Justia Corporate Compliance Opinion Summaries

This appeal arose from a conflict among the three members of IE Test, LLC (IE Test). After a dispute between defendant Kenneth Carroll and the other members, Patrick Cupo and Byron James, IE Test filed an action to expel Carroll, pursuant to the Limited Liability Company Act (LLCA). In 2004,Carroll and Cupo formed Instrumentation Engineering, LLC. Carroll owned a fifty-one percent interest in Instrumentation Engineering, and Cupo owned the remaining forty-nine percent. James was employed by Instrumentation Engineering, initially as Business Development Manager and later as Vice President. Carroll, Cupo, and James entered into a preliminary agreement stating intention to enter into an operating agreement for IE Test. Carroll claimed that Instrumentation Engineering owed substantial sums to him and his companies, and that became a point of contention among Cupo, James, and Carroll soon after they agreed to share ownership of IE Test. Carroll acknowledged that IE Test had no legal obligation to repay him for losses sustained because of Instrumentation Engineering's bankruptcy, but pressed for compensation that would allow him to recover some of his lost investment. By early 2010, Cupo and James were actively pursing a strategy to use the LLCA to expel Carroll as a member of the LLC. The trial court found in IE Test's favor on its claim based on subsection 3(c), reasoning that the "not reasonably practicable" language imposed a less stringent standard than did subsection 3(a). The trial court granted IE Test's motion for partial summary judgment and expelled Carroll as an LLC member. Carroll appealed. In an unpublished opinion, an Appellate Division panel affirmed, construing N.J.S.A.42:2B-24(b)(3), and its counterpart provision in the Revised Uniform Limited Liability Company Act (RULLCA), N.J.S.A.42:2C-46(e), to mandate that a trial judge engage in predictive reasoning in order to evaluate the future impact of an LLC member's current conduct. The panel found that Carroll's relationship with Cupo and James never recovered from Carroll's demand that he be compensated in a manner that permitted him to recoup his lost investment. The Supreme Court reversed. Applied to the record of this case, the standard of subsection 3(c) did not warrant a grant of partial summary judgment expelling Carroll from IE Test. View "IE Test, LLC v. Carroll" on Justia Law