## Facts

- D & B Countryside, L.L.C. (D&B) was a Virginia LLC formed to develop a shopping center; Joel T. Broyhill and Robert and Marilyn DeLuca initially each held 50% membership interests.
- The operating agreement designated the DeLucas as joint managing members, required unanimous member consent to appoint a manager, and did not state a procedure for manager removal.
- The operating agreement treated a member’s bankruptcy as a dissolution event unless the remaining members elected to continue the business and appoint a new manager.
- In July 1994, Northern Virginia Realty, Inc. (NVRI) contributed $600,000 in exchange for a 15% membership interest, reducing Broyhill and the DeLucas to 42.5% each; an amended operating agreement reflecting this change was prepared, but Broyhill did not sign it.
- Shortly after NVRI’s contribution, the DeLucas caused most of the contributed funds to be transferred to other entities and later encumbered D&B’s property with a $3,000,000 deed of trust without Broyhill’s knowledge or consent.
- On April 14, 1995, Broyhill and NVRI executed a written instrument purporting to remove the DeLucas as managers and elect Broyhill as manager.
- On May 5, 1995, the DeLucas filed individual Chapter 11 cases; on May 9, 1995, they caused D&B to file Chapter 11.
- After the DeLucas’ filings, Broyhill and NVRI executed a written election to continue D&B’s business and to confirm Broyhill as manager.
- Broyhill and NVRI sought declaratory relief determining NVRI’s membership status and who had authority to manage D&B as debtor-in-possession.

## Issues

1. Whether NVRI was validly admitted as a D&B member with voting rights despite the absence of Broyhill’s signature on the amended operating agreement.
2. Whether members could remove and replace the DeLucas as managers when the operating agreement was silent on removal.
3. Whether, after the DeLucas’ bankruptcy filings, the remaining members could continue the LLC and confirm a new manager under the operating agreement, thereby controlling the debtor-in-possession.

## Decision

- The court declared NVRI a valid D&B member with a 15% interest and voting rights.
- The court declared that Broyhill and NVRI validly removed the DeLucas as managers and validly elected Broyhill as manager.
- The court declared that the post-bankruptcy continuation election was effective under the operating agreement and that Broyhill had authority to control D&B as debtor-in-possession.
- Declaratory relief was granted in favor of Broyhill (and NVRI), rejecting the DeLucas’ challenge to the governance actions.

## Legal Principles

- Membership in an LLC may be established by the parties’ agreement and conduct, including capital contribution and consistent treatment as a member, even if formal execution of an amendment is incomplete.
- Where an operating agreement grants members the power to appoint managers but is silent on removal, a corresponding member power to remove managers may be implied absent an express contractual limitation.
- An operating agreement provision making a member’s bankruptcy a dissolution event may be enforced alongside a contractual mechanism permitting remaining members to elect continuation and appoint or confirm management.
- In a Chapter 11 case for an LLC, authority to act for the debtor-in-possession follows valid state-law and operating-agreement determinations of who holds managerial control.

## Conclusion

The court determined that NVRI was a valid LLC member and that the members had authority to remove the incumbent managers and install Broyhill, including through a continuation election after the DeLucas’ bankruptcy filings, leaving Broyhill in control of the debtor-in-possession.


Broyhill v. DeLuca, 194 B.R. 65 (Bankr. E.D. Va. 1996)