Tracy Barkalow, TSB Holdings, LLC, and Big Ten Property Management LLC, Appellees/Cross-Appellants v. Bryan Clark and Jeffrey Clark, Joseph Clark

                                No. 19–1790

              Submitted April 14, 2021—Filed May 14, 2021









      Appeal from the Iowa District Court for Johnson County, Paul D.

Miller, Judge.

      Two members of a limited liability company appeal an order

judicially dissolving the LLC, while a third member cross-appeals the

dismissal of his claims alleging oppression and breach of fiduciary duty.


      Mansfield, J., delivered the opinion of the court, in which all

participating justices joined. Oxley, J., took no part in the consideration

or decision of the case.

      Kevin J. Caster (argued) and Laurie L. Dawley of Shuttleworth &
Ingersoll, P.L.C., Coralville, for appellants/cross-appellees.

      William W. Graham and Wesley T. Graham (argued) of Duncan

Green, P.C., Des Moines, for appellees/cross-appellants.

      John E. Beasley (argued) and William N. Toomey of Phelan Tucker

Law LLP, Iowa City, for appellee/cross-appellee.


      Hawkeye fans attending football games at Kinnick Stadium may

sometimes wonder, “Who owns those houses along Melrose Avenue near

the stadium? They must be pretty valuable.” Some of them, it turns out,

belong   to   the   limited   liability   company    involved   in   this   case.

Unfortunately, the members in this LLC seem to have spent more time

squabbling than enjoying the fruits of their wise investment. Claims and

counterclaims led to a trial in the Johnson County District Court. After

the trial, the district court entered an order resolving all claims and
decreeing dissolution of the LLC.

      The case now comes to us on appeal. For the most part, we conclude

that the district court properly adjudicated the parties’ rights. However,

we determine that the court erred in ordering dissolution of the LLC. The

court failed to give itself credit for having resolved the major controversies

in the LLC. The LLC can continue to operate profitably, without deadlock,

and in accordance with its certificate of organization and its operating

agreement. Dissolution is not needed because it is “reasonably practicable

to carry on the company’s activities in conformity with the certificate of

organization and the operating agreement.”          Iowa Code § 489.701(d)(2)

(2017). For these reasons, we affirm the judgment of the district court,

except to the extent it ordered judicial dissolution and, as part of

dissolution, reclassification of member capital contributions as debt. On

this point, we reverse the district court.

      I. Facts and Procedural History.

      This case concerns an LLC named Outside Properties. Founded in

2009 by three brothers and a brother-in-law, the LLC came to own seven
rental properties, several of them quite near to the University of Iowa

football stadium.

      A. Formation of the LLC (2009).              Tracy Barkalow has been

involved in real estate since leaving school. He is the sole owner of two

companies: Big Ten Property Management, a property management

company, and TSB Holdings, which owns apartment buildings.

      In August 2009, Barkalow had the opportunity to purchase a rental

property on Melrose Avenue in Iowa City, but he lacked the required cash.

He asked Bryan Clark to lend it to him. Bryan was married to the sister

of Barkalow’s wife, so Barkalow knew him socially and they had a good

relationship. Barkalow also knew Bryan’s brother Jeff, who was married
to another sister of Barkalow’s and Bryan’s spouses. Bryan and Jeff had

supported Barkalow’s borrowing in the past by cosigning loans for him.1

      After holding discussions, Barkalow, Bryan, Jeff, and a third Clark

brother (Joe) decided to form an LLC to acquire the Melrose Avenue

property. The LLC became known as Outside Properties. The plan was

for each of the four to put in $37,500 to cover the $150,000 down payment

on the property. Because an initial $14,000 installment payment was also

required, the total capital contribution from each member came to

$41,000. Barkalow didn’t have the funds for his share, so the Clarks

loaned it to him on a verbal agreement.

      According to the certificate of organization, the purpose of Outside

Properties was primarily “to invest in real estate holdings.” Under the

heading “Additional Liability of Members,” the certificate of organization

stated, “[N]o additional capital contributions will be required.”            The

certificate also stated that the members (or managers elected by them)

would conduct the business of the company and that “[t]he return of

      1Because     this case involves three Clark brothers, we shall refer to them
individually by their first names.

capital and the distribution of profits shall be determined from the

company’s books.”

      Each of the four members also received a management certificate

which vested the member with a 25% ownership interest but also said,

      The stated capital contribution and proportionate equity
      interest is subject to change and is reflected in the books and
      records of the company that are prepared and kept in
      accordance with the Certificate of Organization and all
      Operating Agreements as may be in force from time to time.

      The operating agreement generally provided for each member to

have a single vote on management issues.         However, it contained a

“demand” rule, under which any member could demand that “voting on a

particular issue shall be in proportion to the capital contributions of each

member to the company, as adjusted from time to time to reflect any

additional contributions or withdraw[al]s.” The quorum was also based on

“a majority of the equity interests, as determined by the capital

contribution of each member as reflected on the books of the company.”

The operating agreement required unanimous agreement for the

distribution of profits.

      B. Expansion of the LLC (2010–11).              Over time, Outside

Properties acquired six other rental properties in Iowa City. Most of the
properties were located near Kinnick Stadium.         To cover the down

payments, the Clarks loaned money to Outside Properties.         Either the

seller, a bank, or the Clarks financed the remaining balance. Thus, in

2010, Outside Properties acquired three properties from Ellis Shultz in

2010 for a total of $1.2 million, with $1,080,000 financed by Shultz. The

loan provided for a balloon payment due to seller on December 1, 2015.

      The four members performed different roles in the LLC. Barkalow
provided the day-to-day management of the seven rental properties, which

together encompassed eleven rental units. Bryan performed maintenance.

Jeff did some remodeling. Joe was more of an investor. The Clarks were

responsible   for   arranging   financing   because   Barkalow’s   financial

resources were limited during much of this time. As Barkalow put it, “It

was kind of a team effort up to a point on how to get things done.”

      Barkalow, Bryan, and Jeff and their respective sister–spouses also

socialized together during the 2009 through 2013 time period. They took

vacations together. Joe was less involved in this social circle.

      In 2010, the members agreed to amend the operating agreement for
estate tax planning purposes.     Under this amendment, two classes of

interests were created. The interests of Barkalow, Bryan, Jeff, and Joe

were recognized as Class A voting interests. However, each was given the

ability to transfer units to family members who would then become

nonvoting Class B members.

      After this amendment took effect, Bryan, Jeff, and Joe transferred

Class A units to their respective children. This reduced each of the Clark

brothers’ interests in Outside Properties to 11%, while providing each set

of children with a 14% (nonvoting) interest.

      C. Disagreements Among Members (2013–15).               In 2013, the

relationship between Barkalow, on the one hand, and Bryan and Jeff, on

the other, began to deteriorate. Barkalow claimed he had always had an

oral agreement to buy the entire company at a fee to be set by the Clarks,

which the brothers denied. Bryan and Jeff were tired of having their funds

tied up in various loans to Barkalow that he used to sustain his other

property investments. Also, Barkalow began to question the validity of the

Clark loans to Outside Properties, taking the position, “no note, no
mortgage, no payment.”      In 2014, Outside Properties stopped making

payments on the Clark loans.2 Barkalow also unilaterally halted efforts by

the LLC to obtain bank financing to replace the Clark loans. Furthermore,

without approval of the other members, Barkalow arranged for some

electronic payments totaling $8,000 to be made to Big Ten for management

fees.    Additionally, Barkalow had never paid for his initial capital

contribution in Outside Properties, and did not do so until September


        Joe avoided these disputes and tried to be a peacemaker between

his brothers and Barkalow. Yet, the dissension only mounted. Another
bone of contention was Barkalow’s assertion that each of the Clark

brothers had reduced his ultimate voting power to 11% by transferring

interests to his respective children.3

        D. The Disputed Capital Contributions (December 2015–July

2016). The Shultz balloon payment was due on December 1, 2015, and

Barkalow refused to cooperate in arranging outside financing to pay off

Shultz. Shultz was only willing to agree to a minimal extension of the due

date to December 9. Bryan, Jeff, and Joe did not want to go into default.

All four members met on December 7 and were unable to resolve their


        Accordingly, Bryan, Jeff, and             Joe agreed       to make capital

contributions of $333,956.62 each to the LLC in order to cover the balloon

payment and avoid default. Their action was communicated by email on

December 9 and ratified at a December 17 member meeting attended by

       2By then, loans from the Clarks had replaced all of the LLC’s financing except for

the Shultz loan.
       3Barkalow pursued this argument at trial and the district court ruled against him.

The district court found that under the “demand” vote provision in the operating
agreement, voting is in proportion to “capital contributions,” not units or interests.
Barkalow has not appealed this issue.

all four members. Barkalow was given the opportunity to participate in

the capital contribution and declined to do so.

      At the same time as Barkalow declined to contribute capital to

Outside Properties, he was expanding his TSB real estate portfolio. As

Barkalow later testified, “So you’re asking me to deprive myself of gaining

another company to benefit [Outside Properties], correct, I did not do that

at the time, correct.”

      On February 19, 2016, another member meeting was held. The

Clarks made an offer to Barkalow to buy out his interest in Outside
Properties for the undiscounted fair market value assuming a full 25%

share.   Barkalow declined that offer.      The discussion then turned

specifically to the Clark loans, which totaled approximately $950,000. A

proposal was made to obtain third-party financing of approximately $2

million to cover both the Clark loans and the December 2015 Clark capital

contributions, thereby restoring all parties to 25% each.         Barkalow

declined that proposal as well. Barkalow made it clear he intended to sue

Bryan and Jeff and was not interested in signing a global release.

      Next, the proposal was made to seek voluntary capital contributions

to pay off the Clark loans.      This proposal passed three-to-one over

Barkalow’s “no” vote. Barkalow was given the opportunity to participate

in the capital contributions, but he made it clear he did not intend to do


      Bryan and Jeff each made capital contributions in June 2016 to

cover their respective one-third of the Clark loans. Joe, however, objected

to Bryan’s and Jeff’s use of a certain Clark-affiliated entity as the source

of funds. Therefore, despite his earlier “yes” vote in February, he declined
to participate in funding the payoff of the Clark loans. Bryan and Jeff

together made up his share.

      E. Further Disagreements (September 2016–June 2017).              In

September 2016, Barkalow arranged for Outside Properties to pay

$117,617.70 in retroactive management fees to Big Ten, his solely-owned

management company. Barkalow also withdrew $27,585.75 for costs of a

class action settlement. Outside Properties, however, had not been a party

to that class action case. Barkalow maintained that the Clark brothers

were indirectly responsible for the settlement payment he had to make in

the class action because, allegedly, they had insisted he use a legally

invalid lease form as a condition of lending money to him.
      Relations among the members within the LLC continued to be

acrimonious. Barkalow objected to the dilution of his interest by the Clark

brothers’ capital contributions.   Bryan and Jeff objected to Barkalow’s

unapproved payments to himself.       Joe objected to having his interest

diluted by the second set of capital contributions. Joe tried to mediate,

favoring a plan that would restore everyone’s capital account to 25%.

      F. The Litigation in District Court (June 2017–August 2019).

On June 6, 2017, Barkalow, TSB, and Big Ten filed suit in the Johnson

County District Court against Bryan, Jeff, and Joe.      As subsequently

amended, his petition sought an order expelling them as members, an

order dissolving Outside Properties, an order appointing a receiver for the

LLC, and damages for breach of contract, breach of fiduciary duty,

“economic duress,” and civil conspiracy. Bryan, Jeff, and Joe answered.

Bryan and Jeff also filed a number of counterclaims.         To fend off a

receivership hearing, the parties ended up reaching an interim agreement

that Big Ten would provide ongoing management for $900 per month.

      A five-day nonjury trial took place from December 11 to 17, 2018.
In addition to the four principals, Jason Wagner, the accountant for

Outside Properties, testified. He attended only one member meeting, in

April 2015, and recalled “a lot of disagreement.” In general, he felt there

was considerable animosity between Barkalow and both Bryan and Jeff.

Wagner testified these disputes made it very difficult for him to do his job:

           Q. . . . And there was disputes over keeping those
      books; correct? A. Correct.

            Q. And there was disputes over who was to provide you
      necessary information so you could do the -- your firm could
      do the accounting for Outside Properties; correct? A. Correct.

           Q. There was disputes over who the tax partners
      should be; correct? A. Correct.

            Q. There were disputes         over   parties’   ownership
      interests; correct? A. Correct.

            Q. And when you have disputes over parties’ ownership
      interests, does it make it almost impossible to complete tax
      returns for the year? A. Very difficult, yes.


             Q. There’s obviously disputes -- correct? -- on how to
      treat cash infusions; correct? A. Correct.

           Q. There’s been disputes on who should sign the
      checks for the company; correct? A. Correct.

           Q. And, in fact, there’s been disputes on who should
      have possession of the company checkbook; correct?
      A. Correct.

            Q. There’s been disputes on who should sign tax
      returns; correct? A. Correct.

            Q. And with those disputes ongoing within the
      company -- right? -- the fact is it makes your job as the
      company accountant extremely difficult or nearly impossible
      to do properly, doesn’t it? A. Correct.

However, Wagner did confirm that he recorded Bryan’s, Jeff’s, and Joe’s

capital contributions as such on the LLC books.

      Joe’s trial testimony, like his actions prior to the lawsuit, tended to
forge a middle path between Barkalow, on the one hand, and Bryan and

Jeff, on the other. Joe testified that he favored dissolution of the LLC and

wanted all four of the original members restored to a 25% capital position.

      Barkalow also supported dissolution. Barkalow vigorously opposed

any recognition of the 2015 and 2016 capital contributions, which had

diluted his capital position to below 1% (.595%). Joe, for his part, strongly

took issue with his brothers’ 2016 capital contributions having the effect

of diluting his capital position to approximately 20%.

      There was no dispute, however, that Outside Properties was

profitable and continuing to make money. Its real estate holdings were
increasing in value. The LLC was estimated to be worth approximately $4

million at the time of trial. Even if the Clark capital contributions were

reclassified as debt, there would still be $2 million in returns of capital to

be distributed to the members in the event of a dissolution. The trial

testimony indicated that the members had contemplated a long-term

investment and that dissolution would lead to immediate adverse tax


      On August 8, 2019, the district court entered its findings of fact and

conclusions of law.     In a detailed thirty-eight page ruling, the court

generally rejected Barkalow’s trial contentions and adopted those of Bryan

and Jeff.   Thus, it found that both sets of capital contributions were

supported by a legitimate business purpose: the Shultz loan was in default

and no payments had been made on the Clark loans for nearly two years.

Barkalow, it noted, had been offered the opportunity to participate in both

sets of contributions and had declined. The court found there had been

no violation of the terms of the certificate of organization.      Additional

capital contributions could not be “required,” but the LLC documents
clearly contemplated the possibility of further capital contributions. The

2015 and 2016 capital contributions had occurred voluntarily, with due

approval by votes of the members and with all members invited to


      The court denied Barkalow’s claims for dissolution based on

majority oppression, noting that he had been offered a buyout of his

interest on the basis of 25% ownership and undiscounted fair market

value. See Baur v. Baur Farms, Inc., 

832 N.W.2d 663

, 676–77 (Iowa 2013)

(indicating a claim of oppression can arise when a minority shareholder in

a close corporation is not able to obtain a return on investment or to sell

their shares for an amount reasonably related to fair value). The court
added, “It is fair to say that the evidence clearly shows that Tracy was a

difficult partner.” The court also denied Barkalow’s claims for breach of

fiduciary duty, civil conspiracy, and breach of contract, specifically finding

that the buyout option he claimed to have was “too indefinite to form a

binding contract.” The court further rejected Barkalow’s claims that Bryan

and Jeff had required him to use a particular lease form in his separate

apartment rental operations.

      Additionally, the court found there had been an agreement from the

beginning that each member would provide services to Outside Properties

free of charge.   Pursuant to that understanding, Bryan and Jeff had

performed construction and remodeling work without reimbursement.

There had been no agreement that Barkalow would be paid for property

management services. With this finding in mind, the court determined

that Barkalow had wrongfully converted assets of the LLC when he

transferred a total of $125,617.70 to Big Ten for unapproved management

fees and $27,585.75 for an unrelated class action settlement. The court

ordered Barkalow and Big Ten to repay $153,203.45 plus interest at the
rate of 3.5% from September 15, 2016.

       Yet, in the final section of its ruling, the district court granted

Barkalow’s request to dissolve the LCC based on the impracticability of

continuing its business.           See Iowa Code § 489.701(1)(d)(2).            The court

concluded that it was

       not reasonably practicable to carry on the Company’s
       activities in conformity with the certificate of organization and
       operating agreement in light of the intensity, longevity and
       number of disputes and issues existing between Tracy, Bryan
       and Jeff which are fueled by their long time acrimonious,
       bitter, and toxic relationship.

On this point, the court took particular note of the testimony of Wagner,
Outside Properties’ accountant. In the course of ordering dissolution, the

court also used its “equitable powers to fashion a remedy that [it] believe[d]

[wa]s as fair as possible to all members.” Thus, it directed that the 2015

capital contributions by Bryan, Jeff, and Joe, and the 2016 capital

contributions by Bryan and Jeff, be recategorized as debt. This meant that

all four members would be returned to a 25% equity position.4

       G. This Appeal. Bryan and Jeff appealed, and Barkalow cross-

appealed. In their appeal, Bryan and Jeff argued that the district court

erred in ordering dissolution of Outside Properties, a viable and profitable

enterprise, given that the court’s ruling had resolved the members’

disputes. They also urged that even if dissolution was proper, the court

exceeded its statutory and equitable authority by transforming the

brothers’ capital contributions into debt.                   Barkalow’s cross-appeal

maintained that the district court should have ordered dissolution based

on oppression and awarded damages for breach of fiduciary duty.

       We retained the appeal.

       4In   this part of its ruling, the district court essentially adopted Joe’s litigation

        II. Standard of Review.

        Judicial dissolution is an equitable proceeding and our review is de

novo.     See 

Baur, 832 N.W.2d at 668

.      The parties have agreed that

Barkalow’s breach of fiduciary duty claim is also subject to de novo review,

and we accept that stipulation for purposes of this appeal. However, we

give weight to the district court’s factual findings for institutional and

pragmatic reasons.     See Struve v. Struve, 

930 N.W.2d 368

, 371 (Iowa


        III. Legal Analysis.
        A. Barkalow’s Oppression and Breach of Fiduciary Duty Claims.

Although Barkalow is not the original appellant, we will address his cross-

appeal first because it sets the stage for our ruling on Bryan and Jeff’s


        Iowa Code section 489.701(e)(2) authorizes dissolution of an LLC by

the court, on application by a member, when “those members in control of

the company . . . [h]ave acted or are acting in a manner that is oppressive

and was, is, or will be directly harmful to the applicant.” Barkalow argues

that the Clark brothers engaged in oppressive conduct that directly

harmed him when they diluted his ownership interest in Outside

Properties in 2015 and 2016.

        We have said that determining whether the conduct of controlling

directors and majority shareholders in a close corporation is oppressive

“must focus on whether the reasonable expectations of the minority

shareholder have been frustrated under the circumstances.” 

Baur, 832

N.W.2d at 674

. In Manere v. Collins, the Appellate Court of Connecticut

applied the reasonable expectations standard to a claim for dissolution of
an LLC based on oppression. 

241 A.3d 133

, 154 (Conn. App. Ct. 2020).

The court noted that Connecticut had adopted the Revised Uniform

Limited      Liability   Company     Act   (RULLCA),   and    “the    commentary

emphasizes that ‘[i]n many jurisdictions the concept [of oppression]

equates to or at least includes the frustration of the plaintiff’s reasonable

expectations.’ ”

Id. (alterations in original)

(quoting Rev. Unif. Ltd. Liab.

Co. Act § 701, cmt., (Unif. L. Comm’n 2006) (amended 2013), 6C U.L.A.

135) (2016)). Iowa, likewise, has adopted the RULLCA. See Iowa Code

§ 489.101.

        As    the   Manere   court    observed,   according   to     the   RULLCA

commentary, reasonable expectation factors include

        whether the expectation: (i) contradicts any term of the
        operating agreement or any reasonable implication of any
        term of that agreement; (ii) was central to the plaintiff’s
        decision to become a member of the limited liability
        company or for a substantial time has been centrally
        important in the member’s continuing membership; (iii) was
        known to other members, who expressly or impliedly
        acquiesced in it; (iv) is consistent with the reasonable
        expectations of all the members, including expectations
        pertaining to the plaintiff’s conduct; and (v) is otherwise
        reasonable under the circumstances.

Id. at 156–57

(quoting Rev. Unif. Ltd. Liab. Co. Act § 701, cmt., 6C U.L.A.


        We agree with the district court’s implicit determination that

Barkalow’s expectations were unreasonable, rather than reasonable. He
contributed no money to Outside Properties, not even the funds for his

original capital position.     He expected the Clark brothers to finance

everything. He blocked efforts to obtain outside financing. He chose to

pledge his own assets as collateral for an expansion of his personal real

estate holdings, not for the use or benefit of the LLC in which he was only

a 25% participant.
        We agree with the district court that Barkalow also misread the

LLC’s founding documents. Those documents are a major determinant of

a member’s reasonable expectations. The management certificate and the

operating agreement made clear that a member’s capital position was

subject to change. The provision in the certificate of organization that no

additional capital contributions “will be required” bore the heading

“Additional Liability of Members.” Thus, it meant that members could not

be assessed for additional contributions they did not want to make, but

there was no guarantee that a member’s relative ownership position would

remain constant if he elected not to make an additional contribution when

others did.
       The certificate of organization contemplated the acquisition of other

properties. The stated purpose was “to invest in real estate holdings.”

(Emphasis added.) So Barkalow should not have been surprised that the

original capital contributions needed to be supplemented. And, as the

district court noted, Barkalow refused to accept a buyout of his interest

for its undiscounted fair market value.              That was the very thing the

minority stockholder had been unable to obtain in Baur, and which

undergirded the oppression claim in that case. 

See 832 N.W.2d at 666


67, 676.

       Barkalow devoted considerable trial time attempting to prove that

Bryan and Jeff harbored a secret intent since 2013 to dilute his interest.

But he never offered a practical alternative to capital contributions for

settling the LLC’s outstanding debts to Shultz and the Clarks in late 2015

and early 2016.5 At most, therefore, Barkalow proved “[w]icked meaning

        5We note that Joe, like Barkalow, argued that each of the four members should

retain a 25% capital position. Yet, at the same time, Joe acknowledged that he voted for
capital contributions to pay off both loans and that Shultz needed to be repaid at the
beginning of December 2015 to protect the LLC from losing those properties. Further,
Joe’s primary objection to Bryan’s and Jeff’s June 2016 contributions to pay off the Clark
loans had to do with their source of funding, which was an internal Clark matter, not an
Outside Properties issue. Joe thus did not offer a practical alternative to capital
contributions, either.

in a lawful deed.” William Shakespeare, All’s Well That Ends Well, act 3,

sc. 7.

         Barkalow wanted the Clarks to maintain their outstanding funding

of Outside Properties without repayment. His byword was “no note, no

mortgage, no payment.” In short, Barkalow wanted something from the

Clarks that would function like a capital contribution without actually

being a capital contribution. That was not realistic. The district court

properly rejected Barkalow’s oppression claim and his related fiduciary

duty claim asserting the same misconduct.        We therefore affirm as to
Barkalow’s cross-appeal.

         B. Barkalow’s Claim for Dissolution Based on Impracticability.

We turn now to what we regard as the more difficult issues in the case—

those relating to Bryan and Jeff’s appeal. Iowa Code section 489.701(d)(2)

authorizes dissolution when “[i]t is not reasonably practicable to carry on

the company’s activities in conformity with the certificate of organization

and the operating agreement.”

         Bryan and Jeff argue that the district court confused past with

present. Implicitly, Bryan and Jeff concede that during 2015 and 2016,

Outside Properties was a troubled company.        But they argue that the

district court’s resolution of the capital contribution controversy and the

parties’ other claims has set a stable path for the future. Accordingly, they

believe the district court erred in finding that it was no longer reasonably

practicable to carry on Outside Properties’ activities in accordance with

the certificate of organization and operating agreement. In fact, Bryan and

Jeff note that the LLC has continued to operate and take in rental income

during the course of this litigation. Even Barkalow acknowledges it has
been a financial success.

      We have not yet had occasion to interpret Iowa Code section

489.701(d)(2).   But other jurisdictions have analyzed the question of

whether it is “not reasonably practicable to carry on” an LLC’s activities.

Typically, dissolution is ordered when there is actual, unbreakable

deadlock. See, e.g., Gagne v. Gagne, 

459 P.3d 686

, 695 (Colo. App. 2019)

(affirming judicial dissolution based on “a real and material deadlock”);

Saunders v. Firtel, 

978 A.2d 487

, 536–37 (Conn. 2009) (affirming

dissolution where each member owned 50% and they “have ceased to have

any business or personal relationship”); Haley v. Talcott, 

864 A.2d 86

, 94–
95, 98 (Del. Ch. 2004) (ordering dissolution where each member owned

50% of the LLC, “neither party assert[ed] that any reconfiguration ha[d]

occurred,” and “the evidence clearly support[ed] a finding of deadlock

between the parties about the business strategy and future of the LLC”);

Simmons Fam. Properties, LLLP v. Shelton, 

705 S.E.2d 258

, 261 (Ga. Ct.

App. 2010) (“[T]he members of DDE were effectively deadlocked over

several issues and . . . the situation appeared unlikely to change.”); In re

Cat Island Club, L.L.C., 

94 So. 3d 75

, 79–80 (La. Ct. App. 2012) (upholding

judicial dissolution where there were four remaining members of the LLC

divided two-to-two and the situation was at an impasse); Kirksey v.


754 N.W.2d 825

, 831 (S.D. 2008) (ordering judicial dissolution

where the LLC was deadlocked between each half of ownership and the

deadlock “ certainly impede[d] the continued function of the business in

conformity with its operating agreement”); 1 Hodge O’Neal & Robert B.

Thompson, O’Neal and Thompson’s Close Corporations and LLCs: Law and

Practice § 5:22, Westlaw (rev. 3d ed. Nov. 2020 Update) (“The most

recurring pattern where courts have found [the not reasonably practicable]
standard met has been where the parties are split, often 50/50, and there

is evidence of a breakdown in the relationship between the parties.”).

      In the absence of deadlock, courts have been reluctant to order

dissolution so long as it is possible to continue to operate the company in

accordance    with   its   certificate   of   organization   and   management

agreement. In other words, there has to be either a deadlock or a clear

inability to fulfill the contracted purposes of the LLC, usually but not

invariably for financial reasons. See, e.g., Venture Sales, LLC v. Perkins,

86 So. 3d 910

, 917 (Miss. 2012) (affirming judicial dissolution where the

LLC “has existed for more than ten years and has yet to achieve, or even

begin fulfilling, its stated purpose”); Mizrahi v. Cohen, 

961 N.Y.S.2d 538

541 (App. Div. 2013) (“Under the circumstances presented, it is not

reasonably practicable for the LLC to continue to operate, as continuing

the LLC is financially unfeasible.”).

      Thus, in several notable cases, courts have refused to order

dissolution based on member disputes. In Dysart v. Dragpipe Saloon, LLC,

the South Dakota Supreme Court decided a case involving an LLC with

four 25% owners that owned a bar and real estate. 

933 N.W.2d 483

, 484–

85 (S.D. 2019). Two of the members wanted to sell their interests but a

couple of proposed transactions faltered.

Id. at 485.

The two members

then filed for judicial dissolution.

Id. The trial court

ordered dissolution

on the grounds that the bar was unable to return the members’ original

capital contributions and that the parties were “at a standstill” on whether

to sell the property.

Id. at 485–86.

      The South Dakota Supreme Court reversed.

Id. at 484.

It observed,

“An involuntary judicial dissolution represents an exceptional level of

intervention into the otherwise private agreement of an LLC’s members.”

Id. at 486–87.

It concluded,

            The fact that the Appellees believe it to be a prudent
      time to sell Dragpipe’s real property and realize the gain from
      their investments does not mean Dragpipe is unable to
      continue to operate in accordance with its stated purposes.
      Nor do the historic losses or Dragpipe’s failure to return
      income distributions to its members render its operation
      impracticable. In more recent years, Dragpipe’s performance
      has improved and yielded profitable results, if not large cash
      returns, for its members. . . .

             . . . In the absence of an order directing judicial
      dissolution, Dragpipe will continue to operate more or less as
      it has since its inception. Even if, as the circuit court found,
      the principal means of making money for Dragpipe’s members
      will ultimately be through the sale of the real property, that
      does not mean that the members’ failure to reach a consensus
      about a proposed sale here is likely to frustrate Dragpipe’s
      economic purpose.

Id. at 487–88.

The court went on to note that under the terms of the

operating agreement, the two members could resign and receive the fair

market value of their interests.

Id. at 488.

In closing, the court noted that

“[t]he members are not effectively deadlocked and have multiple options

for resolving their disagreement about the sale of Dragpipe’s real estate.”

Id. Accordingly, it rejected

the “drastic remedy” of judicial dissolution.


The lesson of

Dragpipe is that LLC’s are ultimately member

contracts, and courts should not be rewriting contracts unless it is truly

necessary to do so.      While the operating agreement here (unlike in

Dragpipe) does not have a “put” that allows a member to sell out their

interest for fair market value, there is no indication in this record that
such a buyout would not be available. And in some ways, the present case

is a weaker one for judicial dissolution because the present allocation of

interests means there will be no tie votes.

      In Dunbar Group, LLC v. Tignor, the Virginia Supreme Court reversed

an order of judicial dissolution of a software company. 

593 S.E.2d 216


219–20 (Va. 2004). Disputes had arisen between the two 50–50 members.

Id. at 217.

One member committed a serious of wrongful acts, including
commingling LLC funds with his own funds; restricting the other member’s

access to the LLC’s premises, equipment, and the email system; and

preventing the other member from writing checks on the LLC’s account.

Id. at 218.

The trial court removed the misbehaving member as an active

member but then also ordered the LLC dissolved.

Id. On appeal, the

Virginia Supreme Court overturned the second half of this judgment,


             The record here, however, does not show that the
      chancellor evaluated the evidence in light of the fact that
      Tignor was being expelled as a member and manager of Xpert.
      Although Tignor’s actions in those capacities had created
      numerous problems in the operation of Xpert, his expulsion
      as a member changed his role from one of an active
      participant in the management of Xpert to the more passive
      role of an investor in the company. The record fails to show
      that after this change in the daily management of Xpert, it
      would not be reasonably practicable for Xpert to carry on its
      business pursuant to its operating authority.

Id. at 219–20.

Likewise, here, we believe the district court erred in failing

to consider the judicial dissolution claim in light of the other matters

previously resolved by its ruling—namely, the capital contribution

controversy and Barkalow’s claims that Bryan and Jeff had breached their

fiduciary duties to him.

      The New York Appellate Division refused to uphold the judicial

dissolution of an LLC in In re 1545 Ocean Avenue, LLC, 

893 N.Y.S.2d 590

592 (App. Div. 2010).       Although the two 50–50 members were at

loggerheads, the intended real estate project was “within weeks of

completion” and the operating agreement allowed unilateral action by one

of the two member–managers.

Id. at 593.

The court opined,

            After careful examination of the various factors
      considered in applying the “not reasonably practicable”
      standard, we hold that for dissolution of a limited liability
      company pursuant to LLCL 702, the petitioning member must
      establish, in the context of the terms of the operating
      agreement or articles of incorporation, that (1) the
      management of the entity is unable or unwilling to reasonably
       permit or promote the stated purpose of the entity to be
       realized or achieved, or (2) continuing the entity is financially

Id. at 597–98.

       Neither of the conditions for dissolution identified by the New York

court is present here. Outside Properties is fulfilling its intended purpose

of investing in real estate properties, and it is doing so profitably.

       In In re Arrow Investment Advisors, LLC, the influential Delaware

Chancery     Court    commented,       “Given    its   extreme    nature,    judicial

dissolution is a limited remedy that this court grants sparingly.” C.A.
No. 4091–VCS, 

2009 WL 1101682

, at *2 (Del. Ch. April 23, 2009). The

court added,

       [D]issolution is reserved for situations in which the LLC’s
       management has become so dysfunctional or its business
       purpose so thwarted that it is no longer practicable to operate
       the business, such as in the case of a voting deadlock or where
       the defined purpose of the entity has become impossible to

Id. Here, there is

no voting deadlock and the defined purpose of the entity

has not become impossible to fulfill—indeed, it is being fulfilled under an

interim management agreement during the course of this litigation. See

also In re Seneca Invests. LLC, 

970 A.2d 259

, 263–64 (Del. Ch. 2008)

(dismissing petition for judicial dissolution where no voting deadlock was

alleged even though the LLC was functioning only as a passive investment


       6A thoughtful note in the Drake Law Review argues for a restrained approach to
the related issue of member dissociation by judicial order under Iowa Code section
489.602(5)(c), which employs the same “not reasonably practicable” standard:
              Ultimately, a restrained interpretation of the “not reasonably
       practicable” language in Iowa Code section 489.602(5)(c) by Iowa courts
       advances “legislative deference to the parties’ contractual agreement to
       form and operate a limited liability company.” The Iowa General Assembly
       chose to adopt an LLC statute modeled on a uniform act, which itself
       emphasizes the overarching contractual nature of limited liability
       companies. Thus, adherence to a “robust application of freedom of

       In sum, we are not persuaded that judicial dissolution should have

been ordered. Dissolution under Iowa Code section 489.701(d)(2) is not a

wide-ranging mechanism for doing equity, but a drastic remedy to be

ordered when an LLC is truly in an unmovable logjam or cannot as a

practical matter carry on its contracted purpose. Neither circumstance is

present here. Because we reverse the district court’s decision to order

dissolution of Outside Properties, we also reverse its order recategorizing

the Clark capital contributions as debt that was part of the dissolution

       IV. Conclusion.

       For the foregoing reasons, we affirm the judgment of the district

court except for its ruling on count II of Barkalow’s amended petition.

There, we reverse the district court’s order directing dissolution of Outside

Properties and its recategorization of the Clark capital contributions. We

remand for further proceedings consistent with this opinion.


       All justices concur except Oxley, J., who takes no part.

       contract,” both the severe and discretionary nature of judicial expulsion,
       and the risk that feuding LLC members will race to the courthouse rather
       than attempt to reconcile differences, all counsel in favor of a general
       wariness towards judicial dissociation under the “not reasonably
       practicable” standard of Iowa Code section 489.602(5)(c).
Patrick Shanahan, “Goodbye and Good Luck: Member Dissociation by Judicial Order
Under Iowa’s Revised Uniform Liability Company Act,” 61 Drake L. Rev. 535, 587 (2013)
(footnotes omitted). We think those comments are also apt in the context of judicial

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