Chancery Finds Implied-in-Fact LLC Agreement

Morris James LLP

Robinson v. Darbeau, C.A. No: 2019-0853-KSJM (Del. Ch. Mar. 1, 2021)

As Robinson v. Darbeau demonstrates, Delaware law recognizes implied limited liability company agreements. Plaintiff operated a daycare as a sole proprietor and without any formally organized business entity. After Plaintiff began a personal relationship with Defendant, Defendant became involved in day-to-day activities at the daycare, invested in the business (including through the co-purchase of the property where the daycare was operated) and was held out publicly as the daycare’s co-director. Through the use of an online incorporator, and with Defendant’s assistance, Plaintiff filed a certificate of formation for a Delaware limited liability company. The certificate listed both parties as members (allegedly without Plaintiff’s knowledge) and further provided that management of the company was vested in the members. No written LLC agreement was ever executed.

The parties’ relationship unraveled, and Plaintiff filed an action in the Court of Chancery requesting a declaration that Defendant was neither a member, nor manager of the LLC. Plaintiff argued, among other things, that because no formal LLC agreement was ever executed, the LLC was never formed and, thus, Defendant could not be a member or manager. In its post-trial decision, the Court rejected this argument, finding that Delaware’s LLC Act permits implied LLC agreements. Here, the parties’ conduct—including Defendant’s intimate involvement in the daycare—implied an LLC agreement in fact. Additionally, the Court held that under Delaware’s LLC Act, the certificate of formation may supply terms for the LLC agreement. In this case, the certificate of formation named both Plaintiff and Defendant as members and managers, which the Court ruled was dispositive of the issue.

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