Court Opinion

ID: 9945855
Source: CourtListenerOpinion
Date Created: 2024-02-28 17:11:22.074812+00
Date Added: 2024-06-11T14:22:16.649935
License: Public Domain

J-A21013-23

NON-PRECEDENTIAL DECISION - SEE SUPERIOR COURT O.P. 65.37

 LARIKOV, LLC                             :   IN THE SUPERIOR COURT OF
                                          :        PENNSYLVANIA
                    Appellant             :
                                          :
                                          :
               v.                         :
                                          :
                                          :
 STACIE M. CAO                            :   No. 364 EDA 2023

              Appeal from the order Entered February 2, 2023
    In the Court of Common Pleas of Philadelphia County Civil Division at
                            No(s): 220302548

BEFORE: BENDER, P.J.E., DUBOW, J., and NICHOLS, J.

MEMORANDUM BY NICHOLS, J.:                       FILED FEBRUARY 28, 2024

      Appellant Larikov, LLC appeals from the order sustaining the preliminary

objections filed by Appellee Stacie M. Cao and dismissing Appellant’s fourth

amended complaint. Appellant argues that the trial court erred in dismissing

Appellant’s complaint for lack of standing. We affirm based on the trial court’s

opinion.

      The trial court summarized the underlying facts of this matter as follows:

           [Appellee] and Chai D. Hang Form Ocean Max LLC, and
                           [Appellee] Manages It

      On or about September 1, 2015, [Appellee] and Chai D. Hang
      formed Ocean Max LLC (“Ocean Max”) by executing an Operating
      Agreement and a Certificate of Organization. The Operating
      Agreement provided that [Appellee] and Mr. Hang would each
      have a 50% interest, that [Appellee] would be a Managing
      Partner, and that Mr. Hang would be a General Partner.
      Otherwise, the Operating Agreement contains little detail.
      Importantly, the agreement has no provisions governing the
      transfer of membership interests; this means that Ocean Max
      operates in accordance with the statutory defaults, which are
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     discussed in more detail below. According to the fourth amended
     complaint, Ocean Max’s assets include a property at 7139 State
     Road in Philadelphia (the “Property”). This Property was damaged
     in an unspecified way before July 2019; the Philadelphia
     Department of Licenses & Inspections labeled it as “unsafe” that
     month, and issued other violations through at least 2020. The
     Property, [Appellant] alleges, remains in a state of disrepair. In
     July 2019, [Appellant] alleges, Ocean Max received more than
     $91,000 in proceeds from an insurance claim for damage to the
     Property. [Appellant] alleges that [Appellee] either “placed said
     proceeds into her own pocket” or “simply dissipated the proceeds,
     against the interests of Ocean Max.”

       [Appellant] Pays Mr. Hang $30,000 for His Interest in
                            Ocean Max

     On or about August 20, 2021, [Appellant] and Mr. Hang entered
     into an Agreement titled “Ocean Max LLC Sale of Business Fifty
     Percent (50%) Ownership Interest Agreement.” This Agreement
     provided that [Appellant] would pay Mr. Hang $30,000 and
     receive, in return, 50% of the business and assets of Ocean Max,
     which included the Property and Ocean Max’s name, lease, and
     equipment. The Agreement attached a “Certification” of Mr. Hang,
     which stated that Ocean Max had received an insurance payout,
     that [Appellee] had “access” to that payout, and that Mr. Hang
     agreed to testify on [Appellant’s] behalf in any litigation with
     [Appellee].

     On November 5, 2021, [Appellant’s] representative, Vladimir
     Larikov, filed with the Pennsylvania Department of State a
     Certificate of Amendment for Ocean Max, which stated that
     “Larikov LLC is now a fifty (50) percent owner of Ocean Max LLC
     in place of prior fifty (50) percent owner, Chai D. Hang a/k/a Paul
     Hang.” There is no indication that [Appellee] approved this filing.

               [Appellant’s] Lawsuit Against [Appellee]

     [Appellant] filed its initial complaint on March 24, 2022.
     [Appellee] filed preliminary objections, and [Appellant] amended
     its complaint in response. Three more rounds of preliminary
     objections and amended complaints followed; eventually,
     [Appellant] rested on the allegations of its fourth amended
     complaint.

     [Appellant’s] fourth amended complaint asserts that when
     [Appellant] purchased Mr. Hang’s interest in Ocean Max, it

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      “stepped into the shoes of Mr. Hang, taking on his ownership
      interest in full.”      [Appellant] alleges that [Appellee] has
      mismanaged Ocean Max by failing to repair the Property, and
      contends that [Appellee’s] alleged breach of her duties to Ocean
      Max mean that she is liable to [Appellant]. The fourth amended
      complaint purports to state claims for breach of contract (alleging
      that by failing to repair the Property, [Appellee] breached her duty
      to Ocean Max to exercise good faith and fair dealing); negligence
      (alleging that Ocean Max has been harmed by [Appellee’s]
      negligence); breach of fiduciary duty (alleging that [Appellee]
      breached a fiduciary duty to Ocean Max); fraud (alleging that
      [Appellee] made unspecified “material representations to Mr.
      Hang and/or [Appellant] regarding the insurance claim and has
      not shared information regarding and/or proceeds of the same”);
      and unjust enrichment (alleging that [Appellee] profited from the
      insurance payment at [Appellant’s] expense). [Appellant] seeks
      substantial damages or, in the alternative, an order partitioning
      Ocean Max or compelling [Appellee] to sell her membership
      interest to [Appellee].

      In [Appellee’s] preliminary objections to the fourth amended
      complaint, she argued that [Appellant] could not, under
      Pennsylvania law, succeed to any of Mr. Hang’s governance rights
      or duties, and that [Appellant] therefore did not have standing to
      pursue its claims. She also contended that Mr. Hang’s sale of his
      interest to [Appellee] was entirely void, and that this court should
      hold that [Appellant] had no interest in Ocean Max whatsoever.
      In an order docketed on January 4, 2023, this court sustained the
      preliminary objections and dismissed the fourth amended
      complaint. In its order, this court noted that [Appellant] is, at
      best, a holder of a “transferable interest” as defined by
      Pennsylvania statute, with rights only to future distributions and
      an accounting upon Ocean Max’s dissolution; it has no right to
      participate in Ocean Max’s management.

Trial Ct. Op., 5/15/23, at 1-4 (record citations and footnote omitted, some

formatting altered).

      Appellant filed a timely motion for reconsideration, which the trial court

denied. Appellant subsequently filed a timely notice of appeal and a court-

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ordered Pa.R.A.P. 1925(b) statement. The trial court issued a Rule 1925(a)

opinion addressing Appellant’s claims.

      On appeal, Appellant raises the following issues, which we reorder as

follows:

      1. Whether the trial court abused its discretion or committed an
         error of law by granting Appellees’ preliminary objections to
         Appellant’s fourth amended complaint, by order dated January
         3, 2032, as the court failed to consider that Appellee and the
         co-founder of Ocean Max, LLC, Chai D. Hang (hereinafter, “Mr.
         Hang”), had ample opportunity to negotiate terms prior to
         executing the Operating Agreement for the same and as a
         result, Appellee’s and Mr. Hang’s Operating Agreement must
         govern the matter in full without the trial court setting forth
         additional terms not in said Operating Agreement and
         thereafter allowing the transfer of interest between Appellant
         and Mr. Hang and thereby allowing by omission the transfer of
         interest as occurred in the instant matter between Appellant
         and Mr. Hang?

      2. Whether the trial court abused its discretion or committed an
         error of law by granting Appellee’s preliminary objections to
         Appellant’s fourth amended complaint, by order dated January
         3, 2023, as thereby denying the Appellant’s properly achieved
         standing to file litigation against Appellee, even though, at
         minimum, Appellant lawfully purchased a transferrable interest
         in Ocean Max, LLC, thus giving Appellant an equitable interest
         in any disbursements(s) of said interest?

      3. Whether the trial court abused its discretion or committed an
         error of law by granting Appellee’s preliminary objections to
         Appellant’s fourth amended complaint, by order dated January
         3, 2023, disregarding Appellee’s repeated admission, in her
         docketed filings, that an insurance payout was received and
         was not disbursed to the shareholders of Ocean Max, LLC and
         with said payout, at minimum a portion thereof, belonged to
         any interest-holder of Ocean Max, LLC, such as Appellant as
         Appellant rightfully purchased from Mr. Hang, thereby
         obtaining the full right to exercise and/or receive the benefits
         of said interest, such as the payouts of proceeds?

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       4. Whether the trial court abused its discretion or committed an
          error of law by granting Appellee’s preliminary objections to
          Appellant’s fourth amended complaint, by order dated January
          3, 2023, disregarding Appellee’s repeated admission, in her
          docketed filings, that an insurance payout was received and
          was not disbursed to the shareholders of Ocean Max, LLC and
          was deposited, in full, into Appellee’s own personal account?

       5. Whether the trial court abused its discretion or committed an
          error of law by granting Appellee’s preliminary objections to
          Appellant’s fourth amended complaint, by nothing in the
          January 3, 3023 order denying Appellant’s claim that Appellee
          has a fiduciary duty to Appellant, as the managing partner of
          Ocean Max, LLC, when Appellant lawfully purchased, at a
          minimum, Mr. Hang’s transferrable interest in the same?

       6. Whether the trial court abused its discretion or committed an
          error of law by granting Appellee’s preliminary objections to
          Appellant’s fourth amended complaint, denying Appellant’s
          claim that Appellee, the managing partner of Ocean Max, LLC,
          has a fiduciary duty to Appellant, a shareholder and interest
          holder of Ocean Max, LLC?

       7. Whether the trial court abused its discretion or committed an
          error of law by granting Appellee’s preliminary objections to
          Appellant’s fourth amended complaint, by nothing in the
          January 3, 2023 order, given that a genuine issue of material
          fact exists, as the trial court itself admitted may exist, and
          thereafter denying Appellant the opportunity to litigate said
          fact(s) in court?

Appellant’s Brief at 7-10.

       All of Appellant’s claims challenge the trial court’s conclusion that

Appellant lacked standing to sue Appellee.1 First, Appellant contends that it
____________________________________________

1  In his brief, Appellant also challenges Appellee’s assertion that “the
transaction between Mr. Hang and [Appellant was] void and that [Appellant]
holds no interest, not even a transferrable interest, in Ocean Max.” See Trial
Ct. Order, 1/4/23, at 2. However, the trial court’s order did not rule on this
issue, and declined to address Appellee’s claim. Therefore, although Appellee
claims that Appellant’s transaction with Mr. Hang was void, it did not affect
the trial court’s conclusions regarding standing.

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has a membership interest in Ocean Max because the operating agreement

between Appellee and Mr. Hang did not explicitly preclude the parties from

transferring their respective membership interests to non-members. Id. at

19-33.   Appellant further claims that, at a minimum, it retains Mr. Hang’s

transferable right in Ocean Max and is entitled to distributions, including a

portion of a 2019 insurance payout made to the LLC.            See id. at 28-33.

Finally, Appellant contends that Appellee owes a fiduciary duty to Appellant,

which has a “transferrable interest” and is a “shareholder and interest holder”

in Ocean Max. Id. at 36-42.

      This Court has explained:

      We review an order sustaining preliminary objections seeking
      dismissal of an action de novo:

         Our standard of review of an order of the trial court [ruling
         on] preliminary objections is to determine whether the trial
         court committed an error of law. When considering the
         appropriateness of a ruling on preliminary objections, the
         appellate court must apply the same standard as the trial
         court.

         Preliminary objections in the nature of a demurrer test the
         legal sufficiency of the complaint.          When considering
         preliminary objections, all material facts set forth in the
         challenged pleadings are admitted as true, as well as all
         inferences reasonably deducible therefrom. Preliminary
         objections which seek the dismissal of a cause of action
         should be sustained only in cases in which it is clear and free
         from doubt that the pleader will be unable to prove facts
         legally sufficient to establish the right to relief. If any doubt
         exists as to whether a demurrer should be sustained, it
         should be resolved in favor of overruling the preliminary
         objections.

      Fiedler v. Spencer, 231 A.3d 831, 835-36 (Pa. Super. 2020)
      (citations omitted). This Court will reverse the trial court’s

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      decision regarding preliminary objections only where there has
      been an error of law or abuse of discretion. When sustaining the
      preliminary objections will result in the denial of claim or a
      dismissal of suit, the preliminary objections may be sustained only
      where the case is free and clear of doubt. Hill v. Ofalt, 85 A.3d
      540, 547-548 (Pa. Super. 2014).

Godlove v. Humes, 303 A.3d 477, 480-81 (Pa. Super. 2023). Additionally,

it is well settled that “[a] party seeking judicial resolution of a controversy in

this Commonwealth must, as a prerequisite, establish that he has standing to

maintain the action.” Nye v. Erie Ins. Exchange, 470 A.2d 98, 100 (Pa.

1983).

      Here, in sustaining Appellee’s preliminary objections and dismissing

Appellant’s complaint, the trial court explained:

      A. As a Holder of, at Most, a Transferable Interest in Ocean
         Max, [Appellant] Has No Standing

      LLCs are creatures of statute. Under the Pennsylvania Uniform
      Limited Liability Company Act of 2016 (the “Act”), 15 Pa. C.S. §§
      8811 et seq.,[fn1] the members of a LLC may set forth rules for the
      LLC’s activities, governance, and membership in an operating
      agreement. 15 Pa.C.S. § 8815(a). If the operating agreement
      does not cover a particular matter, then the provisions of the Act
      control. 15 Pa.C.S. § 8815(b). As noted above, . . . Ocean Max’s
      Operating Agreement has no provisions governing the transfer of
      membership interests; therefore, statutory provisions apply.

             The Act governs all Pennsylvania LLCs, even those
         [fn1]

         formed before the Act’s adoption (as was Ocean Max). 15
         Pa.C.S. § 8811(c). Even if the former LLC statute applied,
         however, the “pick your partner” rules underlying this
         Court’s ruling would be the same. See 15 Pa.C.S. 8924
         (repealed Feb. 21, 2017); Zokaites v. Pittsburgh Irish
         Pubs, LLC, 962 A.2d 1220, 1222-23 (Pa. Super. 2008).

      These default statutory provisions codify “one of the most
      fundamental characteristics of limited liability company law . . . its
      fidelity to the ‘pick your partner’ principle.” 15 Pa.C.S. § 8852,

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     Committee Comment. Under this principle, unless all other
     members consent, a[n] LLC member cannot transfer his
     membership rights and obligations to a third party. Id. The Act
     respects and enforces this principle by providing that “[a] person
     may not transfer to a person not a member any rights in a limited
     liability company other than a transferable interest.” 15 Pa.C.S.
     § 8851. The Act defines a “transferable interest” as “[t]he right,
     as initially owned by a person in the person’s capacity as a
     member, to receive distributions from a limited liability company,
     whether or not the person remains a member or continues to own
     any part of the right.” 15 Pa.C.S. § 8812.

     The Act further provides that a transferable interest

        does not entitle the transferee to: (i) participate in the
        management or conduct of the company’s activities and
        affairs, or (ii) except as provided in subsection (c) [which
        entitles a transferee to an account of the company’s
        transactions after a dissolution], have access to records or
        other information concerning the company’s activities and
        affairs.

     15 Pa.C.S. § 8852(a)(3). The Comments further explain just how
     limited the rights of a transferee, like [Appellant], are:

        [Section 8852] is the core of this chapter’s provisions
        reflecting and protecting [the ‘pick your partner’] principle.
        A member’s rights in a limited liability company are
        bifurcated into economic rights (the transferable interest)
        and governance rights (including management rights,
        consent rights, rights to information, and rights to seek
        judicial intervention). Unless the operating agreement
        otherwise provides, a member acting without the consent of
        all other members lacks both the power and the right to: (i)
        bestow membership on a non-member; or (ii) transfer to a
        non-member anything other than some or all of the
        member’s transferable interest. The rights of a mere
        transferee are quite limited-i.e., to receive distributions as
        provided in subsection (b), and, if the company dissolves
        and winds up, to receive specified information pertaining to
        the company from the date of dissolution as provided in
        subsection (c). . . . Mere transferees have no right to
        participate in management or otherwise intrude as
        the members carry on the affairs of the limited
        liability company and their activities as members.

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        Id. Committee Comments (emphasis added).

     The claims that [Appellant] purports to bring are all founded on
     its position that it purchased governance rights from Mr. Hang.
     Under the law, however, without [Appellee’s] consent, no such
     purchase could take place. [Appellant] is at best a holder of a
     transferable interest, with a right to a share of future distributions
     (if any) and to a post-dissolution accounting (if and when
     dissolution occurs), and nothing more. Accordingly, [Appellant]
     had no standing to sue [Appellee].[fn2]
        [fn2]In its Motion for Reconsideration, [Appellant] argued
        that even as a mere transferee, [Appellant] was entitled to
        50% of the alleged insurance proceeds from 2019, because
        those proceeds were a “distribution” that [Appellee] should
        have shared with Mr. Hang. Mem. of Law in Support of
        Motion for Reconsideration at 7-8. [Appellant’s] fourth
        amended complaint did not include such a claim; therefore,
        the issue is not relevant to this appeal. Moreover, a
        transferable interest carries with it the right to share in
        future distributions, not to challenge the division of
        distributions that occurred years in the past. If Mr. Hang
        was shortchanged, as [Appellant] claims, that claim is Mr.
        Hang’s to bring, not [Appellant’s]. The Agreement between
        [Appellant] and Mr. Hang cannot be read to give [Appellant]
        any right to pursue claims for past distributions on Mr.
        Hang’s behalf. Accordingly, even if [Appellant] had pled this
        claim, [Appellant] would lack standing.

     B. Even if [Appellant] Were a Member of Ocean Max, It
        Would Not Be Permitted to Bring Direct Claims Against
        [Appellee]

     Even if [Appellant] could state any basis for concluding that it has
     a governance interest in Ocean Max, its claims would fail. The Act
     provides that a member of an LLC “may maintain a direct action
     against another member, a manager or the limited liability
     company to enforce the member’s rights and protect the
     member’s interests.” 15 Pa.C.S. § 8881(a). The member must,
     however, “plead and prove an actual or threatened injury that is
     not solely the result of an injury suffered or threatened to be
     suffered by the limited liability company.” Id. § 8881(b).
     [Appellant] alleges only that Ocean Max has been damaged and
     that [Appellant] has suffered as a result. Therefore, even if

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      [Appellant] had standing, its Fourth Amended Complaint would
      not state a claim for relief.

Trial Ct. Op. at 6-8 (emphases in original, some formatting altered).

      Following our review of the record, we discern no error of law or abuse

of discretion by the trial court.     See Godlove, 303 A.3d at 480-81.

Accordingly, we affirm based on the trial court’s opinion. See Trial Ct. Op. at

6-8. The trial court thoroughly explained its reasons for sustaining Appellee’s

preliminary objections and dismissing Appellant’s complaint. See Trial Ct. Op.

at 6-8.   As noted by the trial court, because the Ocean Max operating

agreement did not contain a provision authorizing the transfer of membership

rights, Appellant’s rights in the LLC are solely economic in nature. See 15 Pa.

C.S. § 8852; see also Zokaites, 962 A.2d at 1224 (stating that “[s]ubject to

a contrary operating agreement, a member can freely transfer only economic

rights” to a non-member). Therefore, because Appellant retains, at most, an

economic interest in the LLC, it does not have standing to sue Appellee. See

15 Pa. C.S. § 8881(a), (b) (reflecting that a member of an LLC may take

direct action against another member upon proof of an “actual or threatened

injury that is not solely the result of an injury suffered or threatened to be

suffered by the limited liability company”).

      Order affirmed. Jurisdiction relinquished.

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Date: 2/28/2024

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