Court Opinion

ID: 5156554
Source: CourtListenerOpinion
Date Created: 2022-01-02 02:22:44.557638+00
Date Added: 2024-06-11T08:25:22.984842
License: Public Domain

Justice EID,
concurring in the judgment.
I agree with the majority's ultimate conclusion that Banner's purported assignment to Condo of his interest in the Hut Group, an LLC, was ineffective and therefore the assignment could not support Condo's tortious interference with contract claim, but I disagree with its reasoning. Here, the operating agreement plainly prohibits a member of the Hut Group from assigning "any portion of [his] interest" in the LLC without the written consent of the other members, which *1120did not occur in this case. Colorado's LLC statute provides that we are to give "maximum effect" to the enforceability of an operating agreement. § 7-80-108(4), CRS. (2011). Giving "maximum effect" to enfore-ing the operating agreement's anti-assignment language means that Banner's purported assignment to Condo was void from the start. In my view, section 7-80-108(4)'s "maximum effect" language ends the matter; it leaves no room for arguments, such as Condo's, that Banner had the authority to assign his interest to her under the "modern approach" to anti-assignment clauses, and merely opened himself up to a breach-of-contract claim by the non-consenting members by doing so. Because the majority bases its decision on whether we should adopt the "classical" or "modern" approach to anti-assignment clauses under contract law generally, maj. op. at 1117-19, I concur only in the judgment it reaches.
An LLC operating agreement "governs the rights, duties, limitations, qualifications, and relations among the managers, the members, the members' assignees and transferees, and the [LLC]." § 7-80-108(1)(a). According to the legislature, enforcement of an operating agreement is to be given "maximum effect." § 7-80-108(4); see Elf Atochem N. Am., Inc., v. Jaffari, 727 A.2d 286, 291 (Del.1999) (noting that language identical to section 7-80-108(4) gives members "a great deal of certainty" that their operating agreement "will be enforced in accordance with its terms"). Here, Article 10.1 of the operating agreement expressly prohibits assignments of "any portion of [a member's] interest" without written consent of the other members, and there is no dispute that such consent did not occur in this case. See also Article 10.2 (no assignments without the pri- or written approval of the other members). If we are to give "maximum effect" to the enforceability of the anti-assignment language, we must recognize that the operating agreement gave Banner no authority to assign his interest to Condo. Banner's purported assignment to Condo was void from the outset and had no legal effect. Condo therefore has no claim against respondents for tortious interference with her interest in the assignment.
Condo urges us to adopt the "modern approach" to anti-assignment clauses under which anti-assignment language imposes a contractual duty not to assign an interest, but does not withdraw the authority to assign in the first instance. See Rumbin v. Utica, Mut. Ins. Co., 254 Conn. 259, 757 A.2d 526 (2000). In other words, under the modern approach, an assignor has the authority to assign his interest even though he has breached a contract; the anti-assignment clause merely opens him up to a breach-of-contract claim by other parties to the contract. Id. at 531-83. In my view, we need not consider whether Colorado recognizes the "modern" or "classical" approach to anti-assignment clauses with regard to contracts generally because the LLC statute answers the question in this case. Giving "maximum effect" to the enforceability of the anti-assignment language at issue here means that Banner had no authority to assign his interest to Condo. Because the "maximum effect" provision answers the question, there is no need to consider whether Colorado might adopt the "modern" approach to anti-assignment contractual provisions more generally.
The majority mistakenly concludes, however, that the "maximum effect" provision does not answer the issue of whether the anti-assignment language deprives Banner of authority to assign, or merely imposes a contractual duty upon him not to assign. Maj. op. at 1117. Instead, the majority suggests that the "maximum effect" language simply "indicate[(s] a legislative preference for the freedom of contract over the free assignability of membership rights. Thus, this LLC statute does not preempt Condo's ... argument; it helps to resolve it." Id. at 1119.It is difficult to see, however, how a command to give "maximum effect" to the enforceability of the anti-assignment language is simply a "legislative preference." If "maximum effect" is given to the enforceability of the anti-assignment language, a purported assignment in violation of the anti-assignment language can be given no legal effect.
Further, any concern regarding the general "public policy in support of the alienability *1121of contract rights" is misplaced in this case. Id. at 1116. The LLC act has specifically addressed the assignability issue by establishing a default rule that membership interests "may be assigned or transferred." § 7-80-702, C.R.S. (2011). But the LLC act is clear that parties may reject its default rules in favor of their own. § 7-80-108(1)(a) (operating agreement provisions "shall control over any provision of [the LLC act] to the contrary" except as set forth in this section) (emphasis added); see also Hlf Atochem, T27 A.2d at 291 (the operating agreement is the "cornerstone" of an LLC); § 7-80-108(4) ("It is the intent of [the LLC act] to give the maximum effect to the principle of freedom of contract. ..."). Here, the members have done just that-instead of permitting assignments, they prohibited assignments. Applying the "modern approach" in this case would create the same result as the default rule-namely, that Banner could make a valid assignment of his interest-thus violating the LLC act's command that the operating agreement "shall control" over the default rule.
Although the majority ultimately reaches the correct result, see maj. op. at 1119, its rationale is troubling for two reasons. First, the majority holds that whether an assignor had authority to assign his rights in violation of an anti-assignment provision depends upon the cireumstances, and is an issue to be determined on a case-by-case basis. Maj. op. at 1119. The majority thus leaves open the possibility that, under different ciream-stances, the "modern approach" might apply to an operating agreement with anti-assignment language similar to this one. Maj. op. at 1119. This approach renders virtually every such anti-assignment provision open to challenge. Second, by resting its decision on general anti-assignment contract principles, the majority leaves open the possibility that other general contractual principles will be applicable to LLCs despite the "maximum effect" provision. In sum, the majority's opinion leaves LLC law unsettled and open to uncertainty. For these reasons, I concur only in its judgment.
I am authorized to state that Justice COATS joins in this concurrence.