{"id":7397,"date":"2026-11-04T15:38:31","date_gmt":"2026-11-04T20:38:31","guid":{"rendered":"https:\/\/www.khflaw.com\/news\/?p=7397"},"modified":"2026-11-04T15:38:39","modified_gmt":"2026-11-04T20:38:39","slug":"legal-intelligencer-three-routes-around-the-derivative-trap-litigating-the-shortchanged-members-claim-after-hassanein-v-nto-fund-i","status":"publish","type":"post","link":"https:\/\/www.khflaw.com\/news\/legal-intelligencer-three-routes-around-the-derivative-trap-litigating-the-shortchanged-members-claim-after-hassanein-v-nto-fund-i\/","title":{"rendered":"Legal Intelligencer: Three Routes Around the Derivative Trap: Litigating the Shortchanged Member\u2019s Claim After &#8216;Hassanein v. NTO Fund I&#8217;"},"content":{"rendered":"<p><em>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&#8217;s contribution obligation, and a statutory creditor claim that cannot be waived by the operating agreement.<\/em><\/p>\n<p>In the October 22, 2026 edition of <a href=\"https:\/\/www.law.com\/thelegalintelligencer\">The Legal Intelligencer<\/a>, Edward Kang writes, \u201c<a href=\"https:\/\/www.law.com\/thelegalintelligencer\/2026\/10\/22\/three-routes-around-the-derivative-trap-litigating-the-shortchanged-members-claim-after-hassanein-v-nto-fund-i\/\">Three Routes Around the Derivative Trap: Litigating the Shortchanged Member\u2019s Claim After &#8216;Hassanein v. NTO Fund I&#8217;<\/a>.&#8221;<\/p>\n<p>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\u2019s 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 <em>Hassanein v. NTO Fund I<\/em>, 2026 WL 2240127 (Del. Ch. Aug. 4, 2026), the court declined to adopt the magistrate\u2019s report, <em>Hassanein v. NTO Fund I<\/em>, 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.<\/p>\n<div class=\"read_more_link\"><a href=\"https:\/\/www.khflaw.com\/news\/legal-intelligencer-three-routes-around-the-derivative-trap-litigating-the-shortchanged-members-claim-after-hassanein-v-nto-fund-i\/\"  title=\"Continue Reading Legal Intelligencer: Three Routes Around the Derivative Trap: Litigating the Shortchanged Member\u2019s Claim After &#8216;Hassanein v. NTO Fund I&#8217;\" class=\"more-link\">Continue reading \u203a<\/a><\/div>\n","protected":false},"excerpt":{"rendered":"<p>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&#8217;s contribution obligation, and a statutory creditor claim that cannot be waived by the operating agreement. In the October 22, [&hellip;]<\/p>\n","protected":false},"author":12,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":"","_links_to":"","_links_to_target":""},"categories":[414],"tags":[336],"coauthors":[535],"class_list":["post-7397","post","type-post","status-publish","format-standard","hentry","category-publications","tag-legal-intelligencer"],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v28.2 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>Legal Intelligencer: Three Routes Around the Derivative Trap: Litigating the Shortchanged Member\u2019s Claim After &#039;Hassanein v. NTO Fund I&#039; &#8212; Kang Haggerty News &#8212; November 4, 2026<\/title>\n<meta name=\"description\" content=\"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 &#8212; November 4, 2026\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.khflaw.com\/news\/legal-intelligencer-three-routes-around-the-derivative-trap-litigating-the-shortchanged-members-claim-after-hassanein-v-nto-fund-i\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Legal Intelligencer: Three Routes Around the Derivative Trap: Litigating the Shortchanged Member\u2019s Claim After &#039;Hassanein v. 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