Recently, the South Dakota Supreme Court ruled on a case involving the involuntary judicial disillusionment of a limited liability company (LLC). In Dysart v. Dragpipe Saloon, LLC, some of the members of the LLC sought judicial dissolution of the LLC after unsuccessfully attempting to sell their interest in the LLC. The business had been unprofitable and had recently become only mildly profitable. South Dakota permits judicial dissolution of an LLC when either (1) the economic purpose has been unreasonably frustrated or (2) it could not reasonably carry on the business in conformity with the operating agreement. The Court, however, emphasized that judicial dissolution is an “exceptional level of intervention” that should not be used “merely to resolve disagreements” among the members. The Court ruled that the members had options to sell their interests under the operating agreement such as to resign and get the fair market value of their interests. Ultimately, the Court held that judicial dissolution was not supported in these circumstances.
