On March 7, 2019, in Boschetti v. Pacific Bay Investments Inc., the California Court of Appeal for the First Appellate District held that a partner of a California general partnership, could not enforce California statutory buy-out provisions upon dissolution of foreign limited partnerships and limited liability companies owned by the general partnership.

In the case, Boschetti sued his partner, Sparks, and others for breach of fiduciary duty and other claims. Boschetti and Sparks had invested in real estate together through LLCs and LPs formed in Hawaii, Delaware, and Texas. In response to Boschetti’s complaint, Sparks sought
judicial dissolution of the foreign LPs and LLCs. Sparks then took the position that he and Boschetti were partners in a California general partnership that owned the foreign LLCs and LPs and sought judicial dissolution of the general partnership. Boschetti continued to seek to buy out Sparks’ interest in the foreign LLCs and LPs, but the trial court held that it could not order the buyout mandated under California statute for foreign LLCs and LPs.

Based on the internal affairs doctrine, that requires that the state of organization be applied to a dissolution, the appellate court upheld the trial court’s determination. None of the other states’ laws had a statutory buy-out provision similar to that provided by California law.

The court also looked at the buy-out provisions in California’s statutes (Cal. Corp. Code Sections 17707.03 and 15908.02) and determined that they only apply to domestic LLCs and LPs.

If you are involved in a limited liability company or partnership that is not organized under the laws of the State of California, you may not be able to stop a dissolution of the company or partnership. It will likely depend on whether the state of organization of the entity has a statutory buy-out right upon dissolution. To protect your interests it is imperative to seek legal counsel before you enter into a business relationship or choose a state of organization for your business.

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.