BUSINESS & COUNSUMER DOCKET NO. BCD-CV-17-32
STATE OF MAINE
ORDER GRANTING MOTION TO DISMISS COUNT II OF SECOND AMENDED COMPLAINT
Pending before the Court is Defendants D.B.L. Enterprises, Inc. ("DBL") and Linda Shelton's motion to dismiss Count II of the Second Amended Complaint (the "Complaint") brought pursuant to M.R. Civ. P. 12(b)(6). Plaintiff Witham Family Limited Partnership ("WFLP") opposes the motion. Pursuant to its authority under M.R. Civ. P. 7(b)(7) the Court rules on the motion without holding oral argument.
The following facts are taken from the Complaint and for purposes of the instant motion are assumed to be true. WFLP and DBL each have a fifty percent membership interest in W.S. Atlantic, LLC, (the "LLC") which owns and operates a Hampton Inn hotel in Bar Harbor. (Pl's Compl. ¶¶ 6-7.) David J. Witham was formerly the manager of the LLC, but he resigned as manager in December 2016. (Pl's Compl. ¶¶ 8, 10.) Linda Shelton, DBL's president, has assumed the role of de facto manager of the LLC since that time, but WFLP has refused to agree to her taking that position. (Pl's Compl. ¶ 11.) In fact, Plaintiffs claim that in her role as de facto manager, Ms. Shelton has undertaken a number of acts that are very detrimental to the LLC and, indeed, are illegal and fraudulent. (See generally Pl's Compl.) WFLP seeks, inter alia, judicial dissolution of the LLC on the grounds that DBL as the member in de facto control of the LLC has acted and is acting in a manner that is illegal and fraudulent. See 31 M.R.S. § 1595(1)(E). (Pl's Compl. ¶ 45.)
STANDARD OF REVIEW
In reviewing a motion to dismiss under Rule 12(b)(6), courts "consider the facts in the complaint as if they were admitted." Bonney v. Stephens Mem. Hosp., 2011 ME 46, ¶ 16, 17 A.3d 123. The complaint is viewed "in the light most favorable to the plaintiff to determine whether it sets forth elements of a cause of action or alleges facts that would entitle the plaintiff to relief pursuant to some legal theory." Id. (quoting Saunders v. Tisher, 2006 ME 94, ¶ 8, 902 A.2d 830). "Dismissal is warranted when it appears beyond a doubt that the plaintiff is not entitled to relief under any set of facts that he might prove in support of his claim," Id. "The legal sufficiency of a complaint challenged pursuant to M.R. Civ. P. 12(b)(6) is a question of law" and thus subject to de novo appellate review. Marshall v. Town of Dexter, 2015 ME 135, ¶ 2, 125 A.3d 1141.
Defendants seek partial dismissal in the instant motion, which is directed only at Count II of the Complaint. Defendants argue that the statutory authority relied upon for this Count, 31 M.R.S. § 1595(1)(E), is not applicable based on the facts alleged.
Section 1595(1)(E) provides as follows:
A limited liability company is dissolved, and its activities must be wound up, upon the occurrence of any of the following: . . . . On application by a member, the entry by the Superior Court of an order dissolving the limited liability company on the grounds that the members in control of the limited liability company have acted, are acting or will act in a manner that is illegal or fraudulent[.] (emphasis added).
Defendants argue that DBL cannot be the "member in control of the limited liability company" because the facts as alleged establish that DBL has a fifty percent membership interest in the LLC and that WFLP has the remaining fifty percent membership interest—neither member of the LLC is a "member in control." WFLP responds that, as alleged, Ms. Shelton in her capacity as president of DBL has taken de facto control of the company and that DBL is therefore the "member in control" of the LLC.
WFLP's argument in opposition misconstrues what section 1595(1)(E) means when it references "members in control." In this context, "control" means control from a corporate governance perspective, i.e. a "controlling interest" in the company itself. By analogy, this is similar to owning a "controlling" shareholder interest in a business corporation. See Kaplan v. First Hartford Corp., 484 F. Supp. 2d 131, 133 (D. Me, 2007). The fact that some LLCs can be member-managed does not mean that a manager-member is a "member in control" of an LLC because that member-manager can always be ejected if other members controlling a majority membership interest of the LLC so choose. See 31 M.R.S. § 1556(2). Again, by analogy, WFLP's argument is similar to positing that a President or the Chairman of the Board of a corporation is an "owner in control" of a business corporation so long as he also happens to own shares of the company. Put another way, Ms. Shelton may indeed be something akin to the de facto "general manager" of the Bar Harbor Hampton Inn, but this does not make her, or her company DBL, a "member in control" of W.S. Atlantic, LLC.
Elsewhere in Maine's Limited Liability Company Act, the statutes explicitly differentiate between "managers" and "members," given the importance of differentiating those roles where a member can also be a manager, See, e.g., 31 M.R.S. §§ 1541(4), 1591(6), 1631(1). Here, if our Legislature intended to allow a member to apply for dissolution of a LLC based on fraudulent or illegal acts by a manager, it would have said so expressly. Instead, based on the plain language of the statute, section 1595(1)(E) limits the grounds for dissolution based on fraudulent or illegal acts to where those acts are undertaken by the members in control.
In sum, even assuming that Ms. Shelton, in her capacity as president of member DBL, has taken over management of the LLC and has acted fraudulently or illegally, this is not grounds for dissolution under section 1595(1)(E), because neither she nor DBL is a "member in control" of the LLC. Count II is therefore subject to dismissal under M.R. Civ. P. 12(b)(6).
Finally, it is worth noting that this is not an illogical result leaving WFLP without recourse. See Doane v. Dep't of Health & Human Servs., 2017 ME 193, ¶ 13, 170 A.3d 269 (courts "reject statutory interpretations that are inimical to the public interest or that produce absurd or illogical results.") (quotation omitted). Defendants have moved for only partial dismissal; the Complaint still states a claim for dissolution pursuant to 31 M.R.S. § 1595(1)(D). WFLP can also, and has, sued Ms. Shelton for her alleged mismanagement of the LLC and the hotel that it owns and operates. (See Compl. ¶¶ 52-56.) Our Legislature has made a policy decision that manager misfeasance cannot be the basis of a dissolution action by a member, which is not an absurd or illogical decision.
This plain language interpretation of the statute is reinforced by the legislative history, Maine's previous dissolution statute for LLCs, 31 M.R.S. § 702(1)(C) (repealed July 1, 2011) explicitly listed both the illegal or fraudulent acts of managers and the acts of "those in control" of the LLC as grounds for dissolution. See Ahern v. Ahern, 2008 ME 1, ¶ 20 n.4, 938 A.2d 35. This supports the conclusion that our Legislature intended to limit this grounds for dissolution based on fraudulent or illegal acts to a situation where such acts were undertaken by the controlling members of the LLC when it enacted Maine's new Limited Liability Company Act. --------
Based on the foregoing it is hereby Ordered:
That Defendants DBL and Linda Shelton's motion to dismiss Count II of the Complaint is Granted.
The Clerk is requested to enter this Order on the docket for this case by incorporating it by reference. M.R. Civ. P. 79(a). Dated: 3/7/19
M. Michaela Murphy
Justice, Business and Consumer Court