Brief Fact Summary. Appellant, Elf Atochem North America, Inc., brought suit against Appellee, Cyrus Jaffari, for issues related to their LLC, Malek LLC. The suit was brought in a Delaware court, but the LLC agreement called for disputes to be settled with arbitration in San Francisco, CA.
Synopsis of Rule of Law. The Delaware LLC statutes give great deference to the freedom of LLC members to contract, providing the terms do not overstep any of the mandatory statutory provisions.
The basic approach of the Delaware Act is to provide members with broad discretion in drafting the Agreement and to furnish default provisions when the members agreement is silent.View Full Point of Law
The first issue is whether an LLC agreement not executed by the LLC itself is valid.
The second issue is whether the arbitration and choice of forum provisions are valid.
It is irrelevant that the LLC itself did not assent to the agreement because the members of the LLC, the Appellant and Appellee, consented to the agreement. This is true regardless of whether the claims are derivative or direct because the parties agreed that all claims related to the agreement should be subject to the agreement’s arbitration provisions.
The arbitration and choice of forum provisions are valid. The Delaware laws regarding LLC’s allow for parties to contractually determine how to settle disputes and where.
Discussion. LLC’s are useful because they offer flexibility not available in other entities. If the parties are not able to effectively meet their objectives through principles of contract, then LLC’s will not retain their usefulness.