A member of an LLC that owned a short-lived Miami Beach nightclub was recently determined not to be individually liable for paying reimbursement to another member who withdrew from the LLC. The Stok Folk + Kon client won his case before the Third District Court of Appeal because, as the appeals court determined, LLC agreements generally do not create individual liability unless the document says so explicitly, and the agreement for this LLC included no express provisions requiring individual liability for reimbursing withdrawing members.
The case involved a Miami Beach nightclub named “Club Sin.” The club was to be owned by a corporate entity named Avrupa LLC. The LLC was to include three men: Georg Schollmeier, Tulga Demir, and Demir’s brother. Demir and his brother were to contribute $1 million each, with each receiving a 40% stake in Avrupa. Schollmeier was to put in $400,000 and receive a 20% ownership in Avrupa, while holding a right to withdraw from the LLC and get his money back. In January 2007, Schollmeier wired $375,000 into Avrupa’s bank account. The club opened in early February, but, by late March, it closed for good.
Schollmeier elected in late May to withdraw from Avrupa and demanded that Demir pay him back. Demir did not, and Schollmeier sued Demir for breach of contract. The trial court granted a request by Schollmeier to issue a summary judgment in his favor, which would have forced Demir personally to pay back the capital contribution Schollmeier made. The agreement among Schollmeier, Demir, and Demir’s brother was not a limited liability company operating agreement, as defined by the Florida Statutes, but instead was a personal agreement among the three men, the trial court decided.
Demir appealed and won his case before the Third District. The trial court was incorrect in its analysis when it concluded that the contract Schollmeier signed was a personal agreement rather than a limited liability company operating agreement. The document that the men executed was not entitled “Operating Agreement” and was not signed until after Avrupa’s formation, but, under Florida law, none of these facts automatically meant that the document could not be an operating agreement. Section 608.423 of the Florida Statutes expressly states that the “members of a limited liability company may enter into an operating agreement before, after, or at the time the articles of organization are filed.” The agreement for Avrupa had several elements that indicated that it was an LLC operating agreement. Section 1 of the document explicitly stated that it was “a limited liability company agreement under and as provided in the Act.”
The law gives members of LLCs considerable flexibility in the rights they have against one another. An LLC operating agreement could, as the court pointed out, establish that “no individual member owes the other members any duties whatsoever.” Schollmeier centered his case around a section of the agreement, Section 3, that gave him the right to withdraw and get his money back. However, as the court explained, there was nothing in the operating agreement that stated that he had a right to recover that money from any other members individually. If the members intended to establish such individual obligations, the agreement should have said so explicitly. However, it did not. Reading the agreement as a whole, it was clear that Schollmeier’s capital contribution reimbursement was to be paid by Avrupa, rather than by any of the other individual members of the LLC.
Business relationships can be complicated, especially when the business in question fails. If you are facing a breach of contract action, or another action related to your LLC, talk to the Florida business litigation attorneys at Stok Folk + Kon. Our attorneys have the knowledge and skill required to get results for our clients. Contact us online or by calling (954) 237-1777 to schedule your consultation.
More blog posts:
LLC Member’s Insufficient Affidavit Dooms Florida Lawsuit on Appeal, Florida Business Lawyers Blog, July 28, 2016
LLC Member Unable to Use Garnishment to Recover Judgment from Terminated Member, Florida Business Lawyers Blog, Feb. 26, 2015