Even under the best of circumstances, the dissolution of a multimember LLC, needs to be handled with care. When an LLC is run by close family members, there is an even greater risk of contentious, embarrassing, and costly litigation. A recent Georgia Court of Appeals case (Crumpton v. Vick’s Mobile Homes, LLC, 335 Ga. App. 155, 155, 779 S.E.2d 136, 136 (2015), reconsideration denied (Dec. 7, 2015), cert. denied (Apr. 4, 2016)) in which two siblings battled over the meaning of a Georgia dissolution statute (O.C.G.A. §14-11-601.1(b)(4)(D)), demonstrates this point in memorable fashion.
Sharon Crumpton and her brother Raymond C. Crumpton became co-members of two LLCs when they inherited a mobile home park from their father. Unfortunately, the Crumpton-siblings share an acrimonious relationship that only got worse when they entered in a business relationship. Eventually, Sharon filed a petition to have both LLCs dissolved.
Sharon claimed Raymond mismanaged company finances and blocked Sharon’s access to company bank accounts. For his part, Raymond accused his sister of interfering with the neutral, court-appointed manager, whom the trial court had given exclusive management authority during the pendency of the dispute. In addition to his own accusations, Raymond submitted third-party affidavits accusing Sharon of stalking, harassing and threatening residents of the mobile home park, and driving through the park clad in indecent attire. One affidavit even stated that Sharon had “moon-walked” through the streets of the mobile home park while dressed in belly dancer costume.
Beyond the mudslinging, Raymond challenged Sharon’s standing—i.e., her ability to file suit. Raymond argued that Sharon had lost her status as a member of the LLCs when she filed her petition for their dissolution. In support, Raymond cited O.C.G.A. §14-11-601.1(b)(4)(D), which states that a person ceases to be a member of a limited liability company when the member files a petition or answer seeking for the member, reorganization or dissolution of the LLC under any statute, law or regulation.
The trial court agreed, concluding that O.C.G.A. §14-11-601.1(b)(4)(D) applied because Sharon sought relief for herself (the member), instead of for the LLCs. Accordingly, the trial court held that Sharon had ceased being a member of the LLCs when she filed her dissolution action. The Court of Appeals reversed, observing that under trial court’s interpretation, “one member could never seek the disassociation of another, because the very act of doing so would disassociate the first member.”
Instead, the Court of Appeals held that the qualifier “for the member” limits the applicability of O.C.G.A. §14-11-601.1(b)(4)(D) to situations where a member who is an artificial person files a separate action for its own dissolution, reorganization, arrangement. Thus, O.C.G.A. §14-11-601.1(b)(4)(D) could not apply to Sharon, who is a natural member of the LLCs and was permitted to proceed with her petition. In sum, seeking the judicial dissolution of an LLC does not automatically result in the moving member’s disassociation from the LLC. But if the other members are family, it might get you disinvited from Thanksgiving Dinner.