Tricky Transfer of an LLC Interest

200 High St Boston MA

The Suffolk Superior Court recently issued a decision on a motion for judgment on the pleadings in Furman v. Gossels.[1]  The Plaintiffs, four sisters, brought suit against their aunt and uncle, Elaine Gossels and Jerome Furman, alleging various claims regarding the sisters’ claimed one-third interest in a family company.

The sisters’ father, Walter Furman, had formed 200 High LLC with his siblings Elaine and Jerome.  The company owns the commercial building at 200 High Street in Boston.  In 2008, Walter and his siblings executed an operating agreement for the LLC and in 2010, Walter passed away leaving his estate (including his interest in the LLC) in trust.  His wife disclaimed her interest in his share of the LLC and purported to transfer her rights to another trust for the benefit of their four daughters (the “Children’s Trust”) and named Rebecca, one of the daughters, was trustee of the Children’s Trust.

200 High LLC’s Operating Agreement provided for transfer of membership interest only to certain “permissible persons.”  A trust was a “permissible person” only if a member acted as the trust’s trustee.  The agreement also provided for a buyback trigger (and a price calculation) upon transfer of an interest to an “Impermissible Person.”  Two months after Walter’s death, Elaine and Jerome sent a notice to Rebecca compelling the sale of Walter’s interest back to them, alleging that Walter’s interest had been passed to an impermissible person because Rebecca was not a a member of the LLC.  Rebecca rejected the notice and brought suit.

The court declared that Walter’s interest had properly transferred to the Children’s Trust by virtue of Rebecca’s equitable ownership of the LLC, as trustee of the Children’s Trust, making her a member of the LLC and rendering the trust a permissible person.  The court rejected Elaine and Jerome’s argument that Walter’s wife rescinded her disclaimer of LLC ownership by accepting a $9,000 check from the LLC to use for Walter’s funeral expenses.

With the validation of their interest in the LLC, the court permitted Walter’s daughters to keep their inheritance, but only time will tell if the family LLC will survive this dispute.

[1] Furman v. Gossels, 2012 WL 3139883 (Mass.Super) (Westlaw subscription required).

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