Virginia Lawyers Weekly VA Lawyers Weekly
There is no statutory or common law right for a limited liability corporation member to unilaterally revoke an assignment of voting rights to another member.
In the alternative, the court “holds that the assignee members in the present case assigned their voting rights coupled with an interest. Thus, if common law principal-agency principles applied in this context, the assignees may not unilaterally revoke their assignments.”
Overview
“Before the Court are seven cases, that have been consolidated for trial, relating to employment and ownership disputes between various individuals and entities within the Rosenthal Automotive dealership empire. The present matter concerns Bavely’s counterclaim to AV’s lawsuit. …
“All contested counts rely on the answer to a single question: did AV executives George Liu, Jerry Griffin, and Steve Ferouz (‘the Executives’) have the power to revoke voting assignments they granted to Bavely at the time they acquired their memberships in AV? Bavely argues the assignments are irrevocable; AV argues they are revocable and were revoked.”
Discussion
“No statutory authority directly addresses the revocability of an LLC member’s voting assignment as the law does for corporations. AV is a LLC, not a corporation. The laws governing LLCs and corporations are different. … The revocability of proxies in corporations is clear: a proxy is irrevocable only if coupled with an interest or given as security. …
“The General Assembly has defined ‘coupled with an interest,’ under the Virginia Stock Corporation Act to include ‘[a] party to a voting agreement created under § 13.1-671.’ … The referenced statute unequivocally states: ‘A. Two or more shareholders may provide for the manner in which they will vote their shares by signing an agreement for that purpose. B. A voting agreement created under this section is specifically enforceable.’ …
“AV is an LLC and not a corporation, so this section is not directly applicable. However, when determining the meaning of ‘coupled with an interest,’ the General Assembly’s definition is helpful. Thus, as the General Assembly has defined it for corporations, Bavely held a proxy coupled with an interest because he was the beneficiary of a voting agreement – the Shareholder Agreements.
“The law concerning the revocability of proxies in LLCs is less clear. The Virginia Limited Liability Company Act has no analogue to § 13.1-663(D). AV excuses the absence of the Stock Corporation Act’s proxy provisions in the Limited Liability Company Act because, it asserts, the common law controls for LLCs. … From this, AV maintains that, at common law, a proxy is always revocable unless coupled with an interest.
“The Court rejects the argument by AV that under common law a LLC member who assigns their vote may revoke this assignment, unless otherwise coupled with an interest. How could there be? Until 1991 there were no LLCs in Virginia. …
“In contrast, the Virginia Limited Liability Act clearly contemplates circumstances where voting rights and economic rights are severed. … By default, the law permits assignment of membership interests. …
“A ‘membership interest’ is defined to mean only a member’s economic interests – profits, losses, and distributions. The definition is silent as to voting or management rights. …However, Virginia Code § 13.1-1039 is not silent. It reads ‘an assignment does not entitle the assignee to participate in the management and affairs of the limited liability company or to become or to exercise any rights of a member.’ …
“Stated differently, LLC members may assign their economic interests to a third party stripped of voting rights.
“Considering this right of contract, there is no principled reason why an LLC member who voluntarily agrees to transfer voting rights to another member should retain the right to unilaterally revoke the grant. The law does not permit parties to exit other contracts at will, so what makes LLC voting assignments so special?
“The Court cannot fathom why adults should be barred from entering contracts where one’s economic interests are stripped from voting rights considering the Commonwealth’s policy of ‘giving maximum effect to the principle of [an LLC member’s] freedom of contract.’ …
“Considering all this, one cannot fairly argue that the Executives’ assignment of voting rights to Bavely is repugnant to the law. LLC members may agree to assign their voting rights to another member and no statutory license exists for the assignor to unilaterally revoke the assignment.”
Conclusion
“The law permitted the Executives to assign their voting rights to Bavely. They did so through their Shareholder Agreements. They may not unilaterally revoke their grant to him of their voting rights.
“Without the Executives’ votes, and in the light most favorable to Bavely, the non-moving party, Bavely has offered sufficient evidence to support his claims that AV had the votes to take the various actions set forth in Counts V-X of the Second Amended Complaint and that he is entitled to his back salary as set forth in Count XII.
“AV’s Motion to Strike will be denied.”
Re: AV Automotive, LLC, et al. v. Bavely, Record No. CL-2019-2804, Oct. 14, 2022. Fairfax County Circuit Court (Oblon). Robert R. Veith, Mihir V. Elchuri, Thomas J. Dillon, III, Andrew Clark, Emily Scott, Franklin R. Cragle, III, Edward W. Cameron, Matthew H. Sorensen, Richard G. Cole, Nicholas D. SanFilippo, Daniel C. Masakayan, Timothy C. Bass, J. Brandon Sieg for the parties. VLW 022-8-068, 8 pp.
