Opinion ID: 1059475
Heading Depth: 2
Heading Rank: 3

Heading: Appointment of CSC as Manager of FLTC

Text: In their sixth and seventh assignments of error, the Flippos assert that in removing Carter Flippo as manager of FLTC, disqualifying Arthur Flippo from serving as manager, and installing CSC as manager, the trial court exceeded its statutory authority and violated FLTC's Operating Agreement. CSC asserts that this issue has not been preserved for appeal, citing Rule 5:25. The Flippos offer two grounds which they maintain place this issue properly before us. First, they contend that they raised the issue of the trial court's lack of authority to take this action in their demurrer to Count Three of the bill of complaint. In the demurrer, they asserted that Code §§ 13.1-1024 and 1024.1 do not provide a cause of action for the disqualification or removal of a member from serving as the manager of a limited liability company. The trial court did not rule on the demurrer, but the Flippos assert that they properly preserved the issue for appeal because they objected to the final order which granted the relief the demurrer challenged as inappropriate. The problem with this contention, however, is not only that the Flippos never sought a ruling on their demurrer but, also that the arguments presented to the trial court on this issue after filing of the demurrer indicated that the Flippos abandoned any reliance on the grounds stated in the demurrer to defeat imposition of the relief sought by CSC in Count Three. At trial, counsel for the Flippos did not argue that the trial court could not remove Carter and Arthur Flippo as managers. Rather counsel argued that he did not think a case has been made for requiring Carter Flippo to step down as manager or for dissociation of the Flippos. Counsel suggested further restrictions would be appropriate only if the court were concerned about Carter Flippo's future actions as manager and advised that restrictions contained in the consent order entered by the trial court for the duration of the trial would be appropriate. The Flippos' assertion that the evidence is insufficient to support CSC's claim admitted the court's authority to grant the relief sought and challenged only the proof burden of the party seeking the relief. At no point in oral arguments to the court, in post trial memoranda, or in objections to the final order did the Flippos refer to their previously filed demurrer or raise any objection to the relief sought by CSC in Count Three based on the trial court's lack of authority to remove or disqualify the Flippos as managers and to appoint CSC as manager of FLTC. The Flippos also argue that these assignments of error are properly before us because they involve a challenge to the subject matter jurisdiction of the trial court and, therefore, can be raised at any time. Again we disagree. In this case, the trial court concluded that the Flippos had breached their fiduciary duties to FLTC and violated the Operating Agreement in doing so. Code § 13.1-1023(C)(1) authorizes a court of equity to enforce an operating agreement by relief that the court in its discretion determines to be fair and appropriate. The Operating Agreement identified Carter and Arthur Flippo as successive managers and also stated that [a]ll Members shall participate in the management of the LLC, but they shall appoint one Member as a Manager. The trial court was charged with construing the Operating Agreement and enforcing it in a fair and appropriate manner. Whether the enforcement of the Operating Agreement as construed by the trial court was fair and appropriate is a matter reviewable on appeal for its correctness, but the initial decision was fully within the subject matter jurisdiction of the trial court to consider in the first instance. Accordingly, for these reasons we conclude that the issues raised in assignments of error six and seven were not properly preserved in the trial court, and therefore we do not consider them here. Rule 5:25.