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Abstract:
In July, 2006, the National Conference of Commissioners on Uniform State Laws approved Re-ULLCA - the Revised Uniform Limited Liability Company Act. The product of a three-year drafting process, heavily influenced by 13 advisors appointed by the ABA, the new Act brings major innovations to the law of limited liability companies. This article, written by the two co-reporters for the drafting committee: (i) explains why the Conference decided to draft a new LLC statute, reviews the process through which the Conference produced and approved the new Act, and describes the Act's basic architecture; (ii) highlights the Act's major innovations; and (iii) provides a roadmap through the Act's intricate and all-important provisions concerning the operating agreement.

The following specific topics are addressed: the operating agreement; the decision to deviate from RUPA and un-cabin fiduciary duty; returning good faith and fair dealing to the concept's contract law moorings; the question of an owner's legitimate self-interest; reformulating the duty of care; the question of the shelf LLC; statutory apparent authority (de-codifying apparent authority by position); statements of authority by position; templates for management structure; charging orders; a remedy for oppressive conduct; derivative claims and special litigation committees; organic transactions - mergers, conversions, and domestications; the decision to eschew the series LLC; and the lot of mere transferees.

limited liability company, LLC, operating agreement, uniform law, charging order, shelf, law reform, NCCUSL, apparent authority, closely held, oppression, derivative, special litigation committee

Abstract:
The shelf life on uniform entity acts seems to be decreasing. The original Uniform Partnership Act (UPA) lasted eight decades, and the original Uniform Limited Partnership Act (ULPA (1916)) lasted six. In contrast, the 1976 Revised Uniform Limited Partnership Act (RULPA (1976)) warranted major revisions after just nine years (RULPA (1985)), and only sixteen years later NCCUSL recommended to the states that they adopt ULPA (2001) to replace RULPA in toto. NCCUSL's Revised Uniform [General] Partnership Act - RUPA - was first approved in 1992 and went through five official versions in its first five years of existence. NCCUSL's Uniform Limited Liability Company Act (ULLCA) was substantially amended just one year after its initial adoption, is less than a decade old, and is already subject to a NCCUSL drafting project that will propose a second generation, replacement LLC act.

There are many explanations for the increasing pace of change, but with ULPA (2001) the principal explanation is simple: RUPA called into question the venerable linkage between the uniform limited partnership act and the uniform general partnership act, thereby cutting the ground out from under RULPA.

This article seeks to provide a user's guide to ULPA (2001), which is far longer and more complex than its immediate predecessor. The Introduction describes the genesis of ULPA (2001), and Part II explains briefly why states should adopt the new Act in place of RULPA. Part II describes the new Act's basic structure, identifies the various sources for the Act's provisions, explains how the Act's various articles relate to each other, and provides in tabular form an overview of the differences between the new Act and RULPA (1986). Part IV identifies eleven major areas of practical concern under the new Act, and for each of those areas: (i) compares the new Act's provisions in detail with the provisions of RULPA (and, where useful, with ULPA (1916)); and (ii) identifies salient issues (including some traps for the unwary and uninitiated) that warrant special attention from practitioners who will make use of the Act. Part V states a conclusion.

ULPA, RULPA, NCCUSL, Uniform Entity Acts

Abstract:
The hybrid nature of limited liability companies causes us to re-invent, or at least re-examine, many doctrinal wheels. This Article re-examines one of the most practical of those wheels - the distinction between direct and derivative claims in the context of a closely-held LLC.

Case law concerning the direct/derivative distinction is still overwhelmingly from the law of corporations, although LLC cases are now being reported with some frequency. LLC cases routinely analogize to, or borrow from, the corporate law. This Article encompasses that law, analyzes LLC developments, criticize the ALI approach to closely held corporations, and argues that courts should (i) avoid the special injury rule, (ii) embrace the direct harm approach, and (iii) engraft to the direct harm approach an exception applicable when those in control of a LLC harm the company with the purpose and effect of injuring a particular member.

The Article first demonstrates the relevance of corporate case law to the realm of LLCs and then establishes why the direct/derivative distinction matters practically. The discussion then switches to the more theoretical, elaborating the conceptual fundamentals for making the distinction between direct and derivative claims without regard to closely held character and then advancing a special rule for closely held entities.

The Article then considers a series of LLC-specific questions, including whether the pivotal role of the LLC operating agreement changes or at least confuses the direct/derivative analysis and whether the LLC's partnership heritage has liberated courts to find a new kind of direct injury.

limited liability company, direct, derivative, close corporation, closely held, partnership, oppression, diversity, dissolution, standing

Abstract:
Prepared as part of the author's work as co-reporter for the Revised Uniform Limited Liability Company Act, this essay argues against legislation that empowers private agreements to eliminate fiduciary duty within a business organization. The essay considers: (i) the venerable role of fiduciary duty within business organizations and the limited predictive powers of those urging radical reform; (ii) the absence of prescience in contract drafters; (iii) the strict construction function of fiduciary law; (iv) the inevitable and inappropriate pressure that elimination would put on the obligation of good faith and fair dealing; (v) the differences in remedy available for fiduciary claims as distinguished from contract claims; (vi) the difference between drafting law for Delaware and drafting a uniform act; and (vii) reasons that public corporation law is different from LLC law and why Delaware law should not dominate the latter context.

fiduciary, duty, Delaware, Cardozo, 'freedom of contract', eliminate, limit, restrict, limited liability company, LLC, Re-ULLCA, NCCUSL, uniform law, business, organization, entity

Abstract:
Agency relations are ubiquitous in the Harry Potter novels, and the study of Agency Law is almost as interesting and important as the study of Potions. This essay considers eight topics that arise from the overlap of Harry Potter and the law of agency:

• The Essence of Agency: Interfacing for the Principal
• Why the Labels Matter - Categories and Consequences
• Formation of an Agency Relationship - The Consent Requirement, House-Elves, and the Imperious Curse
• Ending the Agency Relationship - Potter-esque Variations on the Notion of Termination by Express Will
• The Agent's Duties to the Principal - Loyalty, Obedience, Good Conduct, House-Elves and Snape
• An Agent's Good Faith Struggles with the Duty of Loyalty
• Dumbledore - Agent or Principal and, if Agent, Agent for Whom?
• Servants of Evil?

The Potter novels are, among other things, a saga of the (so far) never-ending battle between the minions of Voldemort and the adherents of Dumbledore. Every Death Eater acts on behalf and under the control of Voldemort, and the Order of the Phoenix appears to act under Dumbledore's commands. Even Harry Potter is "Dumbledore's man through and through."

The Potter novels are thus replete with examples of agency "relationships in which one person, to one degree or another or respect or another, acts as a representative of or otherwise acts on behalf of another person." Restatement (Third) of Agency, § 1.01, comment c (2006) (describing the agency relationship). As a result, concepts from the law of agency can help explicate these novels, and the novels can in turn furnish appealing illustrations of agency law concepts.

Harry Potter, Voldemort, Dumbledore, Snape, agency, fiduciary, fiduciary duty, good conduct, authority, actual authority, apparent authority, control, enterprise liability, loyalty, termination, consent, Restatement

Abstract:
Led by Delaware, a bevy of states have inserted Contract is God provisions into their respective LLC statutes. Freedom has its risks, and a trio of recent cases illustrate that she or he who lives by the contractarian sword can get skewered by that sword - especially if he or she is a transactional lawyer. This essay first provides some context by recalling a Delaware limited partnership case from 1998 and a Delaware LLC case from 2000 and then recounts and analyzes the trio of recent cases.

limited liability company, limited partnership, contractarian, fiduciary duty, Delaware, eliminate restrict limit contract

Abstract:
Last year, an article published in this magazine focused on the charging order as "the Exclusive Remedy Against a Partnership Interest" and announced the "[s]hocking [r]evelation" that ULPA (2001)--the new Uniform Limited Partnership Act--undermines the "exclusive remedy" limitation on charging orders. The authors asserted categorically that, "from an asset protection perspective, the 2001 Act is considerably less protective of a partner's partnership interest than the 1976 Act." Elizabeth M. Schurig & Amy P. Jetel, A Charging Order Is the Exclusive Remedy Against a Partnership Interest: Fact or Fiction?, Prob. & Prop. 57, 58 (Nov./Dec. 2003).

As this article will show, the rumors of disaster are unfounded, and ULPA (2001)'s provisions on charging orders are nothing to be feared. To support this calming assertion, this article will explain: (1) the history and purpose of the charging order remedy, (2) the consequences of charging order foreclosure (including the possibility of redemption), and, most importantly from a practical perspective, (3) the current state of the law governing charging orders, foreclosure, and limited partnerships. Like the November/December article, this article leaves aside the separate issues that arise when secured creditors exercise rights and remedies under UCC Article 9.

charging order, limited liability company, LLC, partnership, corporation, taxation

Abstract:
Is an LLC more like a corporation or a partnership?

In the early days of the modern U.S. limited liability company, lawyers and judges often had to examine that question. Although the question has different answers in different legal contexts, for most contexts, it is now settled.

Nowhere is the question more emphatically settled than in the context of federal diversity jurisdiction, whose purpose is to protect out-of-state parties from potential prejudice in local courts. In Belleville Catering Co. v. Champaign Marketplace, LLC, 350 F.3d 691, 692 (7th Cir. 2003), a case involving an Illinois corporation and a Delaware LLC, the Seventh Circuit bluntly chastised the lawyers for both parties for a jurisdictional statement that was transparently incomplete and incorrect and for an insouciance toward the requirements of federal jurisdiction [which] has caused a waste of time and money.

Vacating the district court judgment (which had followed a jury trial) and remanding with instructions to dismiss ... for want of subject-matter jurisdiction, the court also admonished the lawyers that:

The costs of a doomed foray into federal court should fall on the lawyers who failed to do their homework, not on the hapless clients.... The best way for counsel to make the litigants whole is to perform, without additional fees, any further services that are necessary to bring this suit to a conclusion in state court, or via settlement. That way the clients will pay just once for the litigation. This is intended not as a sanction, but simply to ensure that clients need not pay for lawyers' time that has been wasted for reasons beyond the clients' control.

Diversity, jurisdiction, limited liability company, LLC, federal

Abstract:
When the law conceptualizes the legal form that houses a closely held business, does it matter whether the law envisages that form as an entity separate from, rather than an aggregate of, the several owners of the business? At one time, this question was at the conceptual core of the law of general partnerships, but the Revised Uniform Partnership Act supposedly put the issue to rest. Moreover, the closely held corporation is emphatically an entity, as is the predominant form of unincorporated organization - the limited liability company. Today, the entity-aggregate question might seem a mere relic of a discarded paradigm.

It turns out, however, that the question has not become extinct; it has merely gone underground. Manifestations of the entity-aggregate question persist across a range of legal regimes (e.g., bankruptcy, federal employment law rights for owner-managers, fiduciary duties of managers, taxation, transfer restrictions on ownership interests), and the answer to the question varies depending both on the area of doctrine and the type of legal form involved. With regard to general partnerships, close corporations, and LLCs alike, the deep structure on this question remains somewhat schizoid.

This essay will explore some of the modern manifestations of the entity-aggregate question in closely held businesses and, in particular will:

- introduce the entity-aggregate concept, briefly review its pedigree in the U.S. law of closely held entities, and note the legal developments that seemed to signal the end of the entity-aggregate dichotomy;

- survey the current situation and probe beneath the surface to demonstrate that the distinction has not ceased to exist but has rather gone underground, becoming, if anything, more complex, confused and confusing than ever before;

- offer several reasons - both abstract and practical - why scholars and practicing attorneys should care about the dichotomy and the confusion; and

- tentatively suggest criteria for rationalizing this area of law.

Aggregate, Closely Held Business, Corporation, Entity, LLC, Partnership

Abstract:
In any context the distinction between direct and derivative claims carries significant consequences. The procedural requirements are different, as are the available remedies. In addition, the remedies benefit different parties. A successful derivative claim typically enriches the corporate treasury, while a successful direct claim typically puts money directly in the hands of the shareholder claimant. Moreover, derivative defendants can shelter behind several powerful bulwarks-including special litigation committees and the business judgment rule-that are unavailable to direct defendants.

Under the 'internal affairs' doctrine, Minnesota law governs the direct/derivative issue for all Minnesota corporations. Current Minnesota law provides inadequate guidance when the corporation is closely held. The inadequacy has two main sources. First, the Minnesota rule for distinguishing between direct and derivative claims in general contains a serious conceptual flaw which confuses analysis regardless of the number of shareholders. Second, Minnesota close corporation cases rarely address the direct/derivative issue, and those that do, do so in a cursory fashion. Minnesota law, therefore, lacks a comprehensive, coherent approach for making the direct/derivative distinction in a Minnesota close corporation.

This article seeks to improve matters by (1) examining and proposing a remedy for the fundamental conceptual flaw and (2) providing a conceptual framework for making the fine distinctions necessary in the close corporation context. As background, Part II describes direct and derivative claims in their pure forms. Part III describes the special problems faced by derivative plaintiffs as contrasted with direct plaintiffs and thereby shows why the direct/derivative distinction matters. Part IV explains why it is important to draw that distinction early in any litigation. Part V examines and critiques Minnesota's current approach to the direct/derivative analysis. Part VI proposes a special rule for making the distinction in the context of closely held corporations, and Part VII wraps up the analysis with some important details concerning procedure and remedies.

Closely Held Corporations, Direct, Derivative, Minnesota

Abstract:
A recent, unreported opinion of the Minnesota Court of Appeals has opened up a major hole in the liability shield of professional firms. Continental Casualty Co. v Duckson-Carlson, LLC, misapplies the doctrine of equitable estoppel, misinterprets the Minnesota Professional Firms Act, ignores the fundamental distinction between an entity and its owners, and sub silentio turns the law of third party beneficiaries on its head. From a practical perspective, the decision should trouble every lawyer, doctor, accountant, and other "319B" professional in the state and, moreover, has serious implications for individuals covered by D&O insurance.

liability insurance, malpractice, attorney lawyer, professional firm, third party beneficiary, separate legal person

Abstract:
Two partners form an enterprise. One (the K partner) supplies the assets used by the enterprise. The other partner (the L partner) supplies only labor. When the enterprise ends, the partners disagree about how to divide the property used in the partnership business. The K partner wants his or her property returned. The L partner wants his or her share of the business assets. If some of the property has appreciated while in partnership use, the dispute will be especially complicated. How do the partners divide the value of the property as originally brought into the business? Who benefits from the previously unrealized appreciation?

This Article explores the property allocation issues that arise when the members of a K and L partnership lack a dispositive agreement. In such circumstances the default rules should provide clear guidance, and the Uniform Partnership Act (U.P.A.) seeks to do so. Unfortunately, many of the decided cases misapply or distort the U.P.A. As a body, the decided cases point in three different and mutually exclusive directions. Individually, they often ignore basic principles of partnership law.

This Article takes those basic principles as its lodestar and seeks to determine how the law of partnership should analyze a K and L dispute over property disposition. Part II sets the context for the analysis, introducing partnership law as the applicable law. Part III explains the four basic partnership law concepts necessary to a proper analysis of the Christmas tree paradigm. Part IV describes the three different and mutually exclusive ways that courts have applied partnership concepts to evaluate the courts' incompatible approaches.

The analysis presented in Part IV suggests outcomes that some readers may find unfair. Part V confronts the problem of unfairness and tries to determine why courts find K and L property disputes so troublesome. Part V begins by highlighting some of the unbalanced results produced by strict application of partnership law principles. Part V then explores the rationale behind those principles and suggests that courts sometimes disregard the letter of the law in order to serve that underlying, and largely hidden, rationale. Part V next identifies the philosophical and practical problems that arise when courts disregard the clear letter of the law in favor of hidden rationales and instead twist a generally applicable statute in order to avoid reaching a particular unpalatable result. Part V concludes by offering an approach to the Christmas tree problem that substantially alleviates the unfairness problem while remaining faithful to the law. Part VI exemplifies the suggested approach, using concepts developed in previous Parts to resolve correctly the actual Christmas tree case.

Abstract:
The word "rejoinder" connotes a reply to criticism, and that connotation sets the scope of this short essay. This Rejoinder will leave aside (albeit with thanks) the articles that explain the background to, the context for, or particular aspects of the Uniform Limited Partnership Act (2001). Instead, this Rejoinder will focus on the three articles that purport to find a blemish (Professor Bishop), a general theoretical deficiency (Mr. Callison and Dean Vestal), or a fundamental misconception (Professor Ribstein) in the new Act.

Uniform Limited Partnership Act

Abstract:
In Federal Court, the only member of a SMLLC may not represent the SMLLC unless that owner is also a lawyer. To do so exposes the SMLLC to dismissal as well as the owner to the unauthorized practice of law. The article explores the implications of these rules to small closely held LLCs.