Indiana Court Of Appeals Applies Venerable Rule Of "No Backsies" To Withdrawal From LLC

Indiana Court Of Appeals Applies Venerable Rule Of "No Backsies" To Withdrawal From LLC

      In a decision rendered last week by the Indiana Court of Appeals, it applied the general venerable rule of “No Backsies” with respect to a former member's effort to bring challenges to his removal from an LLC. Stocker v Sundholm, No. 02A-03-1603-PL-615, 2016 WL 568-5422 (Ind. App. Nov. 7, 2016).

      Stocker had been a member, as well as an “employee,” of an Indiana LLC named Attero Tech LLC. On the basis that Attero’s business model had changed and Stocker's services as an employee were no longer needed, on June 23, 2011 he was provided with a notice of termination of employment, effective immediately. Thereafter, on September 1, a special meeting of the members of Attero was noticed for the purpose of discussing a buyout of Stocker's interest in the LLC. Stocker did not attend that meeting. However, thereafter, Stocker was presented with a withdrawal and redemption agreement pursuant to which his interest in the company would be redeemed. That agreement was accepted by Stocker, signed and delivered. The company has been performing on its redemption obligations. It contained a comprehensive release of claims against Attero and various of its representatives. Specifically, the release provided:

Departing Member [Stocker] hereby releases and forever discharges [Attero] respective directors, officers, employees, agents, shareholders, subsidiaries, affiliates, successors and assigns from any and all claims, demands, proceedings, causes of action, orders, obligations, contracts, agreements, debts and liabilities whatsoever, whether known or unknown, suspected or unsuspected, both at law and in equity, which [Stocker] now has or has ever had against [Attero] arising prior to the Effective Date; provided, however, that nothing contained herein shall operate to release obligations of [Attero] arising under this Agreement.

      Nearly 4 ½ years after he signed the agreement, Stocker filed an action alleging a variety of claims including breach of contract, breach of fiduciary duty and fraud in the inducement. All of these claims were dismissed on summary judgment, and that was affirmed by the Court of Appeals.

       The court found that the allegations that Stocker had been forced out of the company in breach of the operating agreement were barred by the release he had already given. Specifically, if he thought there had been a breach of the operating agreement, he would have known about that at the time he entered into the release. “Thus, by signing the Release, Stocker chose to forgo any breach of contract claims against the Defendants, including the one asserted herein.” 2016 WL 6585422, *3.

      Likewise, with respect to the claim for breach of fiduciary duty, Stocker had knowledge of the facts underlying that claim prior to the time he executed the release. Having executed the release, that claim is barred.

      With respect to the claims for fraudulent inducement, the court found that “‘Stocker had a duty to conduct due diligence to review any representations made by Attero and the Defendants in the Release’ before signing the Release” id.

      The court, in conclusion, wrote:

In short, the undisputed evidence shows that Stocker was presented with the Release, which provided for redemption of his units in Attero and included mutual release provisions covering the Defendants.  Stocker voluntarily signed the Release and thereafter accepted payments made by Attero in accordance therewith without objections.  Having duly executed the Release, Stocker is barred from bringing his claims of breach of contract and breach of fiduciary duty.  Stocker’s claim for fraud in the inducement also fails because the alleged misstatements concern matters that would have been known or should have been known by Stocker at the time he signed the Release, and yet he voluntarily signed the Release.  The trial court did not err in granting summary judgment in favor of the Defendants.

      No backsies.