Key Business Court Decisions

Any Claim For Failure To Make Capital Contribution Belongs Solely To The LLC

Where the Operating Agreement of an LLC allows the company to demand additional capital contributions, a claim related to a member’s failure to make a contribution belongs solely to the company.  Bennett, et al. v. Bennett, et al., 2019 NCBC 45 (J. Conrad).  As a result, the individual members of an LLC had no standing to assert a breach of contract claim for the failure of another member to make his required capital contribution. 

Plaintiff Bert Bennett (“Bert”) is a member of Bennett Linville Farms, LLC (“Company”), along with several siblings who are defendants in the action (“Siblings”).  Bert filed suit against the Siblings contending they had mismanaged the Company.  The Siblings and the Company filed a counterclaim against Bert alleging breach of contract for his failure to make  certain capital calls when demanded by the Company.  Bert filed a motion to dismiss, contending the Siblings lacked standing to assert the breach of contract claim. 

The Business Court agreed, finding that, because the Company’s Operating Agreement permitted the Company to demand members make a capital contribution, Bert’s failure to make the required contribution constituted an injury to the Company and not an injury distinct to the Siblings.  While the Company could maintain the breach of contract claim against Bert, the Siblings lacked standing.  Their breach of contract claim against Bert was therefore dismissed. 

As a result of this decision, any business whose member fails to make a capital contribution when so required should remember that the company is the proper party to bring the breach of contract claim.  Moreover, any member seeking to assert such a claim on behalf of the company might need to first satisfy the requisite demand before bringing any derivative action

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