Category: Dissociation Issues

MORE ABOUT THE CARLISLE CASE

By , May 5, 2015 8:16 am

In case you’re intrigued with the issue of petitions for “equitable dissolutions” of LLCs by “mere assignees” (admittedly a pretty rarified topic), Kurt Heyman, the partner of Vern Proctor (the co-author of my Wolters Kluwer book) has the following brief discussion (in quotes) about the Carlisle case, which addresses the issue.  Kurt handled the case in the Delaware Court of Chancery.

Delaware Court of Chancery Recognizes “Equitable Dissolution” of LLCs

The Court of Chancery, per Vice Chancellor Laster, just issued an Opinion (attached) denying a motion to dismiss the petition for dissolution in In re Carlisle Etcetera LLC, C.A. No. 10280-VCL.  This decision appears to be the first in Delaware to provide strong support for the concept of “equitable dissolution” of LLCs.

The respondent, Tom James Company, moved to dismiss on the grounds that the petitioners lacked standing to seek judicial dissolution under Section 18-802 of the LLC Act, because neither was a member of the LLC as a result of (a) the LLC agreement’s silence on the issue of assignments and (b) the original member’s (WU Parent) assignment of its interest to its wholly owned subsidiary (WU Sub).  (See Section 18-702 of the LLC Act regarding the effect of assignments where the LLC agreement is silent on the issue.)

The Vice Chancellor agreed with Tom James’ argument, notwithstanding the fact that Tom James was aware of the assignment when it occurred and treated the assignee as a member, and therefore held that the petitioners lacked standing to seek judicial dissolution under Section 18-802.

However, in a lengthy analysis of the Court’s equitable jurisdiction, the Vice Chancellor found that the assignee nevertheless had standing to seek “dissolution in equity,” and consequently denied the motion to dismiss.  The critical holding of the case is as follows:

“James argues that because neither WU Parent nor WU Sub can seek statutory dissolution under Section 18-802, this case must be dismissed. In my view, James errs in contending that Section 18-802 is the exclusive extra-contractual means of obtaining dissolution of an LLC.  Under the facts of this case, WU Sub has standing to seek dissolution in equity.”

Because the Court took pains to note that its finding was based on “the facts of this case,” a careful analysis of those facts is necessary before concluding that the decision applies to another case.

 

Proctor Heyman Enerio LLP represents the petitioners in this action.”

CHOOSING AND USING EXPERTS IN APPRAISING THE VALUE OF THE MEMBERSHIPS OF DISSOCIATED LLC MEMBERS

By , February 19, 2014 9:56 am

The operating agreements of multi-member LLCs often provide that upon the occurrence of a specified “event of dissociation” of a member—e.g., death, resignation or disability—the dissociated member will have the right to require the other members or the LLC to buy out the dissociated member’s LLC membership.  The forms in my Wolters Kluwer LLC book and many other operating agreement forms provide that if the parties cannot agree on the buy-out price at the time of the event of dissociation in question, this price will be resolved in arbitration.

Obviously, an arbitration concerning the value of an LLC membership should be handled by a business valuation expert.  But choosing the right expert and handling disputes between opposing experts can be very complicated and difficult tasks.  For a learned yet highly practical discussion of these tasks by Peter Mahler in his most recent blawg post, click here.  Peter’s discussion is under New York law, and it is focused on issues arising in litigation.  However, his ideas can also be highly useful in planning the terms of operating agreements in LLC formations.