When LLC Amendments Go Too Far: Delaware Court Enforces Member Consent Rights

Our prior eAlert discussed Delaware’s flexibility in allowing parties to craft their own LLC agreements, even if management wants a full-bore waiver of fiduciary duties which might otherwise protect the members. But enforcing agreement goes both ways. In Lehr v. Aspen Power Partners LLC, C.A. No. 2025-0116-LWW (March 30, 2026), the Delaware Court of Chancery reinforced a critical lesson for LLC management and fund sponsors: Even where an LLC agreement grants broad authority to restructure a company’s governance and economics, certain amendments may still trigger member consent rights under that agreement and ignoring those rights carries real litigation risk.

Background

The defendant in Lehr was Aspen Power Partners LLC, a Delaware renewable energy company formed in 2020 (Aspen) with four classes of membership “Units”: “A”, “B-1”, “C” and “Preferred”. The A Units were held by a management holding company, APP Management HoldCo LLC (APP), whose five members included Aspen’s founders and other early investors. APP’s LLC agreement required majority member approval for ordinary decisions by APP as manager of Aspen, but unanimous approval to grant any consent or waive or exercise any rights by APP under Aspen’s LLC agreement.

In 2022, Aspen adopted a Fourth Amended and Restated LLC Agreement (Fourth LLC Agreement) to admit a Carlyle Group affiliate as a member in exchange for a $200 million investment in Preferred Units. The Fourth LLC Agreement delegated management of Aspen to a board and included consent rights for members. In particular, its Section 14.2 provided that amendments in general required Carlyle’s consent and the board’s unanimous approval, but also required the prior consent of an affected Member (or class of Members) for an amendment that would alter a member’s rights to Aspen’s distributions, adversely and disproportionately affect the rights of any class relative to another, or adversely modify or waive a member’s preemptive rights.

In December 2024, to accommodate a new Carlyle infusion, Aspen adopted a Fifth Amended and Restated LLC Agreement (Fifth LLC Agreement) which made the following changes:

• transferred board control from APP to Carlyle;
• transferred invoking drag-along rights from APP to Carlyle;
• created Phantom Preferred Units (PPUs) for management;
• modified the distribution schedule to move up Carlyle’s priority; and
• altered members’ preemptive rights.

Despite objections from several early investors, the board unanimously approved the amendments on Christmas Eve 2024, without obtaining the consent of the affected members. These investors sued Aspen, alleging that Aspen adopted the Fifth LLC Agreement in breach of their consent rights under the Fourth LLC Agreement and also bringing a derivative breach of fiduciary claims against Aspen on behalf of APP.

The Court’s Analysis

The Court gave relief on two claims but dismissed the rest.

Surviving Claims: Distribution Schedule and Preemptive Rights

The Court found it “reasonably conceivable” that two of the amendments adversely affected members’ rights without their consent under the Fourth LLC Agreement:

• First was the modification to the distribution schedule. Both the Fourth and Fifth LLC Agreement had complex “waterfall” provisions, but the plaintiffs alleged that a seemingly technical timing change in the Fifth LLC Agreement “steer[ed] more distributable proceeds to [Carlyle] faster, before funds can trickle down to the lower levels of the distribution waterfall.” The Court found it reasonably conceivable that the change indeed did so, thereby altering the plaintiffs’ interest in company distributions and by extension triggering the member consent provision.
• Second was the modification to members’ preemptive rights. The Fourth LLC Agreement gave members the right to purchase their proportional share of any new equity issuances except for defined “Excluded Securities,” and the Fifth LLC Agreement expanded that definition. Aspen argued that these expanded exclusions did not adversely modify preemptive rights because they covered securities that had not existed under the prior agreement. The Court rejected this reasoning, holding that the Fourth LLC Agreement’s preemptive right “functioned as a catch-all, granting members the right to participate in any equity issuance not expressly excluded.” As this baseline right “captured all unspecified future securities, adding new categories to the exclusion list—even those that did not previously exist—shrunk the universe of securities to which it applies.” The Court also noted that a new waiver provision in the Fifth LLC Agreement required members to waive all rights to notice and participation in the planned issuances, reinforcing the conclusion that preemptive rights were adversely modified.

Dismissed Claims

The Court dismissed the other claims on standing and merits grounds.

• The Court held that the transfer of board control to Carlyle through additional board seats and enhanced voting power for Carlyle’s designees did not require member consent because the Fourth LLC Agreement (Section 5.8) delegated exclusive authority to the board to change its own composition and voting structure, and that specific provision trumped the more general consent requirements of Section 14.2.
• The Court also found that the issuance of PPUs did not trigger consent rights because PPUs were explicitly characterized as “not equity interests” and represented deferred cash compensation excluded from the LLC agreement’s definition of “Distributions.”
• The Court held that the transfer of drag-along rights to Carlyle did not trigger class consent protections because the drag-along right was an individual right belonging to whichever member held “Control” of Aspen, not a class right.
• On the derivative claims, the Court found that the members of APP lacked standing as they were not direct members of Aspen. The Court dismissed fiduciary duty claims against two individual defendants who served as both APP members and Aspen board members, holding that when they voted to approve the amendments they were acting in their capacity as Aspen fiduciaries and not APP management, and therefore owed no fiduciary duties to APP in that capacity.

Key Takeaways

1. Map every amendment against member consent triggers—especially economic terms. Lehr demonstrates that even changes to distribution mechanics that appear on their face to be neutral or technical can constitute adverse modifications requiring member consent. Likewise, expanding an “Excluded Securities” definition to cover new categories of equity narrowed a broad, catch-all preemptive right, which the Court treated as an adverse modification even though the new exclusions addressed securities that did not previously exist. Sponsors and LLC managers should pressure-test every proposed amendment, no matter how technical, against the specific consent provisions in the existing agreement before proceeding.
2. Draft with precision: use specific grants of authority, clear definitions, and tailored exclusions. The Court upheld the board’s power to restructure its own composition because a specific provision with a “notwithstanding” clause delegated that authority, overriding the agreement’s more general consent requirements. Similarly, the Court found that PPUs did not trigger consent rights because they were explicitly defined as cash compensation, not equity, and fell within an existing exclusion for employee remuneration. The lesson: Sponsors and management who anticipate future governance changes, incentive programs, or capital raises should build specific, self-executing authorization provisions into the agreement from the outset rather than relying on general amendment mechanics.
3. Structure holding vehicles and dual-role appointments with care. Members who hold their interests through an intermediary entity may lack standing to challenge the operating company’s LLC agreement directly or derivatively. The Court reinforced that beneficial ownership through a holding company does not satisfy the Delaware LLC Act’s strict standing requirements. Also, where individuals serve in overlapping capacities (for example, as officers of a management company and managers of the operating company) the agreements should specify clearly which duties attach to which role. The court in Lehr held that the individual defendants acted as Aspen fiduciaries, not APP management, when they approved the amendments, and this distinction was dispositive of the fiduciary duty claims.
4. Pay attention to consent rights imposed by statute. Our prior eAlert also looked at California law, and how California tries to impose its own member consent and other rights (for example, inspection rights, and dissenter rights upon a merger or other reorganization) even on a Delaware LLC with substantial California ownership and/or business. California and other states can still try to do that in addition to whatever member consent rights are in the agreement, so always pay attention to the laws of a state where the LLC has substantial (g., 25% or more) ownership and don’t assume Delaware law always governs there.