On May 29, 2026, the Texas Business Court issued a memorandum opinion in Energy Founders Fund, LP v. Phillip Daskevich and Cris Curnutt Daskevich, Cause No. 26-BC11A-0004, addressing when a buyer qualifies as an “Affiliate” under an LLC agreement’s drag-along provision.
Background
The dispute arose from the proposed sale of ownership interests in Gage Western, LLC. Energy Founders Fund, LP (EFF) held Class A membership interests. Phillip and Cris Daskevich held minority interests, and Phillip Daskevich served as the Class B Director.
Section 9.2(c) of Gage Western’s company agreement allowed a “Dragging Member” to compel other members to liquidate their interests in connection with a “Controlling Sale,” defined as a bona fide sale to persons who were not “Affiliates” of the Dragging Member.
EFF pursued a transaction involving GW Allen, LLC, a newly formed acquisition vehicle owned by PJC Investments, LLC. The Daskeviches argued that GW Allen was effectively EFF’s Affiliate because EFF negotiated for post-closing governance rights, including future board-designation rights, quorum protections, and veto authority. EFF responded that Affiliate status depended on present control, not rights arising only after closing.
The Court’s Analysis
The company agreement defined “Affiliate” as a person who “controls, is controlled by, or is under common control with” another, and defined “control” as the “possession, directly or indirectly, of the power to direct or cause the direction of the management and policies” of an entity, whether through equity ownership, contract, or otherwise.
The Court granted EFF’s cross-motion for partial summary judgment, holding that GW Allen was not an Affiliate of EFF in connection with the Nov. 15, 2024, transaction and that the transfer did not violate Section 9.2(c).
The Court emphasized that the Affiliate definition used present-tense language and gave significance to “possession,” concluding that an Affiliate relationship required existing authority, not a future or contingent right.
The record showed that, before closing, PJC owned 100% of GW Allen, PJC’s COO served as GW Allen’s sole manager, and EFF had no equity interest, voting rights, management authority, contractual right to control GW Allen, or ability to bind GW Allen. Although EFF negotiated for post-closing governance rights, those rights did not yet exist.
The Daskeviches argued that Section 9.2(c)’s “in connection with” language required the court to consider the transaction as an integrated whole, including post-closing governance documents. The Court agreed that related documents could be read together but held that doing so did not change the timing required by the Affiliate definition. Post-closing governance rights do not retroactively create pre-closing Affiliate status.
Implications of the Decision
The opinion addresses a recurring transactional question: when should Affiliate status be measured, and what rights count as “control”? Under this company agreement, Affiliate status required present possession of governance power. Future rights did not establish control before they became effective.
The decision reflects that drag-along provisions should be coordinated with Affiliate definitions, transfer restrictions, rollover equity provisions, board rights, veto rights, and closing mechanics. If future governance rights or rollover arrangements are intended to affect whether a drag-along sale is permitted, the agreement should say so.
Practice Points
- Define the relevant time for Affiliate status. Consider specifying whether Affiliate status is measured at signing, notice, closing, or another point in the transaction timeline.
- Address rollover equity and post-closing rights directly. If retained equity, board seats, consent rights, veto rights, or observer rights are intended to affect drag-along rights, include clear language to that effect.
- Account for acquisition vehicles. Many transactions use newly formed subsidiaries or special purpose entities. The agreement should address how those buyers will be treated for purposes of transfer restrictions and drag-along rights.
- Do not rely on broad phrases alone. Language such as “in connection with” may allow related documents to be considered but may not override a more specific definition focused on present control.
- Build a clear record. When Affiliate status may be disputed, document ownership of the buyer, management authority, who can bind the entity, when governance rights become effective, and whether any control rights exist before closing.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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