Judicial Dissolution and Arbitration

Judicial Dissolution and Arbitration

            The operating agreement of XYZ, LLC provides that “any dispute, controversy or claim arising out of or in connection with, or relating to this Agreement” shall be submitted to arbitration.  A member brings an action for judicial dissolution on the statutory basis that it is not reasonably practicable to operate the LLC in accordance with the operating agreement.  Should that action be referred to the arbitrator?  That question was considered last year by the Georgia Court of Appeals.  Simmons Family Properties, LLLP v. Shelton, 705 S.E.2d 258 (2010).

            The Court determined that the judicial dissolution would be tried by the Court and not be referred to arbitration.  Essentially, the Court reasoned that judicial dissolution is a creature of statute, existing independent of the operating agreement.  Not arising out of the operating agreement, which directed that disputes “arising out of” it be arbitrated, the matter was retained by the Court.  Id. at 260.

            I am not aware of a Kentucky court considering this issue.