Chuang Wei Pan LLC, et al. v. Hiwin Holding LLC, C.A. No. 2025-0402-LM (Del. Ch. Aug. 29, 2025) (Mitchell, M.)

In this post-trial final report, Magistrate Mitchell (the “Court”) determined that the plaintiffs lacked standing to inspect books and records pursuant to 6 Del. C. § 18-305 (“Section 18-305”) and the LLC’s operating agreement (the “Operating Agreement”) because of statements they made that constituted a withdrawal under the Operating Agreement.

Background

Chuang Wei Pan LLC (“Chuang Wei Pan”) and Yaning Li (“Ms. Li”) (together, “Plaintiffs”) sought books and records of Hiwin Holding LLC (the “Company”).  The Company was formed by WXG Funding, Inc. (“WXG”), which is owned by Xiaogang Wang (“Mr. Wang”) and Chuang Wei Pan, which is partially owned by Ms. Li and her father, Li Pu (“Mr. Li”).

The Company’s board of directors (the “Board”) was formed in 2023, wherein Mr. Li, Mr. Wang, and Ms. Li all became Board members.  These roles complied with the later-effected Operating Agreement’s requirement that two members be designated by Chuang Wei Pan, and three members be designated by WXG.

The Operating Agreement provided for voluntary withdrawal, stating “[a]ny Member shall have the right or power to withdraw voluntarily from the Company, subject to 90 days’ notice period to other Members.”  “Voluntary withdrawal” was defined as “a Member’s attempted dissociation from the Company by means other than by a Transfer or an Involuntary Withdrawal.”  The Operating Agreement further provided that a Member who is voluntarily withdrawing is entitled to receive the fair market value of their membership rights.

Conflict first arose at an August 2024 Board meeting, in which Mr. Li proposed a financial audit of the Company.  In a Board group chat thereafter, Mr. Li sent several messages noting his displeasure with the Board’s failure to proceed with his proposed audit.  In those messages, Mr. Li noted that Chuang Wei Pan would withdraw from the Company, he would withdraw from the Board, and he proposed details about obtaining Chuang Wei Pan’s capital contribution.  Mr. Wang asserted Mr. Li also withdrew from the Company at an in person meeting shortly thereafter.  The group chat continued, and Mr. Li discussed the terms of Chuang Wei Pan’s withdrawal.  Mr. Li and Ms. Li sent a letter addressing their reasons for withdrawal.  Mr. Li also messaged the group stating, in part, that he felt forced to withdraw.  Neither Mr. Li nor Ms. Li ever submitted formal resignation letters.

Plaintiffs then sent several letters demanding the Board complete the audit and provide books and records.  The Company denied that the Board ever agreed to Mr. Li’s proposed audit, and provided some of the requested books and records.  Mr. Li also notified the Board of an upcoming Board meeting, and sent a demand letter “as Chairman of the Board” on behalf of the “Company’s Board of Directors and significant shareholder, Chuang Wei Pan” raising concerns about the financial transparency of the Company.  Mr. Li’s purported Board meeting was only attended by himself, Ms. Li, and Dapeng Li.  Plaintiffs then sent their final demand letter, invoking Section 18-305.  When the Company did not respond, Plaintiffs filed this action.

At trial, the Company asserted affirmative defenses including Plaintiffs’ lack of standing, taking the position that Mr. Li’s messages and conduct thereafter constituted a voluntary withdrawal stripping Plaintiffs of their inspection rights.  Plaintiffs denied withdrawing, and asserted that Mr. Li’s messages were meant only as a threat.

Key Issues and Holdings

The Court explained that access to books and records under Section 18-305 is “status related,” requiring the Court to determine whether Plaintiffs had voluntarily withdrawn from the positions giving them that status.  The LLC Act provides a default rule wherein a member may not withdraw before the dissolution of an entity, but the Court found the Operating Agreement modified the default rule by allowing for voluntary withdrawal at any time.  The Court described the Operating Agreement’s voluntary withdrawal provision as “broad” and not requiring a formal withdrawal process.

As evidence of withdrawal, the Court noted that after the chat messages, Mr. Li continued to discuss the process for receiving the capital contribution, indicative of withdrawal.  The Court also credited Mr. Wang’s assertion that Mr. Li withdrew Chuang Wei Pan from the Company during their in-person meeting.  Mr. Li’s subsequent messages discussing the withdrawal in the present tense further evidenced Mr. Li’s intent to withdraw.  The Court acknowledged the “imperfect facts,” including that Mr. Wang continued to call Mr. Li “chairman” after the alleged withdrawal which Mr. Wang explained was merely as a show of respect and gratitude.  The Court also held that despite Mr. Li’s attempt to call a Board meeting after the alleged withdrawal, there was sufficient evidence that Mr. Li withdrew, especially because none of the Company’s remaining Board members attended the purported Board meeting.

In light of the broad definition of voluntary withdrawal in the Operating Agreement, and Mr. Li’s conduct after the purported withdrawal, the Court held that Mr. Li had voluntarily withdrawn Chuang Wei Pan from the Company.  The Court also found that because Ms. Li’s status was inherently connected through her appointment as one of the two representatives of Chuang Wei Pan, Mr. Li’s withdrawal of Chuang Wei Pan effectuated Ms. Li withdrawal as well.  The Court held that Plaintiffs’ voluntary withdrawal meant Plaintiffs no longer had qualifying status (i.e., standing) to seek books and records under the Operating Agreement and Section 18-305. 

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