Please put true or false with explanation.

Case 5: Achaian, Inc. v. LeemonFamily LLC, 25 A. 3d 800 (Del. Ch. Ct. 2011)(Mallor 16^th Ed. p. 1067, case 6).

Omniglow, LLC, a Delaware limited liability company, was engagedin the manufacture of chemiluminescent novelty items such asglowsticks. The LLC was 50% owned by Leemon Family LLC, a NewYork limited liability company controlled by its managing member,Ira Leemon. Randye M. Holland and Stanley M. Holland Trustowned 30% of the LLC. Achaian, Inc., a Nevada corporationowned by William A. Heriot, owned the remaining 20%. For twoyears, the Holland trust and Leemon, together owning 80% of the LLCinterests, managed Omniglow’s business with Achaian taking apassive role as an investor. In 2008, however, Leemon tooksole control of Omniglow over the objection of both Achaian and theHolland trust, and in contravention of Omniglow’s LLC Agreementthat the members held managerial authority in proportion to theirrespective interests. Fed up with controversy, Hollandtransferred its entire 30% interest to Achaian in January 2010. Achaian then sued Leemon in March 2011 claiming that it andLeemon were deadlocked 50/50 as to the management of Omniglow and,therefore, an order of dissolution was warranted under Delaware LLClaw, because it was no longer reasonably practicable to carry onOmniglow’s business in conformity with Omniglow’s LLC Agreement. Leemon moved to dismiss the complaint, arguing that theHolland trust’s transfer of its LLC interest to Achaian was onlyeffective to give Achaian an additional 30% economic interest inOmniglow, and therefore, Achaian did not acquire the 30% votingrights that the Holland trust possessed, absent consent by all themembers of the LLC, including Leemon.

The default provision of the LLC Act dealing with the transferof interests in an LLC states:

A limited liability company interestis assignable in whole or in part except as provided in a limitedliability company agreement. The assignee of a member'slimited liability company interest shall have no right toparticipate in the management of the business and affairs of alimited liability company except as provided in a limited liabilitycompany agreement .... Unless otherwise provided in a limitedliability company agreement, [a]n assignment of a limited liabilitycompany interest does not entitle the assignee to become or toexercise any rights or powers of a member [and instead only]entitles the assignee to share in such profits and losses, toreceive such distribution or distributions, and to receive suchallocation of income, gain, loss, deduction, or credit or similaritem to which the assignor was entitled, to the extentassigned.

Omniglow’s LLC Agreement provides:

7.1. Transfer of Interest. [A]Member may transfer all or any portion of its Interest in[Omniglow] to any Person at any time.

7.2. Admission of New Members. No Person shall be admitted as a Member of [Omniglow] afterthe date of this [LLC] Agreement without the written consent of theMember and delivery to [Omniglow] of a written acknowledgement (inform and substance satisfactory to the Member) of the rights andobligations of this [LLC] Agreement and [an] agreement [to] bebound hereunder.

1. Because Omniglow’s LLC Agreementprovided that the members held managerial authority in proportionto their respective interests, Omniglow is a manager managedLLC.
2. Omniglow, LLC is not deadlocked,because Holland’s transfer of its 30% interest to Achaian, Inc.assigned only its economic interest in Omniglow, LLC. HenceAchaian LLC has a 20% voting power and Leemon Family LLC has 50%voting power and control of the LLC.
3. Leemon Family LLC’s taking solecontrol of Omniglow LLC is a violation of Leemon’s fiduciary dutyto Achaian and Holland and its duty of good faith and fairdealing.
4. Leemon Family LLC, Achaian andHolland are permitted to eliminate their fiduciary duties,including the duty of care and duty of loyalty, in their operatingagreement.
5. Prior to Holland’s transfer ofits interest to Achaian, Leemon, Achaian and Holland shared profitsin the LLC and are entitled to distributions from the LLC inproportion to their respective interests in the LLC.

Answer rating: 100% (QA)

1 The given statement is true Reason When an agreement specifically provides a members interest in m... View the full answer