In
a decision rendered at the end of September, the Kentucky Court
of Appeals was called
upon to interpret and apply “or” in an LLC’s operating agreement. In this instance, the reading of the plaintiff, whose expulsion and redemption from the LLC was sought, was rejected, and a more commonsense
interpretation of
the operating agreement was adopted. Rogers v Family Practice
Properties of Lexington, LLC, No. 2015-CA-001557-MR, 2017 WL 4334111 (Ky. App. Sept. 29, 2017).
The plaintiff, Rogers, practiced medicine with and was a shareholder in Family Practice Associates
of Lexington, PSC (“Associates”). The Associates operated
from property
owned by Family Practice Properties of Lexington, LLC (“Properties”), an entity which had overlapping, but not entirely contiguous, ownership with Associates. The operating agreement
of Properties, at Article 16.6, provided a mechanism under
which the interest of a member could be redeemed, including:
In the
event that (a) a Member is no longer employed
by [Associates], or (b) in the case of any Members who are shareholders
in [Associates], such Member is no longer a shareholder in [Associates].
In November, 2012, Rogers was advised by Associates that it was terminated
his employment
effective January 18, 2013.
Thereafter,
the members
of Properties
(except Rogers) held a meeting in which they elected to exercise the option to redeem his interest therein. While there was some back-and-forth
with respect
to the selection of appraisers, Rogers ultimately
took the position that Properties had
no right to redeem his interest because, while he was no longer employed
by Associates, he remained a shareholder in Associates. On that basis, he asserted no right of redemption could
take place. Rather:
Dr. Rogers argued that the Operating Agreement
is plain and unambiguous
and that the word “or” as used in Article 16.6 of the Operating Agreement
is disjunctive. Accordingly, Dr. Rogers argued that the correct interpretation of
Article 16.6
is that a member of Properties
who is not a shareholder of
Associates could
be involuntarily
bought-out of Properties once
that member’s
employment with
Associates was terminated, but a member of Properties was/is also a shareholder of
Associates could
only be involuntary bought-out when that member ceased to be a shareholder
of Associates.
Finding that the contract was not ambiguous, a position adopted by all the parties hereto, the court began by noting “our interpretation of
the Operating
Agreement is
limited to the plain meaning of its express terms.” From there it determined that:
As used in Article 16.6, the word “or” denotes that there are two alternatives, either which will give Properties the option to purchase a Member’s interest. Dr. Rogers is undisputedly
a Member of Properties, as defined in the recitals of the Operating Agreement. Therefore, Properties has the option to purchase his membership interest
from him when either his employment
with Associates
or his ownership interest in Associates is terminated. Dr. Rogers was terminated from
Associates effective
January 18, 2013, triggering Properties’ right to exercise its option under Article 16.6(a). 2017 WL 4334111,*4 (emphasis
in original).
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