Settlement agreement did not terminate LLC membership

The North Carolina Business Court held that a co-owner remained a voting member of a limited liability company because prior actions terminated only her employment, not her ownership interest. As a result, the court upheld the validity of a 2023 written consent reinstating her as an employee while allowing the parties’ principal fiduciary duty and corporate governance claims to proceed to trial.

The dispute arose from the deterioration of the business relationship among the co-owners of Wellspring Nurse Source, LLC and a prior settlement agreement intended to resolve ownership issues. The plaintiffs argued that the co-owner’s reinstatement as an employee was invalid, that she should return compensation received after her reinstatement, and that she breached the settlement agreement by failing to transfer her ownership interest.

The Business Court rejected those claims. It concluded that earlier company actions removed the co-owner only as an employee and did not terminate her membership in the LLC. Because she remained a voting member, the court held that the 2023 written consent approving her reinstatement as an employee was valid. The court also found no breach of the settlement agreement because it required concurrent performance by both sides, and the company never tendered payment or demonstrated it was ready and able to perform its obligations. Without a proper tender or evidence that the co-owner refused to transfer her interest, the contract and specific performance claims failed as a matter of law.

The court, however, denied summary judgment on several fiduciary duty and civil conspiracy claims. It found genuine issues of material fact concerning whether the defendants acted in the company’s best interests by failing to complete the settlement, rehiring the co-owner, managing accounts receivable, and causing the company to pay their litigation expenses.

The court also ruled that the plaintiff had never been an employee of the company, preventing enforcement of an operating agreement provision allowing a discounted buyout following termination of employment. It awarded the plaintiff $258,000 on one breach of contract claim while leaving other ownership, fiduciary duty, and damages issues for trial.

The 57-page opinion is Vincelette v. Court, Lawyers Weekly No. 020-064-26.