Returning to the Theme: The Personal Representative of a Deceased Member May Not Bring Action for Dissolution

Returning to the Theme: The Personal Representative of a Deceased Member
May Not Bring Action for Dissolution

In a recent decision by the Nebraska Supreme Court, it considered and rejected the suggestion that the personal representative of the estate of a deceased member could, with respect to the LLC, bring an action for, among other things, dissolution of the LLC. Benjamin v. Bierman, 305 Neb. 879, 943 N.W.2d 283 (2020). 

Mark Benjamin, deceased (“Mark”), was a 50% member in Sixth Street Rentals, L.L.C. (“Rentals”) with Douglas S. Bierman (“Doug”) and a 33.33% member in Sixth Street Development, L.L.C. (“Development”) along with Doug and Eugene J. Bierman (“Eugene”). Brenda, Mark’s widow and personal representative, brought suit against the LLCs and the other members for accountings, to dissolve both Rentals and Development, and damages. Negotiations as to the purchase of the estate’s interests in Rentals and Development proceeded through agreement on purchase price (determined by third-party appraisal), but then the buyers would not close. “The district court found that appellees breached the operating agreements of Rentals and Development, ordered an accounting for each, declined to dissolve either, and awarded Brenda damages of $22,200 with respect to Rentals and $473,233 with respect to Development.”

      In affirming the determination that Brenda, as Mark’s personal representative, lacked standing to bring an action for the dissolution of the LLCs, wrote:

Both Rentals and Development are limited liability corporations {sic – companies}, governed by the Nebraska Uniform Limited Liability Company Act. Under that act, a member is defined as “a person that has become a member of a limited liability company under section 21-130 and has not dissociated under section 21-145.” Neb. Rev. Stat. § 21-145 (Reissue 2012) provides that a person is “dissociated as a member from a limited liability company” upon the death of that person. Thus, upon Mark’s death, he was dissociated and was no longer a member per the definition of the term under the act.

Dissociated members' “right to participate as a member in the management and conduct of the company’s activities terminates,” and thereafter, a dissociated member has limited rights. In the instance presented here, the death of a member, “the deceased member’s personal representative or other legal representative may exercise the rights of a transferee provided in subsection (c) of section 21-141 and, for the purposes of settling the estate, the rights of a current member under section 21-139.” These rights are limited and primarily consist of the right to have access to records or other information concerning the company’s activities.

Brenda has alleged that dissolution is proper under § 21-147(a)(4)(B) and (a)(5)(B). Both of those subsections require an application to be made by a member, but Mark ceased to be a member upon his death. By virtue of this dissociation, Brenda is also not a member. As such, she cannot seek dissolution under the plain language of the act.

Nor are we persuaded by Brenda’s contention that article IX, section 2, of the operating agreement granted Mark the power to transfer governance power, along with his economic interest, in Rentals and Development. That section provides:

Any Member may transfer by gift or bequest all or any portion of his or her interest in the Company to a spouse or child of the transferring Member, or to a trust established for the benefit of such spouse or child, or to an existing Member of the Company upon written notice to the Company, of such gift or bequest.

We read the plain language of this section of the agreements as permitting the transfer of some or all of a member’s or dissociated member’s interest in a limited liability company by gift or bequest. Indeed, under Neb. Rev. Stat. §§ 21-140 and 21-141 (Reissue 2012) of the act, an interest in a limited liability company is personal property that is transferable. But any interest that is transferred is accompanied by limited rights, as discussed above. We do not read the language of the operating agreements as broadening the rights accompanying the interest to include governance power or, indeed, any other power beyond that permitted by the act.

We agree with appellees that Brenda lacks standing to seek dissolution, and therefore, we find no merit to her assignment of error on appeal.

      The court went on to affirm a determination that the defendants were liable for breach of contract, namely the failure to close on the repurchase, in accordance with the terms of the operating agreements, of Mark’s interests in Rentals and Development.