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.
Deeds and the “Full Names” of the Grantor and Grantee
In 2016, the Kentucky General Assembly passed amendments to the
statute governing deeds, adding a requirement that deeds set forth the “full
name” of the grantor and the grantee.See KRS § 382.135. All that is well and
good, but the statute did not define what is the “full name.”By way of example, must the name of a natural
person include any middle name, and must it be spelled out?Is a “Jr.” a required element of a name?
Amendments approved by the 2017 General Assembly address
For natural persons, the “full name” will be determined
under the same rules as are utilized under the UCC. See KRS § 355.9-503. Typically this will be the name as set forth
on the person’s driver’s license. Otherwise it will be the first given name and
For business entities, the “full name” will be determined by
applying the rules set forth in the assumed name statute.See
KRS § 365.015.As such, for a domestic
corporation, the “full name” will be the name set forth in the articles of
incorporation.With respect to a foreign
LLC qualified to transact business under a fictitious name, the “full name”
will be that fictitious name.
This amendment is set forth in SB 235, legislation sponsored
by Senator Morgan McGarvey. This amendment will be effective as of June 29,
My thanks to my law partner, Tony Schnell, who first brought
this problem to my attention.
Today marks the anniversary of the fall, in 1204, of Constantinople, one of the only two times that its famed walls would ever be breached.
Constantinople, after having been re-founded by the Emperor Constantine, was protected, on at least the landside, by an initial wall.The city subsequently expanded and it was in the early 5th century that the famous double Theodosian Wall was constructed.Over the years, these walls would deflect attacks ranging from the army of Attila the Hun to several long-term sieges by various Muslim forces.They would fall, ultimately, to a western Crusader army.
The Fourth Crusade intended, by means of an assault from the sea, to capture Egypt and thereby create a land base from which to again take possession of the Holy Lands and particularly Jerusalem; the few coastal cities remaining in the Crusader’s states were simply insufficient as a logistics base from which to act.From the start essentially nothing went to plan.Venice had been offered a significant contract to build and equip a fleet to move the Crusader army, its price calculated on a per capita basis.Venice, a preeminent trading venture, essentially stopped all activities for two years in order to perform its part of the agreement.When, however, time came for the Crusader army to depart, its numbers were significantly smaller than had been planned.Those Crusaders who were present simply did not have the wherewithal to satisfy their end of the bargain.After significant haggling, the reduced army departed, traveling first not to Egypt but rather to Zara, a city in the Adriatic that had earlier revolted again Venetian control.Part of the army’s debt to the Venetians would be satisfied by bringing Zara to heal.This action earned the Crusader army an excommunication issued by the Pope.
Having now picked up a particularly weak claimant to the Byzantine throne, one who assured the Crusaders and the Venetians that he would be welcomed with open arms if returned to Constantinople, the fleet headed for Constantinople.Needless to say, the Emperor was not pleased to find the fleet pulled up before the walls of his city, especially accompanied by a claimant to the throne.Relations between the Byzantine authorities and the Crusaders/Venetians started off bad and essentially only got worse.Ultimately, the fleet and the army would attack Constantinople and breach its walls, an event that for centuries forms a major iconographic event in Venice’s history. One means of entry were "flying bridges" mounted on the masts of the Venetian galleys - they sailed up next to the seaward walls and over-hanged the walls, then men at arms and knights climbed up the masts and walked over what must have been a precarious bridge. The city would fall and suffer a three day sack. The bronze horses that are featured on St. Marks Cathedral in Venice were part of the incalculable possessions stripped in the course of the sack. Ultimately one of the Crusader chiefs, Baldwin, would be placed upon the throne of Constantinople.
The so-called “Latin Kingdom” in Constantinople would survive for only fifty-seven years when it would fall, the throne again taken by the Greeks.However, the Latin Kingdom seriously weakened the Byzantine Empire, setting it up for its ultimate fall in 1453 to the Islamic Ottoman forces under Mehmet II.
of Capacity Does Not Eliminate Ability to Bind LLC
In a decision from California,
the court consider whether the failure to correctly identify the role in which
a person signed a document rendered the agreement unenforceable. In this
instance, the court answered “no.” Western
Surety Co. v. La. Cumbre Office Partners, LLC, 2017 Cal. App. LEXIS 77
In this instance, there was an
LLC (“Manager LLC”) that itself was the manager of another LLC (“Managed LLC”).
The Manager LLC was in turn managed by a natural person (“Person”). When,
however, Person signed a document on behalf of the Managed LLC, he incorrectly
identified himself as its managing member rather than the managing member of
its manager. The question under consideration is whether Managed LLC on whose
behalf the document had been executed was bound.
A pplying language from
California's prior LLC Act (although it is worth noting that the same language
appears in the current Act), the court found that Managed LLC was properly
bound notwithstanding the fact that Person had incorrectly indicated that he
was the manager of the LLC.
Sixth Circuit Court
of Appeals Applies Law Allowing Employee to Keep Handgun in Car on Company Property;
Once Removed From the Car the Protection was Eliminated
In a decision rendered earlier
this month by the Sixth Circuit Court of Appeals, it applied the Kentucky
statute providing that an employee is entitled to possess a handgun on company
property so long as that gun is kept in the car. In this case, an employee
removed the gun from the car, and thereby moving himself outside of the law’s
protection. Holly v. UPS Supply Chain Solutions,,
Inc., No. 16-5337 (6th Cir March 2, 2017).
Holly was an employee of UPS
Supply Chain Solutions. One day, while driving to work, he experienced car
troubles. His manager gave him permission to leave work and take the vehicle to
a repair shop, sending along another member of management to drive Holly back
Holly’s car, however, contained
a handgun in the center console. “Because Holly did not want to leave his
handgun in the car while it was at the shop, he asked a subordinate employee,
Kenneth Moore (who was working at the time, if he could store the gun in Moore's
vehicle while it was being repaired. Moore agreed, and, in the UPS SCS parking
lot, Holly removed the gun from his car and placed it in Moore's.” Slip op. at 2.
Moore, however, became uncomfortable with the idea of having the gun in his
car, and reported it to a supervisor. Later, UPS security became aware of the
incident and ultimately terminated Holly's employment. One of the bases for
that termination was his request that Moore do him a favor on company time, a
rationale later expanded to include “that the reasons for Holly’s termination
were: (1) misusing company time; (2) exhibiting poor decision-making skills; (3)
putting a subordinate in an awkward and potentially risky position; and (4)
general performance issues.” Holly then brought suit on the basis that his
termination violated Kentucky's public policy as set forth in KRS §§ 527.020
and 237.106. The former statute provides in part:
public or private, shall prohibit a person licensed to carry a concealed deadly
weapon from possessing a firearm, ammunition, or both, or other deadly weapon
in his or her vehicle in compliance with the provisions of KRS 237.110 and
In turn, KRS § 237.110
provides, in part, that a private employer “may not prohibit employees or other
persons holding a concealed deadly weapons license from carrying concealed
deadly weapons, or ammunition, or both in vehicles owned by the employee.” The
majority of the Sixth Circuit panel (Judge Rogers would file a dissent) found
the statute inapplicable in that the gun at issue was not in Holly's vehicle,
but rather had been transferred to Moore's. Hence, in effect, rather than on
having a handgun in his own vehicle at the employer's worksite, Holly had his
own handgun in Moore's vehicle, and in that action the statute did not protect.
“Surface” Deed Found
to Convey all Mineral Rights Except Specifically Excepted Coal
In a decision earlier this
month from the Kentucky Court of Appeals, notwithstanding that the subject deed
referred to a conveyance of the “surface” of the property, based upon its particular
wording, it was held that the “surface” deed conveyed all mineral rights except
the expressly excepted coal rights. Potter
v. Blue Flame Energy Corp., No. 2015-CA-000873-MR (Ky. App. March 3, 2017).
At this stage of this
long-running dispute, the question was whether all subsurface mineral rights
had been conveyed by a prior deed or, in the alternative, had only the coal
rights been conveyed, leaving to the holders of the surface rights title to the
oil and gas under the subject property. The trial court, granting summary
judgment, had held that only the surface rights had been conveyed, without any
mineral rights. The Court of Appeals would reverse that determination.
Focusing upon the language
separately treating the rights to coal and affording as well the “usual mining
rights… for removal of same,” it was held that the retained rights were only to
the coal estate and nothing more. Ultimately, the subject deed severed the coal
estate from the balance of the property, and had no impact upon the oil, gas
and other mineral rights. On that basis the rights to the non-coal mineral
rights went with the expressly addressed surface estate.
In a recent ruling from a trial
court in Massachusetts, it was reiterated that an LLC is legally distinct from
its members. In this instance, an LLC agreed that it would not bring a legal
action absent certain predicate acts. This provision was held not applicable
when the LLC’s members brought a similar action. Meunier v. Market Strategies, Inc., 1684CV01546-BLS2,
1684CV03592-BLS2 (Mass. Suffolk Ct. Sup. Ct. Feb. 23, 2017).
Market Strategies, Inc. (“MSI”)
purchased Cogent Research Holdings. In connection therewith, there were certain
deferred and Contingent Payments to be made. The owners of Cogent Research
apparently organized a holding company as the vehicle to which those new
payments would be made, and the purchase agreement so provided. A subordination
agreement made the contingent payments subordinate to certain loan obligations
to existing lenders to MSI. That subordination agreement went on to provide
that HoldCo “shall not … take any Enforcement Action with respect to” those
deferred payments absent the prior written consent of the lender’s
Ultimately, the members of HoldCo
would sue MSI in their individual capacities, asserting they were third-party
beneficiaries of the agreement pursuant to which Cogent was sold by MSI and
that there had been a breach in the making of the Contingent Payments. In
response, MSI sued HoldCo for breaching the covenant not to sue. HoldCo was
not, however, a party to the suit brought by its members and for that reason a motion
to dismiss was granted.
The court found that:
language of the covenant not to sue bars HoldCo, not its individual members,
from filing suit to compel MSI to make the Deferred and Contingent payments.
MSI does not allege that HoldCo itself is a refileable lawsuit or taken any
other enforcement action in violation of its covenant not to sue. Neither the
subordination agreement nor the purchase agreement contain a covenant barring Meunier,
White, and the irrevocable trust from bringing suit in an attempt to compel MSI
to pay over the Deferred Payment and Contingent Payment amounts to HoldCo. Presumably, it never occurred to MSI that it needed
such a covenant, since the purchase agreement specifies that those payments are
owed to HoldCo, and not to the individual owners and members of Holdco.
Nevertheless, the only covenant not to sue binds HoldCo. and not Meunier, White
or the trust.
Louisiana Court Holds That Assignee Member Is Not a Member With
Every LLC Act, as a default rule, requires some threshold of the members to
approve the admission of an assignee as a member in the company. Often left
unaddressed is whether an assignment among the members results in (a) the
assignee being, with respect to the assigned interest, treated as a member or
(b) treats the assignee, with respect to the assigned interest, as an assignee.
In an article recently published in the Journal of Passthrough Entities,
I reviewed two decisions, one from Delaware and one from North Carolina.Rutledge, Interest Assignments Among Members, J. Passthrough Entities (March/April
2017) 53; HERE IS A LINK to that article. The Delaware decision, Achaian, Inc. v. Leemon Family LLC, is
of little assistance in that it is the interpretation of what can be fairly
characterized as curious language in the subject limited liability company
agreement. 25 A.3d 800 (Del. Ch.
2001). This case is also reviewed in J.
William Callison, Achaianand interest transfers among existing partners
and members, Research Handbook on Partnerships, LLCs and Alternative Forms of
Business Organizations (Edward Elgar Publishing, 2015).In a similar vein, Ault v. Brady, 37 Fed. App, 222 (8th Cir. 2002), turned
on the wording of the particular operating agreement at issue.
The second decision reviewed in that article is Blythe v. Bell, 2012 NCDC 60,
2012 WL 6163118 (N.C. Super. Dec. 10, 2012). The one advantage of the Blythe decision is that it interpreted
essentially the default rules of the statute. In this decision, the North
Carolina Business Court determined that upon an assignment of all of the
interest from one incumbent member to another: (i) the management rights are
fully conveyed to the assignee; (ii) the assignee may exercise the management
rights related to the assigned interest.
The recent decision from Louisiana, Bourbon
Investments, LLCv. New Orleans
Equity LLC,207 So.3d 1088 (La. App. 4 Cir. 2016), came to the opposite
conclusion as did the Blythe court.
Curiously, the Blythe decision was
not referenced by the Louisiana court.
dispute arose out of a failed effort to acquire the famous Galatoire’s
Restaurant (as well as a related restaurant in Baton Rouge). One of the issues
in contention was whether the suit filed against the prior owners was
legitimate turned on the question whether it had been validly approved. In
support of the notion that there had not been valid approval of the lawsuit,
the defendants pointed to certain interest transfers amongst the members of the
plaintiff, claiming that required majority approval had not been received. In
opposition, the plaintiffs “maintain[ed] that the general rule that requires
unanimous consent for the transfer of full membership interest in an LLC does
not apply where such transfer takes place between current member.” The LLC at
issue not having a written operating agreement, the question turned on state
law, the court observing that:
La. R.S. 12:1330 provides that a membership interest in a limited
liability company is assignable, but such assignment entitles the assignee to
only “receive such distribution or distributions, to share in such profits and
losses, and to receive such allocation of income, gain, loss, deduction,
credit, or similar item to which the assignor was entitled to the extent
assigned.” La. R.S. 12:1332 provides that, except as otherwise provided in the
articles of organization or in an operating agreement, “[a]n assignee of an
interest in a limited liability company shall not become a member or
participate in the management of the limited liability company unless the other
members unanimously consent in writing.” The statute further states that an
assignor continues to be a member unless and until the assignee becomes a
Again, the plaintiff would argue “that the transfer restrictions set forth in
La. R.S. 12:1332 apply only when the assignment is made to a third party who
wishes to become a member of the LLC.” Rejecting this assertion, the court
would find that:
The literal language of the statue does not support Plaintiffs’
interpretation of La. R.S. 12:1332.The
plain language of the statute requires unanimous written consent of all members
for an assignee to become a member of or participate in the management of the
LLC. The statute does not differentiate between a third party assignee and a
current LLC member assignee.The fact
that the legislature did not draft a separate set of rules for membership
transfers between current LLC members further supports the conclusion that the
default transfer restrictions apply regardless of whether the assignee is a
third party or a current member.
you have it. At least under the North Carolina LLC Act, an interest assignment
among the members is not subject to the requirement of member approval to
constitute the assignee as a member with respect to the assigned interest. In
contrast, in Louisiana, the opposite is true, and the consent of the incumbent
members is required to constitute a member with respect to an additional
Several state statutes, with greater or lesser precision,
address this point. Tennessee exempts the transfer of management rights among
members from any requirement of consent from another member.SeeTenn. Code Ann. § 48-249-508(b)(1)
(“A member may, without the consent of any other member, transfer governance
rights to another member.”) Utilizing a different statutory formula, the
same result is dictated by the North Carolina LLC Act.
SeeNC LLC Act § 57D-5-04(b): [A] transferee of an ownership
interest [(a term of art defined to mean all of the rights and obligations
(economic, management, and others) of an interest owner in a LLC] or portion
thereof who is or becomes a member
has to the extent transferred to the transferee (i) the rights and powers and
is subject to the restrictions and liabilities of a member under the operating
agreement and this Chapter with respect to the transferred ownership
interest….” (emphasis added).
The new Pennsylvania LLC Act, albeit in a rather cryptic formula,
likewise exempts an assignment among members from any requirement of consent. See 15 Pa.
C.S. § 8851(b) (“Only right that may be transferred. – A person may not
transfer to a person not a member any rights in a limited liability company
other than a transferable interest.”) See
also Pa. Drafting Committee Comment:
section is patterned after Uniform
Limited Liability Company Act (2006) (Last Amended 2013) § 501.
Absent a contrary provision in the operating agreement or the consent of the
members, a “transferable interest” is the only interest in a limited liability
company that can
be transferred to a non-member. See
15 Pa.C.S. § 8852. As to whether a member may transfer governance rights
to a fellow member, the question is moot absent a provision in the operating
agreement changing the default rule, see
5 Pa..S. § 8847(b)(2), allocating governance rights per capita. In the default
mode, a member’s transfer of governance rights to another member: (i) does not
increase the transferee’s governance rights; (ii) eliminates the transferor’s
governance rights; and (iii) thereby changes the denominator but not the
numerator in calculating governance rights.
Bill Callison, Joan Heminway, Warren Kean and Lisa Jacobs for leads on various
cases and the Louisiana decision