Gurney-Goldman v. Goldman, C.A. No. 2023-1124-JTL (Del. Ch. July 12, 2024)
Four siblings inherited equal 25 percent interests in the New York real estate empire of their late father. Two of the siblings (“Allan” and “Jane”) managed the business day to day. When Allan died, the 25 percent interest passed to his estate. Allan’s will named his son (“Steven”) as the executor and specified that Steven would have the same management powers as Allan with regard to any rights and interests in business entities. Steven sought to exercise those powers in coordination with Jane, but she rebuffed him. Steven and one of the remaining siblings filed litigation in New York against Jane and the fourth sibling. They also filed litigation in Delaware to seek a declaration that: a Delaware entity (“SG Windsor”) involved in the empire is a member-managed entity, that Allan’s estate is a member of SG Windsor, or, if only an assignee, that Steven can exercise member-equivalent governance rights; and that SG Windsor can only act with the approval of members holding a majority of the LLC interest.
The Court of Chancery first determined that SG Windsor was member-managed and could only act with majority approval. SG Windsor did not have a written LLC agreement that modified these defaults under Delaware’s Limited Liability Company Act. Jane had not proven there was an implied agreement among the siblings that SG Windsor was to be manager-managed, in part given the evidence that all four siblings consulted and reached consensus on certain significant decisions. Next, the Court determined that Allan’s estate was not a member of SG Windsor. Under the LLC Act, a transfer of member interests to another person does not automatically make the transferee a member, but rather an assignee. The assignee can only become a member as provided in an LLC agreement or with the unanimous approval of the other members. Yet because SG Windsor had no LLC agreement, and all other members had not voted for Allan’s estate to become a member, the estate remained an assignee. The Court found insufficient evidence of an implied agreement or other arrangement for member admission. Turning to the issue of what rights Steven can exercise, the Court reviewed the plain language of the LLC Act and determined that it permits a personal representative to exercise all rights to settle the estate or administer its affairs and property, including governance rights. The Court declined to adopt Jane’s narrower interpretation that an executor can only exercise rights to settle an estate, given the plain language of the statute as well as the history of changes in Delaware law that evidence a steady broadening of the powers afforded to personal representatives notwithstanding consequences to LLC members having a new business associate they did not pick.
