Friday, February 26, 2016
Yes, We Have No Series
Yes, We Have No Series
In a decision rendered by the Court of Special Appeals of Maryland, it considered and in turn rejected the assertion that an improper series LLC had, in effect, been created. Kurz v. AMCP-1, LLC, No. 1301, 2016 WL 547146 (M.D. Ct. Spec. App. Feb. 10, 2016).
The facts of the dispute are somewhat involved. Essentially, Kurz, along with several others, was an investor in a multi-component real estate development. While Kurz participated in the early capital calls, he ceased doing so. The agreement at issue contemplated a participant failing to satisfy future capital calls, and provided a dilution mechanism for that eventuality. Kurz would allege that the dilution mechanism was improperly applied in that his percentage interest in the already completed portions of the project were reduced. He asserted, rather, that the dilution should be applied only with respect individual components of the project.
After the trial court determined that the dilution mechanism had been properly applied, this appeal followed.
On appeal, Kurz asserted, inter alia, that the operation of the project and the court’s interpretation of the operating agreement created an “impermissible” (slip op. at 12) series LLC. Specifically:
Honey G-R’s theory proceeds in three steps: First, that the structure that the trial court’s order creates is not a traditional Maryland LLC; second, that the trial court must instead have created a “series LLC”; and third, that a Maryland court is prohibited from creating a series LLC. Slip op at 12-13.
Each of these assertions was rejected, it being explained that all the court did was interpret what was done, not create any new organizational forms. In connection therewith, the court made an interesting observation with respect to at least its understanding of the series LLC, namely:
Many of the benefits of a series LLC can be obtained by creating a family of traditional LLCs, with one master traditional LLC of which the members are, in turn, other traditional LLCs. The only difference is that we perceive-at least in the abstract, are differences of nomenclature and the requirement for filing fees. Slip op. at 13.
Let’s for now set aside the fact that likely the court meant that the master traditional LLC would be the member of other traditional LLCs.
Ultimately, however, this is not a case about series LLCs.