In The Renco Group, Inc. v. MacAndrews AMG Holdings LLC, C.A. No. 7668-VCN (Del. Ch. Jan. 15, 2013), the Court of Chancery ruled on whether to grant The Renco Group, Inc.’s (“Renco”) motion seeking expedited discovery and the scheduling of a hearing on its motion for a preliminary injunction. The motion was opposed by Defendant MacAndrews AMG Holdings, LLC (“MacAndrews”), which is the managing member of AM General Holdings LLC (“Holdco”).
Renco has asserted that MacAndrews has and continues to violate the LLC agreement of Holdco, of which each party is a shareholder, resulting in irreparable harm to Renco, including an allegation that MacAndrews caused Holdco to make an improper quarterly tax distribution to MacAndrews.
According to the Court, the burden on a plaintiff in seeking an expedited proceeding is not high. Quoting In re Int’l Jensen Inc. S’holders Litig., 1996 WL 422345, at *1 (Del. Ch. July 13, 1996), the Court indicated that: “‘A party’s request to schedule an application for a preliminary injunction, and to expedite the discovery related thereto, is normally routinely granted. Exceptions to that norm are rare.’” The Court further stated that “‘A plaintiff need only articulate a “sufficiently colorable claim and show a sufficient possibility of a threatened irreparable injury, as would justify imposing on the defendants and the public the extra (and sometimes substantial) costs of an expedited preliminary injunction proceeding.’”
Renco alleged that (i) MacAndrews wrongly received a distribution from Holdco without making a determination of the value of the Revalued Capital Accounts pursuant to the LLC agreement, and (ii) its invocation of the appraisal process in the LLC agreement prohibits Holdco from making future distributions until the appraisal is complete. Based on the allegations in the Complaint, the Court held that Renco met its burden to expedite the proceedings.
While MacAndrews asserted defenses to these arguments, the Court held that the burden to establish a colorable claim is “not high”, and in light of the low pleading threshold and the Complaint filed, found that Renco pleaded a colorable claim as to both counts. Moreover, the Court held that Renco showed sufficient possibility of threatened irreparable harm. The Holdco Agreement specifically waived the irreparable harm requirement for purposes of a preliminary injunction. Accordingly, the Court entered an order expediting this matter pursuant to Renco’s request.