## Facts

- Synectic Ventures I, II, and III (the funds) were Oregon LLC investment funds managed by Craig Berkman.
- Berkman also served as treasurer and chairman of EVI Corporation (EVI), the borrower, and the funds’ operating agreements permitted Berkman to have that outside role.
- The funds’ operating agreements gave the managing member broad power to manage the funds’ business and affairs and to act on the funds’ behalf without member consent.
- The operating agreements also expressly allowed third parties to rely on the managing member’s authority to bind the funds.
- In 2003, the funds loaned EVI more than $3 million under a note and loan agreement secured by a security interest in substantially all of EVI’s assets.
- The loan was due December 31, 2004; if unpaid, the funds could pursue collection and foreclosure remedies.
- The loan agreement also gave EVI a conversion option: if EVI obtained at least $1 million in additional investments before the repayment deadline, EVI could convert the debt to equity.
- After some investors raised concerns about Berkman’s management, the investors and Berkman entered letter agreements requiring disclosures and reporting, while acknowledging Berkman continued to have authority to act for the funds.
- In September 2004, Berkman signed an amendment to the note and loan agreement on behalf of the funds extending the repayment deadline to December 31, 2005 (and thus extending the time to satisfy the conversion condition).
- EVI did not repay the loan and did not obtain $1 million in new investment by December 31, 2004.
- In 2005, the funds learned of the amendment and told EVI they had not authorized it and did not consider it binding.
- By December 31, 2005, another Berkman-managed fund invested $1 million in EVI, and EVI treated the debt as converted to equity under the amended agreement.
- The funds sued EVI (and related entities) to collect on the note and foreclose, contending the amendment was not binding due to lack of authority and Berkman’s conflict of interest; the trial court granted summary judgment for defendants, and the funds appealed.

## Issues

1. Whether, under the funds’ operating agreements and Oregon LLC law, Berkman had authority to execute the September 2004 amendment extending EVI’s repayment deadline and the related conversion period.
2. Whether Berkman’s conflict of interest, and EVI’s awareness of Berkman’s dual roles, prevented the amendment from binding the funds.
3. Whether the investors’ letter agreements and internal disputes created a genuine issue of material fact about Berkman’s authority (or EVI’s ability to rely on it) that would preclude summary judgment.

## Decision

- The Court of Appeals affirmed the trial court’s summary judgment for defendants.
- The court concluded the operating agreements granted Berkman broad authority to act for the funds, including entering into or modifying financing arrangements.
- Because the operating agreements expressly permitted third parties to rely on Berkman’s authority, EVI was entitled to treat the amendment as binding on the funds.
- The investors’ letter agreements imposed internal reporting obligations but did not revoke or limit Berkman’s authority as to third parties.
- Berkman’s conflict of interest did not, on this summary-judgment record, negate his authority to bind the funds or create a triable issue that would defeat enforcement of the amendment against EVI.
- As a result, the amended maturity date controlled, and the funds’ claims premised on default at the original December 31, 2004 deadline failed.

## Legal Principles

- In a manager-managed LLC, a manager’s authority to bind the LLC in dealings with third parties is determined primarily by the operating agreement and applicable LLC statutes.
- When an operating agreement grants a manager broad management power and states that third parties may rely on the manager’s authority, a counterparty generally need not investigate internal member disputes or informal internal limits.
- Internal agreements between members and a manager (such as reporting or notice letters) do not limit the manager’s authority as to third parties unless they actually change the operating agreement or otherwise give enforceable notice that authority has been restricted.
- A manager’s conflict of interest may support internal claims (for example, breach of duty), but it does not automatically void transactions with third parties where the manager had actual authority and the third party was entitled to rely on that authority.
- On summary judgment, once the governing documents show broad authority and permitted reliance, the party challenging a manager-signed amendment must produce evidence creating a genuine dispute of material fact on lack of authority or a legally effective limitation known to the counterparty.

## Conclusion

The Oregon Court of Appeals held that the funds were bound by their managing member’s September 2004 amendment extending EVI’s loan maturity date, because the funds’ operating agreements gave the manager broad authority and expressly allowed third parties to rely on that authority; the manager’s conflict of interest and the investors’ internal letter agreements did not create a triable basis to invalidate the amendment, so summary judgment for EVI was affirmed.


Synectic Ventures I, LLC v. EVI Corp., 251 P.3d 216 (2011)