Business Divorce Nation: Five States, Five Cases

by Farrell Fritz, P.C.

It’s true that the statutory and common-law rules at play in business divorce cases can vary widely from state to state. But it’s also true that court decisions in one state can influence courts in other states, and can provide business divorce lawyers with fresh ideas and novel arguments. I like to think of it as legal cross-pollination.

For many years, one of the nation’s leading authorities on business organization law, Professor Elizabeth Miller at Baylor Law School, has been collecting, curating, and publishing detailed synopses of cases from around the country involving LLCs and other unincorporated business entities, with a large complement of dissolution, breach of fiduciary duty, and other cases featuring disputes among business co-owners. It’s a terrific resource for keeping up with nationwide case law developments. Some of Professor Miller’s summaries can be found online, but the best way for lawyers to gain access to them on a regular basis is to join the LLCs, Partnerships and Unincorporated Entities Committee of the ABA’s Business Law Section. That’s the same committee that sponsors the incomparable LLC Institute every year.

Professor Miller’s most recent sampling of (non-Delaware) partnership and LLC cases was presented at a session of the 2017 Spring Meeting of the Business Law Section in New Orleans. I’ve selected from it and further distilled in the following summaries a quintet of business divorce cases from a quintet of states other than New York.

Kentucky: Yes, We Have No Fiduciary Duty.  In Griffin v Jones, 170 F.Supp.3d 956 [W.D. Ky. 2016], the plaintiff and defendant were direct and indirect 50/50 owners of two Kentucky LLCs, a Wyoming LLC, and a Kentucky corporation. When their relationship hit the skids, Griffin sued Jones who countersued Griffin for breach of fiduciary duty as to each entity. On Griffin’s motion for summary judgment, the District Judge dismissed each of Jones’s claims, holding that Griffin owed Jones no fiduciary duty. First, the court held that under Kentucky law, a shareholder of a close corporation as such owes no fiduciary duty to the other shareholders (Griffin was neither an officer nor director of the corporation). Second, Griffin owed no fiduciary duty as a non-managing member of the two, manager-managed Kentucky LLCs (Jones was the manager of both). Third, the Wyoming LLC was owned by a trust of which Jones and Griffin were beneficiaries; Griffin, as a non-member and non-manager of the manager-managed LLC owed Jones no fiduciary duty (again, Jones was manager). The outcome mirrors what would happen in a New York court if the LLCs were formed in New York. It’s a different story as to the corporation, since New York case law has long recognized a fiduciary duty among co-shareholders of closely held corporations.

Mississippi: Kiss That Capital Contribution Goodbye.  In Kilpatrick v White Hall on MS River, LLC, No. 2014-CA-01485-SCT [Miss. Sup. Ct. 2016], the plaintiff made capital contributions totaling $186,500 and was listed as a member in the LLC’s operating agreement (which he didn’t sign) and on the LLC’s tax returns for three years. The problem was, the operating agreement unequivocally required a $500,000 capital contribution to become a member, and the plaintiff never made up the difference. The Mississippi Supreme Court upheld the lower court’s ruling that the plaintiff never became a member. The plaintiff’s argument, that the operating agreement was invalid because it wasn’t signed by all the members, fell short because the plaintiff never attained member status. The court also rejected the plaintiff’s constructive trust claim to recover his contributions on the ground the other members “relied to their detriment on [plaintiff’s] never-fulfilled promise to contribute the remainder of his $500,000.” Ouch.

Ohio: An Arbitration Clause Too Far.  In Leight v Osteosymbionics, LLC, 2016 Ohio 110 [Ohio App. 2016], a 55% member and two 22.5% members entered into an LLC operating agreement permitting amendment of the agreement by majority vote of the members. The 55% member acting alone signed an amended and restated operating agreement naming himself the sole manager and also adding a broad, mandatory arbitration clause. When the minority members filed suit against the majority member for mismanagement of the LLC, the latter sought to compel arbitration under the amended agreement. The lower court held the arbitration clause unenforceable and the appellate court agreed, holding that “there was no meeting of the minds regarding arbitration as the binding method of alternative dispute resolution” and that “a party cannot be forced to arbitrate a dispute which he or she did not agree to arbitrate.”

New Hampshire: The Reincarnated LLC.  In McDonough v McDonough, No. 2015-0694 [N.H. Sup. Ct. 2016], three brothers entered into an LLC operating agreement providing for a 20-year term for the company. The LLC’s certificate of formation likewise provided for dissolution in 20 years. In the final year of the 20-year term, one brother sued for a declaration enforcing the dissolution. In response, shortly before the dissolution date the other two brothers voted to dissolve the LLC and then immediately voted to revoke the dissolution. The Supreme Court affirmed the lower court’s decision allowing continuation of the LLC. The ruling rejected the plaintiff’s contention that the LLC’s term could be modified only by unanimous consent to amendment of the operating agreement, instead pointing to a provision in New Hampshire’s LLC statute allowing members by majority vote to revoke a dissolution at any time before the LLC’s winding up. The court also discounted the plaintiff’s reliance on the dissolution date in the certificate of formation, finding that dissolution is governed by the operating agreement.

Connecticut: LLC Winding Up Off Limits to Assignee.  In Styslinger v Brewster Park, LLC, 138 A.3d 257 [Conn. Sup. Ct. 2016], pursuant to a divorce settlement the plaintiff was assigned his ex-wife’s interest in the subject LLC. The other members refused to consent to his admission as a member which, under Connecticut law, left the economic interest in the plaintiff’s hands and membership voting rights in the ex-wife’s hands. The plaintiff, bereft of any subsequent distributions, filed an action seeking to dissolve and to wind up the LLC’s affairs. The lower court dismissed the action based on lack of standing. On appeal to the Connecticut Supreme Court, the plaintiff argued that the statute confers standing on an assignee to seek a winding up even in the absence of a dissolution. The high court disagreed, concluding that under the statutory scheme dissolution is a necessary precondition to a winding up, and that since only a member or someone on the member’s behalf can seek dissolution, and because plaintiff’s assignor retained non-economic membership rights until the assignee becomes a member, the plaintiff as a non-member assignee could not seek a winding up.

[View source.]

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Farrell Fritz, P.C. | Attorney Advertising

Written by:

Farrell Fritz, P.C.

Farrell Fritz, P.C. on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at:

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.