Mitchell Hamline School of Law
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LLC and Partnership Transfer Restrictions Excluded From UCC Article 9 Overrides
Get PDFThe organizational law of limited liability companies (LLCs) and partnerships has always fundamentally embraced an idea known as the “pick-your-partner principle,” under which transfers of a member’s or partner’s ownership interest are restricted by statute, and those restrictions may be tightened or loosened by agreement. In recent years the pick-your-partner principle has interacted in complex and not always practical ways with Article 9 of the Uniform Commercial Code (UCC). Since 2001, UCC §§ 9-406 and 9-408 have overridden a broad range of statutory and agreement-based anti-assignment provisions, subject to complex exceptions that have tended to protect the pick-your-partner principle in many significant respects, while also proving analytically very difficult to handle. Recently, however, in an important step forward, Article 9’s overrides of anti-assignment provisions have been amended to make them simply inapplicable to LLC and partnership interests.
One hopes that these amendments to Article 9’s overrides (hereinafter the “2018 amendments” because they were approved last year) will soon be enacted by the states, but in the meantime, the current overrides will remain on the books in various jurisdictions with all of their existing complexities. Accordingly, this article focuses not only on the 2018 amendments, but also on an analysis of the overrides as they now stand, as applied to LLC and partnership interests. The amendments themselves are quite simple, but the article discusses them only after analyzing the overrides because the amendments are more easily understood against that background
What Is a Charging Order and Why Should a Business Lawyer Care?
Get PDFSuppose your client has a judgment from a court in state X against a shareholder of a closely held corporation organized under the law of state X. You know that your client can levy on the judgment debtor’s shares to enforce the judgment and either obtain the shares (and attendant voting and economic rights) or trigger a pre-existing buy-out agreement with the shareholders or the corporation, which will replace the judgment debtor’s shares with right to payment. The relevant civil procedures may be complicated (or even arcane), but in theory your client’s remedy is straightforward.
Now suppose that the judgment debtor is a member of a limited liability company organized under the law of state X. Your client may not levy on the debtor’s membership interest and, moreover, has no right under any circumstances to acquire or dispose of any governance or information rights associated with the membership. A charging order, which “constitutes a lien on a judgment debtor’s transferable interest and requires the limited liability company to pay over to the person to which the charging order was issued any distribution that otherwise would be paid to the judgment debtor,” is “the exclusive remedy by which a person seeking in the capacity of judgment creditor to enforce a judgment against a member or transferee may satisfy the judgment.” ULLCA (2013) § 503(a), (h). (The rights of a secured creditor are an entirely separate matter. For an introduction to the complex interaction between Uniform Commercial Code, Article 9 and the “pick your partner” principle, see a recent article by Carl S. Bjerre, Daniel S. Kleinberger, Edwin E. Smith, and Steven O. Weise.
This column provides an introduction to the charging order, a remedy that is abstruse, arguably arcane, and in effect as much a remedy limitation as a remedy. Part II explains the origins and rationale for the charging order and its status as the “exclusive remedy.” Part III, written for a “charging order neophyte,” (i) describes the mechanics of charging orders, and (ii) discusses how the charging order differs from ordinary post-judgment remedies in two important ways. Part IV lists a number of difficult, open issues pertaining to charging orders. Part V explains why a business lawyer should care about the charging order and offers a suggestion for proactive lawyering. Part VI concludes by identifying two excellent resources for further information. Almost all the observations in this column apply equally to charging orders pertaining to general and limited partnership; however, for simplicity’s sake, this column refers solely to limited liability companies and members
Surviving the “Pretext” Stage of McDonnell Douglas: Should Employment Discrimination and Retaliation Plaintiffs Prove “Motivating Factors” Or But-For Causation?
Get PDFFenrich v. The Blake School and Minnesota Tort Law: A Road Map Through Special Relationships, Misfeasance/Nonfeasance, and Duty
Get PDFThe Minnesota Supreme Court’s recent decision in Fenrich v. The Blake School is a short course on Minnesota tort law. Arising out of an accident involving a student-driven car on the way to a post-season athletic event, the case required the court to consider whether the school owed a duty to the two passengers in the other car, one of whom died in the accident. There were three interrelated duty issues in the case. First the court assessed whether the school was in a special relationship with the student, sufficient to trigger a duty to the Fenrichs. The court held that there was no special relationship between the school and student that would extend to a third party injured by the student’s negligence. Second, the court determined whether the school’s role as the facilitator in sending students to the meet constituted misfeasance or nonfeasance. The court held that the issue had to be resolved at trial. Finally, the court assessed whether the accident was foreseeable. The court held that the foreseeability issue presented a close case that had to be resolved by the trier of fact. The court’s remand raises important questions concerning the relationship of judge and jury in the resolution of the key issues in the case. The special relationship issue, misfeasance/nonfeasance issue, and foreseeability issues recur in Minnesota tort law.
The purpose of this article is to put the issues in a broader context and evaluate the supreme court’s treatment of them in Fenrich. Following a short statement of facts, this article considers the duty issues in order
