Business Law Legal Topics New Legal Developments

First Case Under RULLCA Highlights Important New Remedy

ThinkstockPhotos-177644758The following is a guest blog post by Michael J. Thomas, a solo practitioner and founder of Creative Vision Legal, a Bay Area law firm offering legal services tailored to artists, musicians, and small business owners. 

Finally, there’s been a case that substantively interprets California’s new LLC law, RULLCA. The case highlights a key remedial feature that distinguishes RULLCA from its predecessor, and clears up statutory ambiguities regarding the law’s effective date.

In Kennedy v Kennedy (2015) 235 CA4th 1474, the court denied the defendant’s attempt to use the buyout procedure in the Revised Uniform Limited Liability Company Act (RULLCA) (Corp C §§17701.01–17713.13) to thwart a judicial dissolution. The plaintiff’s complaint included a cause of action for involuntary dissolution of corporations and LLCs of which both parties were shareholders and members. Later, the defendants moved to stay dissolution of the LLCs and purchase the plaintiff’s ownership interests under §17707.03(c)(6) of RULLCA. Shortly after the motion was filed, the plaintiff dismissed the involuntary dissolution cause of action.

The court, citing CEB’s Forming and Operating California Limited Liability Companies, noted that no similar buyout provision exists in the General Corporation Law or the Uniform Limited Partnership Act of 2008. Also, unlike RULLCA, California’s previous LLC law (the Beverly–Killea Limited Liability Company Act) didn’t allow for buyouts after a plaintiff’s dismissal of an involuntary dissolution action. The court’s decision turned on interpretation of what it called “ambiguous” statutory language related to RULLCA’s effective date.

The defendants relied on Cal Const, art IV(c)(1) to argue that RULLCA took effect January 1, 2013. Thus, because the plaintiff’s complaint was filed September 25, 2013, §17707.03(c)(6) applied, allowing them to force a buyout despite the dismissal. In contrast, the plaintiff asserted that RULLCA didn’t apply, pointing to §17713.13 which says “this title shall become operative on January 1, 2014” and §17713.03 which states “this title does not affect an action commenced, proceeding brought, or right accrued or accruing before this title takes effect.”

The court considered legislative history and the sections cited by the plaintiff to conclude that RULLCA took effect January 1, 2014 and therefore didn’t apply. As a result, the court held that it lacked jurisdiction to consider a buyout under the circumstances because no such remedy was available under the Beverly–Killea Limited Liability Company Act.

The Kennedy case shines a light on the mechanics of the new statutory judicial dissolution remedy under RULLCA, which differs significantly from its predecessor because a party opposing dissolution can now seek a buyout even if the dissolution is dismissed. The court’s holding also gives practitioners a concrete date (January 1, 2014) for determining whether RULLCA or the Beverly–Killea Limited Liability Company Act applies to the facts of LLC-related matters.

For more analysis of the intricacies of RULLCA, take the Kennedy court’s lead and consult CEB’s Forming and Operating California Limited Liability Companies.

Other CEBblog™ posts you may find useful:

© The Regents of the University of California, 2015. Unauthorized use and/or duplication of this material without express and written permission from this blog’s author and/or owner is strictly prohibited.

2 replies on “First Case Under RULLCA Highlights Important New Remedy”

Add your comment to the blog post

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s