Eleven years ago, I foretold potential issues arising from California's repeal of the Beverly-Killea Limited Liability Company Act in favor the California Revised Uniform Limited Liability Company Act. Since that gloomy vaticination, practitioners and the courts have had to struggle with transition issues. See, e.g., Court Sorts Out California RULLCA Transition Muddle. In a recent, unpublished opinion, the Fourth District Court of Appeal discussed, but did not decide, another transition problem.
In Beach Orangethorpe Hotel, LLC v. Evertrust Bank, 2023 WL 7320584, a non-party, Evertrust, to an operating agreement sought to enforce an arbitration provision in the operating agreement against the LLC itself. When the LLC was formed in 2013, Evertrust was not a party to the operating agreement and the Beverly-Killea Act did not contain a provision similar to current Corporations Code Section 17701.11(a) ("A limited liability company is bound by and may enforce the operating agreement."). Evertrust argued that the LLC became bound because the operating agreement included a provision stating that the Beverly-Killea Act would be its governing law, "as the same may be amended or superseded from time to time." Thus, at least according to Evertrust, the new law governed the operating agreement once the new law was operative.
Alas, the Court of Appeal decided not to decide the question because it decided that arbitration of the LLC's claims was not required by the equitable estoppel doctrine. The transition issue was further complicated by inconsistent provisions within the operating agreement governing its effective date. However, the transition provisions of the CARULLCA (Cal. Corp. Code § 17713.4) refer to when the operating agreement was "entered into", not when it became effective.
Note to readers: See Rules 8.1105 and 8.1110, 8.1115 of the California Rules of Court regarding limitations on citations of unpublished decision.
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