Northwest Wholesale, Inc. v. Pac Organic Fruit, LLC

Summary

The Washington Supreme Court held that a Washington limited liability company member’s dissociation upon filing a voluntary bankruptcy petition under RCW 25.15.130(1)(d) was not preempted by 11 U.S.C. §§ 541 or 365. Because the debtor retained only an assignee’s economic interest and no membership or management rights, he lacked standing to bring a derivative action on behalf of the LLC. The court also held that the defendants did not waive their motion to dismiss by presenting evidence after the motion was taken under advisement.

Holdings

1. The defendants did not waive their CR 41(b)(3) motion because the motion presented a legal standing issue based on undisputed dates, rather than a challenge to the sufficiency of the plaintiff's evidence, and the trial court directed the defendants to proceed with their evidence.
2. Section 541 does not preempt RCW 25.15.130(1)(d). State law determines the nature and scope of a debtor's property interest, and the bankruptcy estate receives no greater interest than the debtor held under state law.
3. Section 365 does not preempt RCW 25.15.130(1)(d) under these circumstances. Even if the LLC operating agreement is an executory contract, § 365(e)(2) permits enforcement of the state-law restriction because nondebtor LLC members were not required to accept performance from or consent to management by an assignee.

Questions Presented

1. Whether the defendants waived their CR 41(b)(3) motion to dismiss by presenting evidence after the trial court took the motion under advisement.
2. Whether federal bankruptcy law under 11 U.S.C. §§ 541 or 365 preempted RCW 25.15.130(1)(d), which dissociated an LLC member upon the filing of a voluntary bankruptcy petition.
3. Whether the Washington LLC dissociation rule deprived Ostenson of standing to maintain a derivative action on behalf of Pac Organic Fruit.

Disposition

affirmed