Opinion ID: 2195500
Heading Depth: 2
Heading Rank: 2

Heading: Gregory's Claims

Text: ¶ 45. A limited liability company is a business entity created by statute where those who hold an interest in the entity are known as members. Wis. Stat. §§ 183.0102(15), 183.0801. The rights and obligations of a limited liability company to its members, of the members to the limited liability company and to each other are set by ch. 183. Common law concepts such as the fiduciary duty of a majority shareholder of a corporation to a minority shareholder are replaced by statutory obligations. [3] Wis. Stat. §§ 183.0402, 183.1302(3). Those rights and obligations may be adjusted through a contract generically known as an operating agreement. Wis. Stat. § 183.0102(16). Here, Julie, Paul and Greg, in the Member's Agreement, agreed to be bound by the provisions of ch. 183, without amendment by an operating agreement. Therefore, with the exception of the allocation of member interests set out in the Member's Agreement, the rights and obligations of the parties before us are found in ch. 183.
¶ 46. Gregory sued Julie and Paul in the name of New Jersey LLC, as well as in his own name. As an affirmative defense to that claim of the complaint, Julie and Paul asserted that Gregory had no statutory authority and no standing to sue on behalf of New Jersey LLC. ¶ 47. Not every member of a limited liability company has the right to bring an action in the name of the limited liability company. Wis. Stat. § 183.0305. The requisite qualifications to do so are set out in Wis. Stat. § 183.1101. Therefore, Gregory must meet those statutory parameters in order to sue in the name of New Jersey LLC. Neither the circuit court nor the court of appeals decided whether Gregory had statutory authority to bring an action on behalf of New Jersey LLC. The majority opinion also does not address the issue, possibly because the parties focused their briefs on whether the sale of the Sheboygan warehouse was valid without Gregory's consent. Because it may be an issue on remand, I point out that it has not been decided whether Gregory has met the statutory prerequisites to bring a derivative claim. [4] ¶ 48. The requirements that must be satisfied before a member can bring a derivative claim on behalf of a Wisconsin limited liability company are set out in Wis. Stat. § 183.1101 and § 183.0404(1)(a). Section 183.1101 requires in relevant part: (1) Unless otherwise provided in an operating agreement, an action on behalf of a limited liability company may be brought in the name of the limited liability company by one or more members of the limited liability company, . . . if the members are authorized to sue by the affirmative vote as described in s. 183.0404(1)(a), except that the vote of any member who has an interest in the outcome of the action that is adverse to the interest of the limited liability company shall be excluded. Section 183.0404(1)(a) provides in relevant part: (1) Unless otherwise provided in an operating agreement . . . an affirmative vote, approval or consent as follows shall be required to decide any matter connected with the business of a limited liability company: (a) If management of a limited liability company is reserved to the members, an affirmative vote, approval or consent by members whose interests in the limited liability company represent contributions to the limited liability company of more than 50% of the value, as stated in the records required to be kept under s. 183.0405(1), of the total contributions made to the limited liability company. ¶ 49. It is undisputed that Gregory's member interest does not comprise more than 50% of the value . . . of the total contributions made to New Jersey LLC, as Wis. Stat. § 183.0404(1)(a) requires. However, no Wisconsin appellate decision has decided the meaning of adverse to the interest of the limited liability company stated in Wis. Stat. § 183.1101(1). Perhaps it depends on what the operating agreement says; however, there is no operating agreement here. Additionally, the purpose of New Jersey LLC is not stated in its Articles of Organization or in the Member's Agreement. [5] Furthermore, Wisconsin's limited liability company law was created to afford a flexible and informal form of doing business. See Joseph W. Boucher, et al., Next Economy Legislation: Allowing Complex Business Reorganizations, Wisconsin Lawyer, Aug. 2002, at 19. And finally, a limited liability company that was formed before October 1, 2002 can be dissolved if a member dissociates from the limited liability company. Wis. Stat. § 183.0901(4). New Jersey LLC was formed before October 1, 2002. Therefore, it had no expectation of perpetual operation. Those are some of the questions that a derivative claim presents. However, I leave this issue undecided, as does the majority opinion, but I note that the parties are not free to do so on remand, if Gregory continues to sue in the name of New Jersey LLC, as well as on his own behalf.
¶ 50. I begin by noting that the nature of a member's interest in a limited liability company is personal property. Wis. Stat. § 183.0703. As a member, Gregory has a right to receive a share of the profits and losses of New Jersey LLC and the right to vote or participate in the management of New Jersey LLC. Wis. Stat. § 183.0102(11). However, Gregory never had an interest in real property in regard to the Sheboygan warehouse. ¶ 51. I agree with the majority opinion that Gregory had the right to be dealt with fairly by members of New Jersey LLC who had a material conflict of interest in regard to the sale of the Sheboygan warehouse. [6] Majority op., ¶ 31; Wis. Stat. § 183.0402(1)(a). I also agree that if Julie and Paul acquired any improper personal profit in connection with the sale of the Sheboygan warehouse, they hold such improper personal profit in trust for Gregory. Wis. Stat. § 183.0402(2). ¶ 52. Gregory contends that Julie and Paul could not vote to sell the warehouse because they had a conflict of interest in the matter. Again, I agree with the majority opinion's conclusion that ch. 183 does not preclude a member who has a material conflict of interest in a transaction from casting a valid vote on it. Majority op., ¶ 31. Accordingly, the sale is valid, but what remains on remand is to assess whether Gregory is due a payment different from that which he has received. ¶ 53. The majority has concluded that Gregory held a 25% interest in profits, losses and votes in New Jersey LLC. Majority op., ¶ 25. I concur in the majority opinion's interpretation of the Member's Agreement. In addition, the majority opinion's interpretation is consistent with the K-1 form Gregory filed with his federal taxes. On his K-1, Gregory declared that he had a 25% interest in the profit sharing, loss sharing and ownership of capital for New Jersey LLC. ¶ 54. Gregory further claims that his right to vote on the proposed sale of the Sheboygan warehouse was violated because Julie and Paul did not give him notice of the potential sale and ask for his consent to the transaction. The majority opinion does not address this contention. Both Wis. Stat. § 183.0102(11) and Wis. Stat. § 183.0404(1) address a member's vote on matters connected with the business of a limited liability company. [7] Julie and Paul do not contend that Gregory had no right to vote, and I found nothing to support such a position. Accordingly, I conclude that Gregory did have a right to vote, give approval or consent on the sale of the Sheboygan warehouse, according to these provisions. Therefore, I compare Gregory's 25% member interest with the requirements of § 183.0404(1)(a) to determine if he had sufficient member interest to preclude the sale. ¶ 55. Wisconsin Stat. § 183.0404(1)(a) establishes that the member vote, approval or consent necessary must be  more than 50% of the value ... of the total contributions made to the limited liability company. (Emphasis added.) It is uncontested that Julie contributed 50% of the value of the contributions made to New Jersey LLC. The majority opinion concludes that Paul contributed 25% of the contributions to New Jersey LLC and that Gregory contributed 25% of the contributions. Majority op., ¶ 25. Accordingly, Gregory's interest is insufficient to satisfy the statutory criteria for member participation that will determine whether a transaction occurs. Therefore, the fact that Gregory was not given the opportunity to vote against the sale of the Sheboygan warehouse had no effect on whether a valid sale occurred.