Background
This case involves a multi-year dispute over a 119-acre farm in Frederica, Delaware, held through Tri-State AG LLC, a family-owned limited liability company. In 2010, Bob and Thelma Cannon created The Cannon Trust 27JUL10, a revocable living trust funded with substantially all their assets. That same year, the Cannon family reorganized the farm’s ownership into Tri-State, with four members: Bob Cannon, his brother Ed Cannon II, and Ed’s son Gary Cannon and daughter-in-law Laurie Cannon. Ed was elected manager.
Tensions escalated when the farm’s tenant abandoned the property in 2014, leaving the farmhouse in disrepair. Gary and Laurie undertook renovations estimated at $21,000 but ultimately costing approximately $27,000. Bob and Thelma contributed $7,000 from the Trust’s account toward repairs. Disagreements arose over reimbursement of these costs, proper record-keeping, and management decisions, including an appraisal commissioned by Gary and a sewer-line easement agreement executed without full member consent. When the Trust demanded inspection of Tri-State’s books and records in June 2016, defendants resisted, characterizing the demand as “harassment.”
Plaintiffs filed suit in March 2018 asserting six counts: breach of LLC agreement, breach of implied covenant of good faith and fair dealing, breach of fiduciary duty, fraud, conspiracy, and involuntary withdrawal of defendants as members. Defendants moved for summary judgment in June 2024.
The Court’s Holding
The court denied defendants’ motion for summary judgment in full, finding genuine issues of material fact precluding judgment as a matter of law. The central unresolved factual dispute concerns LLC membership: the record contains conflicting evidence about whether Bob Cannon held the membership interest directly (as individuals) or through the Trust.
Defendants pointed to three pieces of evidence: the LLC Agreement listing Bob as a member, tax forms identifying Bob individually, and an easement agreement Bob executed as an “owner” of Tri-State. Plaintiffs countered with evidence of a membership certificate issued to the Trust concurrent with the three other members’ certificates, and an email from Tri-State’s formation attorney to Bob’s counsel stating an assumption that Bob “has a revocable trust and would want to title his interest in the trust.” The court found this evidence creates a genuine factual issue that cannot be resolved on summary judgment.
The court also identified a standing deficiency: even if the Trust holds the membership interest, Virginia law (which governs the Trust) provides that a revocable living trust lacks separate legal status and cannot sue in its own name. Instead, the trustee—Thelma Cannon—would be the proper party. Remainder beneficiary Jerry Cannon would only have standing if Thelma improperly refused to prosecute the claims. The court concluded Thelma appears to be the only proper plaintiff if the Trust holds the membership.
Key Takeaways
- Summary judgment is inappropriate when the record contains conflicting evidence about material facts, even in documentary disputes; here, the LLC Agreement, tax documents, membership certificates, and attorney communications painted conflicting portraits of intent.
- A revocable living trust formed under Virginia law lacks separate legal status and cannot be a party to litigation; the trustee must sue on behalf of trust property.
- Determining proper plaintiffs may require resolving preliminary factual disputes before the court can assess substantive claims on summary judgment; proceeding to trial is preferable when the identity of the proper plaintiff remains uncertain.
- In family-owned LLC disputes, contemporaneous evidence of intent (including attorney communications during formation) can rebut documentary indications of membership held by individuals.
Why It Matters
This decision underscores persistent challenges in family business disputes where assets are held through multiple legal entities with varying governance rules. The court’s refusal to grant summary judgment on standing protects plaintiffs’ ability to develop a full factual record at trial regarding the Cannon family’s actual intent at formation—a critical issue when formation documents and subsequent administration suggest conflicting ownership structures. For practitioners advising on trust-owned LLC interests, the ruling highlights the importance of clear contemporaneous documentation of whether membership is held individually or in trust form, and the necessity of properly titling interests to reflect actual intent.
The decision also illustrates that even lengthy delays in litigation (this case was filed in 2018 with summary judgment motion filed in 2024) will not shortcut the court’s responsibility to ensure proper plaintiffs are before it. Delaware courts will develop the factual record thoroughly where standing and proper party requirements remain genuinely disputed, particularly when trust law and LLC governance intersect.