Question: What is the formation and rights of members in a limited liability company?

Case:

Management of Limited Liability Companies

MONTANA FOOD, LLC v. TODOSIJEVIC

[Montana Food,] LLC is a limited liability company organized under the laws of the State of Wyoming and listing its principal place of business in Laramie County, Wyoming. During 2010, Mr. Todosijevic and Mr. Vukov, who are residents of Belgrade, Serbia, each held a 50% membership interest in the LLC. The LLC organized several subsidiaries in Belgrade, including Delbin Investments, MD, LTD (Delbin). The LLC and its subsidiaries invested in buildings located in Belgrade with an eye toward developing them.

The LLCs articles of organization provided that the LLC was manager-managed and named Maksim Stajcer, who was not a member of the LLC, as the manager. The articles of organization also provided that after the initial capital contribution of $10,000, [a]dditional contributions shall be made at such times and in such amounts as may be agreed upon by the Members as provided in the Operating Agreement. In late 2010, Mr. Vukov became concerned that he was the only member making additional contributions. He retained counsel in Serbia to investigate. The investigation apparently showed that Mr. Vukov had contributed 1,260,600 Euros while Mr. Todosijevic had made no additional contributions. Mr. Vukov issued a notice of meeting indicating that he wished to address the issue of capital contributions by the members as provided in the articles of organization and pro- pose that any member who did not contribute to the LLCs capital would be subject to a reduction of his ownership interest. Mr. Todosijevic claimed he did not receive the notice. In any event, he did not attend. At the meeting, Mr. Vukov adopted and approved resolutions showing his capital contribution of 1,260,600 Euros, increasing his ownership interest to 99.72% and reducing Mr. Todosijevics interest to 0.28%. Thereafter, Mr. Vukov amended the articles of organization by naming himself and his wife as the new managers of the LLC.

[In 2011, Mr. Todosijevic filed an action against Mr. Vukov and the LLC, claiming, among other things, that Mr. Vukov did not have the authority to adjust the members ownership interests. The district court granted Mr. Todosijevics motion for summary judgment. The LLC appealed.]

The narrow issue before us is whether Mr. Vukov on behalf of the LLC, had the contractual or statutory authority to adjust the members capital contributions. In deciding that issue, we must determine whether provisions of Wyomings current LLC Act are controlling or whether provisions of the earlier Act apply. [Section 17-29-1103 of the current Act

provides that four sections of the former Act applied at the time this action arose, including the management provision.] The effective date of the current Act was July 1, 2010. The

LLC we are concerned with here was organized in June of 2007. Therefore, we look to the former provisions * * * for guidance. We begin with 17-15-116:17-15-116. Management.

Management of the limited liability company shall be vested in its members, which unless otherwise provided in the operating agreement, shall be in proportion to their contribution to the capital of the limited liability company, as adjusted from time to time to properly reflect any additional contributions or withdrawals by the members; however, if provision is made for it in the articles of organization, management of the limited liability company may be vested in a manager or man- agers who shall be elected by the members in the manner prescribed by the operating agreement of the limited liability company. If the articles of organization provide for the management of the limited liability company by a manager or managers, unless the operating agreement expressly dispenses with or substitutes for the requirement of annual elections, the manager or managers shall be elected annually by the members in the manner provided in the operating agreements. The manager or managers, or persons appointed by the manager or managers, shall also hold the offices, and have the responsibilities accorded to them by the members and set out in the operating agreement of the limited liability company.

(Emphasis added.) In the present case, the articles of organization received by the Wyoming Secretary of State on June 1, 2007, provided as follows:

IX: Management: The Company is to be managed by a manager. The name and address of the manager who is to serve as manager until the first annual meeting of Members or until its successor or successors is or are elected and qualify, and who shall have authority to act and bind the Company upon his individual signature, is:

Maksim Stajcer, CPA S.A. 76 Dean Street Belize City Belize, C. America

The LLC operating agreement, also dated June 1, 2007, provided:

3.1 MANAGEMENT OF THE BUSINESS. The name and place of residence of each Manager is attached as Exhibit 1 of this Agreement. By a vote of Member(s) holding a majority of capital interests in the Company, as set forth in Exhibit 2 as amended from time to time, shall elect so many Managers as the Members determine, but no fewer than one.

Exhibit 1 to the operating agreement stated that by a majority vote of the members, Maksim Stajcer was elected to serve as manager of the LLC until removed by a majority vote of the members or his voluntary resignation. There is no evidence in the record that Mr. Stajcer had been removed or voluntarily resigned prior to Mr. Vukovs unilateral amendment of the articles of organization in 2011. * * *

*** The next question for our determination is whether, in a manager-managed LLC, a member has the authority to adjust the members ownership interests. Again, we begin by considering which version of Wyomings LLC Act applies. Section 17-29-1103 * * * states that four sections of the former Act applied at the time this action arose * * *. None of those provisions address the authority of a member of a manager-managed LLC to adjust ownership interests. We, therefore, look to the new Act to resolve the issue.

Section 17-29-407(c) * * * addresses LLC management. Subsection (c)(i) provides that in a manager-managed LLC, unless the articles of organization or the operating agreement provide otherwise, any matter relating to the activities of the company is decided exclusively by the manager. Subsection (c)(iv)(C) further provides that the consent of all

Cady, J.

In the afternoon of September 6, 1999, an explosion leveled the home of Jerry Usovsky (Usovsky) in Richland, Iowa. Tragically, seven people who had gathered in the home to celebrate the Labor Day holiday died from the explosion. Six others were injured, some seriously. The likely cause of the explosion was stray propane gas. The survivors and executors of the estates of those who died eventually filed a lawsuit seeking monetary damages against a host of defendants. The legal theories of recovery included negligence, breach of

members is required to undertake any act outside the ordinary course of the companys activities. Pursuant to the plain language of subsection (c)(i), unless the articles of organization and operating agreement provide otherwise, Mr. Vukov, as a member of the LLC, did not have the authority to decide matters relating to company activities. Pursuant to subsection (c)(iv)(C), Mr. Vukov also had no authority to take action outside the ordinary course of the LLCs activities without Mr. Todosijevics consent unless the organizational documents provided otherwise.

The articles of organization at issue here provided that the manager shall have the authority to act for and bind the Company upon his individual signature. The operating agreement further provided:

* * * Members that are not Managers shall take no part whatever in the control, management, direction, or operation of the Companys affairs and shall have no power to bind the Company ...

*** Pursuant to these provisions, LLC members were not authorized to control, manage, direct or operate LLC affairs; rather, the manager was to control ordinary LLC operations. The manager was not authorized, however, to change members ownership interests. Nothing in the articles of organization or operating agreement gave anyone the authority to change ownership interests. We conclude, as the district court did, that changing ownership interests was action outside the ordinary course of the LLCs activities. Applying the clear language of 17-29-407(c)(iv)(C), the consent of all members was required. The district court correctly concluded Mr. Vukov did not have the statutory or contractual authority to unilaterally change the members ownership interests.