Ie Test, LLC v. Carroll

Facts

After a dispute between Carroll (D) and the other members, Cupo and James, IE Test filed an action to expel f, pursuant to the LLCA. The dispute stemmed from the failure of a prior business in which IE Test's (P) three LLC members were involved. D and Cupo formed Instrumentation Engineering, LLC. D owned a fifty-one percent interest in Instrumentation Engineering, and Cupo owned the remaining forty-nine percent. James was employed by Instrumentation Engineering, initially as Business Development Manager and later as Vice President. Instrumentation Engineering filed for Chapter 7 bankruptcy. D claimed that Instrumentation Engineering owed him and his companies $2,543,318. Before Instrumentation Engineering filed for Chapter 7 bankruptcy, Cupo formed IE Test. Cupo sold a fifty-percent interest in the LLC to James. D purchased the intellectual property and hardware that had been used in the business of Instrumentation Engineering from the trustee of that entity's estate in bankruptcy. D claims that he transferred those assets to IE Test, but Cupo disputes that contention. The LLC Percentage Interests are D (33%), Cupo (34%), and James (33%). IE Test reported revenue of $1,232,078 during the first half of 2010. Cupo and James drew salaries in the amount of $170,000 per year, and several $10,000 bonuses. P paid D no salary or bonus at any time. D's claimed that Instrumentation Engineering owed substantial sums to him. D acknowledged that P had no legal obligation to repay him for losses sustained because of Instrumentation Engineering's bankruptcy. D still pressed for compensation that would allow him to recover some of his lost investment. P filed this action, asserting claims for breach of fiduciary duty of loyalty, breach of fiduciary duty of care, breach of contract and breach of the implied covenant of good faith and fair dealing, and sought the expulsion of D. Invoking subsection 3(a), P claims D had engaged in 'wrongful conduct that adversely and materially affected the limited liability company's business.' Under 3(c) P claimed that d had engaged in conduct which made it 'not reasonably practicable' to carry on IE Test's business and that he should be expelled. The court rejected the first claim but found D's continued involvement would generate more controversy and further litigation and ruled that it was not 'reasonably practicable' for the business to continue with D involved. It expelled D. The court then entered final judgment for D in the amount of $227,497, representing thirty-three percent of the total value of P D appealed, and the appeals court affirmed. D appealed. 

Issues

Rule of Law

Holding and Decision

Legal Analysis

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