In an operating agreement the members authorized the redemption of all or part of their interest by the LLC. The LLC could exercise this right by written approval of the holders of more than 65% of the distribution percentages and notice to the ousted member. A separate section of the operating agreement required payment of the redemption price within 10 business days.
Three LLCs were at issue. The same three members owned each LLC. Two of the members owned more than 65% of the distribution percentages of each LLC. The expelled member (and plaintiff) owned less than 35% of each LLC.
The redemption notice was signed by the managing member of the two majority members of the 3 LLCs. The plaintiff was "removed from [the 3] companies" pursuant to the letter, but the redemption price was never paid.
The removed member brought suit claiming that it was still a member of the LLCs because the operating agreement authorized redemption, not removal. Redemption was not properly approved, notice of redemption was not given, and the redemption price was not paid. Urban Hotel Development Company, Inc.v. President Development Group, L.C., 2008 U.S. App. LEXIS 15982 (July 29, 2008).
The district court held that the plaintiff was properly removed from the LLC because the power to redeem included the power to remove. The companies were liable for breach of contract, however, for failure to pay the redemption price. The Eighth Circuit agreed.
-Marc Ward
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