Member Not Removed Prior to Death

                                                    Member Not Removed Prior to Death

A recent decision from Illinois considered whether an individual was disassociated from an LLC by the actions of his parents or in contrast he remained a member through his death to the effect his estate became his assignee? It was the latter. Haohlbaugh v. Hohlbaugh, 2025 IL App (5^th) 240826-U (Oct. 2, 2025).

KBK, LLC was organized in Illinois in 2001 by Ken and Babara, husband and wife, and their son Kevin; all were names as members in the filed articles. In 2003 Ken filed with the Illinois Secretary of State an amendment to the article deleting Kevin from the listing of members. Still, Ken and Barbara directed that KBK make certain payments to Kevin through his death in 2020. The backstory is that this suit was brought by Kevin’s widow, she’s asserting the estate held a one-third economic interest in KBKB while Kevin’s parents asserted he had no interest to be transferred to his estate.

As explained by the court:

Ken testified that he and Barbara thought it was prudent to remove Kevin as a member of the company because Kevin and his wife were separated, and Kevin was not paying his bills. Ken admitted his intent in filing the amendment to KBK’s articles of organization was to take away Kevin’s ownership share in KBK. Ken also admitted saying that “he put [Kevin] in, so I can take him out.” Ken thought that a majority of the members of a limited liability company could vote to remove another member. Ken testified that “the majority” removed Kevin. Ken believed that the filing of the articles of amendment made the dissociation valid. Ken also acknowledged that the members of KBK did not enter into a written operating agreement.  2025 Il. App. (5^th) 240826-U, ¶ 12.

Rejecting that assertion and reversing the trial court, the Court of Appeals wrote:

At the time of these events, the consent of all members of a member-managed company was required for an amendment to the company’s articles of organization. There is no evidence that all three members of KBK consented to the amendment of the articles of organization as required in the Act. Ken testified that he and Barbara agreed that Kevin should withdraw as a member, and that a majority agreed to the amendment. Ken also acknowledged saying that he made Kevin a member of KBK and that he could remove Kevin from membership. Barbara did not testify. Therefore, the evidence indicates that only two of three members agreed to amend the articles of organization. 

The circuit court, however, determined that in the absence of terms for disassociating in an operating agreement, a member could be disassociated by majority vote of the other members. This determination is at odds with the provisions in section 35-45 of the Act. The circuit court departed from the plain language of the Act by reading into it an exception or new event resulting in dissociation that was not included in the text of the statute, and this was error. In addition, the circuit court’s concern that the members of a company would be “unable to break the LLC relationship until one member dies” is unfounded. Under the Act, members of a limited liability company have options for the dissociation of a member or dissolution of the company. For example, under specified circumstances, the company or a member could file an application for another member’s expulsion by judicial determination. A member could also be expelled by unanimous vote of the other members under specified circumstances. And, a member could apply for a decree of judicial dissolution of the company. Finally, the members could have opted to enter into an operating agreement to regulate the affairs and conduct of the company and to govern the relationships among the members. 

Given the failure of the members of KBK to comply with the statutory provisions governing amendments to the article of organization and the statutory provisions governing dissociation, the filing of the articles of amendment in June 2003 did not effectuate the dissociation of Kevin as a member of KBK. In keeping with the provisions of section 35-45, which are controlling, Kevin was dissociated from KBK on his death in April 2020, and not before. Id. ¶¶ 36-38 (citation omitted)

The lesson is clear; if you want a right to expel a member, and it is not clear that the underlying state law creates that right, you need to put it into a written operating agreement. 

Ohio Court Allows Issuance of Charging Orders Notwithstanding Uncertainty

                Ohio Court Allows Issuance of Charging Orders Notwithstanding Uncertainty

A recent admission from a Federal district court sitting in Ohio applying that states LLC Act found that changing orders could be issued not withstanding questions as to whether they would be ultimately effective. JobsOhio v. Emkey Energy, LLC, 2025 WL 2780920 (S.D. Ohio Sept. 30, 2025).

A company named RH energytrans, LLC borrowed $4 million from JobsOhio to complete a natural gas pipeline; EmKey Gathering LLC delivered in connection therewith a guarantee. Later EmKey Energy LLC assumed the loan agreement. Further, in connection with that assumption Risberg, EmKey Energy’s CEO, delivered another guarantee. After a short-term payment deferral during the Covid-19 pandemic payments did not resume, and JobsOhio accelerated the loan and filed suit to collect. Ultimately an agreed judgement was entered against EmKey Energy and EmKey Gathering for just less than $5 million. The next day JobsOhio sought the first of the charging orders that are the subject of this decision.

The first charging order sought to lien any distributions from either EmKey Gathering, LLC or EmKey Gas Processing, LLC to EmKey Energy. There was then sought another charging order as to EmKey Gathering’s interest in CGE Venture, LLC. There was as well a garnishment that is not otherwise the subject of this decision.​

As to the charging orders addressed to EmKey Gathering and EmKey Processing, EmKey Energy asserted that its interest in Gathering had already been assigned to a prior lender and that processing assets were encumbered to the effect that neither would be making distribution to Energy that could be subject to the charging order. Rejecting that argument as to EmKey’sinterest in Gathering, the Court wrote:

EmKey Energy suggests that no charging order can be issued against its membership interest in EmKey Gathering because this equity interest was pledged in 2011 to Amegy—and then later transferred from Amegy to Hallan—such that Hallan has been assigned the entirety of EmKey Energy’s membership interest in EmKey Gathering as part of consideration for loans.…. Even if EmKey Energy is not poised to receive immediate distributions from EmKey Gathering, Plaintiff is entitled to a charging order. That is because “[t]he priority of the charging order lien vis-à-vis other creditor claims against the judgment debtor is a matter governed by other law.” 1 Ribstein and Keatinge on Ltd. Liab. Cos. § 10:32 (June 2025 Update) (emphasis added). Courts issuing charging orders need not determine the “priority” of the order “over the judgment debtor’s other creditors orlienholders,” because “a hypothetical priority dispute in the future is not sufficient reason to prohibit the Court from entering such an order.” 2025 WL 2780920, *3.

As to the Processing charging order:

Next, EmKey Energy concedes that it “still retains its membership interest in EmKey Processing,” but argues that its “membership interest is of little value” in light of “prior and superior liens” on EmKey Processing’s assets, and the fact that EmKey Processing has never operated at a profit or had a distribution to EmKey Energy. (ECF No. 33 at 5). This argument is irrelevant. As previously noted, the existence of other liens does not invalidate a requested charging order. 1 Ribstein and Keatinge on Ltd. Liab. Cos. § 10:32 (June 2025 Update). 2025 WL 2780920, *4.

Turning to EmKey Gathering’s interest in CGE Venturo, it was again argued that no charging order may be issued when the interest has been assigned and, you guessed it, the Court said it did not matter:

This Court need not determine the nature of the purported assignment of EmKey Gathering’s membership interest at this juncture, as it agrees with Plaintiff that even if EmKey Gathering’s membership interest was assigned, such an assignment would not bar a charging order…. 2025 WL 2780920, *5.

I will just add that in addition to two citations to my favorite LLC treatise, this is a solid opinion; the challenges by so many judgment-debtors to the issuance of charging orders as to LLCs and other unincorporated associations in which they have an interest on the basis of “there is no value there” are and should be self-defeating.  If there is no value there why are you spending time and energy seeking to avoid the charging order?  The lady doesth protest too greatly?