It’s not too often I get to blog about one of my favorite topics, limited liability litigation, in connection with a case involving a law firm. Typically, law partners want to keep their partnership disputes out of court, at least in Connecticut. But one case filed back in April involving a local law firm has heated up, and another was recently filed between the same parties. Check the dockets out here and here. The litigation raises interesting questions about what it means to be a true “member” of an LLC versus simply holding an economic interest, along with the issue of assignments of economic interests without a corresponding membership interest. I've blogged about this notion before here albeit in the context of a spousal divorce, not a business divorce.
The first lawsuit involving this law firm started in April with the LLC law firm suing the founding (and, he claims, only) member for allegedly stealing over 2 million dollars. In August, the founding member agreed to an attachment of over 2 million dollars of his assets (Connecticut uniquely allows a plaintiff to attach a defendant’s assets simply by proving they will probably get a judgment in a certain amount, which we call a “PJR” or prejudgment attachment). You can read the court's attachment order here. The founding member moved to dismiss the case for lack of subject matter jurisdiction (ughhh, only law junkies like me enjoy hearing that phrase) arguing the LLC couldn’t bring the suit because he was the only member – basically, he is the LLC, and the complaining “partner” had only an economic interest and no voting power, and therefore couldn’t authorize the LLC to sue. If you want to really torture yourself (I loved reading it) check the brief out here.
It gets better (or worse, really). It seems these two lawyers, and another lawyer who is married to the founding partner, hadn’t been getting along well recently. So, get this, the founding partner withdrew his motion to dismiss, and filed his own lawsuit seeking to dissolve the LLC. You see, he couldn’t really argue in one motion that he WAS the LLC, and then move to dissolve his own LLC. If he WAS the LLC, he could just dissolve it. The dissolution is based on the fact that the tension in the office makes it impracticable to carry on the LLC’s business, one of the statutory bases for dissolution.
Considering that the LLC Act recently changed, I wonder whether there are other claims the founding member could have made short of dissolution? There is a lot I don’t know about this case, and from what I’ve read so far, it is a complicated set of facts. Defendant’s counsel, William O’Sullivan, is one of the State’s better business litigators, so I would defer to his architecture of the litigation.
My hope is they resolve this, and resolve it soon for the sake of the firm’s clients, and for their own serenity. Life is too short. In the words of Warren Zevon, you should enjoy every sandwich.