Except as Otherwise Provided; Pennsylvania Court Holds That Rule For Amending the Operating Agreement Was Not Changed

Except as Otherwise Provided; Pennsylvania Court Holds That Rule For Amending the Operating Agreement Was Not Changed

      As a general proposition, LLC operating agreements may change the default rules provided for in the LLC Act.  A recent decision from Pennsylvania found that a general provision as to decision making by majority vote did not alter the statutory default of unanimous approval to amend the operating agreement.  Saltzer v. Rolka, No. 702 MDA 2017, 2018 WL 5603050 (Pa. Super. Ct. Oct. 30, 2018).

      Rolka Loebe Saltzer Associates, LLC (the “LLC”) had three members: Rolka (40%), Loebe (40%) and Saltzer (20%).  Saltzer’s employment was terminated, whereupon Rolka and Loebe sought to amend the LLC’s operating agreement to add a provision valuing and providing for the redemption of a terminated member’s interest.  Saltzer (not surprisingly) objected.  While Rolka and Loebe set the value of Saltzer’s interest at $63,389, the trial court fixed the value at $294,000. Each side appealed.

      The trial court’s determination that Rolke and Loebe did not have the authority to amend the operating agreement was affirmed by the appellate court.  Under the Pennsylvania LLC Act, the default rule for amendment of the operating agreement is unanimous approval of the members.  15 Pa.C.S.A § 8942(b).  That rule may be altered in a written operating agreement. Id. The LLC’s operating agreement provided that it could be amended by the members at a regular or special meeting, but in that section did not address the threshold for the required vote.  Another section of the agreement provided “Except as otherwise provided in the [LLCA], or this Agreement, whenever any action is to be taken by vote of the members, it shall be authorized upon receiving the affirmative vote of a majority of the votes cast by all Members entitle to vote upon.” 2018 WL 5603050, *4.  The court found that this provision was of itself insufficient to alter the statutory default as to amending the operating agreement.  Unfortunately the decision did not detail why it was insufficient or what more it would have needed to be sufficient.