Lieberman v. Wyoming.com LLC
Lieberman and the Mossbrooks created Wyoming.com LLC, with Lieberman getting a 40% ownership interest for his $20,000 contribution. Lieberman was later terminated as vice president of Wyoming.com and required to leave the business. A couple weeks later he gave notice of his withdrawal from the company and demanded the return of his share of the company, estimated to be $400,000. The other members accepted Lieberman's withdrawal and elected to continue rather than dissolve Wyoming.com. They agreed to return his $20,000 as well, but Lieberman refused to accept such an amount.
District court ruled that Wyoming.com was not in a state of dissolution because they elected to continue and that Lieberman was only entitled to the return of his original $20,000 contribution.
On a previous appeal, this court held that Lieberman's withdrawal did not trigger dissolution and that he was entitled to his original $20,000 contribution.
On remand, the district court held that Lieberman's equity interest was determined by the operating agreement and limited to the value of his capital account at the date of his withdrawal. As his capital account was negative, it held that Lieberman was not entitled to payment.
What happens to Lieberman's equity interest?
The section of the operating agreement relied upon by the district court does not address when liquidation occurs or what happens when a member withdraws. Thus, the district court's reliance upon it was misplaced. The issue of law should still be addressed however.
Lieberman only forfeited his non-economic membership interest. Thus, he still has his equity interest, as if he if bought such an interest without ever becoming a member.
Lieberman retains his equity interest without his ownership interest. Reversed and remanded.
: The operating agreement implies that there must be buyout. A withdrawing member would not envision that his withdrawal will result in splitting his interest. Lieberman clearly declared his intention to withdraw his entire interest in his demand. By accepting his withdrawal, the remaining members were required to compensate Lieberman for his interest. Lieberman now will have to pay taxes on the LLC's earnings but conceivably receiving no actual payment. Absent a provision in the operating agreement, a member's equity interest should be valued at what he would have received has the business been dissolved on the day he terminated his membership.