The Estate of an LLC’s Member is an Assignee

The Estate of an LLC’s Member is an Assignee

      In a recent decision from Ohio, the court applied the LLC Act and the particular operating agreement, finding that the latter did not modify the former and that, in consequence, the estate of a member is an assignee. SDC University Circle Developer, L.L.C. v. Estate of Patrick Whitlow, M. D., No. 107085, 2019 WL 92791 (Ohio Ct. App. 8^th Dist. Jan. 3, 2019). In this instance, Whitlow was a member in the SDC University Circle Developer, LLC. When he passed away, his estate asserted that, under the LLC’s operating agreement, the entirety of his interest, and not only the economic rights, would transfer to his estate. In contrast, the LLC asserted that the estate was not a member and that it was entitled only to an assignee’s right to receive distributions when and as made.

       Under the operating agreement at issue, in order for an assignee of the Class B Membership Interest as held by Whitlow to become a member, it was required that there be the consent of the Managing Member. In this instance, no such consent had ever been granted. The court held:

Contrary to the estate’s assertion, the operating agreement is clear: as a general rule, a member cannot transfer his or her membership interest without consent of the managing member.  Even where the managing member consents to a transfer, the transferee does not become a member unless the managing member further consents. Here, the estate is entitled to Whitlow’s interest, however, that interest devolved into economic rights only, as the managing member did not consent to estate membership. Id., *3, ¶ 13.

      The court set aside consideration of a provision of the operating agreement addressing intra-family transfers, finding that the more specific provisions with respect to death would apply.

      The opinion as well addressed the fact that Dr. Whitlow was bound by the operating agreement even though he had never signed it. Rather, he had signed a subscription agreement which cross-referenced the operating agreement.