Chancellery Court Dismisses Disclosure and Breach Allegations in LLC Funding Litigation


In Daniel Feldman et al. vs. AS Roma SPV GP, LLC, et al., CA No. 2020-0314-PAF (Del. Ch. July 22, 2021), the Delaware Court of Chancery (the “Court”) dismissed an action brought by minority members (“Plaintiffs”) of AS Roma SPV GP , LLC (the “Company”) for Breach of Fiduciary Obligations by the Executive Member for Breach of the Company’s Limited Liability Company Agreement (“LLC Agreement”) for Non-Disclosure of Material Information and Breach of Fiduciary Obligations by the committee of investors in connection with the pandemic -financing and recapitalization efforts. In granting the Defendants’ motion to dismiss for want of declaration, the Court emphasized the Defendants’ limited disclosure obligations and the Plaintiffs’ failure to adequately plead prejudice.

In 2011, a group of investors obtained a majority stake in an Italian football club known as AS Roma, which the investors held through the Company. Starting in 2019, the Company has sought to sell its stake in AS Roma, but the COVID-19 pandemic has cast uncertainty on the sale transaction in early 2020. In response to this uncertainty, the Company has made efforts to raise additional capital to meet its financial needs. .

The Company was managed by an executive member, with certain actions requiring the approval of a five member investor committee. Initially, the Investors Committee (the “Committee”) proposed the issuance of priority “Class C member shares” (providing for a priority over the existing Class A and B shares of the Company and a liquidation preference of 1 , 5 times) and the recapitalization of loans to existing members, and the committee amended the Company’s Limited Liability Agreement (the “LLC Agreement”) in anticipation of the realization of these proposals. Although the Committee ultimately abandoned the proposals, the Committee retained the early modification (the “Modification”). Subsequently, as the Company still needed financing, the Committee requested “Loans to Members 2020” (providing for 9% interest and a premium of 50% of the outstanding capital), a transaction which was closed in June 2020 with the participation of most of the members of the Society. . Finally, the Company successfully sold its stake in AS Roma in August 2020, allowing the Company to repay various expenses and loans, including 2020 member loans.

The Plaintiffs filed a complaint against the Managing Member, some of its affiliates and committee members (“defendants”) focused on the Committee’s initial proposals, but the Plaintiffs filed an amended complaint in May 2020 as a result. abandonment of funding proposals. The first count of the amended complaint alleged that the company “violated the LLC Agreement by approving the amendment and failing to disclose all material information to Class A unitholders under the 2020 Member Loans.” The second and third counts alleged a breach of fiduciary duty by the executive member and committee members. The fourth count alleged the complicity of affiliates of the leading member. And the fifth count alleged that some lender defendants had unfairly enriched themselves with the rights granted to them under the amendment.

Noting that the plaintiffs’ claims were “limited to two separate matters”: (1) the disclosures regarding the financial position and the sale process of the company provided in conjunction with the 2020 Member Loans Proposal, and (2) the amendment to the LLC Agreement – the Court divided its analysis into four sections to address the two main issues and the two additional claims of the plaintiffs of complicity and unjust enrichment.

First, the court ruled that the plaintiffs’ amended complaint did not contain a request for disclosure. The LLC Agreement provided that the Managing Member had the same fiduciary duty to the Company and the non-managing members as a director of a Delaware corporation and its shareholders. The Court explained that “the directors have an obligation to fully and fairly disclose all material facts under their control relating to the shareholders ‘request” for action, but the plaintiffs’ disclosure allegations did not formulate a breach claim. to this obligation. The plaintiffs alleged that “the financial statements provided by the defendants are incomplete and misleading”, but the Court found this allegation conclusive. Additionally, the plaintiffs also alleged that the defendants should have disclosed the likelihood of a sale by a specific date related to a liquidation preference, but the court also dismissed this claim, reasoning in part that “Delaware law does not require a description shot of smooth sales negotiations.

Second, the court ruled that the Plaintiffs’ Amended Complaint did not raise a breach of fiduciary duty and LLC Agreement breach claim with respect to the original abandoned proposals and amendment. The plaintiffs essentially alleged the modification of the “diluted and depreciated” Class A units by creating Class C units. The Court recognized that the defendants had not rescinded the amendment following the abandonment of the original proposals, but the plaintiffs nonetheless failed to adequately allege harm. Among other things, the Court observed that the Class C shares had never been issued, that the recapitalization had not taken place and that the recapitalization could no longer take place due to the expired deadlines foreseen in the amendment. In addition, the court ruled that the plaintiffs’ claim alleging prejudice was not ripe because the Class C units could not be issued without further action, and the claim was moot because the original proposals had been dropped. and also because the company eventually sold its stake in AS Roma.

Finally, in the third and fourth sections of the analysis, the Court quickly rejected the two additional claims of the applicants for complicity and unjust enrichment. The request for help and encouragement failed because the underlying request required for breach of fiduciary duty failed. And the unjust enrichment claim was unsuccessful because, in light of the original proposals abandoned and the Class C shares never issued, there was neither enrichment for the defendants nor prejudice for the plaintiffs.

Daniel Feldman et al. vs. AS Roma SPV GP, LLC, et al., CA No. 2020-0314-PAF (Dél. Ch. 22 July 2021)


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