Condo v. Conners

266 P.3d 1110, 2011 WL 6318980
CourtSupreme Court of Colorado
DecidedDecember 19, 2011
DocketNo. 10SC703
StatusPublished
Cited by8 cases

This text of 266 P.3d 1110 (Condo v. Conners) is published on Counsel Stack Legal Research, covering Supreme Court of Colorado primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Condo v. Conners, 266 P.3d 1110, 2011 WL 6318980 (Colo. 2011).

Opinions

Chief Justice BENDER

delivered the Opinion of the Court.

I. Introduction

In this appeal, we review the court of appeals' determination that Thomas Banner's assignment of his voting rights and right to receive distributions to Elizabeth Condo ("the Banner assignment") was ineffective because it violated the anti-assignment clause in the Hut at Avon, LLC's ("the Hut Group") operating agreement. Condo v. Conners, 271 P.3d 524, 2010 WL 2105926 (Colo.App.2010).

Condo brought a tort action against the other members of the Hut Group, Thomas Conners and George Roberts, and the attorney who allegedly assisted them in purchasing Banner's membership interest in the Hut Group, Wendell Porterfield (collectively, "the defendants"). Condo claimed that the defendants' purchase of Banner's membership interest tortiously interfered with Banner's prior assignment to her and that this interference amounted to civil conspiracy because it was intended to destroy the value of her assignment.

[1112]*1112The trial court ruled that the Banner assignment was void as against public policy because Banner made the assignment without the consent of the other members of the Hut Group and thus violated the duty of good faith in corporate dealings. Because both of Condo's tort claims against the defendants turn on the validity of the Banner assignment, the trial court granted summary judgment for the defendants.

On appeal, the court of appeals affirmed, but did so on the grounds that the Banner assignment violated the express terms of the Hut Group's operating agreement ("the Operating Agreement"), which states that the other members must approve of any transfer of any membership interest. Id. at --- The court of appeals further reasoned that, under the terms of the Operating Agreement and consistent with Colorado jurisprudence respecting anti-assignment provisions, Banner had no authority to make the unapproved assignment and thus the Banner assignment had no legal effect. Id. Because the Banner assignment was void, the court of appeals agreed with the trial court that it could not support Condo's tort claims against the defendants. Id.

Now, making two alternative arguments, Condo contends that the court of appeals erred in affirming summary judgment because, despite the absence of the other members' consent, the Banner assignment was nonetheless legally effective.1 First, Condo asserts that the assignment was valid because, under a narrow interpretation of the Operating Agreement's anti-assignment clause, the anti-assignment clause only applies to the transfer of membership duties. Therefore, Condo argues, the transfer of membership rights, as here, can validly occur without the written consent of all members. Second, and in the alternative, Condo argues that even if the transfer violated the anti-assignment clause, it was still legally effective because the anti-assignment clause merely functions as a contractual duty placed on each member not to transfer his interest without the approval of the other members. Condo contends that in the absence of a term that expressly states that an assignment is "void" or "invalid" (the so-called "magic words"), the parties to a contract retain the power to wrongfully assign their interests. Thus, Condo asserts, Banner had the power to voluntarily breach this duty and make the nonconforming assignment. While this interpretation opens Banner to a potential suit for breach of contract by the other members of the Hut Group, Condo contends that it also gives legal effect to the Banner assignment despite the fact that it violated the anti-assignment clause.

After considering the express terms of the Operating Agreement, Colorado law relating to LLCs, and the Restatement (Second) of Contracts, we are not persuaded. First, Condo's argument that the Banner assignment did not violate the Operating Agreement's anti-assignment clause because it sought to transfer only a membership right and not a membership duty is contradicted by both the Banner assignment itself, which purports to assign both a membership right and a membership duty, and the plain meaning of the anti-assignment clause, which extends to the unapproved transfer of all membership interests, including the right to distributions.

Second, we disagree that the anti-assignment clause functions as a mere contractual duty not to assign without the approval of all members, despite the fact that the Operating Agreement does not contain "magic words" proclaiming any nonconforming assignment "void" or "invalid." Instead, in light of our previous case law and in consideration of the rationale adopted in the Restatement (See-ond) of Contracts, we look to the present context involving a closely-held LLC and the plain meaning of the Operating Agreement. We conclude that the anti-assignment clause rendered Banner powerless to make this nonconforming transfer. Thus, we affirm the court of appeals' holding that the Banner assignment had no legal effect and that summary judgment was appropriate because [1113]*1113Condo's tort claims necessarily fail in the absence of a valid, preexisting contract.

Accordingly, we remand this case to the court of appeals to return this matter to the trial court to enter judgment consistent with this opinion.

II. Background

This appeal arises out of Thomas Banner's attempted assignment of a portion of his membership interest in the Hut Group to his former wife, Elizabeth Condo. Banner was a member of the Hut Group with a one-third ownership interest. As part of Condo and Banner's divorce settlement, Banner agreed to assign Condo his right to receive monetary distributions from the Hut Group. Additionally, Banner and Condo agreed that Banner would vote against all issues that required unanimous consent, unless Condo directed him to do otherwise, effectively assigning Condo his voting interest in the Hut Group.

Before executing this assignment to Condo, however, Banner first sought approval from the other members of the Hut Group, Thomas Conners and George Roberts. Article 10.1 of the Hut Group's operating agreement expressly provides that "a Member shall not sell, assign, pledge or otherwise transfer any portion of its interest in [the Hut Group]" "without the prior written approval of all of the Members." Additionally, Article 10.2 states: "If at any time any Member proposes to sell, assign or otherwise dispose of all or any part of its interest in the [LLC], such Member ... shall first obtain written approval of all of the Members to such transfer pursuant to [Article] 10.1 ...."

Accordingly, Banner drafted an instrument assigning his right to distributions and effectively transferring his voting right to Condo and sought the approval of Conners and Roberts. This first draft of the assignment explicitly recognized the LLC's anti-assignment clause (Article 10.1) and provided that the instrument was "subject to and conditional upon the Company's delivery of its consent hereto" and that "[ilf such consent is not obtained ... this assignment shall be of no further foree and effect." Conners and Roberts refused to consent to the assignment.

In response, Banner and Condo drafted and executed a second instrument (the "Banner assignment"). This second draft similarly assigned Banner's right to receive distributions and effectively transferred Banner's voting interest to Condo.2

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Cite This Page — Counsel Stack

Bluebook (online)
266 P.3d 1110, 2011 WL 6318980, Counsel Stack Legal Research, https://law.counselstack.com/opinion/condo-v-conners-colo-2011.