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TravelCenters of America LLC v. Brog

By Harvard Law School Program on Corporate Governance

Chancellor Chandler in litigation captioned TravelCenters of America LLC v. Brog, et al., C.A. No. 3516-CC decided, among other issues, two significant legal questions worthy of broader publication. Since both rulings are contained in memorandum opinions, they will not be reported officially. The first ruling was contained in a pre-trial memorandum opinion and dealt with the admissibility of a law professor?s expert testimony on matters of state and federal law. The second, contained in a bench memorandum delivered at the end of the trial, decided whether provisions contained in an LLC Agreement were required to comport with concepts of ?good corporate governance.?

I. Law Professor Testimony
In the pre-trial ruling, the Chancellor held that expert testimony from a law professor (a) could not be presented on the question as to whether, under Delaware law, the LLC?s provisions regarding advance notice were consistent with good corporate governance practices but (b) could be presented as to whether the Notice complied with the Agreement?s incorporation of federal securities law disclosure. The first holding was based on an unreported opinion in the Court?s earlier Disney litigation which had held that “‘in this Court, witnesses do not opine on Delaware corporate law.” The pre-trial ruling foreshadowed the result of the case in chief by stating that: “Delaware does not impose a legal requirement on LLCs to draft their bylaws to be consistent with some abstract notice of good corporate governance. LLCs are creatures of contract designed to afford the maximum amount of freedom of contract, private ordering and flexibility to the parties involved.”

The Court did allow expert testimony (a) on the requirements of federal securities law and, (b) citing an unreported opinion in the Court?s Wells Fargo v. First Interstate Banking litigation, as to the materiality of omissions as measured by the standards of federal securities law. Wells Fargo, relying on TSC v. Northway, had held that ?issues of materiality are generally held to be mixed questions of law and fact but predominantly questions of fact.?

The pre-trial ruling is available here.

II. LLC Agreement Provisions
In the case in chief, the Chancellor granted TravelCenters? declaratory judgment that the activist stockholder plaintiff?s notice of intended nomination of board members at the annual meeting (the ?Notice?) was contrary to the LLC Agreement and ?of no force or effect.?

The Court found that the Notice violated a requirement in the Agreement that such notices disclose all the information that the Exchange Act would require to be disclosed in a proxy solicitation. The decision was based on the legal proposition that LLC?s are ?creatures of contract? and are not limited by general rules applicable to corporate governance. Since valid notice was required for the nominations to be accepted at the meeting, the management slate would be expected to be unopposed.

The bench memorandum is available here.

Full post as published by The Harvard Law School Corporate Governance Blog on April 15, 2008 (boomark / email).