Barry Leistner v. Red Mud Enterprises LLC

• Court: Court of Chancery of Delaware
• Decided: December 8, 2023
• Docket: CA No. 2023-0503-SEM
• Status: Published

Opinion

COURT OF CHANCERY OF THE SAM GLASSCOCK III VICE CHANCELLOR STATE OF DELAWARE COURT OF CHANCERY COURTHOUSE 34 THE CIRCLE GEORGETOWN, DELAWARE 19947

Date Submitted: November 20, 2023 Date Decided: December 8, 2023

Francis Pileggi, Esquire Andre Dupre, Esquire Sean Brennecke, Esquire Steven Wood, Esquire Aimee Czachorowski, Esquire Johanna Peuscher-Funk, Esquire LEWIS BRISBOIS BISGAARD Kendeil A. Dorvilier, Esquire & SMITH LLP MCCARTER & ENGLISH LLP 500 Delaware Avenue, Suite 700 Renaissance Centre Wilmington, DE 19801 405 N. King Street, 8th Floor Wilmington, DE 19801

Re: Barry Leistner v. Red Mud Enterprises LLC, C.A. No. 2023-0503-SEM

Dear Counsel:

Before me are Plaintiff’s Exceptions to the Magistrate’s Final Report of

September 7, 2023 (the “Report”), denying a books and records request. 1 Plaintiff,

Barry Leistner, is a member and investor of Red Mud Enterprises LLC (the

“Company”). 2 In an unrelated New York action, in 2010, Plaintiff obtained a default

judgment against the principals of Red Mud. Despite obtaining the judgment,

Plaintiff continued to do business with the principals. But distrust and contentious

1 Bench Ruling before Magistrate in Chancery, Dkt. No. 78; Tr. Tel. Post-Trial Rulings of Magistrate’s Final Report, Dkt. No. 83 (“Report”). 2 According to the parties, the Company business involves a process to remediate the industrial waste “red mud,” a byproduct of aluminum production. See Pl.’s Mem. in Supp. of Exceptions to Magistrate’s Report 13–14, Dkt. No. 86 (“Pl.’s Exceptions”). discussions among the parties persisted over several years. Thereafter, Plaintiff

became a member of Red Mud and made a books and record demand, which was

divided into four categories and subdivided into 42 sub-categories (the “Demand”).

The Company deemed the Demand unreasonable, characterizing the Demand as a

“fishing expedition” and beyond the scope required by the LLC agreement. The

Magistrate found that the Company had met its burden to show that its decision was

proper, since Plaintiff’s purposes in seeking books and records were to pursue his

interests as a judgment creditor of Red Mud’s principals, and also to become

involved in the day-to-day management of the Company, which was a role not

guaranteed by the LLC agreement.3

I have reviewed the record and arguments, together with the Magistrate’s

thoughtful decision. Plaintiff sought records purportedly to value his interest in Red

Mud. That is undoubtedly a proper purpose. The evidence presented to the

Magistrate, however, indicates that, as the Magistrate found, the primary purpose of

Plaintiff was not a stockholder interest.4 This is strongly supported by the breadth

and nature of the documents sought, which go far beyond those needed for a

stockholder purpose. Upon de novo review,5 I adopt the Magistrate’s Report.

Specifically, Plaintiff’s document request is overbroad, to the extent it is not

3 Report 33–39. 4 Id. 5 See DiGiacobbe v. Sestak, 743 A.2d 180, 184 (Del. 1999). 2 sustainable under the rationale expressed in Highland Select Equity Fund, L.P. v.

Motient Corporation.6 Plaintiff in exceptions asks me to, “at a minimum,” tailor his

request to provide valuation materials.7 That I decline to do on exceptions. To the

extent Plaintiff requires documents to value his interests, or for some other

stockholder purpose, this decision of course is without prejudice to Plaintiff’s right

to seek books and records going forward upon a reasonable demand. To the extent

Plaintiff cites “late discovered evidence,” that evidence may be relevant to any

litigation over a subsequent demand, if any.

In addition to the records demand based on the LLC agreement and the statute,

the litigation also sought documents as a matter of separate contract. I adopt the

Magistrate’s finding that specific performance of these obligations is unnecessary,

since the records have been produced. 8

For the foregoing reasons, and for the reasons explained in the Magistrate’s

well-reasoned bench ruling of September 7, 2023, Plaintiff’s Exceptions are

DENIED. To the extent the foregoing requires an Order to take effect, IT IS SO

ORDERED.

6 906 A.2d 156, 157 (Del. Ch. 2006), aff'd sub nom. Highland Equity Fund, L.P. v. Motient Corp., 922 A.2d 415 (Del. 2007). 7 Pl.’s Exceptions 4. 8 Report 26. 3 Sincerely,

/s/ Sam Glasscock III Vice Chancellor