C. ALLISON DEFOE REESE v. NICOLE A. NEWMAN

District of Columbia Court of Appeals
131 A.3d 880 (2016)

ELI5:

Rule of Law:

Under the District of Columbia's Limited Liability Company statute, when statutory grounds exist for both the judicial dissolution of the LLC and the judicial dissociation of a member, a trial court has the discretion to choose either remedy and is not mandated to order dissociation.

Facts:

C. Allison Defoe Reese and Nicole Newman were co-owners of ANR Construction Management, LLC.
The two began experiencing substantial differences regarding the management of the business.
On May 9, 2012, Newman sent Reese a written notice stating her intent to withdraw from, dissolve, and wind up the LLC.
Shortly after receiving the notice, Reese locked Newman out of the LLC's bank accounts.
Reese also blocked Newman's remote access to the LLC's computer files and email.
Reese then terminated Newman's salary and health benefits.

Procedural Posture:

Nicole Newman filed a complaint against C. Allison Defoe Reese in the Superior Court, eventually seeking judicial dissolution of their LLC.
Reese filed counterclaims against Newman, seeking the judicial dissociation of Newman from the LLC.
The case was tried before a jury.
The jury returned a verdict awarding Newman $19,000 on a conversion claim and made specific findings that statutory grounds existed for both judicial dissolution (based on Reese's conduct) and judicial dissociation of Newman.
Based on the jury's findings, the trial judge exercised her discretion and entered an order for the judicial dissolution of the LLC.
Reese (appellant) appealed the trial court's judgment and order of dissolution to the District of Columbia Court of Appeals, where Newman is the appellee.

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Issue:

Does the D.C. Limited Liability Company statute, D.C. Code § 29-806.02(5), mandate that a trial court order the dissociation of an LLC member when statutory grounds for dissociation are found, even when grounds for judicial dissolution of the entire LLC are also present?

Opinions:

Majority - King, Senior Judge

No. The D.C. Limited Liability Company statute does not mandate judicial dissociation and instead grants the trial court discretion to choose between available remedies. The word 'shall' in the introductory language of D.C. Code § 29-806.02 ('A person shall be dissociated...') is not a command directed at the trial judge. Rather, it describes the legal consequence that occurs after a judge, in their discretion, makes a judicial finding and orders a member expelled under subsection (5). The statute does not strip a judge of discretion or require expulsion simply because the enumerated conditions are established. This interpretation is supported by comments to the Revised Uniform Limited Liability Company Act (RULLCA), which the D.C. statute mirrors, stating that a court has discretion to choose between dissociation and dissolution when grounds for both exist. Therefore, the trial court was within its authority to weigh the equities and order dissolution of the LLC instead of the dissociation of Newman.

Analysis:

This decision clarifies the discretionary power of trial courts in resolving disputes within closely-held LLCs in the District of Columbia. It establishes that the remedies of member dissociation and company dissolution are not hierarchical, meaning one does not automatically take precedence over the other. The ruling provides courts with the flexibility to fashion the most equitable remedy based on the specific facts and the conduct of the members, rather than being mechanically bound to a single outcome. This precedent will guide future LLC litigation by affirming that when both parties have engaged in conduct justifying competing remedies, the court can weigh the equities to determine the most just resolution, such as dissolving the company entirely.

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