## Facts

- Kenneth Carroll, Patrick Cupo, and Byron James formed IE Test, LLC, an engineering consulting business in New Jersey.
- The members signed a preliminary writing anticipating a formal operating agreement, but never finalized one.
- Carroll sought compensation terms that would effectively reimburse losses he claimed from a prior failed venture involving Carroll and Cupo; he acknowledged IE Test had no legal obligation to repay those losses.
- Cupo and James opposed Carroll’s proposed compensation provisions and other operating-agreement terms.
- IE Test continued operating successfully and revenues increased, but the members disputed whether the lack of a finalized operating agreement impaired business needs (including obtaining credit).
- Cupo and James pursued a strategy to remove Carroll and the LLC filed suit seeking judicial expulsion (dissociation) under N.J.S.A. 42:2B-24(b)(3)(c), alleging it was “not reasonably practicable” to carry on the business with Carroll as a member.
- Under the LLC statute’s default rules (absent an operating agreement), management decisions could be made by majority vote.

## Issues

1. Whether a member’s refusal to agree to an operating agreement and disputed compensation proposals, on this record, made it “not reasonably practicable” to carry on the business with that member under N.J.S.A. 42:2B-24(b)(3)(c).
2. What standard and considerations govern judicial expulsion under the “not reasonably practicable” language in the LLC statute and its successor provision.

## Decision

- The New Jersey Supreme Court reversed the Appellate Division’s affirmance of partial summary judgment expelling Carroll and remanded.
- The Court held that disagreement over operating-agreement terms does not, by itself, justify expulsion of a dissenting member.
- The Court rejected the lower courts’ reliance on speculative “predictive” future harm where the record showed the company continued to function and grow.
- The Court concluded the statutory standard was not satisfied as a matter of law on the summary-judgment record and that factual disputes remained about practicability.

## Legal Principles

- Judicial expulsion of an LLC member under the “not reasonably practicable” standard is an extraordinary remedy requiring a showing that the LLC cannot reasonably carry on its business with the member.
- Inability to agree on a written operating agreement is not automatically grounds for expulsion when the LLC can operate under statutory default rules, including majority-rule management.
- Courts should focus on actual practicability of operating the business, not speculative future impacts.
- Relevant, non-exclusive considerations include: whether the LLC can operate consistent with governing documents (if any), whether the member’s conduct materially impairs the business or financial stability, whether management is deadlocked beyond available governance mechanisms, and whether the LLC can continue pursuing its business purpose.

## Conclusion

The court held that internal disagreement—particularly over operating-agreement and compensation terms—does not alone meet the statutory “not reasonably practicable” threshold for expelling an LLC member, and it required a fact-sensitive inquiry focused on the company’s ability to function under governing documents or statutory default rules.


IE Test, LLC v. Carroll, 226 N.J. 166, 140 A.3d 1268 (N.J. 2016)