Andrew Durham v. Grapetree, LLC ( 2019 )

COURT OF CHANCERY
OF THE
SAM GLASSCOCK III STATE OF DELAWARE COURT OF CHANCERY COURTHOUSE
VICE CHANCELLOR 34 THE CIRCLE
GEORGETOWN, DELAWARE 19947
Date Submitted: November 19, 2018
Date Decided: January 31, 2019
Andrew C. Durham, pro se John G. Harris, Esquire
4805 Randolph Drive Berger Harris LLP
Annandale, VA 22003 1105 N. Market Street, 11th Floor
Wilmington, DE 19801
Re: Durham v. Grapetree, LLC, Civil Action No. 2018-0174-SG
Dear Counsel:
This is the latest installment of persistent litigation among five siblings who
had the misfortune to inherit property. That property is currently being held by an
LLC. Four of the siblings are manager-members, and the fifth, Plaintiff Andrew C.
Durham, is a member and not a manger. Before me is his suit to compel books and
records under Section 18-305 of the Delaware Limited Liability Company Act, filed
against Grapetree, LLC (“Grapetree”). Grapetree is owned by Andrew and his four
siblings, James, Jeff, Dee, and Davis, Jr. 1 The LLC is registered in Delaware, and it
has a sole asset: a rental property in St. Lucia known as “Les Chaudieres.” Andrew
has previously served books and records inquiries on Grapetree, and some of those
1
I use first names for the five siblings to avoid confusion; no disrespect is intended.
inquiries culminated in litigation before this Court. In 2011, Grapetree settled a
books and records case filed by Andrew and his brother, Davis, Jr.
In this litigation, Andrew appears pro se. The ability of a litigant to represent
himself civilly is a fundamental right; exercise of that right, however, comes with
responsibilities to understand and to follow court rules, and to not make frivolous
arguments. Andrew appears to fundamentally misunderstand the purposes and
limitations of a books and records action. He seeks documents as though he were
entitled to plenary discovery—and beyond. He seeks to compel “explanations” and
“statements” that are not records of Grapetree. To the extent he seeks documents
related to a proper purpose, his demands are often overbroad. These reasons would
support a dismissal of the action. 2 Nonetheless, Andrew has made some demands
that are within the bounds of records subject to inspection under Section 18-305.3 In
the interest of justice, I proceed in this Letter Opinion to go through Andrew’s
demand, winnow the proper purposes and records necessary thereto, as stated by
Andrew, from the chaff of improper purposes and demands, and identify the
categories of documents to which he is entitled. I then address the LLC’s request to
shift fees.
2
See generally Cook v. Hewlett-Packard Co., 2014 WL 311111 (Del. Ch. Jan. 30, 2014)
(concerning analogous Section 220 of the DGCL).
3
6 Del. C. § 18-305.
2
Andrew filed his Complaint on March 12, 2018. In it, he sought to compel
Grapetree to produce numerous documents, including some that are not records of
the LLC, and sought to compel Grapetree to “explain” or “show cause” for a number
of its actions. Among the documents Andrew seeks are individuals’ (at least one of
whom is not a Grapetree member) tax returns; copies of text and email
correspondence between Grapetree members and various non-parties; a list of all
decisions made by the “Managing Members,” with various additional information;
a detailed accounting relating to three members; Grapetree’s employment agreement
with one individual; records for “Managing Member” pre-approvals for a variety of
expenditures; three years’ worth of guest records for Les Chaudieres; costs related
to “acquiring four POAs and apostilles;” copies of checks cashed by Grapetree
members; receipts, along with “proof all the items ended up at Les Chaudieres;”
Grapetree’s business plan; “explanations” of how weeks at Les Chaudieres are
distributed to Grapetree’s members; explanation of various expenses; explanation of
various bills; explanation of Dee’s activity on Grapetree’s bank account;4 and
passwords for LLC-related email accounts.5 The full statement of documents
demanded is set out at Exhibits 1 and 2 to this Letter Opinion.
4
See Compl., Ex. A.
5
Id. Subex. A.
3
Andrew’s stated purpose for the demand is “to better understand the reasons
the business continues to be failing, whether there continues to be fraudulent
bookkeeping, whether embezzlement and misappropriation continues by [other
members], whether the assets of the LLC . . . are being properly administered or
abused, whether corporate documents that protect the owners are in order . . . and to
obtain information and compliance previously agreed to in the [settlement
agreement] and other information available [for unstated reasons] under [Section 18-
305].”6
On September 18, 2018, Andrew filed a Motion to Supplement the Pleadings;
that is, he filed a motion seeking to augment his initial books and records request.
I note that, for purposes of legal analysis, a books and records demand served
on an LLC under Section 18-305 functions in the same manner as a books and
records demand served on a corporation under Section 220 of the Delaware General
Corporation Law.7 Under Section 220, a plaintiff must establish by a preponderance
of the evidence that, along with complying with the statutory formalities, she
possesses a proper purpose for conducting the inspection. 8 Likewise, Section 18-
305 requires compliance with statutory formalities and requires a plaintiff to state a
6
Id.
7
8 Del. C. § 220; see also, e.g., Sanders v. Ohmite Holds., LLC, 17 A.3d 1186, 1193 (Del. Ch.
2011).
8
Amalgamated Bank v. Yahoo! Inc., 132 A.3d 752, 775 (Del. Ch. 2016) (citing Cent. Laborers
Pension Fund v. News Corp., 45 A.3d 139, 144 (Del. 2012)).
4
“purpose reasonably related to the member’s interest as a member of the limited
liability company.” 9 The LLC member is entitled to obtain:
(1) True and full information regarding the status of the business and
financial condition of the limited liability company;
(2) Promptly after becoming available, a copy of the limited liability
company's federal, state and local income tax returns for each year;
(3) A current list of the name and last known business, residence or
mailing address of each member and manager;
(4) A copy of any written limited liability company agreement and
certificate of formation and all amendments thereto, together with
executed copies of any written powers of attorney pursuant to which the
limited liability company agreement and any certificate and all
amendments thereto have been executed;
(5) True and full information regarding the amount of cash and a
description and statement of the agreed value of any other property or
services contributed by each member and which each member has
agreed to contribute in the future, and the date on which each became a
member; and
(6) Other information regarding the affairs of the limited liability
company as is just and reasonable. 10
As with a demand under Section 220, a books and records demand under
Section 18-305 can be disruptive to the business affairs of the entity; for that reason,
this Court must exercise its discretion so that “the interests of the [entity are]
balanced with those of the inspecting [member].” 11 Once a proper purpose is found,
this balance is struck in the scope of production permitted: the Court must direct the
entity to produce all records essential to the purpose, “but stop at what is
9
6 Del. C. § 18-305.
10
Id.
11
KT4 Partners, LLC v. Palantir Techs., Inc., 2019 WL 347934, at *7 (Del. Jan. 29, 2019)
(addressing Section 220).
5
sufficient.”12 Section 18-305 allows “reasonable” modification of inspection
rights,13 but the LLC agreement here does not contain any such restriction.14
With these principles in mind, I turn to the books and demand in this case. As
an initial matter, I must deny Andrew’s motion to supplement his initial books and
records request. A plaintiff seeking books and records must first afford the company
the opportunity to avoid litigation by making a written demand and allowing the
company to comply;15 accordingly, she may not add new requests for documents,
absent a demand, by pleading during the course of the litigation. 16 Corporate
stockholders or LLC members are always able to file additional books and records
demands; however, each of those resulting legal actions is a summary litigation. To
allow additional requests via amendment would hinder the summary nature of these
actions, and could encourage litigation that could be avoided by a proper demand.
Accordingly, Andrew’s request to supplement his books and records request is
denied. Andrew attached two books and records demands to his Complaint, his
demand of November 23, 2017, and his demand of December 4, 2017. I will
consider the records as requested in those demands.
12
Id. at *9 (internal quotation omitted).
13
§ 18-305.
14
See Grapetree’s Trial Br., Ex. A.
15
§ 18-305.
16
See, e.g., KT4 Partners, LLC v. Palantir Techs., Inc., 2018 WL 1023155 (Del. Ch. Feb. 22,
2018), aff’d in part, rev’d in part on other grounds, 2019 WL 347934 (Del. Jan. 29, 2019).
6
I now turn to the substance of Andrew’s initial books and records demand, to
the extent I understand it. The demand recited several purposes; I must determine
which, if any, are proper. First, Andrew seeks documents to vindicate the terms of
a settlement in an earlier action. If he believes settlement obligations persist but are
unmet, he is free to bring an enforcement action, but may not use this summary
proceeding to vindicate those rights. His other reasons, as explained in the course
of this litigation, involve investigating wrongdoing on the part of the managers in
support of a derivative action, and valuation of his interest. Those are proper
purposes. Andrew’s allegations of breach of duty by the managers, however, appear
to be wholly conclusory. 17 I therefore examine the documents sought as relating to
his purpose regarding the value of his asset, including “why the business continues
to be failing.”18 That purpose requires records explicitly available under the statute;
those “regarding the status of the business and the financial condition of the limited
liability company.” 19 I note that, per the Complaint, the LLC is near bankruptcy. It
has a single asset, the rental property, Les Chaudieres. To the extent the documents
demanded are necessary to Andrew’s proper purpose, they must be produced. I
17
Andrew has suggested in the pleadings that he has sufficient evidence to bring breach of
fiduciary duty actions against certain managers, or to seek a receivership for the LLC. Nothing in
this Letter Opinion should be read as prejudicial to his ability to so proceed.
18
Compl., Ex. A.
19
§ 18-305.
7
examine each request in turn, as I understand them from the Demand of November
23, 2017.
1) Tax returns of Dee and “Barry Evans.” These are not records of the LLC,
nor are they necessary to the purpose. This request is denied.
2) All correspondence among a number of named individuals. These are
not records of the LLC, nor are they necessary to the purpose. This request
is denied.
3) A “list” of all decisions made by the “Managing Members” in the last
three years, whether in writing, by text, and/or by email. This is a
demand for the LLC to create a document, not a proper demand to inspect
corporate records. In any event, it is overbroad. This request is denied.
4) Create and provide an audited accounting “of all amounts due by or to
Jeff, Davis and Dee.” This is not a request for a corporate record, and is
denied.
5) Provide Basil Kollias’ employment agreement. Andrew has failed to
demonstrate that this document is necessary to a proper purpose, and the
request is denied.
6) Records concerning approval by the Managing Members of the
following expenses: Jeff and Jim Poole’s construction trip; all Best Buy
purchases in which the aggregate of purchases is over $1,000 per
8
month; new credit card line of $15,000; Dee’s initial cash advance of
$1,500 from the credit line; Dee’s ongoing cash advances raising the
credit line balance to -$3,960.54; [D]ee’s landscaping purchases; each
one of Dee’s and Jeff’s discounts to 25 separate friends and charities;
roof repair receipts, estimates, quotes and warranty; purchases of
‘artwork’ from Aztec copies.” These documents are pertinent to
understanding the operation and value of the LLC, which I have found to
be Andrew’s proper purpose. To the extent there exist documents evincing
Managers’ Meetings at which these topics were discussed, and
presentations made at the meetings and minutes of the meetings referencing
them, they must be produced to Andrew.
7) Documents showing the tenants of Les Chaudieres for the past three
years, and rental amounts generated from these tenants. This request is
granted, because it relates to the value of the LLC’s asset.
8) Records relating to obtaining of certain powers of attorney and
apostilles. Andrew has failed to show that these records are related to a
proper purpose, and the request is denied.
9) All bills from “Basil Kollias and Michelle Desir” together with all
emails and texts from Davis Jr. to those individuals. Andrew has failed
9
to show that these records relate to a proper purpose, and the request is
denied.
10) “[A]ll correspondence between the LLC and FOWP, Kidney
Foundation, Westtown school, Brian Fahey, etc., etc.” Andrew has
failed to show that these records relate to a proper purpose, and the request
is denied.
11) Copies of client checks cashed directly by Jeff and/or Dee. This request
is granted.
12) All receipts for “pool purchases” and Bed Bath and Beyond receipts.
Andrew has failed to show that these records are neccesary to a proper
purpose, and the request is denied.
13) Grapetree’s “business plan” for two upcoming years. To the extent this
is an existing corporate record, it should be produced.
14) A copy of “Phillip Serra’s December 2015” payment to the LLC,
allegedly made directly to Jeff. This is redundant of documents in demand
#11, which I have granted. The demand also seeks correspondence between
Grapetree and Serra regarding the payment, which is granted.
15) “New” accounting of Jeff and Jim Poole’s “December trip.” This does
not seek an existing record of the LLC.
10
16) Copies of all correspondence to and from “Longwood Rotary”
regarding a donation from the LLC to that organization. This request
is granted. 20
Andrew makes numerous further demands, including that the LLC create
documents, “explanations,” or “commentary.”21 These are not appropriate demands
for corporate records, and they are denied.
In his December 4, 2017 demand, Andrew requested access to Grapetree’s
email account, as well as “login information and passwords to all email accounts
used to conduct the LLC’s business.”22 His stated purpose was the same as in his
previous demand, “to better understand the reasons the business continues to be
failing.”23 These are not appropriate demands for corporate records, and they are
denied.
Grapetree, in anticipation of prevailing in this action, seeks fees under the LLC
agreement, which (per Grapetree) calls for an award of fees to the prevailing party.24
I have ordered certain books and records produced, but have denied the greater part
of Andrew’s requests, as unnecessary to a proper purpose or overbroad, or as not
seeking existing documents. Grapetree argues that this litigation was, at least in part,
20
These demands are listed in Exhibit A of the Complaint; additionally, they are attached as
Exhibit 1 to this Opinion.
21
Compl., Ex. A.
22
Compl., Subex. A. The December 4, 2017 demand is also attached as Exhibit 2 to this Opinion.
23
Id.
24
Grapetree’s Trial Br., at 25.
11
no more than Andrew’s attempt cause distress to his sister, Dee, one of the managers
of Grapetree. I note that the degree of animus among the members here is
considerable, and must, to some extent, have formed an incentive for some of
Andrew’s more far-fetched demands in this litigation. I presume that this animus
runs both ways.
This litigation has been unfortunately complicated and lengthy for a summary
action. Mr. Durham filed a complaint styled “Complaint Motion to Compel Books
and Records from Grapetree”—that is, this books-and-records action—on March 12,
2018. On April 30, Mr. Durham filed for a Motion for Default Judgment against
Grapetree; on May 1, John G. Harris, Esquire entered his appearance on behalf of
Grapetree. On June 14, 2018, Mr. Durham filed a letter seeking to supplement his
original books and records demand. On July 17, 2018, Mr. Durham filed a letter
seeking default judgment, on improper service and other procedural grounds. On
July 19, 2018, Mr. Durham filed a Motion Requesting Voluntary Mediation. On
July 20, Mr. Durham moved to disqualify Mr. Harris as Grapetree’s Counsel, on the
grounds that Mr. Harris would be a necessary witness at trial. In a July 23, 2018
teleconference, I ordered that Mr. Durham properly serve the Complaint on
Grapetree, which service, prior to that time, had not been made. On July 30,
Grapetree answered Mr. Durham’s Motion to Disqualify. Also on July 30, 2018, I
held a follow-up teleconference regarding the case status and ordered limited
12
discovery. On July 31, a letter from Mr. Durham was filed, accusing Mr. Harris of
malfeasance in advance of the July 30 teleconference. On August 14, 2018, Mr.
Durham filed an “Answer to Defendant’s Opposition to Motion to Disqualify.” On
August 22, 2018, I heard telephonic oral argument on the Motion to Disqualify,
which I denied in a bench ruling. The parties agreed to resolve this matter through
a paper trial, and a schedule was set for trial briefs.
On September 5, 2018, Grapetree filed its trial brief. On September 18, 2018,
Mr. Durham filed a Motion to Supplement the Pleadings, seeking additional books
and records. On September 20, 2018, Mr. Durham filed an Answer to the
Defendant’s trial brief; on that same day, he filed a letter requesting a trial and
requesting discovery. On October 4, 2018, I held a status teleconference, and the
parties agreed to proceed on a paper record. On October 17, Mr. Durham filed a
letter with a status update, informing the Court that “misappropriation appears to be
ongoing” and reiterating books and records demands. On November 5, 2018,
Grapetree filed a Memorandum of Points and Authorities. On November 19, 2018,
Mr. Durham filed a “final submission,” and the case was submitted on the papers.
This is a one-asset family LLC that is ill-equipped to respond to ongoing
litigation from a pro se member, in which it must be represented. On the other hand,
the Plaintiff here has prevailed to some extent, and had good will persisted among
all parties—as unfortunately it does not—much expense and effort could have been
13
avoided. If Grapetree, in light of my decision here, continues to seek fees, counsel
should so inform me, and I will address that request.
In conclusion, the Plaintiff’s books and records requests are granted in part and
denied in part. To the extent the foregoing requires an Order to take effect, IT IS
SO ORDERED.
Sincerely,
/s/ Sam Glasscock III
Sam Glasscock III
14
EXHIBIT 1
EXHIBIT 2