The North Carolina Lawyers Weekly features an interesting story by report David Donovan published on Nov. 14 under the headline “Deadlock by any other name still grounds for dissolving an LLC, Biz Court rules.”
Here’s the top of the story:
An Asheville law firm may have to cough up $85,000 in fees after it signed on to represent a limited liability corporation when only one of the LLC’s two co-owners agreed to the representation. The North Carolina Business Court disqualified the firm in an Oct. 31 ruling and appointed a receiver to manage the LLC’s business operations. The court also ruled on a new provision in the state’s LLC Act, and found that still allows courts to dissolve LLCs if the managers are deadlocked.
Chad Battles and James Rogers are equal owners of Bywater—a North Carolina-based LLC that operates a tavern for music and entertainment near downtown Asheville—and of another LLC that owns the land on which their tavern sits. They operated the businesses amicably until Rogers was involved in a car accident in 2013 and thereafter, according to Battles, began to neglect his responsibilities at Bywater and gradually withdrew his participation in the management of the business.
Saying he wanted to preserve Bywater’s assets, Battles moved Bywater’s bank account to another bank and told Rogers he would be added to the new account only if he agreed to sign a formal agreement detailing the two owners’ respective management responsibilities. Rogers retained the Asheville Law Group to represent him personally in his battle with Battles, and when Battles declined to unfreeze all the money, Rogers filed a complaint seeking to dissolve the companies. Rogers then terminated ALG as his personal counsel and retained the firm to represent the LLCs in that lawsuit.
The story goes on to say that Battles move to disqualify ALG as the LLC’s counsel, and Judge Louis Bledsoe agreed. The judge struck all filings by ALG and found that the $85,000 in legal fees incurred by the LLCs actually created a conflict of interest between Battles and the companies. Greg Johnson and Joe Ferikes of Ferikes & Bleynat in Asheville represented Battles. They said it’s unclear if ALG will have to return the fees. Attorneys for Asheville Law Group, Mike Wimer and Jake Snider, could not be reached in time to comment for Donovan’s story.
The story also notes that Bledsoe granted Battles’ motion to appoint a receiver to manage the LLC’s business operations pending a decision on whether to disslove them. From the story:
However, Bledsoe noted that while the word “deadlock” was taken out of the new LLC Act, the new act adds language allowing for dissolution when “it is not practicable” to continue the LLC’s operations. Bledsoe said that this language “would appear to embrace, not remove, management deadlock as a valid grounds for dissolution.” He noted that other state courts have interpreted identical language in the same way.
The ruling leaves open an obvious question about who should represent an LLC in court in case—like this one—where two co-owners can’t agree on anything, much less a decision about whom to retain as counsel. Johnson and Ferikes argued that the appropriate remedy in such a case would be to ask the court to appoint an attorney to represent the LLC.
Well, that was educational.