Omnibus Purpose Clauses

In Seneca Investments LLC v. Tierney, C.A. No. 3624-CC (Del. Ch. Ct. September 23, 2008), Chancellor Chandler dismissed a petition for judicial dissolution under Sec. 18-802 of the Delaware LLC Act.  Section 18-802 allows judicial dissolution when "it is not reasonably practicable to carry on the business in conformity with a limited liability company agreement."  The opinion has already been analyzed by both Francis G.X. Pileggi (Delaware Corporate and Commercial blog) and Peter A. Mahler (New York Business Divorce blog).  The opinion turns on

• the omnibus purpose clause in the LLC's certificate of formation,
• the ownership by the LLC of interests in other businesses, and
• a management structure under the LLC agreement that was still functioning.

The result is not particularly surprising.  As I tell my classes, requests for judicial dissolutions speak to the discretion of court--Section 18-802 provides that the court "may" order dissolution.  Even where management is deadlocked, courts may not order dissolution if the company can still function.

I recently discussed Chancellor Chandler's focus, in Armisaleh v. Board of Trade, on frustration of purpose in claims of breach of the contractual implied covenant of good faith and fair dealing.    Add in Chandler's emphasis in Seneca Investments, LLC on the flexibility of omnibus purpose clauses--and we've all used them, and I wonder whether such clauses are appropriate in a UBE context, where the implied covenant may be the only protection available to minority owners.

posted by Gary Rosin