Tuesday, November 7, 2017

Kentucky Court of Appeals Interprets and Applies “Or”

Kentucky Court of Appeals Interprets and Applies Or”

      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].
      This dispute would turn upon the orbetween subsections (a) and (b) quoted above.
      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 oras 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 ordenotes 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).
      As such, the redemption of Rogers’ interest from Properties may proceed.

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