Opinion ID: 2982310
Heading Depth: 1
Heading Rank: 2

Heading: the operating agreement

Text: The relevant portions of the Operating Agreement provided that members could voluntarily dissociate from CDC at any time by giving written notice at least 120 days in advance: 12.1 Disassociation - An Organization shall cease to be a Member upon . . . the voluntary withdrawal of the Member upon one hundred and twenty (120) days written notice to the Company and all Members (the effective date of the disassociation is at the end of the quarter when the Company and other Members receive written notice of the voluntary written withdrawal); 12.2 Rights of Disassociating Member - In the event any Member disassociates . . . the Transfer of the Member’s Units in the Company must comply with . . . the Right of First Offer in Section 11.4. The Operating Agreement also provided CDC with a right of first refusal, or “Purchase Option,” to buy the shares back from a dissociating member in the event of a withdrawal; if the Company declined to exercise its Purchase Option, the right of refusal would then pass to other CDC members: 5 11.4 Right of First Offer - If a Member, (a “Transferor”) desires to transfer or assign all or any portion of, or any interest or [rights] in [sic] in . . .the Company (the “Transferor Interest”) . . . [it] shall notify the Company of that desire . . . [in a] “Transfer Notice” . . . describ[ing] the Transferor Interest . . . [At which point,] [t]he Company (or if the Company declines . . . [its] Members) . . . shall have the option (the “Purchase Option”) to purchase . . . the Transferor Interest, for a price . . . set forth in the Transfer Notice (the “Purchase Price”) [at any time during the following 90-day period]. . . Finally, if neither the Company nor its Members exercised the option to purchase the shares at the disassociating member’s asking price, Section 11.4(c) of the Operating Agreement allowed dissociating members to sell their interest in the Company to a third party: If the Company [and its Members] fails to exercise the Purchase Option, the Transferor shall be permitted to offer and sell for a period of ninety (90) days (the “Free Transfer Period”) after the expiration of the Transfer Period at a price not less than the Purchase Price. If the Transferor does not transfer the Transferor Interest within the Free Transfer Period, the Transferor’s right to transfer the Transferor Interest shall cease and terminate. Operating Agreement, Section 11.4(c). From the time that Bellwether joined CDC in 2008 until its withdrawal in 2011, CDC’s Operating Agreement remained unchanged. CDC’s Board of Directors did, however, consider a series of proposed amendments to the Operating Agreement, none of which passed, just a few days prior to Bellwether’s decision to dissociate from CDC. Among these potential modifications was a proposed amendment to Section 12.2.b, which would have required CDC to pay 6 withdrawing members, over a period of five years, the actual value of a member’s interest in the company at the time of withdrawal (as opposed to refunding only that member’s initial capital contribution) . On January 5, 2001, a vote was held and the proposed amendment fell shy of the necessary supermajority to pass; thus, the original Operating Agreement remained in effect. Because a majority of the CDC members had voted in favor of the proposed amendment, however, many members were initially confused regarding the status of the Operating Agreement; some members were apparently under the mistaken impression that the Operating Amendment had, in fact, been amended. On January 25, 2011, just a few days after voting against the proposed amendment, Bellwether notified CDC of its intent to withdraw from the company, effective March 11, 2011.2 The notice prompted a series of exchanges between CDC and Bellwether regarding the terms of Bellwether’s withdrawal. On February 9, 2011, CDC’s CEO Tom Davis, under the mistaken belief that the Operating Agreement had been amended, wrote to L’Ecuyer that the value of Bellwether’s capital account would be calculated as of March 31, 2011, “the effective date of Bellwether’s disassociation” and that “in accordance . . . [with] Section 12.2.b,” this amount “would be paid over a period [of five years].” Davis 2 Although the letter is dated January 5, 2011, other portions of the record suggest that CDC received the letter on January 25, 2011. 7 later explained, however, that he had been confused about the passage of the proposed amendment at the time of this correspondence, and that the valuation and distribution amounts he cited in that letter were based on his mistaken understanding that the amendment had indeed passed. L’Ecuyer, on the other hand, clearly understood that the amendment had not passed, as is evidenced by his response to Davis by correspondence dated February 28, 2011. In the letter, he corrected Davis’s assertion that the proposed amendment had passed, and specifically noted that the original Operating Agreement remained in effect and that “the terms of the original . . . Operating Agreement apply to [Bellwether’s dissociation from CDC].” In response, Davis agreed to the fact that the Operating Agreement had not actually been amended. Pursuant to the withdrawal provisions of the original Operating Agreement, in late July 2011, Bellwether offered its 50 Class A shares for sale to CDC and then to its members at an asking price of $13,104.66 per share. Neither CDC nor its members elected to purchase Bellwether’s shares at that price, and Bellwether did not attempt to find a third party buyer. Instead, Bellwether filed this lawsuit, under the Michigan Limited Liability Company Act, M.C.L. § 450.4305, claiming that it was entitled to a withdrawal payment of $655,233 from CDC, representing the “fair value” of its 50 Class A shares at the price of $13,104.66 per share. 8