Court Opinion

ID: 9735019
Source: CourtListenerOpinion
Date Created: 2023-08-26 17:57:30.65476+00
Date Added: 2024-06-11T18:26:54.324494
License: Public Domain

PATIENCE DRAKE ROGGENSACK, J.
¶ 38. {concurring). I write in concurrence to further explain the foundation for decisions under the provisions of Wis. Stat. ch. 183 (2001-02),1 Wisconsin's limited liability company statute. In so doing, I focus on the nature of a member's interest in a limited liability company and on the specifics of New Jersey LLC, which drive the remedy available to Gregory Gottsacker on remand. I conclude that whether Julie Monnier and Paul Gott-sacker dealt fairly with Gregory Gottsacker turns on *382the provisions of ch. 183 and the majority opinion's interpretation of the Member's Agreement of New Jersey LLC.
¶ 39. Accordingly, as I explain in more detail below, the remedy available on remand is an accounting to accurately determine the fair market value2 of the property sold by New Jersey LLC, and if Gregory has not been paid his fair share of any profit achieved through that sale, Julie and Paul must compensate him for any lost profit he sustained when the Sheboygan warehouse was sold. Because it is not apparent from the record whether the circuit court conducted a fact-finding to determine the fair market value of the Sheboygan warehouse and therefore it is not possible for us to determine as a matter of law whether Paul and Julie earned improper personal profits on the warehouse sale, I concur in the majority opinion's decision to remand, as well as its reversal of the court of appeals decision.
I. BACKGROUND
¶ 40. In September of 1998, Julie filed the Articles of Organization for New Jersey LLC; she was its sole member. Also in September of 1998, New Jersey LLC purchased the Sheboygan warehouse for $510,000. Julie personally guaranteed the loan that was used to purchase the warehouse.
*383¶ 41. Paul and Gregory became members of New Jersey LLC in 1999. There was no 1998 operating agreement establishing terms for New Jersey LLC different from those provided in ch. 183. However, at the time Paul and Gregory became members of New Jersey LLC, they entered into a "Member's Agreement," which states in relevant part:
The Members . . . acknowledge ... and assent to the operation of the Company under the WLLCL without amendment by an operating agreement;
4. Julie A. Monnier shall own a 50% interest in the capital, profits and losses of [New Jersey LLC] and shall have 50% of the voting rights of [New Jersey LLC],
5. Paul Gottsacker and Greg Gottsacker, collectively, shall own a 50% interest in the capital, profits and losses of [New Jersey LLC] and shall have 50% of the voting rights of [New Jersey LLC].
¶ 42. After Paul and Gregory became members of New Jersey LLC, it purchased the Wilson Street real estate, which it held for a period of time and then sold for a profit. Julie received 50% of the profits from that sale, Paul received 25% of the profits and Gregory received 25%.
¶ 43. In June of 2001, New Jersey LLC sold the Sheboygan warehouse to another limited liability company, of which Gregory was not a member, for the same price New Jersey LLC paid for it in 1998, $510,000. Although Gregory did not vote in favor of the sale, Julie and Paul contend that he received 25% of the transaction profits. Because Gregory did not vote to sell the Sheboygan warehouse and because he contends he did *384not receive the profits to which he was entitled, he seeks to rescind the sale.
II. DISCUSSION
A. Standard of Review
¶ 44. I review, as a matter of law, the prior court's decision that due to Julie and Paul's conflict of interest in voting to sell the Sheboygan warehouse they violated Wis. Stat. § 183.0402 and Wis. Stat. § 183.0404, requiring rescission of the sale. Tahtinen v. MSI Ins. Co., 122 Wis. 2d 158, 166, 361 N.W.2d 673 (1985) (the application of a statute to a set of facts presents a question of law).
B. Gregory's Claims
¶ 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 *385provisions 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.
1. Gregory's derivative claim
¶ 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 Lability 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
*386¶ 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(l)(a). Section 183.1101 requires in relevant part:
(1) Unless otherwise provided in an operating agreement, an action on behalf of a bmited liabihty company may be brought in the name of the bmited bability company by one or more members of the bmited liability company,... if the members are authorized to sue by the affirmative vote as described in s. 183.0404(l)(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 bmited 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 bmited bability company:
(a) If management of a bmited bability company is reserved to the members, an affirmative vote, approval or consent by members whose interests in the bmited liability company represent contributions to the bmited 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 bmited liability company.
¶ 49. It is undisputed that Gregory's member interest does not comprise "more than 50% of the value ... *387of the total contributions made" to New Jersey LLC, as Wis. Stat. § 183.0404(l)(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.
2. Gregory's individual claim
¶ 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 *388losses 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(l)(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., ¶ 25.1 concur in the majority opinion's interpretation of the Member's Agreement. In addition, the majority opinion's interpretation is consistent with the K-l form Gregory filed with his federal *389taxes. On his K-l, 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(l)(a) to determine if he had sufficient member interest to preclude the sale.
¶ 55. Wisconsin Stat. § 183.0404(l)(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 *390member 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.
III. CONCLUSION
¶ 56. On remand, the circuit court must first address whether Gregory is seeking to maintain a derivative action or solely an action in his own name. If he seeks to maintain both types of action, the circuit court must determine whether he meets the statutory criteria to do so. In determining whether Julie and Paul dealt fairly with Gregory and/or New Jersey LLC, the circuit court must determine the fair market value of the Sheboygan warehouse on the date of the sale. There must then be an accounting of the profits that resulted from the sale and a comparison of that number with the payment Gregory received. Because the majority opinion determines that Julie and Paul had a conflict of interest in the sale of the warehouse, any profits they retained in excess of 75% of the profits will be improper personal profits that they hold in trust for Gregory.
¶ 57. Accordingly, I concur in the mandate of the majority opinion.
¶ 58. I am authorized to state that Justice JON P WILCOX joins in this concurrence.

 All further references to the Wisconsin Statutes are to the 2001-02 version unless otherwise noted.

 The court of appeals made much of its finding that the sale of the Sheboygan warehouse was not made in an arms-length transaction and therefore the price paid may have been too low. However, the name of the purchaser of the warehouse is not dispositive of whether Gregory was dealt with fairly. Rather, Julie and Paul were obligated to obtain the fair market value for the property, no matter who bought it.

 The court of appeals improperly engrafted a common law fiduciary duty on Julie and Paul's status as members. Members' obligations are set by statute.

 In the context of corporate law, a derivative claim for relief permits an individual shareholder to sue to enforce a claim for relief that belongs to the corporation by claiming the action of another injured the corporation. See Einhorn v. Culea, 2002 WI 65, ¶ 16, 235 Wis. 2d 646, 612 N.W.2d 78. There are some restrictions on a shareholder's ability to bring a derivative action. *386See McGivern v. Amasa Lumber Co., 77 Wis. 2d 241, 252 N.W.2d 371 (1977). The concept of derivative claims has been engrafted into the law of limited habihty companies. Wis. Stat. § 183, 1101; Elf Atochem N. Am., Inc. v. Jaffari, 727 A.2d 286, 293-94 (Del. 1999).

 Therefore, there is no basis for the court of appeals finding that New Jersey LLC "was formed to hold the [Sheboygan warehouse] as a long-term investment."

 I also agree with the majority opinion that Julie and Paul had a material conflict of interest in voting to sell the She-boygan warehouse owned by New Jersey LLC. Majority op., ¶ 26.

 Wisconsin Stat. § 183.0102(11) provides that a member's interest "means a member's rights in the limited liability company, including the member's ... right... to vote or participate in management of the limited liability company."