## Facts

- An LLC was formed to own investment real estate and purchased a warehouse in Sheboygan, Wisconsin; financing was arranged and guaranteed by one member.
- Two additional members later joined under a written member agreement allocating 50% voting rights to the original member and 50% voting rights “collectively” to the two new members.
- The warehouse later became the LLC’s principal remaining asset.
- The original member and one of the brothers formed a new LLC in which the original member held 60% and the brother held 40%; the other brother had no interest.
- The original member executed a warranty deed transferring the warehouse from the original LLC to the new LLC without consulting the excluded brother and without an open-market process.
- After the transfer, the excluded brother was sent a check as payment for his purported interest; he did not cash it.
- The excluded brother sued, alleging the transfer violated Wisconsin LLC statutes governing member duties and voting and was effectuated through a conflicted vote designed to eliminate his interest.

## Issues

1. Whether the members favoring the transfer held the voting majority required under the member agreement and Wisconsin LLC law to authorize the conveyance.
2. Whether a material conflict of interest under Wisconsin LLC statutes automatically precluded the interested members from voting on the transfer.
3. What standard governs judicial review of an interested-member vote approving an LLC transaction.

## Decision

- The Wisconsin Supreme Court reversed the court of appeals and remanded to the circuit court.
- It held that the member agreement’s “collective” 50% allocation to the two brothers was properly construed as 25% voting rights each, giving the original member (50%) and one brother (25%) a 75% voting majority.
- It held that a material conflict of interest did not automatically bar those members from voting; they could vote if they dealt fairly with the LLC and the other member.
- It remanded because the circuit court had invalidated the transfer based on vote disqualification and had not made findings on whether the interested members willfully failed to deal fairly.
- It further concluded the court of appeals exceeded its role by making its own factual determinations about transaction fairness instead of requiring trial-court factfinding under the correct standard.

## Legal Principles

- Ambiguities in an LLC member agreement regarding shared or “collective” voting allocations may be construed to divide that block equally among the identified members absent contrary indication.
- Under Wisconsin LLC law, a member’s material conflict of interest does not create a per se voting disqualification for an interested transaction.
- Interested members must exercise voting rights consistently with the obligation of good faith and fair dealing; the operative inquiry is whether they willfully failed to deal fairly with the LLC or the other members.
- Appellate courts generally may not resolve disputed factual questions about fairness; the trial court must make the required factual findings when applying the governing standard.

## Conclusion

The court held that the interested members had sufficient voting power to approve the warehouse transfer and were not automatically disqualified from voting despite their conflict; because the trial court did not determine whether they willfully failed to deal fairly, the case was remanded for factual findings under the fair-dealing standard.


Gottsacker v. Monnier, 281 Wis. 2d 361, 697 N.W.2d 436 (Wis. 2005)