Residuary bequest does not transfer membership interest in LLC.

Admiral Dewey Monroe, Jr. and his wife Lou Ann Monroe created a limited liability company in which they each owned membership interests, with Lou Ann as the managing member of the LLC. The LLC operating agreement provided that (1) “no Member shall transfer his membership or ownership, or any portion or interest thereof, to any non-Member person, without the written consent of all other Members, except by death, intestacy, devise, or otherwise by operation of law” and (2) “any Member . . . may transfer all or any portion of the Member’s Interest at any time to . . . [o]ther Members [or] [t]he spouse, children or other descendants of any Member.”  

Dewey died and under his will gave his entire estate to his daughter, Janet. Janet asserted that under the will she was entitled to Dewey’s membership interest in the LLC, and putatively removed Lou Ann as the managing member and elected herself as the new managing member. Lou Ann objected, claiming that Janet was entitled only to Dewey’s right to share in the LLC’s profits and losses. Janet sued for declaratory judgment that she inherited Dewey’s full membership interest. The circuit court held that Janet was only entitled to Dewey’s share of the profits and losses and not a membership interest in the LLC. Janet appealed.  

On appeal, the Virginia Supreme Court affirmed the circuit court on the grounds that: (1) the Virginia Limited Liability Company Act expressly provides that an ownership interest in an LLC is divided into a control interest, which may not be unilaterally transferred, and a financial interest; (2) without becoming a member, an assignee of a financial interest in an LLC has no control interest; (3) Dewey did not have the authority under the Act to unilaterally convey his control interest in the LLC to Janet, and the terms of the operating agreement should not be so construed to grant that control; and (4) because Janet was not a member, she lacked the authority to remove the acting managing member and elect herself as managing member.