## Facts

- Omnibus Financial Group L.L.C. was a closely held LLC whose membership by mid-1997 was reduced to two equal members: John F. Valinote and Stephen R. Ballis.
- By 1999, Valinote stopped participating in management and sought an exit in early 2000.
- Ballis invoked a buy–sell clause allowing one member to name a price per percentage interest and the other to elect to buy or sell at that price.
- The operating agreement did not specify a valuation method for this voluntary buy–sell; a separate formula for death or resignation did not apply.
- Ballis set a negative price (−$1,581.29 per 1% interest), implying −$79,064.25 for Valinote’s 50% interest.
- Valinote elected to sell his 50% interest at the stated price, effectively offsetting an equal amount Omnibus owed him on a loan; no cash changed hands.
- Valinote surrendered his membership interest in March 2000, and Ballis became sole owner.
- In December 2000, Omnibus defaulted on a $200,000 bank loan that both Valinote and Ballis had personally guaranteed; Valinote paid $100,000 under his guarantee.
- Valinote demanded that Ballis indemnify him for the payment (and for possible future payments on another bank loan), and Ballis refused.

## Issues

1. Whether the LLC operating agreement’s buy–sell provision, requiring the buyer to assume the seller’s “obligations to the Company,” required Ballis to indemnify Valinote for amounts Valinote paid to a bank under Valinote’s personal guarantee.
2. Whether suretyship principles or other non-contract doctrines required Ballis to indemnify Valinote for payments made on Omnibus’s bank debt.

## Decision

- The Seventh Circuit affirmed the judgment for Ballis.
- The buy–sell provision’s requirement that the buyer assume the seller’s obligations “to the Company” covered only obligations owed to the LLC, not third-party debts or personal guarantees to a bank.
- Suretyship principles did not supply a right for a paying guarantor to obtain indemnity from a co-guarantor absent a specific agreement.
- Limited-liability principles barred imposing personal liability on an LLC member for entity debts without an explicit assumption of liability.

## Legal Principles

- Contract language requiring assumption of a selling member’s “obligations to the Company” is construed to address internal member–LLC obligations unless it clearly extends to third-party debts.
- A personal guarantee is a separate obligation of the guarantor to the creditor; internal agreements among members do not, without clear terms, create personal indemnity duties for co-guarantors.
- A guarantor who pays generally has reimbursement or subrogation rights against the principal obligor (the entity), not automatic indemnity rights against a co-guarantor.
- LLC members are not personally liable for the LLC’s debts absent veil-piercing or an express contractual undertaking to assume such liability.

## Conclusion

The court held that the operating agreement’s buy–sell clause shifted only obligations owed to the LLC and did not make the remaining member personally responsible for a former member’s payments on bank guarantees; neither suretyship law nor LLC doctrine supplied an implied indemnity right against the co-guarantor.


Valinote v. Ballis, 295 F.3d 666 (7th Cir. 2002)