Law360 (March 20, 2020, 4:46 PM EDT) -- The Delaware Chancery Court has largely rejected efforts to bump to arbitration an 11-count, $3 million complaint accusing an LLC partner and its associates in a fundraising joint venture of stripping staff and assets from the joint business when it began prospering, leaving the other member behind.
Vice Chancellor Morgan T. Zurn found on Thursday that an arbitration umbrella in the LLC joint venture pact between New York-based 360 Campaign Consulting LLC and Wyoming-headquartered Diversity Communication LLC only fully covered two counts and part of a third.
The balance of the complaint remained a matter for the Chancery Court, including one count accusing Diversity’s initially anonymous, Washington, D.C.-based lone member — Philip D. Radford — of aiding and abetting breaches of fiduciary duty. But those counts were stayed pending the outcome of arbitration.
“The structure of the LLC agreement underscores the conclusion that the LLC agreement does not mandate arbitration for all disputes,” Vice Chancellor Zurn wrote. “Had the parties to the LLC agreement sought to submit disputes between members, managers, and officers to arbitration, they easily could have contracted to do so. Accordingly, I will not expand the arbitration provision beyond its terms.”
In the complaint, Clayt Freed, sole member and manager of 360 Campaign Consulting, sought at least $3 million in damages as well as legal costs for Diversity’s alleged conspiracy to draw off the assets and employees of the joint venture — The Outreach Team, or TOT — into a third and entirely different fundraising entity, Grassroots Team LLC.
The joint venture was described as a face-to-face fundraising and canvassing operation, formed in 2017 and operating successfully until late 2019 and the alleged hijacking of its staff and work.
Although the initial complaint and caption never named the “individual known as Diversity principal,” a transcript of a dismissal hearing and Vice Chancellor Zurn’s decision repeatedly referred to Radford, identifying him as Diversity’s lone member.
Attorney lists on the docket and court documents also listed Radford as the only other defendant, in addition to Steven Rufo who was accused of joining in the exodus from TOT.
Freed said in 360’s complaint that TOT undertook successful fundraising campaigns for Amnesty International and The Humane Society, among others. The joint venture was allegedly undone when TOT orchestrated the movement of Rufo, a key TOT manager, as well as staff and resources to Grassroots.
The vice chancellor concluded after argument that the arbitration provision in the LLC agreement was narrow, but did cover claims that Diversity breached the LLC agreement by improperly transferring assets without 360’s approval, forming Grassroots to directly compete with TOT and misappropriating TOT’s confidential information. Another count directed to arbitration seeks a declaratory judgment in 360’s favor.
Freed accused Radford and Rufo of setting in motion the defection of all TOT’s managers and directors and 120 canvas staff, followed by the termination of a fundraising contract for Amnesty International USA.
The parties did not respond to requests for comment.
360 Campaign Consulting LLC is represented by Martin S. Lessner and Alberto E. Chavez of Young Conaway Stargatt & Taylor LLP, and Steven J. Cohen and Stella L. Sainty of Wachtel Missry LLP.
Diversity Communication LLC, Grassroots Team LLC, Philip Radford and Steven Rufo are represented by Raymond J. DiCamillo, Brock E. Czeschin and Megan E. O'Connor of Richards Layton & Finger PA. Steven Rufo is additionally represented by Kellie Budd of Doumar Martin PLLC.
Diversity Communication LLC, Grassroots Team LLC and Philip Radford also are represented by Mariam W. Tadros and Roya Vasseghi of Rees Broome PC.
The case is 360 Campaign Consulting LLC v. Diversity Communication LLC, et al., case number 2019-0807, in the Court of Chancery of the State of Delaware.
--Editing by Jack Karp.