Kuroda v. SPJS Holdings, LLC

Delaware Court of Chancery · 2009 · Corporations

971 A.2d 872 (2009)

Updated August 22, 2026

CorporationsLLC agreementsbreach of contractbusiness tortsDelaware LLCRule 12(b)(6)contract ambiguitymember liability

Facts

Kuroda was a non-managing member of SPJS Holdings and provided investment advisory services to defendants' Japan-focused investment enterprise from 2002 to 2006. He alleged that defendants failed to pay him incentive allocations and the remaining 10% of his investment capital account under the SPJS Holdings LLC Agreement, and that they issued him a 2006 Schedule K-1 assigning him income he allegedly was not paid. He also alleged that individual defendants threatened baseless litigation, spread misleading information about his departure, and interfered with business opportunities connected to Fugen, a new investment fund he helped form. The challenged claims turned on whether the LLC agreement permitted claims against the managing members and whether the complaint adequately pleaded damages and independent tort elements.

Issue

Whether the complaint stated viable claims against the managing-member signatories for breach of the LLC agreement, and whether plaintiff adequately pleaded damages and the required elements for his tax-allocation, tortious interference, implied covenant, conversion, unjust enrichment, and civil conspiracy claims. Also at issue was whether those non-contract claims were barred because the parties' relationship was governed by contract or because the alleged harms were derivative or conclusory.

Rule

A Delaware breach of contract claim requires a contract, breach, and resultant damages. On a motion to dismiss, ambiguous contract language must be construed in the plaintiff's favor, so managing-member signatories to an LLC agreement are not dismissed where the agreement can reasonably be read to permit liability beyond liability incurred solely by reason of member status. Tortious interference with contract requires that the defendant be a stranger to the contract and business relationship, which is not satisfied by agents acting within the scope of authority; tortious interference with prospective economic advantage requires a reasonable probability of a business opportunity, intentional interference, proximate causation, and damages, and a member must show direct personal injury independent of injury to the entity. The implied covenant requires a specific implied contractual obligation and denial of a contractual benefit, cannot override express terms, conversion generally does not lie for money or where the claim merely duplicates contract rights, unjust enrichment is unavailable when an express contract governs, and civil conspiracy must rest on an independently actionable underlying wrong.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

Redwood Harbor Ventures, LLC, a Delaware LLC based in Seattle, has an operating agreement signed by the company, two managing members, and a non-managing member, Elena Park. The agreement says company debts are solely those of the company and that no member is personally liable "solely by reason of being a member," but another provision states members are not liable to each other for "any action or inaction" unless it involves bad faith or willful misconduct. Elena sues the two managing-member signatories in Delaware for failing to make a distribution allegedly required by the agreement, and they move to dismiss.

How should the court most likely rule on the motion to dismiss the contract claim against the managing members?

Explanation. On a Rule 12(b)(6) motion, ambiguous LLC agreement provisions are construed in the nonmovant's favor. Language insulating members from liability "solely by reason of being a member" does not necessarily bar liability for the member's own conduct under the agreement, and a separate provision referring to liability for members' "action or inaction" may suggest member-to-member liability remains possible. Because the agreement is reasonably susceptible to that reading, dismissal is improper. (Derived from Kuroda v. SPJS Holdings, LLC (2009).)