In the first reported case regarding minority oppression in the context of a South Carolina limited liability company (“LLC”), the South Carolina Supreme Court affirmed the trial court’s conclusion that majority members of an LLC had engaged in acts of oppression against a minority member resulting in a forced buyout of the minority member’s interest in the LLC.
In Wilson v. Gandis, the plaintiff was a co-founder and 45% owner of Carolina Custom Converting, LLC (“CCC”), while the defendants owned 45% and 10% of CCC, respectively. The plaintiff brought an action against the defendants for engaging in oppressive conduct in order to “squeeze” the plaintiff out of CCC. At trial, the evidence revealed that the defendants, among many other acts, excluded the plaintiff from important discussions about CCC’s business operations, limited the plaintiff’s access to CCC’s financial information, manipulated balance sheets to devalue the plaintiff’s interest in CCC, and refused to make tax distributions to the plaintiff. Email evidence also revealed the defendants’ step-by-step plan to change the plaintiff from a substantial owner to either a former owner or a salaried employee bound by a non-compete. Further, on the day of the plaintiff's ouster, the defendants physically locked the plaintiff out of CCC and demanded possession of the plaintiff's company-owned laptops and cellphone.
In evaluating the plaintiff’s oppression claim, the Supreme Court held that the considerations for evaluating a claim for oppression in the context of a closely held corporation also apply to oppression claims made by minority members of an LLC.
Normally, under South Carolina’s LLC Act, members of an LLC are protected from personal liability for actions taken by other members in the ordinary course of business of the LLC. However, in this instance, the Court held that members of an LLC who commit acts of “calculated oppression” have not acted in the ordinary course of business and, therefore, can be held personally liable for their actions.
The Court modified the trial court’s decision by holding that CCC was primarily liable for the buyout of the plaintiff’s interest. If CCC failed to perform, the defendants would be secondarily liable for the buyout of the plaintiff’s interest in proportion to their respective membership interests.
Notably, the Court did not foreclose the possibility that an LLC member who acts to oppress another member may be liable for an amount greater than his or her proportional interest in the LLC.
Ultimately, this case provides insight into the potential liability that majority members of an LLC can face in an attempt to force out or otherwise oppress a minority member.