2009 California Corporations Code - Section 17600-17613 :: Chapter 13. Dissenting Members' Rights

CORPORATIONS CODE
SECTION 17600-17613

17600.  (a) For purposes of this chapter, "reorganization" refers to
any of the following:
   (1) A conversion pursuant to Chapter 11.5 (commencing with Section
17540.1).
   (2) A merger pursuant to Chapter 12 (commencing with Section
17550).
   (3) The acquisition by one limited liability company in exchange,
in whole or in part, for its membership interests (or the membership
interests or equity securities of a limited liability company or
other business entity that is in control of the acquiring limited
liability company), of membership interests or equity securities of
another limited liability company or other business entity if,
immediately after the acquisition, the acquiring limited liability
company has control of the other limited liability company or other
business entity.
   (4) The acquisition by one limited liability company in exchange
in whole or in part for its membership interests (or the membership
interests or equity securities of a limited liability company or
other business entity that is in control of the acquiring limited
liability company) or for its debt securities (or debt securities of
a limited liability company or other business entity that is in
control of the acquiring limited liability company) that are not
adequately secured and that have a maturity date in excess of five
years after the consummation of the acquisition, or both, of all or
substantially all of the assets of another limited liability company
or other business entity.
   (b) For purposes of this chapter, "control" means the possession,
direct or indirect, of the power to direct or cause the direction of
the management and policies of a limited liability company or other
business entity.

17601.  (a) If the approval of outstanding membership interests is
required for a limited liability company to participate in a
reorganization, pursuant to the operating agreement of the limited
liability company, or otherwise, then each member of the limited
liability company holding those membership interests may, by
complying with this chapter, require the limited liability company to
purchase for cash, at its fair market value, the interest owned by
the member in the limited liability company, if the interest is a
dissenting interest as defined in subdivision (b). The fair market
value shall be determined as of the day before the first announcement
of the terms of the proposed reorganization, excluding any
appreciation or depreciation in consequence of the proposed
reorganization unless exclusion would be inequitable.
   (b) As used in this chapter, "dissenting interest" means a
membership interest that satisfies all of the following conditions:
   (1) The membership interest was outstanding on the date for the
determination of members entitled to vote on the reorganization.
   (2) (A) The membership interest was not voted in favor of the
reorganization, or (B) the membership interest was voted against the
reorganization; provided, however, that subparagraph (A) rather than
subparagraph (B) of this paragraph applies in any event where the
approval for the proposed reorganization is sought by written consent
rather than at a meeting.
   (3) That the member has demanded that the limited liability
company purchase at its fair market value in accordance with Section
17602.
   (4) That the member submits for endorsement, if applicable, in
accordance with Section 17603.
   (c) As used in this chapter, "dissenting member" means the
recordholder of a dissenting interest, and includes an assignee of
record of that interest.

17602.  (a) If members have a right under Section 17601, subject to
compliance with paragraphs (4) and (5) of subdivision (b) thereof, to
require the limited liability company to purchase their membership
interests for cash, that limited liability company shall mail to each
member a notice of the approval of the reorganization by the
requisite vote or consent of the members. This notice shall be mailed
within 10 days after the date of the approval, accompanied by a copy
of this section and Sections 17601, 17603, 17604, and 17605, a
statement of the price determined by the limited liability company to
represent the fair market value of its outstanding interests, a
statement of the method of valuation employed, the latest available
balance sheet of the limited liability company, the latest available
income statement of the limited liability company, and a brief
description of the procedure to be followed if the member desires to
exercise the member's rights under those sections. The statement of
price constitutes an offer by the limited liability company to
purchase at the price stated any dissenting interests as defined in
subdivision (b) of Section 17601, unless they lose their status as
dissenting interests under Section 17610.
   (b) Any member who has a right to require the limited liability
company to purchase the member's interest for cash under Section
17601, subject to compliance with paragraphs (4) and (5) of
subdivision (b) thereof, and who desires the limited liability
company to purchase that interest, shall make written demand upon the
limited liability company for the purchase of the interest and the
payment to the member in cash of its fair market value. The demand is
not effective for any purpose unless it is received by the limited
liability company or any transfer agent thereof within 30 days after
the date on which notice of the approval of the reorganization by the
requisite vote or consent of the members is mailed by the limited
liability company to the members.
   (c) The demand shall state the number or amount of the dissenting
member's interest in the limited liability company and shall contain
a statement of what that member claims to be the fair market value of
that interest on the day before the announcement of the proposed
reorganization. The statement of fair market value constitutes an
offer by the dissenting member to sell the interest at that price.

17603.  Within 30 days after the date on which notice of the
approval of the outstanding interests of the limited liability
company is mailed to the dissenting member pursuant to subdivision
(a) of Section 17602, the member shall submit to the limited
liability company at its principal office or at the office of any
transfer agent thereof, the following:
   (a) If the interest is evidenced by a certificate, the dissenting
member's certificate representing the interest that the member
demands that the limited liability company purchase, to be stamped or
endorsed with a statement that the interest is a dissenting
interest, or to be exchanged for certificates of appropriate
denominations so stamped or endorsed.
   (b) If the interest is not evidenced by a certificate, written
notice of the number or amount of interest that the dissenting member
demands that the limited liability company purchase. Upon subsequent
transfers of the dissenting interest on the books of the limited
liability company, the new certificates or other written statement
issued therefor shall bear a like statement, together with the name
of the original holder of the dissenting interest.

17604.  (a) If the limited liability company and the dissenting
member agree that the member's interest is a dissenting interest and
agree upon the price to be paid for the dissenting interest, the
dissenting member is entitled to the agreed price with interest
thereon at the legal rate on judgments from the date of consummation
of the reorganization. All agreements fixing the fair market value of
any dissenting member's interest as between the limited liability
company and the member shall be in writing and filed in the records
of the limited liability company.
   (b) Subject to the provisions of Section 17607, payment of the
fair market value for a dissenting interest shall be made within 30
days after the amount thereof has been agreed upon or within 30 days
after any statutory or contractual conditions to the reorganization
are satisfied, whichever is later. In the case of dissenting
interests evidenced by certificates of interest, payment shall be
subject to surrender of the certificates of interest, unless provided
otherwise by agreement.

17605.  (a) If the limited liability company denies that a
membership interest is a dissenting interest, or the limited
liability company and a dissenting member fail to agree upon the fair
market value of a dissenting interest, then the member or any
interested limited liability company, within six months after the
date on which notice of the approval of the reorganization by the
requisite vote or consent of the members was mailed to the member,
but not thereafter, may file a complaint in the superior court of the
proper county to determine whether the interest is a dissenting
interest, or the fair market value of the dissenting interest, or
both, or to intervene in any action pending on such a complaint.
   (b) Two or more dissenting members may join as plaintiffs or be
joined as defendants in any action and two or more actions may be
consolidated.
   (c) On the trial of the action, the court shall determine the
issues. If the status of the membership interest as a dissenting
interest is an issue, the court shall first determine that issue. If
the fair market value of the dissenting interest is an issue, the
court shall determine, or shall appoint one or more impartial
appraisers to determine, the fair market value of the dissenting
interest.

17606.  (a) If the court appoints an appraiser or appraisers, they
shall determine the fair market value per interest of the outstanding
membership interests of the limited liability company, by class if
necessary. Within the time fixed by the court, the appraisers, or a
majority of them, shall make and file a report in the office of the
clerk of the court. On the motion of any party, the report shall be
submitted to the court and considered along with any additional
evidence as the court considers relevant. If the court finds the
report reasonable, the court may confirm it.
   (b) If a majority of the appraisers appointed fail to make and
file a report within 30 days from the date of their appointment, or
within such further time as may be allowed by the court, or the
report is not confirmed by the court, the court shall determine the
fair market value per interest of the outstanding membership
interests of the limited liability company, by class if necessary.
   (c) Subject to Section 17607, judgment shall be rendered against
the limited liability company for payment of an amount equal to the
fair market value, as determined by the court, of each dissenting
interest that any dissenting member who is a party, or has
intervened, is entitled to require the limited liability company to
purchase, with interest thereon at the legal rate on judgments from
the date of consummation of the reorganization.
   (d) Any judgment shall be payable forthwith, provided, however,
that with respect to membership interests evidenced by transferable
certificates of interest, only upon the endorsement and delivery to
the limited liability company of those certificates representing the
interest described in the judgment. Any party may appeal from the
judgment.
   (e) The costs of the action, including reasonable compensation for
the appraisers, to be fixed by the court, shall be assessed or
apportioned as the court considers equitable, but, if the appraisal
exceeds the price offered by the limited liability company, the
limited liability company shall pay the costs, including, in the
discretion of the court, if the value awarded by the court for the
dissenting interest is more than 125 percent of the price offered by
the limited liability company under subdivision (a) of Section 17602,
attorneys' fees and fees of expert witnesses.

17607.  To the extent that the payment to dissenting members of the
fair market value of their dissenting interests would require the
dissenting members to return that payment or a portion thereof by
reason of subdivision (f) of Section 17254 or the Uniform Fraudulent
Transfer Act (Chapter 1 (commencing with Section 3439) of Title 2 of
Part 2 of Division 4 of the Civil Code), then that payment or portion
thereof shall not be made and the dissenting members shall become
creditors of the limited liability company for the amount not paid,
together with interest thereon at the legal rate on judgments until
the date of payment. The dissenting members shall be subordinate to
all other creditors in any proceeding relating to the winding up and
dissolution of the limited liability company.

17608.  Any cash distributions made by a limited liability company
to a dissenting member after the date of consummation of the
reorganization, but prior to any payment by the limited liability
company for the dissenting member's interest, shall be credited
against the total amount to be paid by the limited liability company
for that dissenting interest.

17609.  Except as expressly limited by this chapter, dissenting
members shall continue to have all the rights and privileges incident
to their interests immediately prior to the reorganization,
including limited liability, until payment by the limited liability
company for their dissenting interests. A dissenting member may not
withdraw a demand for payment unless the limited liability company
consents thereto.

17610.  A dissenting interest loses its status as a dissenting
interest and the holder thereof ceases to be a dissenting member and
ceases to be entitled to require the limited liability company to
purchase the interest upon the occurrence of any of the following:
   (a) The limited liability company abandons the reorganization.
Upon abandonment of the reorganization, the limited liability company
shall pay, on demand, to any dissenting member who has initiated
proceedings in good faith under this chapter, all reasonable expenses
incurred in those proceedings and reasonable attorneys' fees.
   (b) The interest is transferred prior to its submission for
endorsement in accordance with Section 17603.
   (c) The dissenting member and the limited liability company do not
agree upon the status of the interest as a dissenting interest or
upon the purchase price of the dissenting interest, and neither files
a complaint nor intervenes in a pending action, as provided in
Section 17605, within six months after the date upon which notice of
the approval of the reorganization by the requisite vote or consent
of members was mailed to the member.
   (d) The dissenting member, with the consent of the limited
liability company, withdraws that member's demand for purchase of the
dissenting interest.

17611.  If litigation is instituted to test the sufficiency or
regularity of the vote of the members in authorizing a
reorganization, any proceedings under Sections 17605 and 17606 shall
be suspended until final determination of that litigation.

17612.  (a) Subject to subdivisions (b) and (c), this chapter
applies to the following:
   (1) A domestic limited liability company.
   (2) A foreign limited liability company if members holding more
than 50 percent of the voting interests of the foreign limited
liability company reside in this state.
   (b) This chapter does not apply to membership interests governed
by operating agreements whose terms and provisions specifically set
forth the amount to be paid in respect of those interests in the
event of a reorganization of the limited liability company.
   (c) This chapter shall not apply to any limited liability company
with 35 or fewer members if all the members have waived the
application of this chapter in writing, whether in an operating
agreement or otherwise, provided that if, at the time of the
reorganization, the limited liability company had more than 35
members, any waiver shall be ineffective as to that reorganization.

17613.  (a) No member of a limited liability company who has a right
under this chapter to demand payment of cash for the interest owned
by that member in a limited liability company shall have any right at
law or in equity to attack the validity of the reorganization, or to
have the reorganization set aside or rescinded, except (1) in an
action to test whether the vote or consent of members required to
authorize or approve the reorganization has been obtained in
accordance with the procedures established therefor by the operating
agreement of the limited liability company, or if there is no written
operating agreement, this chapter, or (2) when the limited liability
company action is fraudulent with respect to the complaining member
or the limited liability company.
   (b) If one of the parties to a reorganization is directly or
indirectly controlled by, or under common control with, another party
to the reorganization, subdivision (a) shall not apply to any member
of the controlled party who has not demanded payment of cash for the
member's interest pursuant to this chapter; but if the member
institutes any action to attack the validity of the reorganization or
to have the reorganization set aside or rescinded, the member shall
not thereafter have any right to demand payment of cash for that
member's interest pursuant to this chapter.
   (c) If one of the parties to a reorganization is directly or
indirectly controlled by, or under common control with, another party
to the reorganization, then, in any action to attack the validity of
the reorganization or to have the reorganization set aside or
rescinded, (1) a party to a reorganization that controls another
party to a reorganization shall have the burden of proving that the
transaction is just and reasonable as to the members of the
controlled party, and (2) a person who controls two or more parties
to a reorganization shall have the burden of proving that the
transaction is just and reasonable as to the members of any party so
controlled.
   (d) Subdivisions (b) and (c) shall not apply if a majority in
interest of the members other than members who are directly or
indirectly controlled by, or under common control with, another party
to the reorganization approve or consent to the reorganization.
   (e) This section shall not prevent a member of a limited liability
company that is a party to a reorganization from bringing an action
against the limited liability company or any manager, officer,
employee, or agent of the limited liability company, at law or in
equity, as to any matters, including, without limitation, an action
for breach of fiduciary obligation or fraud, other than to attack the
validity of the reorganization or to have the reorganization set
aside or rescinded.

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