In re GR BURGR, LLC, C.A. No. 12825-VCS (Del. Ch. Aug. 25, 2017) (Slights, V.C.)
In this memorandum opinion, the Court of Chancery dissolved a limited liability company owned by British celebrity chef Gordon Ramsay and his business partner Rowen Seibel, which operated a gourmet burger restaurant in the Planet Hollywood Casino in Las Vegas, Nevada, because the two parties were deadlocked and it was “not reasonably practicable” for them to continue operating the business in conformity with the LLC agreement.
Petitioner GR US Licensing, LP (“GRUS”), an entity owned by Ramsay, and Seibel formed GR BURGR, LLC (“GRB”), with each being 50% owners, for the purpose of developing and operating gourmet burger-themed restaurants. All decisions made by GRB had to be unanimous between the two owners, and the LLC agreement did not offer a mechanism by which to break a deadlock. GRB’s only revenue-generating asset was a licensing agreement with Caesars Entertainment Corp. (“Caesars,” and the agreement, “Caesars Agreement”), wherein GRB licensed certain trademarks and other intellectual property owned by Ramsay for Caesars’s use in a burger-themed restaurant in the Planet Hollywood Casino.
Because Caesars operates a highly-regulated business that depends on licenses issued by the Nevada Gaming Commission, Caesars conditioned the rights of the Caesars Agreement on GRB and its members, managers, and affiliates not being “Unsuitable Persons,” with such determination to be made at Caesars’s sole discretion. If Caesars were to determine a party to be unsuitable, the parties were obligated to terminate the relationship at issue or Caesars would terminate the Caesars Agreement.
In 2016, Seibel was convicted of a felony tax-related offense. Following his sentence, Caesars notified GRB that Seibel was an Unsuitable Person and demanded that GRB terminate its relationship with Seibel. When GRUS requested that Seibel terminate its relationship with GRB, Seibel refused. In September, 2016, Caesars terminated the Caesars Agreement.
GRUS filed a petition with the Court of Chancery seeking judicial dissolution. Seibel opposed dissolution as a matter of equity, arguing that GRUS was using the dissolution to usurp a business opportunity by ousting Seibel from GRB. GRUS moved for judgment on the pleadings.
The Court explained that, pursuant to Section 18-802, a court could dissolve an entity when it is “not reasonably practicable to carry on the business in conformity with the limited liability company agreement.” To determine whether it is “not reasonably practicable,” a court should consider: 1) whether the member’s vote is deadlocked; 2) whether the operating agreement gives a means to break the deadlock; and 3) whether, due to the financial condition of the company, there is any effective business to operate. While judicial dissolution is an extreme remedy of last resort, it is reserved for situations where the management of the LLC is “so dysfunctional” that it is no longer practicable to operate the business, such as a voting deadlock, or where the defined purpose of the entity has become impossible to fulfill.
The Court found that the deadlock at GRB was insurmountable. Ramsay and Seibel were no longer on speaking terms and they no longer made decisions for GRB. Such dysfunction had left GRB in a petrified state. Because all decisions of GRB required unanimity and GRB’s LLC agreement provided no mechanisms to break the deadlock, GRB was hopelessly deadlocked. The Court also found the unbreakable deadlock could be the basis for dissolution even though GRB still engaged in marginal operations. Seibel’s qualification as an Unsuitable Person and his subsequent refusal to disassociate from GRB left GRB stripped of its only revenue-generating asset. The Court accordingly held that it was “not reasonably practicable” for GRUS and Seibel to carry on GRB “in conformity with [the] limited liability company agreement” and granted the dissolution.
Although Seibel argued that the Court should deny the dissolution because Ramsay inequitably used the dissolution to take the burger-themed restaurant business for himself by disenfranchising Seibel, the Court found this argument unpersuasive. Ramsay was not using the dissolution proceeding in bad faith and Seibel could not point to any “specific future” business opportunity that GRUS or Ramsay were seeking to exploit beyond Seibel’s baseless allegation that Ramsay may, at some point, engage in other burger ventures using Ramsay’s name and likeness to capitalize on his celebrity status. The Court found that indefinitely locking Ramsay into a failed joint venture and thereby precluding him from ever engaging in a business that resembles GRB “would be the antithesis of equitable.”