Key Takeaways
- The Maryland Supreme Court ruled that general damages—not specific performance—are the appropriate remedy when an investor is denied the right to purchase LLC membership interests, unless the investor proves they are ready, willing and able to invest on the same terms as the founders.
- The Court held that general damages must be calculated using fair market value, not fair value, at the time of breach minus the price the investor would have paid.
- JGL’s client avoided transferring a one-third ownership stake in their multi-million dollar nationally franchised indoor play company and saw damage awards reduced from $1.25 million to $1.
- The ruling provides crucial protection for Maryland businesses facing investment contract disputes and clarifies a significant 2012 Maryland Supreme Court decision.
Background
An investor who was denied a contractual right to purchase membership interests in two companies formed by JGL’s client, Maryland Indoor Play, LLC (MIP)—a nationally franchised indoor play company—sued for breach of contract. The investor claimed rights to purchase ownership stakes in what had become a multi-million-dollar franchise operation with locations across multiple states.
The Circuit Court for Howard County awarded the investor specific performance for one of the membership interests and compensatory damages of approximately $1.25 million for the other investment opportunity, plus $440,000 in attorney fees and costs. The Appellate Court of Maryland upheld these decisions, creating total exposure of over $2.5 million for JGL’s client, plus the forced transfer of a one-third ownership stake.
The Ruling
In Maryland Indoor Play, LLC v. Snowden Investment LLC, the Supreme Court of Maryland issued a landmark decision that fundamentally changed how courts handle breach of contract cases involving LLC membership interests. JGL principal Roy Niedermayer, who represented Maryland Indoor Play, LLC and its individual members through both trial and appellate levels, secured this complete victory from the state’s highest court.
The Supreme Court reversed the specific performance order, ruling that investors seeking forced ownership transfers must meet a higher burden of proof—demonstrating they are “ready, willing and able” to invest on the same terms as founders. The Court also established that damage calculations must use fair market value methodology rather than fair value approaches, potentially reducing awards significantly in similar cases.
The decision clarifies and reaffirms Maryland’s approach to investment contract disputes while providing businesses with stronger protections against frivolous ownership claims.
Conclusion
This precedent-setting victory saved JGL’s client from a devastating multi-million-dollar judgment while establishing crucial legal protections for Maryland’s business community. The ruling reversed the specific performance order requiring transfer of valuable franchise ownership, vacated the $1.25 million damage award, and eliminated the $440,000 attorney fee judgment—reducing the total judgment to just $1.
The decision provides essential guidance for franchise owners, LLC members, and business investors structuring membership interest agreements, while strengthening Maryland’s business-friendly legal environment for investment disputes.
View the decision here (PDF)