## Facts

- Genitrix, LLC was a Delaware LLC formed to commercialize biotechnology research related to immune-system modulation.
- The company held a patent license granting worldwide commercialization rights for licensed products and services.
- Fisk Ventures, LLC invested approximately $842,000 and held a majority of the Class B membership interests; Segal, the founder, held a majority of Class A interests and served as president and sole officer.
- Genitrix was governed by a five-member board: Segal (Class A) appointed two managers and the Class B members appointed three.
- The LLC agreement required 75% board approval for board action, creating an effective supermajority veto for each faction.
- The relationship between Segal and the Class B investors deteriorated, producing disagreement over financing strategy, use of capital, and whether to dissolve.
- Segal pursued financing and prepared a private placement memorandum; Class B-appointed managers refused to approve it and sought board discussion; a meeting did not occur because Class A representatives refused to participate, resulting in persistent governance deadlock.
- The LLC agreement granted Class B members a “put right” to force the company to purchase their Class B interests at an independently appraised price; Fisk did not exercise the option.
- By the time dissolution was considered, Genitrix had no office, no capital or grant funds, no revenue, and could not operate to pursue its stated business purpose.
- Contractual dissolution required 75% member consent; Segal and Class A members opposed dissolution, preventing consent.

## Issues

1. Whether judicial dissolution was warranted under Del. LLC Act § 18-802 because it was not reasonably practicable to carry on Genitrix’s business in conformity with the LLC agreement.
2. Whether Class B members and related parties breached the LLC agreement, the implied covenant of good faith and fair dealing, or fiduciary duties by refusing to approve financing, refusing to relinquish the put right, and otherwise exercising contractual rights.

## Decision

- The Court of Chancery granted judgment on the pleadings for Fisk and ordered judicial dissolution of Genitrix under § 18-802.
- The court found persistent board deadlock on fundamental decisions, no contractual mechanism to resolve deadlock, and severe operational and financial dysfunction preventing pursuit of the company’s purpose.
- The court rejected the argument that Fisk had to exercise its put right to avoid dissolution; the put right was a contractual benefit, not an obligation.
- The court dismissed Segal’s counterclaims and third-party claims for breach of contract, implied covenant, and fiduciary duty.

## Legal Principles

- Under Del. LLC Act § 18-802, dissolution is appropriate when it is not reasonably practicable to carry on the LLC’s business in conformity with the LLC agreement, assessed through a fact-intensive inquiry.
- Persistent governance deadlock on material decisions, coupled with the absence of contractual deadlock-breaking mechanisms, supports a finding of non-practicability.
- Severe inability to operate (including lack of funds, operations, and revenue) can demonstrate that the LLC cannot pursue its stated business purpose in conformity with the agreement.
- The implied covenant of good faith and fair dealing is a gap-filling doctrine and cannot be used to impose duties that contradict the agreement’s express allocation of rights and discretion.
- LLC members and managers generally do not breach fiduciary or contractual duties merely by exercising rights expressly granted by the LLC agreement, even if doing so disadvantages another member.

## Conclusion

The court dissolved the LLC because entrenched deadlock under a supermajority governance structure, with no contractual escape valve, combined with the company’s inability to function, made it not reasonably practicable to continue the business in conformity with the LLC agreement; claims premised on the opposing faction’s exercise of contractual rights were dismissed.


Fisk Ventures, LLC v. Segal, 2009 WL 73957 (Del. Ch. 2009)