In Friend of Camden, Inc. v. Brandt (2022) (“Brandt”) the California Court of Appeal for the Second District has answered the question whether, after the commencement of a dissolution lawsuit, does the affirmative vote of 50% of the members of a limited liability company to dissolve remove the objecting members’ right to purchase the initiating members’ ownership interest under Corporation Code Section 17707.03(c)?
Under Corp. Code §17707.03(c)(1), after a dissolution lawsuit has been filed, members opposing dissolution may avoid dissolution by purchasing the ownership interests of the members initiating the lawsuit, at fair market value (FMV). Should the parties be unable to agree on the FMV, the court, upon the application of the defendant, is required to stay the dissolution proceeding and establish the FMV. Once the court has granted defendant’s stay, plaintiff cannot prevent the buyout by dismissing the lawsuit.
In Brandt, plaintiff who owned a one-percent interest in a limited liability company (LLC) filed a lawsuit seeking judicial dissolution of the LLC. In response, defendants, the other members of the LLC who together held 50 percent of the membership interests, filed a motion to avoid the dissolution by purchasing plaintiff’s one-percent interest. In turn, plaintiff, together with other members owning 49 percent of the membership interests in the LLC, for a total of 50 percent, voted to dissolve the LLC 39 days prior to the hearing on defendant’s motion and the trial court’s eventual order imposing a stay. Thus, the issue in Brandt was whether plaintiff’s vote to dissolve the 4
LLC, after commencement of lawsuit and after defendants had filed their motion, extinguished defendants’ right to purchase plaintiff’s one-percent interest and avoid dissolution of the LLC.
The Brandt court held that since Plaintiff had voted to dissolve the LLC prior to the trial court’s issuance of a stay, the vote of 50 percent of the LLC membership interests to dissolve the LLC must be given effect and, thus, it instructed the trial court to dismiss the buyout proceeding as moot and direct the parties to wind up the activities of the LLC.
LLC Members have significant rights when it comes to involuntary dissolution of the LLC. If you are a member of an LLC divided with others over whether to continue to do business of the LLC, contact your business attorney to discuss how to best approach the situation.
The information presented is not intended to be, and does not constitute, “legal advice.” Because each situation varies, and only brief summary information is provided here, you should not use this information as a basis for action unless you have independently verified with your own counsel that it applies to your particular situation.
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