Corporate: Court declines to expel minority members from LLC

Where the circuit court concluded that the conduct of minority members did not make it not reasonably practicable to carry on the business, and this conclusion was neither “plainly wrong” nor was it “without evidence to support” it, the court declined to expel the minority members from the LLC.

Background

Ticonderoga Farms LLC and its majority member, Peter J. Knop, appeal a decision of the Court of Appeals affirming two circuit court rulings in favor of Alexandra B. Knop and William J.W. Knop, both individually and as trustees of the Evergreen Trust.

Expulsion

Peter contends that the circuit court erred in declining to expel the minority members from Ticonderoga Farms pursuant to Code § 13.1-1040.1(5)(c). He reasons that, because the disputes, the lack of trust and the bad feelings are mutual, the conduct of the minority members definitionally was a cause of the dysfunction. The court disagrees.

Although it is true that disagreements and litigation require two sides, it does not necessarily follow that the conduct of both sides is the cause of the disputes and any resulting dysfunction. It may be that the actions of one side of a dispute are the conduct that, in the language of Code § 13.1-1040.1(5)(c), “makes it not reasonably practicable to carry on the business with the member[.]”

Alternatively, there may be some other cause of the dysfunction that is not tied to the conduct of the challenged member or members. The facts underlying this litigation amply support the circuit court’s conclusion that the conduct of the minority members was not the direct cause of the dysfunction of Ticonderoga Farms.

This litigation stems from Peter issuing a capital call demanding that the minority members collectively pay more than $1,000,000 to Ticonderoga Farms. Believing that such a demand was ultra vires and questioning how the company could have such a need, the minority members both objected to the capital call and requested to see the financial records of Ticonderoga Farms that would establish such a need.

The minority members not only asserted good faith claims regarding both the capital call and their demand to see the requested documents, but also wholly prevailed on those issues. A circuit court, as factfinder, is free to conclude that merely asserting statutory rights is not the direct cause of any company dysfunction, and therefore, decline to expel the member pursuant to Code § 13.1-1040.1(5)(c).

This is especially true in cases, like this one, where the circuit court explicitly credited testimony that raised “red flags” about the financial record keeping of the company, leading it to conclude that the conduct of the minority members, in initiating the litigation and in undertaking the other actions complained of, had “aims that are legitimate and just,” served a “legitimate purpose” and was undertaken for “legitimate reasons.”

The circuit court’s conclusion that the conduct of the minority members did not “make[] it not reasonably practicable to carry on the business” of Ticonderoga Farms was neither “plainly wrong” nor was it “without evidence to support” it. Accordingly, the Court of Appeals correctly affirmed the circuit court’s judgment on judicial expulsion.

Dissolution

Peter next contends that the circuit court erred in dissolving the company based on its finding that it was “not reasonably practicable to carry on the business” of Ticonderoga Farms. He asserts that the circuit court’s finding necessarily was in error because he possesses a 72.67 percent membership interest in Ticonderoga Farms, and this majority interest allows him to control the affairs of the company. Finding that the evidence before the circuit court was more than sufficient to support its conclusion, the court disagrees with Peter.

All parties to the case, including Peter, pled in the proceedings below that it was not reasonably practicable for Ticonderoga Farms to conduct business as it was constituted. The parties’ allegations of complete dysfunction in the operation and the management of Ticonderoga Farms were borne out by the evidence.

Peter effectively argues that the circuit court should have expelled the minority members rather than dissolve the company. The court disagrees. Nothing in the text of the Act requires a circuit court to favor judicial expulsion over dissolution. And in any event the circuit court in this case decided to address Peter’s expulsion claims before reaching the dissolution question.

Affirmed.

Ticonderoga Farms LLC v. Knop, Record No. 240772, Nov. 6, 2025 (Russell Jr.). From the Court of Appeals of Virginia. VLW 025-6-026. 25 pp.