Title: LIEBERMAN v. WYOMING.COM LLC.

State: wyoming

Issuer: Wyoming Supreme Court

Document:

LIEBERMAN v. WYOMING.COM LLC. 2004 WY 182 P.3d 274Case Number: 01-193Decided: 01/13/2004
OCTOBER TERM, A.D. 2003

 

                                                                                                            

 

E. 
MICHAEL LIEBERMAN,

 

Appellant(Defendant),

 

v.

 

WYOMING.COM 
LLC, a Wyoming

Limited 
Liability Company,

 

Appellee(Plaintiff).

 

 

Appeal 
from the District Court of Fremont County

 

Representing 
Appellant:

William 
D. Bagley of Bagley, Karpan, Rose & White, LLC, Cheyenne, 
Wyoming

 

Representing 
Appellee:

Alexander 
K. Davison, Wendy J. Curtis, and Terry W. Connolly of Patton & Davison, 
Cheyenne, Wyoming.  Argument by Mr. 
Connolly.

 

 

 

Before 
HILL, C.J., and GOLDEN, LEHMAN,* KITE, and VOIGT, JJ.

 

 

GOLDEN, 
J., delivers the opinion of the court; LEHMAN, J., files a 
dissenting opinion, in which KITE, J., 
joins.

 

 

* 
Chief Justice at time of oral argument

 

 

 

GOLDEN, 
Justice.

 

[¶1]           
Wyoming.com 
LLC (hereinafter "Wyoming.com") is a Wyoming limited liability company of which 
E. Michael Lieberman was a member.  
In 1998, Lieberman filed a notice of withdrawal of member with 
Wyoming.com, and the remaining members of Wyoming.com accepted Lieberman's 
withdrawal as tendered.  The parties 
subsequently could not agree on the financial consequences of Lieberman's 
withdrawal and filed a petition for declaratory judgment on the issue.  Ultimately, the district court, by way 
of summary judgment, ordered liquidation of Lieberman's equity interest at its 
capital account value as of the date of his withdrawal as a member.  Lieberman appeals.

 

[¶2]           
The 
Wyoming LLC Act contains no provision relating to the fate of a member's equity 
interest upon the member's dissociation.  
Thus, it was entirely up to the members of Wyoming.com to contractually 
provide for terms of dissociation.  
Upon careful review of all the agreements entered into by the parties 
regarding Wyoming.com, we determine that the agreements contain no provision 
regarding the equity interest of a dissociating member.  Since we can find no provision mandating 
a different result, Lieberman retains his equity interest.  Lieberman is under no obligation to sell 
his equity interest, and Wyoming.com is under no obligation to buy Lieberman's 
equity interest.  The question of 
valuation is moot.  The decision of 
the district court liquidating Lieberman's equity interest is reversed, and we 
remand to the district court for a declaration of the parties' rights consistent 
with this opinion. 

 

ISSUES

 

[¶3]           
Lieberman presents the following issues for our review:

 

1. What became of Lieberman's ownership interest?

 

2.  Is there anything in the Wyoming statute or 
the operating agreement of the parties that requires Lieberman to sell, or the 
company to purchase, his equity?

 

3.  Absent agreement can the majority members of 
a limited liability company can not [sic] acquire the profits and growth 
interest ("equity") of the minority member.  

 

Wyoming.com presents these issues:

 

1.  The district court did not err in finding 
that the value of Lieberman's equity interest should be determined by the 
process found in the operating agreement.

 

2.  The district court did not err in finding 
that Lieberman's interest in Wyoming.com should be valued at the date of his 
withdrawal.

 

FACTS

 

[¶4]           
This is the second time this case has been before this 
Court on appeal.  
The facts as stated in Lieberman v. Wyoming.com 
LLC, 11 P.3d 353 (Wyo. 2000) 
(Lieberman I), are as follows:

 

On September 30, 1994, Steven Mossbrook, Sandra Mossbrook, 
and Lieberman created Wyoming.com LLC by filing Articles of Organization with 
the Wyoming Secretary of State.  The initial capital contributions to 
Wyoming.com were valued at $50,000.  Lieberman was vested with an initial capital 
contribution of $20,000, to consist of services rendered and to be 
rendered.  
According to the Articles of Organization, Lieberman's contribution 
represented a 40% ownership interest in the LLC.  The Mossbrooks were vested with the remaining 
$30,000 capital contribution and 60% ownership interest.  In August of 1995, 
the Articles of Organization of Wyoming.com were amended to reflect an increase 
in capitalization to $100,000.  The increase in capitalization was the result 
of the addition of two members, each of whom was vested with a capital 
contribution of $25,000, representing a 2.5% ownership interest for each new 
member.  
Despite the increase in capitalization, Lieberman's ownership interest, 
as well as his stated capital contribution, remained the same.

 

On February 27, 1998, Lieberman was terminated as vice 
president of Wyoming.com and required to leave the business premises.  The other members 
of Wyoming.com met the same day and approved and ratified the termination.  On March 13, 1998, 
Lieberman served Wyoming.com and its members with a document titled "Notice of 
Withdrawal of Member Upon Expulsion: Demand for Return of Contributions to 
Capit[a]l."   
In addition to giving notice of his withdrawal from the company, 
Lieberman's notice demanded the immediate return of "his share of the current 
value of the company," estimating the value of his share at $400,000, "based on 
a recent offer from the Majority Shareholder."

 

In response to Lieberman's notice of withdrawal, the 
members of Wyoming.com held a special meeting on March 17, 1998, and accepted 
Lieberman's withdrawal.  The members also elected to continue, rather 
than dissolve, Wyoming.com.  Additionally, they approved the return of 
Lieberman's $20,000 capital contribution. However, Lieberman refused to accept 
the $20,000 when it was offered.

 

Wyoming.com filed suit in June of 1998 asking for a 
declaration of its rights against Lieberman.  Lieberman filed suit the same month 
requesting dissolution of Wyoming.com, and the actions were consolidated.  After a hearing on 
cross motions for summary judgment, the district court granted Wyoming.com's 
motion for summary judgment and denied Lieberman's motion for partial summary 
judgment.  The 
district court ruled that, because the remaining members of Wyoming.com LLC 
agreed to continue the business under a right to do so in the Articles of 
Organization, the company was not in a state of dissolution.  The district court 
further ruled that Lieberman had the right to demand return of only his stated 
capital contribution, $20,000, which the district court ordered to be paid in 
cash.  
Lieberman appealed.

 

Id. at 355-56 (footnotes omitted).  

 

[¶5]           
In Lieberman I, this Court 
agreed that Wyoming.com was not in a state of dissolution.  With regard to 
Lieberman's demand for the return of his capital contribution we stated:  

 

Lieberman claims the term "contribution to capital" found 
in Wyo. Stat.  
Ann. § 17-15-120 should be interpreted to encompass the fair market value 
of his interest in the LLC and that his return should not be limited to the 
amount of his initial capital contribution.  At this juncture, a distinction must be drawn 
between withdrawal of a member's capital contribution and the withdrawal from 
membership in an LLC, often termed dissociation.  After a thorough review of § 17-15-120, we 
conclude nothing in that provision contemplates a member's rights upon 
dissociation.  
Besides the fact that § 17-15-120 speaks only to withdrawal of capital 
contributions, other provisions in the LLC act support our conclusion that § 
17-15-120 does not govern dissociation.  The following passage from § 17-15-119, which 
controls division of profits, envisions withdrawal of capital contribution 
without dissociation:  
"If the operating agreement does not so provide, distributions shall be 
made on the basis of the value of the contributions made by each member to the 
extent they have been received by the limited liability company and have not 
been returned."   
This quoted material clearly contemplates a situation where a member has 
withdrawn some (or even all) of his capital contribution but has not dissociated 
as a member.  
We conclude a withdrawal of capital contributions pursuant to § 17-15-120 
does not also govern a member's rights upon dissociation.

 

Id. at 359.  This Court thus held that, pursuant to 
statute, Lieberman was entitled to the return of his capital contribution, 
regardless of his status as a member of Wyoming.com.  Id. Since Lieberman expected more, however, we remanded 
the case "because it is unclear what became of Lieberman's ownership or equity 
interest (as represented by a membership certificate)" requiring further 
proceedings "for a full declaration of the parties' rights."  Id. at 361.  

 

[¶6]           
Upon remand, no new evidence was introduced.  Wyoming.com filed a 
motion for partial summary judgment requesting the district court to make two 
determinations: at what time should Lieberman's equity interest be valued and 
how should it be valued.  Obviously, the parties proceeded under the 
assumptions that: Lieberman had withdrawn as a member and an equity owner; that 
he was entitled to his equity interest; and a valuation and buyout was 
necessary.  

 

[¶7]           
Wyoming.com relied upon language in the Operating Agreement 
to argue that Lieberman's equity interest should be limited to the value of his 
capital account.  
The district court agreed with Wyoming.com that the Operating Agreement 
provided the appropriate method to fully value Lieberman's equity interest.  The district court 
also determined that Lieberman's equity interest should be valued as of the date 
of his withdrawal as a member.  The district court therefore granted 
Wyoming.com's motion for partial summary judgment on these two issues, holding 
that "[t]he defendant is entitled to the balance of his capitol [sic] account as 
of the date of defendant's withdrawal from the LLC."  Since it appears 
that the value of Lieberman's capital account at the date of his withdrawal was 
negative, Lieberman appeals.1

 

 

STANDARD OF REVIEW

 

[¶8]           
This appeal comes to this Court from the grant of a summary 
judgment.  
Summary judgments are appropriate when there are no genuine issues as to 
any material fact and the moving party is entitled to a judgment as a matter of 
law.  W.R.C.P. 
56.  As there 
are no issues of material fact in dispute, in this appeal we are called upon to 
review issues of law.  
We review issues of law de novo.  Goglio v. Star Valley 
Ranch Ass'n, 2002 WY 
94, ¶12, 48 P.3d 1072, ¶12 (Wyo. 
2002) ("We review a grant of summary judgment deciding a question of law de novo and afford no deference to the district court's 
ruling.")  

 

DISCUSSION

 

[¶9]           
The district court determined that, as a matter of law, 
Lieberman  "is 
entitled to the balance of his capitol [sic] account as of the date of [his] 
withdrawal from the LLC."  In reaching this conclusion, the district 
court misinterpreted the operative documents.  The provision defining a member's capital 
account is found in the Operating Agreement: 

 

ARTICLE VI.

CAPITAL ACCOUNTS

DISTRIBUTION OF PROFITS AND LOSSES

 

6.1  The Company shall maintain accurate records 
of the Capital Accounts of the Members.  Each Member's capital account shall be 
credited with:

a.         The 
amount of money the Member has contributed to the Company.

b.         The fair 
market value of property the partner has contributed to the Company.

c.         The 
Member's distributive share of Company income and gain.

Each Member's capital account shall be debited with:

a.         The 
amount of money distributed to the Member by the Company.

b.         
The fair market value of property distributed to the Member by the 
Company.

c.         
The Member's distributive share of Company loss and deduction.

 

6.2  Upon liquidation of the Company (or any 
Member's interest in the Company), liquidating distributions shall in all cases 
be made in accordance with the positive capital account balances of the 
Members.  If 
any Member has a deficit balance in his capital account following the 
liquidation of his interest in the Company, as determined after taking into 
account all capital account adjustments for the Company taxable year during 
which such liquidation occurs, he is unconditionally obligated to restore the 
amount of such deficit balance to the Company by the end of such taxable year 
(or, if later, within 90 days after the date of such liquidation).

 

6.3  The Members may from time to time declare, 
and the Company may distribute, accumulated profits determined not necessary for 
the cash needs of the Company's business.  Unless otherwise provided, retained profits 
shall be deemed an increase in capital contributions of the Company.

 

6.4  Any distribution of profits declared by the 
Members and distributed by the Company shall be distributed to the Members 
according to the percentage of ownership interest of each Member as reflected in 
the Company records.

 

6.5  All losses reflected in the books of the 
Company shall be distributed to the Members according to the percentage of 
adjusted basis of each Member to the whole of the adjusted bases of all 
Members.  The 
adjusted basis of each Member shall be defined as equaling the amount of money 
and the adjusted basis of property contributed or loaned to the Company by the 
Member, plus the Member's share of the Company's liabilities, less the 
accumulated losses allocated to the Member.  When the adjusted bases of all Members is 
zero, losses shall be distributed to the Members according to the percentage of 
ownership interest of each Member as reflected in the Company records. 

 

[¶10]      In granting summary judgment, the district court relied 
upon paragraph 6.2.  
However, paragraph 6.2 contains no provision addressing the rights and 
obligations of the members with regard to a member who has withdrawn.  Paragraph 6.2 
provides a method for distributing capital upon liquidation.  It contains no 
indication of when liquidation can or must occur.  It does not mandate a buyout or a liquidation 
of a member's equity interest.  As such, it has no application to the 
immediate issue and the district court's reliance upon it was misplaced.  

 

[¶11]      Although we could end our discussion here, this appeal 
involves solely issues of law.  In the interest of judicial economy, we deem 
it prudent to resolve the present issues.  Returning then to our question upon remand, 
what has become of Lieberman's equity interest?  This Court began the process of attempting to 
determine the fate of Lieberman's equity interest in Lieberman I:

 

Having determined that § 17-15-120 does not control a 
member's rights upon dissociation, we must determine what became of Lieberman's 
interest, other than his capital contribution, in Wyoming.com. Unfortunately, it 
is unclear from the district court's decision letter precisely what became of 
Lieberman's ownership interest.  The Articles of Organization of Wyoming.com 
credited Lieberman with a 40% ownership interest in Wyoming.com, and he now 
argues he is entitled to payment for this interest at fair market value.  In the alternative, 
he contends he retains that 40% interest because the district court has not 
resolved that portion of the parties' dispute.  Wyoming.com disagrees.

We begin by examining Lieberman's notice of 
withdrawal.  
Lieberman strongly disputes any contention that he has simply forfeited 
his interest, other than his capital contribution, in the LLC.  After examining the 
notice of withdrawal, we cannot say, as a matter of law, that Lieberman 
forfeited his interest upon his withdrawal because nothing in his withdrawal 
indicates his intent to do so.  Indeed, Lieberman's demand for "his share of 
the current value of the company," whose value he estimated at $400,000, "based 
on a recent offer from the Majority Shareholder," indicates he would not easily 
part with, much less forfeit, his interest.  Because we cannot say that, as a matter of 
law, Lieberman's withdrawal amounted to forfeiture of his interest, and because 
there is no statutory provision governing dissociation, we look to Wyoming.com's 
Operating Agreement to determine Lieberman's remedy.

Under the Wyoming.com's Operating Agreement, a member's 
equity interest was to be represented by a membership certificate.  The Operating 
Agreement provides:

 

ARTICLE IV

Membership Certificates and their Transfer

 

4.1 Certificates.  Membership 
Certificates representing equity interest in the Company will be in the form 
determined by the Members.  Membership Certificates must be signed by the 
President and by all other Members.  The name and address of the person to whom 
the Membership Certificate is issued, with the percentage of ownership 
represented by the certificate, must be entered in the Certificate Register of 
the Company.  
In case of a lost, destroyed or mutilated Membership Certificate, a new 
one may be issued on the terms and indemnity to the Company as the Members may 
prescribe.  

 

4.2 Certificate Register.  A Certificate 
Register will be maintained showing the names and addresses of all members, 
their total percentage of ownership represented by Membership Certificates, and 
their respective amount of capital contribution.  Any and all changes in Members or their 
amount of capital contribution may be formalized by filing notice of the same 
with the Secretary of State by amendment of the Articles of Organization.  

 

4.3 Transfers of Shares.  Any Member 
proposing a transfer or assignment of his Certificate must first notify the 
Company, in writing, of all the details and consideration for the proposed 
transfer or assignment.  The Company, for the benefit of the remaining 
Members, will have the first right to acquire the equity by cancellation of the 
Certificate under the same terms and conditions as provided in the formal 
Articles of Organization as filed with the Wyoming Secretary of State for 
Members who are deceased, retired, resigned, expelled, or dissolved.  

If the Company declines to elect this option, the remaining 
Members who desire to participate may proportionately (or in the proportions as 
the remaining Members may agree) purchase the interest under the same terms and 
conditions first proposed by the withdrawing Member.  

If the transfer or assignment is made as originally 
proposed and the other Members fail to approve the transfer or assignment by 
unanimous written consent, the transferee or assignee will have no right to 
participate in the management of the business and affairs of the Company or to 
become a Member.  
The transferee or assignee will only be entitled to receive the share of 
the profit or other compensation by way of income and the return of 
contributions to which that Member would otherwise be entitled.

 

Provision 2.5 provides:

 

2.5 Quorum. At any meeting of 
the Members, a majority of the equity interests, as determined from the capital 
contribution of each Member as reflected by the books of the Company, 
represented in person or by proxy, will constitute a quorum at a meeting of 
Members.

 

Provision 2.7 provides:

 

2.7 Voting by Certain 
Members.  
Membership Certificates standing in the name of a corporation, 
partnership or Company may be voted by the officer, partner, agent or proxy as 
the Bylaws of the entity may prescribe or, in the absence of such provision, as 
the Board of Directors of the entity may determine.  Certificates held 
by a trustee, personal representative, administrator, executor, guardian or 
conservator may be voted by him, either in person or by proxy, without a 
transfer of the certificates into his name.

 

Under these provisions, it is clear that a member's 
interest in Wyoming.com was to be represented by membership certificates.  There is nothing in 
the record indicating what became of Lieberman's membership certificate; there 
is no indication it has been canceled or forfeited.

Wyoming.com's action against Lieberman was commenced as a 
declaratory judgment action.  The stated purpose of the Uniform Declaratory 
Judgments Act is "to settle and to afford relief from uncertainty and insecurity 
with respect to legal relations * * *."   Wyo. Stat.  Ann. § 1-37-114 (Lexis 1999).  The act is to be 
liberally construed to this end.   Id.; Reiman Corp. v. City of Cheyenne, 838 P.2d 1182, 1185 (Wyo. 
1992); In re General Adjudication of All Rights to Use 
Water in the Big Horn River System, 753 P.2d 76, 114 (Wyo. 
1988); Brimmer v. Thomson, 521 P.2d 574, 577 (Wyo. 
1974).  

 

As a measure of preventive justice, the declaratory 
judgment probably has its greatest efficacy.  It is designed to enable parties to ascertain 
and establish their legal relations, so as to conduct themselves accordingly, 
and thus avoid the necessity of future litigation.  

Reiman Corp. v. City of Cheyenne, 838 P.2d  at 1185 (quoting Edwin M. Borchard, The Declaratory Judgment--A Needed Procedural Reform (Part 
II), 28 Yale L.J. 105, 110 (1918)).  Here, the parties remain uncertain as to 
their legal relationship because it is unclear what became of Lieberman's 
ownership or equity interest (as represented by a membership certificate).  Therefore, we 
conclude it appropriate to remand to the district court for a full declaration 
of the parties' rights.

 

Lieberman I, 11 P.3d  at 360-61 (footnote omitted).

 

[¶12]      Essentially, in Lieberman I 
this Court determined that further information might be available to help 
identify the contractual rights and obligations of the members upon the 
withdrawal of a member.  Despite this Court's suggestion that the 
membership certificates might contain applicable contractual language, upon 
remand, the parties elected to introduce no additional evidence.  Thus, this case 
returns to us with the same record as was available in Lieberman I.  

 

[¶13]      Since Lieberman has not voluntarily forfeited his equity 
interest, this Court must look to the agreements entered into by the members of 
Wyoming.com to determine the rights and obligations of the members with regards 
to a member who has dissociated.2  The rights and obligations of the members of 
Wyoming.com are determined pursuant to the operating agreements of 
Wyoming.com.  
The record reveals that the parties entered into "Articles of 
Organization of Wyoming.com LLC" (the "Articles") and an "Operating Agreement of 
Wyoming.com LLC" (the "Operating Agreement").  These agreements establish Wyoming.com, 
provide for Wyoming.com's operation, and set forth the mutual obligations 
between each of Wyoming.com's members.  At all times the members have been free to 
contract any provision they desired, so long as the provision did not conflict 
with the limited requirements of the Wyoming LLC Act.  Determining the 
fate of Lieberman's equity interest requires this Court to construe these 
agreements.  

 

[¶14]      A contract may consist of several documents, Union Pacific Resources Co. v. Texaco, Inc., 882 P.2d 212, 219 (Wyo. 
1994), which this Court reviews as a whole with the goal of determining the 
intention of the contracting parties as expressed by their own words.

 

The primary purpose in interpreting or construing a 
contract is to determine the intent and understanding of the parties, and our 
initial inquiry centers on whether the language of the contract is clear and 
unambiguous.   
Reed v. Miles Land and Livestock Co., 2001 WY 16, ¶10, 18 P.3d 1161, ¶10 (Wyo. 
2001).  The 
interpretation and construction of a contract are done by the court as a matter 
of law.  Id. Where an agreement is in writing and the language 
is clear and unambiguous, the parties' intent is to be secured from the four 
corners of the contract.  Cliff & Co., Ltd. 
v. Anderson, 777 P.2d 595, 598 (Wyo. 1989).  We consider the contract as a whole, taking 
into consideration the relationship between the various parts.  Id. 

 

Collins v. Finnell, 2001 WY 74, ¶15, 29 P.3d 93, ¶15 (Wyo. 
2001).  

 

[¶15]      The operating agreements of Wyoming.com vest Lieberman with 
an ownership interest.  Lieberman can only be divested of this 
ownership interest if the members of Wyoming.com contracted for such 
divestment.  
Wyoming.com argues that Lieberman's withdrawal as a member mandates his 
withdrawal as an equity owner, thus triggering a liquidation of his equity 
interest.  In 
Lieberman I, this Court clarified that "[u]nder the Wyoming LLC act, a 
member's interest in an LLC consists of economic and non-economic 
interests."  
Id. at 357.  These interests are distinct.  It is clear from 
Lieberman's notice of withdrawal that he had no intention of forfeiting his 
economic, or equity, interest in the company.  Lieberman's withdrawal regarded his 
non-economic membership interest only.

 

[¶16]      The operating agreements clearly anticipate a situation 
where a person could be an equity owner in Wyoming.com but not a member.  Provision 4.3 of 
the Operating Agreement, quoted above, provides that, if a transferee of an 
ownership interest is not unanimously approved by the remaining members, the 
transferee maintains the rights of equity ownership but will not be a member.3  Logically, given the absence of any 
contractual provision to the contrary, there is no reason to treat a withdrawing 
member any differently from someone who buys into Wyoming.com without becoming a 
member.  Thus, 
Lieberman is not a member of Wyoming.com, but he maintains his equity interest 
and all rights and obligations attendant thereto.

 

[¶17]      The parties essentially admit this in their respective 
briefs. Lieberman argues that there is nothing in the agreements allowing 
Wyoming.com to acquire his ownership interest at less than fair market value, 
while Wyoming.com argues that there is nothing in the agreements requiring 
Wyoming.com to pay fair market value for Lieberman's ownership interest.  Both arguments are 
correct.  There 
simply is no contractual agreement that any party must buy or sell an ownership 
interest for any amount.  

 

[¶18]      Having failed to contractually provide for mandatory 
liquidation or a buyout, the parties are left in status quo.  We have long held 
that it is the duty of this Court to construe contracts made between parties, 
not to make a contract for them.  Collins, ¶21; Flora Const. Co. v. Bridger Valley Elec. Ass'n, 
Inc., 355 P.2d 884, 886 (Wyo. 1960) ("it is not the duty of the court to make a contract 
for the parties").  
We must abide by the terms of their contract.  This is especially 
so since the parties are asking us to create terms and conditions which do not 
exist in their contract.4  We decline to alter the contract as written 
and accepted by these parties in the name of contract interpretation.  We will enforce the 
contract as written and accepted by the parties.5  Lieberman maintains 
his equity interest in Wyoming.com.

 

CONCLUSION

 

[¶19]      Lieberman has withdrawn as a member of Wyoming.com and all 
remaining members unanimously accepted his withdrawal as a member.  Lieberman thus is 
no longer a member of Wyoming.com.  Lieberman does, however, maintain his equity 
interest in Wyoming.com.  There is no contractual provision for a 
buy-out of his equity interest.  Therefore Lieberman cannot force Wyoming.com 
to buy his interest, and Wyoming.com cannot force Lieberman to sell his 
interest.  
Because the members of Wyoming.com failed to contractually provide for a 
buy-out, Lieberman remains an equity holder in Wyoming.com.  There are no 
further rights or obligations of the parties for this court to construe with 
regards to this situation.  The grant of summary judgment is reversed and 
the matter remanded to the district court for a declaration of the parties' 
rights consistent with this opinion.

 

LEHMAN, Justice, dissenting, with whom 
KITE, Justice, joins.

 

[¶20]   I respectfully dissent.  I agree that 
paragraph 6.2 of the Operating Agreement only provides a method for distributing 
capital upon liquidation and that the district court erred in relying on that 
subsection to find that Lieberman was entitled to only his capital contribution 
upon withdrawal.  
¶10.  I 
also agree with the majority that a thorough review of the Operating Agreement 
discloses no express provision for dealing with a dissociated member's equity 
interest. ¶13 and n.2.  

 

[¶21]   However, I must disagree with the 
majority's determination of the consequence for the failure to provide such a 
provision.  As 
the majority noted in ¶14, we must review the contract of the parties as a whole 
with the goal of determining the intent of the contracting parties.  The right of a 
member to withdraw from membership in the LLC is evidenced in the provisions of 
the operating agreement.  Also clearly expressed is the right of the 
remaining members to continue the business after such a withdrawal.  The provision 
addressing this right states:

 

9.  Continuity.  The remaining members of the LLC, providing 
they are two or more in number, will have the right to continue the business on 
the death, retirement, resignation, expulsion, bankruptcy or dissolution of a 
member or occurrence of any other event which terminates the continued 
membership of a member in this LLC, in accordance with the voting provisions of 
the Operating Agreement of the Company. 

 

This provision allows any member to terminate his 
membership in Wyoming.com by taking any of the listed actions and provides the 
remaining members the right to continue the business.  This provision 
evidences the parties' intent to allow a member to completely terminate his 
membership in the LLC without also terminating the LLC.  Hand in hand with 
these rights is the implication that should the remaining members elect to 
continue, they will have to compensate the withdrawing member for his interest 
in some manner.  
It seems intuitive that if the parties allowed for withdrawal and 
continuation, they must have had some intent to deal with those events.  Because the 
provision mentions nothing of forfeiting the interest or simply becoming a 
non-member equity owner, the agreement to continue thus implies that there must 
be some sort of buyout.      

 

[¶22]   Furthermore, the LLC statutory scheme 
implies that, absent other agreement, a member has a right to terminate his 
continued membership in the LLC and be compensated for this interest.  As we stated in Lieberman I, at 357, an LLC is a hybrid organization 
including characteristics of both a partnership and a corporation.  At the time the 
legislature enacted the original LLC statutes, an important consideration was 
the tax ramifications of the newly created entity.  At that time, in 
order to obtain taxation as a partnership, an LLC could have no more than two of 
four corporate characteristics:  limited liability, central management, free 
transferability of interests, and continuity of life.  Franklin E. 
Gevurtz, Squeeze-outs and Freeze-outs in Limited 
Liability Companies, 73 Wash.U.L.Q. 497, 515 n.96 (1995) (citing Rev. Rul. 
93-6, 1993-1 C.B. 229).  The LLC entity provided for limited liability 
and central management.  Therefore, to avoid corporate taxation, the 
typical LLC statutes choose to utilize partnership principles, rather than 
corporate principles, for exiting members in order to avoid the LLC having 
continuity of life.  
Id.  

 

[¶23]   Partnership exit rules ordinarily allow 
for any partner to dissolve the firm at any time and demand liquidation and 
accordingly be paid for his equity interest.  Id. at 502.  See also Wyo. Stat. Ann § 17-21-601.  The legislature 
clearly recognized this as the normal partnership rule and impliedly endorsed 
such a rule by providing for an exception to this rule if the members agreed 
otherwise in their operating agreement.  Wyo. Stat. Ann. § 17-15-123.  In a sense, 
carrying on the business following a terminating event became the exception to 
the general rule that the business would cease when a member left for any 
reason.  Thus, 
the resulting implication is a member may terminate his membership in an LLC and 
must be paid for this interest unless otherwise provided.  

 

[¶24]   Therefore, I reach the conclusion that 
under the terms of the LLC as provided by the Articles of Organization and 
Operating Agreement, and under the statute, Lieberman could withdraw as a member 
of Wyoming.com resulting in a forced buyout of his entire interest.  The majority 
concludes, "Lieberman's withdrawal regarded his non-economic membership interest 
only." ¶15.  I 
cannot agree with this conclusion.  While a member's interest does in fact 
consist of an economic and non-economic interest, a withdrawing member does not 
envision that his withdrawal will result in this split in his interest.  As we noted in Lieberman I, at 355-56, Lieberman demanded "his share 
of the current value of the company," which value he estimated at $400,000, 
"based on a recent offer from the Majority Shareholder."  Clearly Lieberman 
intended to withdraw his entire interest from the LLC.  As such, Lieberman 
essentially declared his intention to no longer be associated with the LLC. 
Having accepted this withdrawal, the remaining members were now required and 
expected to compensate Lieberman for his interest.  

 

[¶25]   The majority has recognized this and 
stated, "the parties proceeded under the assumptions that:  Lieberman had 
withdrawn as a member and an equity owner; that he was entitled to his equity 
interest; and a valuation and buyout was necessary."  ¶6.  However, they now 
refuse to provide relief for this situation.  In fact, the majority's resolution has 
created a situation where the remaining members are in a position of power to 
dictate the terms of any negotiations for a buyout.  The remaining 
members are now conceivably in a position to retain earnings and avoid 
distributions, but as an equity owner Lieberman would still be required to pay 
taxes on those earnings.  Additionally, Lieberman is no longer a 
member.  He 
will not be drawing the salary of the member or controlling his equity interest 
in any manner.  
While it could be said that this situation arose because of Lieberman's 
withdrawal, it should be noted that under the majority's analysis the result 
would apply equally to an expelled member.  In such an instance, some of the members 
could expel a member and then refuse to negotiate for a buyout.  Such a result begs 
for the oppression of one party.  While I agree with the majority that it is 
not our duty to write contract provisions for parties that have failed to do so, 
I believe it would be much worse to fail to provide a remedy.    

 

[¶26]   Therefore, I would provide such a 
remedy.  
Because the Operating Agreement does not provide for a valuation method, 
I look to the statutes to see if the legislature provided a default valuation 
method.  As we 
said in Lieberman I, express provisions for valuing 
a member's share when that member terminates his membership in the LLC do not 
exist.  
However, I do not believe this requires us to unilaterally create a 
valuation method.  
The statute expressly provides for the distribution of assets on 
dissolution.  
Wyo. Stat. Ann. § 17-15-126.  Granted, as we stated in Lieberman I, Lieberman is not entitled to a 
distribution of assets upon dissolution under this section because there was no 
dissolution.  
Lieberman I, at 358.  However, this 
statute would be a proper valuation tool.  This conclusion logically flows from the fact 
that the general rule is that an LLC must be dissolved upon the termination of a 
member's membership in the LLC, and the exception to this rule is when the 
operating agreement contains a provision for carrying on the business.  If such a carrying 
on provision is not placed in the operating agreement, the members receive a 
distribution in conformance with the provisions of Wyo. Stat. Ann 
§ 17-15-126.  
The legislature has established this as the proper method of discharging 
members' equity interests.  I see no reason to value the departing 
member's share differently when the business carries on and only one member 
departs.  

 

[¶27]   Therefore, absent a provision in the 
operating agreement, a member's equity interest should be valued at what he 
would have received had the business been dissolved on the day he terminated his 
membership in the LLC.  I recognize that, because the business is not 
actually dissolving, this valuation may be difficult and will have to be based 
to some extent on estimates and appraisals.  However, a similar valuation method is used 
upon the dissociation of a partner from a partnership when the partnership 
agreement has failed to provide for a valuation method.  See Wyo. Stat. Ann. §§ 17-21-603(a), 17-21-701(a), 
(b).  
Presumably, then, such estimates and appraisals are attainable.

 

[¶28]   Additionally, Wyo. Stat. Ann. § 
17-15-126 provides that upon dissolution the proceeds are to be applied first to 
pay the creditors and then the remainder is to go to the members "in respect of 
their share of the profits and other compensation by way of income on their 
contributions" and then lastly to the members "in respect of their contributions 
to capital."  
As can be seen by that statute's wording, the proceeds upon dissolution 
are used to extinguish debt and then are used not only to return a member's 
capital contribution but also to provide for the member's share of profits and 
other compensation by way of income on that contribution.  Such a provision 
can encompass many things including the increase in value of any assets, any 
retained profits, and the goodwill of the company.  Therefore, fair 
market value, which generally accounts for these relevant factors, would be a 
reasonable alternative estimate of the departing member's share.1    

 

[¶29]   Lastly, in instances where a departing 
member's share is to be valued as detailed above, the remaining members have 
elected to continue the company.  Therefore, some consideration must be given 
to the duties and hardship the company may encounter as a result of paying the 
departing member's equity interest.  The whole of the LLC statutes evidences the 
legislature's overall concern for the protection of the LLC's creditors.  See Wyo. Stat. Ann. §§ 17-15-105, -119, -120, -126 
(LexisNexis 2003).  
It is evident that the legislature wanted to assure that the LLC's 
creditors were provided for before the LLC members.  Wyo. Stat. Ann. §§ 
17-15-120, -126.  
These observations lead me to conclude that the payment of the departing 
member's equity interest may take place over a reasonable period of time to 
avoid the liquidation of essential assets and the possible undercapitalization 
of the LLC.  To 
be entitled to prolong the payment over a reasonable time, the LLC must show 
that immediate payment in full would jeopardize the company's ability to carry 
on its ordinary business and provide for its creditors.  Should payment over 
time be required, such payment should be secured by a promissory note that 
provides for reasonable interest.  Furthermore, until the member is paid in 
full, that member should still receive any distributions to which his interest 
is entitled much like a transferee without the right to participate in the 
management of the business would under Wyo. Stat. Ann. § 17-15-122 (LexisNexis 
2003). 

 

 

 

FOOTNOTES

 

1Wyoming.com filed a 
motion to dismiss the appeal on the grounds that the subject order was not a 
final order for purposes of W.R.A.P. 1.05 and thus not appealable.  This court 
determined that, as a practical matter, the subject order resolved all issues 
before the district court and thus was a final appealable order and denied the 
motion to dismiss.

 

2Our review is limited to 
the agreements between the parties because, as stated previously, there is no 
statutory provision regarding the rights and obligations of members upon the 
dissociation of a member.

 

3Wyo. Stat. Ann. § 
17-15-122 contains a similar provision regarding the transferability of 
interest.  The 
transferee does not become a member without unanimous approval of all 
members.

 

4This Court would be 
required to supply a liquidation or buy-out provision, including a valuation 
method, with no evidence as to what these parties intended when they formed 
Wyoming.com. 

 

5In Roussalis v. Wyoming Medical Center, Inc., 4 P.3d 209, 245 (Wyo. 
2000), rejecting one contracting party's claim of unconscionability, this Court 
said:

Our reluctance to redraw 
or nullify the provisions of a contract made by competent parties draws strength 
from the eloquent statement from the United States Supreme Court which we 
favorably quoted in Sinclair Oil Corp. [v. Columbia Gas Co., 682 P.2d 975 (Wyo. 
1984)]:

"The right of private 
contract is no small part of the liberty of the citizen, and that the usual and 
most important function of courts of justice is rather to maintain and enforce 
contracts, than to enable parties thereto to escape from their obligation on the 
pretext of public policy, unless it clearly appears that they contravene public 
right or the public welfare.  It was well said by Sir George Jessel, M.R., 
in Printing & Co. v. Sampson, L.R. 19 Eq. 465: It must not be forgotten 
that you are not to extend arbitrarily those rules which say that a given 
contract is void as being against public policy, because if there is one thing 
which more than another public policy requires it is that men of full age and 
competent understanding shall have the utmost liberty of contracting, and that 
their contracts, when entered into freely and voluntarily, shall be held sacred, 
and shall be enforced by courts of justice.  Therefore, you have this paramount public 
policy to considerthat you are not lightly to interfere with this freedom of 
contract.'"

Id. at 978-79 (quoting Baltimore & 
Ohio Southwestern Railway Co. v. Voigt, 176 U.S. 498, 505, 20 S. Ct. 385, 387, 44 L. Ed 560, 565 (1900)).

 

Footnote for the Dissent

 

1Fair market value is 
generally defined as the amount at which property would change hands between a 
willing buyer and a willing seller, neither being under any compulsion to buy or 
sell and both having reasonable knowledge of the relevant facts.  Black's Law 
Dictionary, 597 (6th ed. 1990).  See also Wyo. 
Stat. Ann § 39-11-101 (a)(vi) (LexisNexis 2001) (defining fair market value as 
used for taxation purposes).