Gagne v. Gagne
Colorado Court of Appeals
459 P.3d 686 (2019)

- Written by Kate Douglas, JD
Facts
Paula Gagne (defendant) and her son, Richard Gagne (plaintiff), were the only members of four limited-liability companies. Paula and Richard formed each limited-liability company (LLC) with the intent that Paula would buy apartment complexes and that Richard would manage them. Under the operative operating agreements, Paula and Richard owned the LLCs 50/50, but Paula had 51 percent of the voting rights. Paula and Richard’s relationship deteriorated to the point that Richard sued to dissolve the LLCs pursuant to a Colorado statute that provided that an LLC could be dissolved in a proceeding by or for a member or manager of the LLC if it was not reasonably practicable to carry on the LLC’s business in conformity with its operating agreement. Richard also sought a declaration of the parties’ rights and obligations. Both parties were dissatisfied with the results of the first trial and appealed to the Colorado Court of Appeals. In an earlier opinion known as Gagne I, the appellate court had found that the trial court applied the wrong test to determine whether dissolution was proper. The appellate court articulated the proper test, which involved the consideration of seven nonexclusive factors: (1) whether the LLC’s managers were unable or unwilling to pursue the LLC’s purpose; (2) whether a member or manager had committed misconduct; (3) whether the members were unable to work together to pursue the LLC’s purpose; (4) whether the members were deadlocked; (5) whether the operating agreement provided a means of resolving a deadlock; (6) whether, given the LLC’s finances, there remained a company to operate; and (7) whether continuation was financially feasible. After considering these factors, the trial court found that dissolution was warranted and entered an order setting forth how dissolution would proceed. The trial court found that the LLCs had failed their purposes because Paula refused to give Richard any role in managing the properties. Moreover, Paula and Richard could not work together. The court also found that Paula had engaged in serious misconduct by, among other things, reimbursing herself from LLC funds for extravagant personal expenses. Finally, the court found that Paula and Richard were deadlocked, with no apparent way around the deadlock. Paula appealed to the Colorado Court of Appeals.
Rule of Law
Issue
Holding and Reasoning (Jones, J.)
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