Chancery Finds Equitable Defenses Bar LLC Dilution and Redomestication Claims, and Holds it Lacks Jurisdiction to Dissolve a Foreign Entity

Morris James LLP

In re Coinmint, LLC, C.A. No. 2019-0983-MTZ (Del. Ch. Aug. 12, 2021)

This decision illustrates that, in specific circumstances, the equitable defenses of waiver, acquiescence, and estoppel may preclude a party from challenging otherwise voidable actions. In addition, deciding an issue of first impression, the Court held that it lacks subject matter jurisdiction to equitably dissolve a non-Delaware business entity.

Here, in the context of a Delaware LLC owned 50/50 by two members, (1) one member’s interest was diluted by the other’s investments; (2) then the LLC redomesticated to Puerto Rico; and (3) after the redomestication, the cash-infusing member removed the diluted member as a co-manager. Because these actions had not been approved in the manner set forth in the LLC operating agreement, the diluted member filed suit in Delaware. He also sought to dissolve the company.

After a trial on the merits, the Court found that – notwithstanding the lack of compliance with the operating agreement’s formalities – the diluted member had in fact agreed to the dilution and redomestication, which barred his challenge under the doctrines of waiver, acquiescence, and estoppel. The parties’ communications and course of conduct in this regard were sufficiently clear to overcome an anti-waiver provision in the operating agreement. 

Because the redomestication was valid, the company was domiciled in Puerto Rico. As an issue of first impression, the Court found that the LLC Act did not permit the Court to determine the managers of a foreign entity or to order its dissolution. Similarly, the Court found that it lacked subject matter jurisdiction to equitably dissolve a foreign company. The Court reasoned this was consistent with the internal affairs doctrine and considerations of comity, which require that Delaware courts respect Puerto Rico’s identical interest in its own entities.

Accordingly, the Court ruled against the plaintiff minority owner on all counts.

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