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No provision of the UCC gives you the right to inspect the books of a private LLC because you are a 5% interest holder. The UCC relates to negotiable instruments and your 5% interest is not such. You have the right to minority rights in the LLC. You have the right to sue in court for an accounting.
Thanks. Re right to sue for an accounting: In our pre-suit attempts to review the books, we have repeatedly been refused by the GPs/aka Class A Members, who are the also Managers. Although the Operating Agreement refers to standard accounting practices and our rights to review, the partnership attorneys respond,"Show us the precedents." There are very few suits for breach of contract on the books, as small shareholders cannot generally afford to sue their GPs in any case, especially when they claim legal indemnification.
However, we have a signed confession of wrongful taking of excess management fees in three other LLCs controlled by the same Manager, a year following the formation of the California LLC which is the subject of this inquiry.
You have the right to sue for an accounting under the express terms of your agreement and also under the common law. You do not need to prove your case to them prior to filing suit, and precedents are for appeals. Get a more agressive lawyer. The fact that they are fighting you so hard indicates to me that this deal is dirty from top to bottom. If 5% of the deal is enough to try and cheat you out of it, this deal is filthy dirty.
We know, because the Managers told us in the Annual Meeting, that we paid the interest on their acquisition of a one-third interest in the project by their family trust. When we asked for it to be repaid, the Manager refused, based on the fact that our original General Manager had recinded his 3% of gross "construction management fee," of which none of the Class B members were aware of, which was additional to the already top of the scale 6% management fee in the OA.
Had the market not crashed when the project was only one-third sold out, had there been the expected 10 million profit and the 675k in the bank account to cover this extra management fee, it would NOT have been rescinded. However, the Managers' conflation of the rescinded management fee with the $200,000+ interest paid by the Class B members on the Managers Trusts acquisition of real property is, to our minds, irregular.
Our Managers withheld $100,000 of the Class B Members money, which was to have been distributed, because several of us wouldn't sign a global release waiving all rights to due diligence. The Release was not written by or sent by the partnership attorneys, nor required by the OA.
Those who didn't sign the Release not only had part of their distribution withheld for the Managers legal indemnity, but the rescinded Management fee was reinstated as well. Since "disproportionate distributions" are a direct violation of the OA, after legal wrangling between our attorney and our partnerships attorneys, the portion withheld for the recinded rescission of the management fee was paid out.
The legal issues which we are researching, in addition to the regulations of the UCC, are:
1. the rights of our Managers to claim legal indemnity in internal disputes. Due to the fact that one of us has virtually the same email address as one of the two Managers, she was sent by mistake the email between the two Managers following receipt of the two expensive letters from our attorney demanding fair distribution and our grounds to access the books:
The email was short. It said, " Let's legally torment them and their lawyer to the max, it won't cost us anything."
To date, the Class B members have been charged 20k of the withheld 100k, to pay the invoices of the partnership's attorneys to legally torment the Class B members who wouldn't sign the Release. We are looking for any cases to do with Conflict of Interest which might be pertinent here. Do you know if without filing suit we can get a court order to see the retainer contract, since we are paying the bills? If the retainer agreement is between the Managers personally, then we should not be paying their bills. If the retainer is between our LLC and the lawyer, or between the Managers, acting on behalf of the LLC, then we may
have the right to see this contract.
The LLC attorneys have allowing the Managers to willfully breach the contract, the Operating Agreement, and are only acting for the Managers interest. We ask about the Conflict of Interest because the original attorney in SF who wrote the OA back in 2006 refused to set up a subsequent LLC without all Members signing a Waiver of Conflict of Interest.
Any referral to info on conflict of interest in partnerships, legal indemnity in internal disputes, the rights of limited partners to review the financial records of the partnership which I was hoping to find in the UCC, but which may exist elsewhere, would be highly appreciated.
What you are asking is far beyond the scope of this website to address. You have about six legitimate issues but you should be discussing them with your litigation counsel. I do not think you are being served by your current attorney.
Thanks for being candid.
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