Business Associations Keyed to Hamilton
VGS, Inc. v. Castiel
Facts
VGS, Inc. (Defendant) was controlled by David Castiel (Plaintiff), a single individual who formed VGS (Defendant) as a one-member limited liability company (LLC). Afterwards, two more entities, Sahagen Satellite and Ellipso, Inc., became members of the LLC. The LLC agreement formed a three-member board of managers with broad authority to govern the LLC. Castiel (Plaintiff), the individual owning the original member, was authorized to name and remove, two of the three managers and also acted as CEO. Castiel named himself and Tom Quinn to the board of managers, and Sahagen named himself as the third member. Sahagen and Quinn became disappointed with Plaintiff’s leadership. Sahagen eventually convinced Quinn to help him strategically move to merge the LLC into a Delaware Corporation in secret. Quinn, the appointed manager, and the disaffected third member, Sahagen, did not inform the Plaintiff, an ongoing member of the LLC’s board of managers, about their strategic move. Following the merger, the Plaintiff found himself demoted to a minority position in the new corporation. Plaintiff brought suit in equity to set aside the merger, arguing that, even though a majority of the board acted by written consent, if Plaintiff had received notice beforehand that his appointed manager contemplated action against his interests, he would have immediately tried to remove him. Plaintiff contended that because his two fellow managers (Sahagen and Quinn) acted without notice to Plaintiff under circumstances where they were aware that with notice he could have acted to protect his majority interest, they breached their duty of loyalty to him by failing to act in good faith.
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