Jackson Lehr V Aspen Power Partners Llc

Key Facts

Transaction Type

Issues

• The court evaluated whether the adoption of the Aspen Fifth LLC Agreement breached Section 14.2 of the Aspen Fourth LLC Agreement by failing to obtain required consent from Class B Plaintiffs. Two limited aspects of the contract claims survive: (1) the modification of the MOIC Uplift schedule from annual to quarterly increases may have altered Class B Plaintiffs' interest in Company Distributions under Section 14.2(b); and (2) the expansion of the 'Excluded Securities' definition and inclusion of a preemptive rights waiver for 'Effective Date Related Issuances' may have adversely modified Class B Plaintiffs' preemptive rights under Section 14.2(f). However, claims regarding Board composition changes, drag-along rights, and consulting rights were dismissed as they did not require Class B consent under the specific provisions of the agreement.
• The court dismissed the derivative breach of fiduciary duty claim (Count VII) brought by Class A Plaintiffs on behalf of APP Management against Delaney and Vargas. The plaintiffs alleged that Delaney and Vargas breached their fiduciary duties by approving the Aspen Fourth LLC Agreement amendment in exchange for personal monetary gain. However, the court found that Section 6.4 of the APP Management LLC Agreement disclaims fiduciary duties for members acting outside their Officer capacity. Since Delaney and Vargas acted as managers of Aspen Power rather than as Officers of APP Management when voting on the amendment, Section 5.4(d)'s fiduciary duty provision does not apply, and Section 6.4's disclaimer governs, causing the claim to fail.
• The court addressed whether the Class A Plaintiffs (members of APP Management) have standing to pursue derivative claims on behalf of APP Management, and whether the Class B Plaintiffs (direct holders of Class B-1 Units) have standing to pursue claims under 6 Del. C. § 18-110 regarding Board composition and voting power. The Class A Plaintiffs were found to lack standing to bring derivative claims because the APP Management LLC Agreement's Section 5.5(i) requires unanimous Class A member consent to exercise rights under the Aspen Fourth LLC Agreement. The Class B Plaintiffs have standing under Section 18-110(a) but lack standing under Section 18-110(b) because they had no right to vote on the Board's action. The Class A Plaintiffs also lack standing to pursue direct breach of contract claims as they are neither parties to nor third-party beneficiaries of the Aspen Fourth LLC Agreement.

Holdings

Remedies

• The motion to dismiss was denied as to the Class B plaintiffs' claims regarding the modification of the MOIC Uplift schedule and their preemptive rights under Section 14.2(f) of the Aspen Fourth LLC Agreement. These limited theories survive the motion to dismiss.
• The motion to dismiss was granted as to the Class A plaintiffs' derivative claims (Counts II and V) for lack of standing because Section 5.5(i) of the APP Management LLC Agreement bars them from bringing derivative claims without unanimous consent. Count IV was also dismissed for lack of standing as a third-party beneficiary.
• The motion to dismiss was granted as to the Section 18-110(a) claim for failure to state a claim because the Board composition remained unchanged. The Section 18-110(b) claim was dismissed for lack of standing as the plaintiffs had no right to vote on the matter.
• The motion to dismiss Count VII (breach of fiduciary duty) was granted because Delaney and Vargas acted as Aspen Power managers, not as APP Management Officers, so Section 5.4(d) fiduciary duties did not apply.
• The court granted the defendants' motion to dismiss in part, denying it only as to two narrow aspects of the Class B plaintiffs' breach of contract claims: the modification of the MOIC Uplift schedule and the modification of preemptive rights. All other claims were dismissed with prejudice or for lack of standing.

Contract Value

Legal Principles

• To state a claim for breach of contract, a plaintiff must plead: (1) the existence of a valid contract; (2) a breach of an obligation imposed by that contract; and (3) resulting damages. The court applied this standard to evaluate claims under the Aspen Fourth LLC Agreement and APP Management LLC Agreement.
• Delaware LLC agreements may contractually restrict or eliminate fiduciary duties to the extent permitted by law. Section 6.4 of the APP Management LLC Agreement waived members' fiduciary duties regarding corporate opportunities outside APP Management, while Section 5.4(d) imposed fiduciary duties only when members act as Officers. The court held that when members act in a different capacity (e.g., as managers of another entity), the fiduciary duty waiver applies.
• The implied covenant of good faith and fair dealing cannot override express contract terms. When parties negotiate a comprehensive list of scenarios requiring unanimous consent, there is no contractual gap for the implied covenant to fill. The covenant cannot be used to rewrite a contract to rebalance economic interests after events that could have been anticipated.

Precedent Name

• Savor, Inc. v. FMR Corp.
• Beard Rsch., Inc. v. Kates
• Elf Atochem N. Am., Inc. v. Jaffari
• Kronenberg v. Katz
• DCV Hldgs., Inc. v. ConAgra, Inc.
• Abry P'rs V, L.P. v. F & W Acq. LLC
• Tooley v. Donaldson, Lufkin & Jenrette, Inc.
• In re Books-A-Million, Inc. S'holders Litig.

Key Disputed Contract Clauses

• Section 14.2 of the Aspen Fourth LLC Agreement requires prior written consent from affected members or classes of members for amendments that alter distribution interests, adversely affect rights between classes, or modify/waive preemptive rights. The court analyzed whether the Aspen Fifth LLC Agreement amendments triggered this consent requirement, particularly regarding MOIC Uplift schedule modifications and preemptive rights expansions.
• Section 18-110 of the Delaware LLC Act governs standing for governance disputes. Section 18-110(a) allows courts to determine manager validity, while Section 18-110(b) permits challenges to member votes only when the moving party has voting rights on the matter. The court dismissed Class B Plaintiffs' Section 18-110(b) claim because they lacked voting rights on the Board matter.
• Section 5.5(i) of the APP Management LLC Agreement requires unanimous written consent of Class A members before the Company or its Members/Officers can grant consent or waive rights under the Aspen Fourth LLC Agreement. This clause was central to dismissing Class A Plaintiffs' derivative claims for lack of standing.
• Section 5.8 of the Aspen Fourth LLC Agreement grants the Board exclusive authority to change the number of Managers, composition of the Board, or voting power, with a notwithstanding clause that prevails over general provisions. The court held this specific provision controls over Section 14.2's general consent requirements for Board composition changes.

Cited Statute

• Delaware Limited Liability Company Act
• Delaware General Corporation Law

Judge Name

Passage Text

• Because the baseline right captured all unspecified future securities, adding new categories to the exclusion list—even those that did not previously exist—shrunk the universe of securities to which it applies. At the pleading stage, it is reasonably conceivable that this reduction adversely modified the plaintiffs' preemptive rights, triggering the pre-approval requirement in Section 14.2(f).
• Section 5.5 of the APP Management LLC Agreement does just that. It reads: '[w]ithout the unanimous written consent of the [APP Management] Class A Members, the Company shall not, and no Member o[r] Officer shall, cause the Company to grant any consent or the waiving or exercising of any rights under the [Aspen Fourth LLC Agreement].' Thus, the Class A members of APP Management cannot exercise any rights on APP Management's behalf without the unanimous consent of all members.
• Resolving how the MOIC Uplift functions and whether its modification in the Aspen Fifth LLC Agreement was a mechanical result of issuing new equity is a factual dispute unfit for resolution on a motion to dismiss. If the quarterly compounding accelerates or increases Carlyle's entitlement under the distribution waterfall, it is reasonably conceivable that the amendment altered the Class B Plaintiffs' 'interest in Company Distributions' within the meaning of Section 14.2(b).

Damages / Relief Type