*1 SD 76 KIRKSEY, Lorraine E. Lorraine f/k/a Ruby, Bach, E. Lucille
E. Appellants,
Plaintiffs
Dorothy and Eileen C. E. GROHMANN
Randell, Appellees. Defendants and
No. 24600. Dakota. Court of
Supreme South Jan.
Argued on July
Decided Bennett, Main & A. Gubbrud of
Dwight Fourche, Gubbrud, P.C., Da- Belle South kota, Attorneys plaintiffs appel- lants. Miller, Fourche, Da- Belle South
Ronda kota, appel- Attorney defendant lees.
KONENKAMP, Justice. inherited own- Four sisters They family’s land. formed ership their their liability company, conveying a limited ex- company in interests to the property in the LLC. equal ownership change manages the land and lives on One sister leases and another sister other sis- grazing. Two land for livеstock land. distance from the great live a ters now sisters, agreed, are who once These through their They only speak divided. the lease sought terminate lawyers. Two LLC; op- the other two dissolve the required, but majority it. A vote is posed disso- are Judicial the sisters deadlocked. the circuit sought and lution was *2 summary judgment it. granted against grazing each owned livestock on the land. appeal, we that it is not To agricultural operation, On conclude rea- continue the the sonably practicable for the to sisters decided that the LLC would lease Grohmann, economic Kirksey, continue and the the land to and Ran- unreasonably frustrated. dell. LLC We reverse and remand for order A agreement [¶ lease was executed 5.]
judicial dissolution. in September October effective Background provided It for an initial term of years, automatically five to be renewed for 10, 2001, Kirksey July [¶ 2.] On Grace year party gave another unless either writ- daughters: four Lucille died. She had ten notice of intent to terminate within Kirksey, Ruby, Dorothy Lorraine Groh- ninety days before the termination of the mann, and Eileen Grace left Randell. her lease. The annual rental rate was set daughters ownership four interest in $14,263.20. LLC, landlord, as the 2,769 of land in Butte County, acres South responsible for all the real estate taxes and Dakota, and 401 in County, acres Crook insurance. Wyoming. composing These tracts Kirksey family land in have been long [¶ Not after the 6.] formation of years. over 100 Grohmann lives on and LLC, relations deteriorated. Accord- land, manages this and Randell lives in ing Kirksey, Grohmann and Randell Rapid City, Kirksey South Dakota. lives or “failed refused to share informаtion” California, in Ruby lives Colorado. ranch, operation with her on the which she owned livestock as a tenant to 7, 2002, October
[¶ 3.] On the four the lease. She claimed that she wrote daughters liability compa- formed limited pages Grohmann “dozens of of letters” to ny, Family Ranch, LLC, Kirksey to hold disagreements resolve in- requested title to land. Each conveyed sister her formation about livestock other issues. one-quarter interest in the property to the She insisted that Grohmann not pro- did in exchange for ownership LLC a 25% requested and, vide the information if she the company. Grohmann would serve as did, it was either inaccurate or (1) unreliable. manager. They formed the LLC Also, according Kirksey, Grohmann and paying avoid certain by estate taxes em- Randell valuation, (2) subleased 401 acres ploying a of the land special use keep (3) LLC, without notice to by the land in family, keep the lease ownership interest in the real property with the sisters and not spouses. their Grohmann, hand, on the other always gave said that she Kirksey
[¶ 4.] At the time of their mother’s neces- death, $550,000. sary the land was valued at information. She further contended valuation, special With the use given was re- notice of the ported $215,000. to be valued at To obtain sublease because the members of the sisters, the benefit of this valuation certain family were aware of the sub- required, members were among arrangement other when Grohmann initial- things, to retain ownership in the land ly up divided the sublease payments equal- years, ten and it was be used agri- ly and attempted to share them with all cultural purposes. sister, The eldest the LLC members. Grohmann said that Grohmann, had lived on the Kirksey accepted land payment, Ruby but as a hired hand before their not as mother’s did she was not a tenant to the Grohmann, death. Kirksey, and Randell lease. summary motion for mann and Randell’s her continued frustra- Because of Randell, Kirksey judgment. Kirksey appeal, as- with Grohmann
tions
grant-
livestock
when it
serting
her interest
court erred
them
sold
*3
against judicial
Randell were then
summary judgment
and
ed
dis-
2008. Grohmann
agreement.
lease
only tenants on the
of the LLC.
the
solution
however,
This,
not end the contentious
did
Analysis and Decision
Kirksey
the sisters.
relationship between
Summary
judgment
is
[¶ 12.]
agent
Ruby
a real estate
and
hired
applied
correctly
when the law is
proper
It was estimated
Kirksey
the
land.
value
genuine
no
issues of material
and there are
million.
of
worth in excess
$3.2
to be
Fin.,
Equip.
v.
Bancorp
fact. Rush
U.S.
termi-
Ruby
sought to
Kirksey аnd
then
¶
266,
Inc.,
7,
119,
268
2007 SD
742 N.W.2d
the
agreement, dissolve
nate the lease
98,
Lekrkamp,
Heib v.
2005 SD
(quoting
LLC,
land.
partition
and
the
¶ 19,
875,
(citing
882
SDCL
N.W.2d
the LLC
held
meeting
A
of
was
[¶ 9.]
6-56(c); Keystone Plaza
Ass’n
Condo.
15 -
30,
Ruby
Kirk-
May
moved and
28, ¶ 8,
Eastep,
2004 SD
676 N.W.2d
motion to terminate
sey seconded a
846)).
842,
undisputed.
Several facts are
Randell
agreement. Grohmann and
Ranch,
Family
family
is a
Kirksey
LLC
motion failed. Thereaf-
opposed, and the
keep
created to
title
land
еnterprise,
ter, Ruby
Kirksey seconded
moved and
family
century
in
for over a
and
held
This motion
to dissolve the LLC.
motion
ranching operations. Each sister
maintain
Randell
Grohmann and
also failed when
one-quarter
her
invested in
by the
major
All
actions taken
opposed.
understanding
in the land with the
interest
required majority vote of its mem-
LLC
say in the
equal
that she would have an
had
and Randell
Because Grohmann
bers.
ownеrship
operations
and
company’s
the lease or dissolve
no
to terminate
desire
the sisters formed the
its assets. When
LLC,
parties
remained deadlocked.
tie
they
way
no
to break a
provided
Kirksey
petitioned
and
way
and no
to end
vote between them
Citing
court for relief.
SDCL
circuit
Today, the sisters are divided
deadlock.
47-34A-801, Kirksey
Ruby requested
legal
only through their
counsel.
speak
becausе
that the court
LLC
dissolve
in the
avenue for relief
There
no
unreasonably
its economic
two
ask the
operating agreement,
sisters
reasonably prac-
and it
not
frustrated
courts
intervene.
carry
company’s
on the
busi-
ticable to
of or-
conformity
with the articles
ness
47-34A-
Through SDCL
[1113.]
agreement.
ganization
operating
with
Legislature provided courts
the.
Kirksey,
strained rela-
According to
power to order dissolution
the limited
im-
made it
tionship between the sisters
are
statutory
if
standards
an LLC certain
major
making.
possible
any
decision
47-34A-801(a)(4)(i)
met. Under SDCL
Moreover,
that
Kirksey claimed
“Groh-
47-34A-801(a)(4)(iii), a court
and SDCL
personal
have a
finan-
mann and Randell
if
“the
may judicially dissolve
continuing
agree-
the lease
cial interest
likely
is
of the
economic
preventing
ment
“it
not
unreasonably frustrated” or
to be
LLC,”
Ruby’s detriment.
аll to her and
carry
practicable
otherwise
summary
company’s
on the
motions for
11.] On cross
[¶
organization and the
with
articles
the circuit court denied
judgment,
agreement[J”
petition
granted
Groh-
Ruby’s
by
Legis-
How these
standards
“[t]he standard set forth
may be
yet
satisfied has not
been detailed
practicability,
lature is one of reasonable
A
by this Court.
consistent view in other
Ctr.,
PC
impossibility.”
Tower
Inc. v.
jurisdictions
liability
is that a limitеd
com
Assoc., L.P.,
Tower Ctr. Dev.
pany
by
organi
governed
articles
(Del.Ch.)
(dissolu-
(unpublished)
zation and operating
See
view,
tion of a partnership). Under this
Const., LLC,
Horning
Horning
require
the standard does not
Misc.3d
816 N.Y.S.2d
881 purpose
company,
set
in the
out
(N.Y.Sup.Ct.2006); Histone Charleston
operating agreement,
completely
frus-
*4
Mallon,
524,
v.
Holdings, LLC
365 S.C.
judicial
trated to warrant
dissolution.2
388,
(S.C.Ct.App.2005);
617 S.E.2d
393
Rather,
“reasonably
the term
practicablе”
Group,
Tignor,
Dunbar
LLC v.
267 Va.
signifies
company’s ability
a
to continue
361,
(2004).
216,
Beyond
593 S.E.2d
219
purpose
identified in the operating
this, however,
prevailing
there is no
inter
pretation
reasonably
of the terms “not
approach,
by
[¶ 16.] One
taken
several
practicable” and
...
purpose
“economic
courts,
tois
examine the
circumstances
unreasonably frustrated” in relation to dis
light of the company’s purpose and then
liability
solution
limited
companies.
of
See
determine if it
reasonably practicable
to
SDCL 47-34A-801.
test,
continue the business. Under this
Nevertheless,
15.]
the cases inter-
[¶
Virginia Supreme
Court reversed a
preting language
similar to our
dissolving
lower court’s order
a limited
terminology,
partner-
a
involving
whether
liability company.
LLC,
Group,
Dunbar
ship
liability company,
or a limited
are
at
According
593 S.E.2d
219.
to the Dun-
defining
instruсtive.
In
what it
for
means
court, only
bar
when a business cannot
reasonably
it to
practicable”
“not
for a
continue “in accord with its
of
articles
continue,
company to
one court consulted a
incorporation
any
operating agree-
dictionary
apply
to
a plain
ordinary
ment” can dissolution be ordered. Despite
Hami,
v.
meaning. Taki
2001
672399
WL
one
a
member of
two-member company
(dissolution
(Mich.Ct.App.) (unpublished)
being expelled, the court held that
partnership).
a
The Taki court held
continue, and, therefore,
“
company could
‘reasonably
that
practicable’ may proper-
dissolution was not warranted.3
ly
capable
be defined as
done
logically
reasonable,
and in
feasible man-
The
Louisiana Court of Appeals
1
ner.” Id. at 3. Another
emphasized
сourt
similarly
company’s operating
examined a
1. The
possible
court found
“it
practicable
was not
to
company
for the
to
complete the
partnership
business of the
in a
continue. Id. at 6.
logical, reasonable and feasible manner.''
"
Taki,
3.One member asserted that
2001 WL
'serious differ-
at 3. The members
opinion
company management
ences of
spoken
to
years
had not
to each other in
have arisen between the members and
against
filed three
man-
lawsuits
each other. There
agers’
company
... and that the
allegations
were
was 'dead-
attempt-
also
of violence and
ability
locked'
its
expulsion.
to conduct
ed
its business
LLC,
Group,
affairs....” Dunbar
593 S.E.2d
2.
company
The
to
was
use
at 218. A court order had been entered find-
property
profit
for
and as
ing
commingled
an invеstment. P
that one
compa-
member
Ctr., Inc.,
Nevertheless,
CTower
ny’s
at 5. Be
funds.
the court conclud-
cause the
operating
was
reasonably practicable
at
consid
ed that it was
for
erable
prospect
loss and the
profits
of future
continue
denied dissolution.
exist,
did not
it
court found that
not
at
Id.
consideration,
if was reason-
Another
ex
agreement
to determine
courts,
pressed by
is the
ably
businеss to contin-
.two
financial
practicable
Duhon,
In
company.
state of
Klein
ue.
So.2d
Weinmann
of Eleventh Ave.
the court
(La.Ct.App.2002).
208-09
members
Co.
dis
petition
missed a
had no desire
continue
plaintiff
relationship
began
mak- because
“failed
articulate
their business
that,
establishing why
facts
it was not reason
ing
agreements
the court’s
side
view,
ably practicable
operation
company]
con
[the
made continued
reasonably practicable.
carry
tinue to
on its
[and]
Id.
failed
company]
[the
to demonstrate that
fail
ing financially[J” 2006 WL
Superior
[¶
A Massachusetts
18.]
Similarly,
(N.Y.Sup.Ct.) (unpublished).
“specific provisions
Court
Delaware
declined
order dissolu
agreement”
the partnership
be shown to
serving
tion because the
carry
“impracticability
establish
on the
agree
stated
from
partner
business in
with the
*5
4
producing
ment and
for its
returns
inves
v.
ship agreement.” Houser
River Loft
Sys.
tors. Cincinnati Bell
Co.
Cellular
v.
33594570,
1999
2
P’ship,
WL
Assocs. Ltd.
Ameritech
Phone
Mobile
Serv.
Cincinn
(dissolution
(unpublished)
(Mass.Sup.Ct.)
ati,
Inc.,
(Del.Ch.Ct.)
partnership.
(unpub-
lished).
Talcott,
(Del.
864 A.2d
Haley
Ch.2004).
court
corporate
The
used its
Here,
operating agreement
law and
three prereq
Ranch,
Family
judicial
uisites to
dissolution of a limited
states:
liability
According
company.
Haley
to the
organization
which this
(1)
сourt,
if
had “two 50% is created
to engage
general
in a
(2)
stockholders,”
“engaged
who
in joint
business;
ranching
livestock and
(3)
venture,”
agree
were “unable to
feed,
control,
range,
herd,
brand,
graze,
upon whether to discontinue the business
for, purchase,
care
market and sell live-
assets,”
dispose
or how to
of its
every kind,
stock of
both on its own
dissolution was warranted.6
agent
account and as an
for оther per-
sons, organizations
corporations;
or
Delaware,
chancery
Also
buy, lease, cultivate, manage, operate
distinguished Haley
and instead
and sell ranch properties
products
compared
language to that of
therefrom both
account and
own
partnership
limited
dissolution.
In re
an agent
persons,
organiza-
other
(Del.Ch.
Leaf,
Silver
WL
and, take,
tions or corporations;
buy,
Ct.) (unpublished). The court ordered dis
exchange,
or manage
develop
solution,
that the
finding
sole asset of the
such property and
in any
interests
man-
existed,
longer
therefore,
no
ner
may
necessary,
useful or
*6
operation of
continued
the
advantageous
purposes
for the
of this
reasonably practicable.
The court also
organization.
took into account that thе members were
added).
(Emphasis
From this
language,
operating agreement
deadlocked
the
is clear that the intended business was a
provided no means to end the deadlock.
“livestock and ranching” operation.
Id. at 11.
[¶ 26.] There is no dispute that
the
court,
dicta,
Another
[¶24.]
noted
ranching and
operation,
livestock
as a
might
that dissolution
be warranted when
business, can
despite
continue
the sisters’
“
сlearly
‘it
that
appears
the
However,
dissension.
question
the
is
which
partnership
the
was formed
im-
is
reasonably
whether it is
practicable for the
practicable, or cannot be
except
carried on
company to
continue
accordance with
”
loss,’
at a
and “where ‘all confidence be-
agreement. The sole asset
parties
tween
destroyed
has been
so оf the
land. This
they
that
proceed together
cannot
in pros-
land is currently
only
to
leased
two sisters.
ecuting the business for which it was Kirksey
contend that the lease
”7
formed.’
Percontino
Camporeale,
is no longer
company.
beneficial to the
The
ordered
any important
dissolution. Ha
required
take
actions that
a
ley, 864
Although
A.2d at 94-95.
"the LLC
majority vote. Dissolution was further war-
can and does continuе to function for its
ranted because without relief the dissociated
conformity
intended
and in
with the
personally
member would still be
liable on
agreement,"
opera
the court held that "this
company’s mortgage.
residual,
purely
tion is
quo
a
inertial status
just happens
exclusively
that
benefit one of
7. Dissolution was not warranted in this case
parties
50% members....”
Id. at 96. The
because the court ordered an altеrnative form
together
could not function
and could not
Percontino,
of relief.
decide what to do with the LLC’s assets or
Perron,
122 Cal.App.4th
land was Navarro
when the
rental rate was set
The
(2004) (dissolu-
less,
company,
considerably
Cal.Rptr.3d
and the
200-01
worth
Farms,
profits,
partnership);
the extent of
no matter
tion of a
Pankratz
Pankratz,
Groh-
the taxes and insurance.
pay
Inc. v.
322 Mont.
95 P.3d
however,
Randell,
that
(2004) (dissolution
assert
mann and
partnership).
of a
of the nom-
Ruby were aware
Kirksey and
However, those cases had other factors
company was
profit margin when the
inal
compa-
led
that
the court
dissolve the
changed
has
nothing
that
formed and
Navarro,
Cal.Rptr.3d
nies.
at 200-01
impracticable
make it
(in
parties
addition to the dissension
continue.
or-
multiple
restraining
filed
lawsuits
Pankratz,
(the
ders);
though each sister all the with the power, that hold in the deci- longer equality no exists there having power to other two no influence making. Grohmann and Randell sion company’s recognize direction. We with no reason power have all the remedy a drastic forced dissolution is extremely change terms of repercussions for may produce financial sisters, Leaving two favorable to them. sisters, reasonably how can one but owners, in the power with all the half the that the economic of this conclude cannot be rea- operation company is not frustrated? practicable operation of sonable and regard- The cannot communicate members Moreover, their deadlock cer- business. through ing except legal the LLC counsel. impedes the function of tainly continued static, serving remains operat- the business with its only They half its owners. interests procedure exists ing agreement. No *7 oth- cooperate nor with each neither trust to break company’s documentation con- their er. The sisters formed in the protect tie vote and manage- templating equal ownership and As changed long as conditions. event ment, yet only impenetrable deadlock of, in control remains prevails. members, to, it only can- favorable half its reasonably practicable not be said be conclude that the economic We [¶ 30.] operat- it in accord with to continue Ranch, Kirksey Family purpose ing agreement. frustrated, unreasonably is LLC Another standard [¶ 28.] carry practicable to on it rely on is found with its business the LLC’s 47-34A-801(a)(4)(i): econom- “[t]he SDCL organization and articles of likely to be ic The circuit court erred when unreasonably it means frustrated.” What sum- and Randell granted Grohmann of a for the economic an order mary judgment. We remand for unreasonably frustrated has not been winding up judicial dissolution There are few cases clearly delineated. 47- under SDCL company’s have subject. ordered Two decisions 34A-806. when extreme dissen- Reversed remanded. present. [¶ 31.] the members was sion between Justice, GILBERTSON, Chief ZINTER, Justices, and SABERS and
concur. MEIERHENRY, Justice, 33.]
[IT writing.
concurs with a
MEIERHENRY, Justice (concurring). I agree that under the circum- case,
stances of this the LLC should be legislation
dissolved. Neither the nor the agreement provided procedure
LLC or
remedy in the event of deadlock. Without a provision,
such is at a stale-
mate; and the court is left with few alter- Konenkamp
natives. As points Justice
out, other courts have faced this same varying
issue with results depending on
the circumstances of each case. un-
disputed facts of sufficiently this case meet statutory requirements for dissolution 47-34A-801(a)(4)(i) (iii).
in SDCL or
Corrinna Plaintiff Appellant, BERGLUND,
Beth Ann Defendant *8 Appellee.
Nos. 24775.
Supreme Court of South Dakota. May 19,
Considered on Briefs
Decided July