Kennedy v. Kennedy
186 Cal. Rptr. 3d 198
Cal. Ct. App.2015Background
- Drake and Brian Kennedy each owned significant interests (generally 50/50) in several corporations and LLCs; David Seyde held a 20% interest in one LLC (Skyline). Both Kennedys were officers/directors/members; Seyde held management roles.
- Drake sued (Sept. 25, 2013) alleging fiduciary breaches, asset diversion, and sought involuntary dissolution of the corporations and LLCs among other relief. The dissolution claim was non-derivative.
- Defendants (Brian; Seyde as to Skyline) moved to stay dissolution and compel the statutory buyout/appraisal procedure under Corporations Code §2000 (corporations) and §17707.03(c) (LLCs) so defendants could purchase Drake’s interests instead of facing dissolution.
- Drake dismissed with prejudice his involuntary dissolution cause of action before the court resolved the buyout motion. Defendants’ motion (filed January 28, 2014) was denied by the trial court on May 13, 2014.
- On appeal, the court considered (1) whether dismissal of an involuntary dissolution claim bars invocation of the §2000 buyout remedy for corporations, and (2) whether the LLC buyout-saving provision (§17707.03(c)(6)) applied given timing/operative-date issues involving the 2012 California Revised Uniform Limited Liability Company Act.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether dismissal of an involuntary dissolution claim eliminates the right to invoke §2000 buyout/appraisal for corporations | Drake: dismissal leaves no dissolution to avoid; §2000 is ancillary to a pending dissolution action, so dismissal bars buyout | Defendants: §2000 buyout is an alternative remedy and should survive dismissal so they can purchase instead of dissolving | Held: Affirmed for plaintiff. §2000 is unambiguous and ancillary to a pending involuntary dissolution action; dismissal with prejudice removes the basis for a §2000 buyout (buyout right not independent) |
| Whether defendants could invoke the LLC buyout provision (§17707.03(c)(6)) after Drake dismissed dissolution claim when the suit was filed before the LLC Act became operative | Drake: §17713.03 and the Act’s operative date (Jan 1, 2014) mean title 2.6 (including §17707.03(c)(6)) does not affect actions commenced before it took effect; therefore §17707.03(c)(6) does not apply | Defendants: The Revised LLC Act became effective earlier (argued effective date/legislative intent) and the savings clause allows application to suits filed after the Act’s effective date; they filed their buyout motion after the effective date so §17707.03(c)(6) should apply | Held: For plaintiff. The court read the statutory scheme and legislative history to conclude the Revised LLC Act was not operative until Jan 1, 2014; §17713.03 prevents title 2.6 from affecting actions commenced before it took effect, so §17707.03(c)(6) did not apply to this suit and dismissal barred the LLC buyout as well |
Key Cases Cited
- Burden v. Snowden, 2 Cal.4th 556 (statutory interpretation; courts give words their usual meaning)
- Panakosta Partners, LP v. Hammer Lane Management, LLC, 199 Cal.App.4th 612 (buyout right under dissolution statute depends on pending dissolution action)
- Cubalevic v. Superior Court, 240 Cal.App.2d 557 (same principle: buyout remedy is ancillary and cannot survive dismissal of dissolution action)
- Go v. Pacific Health Services, Inc., 179 Cal.App.4th 522 (distinguishable—appraisal procedure litigated where dissolution claim remained pending)
- Wells v. Marina City Properties, Inc., 29 Cal.3d 781 (plaintiff’s right to dismiss causes of action pretrial)