Court of Appeals holds no notice of “express will to withdraw” from an LLC, and no majority oppression
Posted on 06/27/2016 at 12:00 AM by Mollie Pawlosky
In Morse v. Rosendahl, No. 15-0912 (June 15, 2016), the Iowa Court of Appeals reversed the trial court’s decision that a limited liability company member had given a notice of withdrawal, but the appellate court agreed with the trial court that no oppression had occurred.
Morse, Greer and Rosendahl were sibling members of a limited liability company. Morse and Greer filed suit, asking the court to order Rosendahl to transfer his interest in the limited liability company to them. Morse and Greer argued that an email by Rosendahl showed his, “express will to withdraw as a member,” as required by the Iowa Code.
The email read:
So, rather than have legal issues arguing why don’t we take advantage of the 10,000 an acre price and get me out.
You won’t have to deal with me anymore.
Let’s find a way to make it happen. I’ll take 99 ac[res] by John and give you cash or a note to cover my end of the Jesse Place fiasco.
According to the accountant it’s the only way this works out.
You don’t have the cash and you can use some extra when I’m out.
Let’s find the number that works.
Although the trial court agreed with Morse and Greer, the Iowa Court of Appeals held that the email did not indicate Rosendahl’s intent to withdraw from the company. Rather, the email suggested a sale of his interest in the company. If he had intended to withdraw, he would have had to accept the value of his interest in the limited liability company as the value of his capital account, because of the wording of the operating agreement, and there would be no reason to try to negotiate a sales price. Similar prior comments by Rosendahl had also not been interpreted as an intent to withdraw.
The operating agreement allowed a member to transfer interest in the company for an amount different than the value of the capital account, which the Court of Appeals found to be a more reasonable interpretation of the email.
The Court of Appeals also affirmed the trial court’s denial of Rosendahl’s counterclaim for dissolution of the limited liability company because of oppression. Denial was appropriate, because the record did not show the majority declining repeated offers by Rosendahl to sell his interest for fair value. Repeated statements of having an interest in selling did not constitute repeated offers.
Morse v. Rosendahl is the most recent opinion from the Iowa Court of Appeals that addresses the governance of limited liability companies. The case illustrates that, in most instances, the limited liability company’s operating agreement will determine how to resolve a dispute among members. Moreover, Morse further illustrates that the majority’s one-time refusal to sell for fair value will not constitute oppression sufficient to warrant dissolution under the standard set by the Iowa Supreme Court in Baur v. Baur Farms, 832 N.W.2d 663 (Iowa 2013).
For further questions regarding limited liability company litigation, contact Mollie Pawlosky.
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