The Delaware Court of Chancery denied AM General’s motion for summary judgment regarding one of the counts in an action that accused defendants of making investments prohibited by the operating agreement of a jointly-owned limited liability company (“LLC”). These investments allegedly exposed the LLC to liability arising from the federal Employee Retirement Income Security Act (“ERISA”).
One section of the agreement bestowed some discretion regarding investment activities, while another section “indicated their clear intent to place a blanket prohibition on certain other investment activities to prevent the risks of unintentionally triggering ERISA liability[.]” Given the clarity of the prohibition, which was broken out in a separate “schedule” defining prohibited investments, the Court held the agreement was not ambiguous.
Summary judgment was denied, however, because the only evidence AM General had was the defendants’ own admission in a compliance report of a “possible violation” of the investment prohibition. Without additional evidence, the Court was not persuaded that a reasonable fact-finder would conclude that the challenged investments were prohibited by the LLC agreement.