## Facts

- Paula Gagne and her son, Richard Gagne, were the only members of four Colorado LLCs formed to buy and hold apartment complexes that Richard would manage.
- The LLCs were created as a family business arrangement: Paula would provide capital to acquire the properties, and Richard would provide management services so he could earn a living and support his family.
- The operating agreements provided for 50/50 ownership interests, but gave Paula 51% of the voting rights under the operative versions in effect during the dispute.
- The operating agreements contemplated cash contributions from Paula and in-kind contributions from Richard, and they recognized that Richard’s services increased the equity in the real estate.
- The relationship between Paula and Richard deteriorated severely. Richard claimed that Paula shut him out of management and used LLC funds to reimburse herself for lavish personal expenses.
- Richard filed suit seeking (1) judicial dissolution under the Colorado LLC statute allowing dissolution when it is not reasonably practicable to carry on the business in conformity with the operating agreement, and (2) declaratory relief regarding the parties’ rights and obligations.
- After the first trial, both sides appealed. In an earlier decision, *Gagne v. Gagne* (“Gagne I”), the Colorado Court of Appeals held the trial court applied the wrong standard for dissolution and remanded with a seven-factor framework to determine whether continued operation was reasonably practicable.
- On remand, the district court applied the *Gagne I* factors and found dissolution warranted. It found the LLCs’ purpose had failed because Paula refused to give Richard a meaningful management role, found serious member misconduct by Paula (including personal reimbursements from LLC funds), and found the parties were deadlocked with no workable contractual solution.
- The district court entered orders directing how dissolution would occur, including an in-kind distribution of assets and financial adjustments tied to Paula’s improper use of LLC funds.
- Paula appealed, challenging the dissolution decision and the method and calculations used to wind up and distribute the LLC assets.

## Issues

1. Did the district court err in ordering judicial dissolution because it was not reasonably practicable to carry on the LLCs’ business in conformity with the operating agreements?
2. Did the district court err or abuse its discretion in selecting and structuring the dissolution remedy, including ordering an in-kind distribution of LLC assets?
3. Did the district court err in calculating the parties’ respective interests and in making financial adjustments based on Paula’s use of LLC funds for personal expenses?
4. Is Richard entitled to an award of reasonable attorney fees incurred on appeal?

## Decision

- The Colorado Court of Appeals affirmed the district court’s judgment ordering dissolution, holding the court applied the controlling *Gagne I* framework and its findings supported the conclusion that continued operation under the operating agreements was not reasonably practicable.
- The court affirmed the dissolution remedy, holding the district court acted within its discretion in ordering an in-kind distribution rather than requiring liquidation and a cash distribution.
- The court affirmed the district court’s calculations and adjustments, concluding Paula had not shown reversible error in how the court accounted for member contributions and corrected for Paula’s improper reimbursements from LLC funds.
- The court remanded only for the district court to determine Richard’s reasonable attorney fees incurred on appeal.

## Legal Principles

- Under Colorado’s LLC statute, a court may dissolve an LLC in a proceeding by or for a member or manager if it is not reasonably practicable to carry on the business in conformity with the operating agreement.
- The “not reasonably practicable” inquiry is guided by the nonexclusive *Gagne I* factors, including: (1) inability or unwillingness to pursue the LLC’s purpose; (2) member or manager misconduct; (3) inability to work together to pursue the purpose; (4) deadlock; (5) whether the operating agreement provides a deadlock solution; (6) whether, given the finances, there remains a company to operate; and (7) whether continuation is financially feasible.
- Evidence that the operating agreements depend on both members’ ongoing participation, combined with severe conflict, exclusion from management, and deadlock, supports a finding that continued operation in conformity with the agreements is not reasonably practicable.
- Trial courts have broad discretion in winding up and distributing LLC assets after dissolution, including the authority to order an in-kind distribution when it is a workable way to divide the property.
- A trial court may make equitable financial adjustments in the dissolution process to account for proven misuse of LLC funds and to prevent one member from retaining improper benefits.
- When authorized by contract or law and the appellee prevails, an appellate court may remand for a determination of reasonable attorney fees incurred on appeal.

## Conclusion

In *Gagne v. Gagne*, the Colorado Court of Appeals affirmed the judicial dissolution of four family real-estate LLCs after the district court, applying the seven-factor test from *Gagne I*, found the LLCs could not be operated as the operating agreements contemplated due to Paula’s exclusion of Richard from management, serious misconduct involving personal reimbursements from company funds, and an unresolvable deadlock; the court also upheld an in-kind distribution and related financial adjustments, remanding only to set Richard’s reasonable appellate attorney fees.


Gagne v. Gagne, 459 P.3d 686 (2019)