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A previous column, after mentioning the provisions of partnership and LLC law which at times enable the expulsion of a partner/member, discussed a number of the issues incident to contractual provisions in an operating agreement for the expulsion of a member.1 This column focuses upon judicial expulsion, reviewing the rather limited available case law. Still, that case law is illuminating. In one of the leading cases, I.E. Test,2 the court held that the standards for judicial expulsion had not been satisfied. Conversely, in All Saints University of Medicine Aruba,3 the court authorized judicial expulsion of members who had engaged in egregious conduct. In the last decision herein reviewed, Kenny v. Fulton Associates, LLC,4 judicial expulsion was effected against a member who had acted unreasonably and in opposition to the operating agreement with respect to the admission as members of certain assignees.
As previously noted, certain LLC Acts provide a mechanism for judicial expulsion of a member.5 In the absence of either a contractual or statutory mechanism for expulsion, there is no right to do so.6 A pair of recent cases, coincidentally both from New Jersey, identified perhaps the two bookends to the application of the statutory provisions. A third decision, it from Illinois, explores a mid-point fact pattern and what some may think a questionable application of the judicial expulsion tool.
I.E. Test LLC v. Carroll
In August 2016, the New Jersey Supreme Court held, on the facts of this particular case, that the standard for judicial expulsion of a member from an LLC had not been satisfied.7 This decision has ramifications in all states that have adopted either the Uniform Limited Liability Company Act, Revised Uniform Limited Liability Company Act or the Revised Prototype Limited Liability Company Act, all containing these same standards for judicial expulsion.