Durham v. Grapetree, LLC

• Court: Supreme Court of Delaware
• Decided: January 26, 2021
• Docket: 343, 2019
• Status: Published

Opinion

IN THE SUPREME COURT OF THE STATE OF DELAWARE

ANDREW C. DURHAM, § § Plaintiff Below, § No. 343, 2019 Appellant, § § v. § Court Below – Court of Chancery § of the State of Delaware GRAPETREE, LLC, § § Defendant Below, § C.A. No. 2018-0174-SG Appellee. §

Submitted: November 24, 2020 Decided: January 26, 2021

Before VAUGHN, TRAYNOR, and MONTGOMERY-REEVES, Justices.

ORDER

After careful consideration of the parties’ briefs and the record on appeal, it

appears to the Court that:

(1) This appeal arises from a books and records action brought by

Appellant, Andrew Durham, against Appellee, Grapetree, LLC (“Grapetree”), under

Section 18-305 of the Delaware Limited Liability Company Act.1 Durham appeals

the Court of Chancery’s opinion that granted in part and denied in part Durham’s

request to inspect various books and records maintained by Grapetree, as well as the

1 6 Del. C. § 18-305. Court of Chancery’s opinion and order granting Grapetree’s motion for attorneys’

fees.

(2) Andrew Durham is one of five siblings.2 Durham and his siblings

inherited a rental property in St. Lucia known as “Les Chaudieres,” which is held by

Grapetree. The St. Lucia property is Grapetree’s sole asset. Durham’s four siblings

are manager-members of Grapetree; Durham is a member but not a manager.

Durham came to believe that his siblings were mismanaging Grapetree and causing

the St. Lucia property’s value to suffer. To assess potential derivative litigation and

evaluate the condition of his stake in Grapetree, Durham sought to inspect certain

books and records under 6 Del. C. § 18-305.

(3) Grapetree failed to respond to multiple books and records inspection

demands. On March 12, 2018, Durham filed a pro se Complaint for Motion to

Compel Books and Records from Grapetree (the “Complaint”). Durham attached

two books and records inspection demand letters to Exhibit A of the Complaint and

three demand letters to Supporting Sub-Exhibits to Exhibit B of the Complaint.

(4) Grapetree did not initially respond to the Complaint, and on April 30,

2018, Durham filed a motion for default judgment against Grapetree. On May 1,

2 This Court adopts the facts as established by the Court of Chancery in the proceedings below. Durham v. Grapetree, LLC, 2019 WL 413589 (Del. Ch. Jan. 31, 2019); Durham v. Grapetree, LLC, 2019 WL 2337475 (Del. Ch. June 4, 2019); Durham v. Grapetree, LLC, 2020 WL 5960941 (Del. Ch. Oct. 8, 2020). 2 2018, counsel entered his appearance on behalf of Grapetree, and the court scheduled

a telephonic hearing for July. On June 14, 2018, Durham filed a letter seeking to

supplement the books and records demands in his Complaint with additional books

and records requests. Durham also filed various other motions and letters throughout

June and July 2018 that are not relevant to this appeal.

(5) On July 23, 2018, the Court of Chancery held its first teleconference

with the parties and addressed the motion for default judgment. On July 30, 2018,

the court held a follow-up teleconference regarding the case status. Finally, on

August 22, 2018, the court held a third telephonic hearing, during which the court

set a briefing schedule and the parties agreed to resolve this matter based on the

papers.

(6) After briefing from the parties, the Court of Chancery issued a letter

opinion on January 31, 2019 (the “First Merits Opinion”).3 The First Merits Opinion

held that Durham stated a proper purpose in seeking documents to determine the

value of his interest in Grapetree, considered Durham’s demands dated November

23, 2017, and December 4, 2017, granted six of Durham’s requests for inspection,

and denied the remainder of Durham’s requests. The First Merits Opinion also

rejected Durham’s multiple motions to supplement his books and records requests

with demands sent after Durham filed the Complaint.

3 Opening Br. Ex. A (the “First Merits Op.”). 3 (7) Following the First Merits Opinion, Grapetree filed a Motion for Partial

Attorney’s Fees and Costs, arguing that Grapetree was entitled to its attorney’s fees

incurred defending the action under fee-shifting provisions in the Grapetree, LLC

Operating Agreement. On March 12, 2019, Durham filed an answering brief

opposing Grapetree’s motion. On June 4, 2019, the Court of Chancery issued a letter

opinion (the “Fee Opinion”), in which the court held that Grapetree was entitled to

a portion of its attorney’s fees and costs.4 Then, on July 8, 2019, the Court issued

an order (the “Fee Order”) granting Grapetree $23,289.09 in fees and costs.5 On

August 5, 2019, Durham filed a timely notice of appeal contesting the Court of

Chancery’s rulings in the First Merits Opinion, Fee Opinion, and Fee Order.

(9) On appeal, Durham argued that the Court of Chancery: (i) improperly

limited its review to two of the four demands attached to his Complaint; (ii)

improperly denied Durham’s requests for certain books and records; (iii)

misinterpreted the word “substantially” as used in the fee-shifting provision of the

Grapetree, LLC Operating Agreement; (iv) failed to consider the applicability of the

doctrine of unclean hands when awarding attorneys’ fees; and (v) erroneously

rejected Durham’s motion for default judgment.

4 Opening Br. Ex. B (the “Fee Op.”). 5 Opening Br. Ex. C (the “Fee Order”). 4 (10) Having identified what appeared to be an inconsistency between the

trial record and the court’s First Merits Opinion, on August 11, 2020, this Court

issued an order remanding this matter to the Court of Chancery to consider any

timely but overlooked demands attached to Durham’s Complaint, as well as to revisit

the court’s Fee Opinion and Fee Order to the extent appropriate.

(11) On October 8, 2020, after receiving supplemental submissions and

hearing argument, the Court of Chancery issued a letter opinion (the “Remand

Opinion”) addressing this Court’s remand order.6 The court noted that Grapetree

presented no defense to the Plaintiff’s overlooked demands attached to the

Complaint. Nonetheless, the court independently found a proper purpose and

ordered Grapetree to produce all the books and records demanded in the overlooked

demands attached to Durham’s Complaint, to the extent such documents existed as

books and records of Grapetree. It light of this ruling, the court also withdrew its

Fee Opinion, vacated its Fee Order, and held that each side shall bear its own fees.

(12) On October 22, 2020, this Court sent a letter to the parties requesting

supplemental memoranda regarding the Court of Chancery’s Remand Opinion and

the remaining issues on appeal. Neither party raised any challenges to the Remand

Opinion. Neither party changed its position regarding the remaining issues on

appeal. Thus, we address the remaining unresolved challenges on appeal—whether

6 Durham v. Grapetree, LLC, 2020 WL 5960941 (Del. Ch. Oct. 8, 2020) (the “Remand Op.”). 5 the court improperly denied requests for informal books and records and whether the

court improperly denied a motion for default judgment. “[W]e review for abuse of

discretion the Court of Chancery’s determination of both the scope of relief and any

limitations or conditions on that relief. This standard of review is ‘highly

deferential.’”7

(13) First, citing to this Court’s opinion in KT4 P’rs, LLC v. Palantir Techs.,

Inc., Durham argues that the Court of Chancery improperly denied his requests for

certain books and records in its First Merits Opinion. Durham argues that the court

improperly denied numerous line items on the basis that the requests did not seek

the production of conventional or formal corporate records. Durham argues that the

only existing corporate communications are in emails, text messages, and phone

record. Thus, he argues that he was entitled to those communications under KT4. 8

(14) In KT4 P’rs, this Court held that demands to inspect books and records

“must be interpreted in light of companies’ actual and evolving recordkeeping and

7 KT4 P’rs, LLC v. Palantir Techs., Inc., 203 A.3d 738, 748 (Del. 2019) (citing Wal–Mart Stores, Inc. v. Ind. Elec. Workers Pension Trust Fund IBEW, 95 A.3d 1264, 1271–72 (Del. 2014)) (addressing Section 220). 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. See, e.g. Sanders v. Ohmite Hldgs., LLC, 17 A.3d 1186, 1193 (Del. Ch. 2011) (“Delaware courts have interpreted Section 18–305 by looking to ‘cases interpreting similar Delaware statutes concerning corporations and partnerships.’” (citing Somerville S Trust v. USV P’rs, LLC, 2002 WL 1832830, at *5 n. 4 (Del.Ch. Aug. 2, 2002))). 8 Opening Br. 27-31. 6 communication practices.”9 If a company “conducts formal corporate business

without documenting its actions in minutes and board resolutions or other formal

means, but maintains it records of the key communications only in emails, the

[company] has no one to blame but itself for making the production of those emails

necessary.”10

(15) Durham points to three denials that he claims impeded his access to

necessary informal business documents: (i) the court’s denial of Durham’s request

for “[a]ll correspondence among a number of named individuals;” 11 (ii) the court’s

denial of Durham’s request for “a ‘list’ of all decisions made by the ‘Managing

Members’ in the last three years, whether in writing, by text, and/or by email;”12 and

(iii) the court’s denial of Durham’s request for “[a]ll correspondence between the

LLC and FOWP, Kidney Foundation, Westtown school, Brian Fahey, etc.”13 But

the Court of Chancery denied those requests on the basis that they were over broad,

unrelated to Durham’s proper purpose of valuing his Grapetree interest, or included

improper requests for Grapetree to create documents.14

9 KT4 P’rs, LLC, 203 A.3d at 753. 10 Id. 11 First Merits Op. at 8. 12 Id. 13 Id. at 10. 14 Id. at 8, 10. 7 (16) Further, the court granted other requests that provide access to the

relevant informal communications Durham seeks. For example, Durham requested

access to records concerning approval of corporate expenses:

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 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.15

The Court of Chancery granted this request, stating that “[t]hese documents are

pertinent to understanding the operation and value of the LLC, which I have found

to be Andrew’s proper purpose.”16 The court also granted Durham’s request for any

existing “[r]ecords concerning the approval by the Managing Members” for the

listed expenses and transactions.17 While the court also stated that Grapetree must

produce documents “[t]o the extent there exist documents evincing Managers’

Meetings” and “presentations . . . and minutes of the meetings,” that language does

not expressly limit the Grapetree’s production to those formal categories.18 If

15 Id. at 8-9. 16 Id. at 9. 17 Id. 18 Id. 8 Grapetree conducted its business without documenting its actions in minutes, board

resolutions, or other formal means, but maintained its records in informal

communications like emails and text messages, any such informal records must be

produced under the court’s ruling.

(17) Therefore, the Court of Chancery did not improperly deny Durham

access to informal communications. Where the court denied requests, it did so

because those requests were improperly broad, called for the company to create

documents that did not exist, or sought documents unrelated to Durham’s proper

purpose. The court did not deny any request simply because the request sought

informal records, and it did not limit any records that it granted solely to formal

records. Thus, this Court holds that the Court of Chancery acted within its discretion

when it denied Durham’s additional, broad requests for “all communications”

between parties and “lists” of transactions.

(18) Second, Durham argues that the Court of Chancery erroneously

rejected his motion for default judgment. Durham argues that the court should have

granted default judgment in his favor because he properly served the Complaint on

Grapetree and Grapetree failed to respond within twenty days.19 The record,

however, reveals that Durham abandoned his default judgment motion during a June

19 Opening Br. 26. 9 23, 2018 teleconference with the court.20 After that teleconference, Durham did not

raise the issue of default judgment in any of his numerous subsequent filings or at

any of the teleconferences with the court. Instead, Durham litigated his books and

records action to final judgment. Thus, it appears that Durham abandoned his

motion for default judgment.

(19) Regarding the Remand Opinion, after careful consideration of the

parties’ briefs and the record on appeal, we find it evident that the judgment of the

Court of Chancery should be affirmed on the basis of and for the reasons stated in

the October 8, 2020 Letter Opinion.

NOW, THEREFORE, IT IS ORDERED that the Court of Chancery’s

judgment is AFFIRMED.

BY THE COURT:

/s/ Tamika R. Montgomery-Reeves Justice

20 A7, Tr. of Telephonic Status Conference dated 7/23/18, at 4. 10