacity to La Mack and Massaro's law firm, the Brewer Firm. P filed this action. He seeks a declaratory judgment that D cannot act as a special litigation committee for either Corporate of LLC and a declaratory judgment that P is still a director of Corporate and that all actions taken by the Corporate Board since P's purported removal are void. P moved for summary judgment.

Issues

Rule of Law

Holding and Decision

Legal Analysis

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