Firm News

A frozen-out member of a Delaware LLC who lent money to the company can pursue three paths around derivative defenses: a contract claim for loan repayment, a direct claim under Section 18-502(b) to enforce the partner’s contribution obligation, and a statutory creditor claim that cannot be waived by the operating agreement.

In the October 22, 2026 edition of The Legal Intelligencer, Edward Kang writes, “Three Routes Around the Derivative Trap: Litigating the Shortchanged Member’s Claim After ‘Hassanein v. NTO Fund I’.”

A member of a Delaware limited liability company lends it nearly $2 million so it can invest in a startup that his business partner co-founded. The LLC agreement requires the partner to contribute sufficient capital within six months so the company can repay the loan. Five years later, apart from sporadic payments, the loan remains unpaid. The partner is the sole manager, removable only for cause and only by his own class of units. When the member sues, the defendants argue that the money was equity, not debt, and that any claim to compel the partner’s contribution belongs to the company. A magistrate in the Court of Chancery accepted enough of those arguments to recommend dismissing every count. Vice Chancellor J. Travis Laster did not. In Hassanein v. NTO Fund I, 2026 WL 2240127 (Del. Ch. Aug. 4, 2026), the court declined to adopt the magistrate’s report, Hassanein v. NTO Fund I, 2026 WL 206873 (Del. Ch. Jan. 27, 2026), and let all three contested counts proceed. For lawyers representing a frozen-out or shortchanged member of a Delaware LLC, the opinion maps three routes around the defenses that so often end these cases at the pleading stage. It also delivers a correction both sides need to absorb: an LLC is primarily, but not wholly, a creature of contract.

With approximately $15 billion in pre-2022 EB-5 capital still deployed and evolving regulations, these cases present unique challenges blending contract interpretation, duty of loyalty violations and immigration consequences.

In the September 10, 2026 edition of The Legal Intelligencer, Edward Kang and Kyle Garabedian co-authored, “Redeployed and Reluctant: Litigating EB-5 Sponsors’ Reinvestment of Investor Capital.”

Recently, this column examined the litigation strategies available to EB-5 investors seeking to recover their capital from failed or fraudulent projects. This month, we turn to a rapidly growing subset of those disputes: litigation arising from the “redeployment” of EB-5 investor capital. In a redeployment, the sponsor of an EB-5 investment vehicle, typically the general partner or manager of the New Commercial Enterprise (NCE), reinvests capital returned by the original project in a new venture, often without the investors’ meaningful input and sometimes over their express objection. For investors who expected the return of their capital, redeployment can feel like a second investment they never agreed to make. For plaintiffs counsel, these disputes present a distinctive blend of contract interpretation, fiduciary duty law, securities regulation, and immigration strategy.