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PRESENT: All the Justices
THE DUNBAR GROUP, LLC, ET AL.
v. Record No. 030638 OPINION BY JUSTICE BARBARA MILANO KEENAN
March 5, 2004
ARCHIE F. TIGNOR, ET AL.
FROM THE CIRCUIT COURT OF THE CITY OF RICHMOND
Theodore J. Markow, Judge
In this appeal from a judgment ordering the dissolution of
a limited liability company, the dispositive issue is whether
the evidence was sufficient to support the chancellor's
judgment.
XpertCTI, LLC (Xpert), is a limited liability company that
provides "computer telephony integration" (CTI) software to
dealers and manufacturers for installation in certain telephone
systems and equipment. CTI software enables the use of
computers to "interface" with and control telephone systems.
Xpert was formed in March 2000, by The Dunbar Group, LLC
(Dunbar), and Archie F. Tignor, who each owned a membership
interest of 50 percent in Xpert. Edward D. Robertson, Jr., a
computer software developer and consultant, was the sole member
and manager of Dunbar.
Tignor, a commercial telephone and telecommunications
equipment dealer and installer, owned 50 percent of the stock of
X-tel, Inc. (X-tel), a telecommunications sales firm. Tignor
served as the president of X-tel, which was a dealer in
equipment for Samsung Telecommunications America, Inc.
(Samsung), a manufacturer, distributor, and seller of
telecommunications equipment.
Dunbar and Tignor executed an "Operating Agreement" for
Xpert under which they were the sole managers of Xpert. Dunbar
created Xpert's proprietary software, or "source code," and
conducted the daily operations of the company. Tignor's main
function was to provide Xpert with access to his business
contacts in the telecommunications industry, including Samsung.
Xpert's operating agreement provided a procedure for a
company member to assert a breach of the agreement by another
company member. The agreement specified that if the breach was
not timely cured by the defaulting member, the complaining
member had the "right to petition a court of competent
jurisdiction for dissolution of the Company." The agreement
also stated that the "dissolution of a [m]ember or occurrence of
any other event that terminates the continued membership of a
[m]ember in the Company shall not cause the dissolution of the
Company."
In December 2000, Xpert entered into a contract with
Samsung to supply Samsung with software-driven security devices
called "dongles," which were to be included in all
telecommunications systems sold by Samsung. Xpert received
about $20,000 per month from the Samsung contract. The Samsung
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contract contained a provision specifying the contract's
duration:
This Agreement shall come into force and effect on the
date written above [December 5, 2000] and shall remain
in full force and effect for consecutive periods of
thirty-six (36) months thereafter . . . . After this
time the contract will continue on an annual basis
unless terminated by either party giving 90 days
notice before the anniversary of the contract date.
Certain disputes arose between Robertson and Tignor over
matters primarily related to the management and disbursement of
Xpert's assets. In May 2002, Dunbar's counsel sent a letter to
Tignor's counsel stating that it was apparent to Robertson that
"his continued working relationship with Mr. Tignor [was] no
longer possible." Dunbar's counsel further stated that "Mr.
Robertson is of the opinion that it is in the parties' best
interest to sever their ties as fully and quickly as possible."
In September 2002, Dunbar, Xpert, and Robertson, in his
capacity as a manager of Xpert, (collectively, Dunbar) filed an
amended bill of complaint against Tignor and X-tel requesting,
among other things, entry of an order "expelling and
dissociating Tignor as a member of Xpert pursuant to Virginia
Code § 13.1-1040.1(5)." Dunbar alleged that Tignor engaged in
"numerous acts of misconduct as a member and manager of Xpert,"
including the commingling of Xpert's funds with the funds of
Tignor and "his corporate alter ego, X-tel."
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Code § 13.1-1040.1, which provides for a court-ordered
expulsion of a member of a limited liability company, states in
relevant part:
[A] member is dissociated from a limited liability
company upon the occurrence of any of the following
events:
. . . .
5. On application by the limited liability company or
another member, the member's expulsion by judicial
determination because:
a. The member engaged in wrongful conduct that
adversely and materially affected the business of the
limited liability company;
b. The member willfully or persistently committed a
material breach of the articles of organization or an
operating agreement; or
c. The member engaged in conduct relating to the
business of the limited liability company which makes
it not reasonably practicable to carry on the business
with the member.
Tignor filed a separate "Application for Judicial
Dissolution" against Dunbar and Xpert. Tignor requested, among
other things, the dissolution of Xpert under Code § 13.1-1047 on
the ground that "it is not reasonably practicable to carry on
the business of [Xpert] in conformity with the Articles of
Organization and [the] Operating Agreement." Tignor alleged
that "serious differences of opinion as to company management
have arisen between the members and managers" of Xpert, and that
the company was "deadlocked" in its ability to conduct its
business affairs, including contracting with customers for goods
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and services and the "receipt and disbursement of [Xpert's]
assets and company funds."
The chancellor consolidated for trial Dunbar's amended bill
of complaint and Tignor's application for judicial dissolution.
At a hearing, the chancellor received evidence relating to both
pleadings.
The evidence showed that Tignor commingled Xpert's funds
with X-tel's funds by placing several checks, which were made
payable to Xpert, into X-tel's bank account. Tignor provided
inaccurate information to Robertson concerning one of those
checks, which was made payable to Xpert in the amount of about
$47,000. Tignor used the proceeds from that check to pay some
of X-tel's expenses and to meet X-tel's payroll, including the
payment of Tignor's own salary.
Without informing Robertson, Tignor also authorized a
change in the status of Xpert's checking account that prevented
checks from being written on the account. When Robertson, who
was unaware of the change, wrote a check payable to one of
Xpert's vendors, the check "bounced."
Although Dunbar had been renting office space from X-tel,
Tignor evicted Robertson from X-tel's premises. Tignor also
restricted Robertson's access to various testing equipment
located in X-tel's offices, reducing Robertson's ability to test
Xpert's products. Robertson needed access to this equipment to
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ensure the quality of Xpert's products before they were
delivered to Xpert's customers. Due to Robertson's restricted
ability to test Xpert's products, Xpert's customers did not
receive their orders in a timely manner and products were sent
to customers "in less than quality condition."
Tignor also terminated Robertson's e-mail account with
Xpert without giving him prior notice. This sudden termination
of Robertson's e-mail account created "a lot of confusion" among
Xpert's customers, giving the appearance that Xpert had "gone
out of business."
In December 2002, the chancellor entered an order in which
he found that Tignor commingled Xpert's funds with his own funds
and the funds of X-tel. The chancellor also concluded that
Tignor's actions had been contrary to Xpert's best interests and
had "adversely affected Xpert's ability to carry on its
business." The chancellor further determined that Tignor had
acted "in violation of" subparagraph five of Code § 13.1-1040.1.
The chancellor ordered that Tignor be "immediately expelled
as an active member of Xpert" and that Robertson "shall continue
to operate Xpert" and provide to Tignor a monthly accounting of
Xpert's finances. The chancellor also ordered:
Xpert . . . shall continue the arrangement pursuant to
this order until its contract with [Samsung] expires
or otherwise terminates, including any extensions.
Following the fulfillment or non-renewal of the
[Samsung] contract, the court orders that Xpert . . .
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be dissolved and its assets distributed pursuant to
the Virginia Code and the operating agreement of
Xpert.
Dunbar appeals.
Dunbar does not challenge that part of the chancellor's
order expelling Tignor as a member of Xpert, but attacks only
the portion of the order providing for the dissolution of Xpert.
Dunbar argues that the evidence is insufficient to support the
dissolution of Xpert because the evidence did not satisfy the
standard required by Code § 13.1-1047 for the judicial
dissolution of a limited liability company. In support of this
argument, Dunbar primarily asserts that the record fails to show
that after the expulsion of Tignor as a member of Xpert, it
would not be reasonably practicable to carry on Xpert's
business.*
In resolving Dunbar's claim, we first observe that an
established standard of review governs our inquiry. Because the
chancellor heard the evidence ore tenus, his decree is entitled
to the same weight as a jury verdict. Shooting Point, L.L.C. v.
Wescoat, 265 Va. 256, 264, 576 S.E.2d 497, 501 (2003);
Chesterfield Meadows Shopping Ctr. Assocs., L.P. v. Smith, 264
Va. 350, 355, 568 S.E.2d 676, 679 (2002). Therefore, on appeal,
we will not set aside the chancellor's findings unless they are
plainly wrong or without evidence to support them. Shooting
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Point, L.L.C., 265 Va. at 264, 576 S.E.2d at 501; Tauber v.
Commonwealth, 263 Va. 520, 526, 562 S.E.2d 118, 120 (2002).
The chancellor resolved the dissolution issue in Tignor's
favor. Thus, we consider the evidence relating to the
dissolution determination in the light most favorable to Tignor.
See Barner v. Chappell, 266 Va. 277, 283, 585 S.E.2d 590, 594
(2003); Jenkins v. Bay House Assocs., L.P., 266 Va. 39, 41, 581
S.E.2d 510, 511 (2003).
This appeal presents our first opportunity to consider the
statutory standard provided in Code § 13.1-1047 for the judicial
dissolution of a limited liability company. The statute states
that
[o]n application by or for a member, the circuit court
of the locality in which the registered office of the
limited liability company is located may decree
dissolution of a limited liability company if it is
not reasonably practicable to carry on the business in
conformity with the articles of organization and any
operating agreement.
Id.
Because this statutory language is plain and unambiguous,
we apply the plain meaning of that language. See Woods v.
Mendez, 265 Va. 68, 74-75, 574 S.E.2d 263, 266 (2003);
Industrial Dev. Auth. v. Board of Supervisors, 263 Va. 349, 353,
559 S.E.2d 621, 623 (2002). The statutory standard set by the
General Assembly for dissolution of a limited liability company
*
Tignor did not file a brief in this appeal.
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is a strict one, reflecting legislative deference to the
parties' contractual agreement to form and operate a limited
liability company. Only when a circuit court concludes that
present circumstances show that it is not reasonably practicable
to carry on the company's business in accord with its articles
of organization and any operating agreement, may the court order
a dissolution of the company.
The record here, however, does not show that the chancellor
evaluated the evidence in light of the fact that Tignor was
being expelled as a member and manager of Xpert. Although
Tignor's actions in those capacities had created numerous
problems in the operation of Xpert, his expulsion as a member
changed his role from one of an active participant in the
management of Xpert to the more passive role of an investor in
the company. The record fails to show that after this change in
the daily management of Xpert, it would not be reasonably
practicable for Xpert to carry on its business pursuant to its
operating authority.
Moreover, we observe that the terms of the chancellor's
dissolution order refute a conclusion that dissolution was
appropriate under the statutory standard of Code § 13.1-1047.
While the chancellor concluded that judicial dissolution of
Xpert was warranted, he nevertheless ordered that Xpert continue
operating as a limited liability company for as long as the
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Samsung contract remained in effect. This provision in the
chancellor's order indicates that he concluded that Tignor's
expulsion from Xpert would make it reasonably practicable for
Xpert to continue to operate for an extended period of time.
Accordingly, we hold that the evidence does not support
that part of the chancellor's order providing for the
dissolution of Xpert. Further, because the evidence is
insufficient to support such a judicial dissolution, we do not
reach Dunbar's additional argument that the chancellor erred
under Code § 13.1-1047 in ordering that Xpert be dissolved at an
uncertain, future date.
For these reasons, we will affirm that part of the
chancellor's judgment expelling Tignor as a member of Xpert,
reverse that part of the judgment ordering the dissolution of
Xpert, and enter final judgment.
Affirmed in part,
reversed in part,
and final judgment.
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