Buyout Order Requiring Dissolution of Entities may only be Challenged in a Direct Appeal

Schrage v. Schrage (2021) 69 Cal.App.5th 126

In Schrage, a Plaintiff shareholder sued his brothers for involuntary dissolution of a family-run LLC and breach of fiduciary duty. The Defendant brothers, invoked the statutory buyout procedure under the Corporations Code to buy the Plaintiff's interests, five additional 82 LLCs, that were not included in the original dissolution act, but were already subject to the appraisal and buyout proceeding. As part of the buyout procedure, the trial court set an amount for the value of the LLC interests, and stated that the entities would be end up being dissolved if the Defendants failed to pay the appraised amount by a certain date. The Defendants did not pay the appraised amount, and an appeal of the order was dismissed before decision. The court dissolved the family business, which included the five additional LLCs.

The Defendant brothers appealed from that judgment. They argued that the trial court lacked jurisdiction to dissolve the Buyout Entities, since the parties had only stipulated to add them to the buyout procedure, but not the dissolution action. The Court of Appeal noted that the buyout order declared that the Buyout Entities would be dissolved if the buyout price was not paid. That order became final when the appeal of that order was dismissed, and it could not be collaterally attacked after the fact. The Court held that any error in granting relief beyond the scope of the dissolution complaint (which did not mention the Buyout Entities) did not affect the Court’s fundamental jurisdiction, and thus could only be challenged in a direct appeal

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