This blog, written by Thomas E. Rutledge, focuses primarily on business entity law in Kentucky. Postings on contract law, contractual and statutory construction, and the entity law of other jurisdictions appear as well. There may as well be some random discussions of classical, medieval and renaissance history.
In a recnt decision of the Delaware Chancery Court, it was
held that where a purported transfer of LLC interest was not made in compliance
with the operating agreement, the court would enforce the agreement’s
determination that the attempted transfer would be “null and void.” Absalom Absalom Trust v. Saint Gervais LLC,
C.A. No. 2018-0452-TMR, 2019 WL 2655787 (Del. Ch. June 27, 2019).
Anne Deane owned a 35.96% membership interest in Saint Gervais
LLC. Anne was one of the children of Disque and Carol Deane, who had formed Saint
Gervais “to pass on wealth to their children ... while maintaining control over
that wealth.” Anne purported to transfer her interest to the Absalom Absalom Trust.
The current dispute arose when Absalom sought to expect company books and records
for a variety of reasons including a determination of the value of its
interest, to determine the financial condition of Saint Gervais and investigate
mismanagement and other improper conduct in connection with Saint Gervais’
management. In response, notwithstanding that certain documents had previously
been provided, Saint Gervais defended on the basis that the trust was not a member
of the LLC. Rather, its operating agreement, at section 5.2, provided that any
disposition of an interest in the company required the prior unanimous written
consent of the managers, and that failure to satisfy those requirements would
render the transfer “null and void.” Specifically, it provided at section 5.2:
“[A] Member may dispose of such Member’s membership interest
in the company in whole or in part only with the prior written consent of all
of the Managers which consent may be given or withheld in their sole and
absolute discretion. Any purported disposition of a membership interest in the
company without the prior written consent of all the Managers shall be null and
agreement as well provided a comment at section 5.3:
“An assignee of a membership interest shall be admitted as a
substitute Member … only with the prior written consent of all of the Managers,
which consent may be given or withheld in their sole and absolute discretion.
Any purported substation of a Member in the Company without such prior written
consent shall be null and void.”
Holding that this case was quite similar to that recently
resolved by the Delaware Supreme Court in CompoSecure,
L.L.C. v. CardUX, LLC, 206 A3d 807 (Del. 2018), finding that:
The parties agree that Anne’s transfer of her membership to
Absalom occurred without prior written consent. Thus, by the plain and
unambiguous terms of the LLC Agreement, the transfer has no effect, meaning
Absalom holds no interest in the Company. Slip op. at 9.
there the court rejected a number of arguments, all equitable in nature, to the
effect that equitable principles cannot enforce an agreement that, by its
terms, is “null and void” and therefore not subject to ex-post ratification. In addition, the court rejected the trust’s
argument that the provision with respect to limiting transfers was meant to
preclude strangers from becoming members, “which is not a concern here because
there is no real difference between Anne and Absalom.” Slip op. at 15. This position
was rejected on the basis that, applying the words as set forth in the
agreement, “whether or not an assignee is a stranger does not impact the intent
as reflected in the four corners of the contract, and thus, it also does not
impact Absalom’s lack of standing in this case.” Slip op. at 16.
It is entirely possible that the phrase “An Interesting Case
On Registered Agents” is a phrase that has never been a uttered. In fact,
issues dealing with registered agents and offices are typically mechanical.
However, I recently stumbled upon a case that demonstrates the importance of
precision with respect to identification of the registered agent. Pickens v. Aahmes Temple #132, LLC, 104 N.E.
3d 507 (Ill. App. Ct. (5th) May 18, 2018).
Pickens alleged that she suffered a slip and fall at a
nightclub operated by Aahmes Temple #132, LLC. She filed suit, and was awarded
a default judgment. After a significant passage of time, the LLC finally answered,
seeking to have the default set aside on the basis that the complaint had never
been delivered to its registered agent. Ultimately, that argument would be
The LLC had identified as its registered agent “Jesse Gurley”
and provided a residential address for him. It later came to pass that in fact
there were three gentlemen at that address with the name Jesse Gurley they
being, respectively, III, IV and V. “The defendant intended that it’s
registered agent was to be Gurley IV, but the defendant’s designation of its
registered agent did not include a suffix to distinguish which of the Jesse Gurleys
located at its registered office was its registered agent.” It was ultimately
determined that the complaint had been served upon Jesse III. The court
According to Bouas [process server], the person who answered
the door and identified himself as Jesse Gurley, accepted the service of the
summons and complaint, and did not indicate he was the incorrect person or that
he did not understand what was presented to him.
A number of other pleadings in the matter, including the
application for a default judgment, were likewise served at the Gurley residence,
apparently none of them being actually delivered to Gurley IV.
Responding to the effort to have the default judgment set
aside, the court imposed upon the LLC the consequence of not clearly
identifying the registered agent, writing:
In the present case, as noted above, the defendant’s
articles of organization set forth “Jesse Gurley” as its registered agent and
set forth Gurley III’s home address as its registered office. Although Gurley
IV testified that the defendant intended to name him as its registered agent,
not Gurley III, the defendant’s articles of organization failed to make such a
distinction. The process server relied on the defendant’s representations to
effect service of process on the company, and the process server complied with
the defendant’s express representations with respect to both the exact name and
location of its registered agent. Service on a person bearing the exact name as
the company’s registered agent and located at the exact address of the
company’s registered office is service that is calculated to give the defendant
fair notice of the pending lawsuit. Based on the statutory scheme outlined
above, we believe that the legislature intended for such service to be
effective under section 1–50 of the Limited Liability Company Act.
Had the defendant identified its registered agent as Jesse
Gurley IV or had the process server served Gurley III at a location other than
the defendant’s registered office, our conclusion might be different. Here,
however, the process server delivered the summons according to the defendant’s
directions. If the defendant’s statutory obligation to establish its registered
agent and registered office is to have any meaning, then service on a person
having the exact name as the defendant’s registered agent and located at the
exact address of the defendant’s registered office has to be effective service.
The defendant had absolute control concerning the identification and location
of its registered agent; it cannot now escape the consequences of the manner in
which the summons was delivered when it was delivered in accordance with its
own manifestations of agency.
On this day in 100 b.c., there was born in Rome Gaius Julius
Caesar. Before his assassination in 44 b.c., famously on the “Ides of march,”
he would serve multiple terms as a counsel of Rome and some five and a half
years in the official office of Dictator.The First Civil War, precipitated by the “Crossing of the Rubicon,” led
to the initial failure of the Roman Republic, a failure that would find its
completion is the Second Civil War precipitated by his assassination and the
rise of the Roman Empire under its first emperor Caesar (Octavian) Augustus,
Caesar’s post-death adopted son and heir.
Today is the anniversary of the death in
1536 of Erasmus of Rotterdam, the Prince of the Humanist.Erasmus devoted his career and his mastery of
Latin and Greek to translating and commenting upon sacred texts including a new
translation of the New Testament and non-sacred literature such as the writings
of Seneca.Along the way he wrote the Colloquies and the Adages, social commentary such as the Praise of Folly and on the need for internal reform of church
practices including one of my favorites the Julius
Exclusus.He wrote a “paraphrase” of
the New Testament (far longer in paraphrase than was the original text) that
under Edward VI (in English translation) was required to be in every English
church.The future Queen Mary I (Mary
Tudor) translated a portion of the Paraphrases into English.The Paraphrases feature in the third of the
Kingsbridge novels of Ken Follett, the Pillar
He and Sir Thomas More were the best of
friends, and the Praise of Folly was
written while he was staying with More.
It’s not that I think a lot of Erasmus,
it’s just that I have copies of his portrait hanging in both my house and my
In at least the first episode of The
Orville, behind the captain in his office are some bookshelves – one of the books
is The Cloister and the Hearth.This novel is an imagined account of the
lives of Erasmus’ parents. Of more recent vintage, the book Fatal Discord recounts in parallel the
lives of Erasmus and Luther and their conflict over the Reformation.
A recent decision from a Federal District Court in Indiana
succinctly recited what is required in order to plead that there exists
diversity of citizenship when one of the parties to the action is a limited
liability company. Smith v. Dodson, Cause
No.: 2:17-CV-372-TLS, 2019 WL 2526328 (N.D. Ind. June 19, 2019).
This action, originally filed in state court, was removed to
federal court based upon the defendant’s assertion that there existed diversity
of citizenship. Finding that the notice of removal was deficient with respect
to the identification of the defendant LLCs’ citizenship, the court observed
that “the name and citizenship of each member of a limited liability company
must be identified to determine diversity jurisdiction.” After noting the rule
that, where a member of an LLC is themselves an unincorporated association such
as another LLC, the names and citizenship of those second (and higher) tier
members must be identified, the court wrote:
Although the Notice of Removal alleges generally that the
members of Defendant Swift Transportation Co. of Arizona, LLC and Defendant
Swift Transportation Services, LLC are citizens of Arizona, the Defendants have
not identified each member of the limited liability companies. Thus, the
Defendants must identify the name and citizenship of each member of each limited
liability company defendant as of September 21, 2017.
Another Sighting of the Elusive Limited Liability Corporation
In a recent decision from New York, there
was addressed how a “limited liability corporation" would be assessed for
purposes of federal diversity jurisdiction.Harley v. Streamlicensing Networks LLC, 18-CV-9528
(CM), 2019 WL 2866563 (S.D. N.Y. July 3, 2019). Therein the court wrote: