In two opinions decided in February 2018, CompoSecure v. CardUX, (Del. Ch. Feb. 1, 2018, revised Feb. 12, 2018), and In re Oxbow Carbon Unitholder Litigation, (Del. Ch. Feb. 12, 2018), the Delaware Court of Chancery held that certain actions were not ultra vires under the limited liability company agreements at issue and were thus capable of ratification under Delaware common law. On appeal, the Delaware Supreme Court subsequently reversed the lower court decision in CompoSecure and cited the lower court’s ratification decision in Oxbow approvingly. The decisions in CompoSecure and Oxbow seemingly turned on a narrow issue: whether or not the limited liability company agreement expressly provided that an action not taken in compliance with its terms was “void.” When read together, these decisions highlight the powerful effect, and potentially unintended consequences, of using a “void” provision in the governing documents of Delaware alternative entities.

CompoSecure involved a contractual dispute arising out of CompoSecure’s agreement to pay CardUX, an affiliate of one of CompoSecure’s managers, a commission on certain sales of its metal credit card products. CompoSecure’s limited liability company agreement contained two provisions that allegedly were not complied with when CompoSecure entered into the agreement. The first provision, the “Related Party Provision,” required special approval for transactions between CompoSecure and related parties, such as CardUX; the second, the “restricted activities provision,” provided that certain activities would be “void and of no force or effect whatsoever” if they did not receive certain prior board and member approvals.