Repurchase Option in LLC Agreement Tied to Nondisparagement Provision Does Not Violate the Absolute Litigation Privilege
In this recent decision from the Delaware Court of Chancery, Seva Holdings v. Octo Platform Equity Holdings, the court considered whether a membership interest repurchase right under an LLC agreement triggered by breach of a nondisparagement restriction was enforceable, or whether the repurchase scheme violated the absolute litigation privilege.
October 23, 2024 at 12:00 PM
5 minute read
ContributorsDelaware upholds parties' freedom of contract. This is also a guiding principle in Delaware's alternative entity statutes, including Delaware's Limited Liability Company Act. However, the "primacy" of freedom of contract will yield, in certain circumstances, to other countervailing public policy concerns. One area where this tension is playing out before Delaware courts is in the context of restrictive covenants written into alternative entity governing agreements, pitting contract law against other bodies of law.
In this recent decision from the Delaware Court of Chancery, Seva Holdings v. Octo Platform Equity Holdings, C.A. No. 2022-0437-PRW (Del. Ch. Aug. 29, 2024), the court considered whether a membership interest repurchase right under an LLC agreement triggered by breach of a nondisparagement restriction was enforceable, or whether the repurchase scheme violated the absolute litigation privilege. Specifically, the repurchase right triggered after one of the member's filed lawsuits containing allegedly defamatory content. Reasoning that the repurchase right did not prevent or "chill" litigation, the Court of Chancery held that, in this instance, the freedom of contract prevailed over the competing absolute litigation privilege policy.
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