Tamer Hassanein v. NTO Fund I

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE TAMER HASSANEIN, Plaintiff, v. C.A. No. 2025–0299–DH NTO FUND I, NICHOLA ELIOVITS, and DERMBIONT, INC., Defendants. OPINION DENYING RULE 12(B)(6) MOTIONS TO DISMISS Date Submitted: July 8, 2026 Date Decided: August 4, 2026 David E. Wilks, D. Charles Vavala, Jordan Hicks, WILKS LAW, LLC, Wilmington, Delaware; Attorneys for Plaintiff Tamer Hassanein. Elizabeth S. Fenton, Brittany M. Giusini, BARNES & THORNBURG LLP, Wilmington, Delaware; Attorneys for Defendants NTO Fund I, LLC, Nichola Eliovits, and DermBiont Inc. LASTER, V.C.  A co-founder needed a short-term loan of around $2 million to fund his business. He planned to repay it in six months. His friend agreed to provide the loan. Five years later, the friend still has not been repaid. In this action, the friend seeks to recover his money. The matter is complicated because the friend did not loan the money directly to the co-founder or his business. Instead, the friend loaned the money to a newly created, special-purpose vehicle that took the form of a manager-managed limited liability company (the “Company”). Its LLC agreement designated the co-founder as its sole manager. The Company’s LLC agreement identified a date six months later as the “Maturity Date” and required that the co-founder make a capital contribution to the Company—on or before the Maturity Date—in an amount sufficient to repay the loan. The LLC agreement required the Company to use the co-founder’s capital contribution to repay the loan. The co-founder never made the required capital contribution, and the Company never repaid the loan. Four years later, the friend gave notice that the loan was past due and demanded repayment. The Company still did not pay. The friend filed this lawsuit. He claimed breach of the LLC agreement by the Company for failing to repay the loan. He claimed breach of the LLC agreement by the co-founder for failing to make the capital contribution that would have enabled the Company to repay the loan. He also sued under a section of the Delaware Limited Liability Company Act (the “LLC Act”) that authorizes a creditor to enforce a member’s obligation to make a capital contribution. The Company and the co-founder moved to dismiss the complaint under Rule 12(b)(6). This opinion denies their motion. I. FACTUAL BACKGROUND The facts are drawn from the currently operative pleading and the documents it incorporates by reference. At this stage of the case, the complaint’s well-pled allegations are taken as true, and the plaintiff receives the benefit of all reasonable inferences.1 A. The Loan In 2021, DermBiont, Inc. needed capital. Nichola Eliovits co-founded DermBiont and was one of its principals. Eliovits asked his friend Tamer Hassanein for a six-month loan. His friend agreed. For reasons that remain unclear at the pleading stage, Eliovits and Hassanein did not paper a loan between themselves. Nor did they paper a loan between Hassanein and DermBiont. Instead, they formed the Company, formally known as NTO Fund I, LLC, to act as a financial intermediary. As they envisioned the deal, Eliovits and Hassanein would each own half of the Company. Hassanein would loan money to the Company, which would invest the 1 Citations in the form “Compl. ¶ ___” refer to paragraphs of the verified amended complaint, which is the operative pleading. Dkt. 13. Citations in the form “Ex. ___ at ___” refer to exhibits to the complaint. Id. 2 money in DermBiont. In return, DermBiont would issue the Company an equity stake. Hassanein’s loan would mature and become due after six months. Before the due date, Eliovits would make a capital contribution to the Company that would enable the Company to repay the loan. No interest would accrue on the loan during the first six months. After six months, simple interest would accrue at 6% per annum. In the end, Eliovits and Hassanein would own stakes in the Company, which would own equity in DermBiont. As a matter of economic substance, Eliovits would have contributed additional capital to DermBiont, but Hassanein would have facilitated the contribution by fronting the capital and being repaid. For his trouble, Hassanein would end up co-owning an indirect interest in DermBiont, held through the Company. B. The LLC Agreement Eliovits and Hassanein memorialized their deal in the Company’s LLC agreement (the “LLC Agreement”).2 The LLC Agreement has the look and feel of a document drafted without lawyer input, and it contains many inconsistencies.3 2 Ex. A (cited as “LLCA”). 3 One of the LLC Agreement’s awkward conventions involves framing terms like the Class B Loan, the Class B Member, and the Class A Member (each defined below) in the plural. There is but one Class B Loan, one Class B Member, and one Class A Member. When quoting the LLC Agreement, this decision replaces the plural terms with singular versions. For legibility, the decision does not include brackets in the quotations to reflect those minor edits. 3  The LLC Agreement documented Eliovits’ ownership of 300,000 uncertificated Class A Units and his status as the sole Class A Member. The LLC Agreement documented Hassanein’s ownership of 300,000 uncertificated Class B Units and his status as the sole Class B Member. The LLC Agreement provided that the units would receive their “Pro Rata Share” of any distribution but defined that term in a non-pro- rata manner to mean 75% to the Class A Member and 25% to the Class B Member.4 The LLC Agreement created a manager-managed governance structure. Eliovits was the sole manager, giving him control over the Company’s business and affairs.5 The LLC Agreement nominally provided for the units to have “identical voting rights,”6 but it cemented Eliovits’s control by providing that the manager only could be removed for cause and only by the vote of the Class A Units.7 The LLC Agreement recited that Eliovits and Hassanein each made an initial capital contribution to the Company of $100.8 Each member also had to make an additional capital contribution. 4 LLCA, art. I (definition of “Pro Rata Share”). 5 Id. § 6.1(a). 6 Id. § 3.1. 7 Id. § 6.2(b) 8 Id. § 3.1(b) (“The Members agree that each of the Members has made the initial capital contributions to the Company in the amount set forth opposite each member’s name in Exhibit A.”). The LLC Agreement also provided that “[e]ach Member hereby covenants and agrees to make an initial capital contribution to the Company in exchange for the issuance of Units.” Id. § 3.1(f). Those sections treat the 4  The LLC Agreement recited that Hassanein had made an additional contribution in the form of a loan to the Company in the amount of $1,924,417.78 (the “Class B Loan”).9 The LLC Agreement specified the “Maturity Date” for the loan as a date six months after funding. If the Company did not repay the Class B Loan by the Maturity Date, then simple interest would accrue at a rate of 6% per annum on the unpaid amount.10 The LLC Agreement required that the holder of the Class A Units—namely Eliovits—make a capital contribution on or before the Maturity Date in an amount sufficient to repay the Class B Loan plus any accrued interest (the “Contribution initial contributions differently. The first treats them as already having been made. The second treats them as obligations to be fulfilled. 9 Id. § 3.1(e)(ii) & Ex. A. Those sections treat the Class B Loan differently in the same way that the LLC Agreement treats the initial contributions differently. Exhibit A to the LLC Agreement identifies Hassanein as an existing member, recites the “Amount of Initial Capital Contribution” as “$100 plus $1,924,417.78 of Class B Loans [sic],” and identifies his “Number and Class of Units” as “300,000 Class B.” Id. Ex. A. Under that framing, Hassanein has already contributed both $100 and the Class B Loan in return for the Class B Units that make him the Class B Member. Section 3.1(e)(ii) frames the Class B Loan as an obligation “of the Class B Units” to be made by the “Class B Member.” Id. § 3.1(e)(ii). Under that framing, Hassanein already has his units and is the Class B Member, but he still has an obligation to make the Class B Loan. 10 Id. § 3.1(e)(ii). 5 Requirement”).11 The LLC Agreement required that the Company use the capital contribution to repay the Class B Loan (the “Repayment Obligation”).12 C. The Company Fails To Repay The Class B Loan. On September 21, 2021, Hassanein loaned $1,924,417.78 to the Company. Eliovits instructed Hassanein to send the money directly to DermBiont rather than to the Company, so he did. The Maturity Date was therefore March 21, 2022. The Contribution Requirement mandated that Eliovits make a capital contribution sufficient to repay the Class B Loan by the Maturity Date. Eliovits did not make the required capital contribution by the Maturity Date. The Contribution Requirement is mandatory and unconditional. By failing to satisfy it, Eliovits breached the Contribution Requirement. The Company did not repay the Class B Loan on the Maturity Date. Beginning on the Maturity Date, the Class B Loan started accruing simple interest at 6% per annum. Since the Maturity Date, Eliovits still has not satisfied the Contribution Requirement. Instead, he has made sporadic payments on the Class B Loan directly to Hassanein. 11 Id. § 3.1(d)(ii). 12 Id. § 3.2 (“Immediately upon receipt of the capital contributions from the Class A Member under Section 3(d)(ii), the Company shall use those amounts to repay to the Class B Member the Class B Loan”). 6 D. This Litigation On March 9, 2025, four years after making the Class B Loan, Hassanein demanded full repayment from the Company. When the Company did not comply, Hassanein filed this lawsuit. As of July 21, 2025, the date of the operative complaint, the amount due on the Class B Loan was $1,728,976.30. The complaint contains four counts. • Count I asserts a claim for breach of the LLC Agreement against the Company based on its failure to fulfill the Repayment Obligation by satisfying the Class B Loan on or before the Maturity Date. • Count II asserts a claim for breach of the LLC Agreement against Eliovits based on his failure to satisfy the Contribution Requirement on or before the Maturity Date. • Count III asserts a claim under Section 18-502 of the LLC Act against Eliovits based on his failure to satisfy the Contribution Requirement on or before the Maturity Date. • Count IV asserts a claim for unjust enrichment against DermBiont. The defendants moved to dismiss the complaint in its entirety. The case was assigned to a magistrate judge, who issued a report recommending dismissal of all four counts.13 Hassanein noticed exceptions to the recommendations on Counts I, II, and III. He did not notice an exception to the recommended dismissal of Count IV. As a result, the dismissal of Count IV became an order of the court, and DermBiont is no longer a party to the case. 13 Hassanein v. NTO Fund I, LLC (Report), 2026 WL 206873 (Del. Ch. Jan. 27, 2026). 7  II. STANDARD OF REVIEW When a party takes exceptions to a magistrate judge’s report, a constitutional judicial officer must review the matter de novo.14 This decision addresses de novo the Company’s motion to dismiss Count I and Eliovits’s motion to dismiss Counts II and III. For the reasons that follow, this decision must disagree with the magistrate judge’s recommendation, which is not adopted as an order of the court. The motions to dismiss are denied. All three counts can proceed past the pleading stage. III. LEGAL ANALYSIS The Company and Eliovits moved to dismiss the counts against them under Rule 12(b)(6). That motion tests whether the complaint states a claim on which relief can be granted. When considering a Rule 12(b)(6) motion, “a trial court should accept all well-pled factual allegations in the Complaint as true, accept even vague allegations in the Complaint as ‘well-pled’ if they provide the defendant notice of the claim, [and] draw all reasonable inferences in favor of the plaintiff.” 15 The court should “deny the motion unless the plaintiff could not recover under any reasonably conceivable set of circumstances susceptible of proof.”16 “Our governing 14 DiGiacobbe v. Sestak, 743 A.2d 180, 184 (Del. 1999). 15 Cent. Mortg. Co. v. Morgan Stanley Mortg. Cap. Hldgs. LLC, 27 A.3d 531, 536 (Del. 2011). 16 Id. 8 ‘conceivability’ standard is more akin to ‘possibility,’ while the federal ‘plausibility’ standard falls somewhere beyond mere ‘possibility’ but short of ‘probability.’”17 A. Count I: The Claim Against The Company For Breach Of The LLC Agreement Count I asserts that the Company breached the LLC Agreement by failing to fulfill the Repayment Obligation by repaying the Class B Loan on or before the Maturity Date. Count I states a claim on which relief can be granted.18 1. Governing Principles of Law Count I asserts a claim for breach of the LLC Agreement. Delaware decisions frequently describe LLCs as “creatures of contract,”19 but that overstates matters. In 17 Id. at 537 n.13. 18 I do not believe that this decision addresses any issues sua sponte, but it does go into greater detail than the parties’ briefs and cites authorities they did not reference. “When an issue or claim is properly before the court, the court is not limited to the particular legal theories advanced by the parties, but rather retains the independent power to identify and apply the proper construction of governing law.” Kamen v. Kemper Fin. Servs., Inc., 500 U.S. 90, 99 (1991). To that end, this section of the decision elaborates sua sponte on two issues. The first involves the reasons why LLCs are primarily creates of contract rather than purely creatures of contract. I have previously summarized those reasons, but I have not previously taken the time to list them. Both the defendants and the magistrate judge relied heavily on the “creatures of contract” concept, so I thought it helpful to elaborate. The second is the distinction between contributing capital in return for equity, on the one hand, and making a loan to an entity, on the other. Although the parties advance more abstract arguments based on the language of the LLC Agreement, that foundational distinction lies at the heart of the case. It is also important to recognize that some forms of debt, like the Class B Loan in this case, carry advantageous terms that imply a bundled equity contribution. 19 TravelCenters of Am., LLC v. Brog, 2008 WL 1746987, at *1 (Del. Ch. Apr. 3, 2008); accord, e.g., Henson v. Sousa, 2015 WL 4640415, at *1 (Del. Ch. Aug. 4, 2015) (“LLCs, as this Court has repeatedly pointed out, are creatures of contract.”); Touch 9 reality, LLCs are primarily creatures of contract,20 and the adverb “primarily” should not be overlooked. There are “core attributes of the LLC” that are not contractual and which “only the sovereign can authorize.”21 An LLC agreement cannot be an exclusively private contract among its members “precisely because the LLC has powers that only the State of Delaware can confer.”22 And whatever one’s views might historically have been on whether the LLC Act took a purely contractual approach, of It. Salumeria & Pasticceria, LLC v. Bascio, 2014 WL 108895, at *4 (Del. Ch. Jan. 13, 2014) (“[R]ecognizing that LLCs are creatures of contract, I must enforce LLC agreements as written.”); Kuroda v. SPJS Hldgs., LLC, 971 A.2d 872, 880 (Del. Ch. 2009) (“Limited liability companies are creatures of contract . . . .”); see Fisk Ventures LLC v. Segal, 2008 WL 1961156, at *8 (Del. Ch. May 7, 2008) (“In the context of limited liability companies, which are creatures . . . of contract, those duties or obligations [among parties] must be found in the LLC agreement or some other contract.” (footnote omitted)). The Report cited the “creatures of contract” formulation. Report at *2. 20 See In re Seneca Invs. LLC, 970 A.2d 259, 261 (Del. Ch. 2008) (“An LLC is primarily a creature of contract . . .”). 21 In re Carlisle Etcetera LLC, 114 A.3d 592, 605–06 (Del. Ch. 2015); see 6 Del. C. §§ 18-201, 18-303. 22 Carlisle, 114 A.3d at 606; see Feeley v. NHAOCG, LLC, 62 A.3d 649, 659–63 (Del. Ch. 2012); Auriga Cap. Corp. v. Gatz Props., LLC, 40 A.3d 839, 849–56 (Del. Ch.), aff’d, 59 A.3d 1206 (Del. 2012). Scholars have explained why LLCs are not purely creatures of contract. See generally Daniel S. Kleinberger, Two Decades of “Alternative Entities”: From Tax Rationalization Through Alphabet Soup To Contract As Deity, 14 Fordham J. Corp. & Fin. L. 445, 460–71 (2009) (identifying historical, jurisprudential, and policy reasons why LLCs should not be regarded as purely contractual entities); Sandra K. Miller, The Best of Both Worlds: Default Fiduciary Duties and Contractual Freedom in Alternative Business Entities, 39 J. Corp. L. 295, 315–24 (2014) (reviewing empirical studies and presenting data about alternative entity agreements that undermine premises of purely contractarian approach). 10 the General Assembly in 2013 adopted an amendment to the LLC Act inconsistent with that view.23 There are at least a score of reasons why LLCs are not wholly contractual and are primarily creatures of contract.24 They include: • Requiring as a condition to the formation of an LLC agreement that the parties establish an LLC through a filing with the Delaware Secretary of State and the payment of a filing fee, contrary to common-law principles of contract formation.25 23 See H.B. 126, 147th Gen. Assemb. (Del. 2013); see Miller, supra, at 314 (explaining that in Delaware, the General Assembly rejected the purely contractual view “by legislation that was signed into law on June 30, 2013”). See generally Carlisle, 114 A.3d at 605–06. 24 See Mohsen Manesh, Creatures of Contract: A Half-Truth About LLCs, 42 Del. J. Corp. L. 391 (2018) (citing a baker’s dozen reasons). After his article, the Delaware Supreme Court created another by authorizing LLC agreements to specify contractually that a transaction was incurably void. See Holifield v. XRI Inv. Hldgs. LLC, 304 A.3d 896, 926 (Del. 2023); CompoSecure, L.L.C. v. CardUX, LLC, 206 A.3d 807, 816–17 (Del. 2018). The General Assembly has since abrogated the concept of incurable contractual voidness. See 85 Del. Laws ch. 47, § 2 (2025). 25 Compare 6 Del. C.§ 18-101(9) (defining LLC agreement) with Mohsen, supra, at 407 (“Thus, in a very fundamental sense, an LLC is not a ‘creature of contract’ because it cannot be created by contract alone. It must be created through formal action, as dictated by statute, in coordination with the state, namely the filing of a certification of formation.”). Any contract made before formation is not, strictly speaking, an LLC agreement because an “LLC agreement” is “any agreement . . . of the member or members as to the affairs of a [LLC] and the conduct of its business.” 6 Del. C.§ 18-101(9). An LLC does not exist until a certificate of formation has been filed. 6 Del. C. § 18-201(b) (“A [LLC] is formed at the time of the filing of the initial certificate of formation in the office of the Secretary of State or at any later date or time specified in the certificate of formation if, in either case, there has been substantial compliance with the requirements of this section.”). There can be no “member or members” until the LLC exists. See Robert L. Symonds, Jr. & Matthew J. O’Toole, Delaware Limited Liability Companies § 4.05, (2025). The statutory definition of an LLC agreement thus requires the preexistence of a duly formed LLC, which requires steps beyond what is required for ordinary contract formation. 11 • Requiring payment of an annual fee to the Delaware Secretary of State to maintain the LLC and keep its LLC agreement in force while otherwise making the LLC’s existence presumptively perpetual, all contrary to common- law principles of contract duration.26 • Authorizing an enforceable LLC agreement with only one party, contrary to common-law principles that require at least two parties to a contract.27 • Authorizing an LLC agreement to bind parties who do not sign the agreement or otherwise objectively manifest assent, contrary to common law contractual principles of consent.28 26 Compare 6 Del. C. § 18-1108(a) (“The certificate of formation of a domestic [LLC] shall be cancelled if the [LLC] shall fail to pay the annual tax due under § 18- 1107 for a period of 3 years….”) with 17A Am. Jur. 2d Contracts § 519 (“Where a contract specifies the period of its duration, it terminates on the expiration of such period . . . Where the time for a contract’s duration is not specified, or where the language in regards thereto lacks precision, the court may inquire into the intent of the parties and supply the missing term….” (footnotes omitted)) and id. § 520 (“A contract which provides that it is to continue for a more or less indefinite period may be held to continue for a reasonable time under the circumstances. …. However, some contracts that mention no period of duration are construed as terminable at will.” (footnotes omitted)). 27 Compare 6 Del. C. § 18-101(9) (providing that the “[LLC] agreement of a [LLC] having only 1 member shall not be unenforceable by reason of there being only 1 person who is a party to the [LLC] agreement”) with Restatement (Second) of Contracts § 90 (1981) (“There must be at least two parties to a contract, a promisor and a promisee, but there may be any greater number.”) Viewing the LLC agreement as a two-party agreement involving the sole member and the LLC does not solve the problem because the sole member controls both parties. That reality means the LLC’s rights under the LLC agreement are only enforceable if the sole member allows the LLC to enforce them, rendering the contract illusory under common law principles. Mohsen, supra, at 409. 28 Compare 6 Del. C.§ 18-101(9) (“A member or manager of a limited liability company or an assignee of a limited liability company interest is bound by the limited liability company agreement whether or not the member or manager or assignee executes the limited liability company agreement. A limited liability company (including any protected series or registered series thereof) is not required to execute its limited liability company agreement. A limited liability company (including any protected series or registered series thereof) is bound by its limited liability company 12 • Authorizing an LLC agreement to bind a manager upon designation in the LLC agreement, without any requirement that the manager have assented to or even know about the LLC agreement, contrary to common law contractual principles requiring both.29 • Permitting amendments to an LLC agreement with only member consent and without the consent of non-member parties like managers and assignees, contrary to the common law contractual requirement of mutual assent by all parties.30 • Providing that LLC agreements are not subject to the Statute of Frauds, something common law contracts cannot escape without legislative action.31 agreement whether or not the limited liability company (or any protected series or registered series thereof) executes the limited liability company agreement.”) with Restatement (Second) of Contracts § 17 (“the formation of a contract requires a bargain in which there is a manifestation of mutual assent to the exchange and a consideration.”). 29 Compare 6 Del. C. § 18-101(12) (defining a “manager” as “ person who is named as a manager of a limited liability company in, or designated as a manager of a limited liability company pursuant to, a limited liability company agreement or similar instrument under which the limited liability company is formed, and includes a manager of the limited liability company generally and a manager associated with a series of the limited liability company.”) with Restatement (Second) of Contracts § 18 (“Manifestation of mutual assent to an exchange requires that each party either make a promise or begin or render a performance.”). 30 Compare 6 Del. C. § 302(f) (“If a limited liability company agreement does not provide for the manner in which it may be amended, the limited liability company agreement may be amended with the approval of all of the members or as otherwise permitted by law, including as permitted by §§ 18-209(f), 18-217(f), and 18-221(e) of this title. This subsection shall only apply to a limited liability company whose original certificate of formation was filed with the Secretary of State on or after January 1, 2012.”) with Restatement (Second) of Contracts § 89 (describing requirements for amending an executory contract). 31Compare 6 Del. C. § 18-101(9) (“A limited liability company agreement is not subject to any statute of frauds (including § 2714 of this title).”) with Restatement (Second) of Contracts ch. 5 (discussing scope and content of statute of frauds). 13 • Providing for the LLC’s separate legal existence and presumptively perpetual life, something a common-law contract cannot accomplish.32 • Affording limited liability to members, managers, and assignees for third-party claims, something a common-law contract cannot provide.33 • Authorizing penalties against members34 and managers,35 contrary to the common-law rule forbidding penalty clauses.36 • Mandating that a non-managing member must always be able to sue in the Delaware courts, unless the agreement provides for arbitration, contrary to the common-law principle of freedom of contract.37 32 6 Del. C. § 18-201(b) (“A [LLC] formed under this chapter shall be a separate legal entity.”). 33 Id. § 18-303(a). 34 Id. § 18-306. 35 Id. § 18-405. 36 Restatement (Second) of Contracts § 356 cmt. a (“The central objective behind the system of contract remedies is compensatory, not punitive. Punishment of a promisor for having broken his promise has no justification on either economic or other grounds and a term providing such a penalty is unenforceable on grounds of public policy.”); Restatement (First) of Contracts § 579 (Am. Law Inst. 1932) (“A bargain for a penalty for the non-performance in the future of a contractual or other duty is illegal.”); see Del. View Bay Surgical Servs., P.C. v. Swier, 900 A.2d 646, 650– 51 (Del. 2006) (evaluating whether a contractual provision requiring a $25,000 payment if either party terminated the contract early would be invalid as a penalty or enforceable as a liquidated damages provision); Restatement (Second) of Contracts § 356 (“Damages for breach by either party may be liquidated in the agreement but only at an amount that is reasonable in the light of the anticipated or actual loss caused by the breach and the difficulties of proof of loss. A term fixing unreasonably large, liquidated damages is unenforceable on grounds of public policy as a penalty.”). 37 6 Del. C. § 18-109(d). 14 • Mandating service on the registered agent or the Delaware Secretary of State as a means of serving managers and liquidating trustees, contrary to the common-law principle of freedom of contract.38 • Authorizing limitations on liability subject only to a mandate to preserve “liability for any act or omission that constitutes a bad faith violation of the implied covenant of good faith and fair dealing,” contrary to common-law principles of contract forbidding any provisions that would insulate parties from liability for bad-faith conduct generally.39 • Mandating application of the doctrine of independent legal significance, a concept foreign to common-law contract principles.40 • Contemplating default fiduciary duties for managers, managing members, and controlling members, contrary to common-law contract principles recognizing that parties to a contract ordinarily do not owe fiduciary duties to their counterparties.41 • Recognizing a claim for aiding and abetting certain breaches of LLC agreements, a concept that does not exist under the common law of contracts.42 38 Id. § 18-109(a). 39 Compare id. § 18-1101(e) with New Enter. Assocs. 14, L.P. v. Rich, 295 A.3d 520, 581 & n.235 (Del. Ch. 2023) (discussing LLC Act provision) with id. at 591–92 (collecting authorities holding that parties may not attempt by contract to protect themselves from liability for fraud or bad faith). 40 6 Del. C. § 18-1101(h). 41 Compare id. § 18-1101(c) with Blueacorn PPP, LLC v. Pay Nerd LLC, 310 A.3d 590, 594 (Del. Ch. 2024) (“The Court of Chancery generally does not apply fiduciary duty doctrine to ordinary commercial transactions.”) and Petenbrink v. Superior Home Builders, Inc., 1999 WL 1223786, at *2 (Del. Super. Nov. 1, 1999) (explaining that ordinarily a contract “will not carry with it any fiduciary obligations” but that an exception can exist when there are “facts and circumstances indicative of the imposition of trust and confidence, rather than facts and circumstances indicative of an arm’s length commercial contract.”). 42 See Mohsen, supra, at 442–43 (collecting authorities). 15 • Limiting the ability of members to sue for breach of contractual obligations by characterizing certain claims for breach of the LLC agreement as derivative, a concept that does not exist under the common law of contracts.43 • Mandating limitations on distributions, a concept that does not exist under the common law of contracts.44 • Mandating liability for improper distributions, a concept that does not exist under the common law of contracts.45 • Mandating steps to wind up an LLC’s existence and, with it, the LLC agreement, a concept that does not exist under the common law of contracts.46 • Mandating the priority of debt over equity when winding up an LLC and distributing its assets, a concept that does not exist under the common law of contracts.47 Some of these departures make LLC agreements supra-contractual by permitting LLC agreements to do more than what contract law authorizes. Others are mandatory provisions that constrain what an LLC agreement can do. The list is illustrative and not exclusive. Because LLCs are primarily creatures of contract, the first step when analyzing a dispute involving the internal affairs of an LLC is to examine the LLC agreement to see if it addresses the issue. If it does, then the contract presumptively 43 See id. at 444–45 (collecting authorities). 44 See 6 Del. C. § 18-607(a). 45 Id. §§ 18-607(b), 18-804(c). 46 See id. § 18-804(b). 47 See id. § 18-804(a)(1). 16 controls,48 unless the provision violates one of the exceedingly few mandatory provisions in the LLC Act. If the LLC agreement is silent, then the next step is to look to the LLC Act to see if one of its default provisions applies. 49 If neither source addresses the matter, then the LLC Act instructs that “the rules of law and equity . . . shall govern.”50 A claim for breach of an LLC agreement therefore starts out like any other claim for breach of contract.51 Under Delaware law, the elements of a claim for breach of contract are (1) the existence of a contractual obligation, (2) a breach of that obligation by the defendant, and (3) a causally related injury that (4) warrants a remedy.52 No one disputes that the LLC Agreement is a valid contract. Whether Count I states a claim for breach of the Repayment Obligation presents an issue of contract interpretation. Except the issues where the LLC Act specifies a departure from 48 Elf Atochem N. Am., Inc. v. Jaffari, 727 A.2d 286, 291 (Del. 1999); see Levey v. Brownstone Asset Mgmt., LP, 2014 WL 3811237, at *7 (Del. Ch. Aug. 1, 2014); Symonds & O’Toole, supra, § 1.03[A] [2], at 1–14. 49 Elf Atochem, 727 A.2d at 291; see Levey, 2014 WL 3811237, at *7; Symonds & O’Toole, supra, § 1.03[A] [2], at 1–14. 50 6 Del. C. § 18-1104. 51 See BET FRX LLC v. Myers, 2022 WL 1236955, at *4 (Del. Ch. Apr. 27, 2022). 52 AB Stable VIII LLC v. Maps Hotels & Resorts One LLC, 2020 WL 7024929, at *47 (Del. Ch. Nov. 30, 2020), aff’d, 268 A.3d 198 (Del. 2021). 17 contract law, “[t]he usual principles of contract interpretation apply to claims for breach of an LLC Agreement.”53 Under Delaware law, the purpose of contract interpretation is “to effectuate the parties’ intent.”54 Absent ambiguity, the court “will give priority to the parties’ intentions as reflected in the four corners of the agreement, construing the agreement as a whole and giving effect to all its provisions.”55 “Unless there is ambiguity, Delaware courts interpret contract terms according to their plain, ordinary meaning.”56 “Contract language is not ambiguous merely because the parties dispute what it means.”57 “To be ambiguous, a disputed contract term must be fairly or reasonably susceptible to more than one meaning.”58 “Delaware courts will not destroy or twist [contract] language under the guise of construing it.”59 “If a writing 53 BET FRX, 2022 WL 1236955, at *4. 54 Lorillard Tobacco Co. v. Am. Legacy Found., 903 A.2d 728, 739 (Del. 2006). 55 In re Viking Pump, Inc., 148 A.3d 633, 648 (Del. 2016) (internal quotation marks omitted). 56 Alta Berkeley VI C.V. v. Omneon, Inc., 41 A.3d 381, 385 (Del. 2012). 57 Id. 58 Id.; see Rhone-Poulenc Basic Chems. Co. v. Am. Motorists Ins. Co., 616 A.2d 1192, 1196 (Del. 1992). 59 Rhone-Poulenc, 616 A.2d at 1195. 18 is plain and clear on its face, i.e., its language conveys an unmistakable meaning, the writing itself is the sole source for gaining an understanding of intent.”60 “In upholding the intentions of the parties, a court must construe the agreement as a whole, giving effect to all provisions therein.”61 The Delaware Supreme Court has also instructed that “[t]he basic business relationship between parties must be understood to give sensible life to any contract.” 62 A reasonable reading therefore must be “situated in the commercial context between the parties.”63 But this principle cannot be used to override the plain language of the agreement. “While [Delaware courts] have recognized that contracts should be ‘read in full and situated in the commercial context between the parties,’ the background facts cannot be used to alter the language chosen by the parties within the four corners of their agreement.”64 60 City Inv. Co. Liquidating Tr. v. Cont’l Cas. Co., 624 A.2d 1191, 1198 (Del. 1993). 61 E.I. du Pont de Nemours & Co., Inc. v. Shell Oil Co., 498 A.2d 1108, 1113 (Del. 1985). 62 Chi. Bridge & Iron Co. N.V. v. Westinghouse Elec. Co. LLC, 166 A.3d 912, 927 (Del. 2017). 63 Id. at 926–27. 64 Town of Cheswold v. Cent. Del. Bus. Park, 188 A.3d 810, 820 (Del. 2018) (quoting Chi. Bridge, 166 A.3d at 926–27). 19  2. Is The Class B Loan A Capital Contribution? The parties’ core dispute concerns whether the Class B Loan constitutes a capital contribution or an enforceable loan. Each side cites provisions in the LLC Agreement to support its characterization, but the issue is more foundational. A loan is a form of debt that generally cannot constitute a capital contribution in return for equity. From that standpoint, describing a loan as a capital contribution makes a category error. But that is not the end of the analysis, because a loan with advantageous terms comes bundled with an implicit capital contribution. That appears to be the case with the Class B Loan. a. The Difference Between Debt And A Capital Contribution Starting at a high level, both loans and capital contributions provide capital to an enterprise, but the law treats them differently. A loan is a debt claim that has priority over equity and carries a right to repayment that the creditor can enforce. The debt claim’s upside is presumptively fixed at the amount provided plus interest. A capital contribution, by contrast, results in an equity interest. The value of that interest depends on the venture’s success, and any claim it has on the venture’s net assets comes last in priority. The capital contributor presumptively has no ability to force the entity to return his capital contribution, and contractual provisions contemplating returns of capital are subject to statutory and common law limitations. 20  Delaware entity law draws a sharp distinction between equity and debt, citing equity’s lack of a right to repayment.65 The distinction between a capital contribution in exchange for equity and a loan to the corporation figured most prominently in pre- 2004 corporate cases. Then, as now, stock with par value must be issued for consideration having a value at least equal to the par value of the shares, an amount known as its stated capital.66 Before 2004, however, the Delaware Constitution prohibited the issuance of stock “except for money paid, labor done, or personal property or leases thereof actually acquired by such corporation.”67 Under that 65 See, e.g., Frederick Hsu Living Tr. v. ODN Hldg. Corp., 2017 WL 1437308, at *12 (Del. Ch. Apr. 14, 2017) (“Delaware courts have held consistently that preferred stock is equity, not debt.”); SV Inv. Partners, LLC v. ThoughtWorks, Inc., 7 A.3d 973, 991 (Del. Ch. 2010) (contrasting preferred stock with debt), aff’d, 37 A.3d 205 (Del. 2011); In re Trados Inc. S’holder Litig., 73 A.3d 17, 39 n.8 (Del. Ch. 2013) (“[P]referred stock is senior in defined respects to common, but it is equity, not debt, and it remains subject to the statutory and common law limitations that apply to equity.”); Harbinger Cap. P’rs Master Fund I, Ltd. v. Granite Broad. Corp., 906 A.2d 218, 225 (Del. Ch. 2006) (“Even