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Under the classical approach, an anti-assignment clause is interpreted as a restriction on the power of any limited liability company member to assign an interest, and thus any nonconforming assignment has no legal effect.
Thomas Banner, a member of a limited liability company (LLC), attempted to assign of a portion of his membership interest in the LCC to his former wife as part of their divorce settlement. Respondents, other members of the LLC, purchased Banner’s membership interest in the LLC. The wife brought an action against the respondents, claiming that the respondents’ purchase of Banner's membership interest tortiously interfered with Banner's prior assignment to her and that this interference amounted to civil conspiracy because it was intended to destroy the value of her assignment. The trial court ruled that the Banner assignment was void as against public policy because Banner made the assignment without the consent of the other members of the LLC and thus violated the duty of good faith in corporate dealings. Certiorari was granted.
Under the circumstances, was the attempted assignment void and without legal effect?
The Supreme Court of Colorado held that the attempted assignment of the LCC member's right to receive distributions and effective transfer of voting rights was invalid because it was made without the consent of the other members of the LLC, in violation of the anti-assignment clause in the LLC's operating agreement. Because the anti-assignment clause applied to the assignment of "any portion" of a membership interest, the clause applied to attempted assignments of both rights and duties. As Colorado's LLC statute, Colo. Rev. Stat. § 7-80-108(4) (2011), evinced a preference for the freedom of contract, the anti-assignment clause rendered each LLC member powerless to make an assignment without the consent of all members; therefore, the attempted assignment was without any legal effect.