Condo v. Conners
266 P.3d 1110
Colo.2011Background
- Banner attempted to assign his right to distributions and voting interest in Hut Group to Condo as part of divorce settlement.
- Operating Agreement Article 10.1/10.2 required prior written approval of all members for any transfer of membership interests.
- Banner first draft of assignment acknowledged the anti-assignment clause and was contingent on consent; Conners and Roberts refused consent.
- Banner and Condo executed a second draft that did not reference the anti-assignment clause and was not approved by the other members.
- Conners, Roberts, and Porterfield later negotiated Banner’s sale of his entire Hut Group interest to them for $125,000.
- Trial court and court of appeals held the Banner assignment void for violating the anti-assignment clause, foreclosing Condo’s tort claims; Supreme Court held the clause barred the transfer and affirmed the appellate court, remanding for judgment consistent with this opinion.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the anti-assignment clause applies to transfers of distributions and voting rights | Condos argues clause forbids unapproved transfers of any portion of membership interests | Banner and Hut Group argue the clause is limited to duties, not rights | Yes; clause extends to distributions and voting rights |
| Whether the Banner assignment was void ab initio or merely a breach | Assignment valid despite lack of consent under modern approach | Classical approach voids nonconforming transfers; modern approach may treat as breach | Void ab initio under the operating agreement and applicable contract/LLC law |
| What doctrinal approach governs anti-assignment clauses in Colorado LLCs | Adopt modern approach per Restatement to maximize freedom of assignment | Adopt classical approach per Parrish Chiropractic to respect contract terms | Classical approach governs; Banner powerless to assign without consent; Restatement guidance applied but not adopting broad modern approach |
| Impact on Condo’s tort claims in light of the Banner assignment’s validity | If assignment valid, tort claims could proceed | Assignment invalid for lack of consent, so tort claims fail | Tort claims fail due to lack of valid preexisting contract; summary judgment upheld |
Key Cases Cited
- Parrish Chiropractic Centers, P.C. v. Progressive Casualty Insurance Co., 874 P.2d 1049 (Colo.1994) (classic anti-assignment approach; policy favoring freedom of contract)
- Rumbin v. Utica Mutual Insurance Co., 254 Conn. 259 (Conn.2000) (modern approach: anti-assignment creates duty, may breach; no magic words required)
- Travertine Corp. v. Lexington-Silverwood, 683 N.W.2d 267 (Minn.2004) (adopts modern approach in some jurisdictions; discusses 'magic words' notion)
- In re Weiss, 376 B.R. 867 (Bankr.N.D.Ill.2007) (interprets similar language in operating agreement; distributions as part of membership interest)
- Lone Mountain Prod. Co. v. Natural Gas Pipeline Co., 984 F.2d 1551 (10th Cir.1992) (generally favors assignability of contract rights unless assignment alters obligations)