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Medvin v. Graber

A-0938-02T5 (N.J. Super. App. Div. 2004) (Unpublished)

LIMITED LIABILITY COMPANIES; MEMBERS; COMPENSATION — Where a limited liability company operating agreement does not permit a member to be compensated for specific work done by that member unless the company approves, even a managing member is not entitled to extra compensation for services rendered to the company.

A limited liability company owned property near Newark Airport. Its property was condemned by the state. The company received a condemnation award and this led to a dispute among the company’s members. Two of the company’s minority members, each having a fifteen percent interest in the company, sued the managing member who owned a fifty-five percent interest in the company. The managing member received fifty-five percent of the condemnation award and an additional sum for the work he performed during the condemnation proceedings. The additional sum received by the managing member significantly reduced the share that the two minority members received from the condemnation award and the minority members sued the managing member. The minority members argued that the managing member was not entitled to any compensation for his work during the condemnation proceedings because it was contrary to the company’s operating agreement and that the managing member was only entitled to fifty-five percent of the condemnation award, a share that represented his total interest in the company. The managing member asserted that he was entitled to the additional money for his services during the condemnation proceedings in accordance with the company’s operating agreement. The lower court granted summary judgment in favor of the minority members and the managing member appealed.

The Appellate Division affirmed the lower court’s ruling after reviewing the company’s operating agreement. The Court held that the contractual language of an operating agreement is to be interpreted by its effect upon an ordinary mind and the words are to be given their usual and natural meaning. It ruled that the company’s operating agreement did not permit a member to perform work for the company and to receive compensation until the board approved the services to be rendered. The Court noted that the board never approved the work performed by the managing member and therefore the managing member was not permitted to receive compensation for his services.

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