Cengage Advantage Books: Fundamentals of Business Law Today 10th Edition by Roger LeRoy Miller

Exercise 16

FACTS Green Cab Taxi and Disabled Service Association, LLC, is a taxi service company in King County, Washington. The operating agreement requires the members to pay weekly fees. Members who do not pay are in default and must return their taxi licenses to the company. In addition, a member in default cannot hold a seat on the board or withdraw from the company without the consent of all of the members. A disagreement arose among the members concerning the company's management, and several members, including Shumet Mekonen, withdrew from the company without the consent of the other members. Both sides continued to drive under the Green Cab name.
Mekonen's group filed a suit in a Washington state court against a group of members who had not withdrawn, including Dessie Zewdu. In part, the Mekonen group sought the right to operate as Green Cab. The court held that the plaintiffs could not represent themselves as Green Cab and ordered them to return their taxi licenses to the company. The plaintiffs appealed the order to return their licenses.
ISSUE Are the members of an LLC bound to the terms of its operating agreement?
DECISION Yes. A state intermediate appellate court upheld the lower court's order to the plaintiffs to return their taxi licenses to Green Cab. Under the provisions of the company's operating agreement, the plaintiffs, as "defaulting members," had no right to retain and use the licenses.
REASON The appellate court pointed out that under Green Cab's operating agreement, the company held all of the rights to the taxi "licenses and permits necessary to operate its vehicles." The LLC's members were allowed to retain and use the licenses as long as they were in "good standing." To maintain this status, members had to pay the required weekly fees, which were used to offset the company's operating expenses. A member who did not pay the fee was considered to be in "default," and members could not withdraw from the firm without the unanimous consent of the other members.
Here, the plaintiffs admitted that they had withdrawn from the firm and had not paid the required fees. "As a result, the Plaintiffs have no legal right to retain the King County taxicab licenses currently in their possession…. Given the relative interests of the parties and the LLC, the trial court acted well within its discretion to order plaintiffs to return their taxi licenses."
WHAT IF THE FACTS WERE DIFFERENT? Suppose that Green Cab had maintained a company Web site on which it posted its operating agreement, conducted all internal company business, and offered a forum where members could vent their complaints. How might the result have been different? Why?