Ie Test, LLC v. Kenneth Carroll(075842)
140 A.3d 1268
| N.J. | 2016Background
- IE Test, LLC formed by Cupo, James, and Carroll with ownership split ~34/33/33; no executed operating agreement was ever adopted.
- Carroll owned IP and hardware from a prior failed company; he sought compensation from IE Test to recoup prior losses; Cupo and James resisted.
- IE Test sued to expel Carroll under the LLCA, invoking N.J.S.A. 42:2B-24(b)(3)(a) and (c); trial court rejected 3(a) but granted summary judgment under 3(c) and ordered Carroll disassociated.
- Appellate Division affirmed; New Jersey Supreme Court granted certification.
- Supreme Court held that subsection 3(c) requires a stringent, prospective showing that it is not reasonably practicable to continue the business with the member, and reversed the grant of partial summary judgment because genuine factual disputes remained.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether N.J.S.A. 42:2B-24(b)(3)(c) authorizes expulsion based on member disagreement over operating-agreement terms | IE Test: Carroll's insistence on compensation made it not reasonably practicable to continue with him; trial court can predict future impracticability | Carroll: Mere disagreement does not satisfy LLCA; default statutory rules (majority rule) allow management without an operating agreement; no interference with operations shown | Court: 3(c) demands a high, prospective showing; disagreement alone is insufficient; expulsion requires case-specific proof that continuing with member is not reasonably practicable |
| Proper interpretation of “not reasonably practicable” in subsection 3(c) | IE Test: permits courts to anticipate that disputes will impede future operations and financing | Carroll: should be read against expulsion absent actual inability to manage business or concrete future harm | Court: Adopted ordinary meanings — practicable = feasible; requires showing that it is unfeasible, despite reasonable efforts, to continue the business with the member; not a mere possibility of complications |
| Standard of proof and factors for courts assessing 3(c) petitions | IE Test: predictive assessment justified expulsion on summary judgment | Carroll: summary judgment improper because factual disputes exist about management, financing, and deadlock | Court: Set non-exclusive factors courts should weigh (nature of conduct; manageability; whether dispute precludes cooperation; deadlock; ability to decide under operating agreement or statute; existence of a business; financial feasibility) and held summary judgment inappropriate here due to material factual disputes |
| Whether partial summary judgment expelling Carroll was appropriate on this record | IE Test: Yes — relationship irreparable; future operations impracticable | Carroll: No — no wrongful conduct, no interference, business operated and grew; factual issues exist | Court: No — record, viewed favorably to Carroll, contains genuine issues of material fact; reversal and remand required |
Key Cases Cited
- Brill v. Guardian Life Ins. Co. of Am., 142 N.J. 520 (N.J. 1995) (summary judgment standard)
- DiProspero v. Penn, 183 N.J. 477 (N.J. 2005) (statutory interpretation—ordinary meaning of words)
- Velasquez ex rel. Velasquez v. Jiminez, 172 N.J. 240 (N.J. 2002) (court enforces statute according to its terms when language is clear)
- In re D.J.B., 216 N.J. 433 (N.J. 2014) (statutes read in their entirety; related provisions provide context)
- Union Cty. Improvement Auth. v. Artaki, 392 N.J. Super. 141 (App. Div. 2007) (absence of operating agreement—LLCA provisions control)
- Kuhn v. Tumminelli, 366 N.J. Super. 431 (App. Div. 2004) (same)