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CALIFORNIA CORPORATE & SECURITIES LAW

Court Sorts Out California RULLCA Transition Muddle

Yesterday, I wrote about Kennedy v. Kennedy, 2015 Cal. App. LEXIS 329 (Apr. 20, 2015).  That post discussed the Court of Appeal’s holding that under the General Corporation Law the dismissal of a cause of action for involuntary dissolution with prejudice vitiates any right to buy out the shareholder seeking dissolution.  The plaintiff, however, also dismissed involuntary dissolution causes of action against two California limited liability companies.  It is here that the law takes a weird turn.

First, a little legislative history is needed.  In 2012, the legislature enacted the California Revised Uniform Limited Liability Company Act (RULLCA).  Under the Article IV, § 8(c)(1), the RULLCA took effect on January 1, 2013.  However, the RULLCA did not become operative, and the Beverly-Killea Act was not repealed, until January 1, 2014.  Cal. Corp. Code §§ 17713.13 & 17657(b) (repealed).  The applicability of the RULLCA is further subject to Section 17713.03 which states “This title [the RULLCA] does not affect an action commenced, proceeding brought, or right accrued or accruing before this title takes effect.”

I’m providing this background because the RULLCA, unlike the General Corporation Law, allows a buyout remedy to proceed even after a plaintiff has dismissed his or her cause of action for dissolution.  Cal. Corp. Code § 17707.03(c)(6).  The Beverly-Killea Act, in contrast, contains no similar buyout provision.  Thus, the defendants would be able to proceed with the buyout of the plaintiff if the RULLCA applies but could not if the Beverly-Killea Act applies.

The LLCs in Kennedy were formed under the Beverly-Killea Act.  However, the plaintiff filed his action after the RULLCA took effect (January 1, 2013) but before it became operative (January 1, 2014).  The outcome therefore hinged on the meaning of “takes effect”.  The defendants argued for 2013 and the plaintiff for 2014.  The Court of Appeal, noting that the Beverly-Killea Act remained in effect until January 1, 2014, concluded that the RULLCA “was not in effect, i.e., operative, until January 1, 2014″.  Thus, dismissal of the involuntary dissolution action prevents the defendants from pursuing a buyout.

I’m confident that readers of this blog won’t be surprised by the Court’s observation: “In our view, the statutory language concerning when the California Revised Uniform Limited Liability Company Act in general and section 17707.03, subdivision (c)(6) in particular is ambiguous.”  Amen.

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