Weddell v. H2O, Inc.

Rolland Weddell (plaintiff) and Michael Stewart (defendant) were partners in several business ventures, including Granite Investment Group, LLC (Granite) and High Rock Holding, LLC (High Rock). In December 2004, Weddell was elected manager of Granite and High Rock. Stewart and Weddell subsequently executed amended and restated operating agreements for Granite and High Rock. The agreements gave Stewart 1.5 votes and Weddell 1 vote. In 2007, Stewart used his superior voting power to remove Weddell as manager of Granite and High Rock and elect himself as manager of both entities. However, under Granite’s operating agreement, a manager could be removed only by a unanimous affirmative vote of all members. High Rock’s operating agreement did not have a unanimity requirement for removing a manager. During an unrelated legal dispute in 2008, a Nevada district court granted a creditor’s application to charge Weddell’s membership interest in Granite and High Rock for over $6 million. Under the relevant statute, the charging order entitled the creditor to any and all limited-liability company (LLC) disbursements and distributions and all other rights of an assignee of the interest. After the charging order was entered, Stewart purchased Weddell’s remaining membership interest in Granite for $100 in accordance with a provision of the operating agreement governing transfer of a membership interest upon certain triggering events. The district court found that the charging order had divested Weddell of both his membership rights and managerial rights in Granite and High Rock. The court thus concluded that Stewart was the sole manager of Granite and High Rock. Weddell appealed. One issue on appeal was whether the charging order had divested Weddell of his managerial rights in Granite.