No Arbitration of Claim for Judicial Dissolution

No Arbitration of Claim for Judicial Dissolution

      In a decision from the Superior Court of Pennsylvania, it has been held that notwithstanding a comprehensive (i.e., “all dispute”) agreement to arbitrate in an LLC’s operating agreement, a member’s action for judicial dissolution of the LLC on the basis that it is “not reasonably practicable to carry on the business of the LLC in conformity with the agreement” is not subject to arbitration.  In re:  L & S IBC, LLC, No. 639-WDA 12 (Supp. Ct. Pa. Jan. 23, 2013). 

      Stephen Kovac and Laura Ebbert were the two members of L & S, a Pennsylvania LLC.  Ebbert held a 51% in the LLC while Kovac held the balance of a 49%.  After a breakdown in their romantic relationship, Kovac filed suit for judicial dissolution of the LLC on the basis that it was no longer reasonably practicable to operate the company in accordance with its operating agreement, he alleging that she had barred him from the company facilities and refused his involvement in company decision making.  She moved to have the action for judicial dissolution set aside in favor of arbitration, that being provided for in the operating agreement with respect to “all disputes.”  The trial court denied arbitration, and she appealed.

      The Superior Court upheld the determination of the trial court.  Essentially, while the arbitration clause of the operating agreement would be upheld with respect to any disputes under the operating agreement, an action for judicial dissolution arises outside of its confines.  Rather, the mechanism for judicial dissolution under the statute provides “an independent mechanism for the judicial dissolution of a limited liability company.”