Thursday, June 16, 2016
Assignee May Not Move for Dissolution of LLC
Assignee May Not Move for Dissolution of LLC
In a recent decision from Connecticut, it was affirmed that an Assignee of an interest in an LLC does not have the rights afforded a member to move for its dissolution, winding up and termination. Styslinger v Brewster Park, LLC, 321 Conn. 312 (Conn. Sup. Ct. May 17, 2016).
This case was succinctly summed up in the first paragraph of the decision, it providing:
In this appeal, we must determine whether the assignee of a membership interest in a Connecticut limited liability company (“LLC”) has standing to seek a court order forcing the winding up of the affairs of an LLC in the absence of the LLC’s dissolution. We conclude that the Assignee does not have standing to do so.
Brewster Park, LLC had two members, Michael Weinshel and Joyce Styslinger. In the course of her divorce, Joyce assigned her membership interest in Brewster Park to her husband William Styslinger III with the effect that William would receive the distributions from the LLC while Joyce would remain at member of the company unless and until William was admitted as a member. While William did ask Michael Weinshel that he be admitted as a member, Weinshel had not consented to that happening. William brought suit against both the LLC and Weinshel asserting that Weinshel has breached his fiduciary obligations to the LLC and to William by not making distributions to William while taking distributions for himself, and for refusing to allow William to inspect the LLC’s books and records. William’s prayer for relief included dissolution of the LLC and an appointment of a receiver to wind up its affairs and distribute its assets. Weinshel and the LLC responded, asking that the complaint be dismissed on the basis that an assignee does not have the standing to seek the dissolution of an LLC.
The trial court agreed that an assignee does not have standing to seek the dissolution of an LLC. Then, on appeal, William made an interesting, but ultimately ineffective, twist in his argument, asserting that, even as he abandoned his efforts to dissolve the LLC, he should be granted standing to seek the winding up and distribution of the LLC’s assets without the LLC undergoing a dissolution.
Noting that this is a case of statutory interpretation, the court found that, under the Connecticut LLC Act, the winding up of an LLC and the distribution of its assets are integral to dissolution of the entity; there cannot be a winding up absent dissolution. Ultimately it would find:
In the present case, none of the events of dissolution specified in § 34-206 has occurred and the plaintiff therefore cannot trigger a winding up of Brewster Park’s affairs. First, the plaintiff has not alleged that Brewster Park’s articles of organization have triggered a dissolution and it has no operating agreement. Second, the plaintiff has not alleged that its members voted to dissolve. Third, because the plaintiff is not a member of Brewster Park, he cannot pursue a judicial dissolution under § 34-207. Unless and until the plaintiff is admitted to membership, Joyce Styslinger continues to hold the sole power to exercise the rights accompanying her membership interest; see General Statutes §§ 34-170(a)(4) and 34-172(d); and she has not sought a judicial dissolution of Brewster Park in this action. Because no event of dissolution has occurred, and the plaintiff cannot force a judicial dissolution under § 34-207 as an assignee, we conclude that the Act does not grant the plaintiff standing to seek a winding up of Brewster Park’s affairs.
In a footnote, the court dismissed the plaintiff’s efforts to rely on the general incorporation of “principles of law and equity” into the LLC Act as granting him by the right to move for dissolution. Rather, the court noted that those principles were incorporated only to the extent not displaced by the language of the LLC Act. From there the court noted that, even accepting that equitable principles might otherwise grant an assignee the right to seek a winding up of an LLC, those principles have been displaced by the express terms of the LLC Act.
The court, in a footnote, distinguished the Delaware opinion in In re Carlisle Etc., LLC, 114 A.3d 592 (Del. Ch. 2015) on the basis of the differing treatments between Connecticut and Delaware law of the assignor. Under Delaware law, the assignor of all of their limited liability company interests ceases to be a member in the company. Under Connecticut law, the assignor (in this case Joyce) remains a member, to the effect that there is not a void in the exercise of rights with respect to the assigned limited liability company interest.