Unanimous Consent Signed by LLC Members Operates as Amendment to Operating Agreement

Clark v. Butoku Karate Sch., LLC, No. 326638 (Mich. App., 2016)

Statutes: MCL 450.4101, MCL 450.4305, MCL 450.4509

Plaintiff Joby Clark and Defendant were the sole members of a Michigan Limited Liability Company operating a karate school.  Clark was the subject of a rumor that he had a sexual relationship with an underage student.  The parties agreed that Clark would leave the business to prevent damage to the school.

The parties withdrew $100,000 from a bank, each keeping $50,000. Plaintiff and Defendant then signed a written consent that provided for Clark’s withdrawal and that his interest in the business was “extinguished in its entirety without a substitute or financial consideration.”

After two mistrials on a criminal prosecution, the charges against Clark were dropped. He sued alleging that he had been promised that his withdrawal was temporary and that he could re-enter the business when the rumors had dissipated. Plaintiff sought distributions and alleged a count of conversion.

Defendant moved for summary judgment, which was granted. On appeal, the court affirmed.

Held:

• Because the limited liability company’s operating agreeement addressed the withdrawal of members, the statutory provision providing for payment of a member’s fair value after withdrawal was inapplicable.
• The execution of the written consent by both members constituted an amendment to the Operating Agreement, executed by all members, and was enforceable under Michigan law. Plaintiff waived any right to further distributions or payment of fair value for his interest.
• The amendment to the operation did not require contractual consideration.

State of Organization: Michigan