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The Partnerships and Limited Liability Companies Committee Issues An E-Bulletin Analyzing A California Court of Appeals Opinion — Statutory California Partner Buy-Out Rights Do Not Apply to Foreign LLCs and LPs

In Boschetti v. Pacific Bay Investments Inc., 2019 Cal. App. LEXIS 193, filed on March 7, 2019, the California Court of Appeal, First Appellate District held that Boschetti, a partner of a California general partnership, could not enforce California statutory buy-out provisions upon dissolution of foreign limited partnerships and limited liability companies owned by the general partnership.

Boschetti had brought a complaint against his partner, Sparks, and others for breach of fiduciary duty and other claims. Boschetti and Sparks had invested in real estate together through LLCs and LPs formed in Hawaii, Delaware, and Texas. In response to Boschetti’s complaint, Sparks sought judicial dissolution of the foreign LPs and LLCs. Sparks then took the position that he and Boschetti were partners in a California general partnership that owned the foreign LLCs and LPs and sought judicial dissolution of the general partnership. Boschetti continued to seek to buy out Sparks’ interest in the foreign LLCs and LPs, but the trial court held that it could not order the buyout mandated under California statute for foreign LLCs and LPs.

The court upheld the trial court’s determination because the internal affairs doctrine requires that the state of organization be applied to a dissolution, and none of the other states’ laws had a statutory buy-out provision similar to that provided by California law. The court rejected Boschetti’s arguments that California law should apply because California had a more significant relationship with the foreign LPs and LLCs than the states of organization (the properties owed by these entities were located outside California) and that California has a public interest in avoiding the dissolution of entities. The court also looked at the buy-out provisions in California’s statutes (Cal. Corp. Code Sections 17707.03 and 15908.02) and determined that they only apply to domestic LLCs and LPs.

This e-bulletin was prepared by Rachelle Cohen at Kehr, Schiff & Crane, LLP (rcohen@kscllp.com) for the Partnerships and LLCs Committee.

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