Berger Harris attorneys David Anthony and Sean Meluney achieved a successful outcome for a client, who was awarded damages and a dismissal of all counterclaims brought against him by a long-time friend in connection with the collapse of their business venture in late 2014.
It’s a theme immortalized by Shakespeare – the blow that killed Julius Caesar came not from any of the many knives wielded by the Senate. Instead, the killing blow came upon seeing his friend Brutus amongst his killers. As Caesar famously chokes out in the apocryphal account of that mid-March day, “Et tu, Brute?” Although the doomed friendship at the core of Triple H Family Ltd. Partnership v. Neal does not rise to the level of tyrannicide, it remains true that fraught interpersonal relationships make for great theatre, but bad business.
In her memorandum opinion of July 31, 2018, Vice Chancellor Montgomery-Reeves sets the scene thus: at a high school reunion in late 2014, two old friends fortuitously meet. Both are industry professionals in their respective fields and Shakespearean archetypes in their own right: Hoops, a “seasoned businessman” with “a strong personal code… who believes a man’s word is his bond,” and Neal, “a perpetual salesman who will say whatever he needs to, regardless of veracity, in order to secure the deal.”
The rise and fall of Omni Insurance Group, LLC (“Omni”), the company the two friends set out to form, is well-documented in the emails batted between the parties over a period of eight weeks. Rather, it is documented only in those emails, as the two never wrote a formal operating agreement for Omni. Theirs was only an oral agreement, evinced by bulleted lists. Between friends, they might have thought, why the need for such formality?
However, the mutability inherent in the informal agreement became the basis for claims brought by both sides for breach of contract and breach of fiduciary duty. Hoops alleged, and the Court ultimately agreed, that Neal breached the contract and violated his duties of loyalty and care in “misleading his only customer about a serious lapse”  in the insurance coverage that Neal was obliged to obtain and in not rolling his existing insurance business into Omni as agreed.
It was necessary for the Vice Chancellor to make clear several key aspects regarding the extent to which the Delaware Limited Liability Company Act (the “LLC Act”) and applicable decisional law controls the terms of an unwritten LLC agreement. Particularly, where the parties “repeatedly rely on extrinsic evidence to support their arguments when it suites [sic] them,” all the extrinsic evidence is game in divining the extent of the agreement.
John D. Rockefeller is oft-reported to have said that “A friendship built on business can be glorious, while a business built on friendship can be murder.” Seeing as Mr. Rockefeller may have known a thing or two about both, entrepreneurs should take heed and beware (at the very least) the Ides of March.
Key takeaway: If you must go into business with someone with whom you share a personal relationship, put it in writing and get specific. The freedom of contract afforded by the LLC Act is an opportunity, not a guarantee.