DFG Wine Company, LLC v. Eight Estates Wine Holdings, LLC

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EFiled: Aug 31 2011 1:31PM EDT Transaction ID 39584688 Case No. 6110-VCN COURT OF CHANCERY OF THE STATE OF DELAWARE JOHN W. NOBLE VICE CHANCELLOR 417 SOUTH STATE STREET DOVER, DELAWARE 19901 TELEPHONE: (302) 739-4397 FACSIMILE: (302) 739-6179 August 31, 2011 Daniel B. Rath, Esquire Landis Rath & Cobb LLP 919 Market Street, Suite 1800 Wilmington, DE 19801 Re: David A. Jenkins, Esquire Smith, Katzenstein & Jenkins LLP 800 Delaware Avenue, Suite 1000 Wilmington, DE 19801 DFG Wine Company, LLC v. Eight Estates Wine Holdings, LLC C.A. No. 6110-VCN Date Submitted: May 10, 2011 Dear Counsel: This is a books and records action brought by Plaintiff DFG Wine Company, Defendant Eight Estates Wine Holdings, LLC under 6 Del. C. § 18-305 limited liability company agreement. This post-trial letter opinion announces the DFG Wine Company, LLC v. Eight Estates Wine Holdings, LLC C.A. No. 6110-VCN August 31, 2011 Page 2 I. BACKGROUND A. Parties DFG is a Delaware limited liability company with its principal place of business in White Plains, New York.1 DFG is owned by Peter Deutsch (50%) and 2 On or about June 9, 2008, DFG acquired 1,674,747 Class B Units and 245,510 Class E-5 units of the Company for slightly more than $16 million.3 William and Peter are the majority owners of W.J. Deutsch and Sons Ltd. .4 Eight Estates, also a Delaware limited liability company, was formed in June 2008 for the purpose of holding Ascentia Wine Estates, LLC, its sole asset and wholly owned subsidiary.5 acquiring, owning and operating eight wine brands and the assets associate with each of the brands.6 Eight Estates and Ascentia each has its principal place of business at 349 Healdsburg Avenue, Healdsburg, California. 1 2 Trial Tr. (William Deutsch) 5. 3 Stip. ¶ 1. 4 Trial Tr. (William Deutsch) 25. 5 Stip. ¶¶ 2-3. 6 Id. at ¶ 3. . DFG Wine Company, LLC v. Eight Estates Wine Holdings, LLC C.A. No. 6110-VCN August 31, 2011 Page 3 B. Facts Since it was formed in 2008, Ascentia has owned and managed a number of wine brands. William Deutsch then served as a manager of Eight Estates,7 and 8 Deutsch and Sons in A dispute arose between Deutsch and Sons and Ascentia in 2009, and that dispute is currently the subject of arbitration proceedings in San Francisco, California.9 While those proceedings were ongoing, William Deutsch resigned (effective April 19, 2010) as a manager of Eight Estates, and DFG, Deutsch and Sons, and William Deutsch brought an action in this Court against Eight Estates (as the Action was dismissed on September 14, 2010.10 Thereafter, DFG sent a written demand for access to sixteen categories of Eight Estates , ords. Its stated purposes for seeking the records were to (1) determine the value of its investment in Eight Estates and 7 Trial Tr. (William Deutsch) 36-37. Id. at 42. 9 See id. at 33-35, 37. 10 DFG Wine Co., LLC v. GESD Wine Investors, Inc., C.A. 5463-VCN (Del. Ch. Sept. 14, 2010) (ORDER). 8 DFG Wine Company, LLC v. Eight Estates Wine Holdings, LLC C.A. No. 6110-VCN August 31, 2011 Page 4 (2) determine whether it should appoint board of managers.11 The Demand sought access to: 1. A current list of the full name and last known business and residence address of each Member and Assignee set forth in alphabetical order, together with the Capital Contributions, Capital Account, and number and class of Units held by each Member and Assignee; 2. A current list of the full name and business and residence address of each Manager, to the extent that this information has changed since April 1, 2010; 3. A copy of any and all amendments to the Certificate of Formation together with executed copies of any powers of attorney pursuant to which any of the amendments have been executed; federal, state, and local income tax returns and information returns and reports for the years 2008 through the present; 5. A copy of any and all amendments to Agreement together with executed copies of any powers of attorney pursuant to which any of the amendments have been executed; 6. Copies of the financial statements (audited and unaudited) of the Company and its direct and indirect subsidiaries for the period from 2008 through the present; 11 DFG Wine Company, LLC v. Eight Estates Wine Holdings, LLC C.A. No. 6110-VCN August 31, 2011 Page 5 books and records as they relate to the internal affairs of the Company and its direct and indirect subsidiaries for the period from 2008 through the present; general ledger for the period from 2008 through the present; business plans and budgets including projections for future performance, and all documents relating thereto, for the period from 2008 to anytime in the future; 10. direct and indirect subsidiaries past, present or future value, and all documents relating to such estimates or projections, for the period from 2008 to anytime in the future; 11. Copies of all materials concerning the content and value of the the period from 2008 through the present; 12. Copies of all materials identifying and reflecting the value of the assets (excluding inventory) of the Company and its direct and indirect subsidiaries for the period from 2008 through the present; 13. Copies of all materials including, without limitation, any loan agreements, notes, mortgages, security agreements, credit agreements, or the period from 2008 through the present; DFG Wine Company, LLC v. Eight Estates Wine Holdings, LLC C.A. No. 6110-VCN August 31, 2011 Page 6 14. Copies of all materials reflecting the ability (or lack thereof) of the Company and its direct and indirect subsidiaries to pay their obligations as they become due; 15. Copies of all materials reflecting payments or benefits provided to Managers of the Company for the period from 2008 through the present; and 16. Copies of any and all grape contracts entered into by the Company and/or its direct and indirect subsidiaries during the period from 2008 through the present.12 The Company responded on November 24, 2010 that it would promptly provide the requested records held by the Company to the extent that they were limited liability company agreement or 6 Del. C. § 18-305.13 After making a December 7, 2010 request that Eight Estates reconsider its position,14 DFG filed this action on January 4, 2011. 12 13 14 JX 10. JX 12. DFG Wine Company, LLC v. Eight Estates Wine Holdings, LLC C.A. No. 6110-VCN August 31, 2011 Page 7 On January 24, 2011, Eight Estates provided DFG with the following documents: A list of the full name and last known business address of each Member, together with the Capital Contributions, Capital Account, and number and class of Units held by each Member with the notation that the Member Information was current as of November 30, 2010 and the Capital Account Information was current as of December 31, 2009; A copy of the Certificate of Formation and amendment to the Certificate of Formation; x return; Amended and Restated Limited Liability Company Agreement of the Company dated as of June 9, 2009; Second Amended and Restated Limited Liability Company Agreement of the Company dated as of December 3, 2009; and 15 C. Section 1 of the Amended and Restated Limited Liability Company Agreement of Eight Estates Wine C 15 Stip. ¶ 14; JX 1, 2, 3, 4, 6, 11. DFG Wine Company, LLC v. Eight Estates Wine Holdings, LLC C.A. No. 6110-VCN August 31, 2011 Page 8 16 Units, Class B Units, Class C Units, or Class D units.17 Section 9 of the LLC Agreement define , in relevant part: 9.1 Books and Records. The books and records of the Company shall be kept, and the financial position and the results of its operations recorded, in accordance with generally accepted accounting principles and, to the extent appropriate in accordance with the accounting methods followed for federal income tax purposes. The books and records of the Company shall reflect all the Company transactions and shall be appropriate and adequate for the reasonable efforts to maintain at its principal office all of the following: (a) A current list of the full name and last known business or residence address of each Member and Assignee set forth in alphabetical order, together with the Capital Contributions, Capital Account, and number and class of Units held by each Member and Assignee; 16 The LLC Agreement, dated June 9, 2008, has been amended twice since DFG sent the Demand. The Second Amended and Restated Limited Liability Company Agreement (the the Third Amended and Restated Limited Liability Company Agreement ot changed with these amendments. 17 LLC Agreement § 1. DFG Wine Company, LLC v. Eight Estates Wine Holdings, LLC C.A. No. 6110-VCN August 31, 2011 Page 9 (b) A current list of the full name and business or residence address of each Manager; (c) A copy the Certificate of Formation and any and all amendments thereto together with executed copies of any powers of attorney pursuant to which the Certificate of Formation or any amendments thereto have been executed; (d) tax or information returns and reports, if any, for the six (6) most recent taxable years; (e) A copy of this Agreement and any and all amendments thereto together with executed copies of any powers of attorney pursuant to which this Agreement or any amendments thereto have been executed; (f) Copies of the financial statements of the Company, if any, for the six (6) most recent Fiscal Years; and (g) The internal affairs of the Company for at least the current and past four (4) Fiscal Years. 9.2 Delivery to Preferred Unit Holders and Inspection (a) Upon the written request of any Preferred Unit Holder or Assignee for purposes reasonably related to the interest of that Person as a Preferred Unit Holder or Assignee, which purpose or purposes shall be set forth in the written request, the Board of Managers shall promptly deliver to the requesting Preferred unit Holder or Assignee, at the expense of the Company, a copy of the information required to be maintained under Section 9.1, and a copy of any other data required to be provided under the [Delaware Limited Liability Company Act]. DFG Wine Company, LLC v. Eight Estates Wine Holdings, LLC C.A. No. 6110-VCN August 31, 2011 Page 10 II. CONTENTIONS The Demand requested that Eight Estates produce sixteen categories of records. The parties agree that the documents Eight Estates has produced completely satisfied the demands of Categories 2, 3, and 5.18 DFG contends that Eight Estates has only partially satisfied the demands of Categories 1, 4, and 6, and has not provided any documents that are responsive to Categories 7-17. Eight Estates responds that it has produced all documents to which DFG is entitled with respect to Categories 1-7, and that, because neither the LLC Agreement nor the Delaware Limited Liability Company Act19 gives members the right to inspect the books and records of a limited , DFG is not entitled to any documents with respect to Categories 8-16, which concern and records. the basis that they are not narrowly tailored. 18 19 Stip. ¶ 21. 6 Del. C. § 18- demands should be denied on DFG Wine Company, LLC v. Eight Estates Wine Holdings, LLC C.A. No. 6110-VCN August 31, 2011 Page 11 III. DISCUSSION A. Legal Standards Section 18-305 of the Delaware Limited Liability Company Act grants nd records,20 demand for such information must be in writing and must state the purposes for which the information is sought.21 If valuation is the purpose for which inspection is sought: our courts consistently have limited the extent of that inspection to those records which are essential and sufficient to accomplish the stated purpose. However, if a shareholder has been given all the corporate information that he reasonably needs to accomplish his stated purpose, his right has been satisfied and no additional disclosure is required on the part of the entity.22 20 Id. § 18-305(a). Id. § 18-305(e). 22 Holman v. Nw. Broad., L.P., 2007 WL 1074770, at *2 (Del. Ch. Mar. 29, 2007) (construing 6 Del. C. § 17-305) (citations and internal quotation omitted). 21 DFG Wine Company, LLC v. Eight Estates Wine Holdings, LLC C.A. No. 6110-VCN August 31, 2011 Page 12 access to the same quantity of information available from the regulatory filings of 23 The right of limited liability company members to inspect the books and Del. C. § 18-305.24 Nonetheless, Delaware courts have recognized that the statute provides a right to inspect the records of such subsidiaries where the facts at least 25 The statutory amendments 23 Id. Cf. 8 Del. C. § 220(b)(2) (granting, after amendments effective Aug. 1, 2003, stockholders the s books and records, to the extent that: a. The corporation has actual possession and control of such records of such subsidiary; or b. The corporation could obtain such records through the exercise of control over such subsidiary, provided that as of the date of the making of the demand: 1. The stockholder inspection of such books and records of the subsidiary would not constitute a breach of an agreement between the corporation or the subsidiary and a person or persons not affiliated with the corporation; and 2. The subsidiary would not have the right under the law applicable to it to deny the corporation access to such books and records upon demand by the corporation.). 25 Arbor Place, L.P. v. Encore Opportunity Fund, L.L.C., 2002 WL 205681, at *6 (Del. Ch. Jan. 29, 2002) (holding that the record in that case did not suggest the absence of separate 24 is not controlled by the [limited liability companies] and . . . each of the [subsidiaries] has a DFG Wine Company, LLC v. Eight Estates Wine Holdings, LLC C.A. No. 6110-VCN August 31, 2011 Page 13 codifying this right with respect to stockholders of corporate parents did not disturb the rights of members of limited liability companies to inspect the books and records of subsidiaries where, for example, subsidiaries [are] under the full control of the p 26 Section 18-305(c) limits the inspection rights granted to members of limited liability companies, however, providing that the limited liability company significant shareholder other than the [limited liability comp Arbor Place, the court distinguished Salovaara v. SSP, Inc., C.A. No. 18903, ltr. op. at 8 (Del. Ch. Jan. 10, 2001) and Dobler v. Montgomery Cellular Holding Co., Inc., 2001 WL 1334182, at *9 (Del. Ch. Oct. 19, 2001), cases decided before 8 Del. C. § 220 explicitly granted the right to inspect the books and Salovarra and Dobler courts had held that stockholders had a right to where the facts suggested that the corporation and its subsidiary were not really separate entities. See Salovarra I]f the parent is holding the books of the subsidiary or has control or possession over those books, a stockholder with the right to inspect books and records Dobler, 2001 WL 1334182, at *9 (noting that the Court had previously granted the right to inspect the books and records of a subsidiary where: the subsidiaries accrued to the parent. Thus, in seeking to value the parent and, perhaps, in seeking to pursue other legitimate shareholder purposes, the relevance of the subsidiary's books and records to those lawful considerations of the shareholders of the parent is apparent. Here, Plaintiffs have not shown, except to the extent noted below, that the books and records of the Price entities are relevant, or even helpful, to their stated purposes.). 26 Dobler, 2001 WL 1334182, at *9 (interpreting 6 Del. C. § 220 (1998)). DFG Wine Company, LLC v. Eight Estates Wine Holdings, LLC C.A. No. 6110-VCN August 31, 2011 Page 14 opportunity to establish a good faith belief that disclosure of the desired information would not be in the best interest of the entity . . . . 27 A limited liability company, of course, is a creature of contract,28 and a limited liability company agreement may grant members inspection rights that are 29 and to which the restrictions described in 6 Del. C. § 18-305(c) do not necessarily apply.30 The should be given reasonable person in the position of either party would have no expectations 31 27 28 Arbor Place, 2002 WL 205681, at *5. TravelCenters of Am., LLC v. Brog, 2008 WL 1746987, at *1 (Del. Ch. Apr. 3, 2008) [l]imited liability c (quoting In re Grupo Dos Chiles, LLC, 2006 WL 668443, at *2 (Del. Ch. Mar. 10, 2006)). Bond Purchase, L.L.C. v. Patriot Tax Credit Props., L.P., 746 A.2d 842, 853 (Del. Ch. 1999). 30 Arbor Place, 2002 WL 205681, at *4 n.9. 31 NAMA Holdings, LLC v. World Mkt. Ctr. Venture, LLC, 948 A.2d 411, 418 (Del. Ch. 2007), , 945 A.2d 594 (Del. 2008) (citation and internal quotation omitted). 29 DFG Wine Company, LLC v. Eight Estates Wine Holdings, LLC C.A. No. 6110-VCN August 31, 2011 Page 15 B. Whether DFG has a Proper Purpose under the LLC Agreement or 6 Del. C. § 18-305. DFG stated two purposes in the Demand. First, it seeks information that would help it determine the value of its investment in Eight Estates; second, it seeks information that would help it to determine whether, and perhaps whom, it should appoint as Estates invokes JAKKS PACIFIC, Inc. v. THQ/JAKKS PACIFIC, LLC for the pro demand 32 Eight Estates argues that valuation is similarly meaningless here because in the Prior Action, William Deutsch and DFG asserted that Eight Estates was insolvent and had no value. DFG responds that its beliefs month ago are irrelevant, and that, in any case, since the Prior Action was resolved, circumstances Ascentia, although lacking in details, suggests that there has been a reorganization 32 2009 WL 1228706, at *5 (Del. Ch. May 6, 2009). DFG Wine Company, LLC v. Eight Estates Wine Holdings, LLC C.A. No. 6110-VCN August 31, 2011 Page 16 of debt and management over the past year 33 and there may well be some value Determining exactly what its investment in Eight Estates is now worth, a question which, the parties agree, depends entirely on the valuation of Ascentia,34 is a proper purpose under Delaware law. status as a Preferred Unit Holder of Eight Estates, it is also proper under § 9.2 of the LLC Agreement. That DFG needs access to the books and records it has demanded for purposes of deciding whether to appoint someone and, if so, whom to appoint as a member of the Eight Estates board of managers, is also a proper purpose. It seems that documents that DFG would need to accomplish this purpose would be of a very limited nature. The Court also notes that DFG should already be able to determine that any person or entity it might appoint to the board of managers would, records than DFG itself.35 Nonetheless, where a plaintiff has established it has a 33 34 See Trial Tr. (William Deutsch) 34-35; id. (Daniel Stromberg) 106-07. Compare 6 Del. C. § 18-305(b) (giving managers the right to examine all the materials described in § 18-305(a)) with 6 Del. C. § 18-305(c) (allowing good faith defenses to a books and record action brought by members, but not managers). 35 DFG Wine Company, LLC v. Eight Estates Wine Holdings, LLC C.A. No. 6110-VCN August 31, 2011 Page 17 proper purpose for its books and records demand, that it may have another purpose or other purposes is inconsequential.36 C. Whether DFG has the right to inspect 1. Section 9 of the LLC Agreement Section 9.2 of the LLC Agreement creates a contractual right for Eight required to be maintained under Section It imposes no contractual duty to maintain, and thus no contractual obligation to deliver, LLC Agreement) Ascentia that is separate and in addition to any right DFG would 37 36 See Compaq Computer Corp. v. Horton establishes a single proper purpose related to his role as a stockholder, all other purposes are Del. C. § 220). 37 See Arbor Place, 2002 WL 205681, at *5. DFG Wine Company, LLC v. Eight Estates Wine Holdings, LLC C.A. No. 6110-VCN August 31, 2011 Page 18 2. Section 18-305 of the DLLCA and that Eight Estates has no value apart from Ascentia .38 Ascentia has no board of managers, but is instead managed by its sole member, Eight Estates.39 Eight Estates and Ascentia have the same address.40 Eight Estates has no budget, 41 Unlike the limited liability companies and their subsidiaries described in Arbor Place, therefore, the facts of this case more than suggest[] the absence, in 42 It would be unfair, under the circumstances, to require, for example, a member of Eight Estates to attempt to value its holdings would allow the member to value that asset.43 Accordingly, to the extent that 38 Trial Tr. (William Deutsch) 34-35; id. (Daniel Stromberg) 106-07. Id. (Daniel Stromberg) at 113. 40 Stip. ¶¶ 2-3. 41 Trial Tr. (Daniel Stromberg) 102. 42 Arbor Place, 2002 WL 205681, at *6. 43 See EBG Holdings LLC v. Vredezicht's Gravenhage 109 B.V., 2008 WL 4057745, at *12 (Del. 39 DFG Wine Company, LLC v. Eight Estates Wine Holdings, LLC C.A. No. 6110-VCN August 31, 2011 Page 19 er 6 Del. C. § 18-305 for purposes proper under that statute, DFG is also entitled to receive copies of Because § 9.2 of the LLC Agreement also entitles to receive copies of the books and records to which they would be entitled access under the DLLCA, the cost of any additional production of documents must be born by the Company.44 3. s Eight Estates, however, asserts that divulging certain information to DFG would not be in the best interests of the Company. Daniel Stromberg, one of Eight had, in the Prior Action, alleged that the Company was insolvent, sought permiss their views, and sought the dissolution of the Company, divulging details regarding Ascentia and Eight single factor, but rather some combination of them, and an overall element of injustice or unfairness must always be present, as 44 Company, a copy of the information required to be maintained under Section 9.1, and a copy of any other data to be DFG Wine Company, LLC v. Eight Estates Wine Holdings, LLC C.A. No. 6110-VCN August 31, 2011 Page 20 relations and conversations with their creditors would not be in the best interests of the Company.45 a good faith belief 46 and that divulging to DFG contracts and future ability to repay its creditors would not be in the best interests of the Company, and they are thus empowered by 6 Del. C. § 18-305(c) to refrain from divulging such materials. Eight Estates has not established that its managers had a good faith belief that granting DFG information more tenuously related to s, such as would not be in best interests. Eight Estates also argues that DFG two of its wine brands,47 managers] were left wit 45 financial statements, 48 cherry general impression [the Further, the Company demonstrated its willingness to Trial Tr. (Daniel Stromberg) 120-24; see also id. (William Deutsch) 47-49 (acknowledging that dissolution would be harmful to the Company, but denying that he remembered whether he sought dissolution of the Company in the Prior Action). 46 Id. (Daniel Stromberg) 121. 47 See id. at 114-18. 48 Id. at 116. DFG Wine Company, LLC v. Eight Estates Wine Holdings, LLC C.A. No. 6110-VCN August 31, 2011 Page 21 sell the same brands to others.49 managers have established their good faith belief that revealing information relating to the wine brands that they argue DFG is interested in acquiring would not be in the best interests of the Company. On the other hand, Ascentia may possess information that would qualify as trade secrets and yet was not discussed at trial. Where the Court orders production Eight Estates may redact such information that Eight 50 Eight Estates also contends that Ascentia has already produced to Deutsch c arbitration proceeding involving those two parties,51 and that forcing Eight Estates to produce those documents again, this time to DFG, would serve no purpose. The ve testified 49 Id. at 117. 6 Del. C. § 18secrets to an beliefs that disclosures would not be in the best interest of the company to a subjective standard). 51 Stip. ¶ 15 n.3. 50 DFG Wine Company, LLC v. Eight Estates Wine Holdings, LLC C.A. No. 6110-VCN August 31, 2011 Page 22 that they have not reviewed any of these documents.52 facts, the Court cannot say that DFG Accepting these stipulated right to receive copies of certain of documents in the arbitration proceeding involving it and Deutsch and Sons.53 D. The Demand and the Scope of Relief The Court now proceeds to analyze each of the Categories enumerated in the Demand to determine whether DFG is entitled to additional access regarding the respective Category under either (1) the LLC Agreement or (2) the DLLCA, Del. C. § 18-305(c). 1. Categories 2, 3, and 5 The Parties agree that the documents produced by Eight Estates satisfied completely Categories 2, 3, and 5 of the Demand.54 2. Category 1: A current list of the full name and last known business and residence address of each Member and Assignee set forth in alphabetical order, together with the Capital Contributions, Capital Account, and number and class of Units held by each Member and Assignee 52 Id. An alternative to producing the documents for DFG, however, might be releasing Deutsch and Sons from its confidentiality obligations in the arbitration proceedings. 54 Stip. ¶ 21. 53 DFG Wine Company, LLC v. Eight Estates Wine Holdings, LLC C.A. No. 6110-VCN August 31, 2011 Page 23 DFG acknowledges that it has received this information with a notation that in 2010, and that the Capital Account was current as of December 31, 2009.55 On April 6, 2011, Eight Estates represented that the information was current as of that date,56 and the Court accepts this representation. No additional production regarding this Category of the Demand is required. 3. Category 4: Copies of the Compa information returns and reports for the years 2008 through the present Eight Estates has produced its own 2008 and 2009 tax returns; DFG has d disregarded entity for purposes of federal taxes because its income is recorded and tax returns. It does, however, file separate state tax returns. 55 56 Id. at ¶ 23. Id. DFG Wine Company, LLC v. Eight Estates Wine Holdings, LLC C.A. No. 6110-VCN August 31, 2011 Page 24 status within the category of information to which DFG is entitled under 6 Del. C. § 18-305(a)(1). Eight Estates has not established a good faith belief that revealing this information would not be in the best interests of the Company, and thus, DFG is entitled to receive copies of state tax returns from the years 2008 through the present. 4. Category 6: Copies of the financial statements (audited and unaudited) of the Company and its direct and indirect subsidiaries for the period from 2008 through the present Eight Estates has produced certain documents that DFG agrees are year ending June 30, 2010, would likely be available as of end of June 2010, as would first unaudited financial statements.57 Because these documents are in Eight Estates, DFG is entitled to inspect these records under the LLC Agreement. 57 Trial Tr. (Daniel Stromberg) 94. DFG Wine Company, LLC v. Eight Estates Wine Holdings, LLC C.A. No. 6110-VCN August 31, 2011 Page 25 5. Category 7: Company and its direct and indirect subsidiaries for the period from 2008 through the present DFG has not delineated the full scope of records it seeks under this Category, and the Court will not speculate as to what documents it might be seeking beyond those identified at trial. Stromberg testified records as they relate to the internal affairs of the Company and its direct and would probably include, for example, internal records of the board of managers and employment agreements with key personnel.58 within this Category could be derived either from the LLC Agreement or from 6 Del. C. § 18-305(a)(6). However, because Eight Estates has no employees,59 the only type of information that both falls within this Category and constitutes records of the Company the internal records of the board of managers proper purpose: DFG has not shown why these records are necessary to value 58 59 Id. at 97-98. Id. at 98. DFG Wine Company, LLC v. Eight Estates Wine Holdings, LLC C.A. No. 6110-VCN August 31, 2011 Page 26 would derive from DLLCA and the case law explaining and applying statutes granting such access 60 Eight Estates has not established a basis for the managers belief that withholding these records on confidentiality grounds would be in the C Accordingly, DFG is entitled to receive copies of the employment , subject to reasonable redaction of 6. Category 8: present thus falls within the category of information to which DFG is entitled under 6 Del. C. § 18-305(a)(1). Eight Estates maintains no 60 6 Del. C. § 18-305(a)(6). DFG Wine Company, LLC v. Eight Estates Wine Holdings, LLC C.A. No. 6110-VCN August 31, 2011 Page 27 order to value its interest in the Company er from DFG; DFG is, therefore, entitled to receive a copy of it. 7. Categories 9 and 10: indirect subsidia projections for future performance, and all documents relating thereto, for the period from 2008 to anytime in the future and Copies of all estimates or direct and indirect subsidiaries past, present or future value, and all documents relating to such estimates or projections, for the period from 2008 to anytime in the future For the same reasons as animated the Court s decision regarding Category 8, DFG is entitled to receive copies of the documents captured by Categories 9 and that the documents incorporate trade secrets, the documents may be reasonably redacted before inspection. 8. Categories 11 and 12: Copies of all materials concerning the content inventory for the period from 2008 through the present Copies of all materials identifying and reflecting the value of the assets (excluding inventory) of the Company and its direct and indirect subsidiaries for the period from 2008 through the present DFG Wine Company, LLC v. Eight Estates Wine Holdings, LLC C.A. No. 6110-VCN August 31, 2011 Page 28 Assessment of -inventory assets would be the reasons discussed above. 9. Categories 13 and 14: Copies of all materials including, without limitation, any loan agreements, notes, mortgages, security agreements, credit agreements, guarantees, and UCC Statements, debts and/or liabilities for the period from 2008 through the present Copies of all materials reflecting the ability (or lack thereof) of the Company and its direct and indirect subsidiaries to pay their obligations as they become due oncerning its relationship with creditors would help DFG value it established their good faith belief that disclosing this information would not be in the interest of Eight Estates. Accordingly, Eight Estates is not required to allow DFG to inspect or to receive copies of these materials. 10. Category 15: Copies of all materials reflecting payments or benefits provided to Managers of the Company for the period from 2008 through the present DFG Wine Company, LLC v. Eight Estates Wine Holdings, LLC C.A. No. 6110-VCN August 31, 2011 Page 29 financial statements. Thus, these documents would not aid DFG in pursuing its proper purpose of valuing its interest in the Company. Further, although the documents might, in some-as-yetproper purpose managers determining whether to appoint a representative to the board of DFG has not shown how these documents would be needed to accomplish that purpose. Therefore, its demand regarding access to materials reflecting payments to the managers of the Company is denied. 11. Category 16: Copies of any and all grape contracts entered into by the Company and/or its direct and indirect subsidiaries during the period from 2008 through the present William Deutsch testified as to the importance of grape contracts in valuing a winery: Grape contracts are very important to a winery. You want to be assured that the farmer or the owner of the grape contract is going to deliver what he promised to deliver. In a perfect world, you'd like the grape contract to provide for a selling price at market. Some contracts have locked in costs, and those DFG Wine Company, LLC v. Eight Estates Wine Holdings, LLC C.A. No. 6110-VCN August 31, 2011 Page 30 might be good in some years, but they could be extremely detrimental in other years.61 board of m [t]here was concern [among the members of the Board] about reducing the number of grape contracts because everyone believed that there were too many for too long a period of time. 62 The Court is satisfied that light of the specific concerns that DFG has identified would be needed to value interest in the Company, but the contracts themselves would contain much more information than this, information that would not relate to valuing the Eight Estates may produce either the grape contracts themselves or a summary of that shows how many contracts it has and has had since 2008, which of its contracts are tied to the market price of grapes, which have locked-in costs (and what those cos of the confidence its has that each contract will be fulfilled by the grower. 61 62 Trial Tr. (William Deutsch) 19. Id. at 20. DFG Wine Company, LLC v. Eight Estates Wine Holdings, LLC C.A. No. 6110-VCN August 31, 2011 Page 31 IV. CONCLUSION The Court will enter judgment in favor of DFG and grant it relief to the extent set forth above. Court costs are assessed against the Company. No party expenses. Counsel are requested to confer and to submit an implementing order. Very truly yours, /s/ John W. Noble JWN/cap cc: Register in Chancery-K

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