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A Better Partnership
November 07, 2014

Court of Appeals clarifies scope of arbitration clauses and a member’s voluntary withdrawal from an LLC

In Altobelli v. Hartmann, No 313470, the Michigan Court of Appeals held that an arbitration clause that defines which parties are bound by the agreement is to be strictly read.  Further, the Court clarified that an operating agreement need not list every method for a member’s voluntary withdrawal.
 
Dean Altobelli was a principal member at Miller Canfield, a Detroit-based law firm and a professional limited liability company. While employed at Miller Canfield, Altobelli was offered a job as an assistant football coach at the University of Alabama, and agreed to take position. Altobelli had several conversations with the firm's CEO, Michael Hartmann, which allegedly led Altobelli to believe his role as a principal would continue during his absence from the firm. Hartmann, however, disagreed; he and other managers of the firm considered Altobelli voluntarily withdrawn in accordance with the firm’s operating agreement when he left to work as an Alabama coach.
 
When Altobelli learned of his withdrawal, he sued Hartmann and six other mangers of the firm, rather than Miller Canfield. He alleged six claims including breach of fiduciary duty, illegal shareholder oppression and tortious interference with a business relationship.  Hartmann argued that any claim Altobelli alleges must be brought against Miller Canfield, and further, the claims are subject to the arbitration clause in Miller Canfield’s operating agreement.
 
The Court disagreed and held that tort claims like the claims Altobelli alleged can be brought against individual members of an LLC, rather than the organization itself. Further, the Court noted, that Miller Canfield’s operating agreement specifically contemplated arbitration only for disputes between a principal and the Firm; the Court would not expand that to mean individual members of the firm. Therefore, it held that the claims can be brought in court and Hartmann and the other managers can be individually responsible.
 
Altobelli also argued that because MCL 450.4509 provides that “[a] member may withdraw from a limited liability company only as provided in an operating agreement,” he was shielded from the withdrawal. He reasoned that Miller Canfield’s operating agreement stated that a principal may voluntarily withdraw from the firm, but “the only method provided for in the operating agreement applies to a principal who becomes an employee of a professional corporation.” Therefore, Altobelli argued, since he did not become an employee of a professional corporation and because the statute provides a member may withdraw only as provided in the operating agreement, he could not have voluntarily withdrawn by joining the University of Alabama.
 
The Court, however, held to the contrary. It first clarified MCL 450.4509 and held that an operating agreement need not list every method for voluntary withdrawal by a member from an LLC.  It then determined that although Miller Canfield’s operating agreement only listed one method for voluntarily withdrawal, the operating agreement could not be read to only permit voluntary withdrawal under those circumstances. The Court remanded the case to the trial court to determine whether, based on the facts, Altobelli voluntarily withdrew from the firm.

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