## Facts

- Four sisters inherited ranch land in South Dakota and Wyoming in equal shares after their mother’s death.
- The sisters formed a limited liability company (LLC) to hold the land; each contributed her one-quarter interest and received a 25% membership interest. One sister served as manager.
- The LLC was formed to help preserve an estate-tax special-use valuation, keep the land in the family, and keep ownership with the sisters rather than spouses.
- To maintain the special-use valuation, the land was required to remain in family ownership for a period of time and be used for agricultural purposes.
- The LLC leased the ranch for livestock grazing to three sisters under a multi-year lease with renewal provisions; the LLC remained responsible for taxes and insurance.
- Family relations deteriorated, including disputes about access to operational information and whether portions of the land were subleased with proper notice.
- One sister later sold her livestock interest to two others, leaving those two as the primary tenants under the lease.
- Two sisters obtained an appraisal valuing the land far higher than prior valuations and sought to terminate the lease, dissolve the LLC, and partition the property.
- The operating agreement required a majority vote for major actions; votes on lease termination and dissolution split 2–2, creating ongoing deadlock.

## Issues

1. Whether the LLC should be judicially dissolved because it was not reasonably practicable to carry on the business in conformity with the operating agreement.
2. Whether member deadlock and a breakdown in relations unreasonably frustrated the LLC’s economic purpose, warranting dissolution.

## Decision

- The South Dakota Supreme Court reversed summary judgment for the members opposing dissolution.
- The court ordered judicial dissolution and remanded for entry of a dissolution order and further proceedings.
- The court held that it was not reasonably practicable for the LLC to continue operating and that the LLC’s economic purpose was being unreasonably frustrated.

## Legal Principles

- Judicial dissolution is warranted when it is not reasonably practicable to carry on the LLC’s business in conformity with the operating agreement.
- In closely held, member-managed LLCs, persistent voting deadlock on major decisions can satisfy the “not reasonably practicable” standard.
- A complete breakdown in member relations and communication, combined with an operating structure that provides no effective internal mechanism to resolve deadlock, supports dissolution.
- Courts may consider whether ongoing paralysis unreasonably frustrates the LLC’s economic purposes as reflected in its formation objectives and operating agreement.

## Conclusion

The court ordered dissolution of the family LLC because equal voting power, persistent deadlock on major actions, and a collapsed working relationship made continued operation in conformity with the operating agreement not reasonably practicable and unreasonably frustrated the LLC’s economic purpose.


Kirksey v. Grohmann, 754 N.W.2d 825 (S.D. 2008)