Plaintiff Michelle McManus began working at Anne Richards’s orthodontics practice, Quad City Orthodontic Group, LLC, as an associate in 2010. On January 1, 2012, McManus and Richards entered into an operating agree-ment relating to the practice. The operating agreement provided that Richards, the sole owner of the practice, would sell a 50% membership interest to McManus over a five-year period. The agreement also provided that “[i]n the event that Richards finds cause to involuntarily disassociate McManus from the Company’s dental practice,” Richards had to repurchase from McManus her share in the practice at 100% of the purchase price as a single payment, or quarterly over three years. McManus v. Richards, 2018 IL App (3d) 170055, ¶ 3.
Apparently, tensions developed between the parties over time. On April 27, 2016, Richards informed McManus that Richards was disassociating her from the practice. At that time, Richards owned a 55% interest in the practice and McManus owned 45%. McManus was thereafter excluded from the office, the practice computer systems and patient records.
In May 2016, McManus filed a complaint against Richards requesting injunctive relief and alleging breach of contract, breach of fiduciary duty, and breach of the duty of good faith and fair dealing. In response, Richards moved for summary judgment, asserting that if she properly dissociated McManus, then she did not breach the operating agreement, her fiduciary duties or the duty of good faith and fair dealing.
At the summary judgment hearing, the central issue was whether Richards had “cause” to involuntarily disassociate McManus from the practice, since the term was not defined in the operating agreement. Richards argued that cause required only that she subjectively have “a reason” to dissociate McManus, and did not require her to find any wrongdoing by McManus. McManus argued that “cause” had to be given its legally significant meaning, not a simple dictionary definition. The trial court agreed with Richards and granted her motion for summary judgment.
Reviewing de novo, the Third District Appellate Court reversed. The court rejected Richard’s contention that she needed only a subjective reason for involuntarily disassociating McManus. The court held:
Were we to accept Richards’s definition of “cause,” we would have to conclude that the agreement essentially permits Richards to exploit McManus’s financial investment and professional services in order to build up her business, expel McManus from the practice one day shy of receiving her last payment, and then hold on to a portion of McManus’s money over the next three years. Such a result is not only inequitable but absurd. Id. ¶ 22.
Instead, at McManus’s suggestion, the court looked to the definition of “cause” in the employment context. Citing case law, the court found that “an employer must often possess more than a subjective reason to discharge an employee.” Id. ¶ 23. Again agreeing with McManus, the court further held because the parties are members of a limited liability company, rather than in an employment relationship, the term “cause” for purposes of the operating agreement requires a higher standard than in the typical employment context. Id. ¶ 23.
The court held that the definition of “cause” for dissociation was supplied by section 35-45(6) of the Limited Liability Company Act, which provides the grounds on which a court may involuntarily expel a member from a limited liability company. 805 ILCS 180/35-45(6). Under that section, a member may be expelled if the member (1) “engaged in wrongful conduct that adversely and materially affected the company’s business”; (2) “willfully or persistently committed a material breach of the operating agreement or of a duty owed to the company or the other members under Section 15-3”; or (3) “engaged in conduct relating to the company’s business that makes it not reasonably practicable to carry on the business with the member.” Id. ¶ 24.
After reviewing the record, the court found no evidence that that McManus engaged in wrongful conduct or willfully or materially breached the operating agreement or a duty she owed. Id. However, noting conflicting facts about the parties’ conflicts regarding the practice, the court found that there was a genuine issue of fact “[w]hether the status of the parties’ relationship and/or McManus’s conduct makes it not reasonably practicable or unreasonable for the two to continue working together, despite evidence of an otherwise profitable orthodontics practice.” Id. ¶ 25. It was possible that Richards had sufficient cause to involuntarily disassociate McManus depending on that basis.
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