Motion to Dismiss in 1400 NORTH ORLEANS SPONSOR LLC vs LAKSHMI CAPITAL MANAGEMENT LLC et al| Trellis.Law

On May 26, 2023 a Motion-Secondary was filed involving a dispute between 1400 North Orleans Sponsor Llc, and Lakshmi Capital Management Llc, Orleans Lcm Landco Llc, for General Chancery in the District Court of Cook County.

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Hearing Date: No hearing scheduled FILED
Location: <> 10/16/2023 7:48 PM
Judge: Calendar, 13 IRIS Y. MARTINEZ
CIRCUIT CLERK
COOK COUNTY, IL
2023CH05177
IN THE CIRCUIT COURT OF COOK COUNTY, ILLINOIS Calendar, 13
24810065
COUNTY DEPARTMENT, CHANCERY DIVISION
FILED DATE: 10/16/2023 7:48 PM 2023CH05177

1400 N Orleans JV LLC, a Delaware limited )
liability company, 1400 N Orleans Property )
Company LLC, a Delaware limited liability )
company, and 1400 North Orleans Sponsor )
LLC, a Delaware limited liability company, ) Case No. 23-CH-05177
)
Plaintiffs, ) Hon. Anna Helen Demacopoulos
v. ) Calendar 13
)
Lakshmi Capital Management LLC, an )
Illinois limited liability company, and Orleans )
LCM Landco LLC, an Illinois limited liability )
company, )
)
Defendants. )

PLAINTIFFS’ RESPONSE TO DEFENDANTS’ MOTION TO DISMISS
TABLE OF CONTENTS
FILED DATE: 10/16/2023 7:48 PM 2023CH05177

I. INTRODUCTION ................................................................................................................. 1

II. PLAINTIFFS’ ALLEGATIONS COMPARED TO DEFENDANTS’ DISPUTED AND
UNSUPPORTED ISSUES OF FACT ................................................................................... 2

A. Factual Allegations in Plaintiffs’ Complaint ................................................................ 2
1. Formation and Purpose of the Company ............................................................. 2
2. Prodigy’s Financial Troubles ............................................................................... 3
3. Defendants’ Removal of Promote as Managing Member.................................... 4
4. Promote’s Arbitration to Be Reinstated as Managing Member and Orleans
LCM’s Failed Buyout of Sponsor........................................................................ 4
5. Orleans LCM’s Petition to Confirm the Arbitration Award ................................ 5
6. Lakshmi’s Bad Actions as Managing Member and Defendants’
Misappropriation of the Property ......................................................................... 6

B. Defendants’ Unsupported and Disputed Facts in Their Motion to Dismiss ................. 9

III. LEGAL ARGUMENT ......................................................................................................... 10

A. Plaintiffs’ Claims Are Not “Collaterally Estopped” and Barred by a Prior Judgment
Because Plaintiff Is Not Relitigating the Arbitration. ................................................ 10

B. Count I Should Survive Because Sponsor’s 10% Membership Interest in the
Company Could Not Have Been Taken for $0. .......................................................... 12

C. Counts II, III, and V Should Survive Because the Secret Transfer of the Property for
$10 Was Not Authorized. ........................................................................................... 12

D. Count IV Should Survive Because Sponsor LLC Is Not Making Derivative Claims. 13

E. Sponsor Has Standing to Sue Lakshmi for Breach of Contract. ................................ 13

F. Defendants Waived Their Right to Challenge Sponsor LLC’s Removal of Lakshmi
Capital as Manager. .................................................................................................... 15

EXHIBITS
Exhibit 1………………………………………………………Page 2 of Exhibit B to Complaint

Exhibit 2……………………………………………………..Affidavit of Joseph A. McMillan, Jr.

Exhibit A…………Orleans LCM LLC’s Reply In Support of Motion for Summary Judgment

Exhibit B…………………………Orleans LCM LLC’s Reply In Support of Petition for Fees

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TABLE OF AUTHORITIES

Page(s)
FILED DATE: 10/16/2023 7:48 PM 2023CH05177

Cases

Bank of N. Illinois v. Nugent,
223 Ill. App. 3d 1, 584 N.E.2d 948 (1991) ..............................................................................11

CMS Inv. Holdings, LLC v. Castle,
No. CV 9468-VCP, 2015 WL 3894021 (Del. Ch. June 23, 2015) ..........................................14

El Paso Pipeline GP Co., L.L.C. v. Brinckerhoff,
152 A.3d 1248 (Del. 2016) ......................................................................................................13

Tooley v. Donaldson, Lufkin & Jenrette, Inc.,
845 A.2d 1031 (Del. 2004) ......................................................................................................13

Statutes

735 ILCS 5/2-619 ..........................................................................................................................10

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Plaintiffs, 1400 N Orleans JV LLC (the “Company”), 1400 N Orleans Property Company

LLC (“Property LLC”), and 1400 North Orleans Sponsor LLC (“Sponsor,” and together with the
FILED DATE: 10/16/2023 7:48 PM 2023CH05177

Company and the Property LLC, “Plaintiffs”), respond to the Motion to Dismiss Pursuant to

Section 2-619.1 (the “Motion”) filed by defendants Lakshmi Capital Management LLC

(“Lakshmi”) and Orleans LCM Landco LLC (“Landco” and together with Lakshmi, the

“Defendants”), as follows:

I. INTRODUCTION

As set forth in the Complaint, the Company and Property LLC were set up solely to

purchase and develop a valuable piece of real estate in Chicago’s Old Town neighborhood (the

“Property”). The members of the Company contributed over $20 million to purchase and develop

the Property, including over $2.17 million contributed by Sponsor as shown on the face of the

agreements. After a dispute arose between the members, in October 2022 Lakshmi secretly

recorded a deed purporting to transfer the Property to Landco—a new entity that Lakshmi

controlled—for just $10. Plaintiffs first discovered this deed transfer in May 2023 and promptly

filed this action.

In the Motion, Defendants argue that Plaintiffs have no recourse for this $20+ million

fraud. Defendants’ arguments are groundless, and the Motion independently fails for each of the

following reasons:

First, the Motion is based on dozens of new alleged facts, almost none of which are

supported with a requisite affidavit or other evidence that would allow the Court to consider them.

In fact, nearly all of Defendants’ alleged facts are asserted without even a citation. And most are

directly contrary to the Complaint’s allegations. All these reasons make the alleged facts improper

for the Court to consider on a 2-619.1 motion.

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Second, the Motion argues that a years-ago arbitration award, issued before Lakshmi

secretly transferred the Property, constitutes a prior judgment about claims concerning the post-
FILED DATE: 10/16/2023 7:48 PM 2023CH05177

award transfer. This argument is self-refuting.

Third, the Complaint asserts no derivative claims, so Defendants’ argument that (non-

existent) derivative claims were not properly pleaded is irrelevant.

Fourth, Lakshmi’s attempt to abscond with the Property caused it to be removed as

manager of the Company and replaced with Sponsor. Had Lakshmi wished to challenge that

removal, it needed to file a challenge, in arbitration, within five days. Lakshmi did not do so,

thereby waiving its rights to challenge both that removal and Sponsor’s right to act as manager of

the Company with authority to bring claims on the Company’s behalf.

For all these reasons, Defendants’ motion should be denied and discovery into Defendants’

fraud should begin.

II. PLAINTIFFS’ ALLEGATIONS COMPARED TO DEFENDANTS’ DISPUTED
AND UNSUPPORTED ISSUES OF FACT

A. Factual Allegations in Plaintiffs’ Complaint

1. Formation and Purpose of the Company

The Company was formed to acquire the Property and develop it into a luxury rental

apartment building (the “Project”). (Cmplt. ¶ 11.) At the time of the Company’s original December

27, 2018 Limited Liability Company Agreement (the “Agreement”), the Company had three

members: (1) 1400 N Orleans Realty Associates LLC (“Prodigy Member”), which owned 90% of

the Company’s membership interests; (2) 1400 North Orleans Promote LLC (“Promote”), which

had no membership interest in the Company but was appointed to serve as its Managing Member;

and (3) Sponsor, an affiliate of Promote that had a 10% membership interest in the Company. (Id.

¶ 12.) In connection with the Agreement, the Company entered into the Limited Liability Company

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Agreement of 1400 N Orleans Property Company LLC (the “Property LLC Agreement”). (Id.

¶ 13.) The Property LLC Agreement created Property LLC, with the Company as its sole member.
FILED DATE: 10/16/2023 7:48 PM 2023CH05177

(See Cmplt. Exhibit A at Exhibit B).

In sum, the Property was owned by Property LLC, which was in turn owned and controlled

by the Company, which took direction from its Managing Member. (Id. ¶ 15.) A visual

representation would be:

2. Prodigy’s Financial Troubles

Not long after the Property was acquired, Prodigy Member ran into financial and other

difficulties. (Id. ¶ 16.) On March 15, 2021, Promote, Sponsor, and Prodigy entered into the First

Amendment to the Agreement. (See Cmplt. Exhibit B.) The First Amendment stated that the

Company was trying to obtain a mezzanine loan, the proceeds of which Prodigy Member could

use to buy Sponsor’s 10% interest in the Company, which would have made Prodigy Member the

100% owner of the Company and provided more funding for the Project. (Id. ¶ 17.) The intent of

the amendment was to prepackage a new structure that was immediately executable so that

mezzanine lenders could be solicited to fund the development going forward.

Prodigy and its affiliates filed for Chapter 7 bankruptcy only two weeks later, before a

mezzanine lender could be found. (Id. ¶ 19.) The loan contemplated in the First Amendment was

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never funded, and Sponsor remained a member of the Company. (Id.) A Chapter 7 bankruptcy

trustee auctioned off Prodigy Member’s 90% interest in the Company. (Id. ¶ 20.) Lakshmi won
FILED DATE: 10/16/2023 7:48 PM 2023CH05177

that auction and acquired all of Prodigy Member’s interests in the Company for $7.65 million.

(Id.) Thereafter, Lakshmi created Orleans LCM LLC (“Orleans LCM”), and the Bankruptcy

Trustee and Orleans LCM entered into an Asset Purchase Agreement dated November 22, 2021,

through which Orleans LCM acquired Prodigy Member’s interests and rights in the Company.

(Id.)

3. Defendants’ Removal of Promote as Managing Member

On November 23, 2021—just one day after acquiring Prodigy Member’s rights and

interests in the Company—Orleans LCM sent Promote a notice that immediately (i) removed

Promote as the Managing Member of the Company pursuant to Section 3.8(a) of the Agreement

because of an alleged “Cause Event” and (ii) appointed Lakshmi as managing member. (Id. ¶ 21.)

Upon that notice of removal, the org chart was:

4. Promote’s Arbitration to Be Reinstated as Managing Member and
Orleans LCM’s Failed Buyout of Sponsor

As allowed by the Agreement, Promote challenged its removal as Managing Member in an

arbitration and sought reinstatement (the “Arbitration Proceeding”). (Cmplt. ¶ 23.)

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Days after removing Promote as Managing Member, and while Promote was challenging

that removal in arbitration, Orleans LCM sent a letter to Sponsor purporting to unilaterally declare
FILED DATE: 10/16/2023 7:48 PM 2023CH05177

a Fair Market Value (FMV) of the Project at $16 million and a “conveyance” of Sponsor’s

ownership in the Company to Orleans LCM for $0. (Id. ¶ 23.) Orleans LCM proffered this alleged

unilateral valuation and conveyance despite (i) the Agreement requiring that FMV be determined

by a three-appraiser-appraisal process if FMV could not be agreed upon, and (ii) even at a $16

million FMV, buying out Sponsor’s 10% interest would have required a payment of more than

$1.6 million, not $0. (Id.)

The Arbitration Proceeding culminated in a single three-hour hearing, before which there

had been no discovery. (See Exhibit 1 to Motion to Dismiss, page 9.) The Arbitrator upheld the

removal of Promote as Managing Member. (Id. at 7.) The Arbitration Award did not recognize

Orleans LCM’s letter claiming a buyout of Sponsor’s interest for $0. (See generally id.) The

Arbitration Award awarded Orleans LCM fees and costs as the prevailing party. (Id.)

5. Orleans LCM’s Petition to Confirm the Arbitration Award

Promote never moved to vacate the Arbitration Award. On September 13, 2022, Orleans

LCM filed a Petition to Confirm Arbitration Award in the Circuit Court of Cook County, Illinois,

Chancery Division as Case No. 22-CH-09027, to convert its award to a monetary judgment.

(Cmplt. at ¶ 28.) On January 12, 2023, Promote responded to this petition, opposing confirmation

of the Arbitration award because Orleans LCM (i) did not appear to seek confirmation of the

arbitration award in full and (ii) sought a money judgment for costs that had, in part, already been

paid. (Id. at ¶ 29.). The Court (Hon. Caroline Moreland) ultimately granted summary judgment on

Orleans LCM’s petition to confirm the arbitration award. (See Exhibit 2 to the Motion to Dismiss.)

The Court’s order addressed one of Promote’s concerns, however, by stating the arbitration award

was confirmed in full. (Id. at 3.)

5
6. Lakshmi’s Bad Actions as Managing Member and Defendants’
Misappropriation of the Property
FILED DATE: 10/16/2023 7:48 PM 2023CH05177

Sponsor has always been a member of the Company. Although Orleans LCM had an option

to buy out Sponsor’s membership interest for FMV, it never properly exercised that option—

Orleans LCM never consulted with Sponsor on a valuation, it never designated an appraiser, and

it never made a payment to Sponsor. (Cmplt. ¶ 31.) Despite Sponsor remaining a member in the

Company, Lakshmi, while acting as the Company’s Managing Member, ostracized Sponsor by

cutting off communications and failing to provide K-1s. (See Exhibit G to Cmplt.) During this

time, Lakshmi neglected the Property by failing to keep developing the Project and by allowing

citations for city ordinance violations to accumulate. (See id.)

On April 5, 2023, Sponsor sent Lakshmi a Notice of Managing Member Breach, stating

that Lakshmi had breached the Agreement and engaged in a Managing Member Bad Action (the

“Notice of Managing Member Breach”). (See id.) Sponsor demanded that Lakshmi cure its

breaches of the Agreement by: (1) providing all outstanding reports it had been obligated to

provide to Members under Section 13.3 of the Agreement; (2) providing Sponsor with K-1s for

2021 and 2022; (3) divesting its interest in competing project(s) in the Old Town submarket, as

required under Section 9.7 of the Agreement; and (4) immediately curing various Chicago

ordinance violations at the Property. (Id.) The Notice of Managing Member Breach also noted that

before Lakshmi and Orleans LCM became involved, Sponsor’s capital account had increased to

$2,351,694 because Sponsor had funded additional costs for the Project. (Id.)

Further, Sponsor sent Lakshmi a Demand for Inspection of Books and Records (the “Books

and Records Demand”). Specifically, Sponsor asked to inspect books and records to which

Sponsor was entitled under Articles 13.1, 13.2, and 1.3 of the Agreement. (See Exhibit H to Cmplt.)

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The Agreement provides a 30-day cure period for some of these deficiencies described in

the Notice of Managing Member Breach and Books and Records Demand, yet neither Lakshmi
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nor its counsel even responded to either of these letters, much less took any actions to cure the

deficiencies. (Cmplt. ¶ 36.) Because of Lakshmi’s refusal to even respond to the Notice of

Managing Member Breach, Sponsor began preparing a Notice of Removal to remove Lakshmi as

Managing Member of the Company. (Id. ¶ 37.)

While preparing the Notice of Removal and checking registered agent information for the

entities, Sponsor discovered for the first time that, under the direction of Lakshmi as Managing

Member of the Company, Property LLC purportedly transferred the Property to Landco on

October 7, 2022 via a Special Warranty Deed. (Id. ¶ 38.) The Special Warranty Deed was invalid

for numerous reasons, however, including the fact that Landco represented itself as both the buyer

and the sole member and manager of the seller, Property LLC, with authority to authorize both

sides of the transaction. (Id. ¶ 38, citing Exhibit I to the Cmplt.) This representation was false; the

Company, not Landco, is Property LLC’s sole member and manager. (Id. ¶ 39.) Further, despite

Lakshmi and its affiliate Orleans LCM previously claiming the Company—whose entire value

was in the Property—was worth $16 million, Lakshmi directed the Property LLC to convey the

Property to Lakshmi’s affiliate, Landco, for just $10. (See Exhibit I to Cmplt.)

Over the preceding months, Plaintiffs’ counsel had communicated with Defendants’

lawyers multiple times about Plaintiffs’ concern that Lakshmi was failing its duties as Managing

Member. (Id. ¶ 42.) Never once in those emails, phone calls, or pleadings in the arbitration

confirmation proceedings did Defendants’ lawyers assert that Sponsor was no longer a member of

the Company, nor did they reveal that the Property had been transferred. (Id.)1

1
To be clear, no allegations are being made against counsel. Lakshmi has been represented by
five separate law firms since the commencement of the dispute. It is very likely that the lawyers

7
As a result of these and other Bad Acts, on May 25, 2023, Sponsor sent Lakshmi a Notice

of Removal, removing Lakshmi as Managing Member of the Company for the reasons described
FILED DATE: 10/16/2023 7:48 PM 2023CH05177

in the Notice of Managing Member Breach, as well as the purported conveyance of the Property

(the “Notice of Removal”). (Id. ¶ 44, Exhibit K to Cmplt.) Pursuant to the Notice of Removal,

Lakshmi was removed as Managing Member and replaced by Sponsor. (Id.) Lakshmi never

challenged that removal by filing an arbitration demand like Promote had done when it was

removed, as required by the Agreement.

The current organization, reflecting Lakshmi’s removal and Sponsor’s new role as

Managing Member, is shown on the following chart on the left. The chart on the right shows the

recorded title of the Property according to the Recorder’s office, reflecting Lakshmi’s

misappropriation of the Property via the Special Warranty Deed.

Current Org Chart for Company Current Recorded Ownership
Per Cook County Recorder’s Office after
Transfer of Property for $10

speaking on behalf of Lakshmi were unaware of the transfer. Current counsel for Defendants is
not one of the lawyers referenced above and first appeared after the filing of this action.

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B. Defendants’ Unsupported and Disputed Facts in Their Motion to Dismiss

Defendants’ Motion relies on alleged facts contained on pages 2 through 7 of the Motion.
FILED DATE: 10/16/2023 7:48 PM 2023CH05177

Almost none of those allegations include a record citation, nor are they supported in the single

affidavit Defendants submitted with the Motion. Most of these allegations are contrary to those in

the Complaint or are otherwise disputed, including: all of the allegations in the last two paragraphs

on page 3; nearly all the allegations on page 4, the last paragraph on page 6, and almost all of the

allegation on page 7.

Most egregiously, Defendants dispute Sponsor’s allegation that it contributed more than

$2 million to the Company, claiming instead that Sponsor really contributed $0. (Motion at 3.)

Defendants describe Sponsor’s $2 million contribution as a “remarkable” lie that is refuted by

reviewing the table of contributions attached to the First Amended Operating Agreement. (Id.) But

Defendants mischaracterize that table, which is is for an amended and restated operating agreement

(different than the First Amendment) that would only have been effective if the above-described

mezzanine loan had been procured and Sponsor’s interest was purchased. As expressly stated in

the First Amended Operating Agreement, that would only have happened if a mezzanine loan had

been closed, causing the Company to then “pay to Sponsor Member $2,170,000, from proceeds of

the Mezzanine Loan, in order to redeem all of Sponsor Member’s Interest in the Company, so that

upon such redemption Prodigy Member shall own one hundred percent . . . .” (Exhibit B to

Complaint, Recitals at Page 2; Page 2 attached as Exhibit 1 hereto for ease of reference.) None of

that ever happened.

Moreover, although merely disputing this allegation by Defendants is sufficient to defeat

the Motion, Plaintiffs can easily disprove it. The affidavit of Joseph McMillan Jr. is attached as

Exhibit 2. Under penalty of perjury, he attests to Sponsor’s contribution of over $2 million to the

Company. By contrast, the affidavit attached to Defendants’ Motion does not state that Sponsor

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contributed $0, as Defendants argued in the Motion. Mr. McMillan’s affidavit also identifies

actions Sponsor has taken as Managing Member since replacing Lakshmi on May 25, 2023,
FILED DATE: 10/16/2023 7:48 PM 2023CH05177

including: (i) paying unpaid fees to the Delaware and IL secretaries of state to restore the Company

and Property LLC to good standing, (ii) paying unpaid default judgments against the Property for

ordinance violations Lakshmi failed to address using its own funds as Lakshmi had emptied the

Company’s bank accounts, and (iii) resolving other administrative and legal issues caused by

Lakshmi’s neglect. (See Exhibit 2.)

III. LEGAL ARGUMENT

The sharp contrast between Defendants’ unsupported allegations and the well-pleaded

allegations in Plaintiffs’ Complaint demonstrates that much of Defendants’ Motion fails even at

first blush. Defendants attempt to rely on numerous alleged facts for which they provide no

support, despite 2-619 requiring grounds outside a complaint to be “supported by affidavit.” 735

ILCS 5/2-619.

Upon closer evaluation, Defendants’ Motion should be denied for numerous additional

reasons. Defendants’ Motion makes five legal arguments, each of which is addressed in turn below.

Notably, although the Motion is styled as a 2-619.1 motion and attaches documents and an

affidavit, nowhere in the Motion does it state which particular count or counts is supposedly subject

to dismissal pursuant to 2-619. Moreover, nowhere in the Motion do Defendants even mention

Count VI. For these and other reasons described below, each of Defendants’ arguments is wrong.

A. Plaintiffs’ Claims Are Not “Collaterally Estopped” and Barred by a Prior
Judgment Because Plaintiff Is Not Relitigating the Arbitration.

Defendants argue that Plaintiffs are collaterally estopped from pursuing their claims. This

is supposedly because “Plaintiffs assert throughout the Complaint that the removal of Promote as

manager of the JV entity for cause and subsequent appointment of Lakshmi was improper and

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central to their cause of action.” (Motion at 9.) Defendants argue Plaintiffs’ claims are therefore

an improper attempt to relitigate the issues decided by the Arbitration Award. (Id.)
FILED DATE: 10/16/2023 7:48 PM 2023CH05177

The Motion does not cite any specific allegations in the Complaint in support of this

argument because none exist. Nowhere in the Complaint do Plaintiffs attempt to challenge the

arbitrator’s confirmation of Lakshmi as the Company’s Managing Member. To the contrary,

Plaintiffs’ claims rest on the fact that Lakshmi, as Managing Member, misused its power to try to

steal the Property. All of this misconduct occurred long after Orleans LCM removed Promote as

Managing Member and the arbitrator denied Promote’s challenge to that removal. See Bank of N.

Illinois v. Nugent, 223 Ill. App. 3d 1, 15, 584 N.E.2d 948, 957 (1991) (finding it “absurd to plead

that a cause of action is barred by a prior judgment” when that cause of action “did not exist at the

time the judgment was entered”). Accordingly, the entire Argument Section I on pages 9 and 10,

seeking to establish that the Arbitration Award cannot be overruled through this action, is both

undisputed and irrelevant.

It is worth noting that this action was originally assigned to the Hon. Caroline Moreland,

the same judge who granted summary judgment on Orleans LCM’s petition to confirm the

Arbitration Award. Yet it was Defendants who filed the motion to substitute Judge Moreland. Now

they ask the Court to rule that Judge Moreland issued a judgement that bars this action. If

Defendants believe Judge Moreland’s prior judgment bars this action, why would they have

demanded a different judge here? Additionally, as set forth in the documents attached to the

McMillan Affidavit, Defendants’ statements in the Motion directly contradict the position of their

affiliate, Orleans LCM (whose manager is Lakshmi), in the other case before Judge Moreland.

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B. Count I Should Survive Because Sponsor’s 10% Membership Interest in the
Company Could Not Have Been Taken for $0.
FILED DATE: 10/16/2023 7:48 PM 2023CH05177

Defendants also argue that Sponsor transferred its 10% ownership interest in the Company

to Orleans LCM for $0 and is therefore not a member of the Company. (Motion at 10–11.)

Defendants argue that this fact defeats Count I, for breach of contract, and it is the foundational

premise for subsequent Argument Sections III, IV, and V of their Motion.

There are two problems with this argument. The first is that it relies on a faulty

interpretation of Section 14.17 of the Agreement; Defendants are wrong that this provision allowed

them to unilaterally determine the FMV of the Property when attempting to buy out Sponsor’s

interest. Yet that problem need not be addressed at this stage because it is overshadowed by the

second, even more fundamental problem—Defendants’ false assertion that they could have bought

out Sponsor’s 10% membership interest for $0 because Sponsor contributed $0 to the Company.

In reality, as described above and proven by the attached affidavit, Sponsor contributed over $2.17

million. Because Defendants’ argument is premised on facts the record refutes, this Court cannot

find that Sponsor’s 10% membership interest was properly taken for $0 by Orleans LCM.

C. Counts II, III, and V Should Survive Because the Secret Transfer of the
Property for $10 Was Not Authorized.

Next, Defendants argue that their secret transfer of the Property on October 7, 2022, was

authorized under the relevant operating agreement. To support this argument, Defendants point to

the amended and restated operating agreement as the sole basis for Plaintiffs’ claims and argue it

was never in effect. (See generally Motion at 10–13.) But, as described above, the amended and

restated operated operating agreement attached to the First Amendment was never adopted because

no mezzanine loan was procured, and therefore the parties agree on that point. But under either the

original Agreement or the First Amended Operating Agreement, Lakshmi was not authorized to

transfer the Property without consent of all members, which it never received.

12
As even Defendants acknowledge on page 12 of their Motion, Section 3.5 of the original

Agreement required all members to consent to any transfer of the Property. Sponsor never
FILED DATE: 10/16/2023 7:48 PM 2023CH05177

consented to the secret transfer, and therefore, by Defendants’ own interpretation of the

Agreement, the transfer was not authorized. Moreover, Defendants knew that Sponsor believed it

was a member and never clarified their purported belief, even after Sponsor repeatedly asserted its

rights as a member to Lakshmi in pleadings, emails, and formal notices of breach. Common sense

says Lakshmi never disclosed the Property transfer to Plaintiffs because Lakshmi knew it was

unauthorized and would trigger an immediate lawsuit. What is unknown, and what discovery

should reveal, is what Lakshmi planned to do once its fraud was uncovered.

D. Count IV Should Survive Because Sponsor LLC Is Not Making Derivative
Claims.

Defendants argue that when Lakshmi secretly transferred the Property for $10, Sponsor

was not a member of the Company, and therefore Sponsor cannot sue directly or derivatively on

behalf of the Company or Property Co LLC. (Motion at 14–16). This argument fails for at least

two reasons: first, Sponsor is a member for the reasons described above; second, none of the causes

of action is asserted derivatively. Nowhere in the Complaint do Plaintiffs allege that they are

bringing derivative claims. Sponsor removed Lakshmi as the Company’s manager. (Cmplt. ¶ 44;

Exhibit K to Cmplt.) Lakshmi failed to challenge that removal with an arbitration demand. As the

new managing member, Sponsor controls the Company and Property Co LLC, both of which are

plaintiffs.

E. Sponsor Has Standing to Sue Lakshmi for Breach of Contract.

Defendants argue that Sponsor lacks standing to sue Lakshmi for breach of contract

(Count I) for violating the manager’s obligations under the Company’s operating agreement.

(Motion at 16–17.) Defendants argue this is a claim that only the Company is allowed to assert. In

13
support, Lakshmi Capital cites Tooley v. Donaldson, Lufkin & Jenrette, Inc., 845 A.2d 1031, 1033

(Del. 2004), and El Paso Pipeline GP Co., L.L.C. v. Brinckerhoff, 152 A.3d 1248, 1252 (Del.
FILED DATE: 10/16/2023 7:48 PM 2023CH05177

2016). Those two cases stand for the general proposition that a stockholder does not have standing

to sue directly for harm suffered by only the corporation. This proposition is inapposite to the

claims in Count I.

Underlying Count I are contractual duties that Lakshmi owed directly to Sponsor and

repeatedly breached. Before Lakshmi was removed as manager, Sponsor and Lakshmi were parties

to an operating agreement under which Lakshmi, as manager, had specific con

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Motion-Secondary: 1400 NORTH ORLEANS SPONSOR LLC vs LAKSHMI CAPITAL MANAGEMENT LLC et al

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