## Facts

- Solar Cells, Inc. and True North Partners, LLC formed First Solar, LLC (a Delaware LLC) in 1999 to commercialize Solar Cells’ thin-film photovoltaic technology.
- The operating arrangement gave each party equal Class A units, while Solar Cells held all Class B units; managerial control rested with a five-member board on which True North appointed three managers and Solar Cells appointed two.
- Solar Cells contributed proprietary technology valued at $35 million; True North committed $35 million in capital and later loaned additional funds, including an additional $15 million loan with conversion and preference features.
- After First Solar failed to obtain a marketable product and could not secure an outside strategic investor, True North-controlled managers pursued a restructuring.
- The restructuring contemplated merging First Solar into an affiliated entity, First Solar Operating, LLC (FSO), within True North’s ownership structure.
- The three True North-appointed managers approved the merger by written consent on March 7, 2002, without obtaining the Solar Cells managers’ assent and without prior notice; the merger was not disclosed at the March 6, 2002 managers’ meeting.
- Solar Cells learned of the merger by fax on March 8, 2002, with the transaction presented as imminent.
- The merger used an enterprise valuation of roughly $32 million and would reduce Solar Cells’ economic interest from about 50% to about 5%, leaving True North (directly or indirectly) with the remainder.
- Solar Cells sued in the Delaware Court of Chancery for fiduciary-duty violations and sought emergency injunctive relief to prevent the merger from closing.

## Issues

1. Whether managers controlling an LLC and approving a transaction with a controller-affiliated counterparty are subject to entire-fairness review for alleged self-dealing.
2. Whether the merger-approval process (including nondisclosure to minority-appointed managers and approval by written consent) plausibly reflected unfair dealing or bad faith.
3. Whether the plaintiff demonstrated a sufficient likelihood of success and irreparable harm to warrant interim injunctive relief delaying or stopping the merger pending further proceedings.

## Decision

- The Court of Chancery granted interim injunctive relief preventing the merger from closing on the scheduled timetable.
- The court found substantial concerns that the transaction was controller-driven and conflicted, with process and pricing features raising serious questions under entire-fairness scrutiny.
- The court determined that closing the merger as planned would risk irreparable harm by permanently altering Solar Cells’ ownership and governance position before meaningful judicial review.
- The parties were permitted to proceed with limited discovery and further litigation on a fuller record.

## Legal Principles

- When a controller (or controller-appointed managers) stands on both sides of an LLC transaction, the transaction may be reviewed for entire fairness, including fair dealing and fair price, absent effective contractual modification of duties.
- Evidence of unfair dealing can include withholding material information from minority representatives, using written consents to bypass meaningful deliberation, and presenting a major restructuring as a done deal.
- In fiduciary-duty challenges to conflicted change-of-control or recapitalizing transactions, irreparable harm may be shown where consummation would materially and difficult-to-unwind alter minority ownership and governance rights.
- Interim equitable relief may be appropriate to preserve the status quo when serious fairness concerns exist and post-closing monetary relief may be inadequate.

## Conclusion

The court enjoined a controller-affiliated LLC merger at the interim stage because the approval process and valuation-based dilution raised substantial entire-fairness questions and threatened irreparable harm to the minority member’s ownership and governance position.


Solar Cells, Inc. v. True N. Partners, LLC, 2002 WL 749163 (Del. Ch. Apr. 25, 2002)