Judicial Dissolution of LLCs Under N.C.G.S. § 57D-6-02(2)(i): Defining “Not Practicable” and Deadlock Resolution

Introduction

This commentary examines the Supreme Court of North Carolina’s decision in James H.Q. Davis Trust v. JHD Properties, LLC, delivered on January 31, 2025. The case arose from a dispute between two brothers, James (“Jim”) and Charles Davis, who serve as the only managers of two family-owned limited liability companies (JHD Properties, LLC and Berry Hill Properties, LLC). Established by their father, Dr. James H. Davis, the LLCs hold 68 acres of undeveloped timber land in Wake County, North Carolina. The core conflict involves an unbreakable management deadlock over whether to develop, sell or continue timber operations on the Property.

Plaintiffs—trusts for Jim and their brother William (“Tad”)—sought judicial dissolution under N.C.G.S. § 57D-6-02(2)(i), arguing that it has become “impracticable” for the two‐manager LLCs to conduct business in accordance with their operating agreements. The Business Court granted summary judgment for plaintiffs, and the Supreme Court of North Carolina affirmed. This decision establishes a clear definition of “not practicable” and identifies key factors for courts to consider in future LLC dissolution disputes.

Summary of the Judgment

The Supreme Court of North Carolina, speaking through Justice Barringer, affirmed the Business Court’s grant of summary judgment and its order of judicial dissolution. It held:

Under N.C.G.S. § 57D-6-02(2)(i), judicial dissolution is appropriate when it is “not practicable” to conduct an LLC’s business in conformity with its operating agreement and Chapter 57D.
“Not practicable” means unfeasible, not impossible, and connotes a lack of reasonable or sensible means to carry on.
The indisputable facts showed a persistent three-year deadlock between the two managers over development, sale, or forestry operations; no deadlock-breaking mechanism in the operating agreements; and no active economic use of the land since 2004.
The Business Court did not err in concluding that these circumstances rendered the continued operation of the LLCs “not practicable,” and judicial dissolution was the proper remedy.

Analysis

Precedents Cited

The North Carolina Supreme Court relied on both state and out‐of‐state authority to interpret “not practicable” and to assess when judicial dissolution is warranted:

Chisum v. Campagna (376 N.C. 680, 2021): North Carolina’s leading case on the “not practicable” standard under § 57D-6-02(2)(i). The Court there affirmed dissolution where extreme acrimony and total communication breakdown made further joint enterprise unworkable.
Dicta from the Business Court’s December 9, 2022 opinion: Adopting dictionary definitions (Black’s Law Dictionary; Merriam-Webster) that equate “practicable” with “feasible” and “not practicable” with “unfeasible.”
Haley v. Talcott (864 A.2d 86, Del. Ch. 2004): Delaware authority emphasizing that the presence (or absence) of an “equitable exit mechanism” in the operating agreement bears on practicability and dissolution decisions.
Other state cases interpreting “not practicable” or “not reasonably practicable,” including:
- Gagne v. Gagne (338 P.3d 1152, Colo. App. 2014)
- 1545 Ocean Ave., LLC (72 A.D.3d 121, N.Y. App. Div. 2010)
- Venture Sales, LLC v. Perkins (86 So. 3d 910, Miss. 2012)
- Kirksey v. Grohmann (754 N.W.2d 825, S.D. 2008)

Legal Reasoning

The Court’s reasoning unfolded in three primary steps:

Statutory Standard: Under N.C.G.S. § 57D-6-02(2)(i), dissolution is permissible if the entity cannot practicably carry on business under its operating agreement.
Definition of “Not Practicable”: Drawing on dictionary definitions and sister-state cases, the Court held that “not practicable” means unfeasible—that is, lacking a reasonable, sensible means to proceed. It rejected a higher “impossibility” standard.
Application to Facts:
- Managers Jim and Charles were deadlocked—no unanimous consent could be reached on development, sale, or timber operations for over three years.
- The operating agreements contained no mechanism (buy-out, casting vote, arbitration trigger) to break the deadlock.
- Aside from a single timber sale in 2004, there had been no active economic use or plan to harvest timber since the forestry plan lapsed in 2022.
- Therefore, continued operation was “unfeasible” in light of the core business purpose—to purchase, develop, rent, own and sell real property—and the managers’ inability to take any first step toward those goals.

Impact on Future Cases

This decision offers practitioners and lower courts clear guidance in several respects:

Definition of “Not Practicable”: Establishes that “not practicable” equals “unfeasible,” not “impossible,” narrowing the inquiry to the absence of a reasonable path forward.
Factor-Based Analysis: Identifies non-exclusive factors for assessing practicability:
- Managerial cooperation or deadlock
- Existence of deadlock-breaking mechanisms in the operating agreement
- Availability of any active business or economic use
- Financial feasibility of continuing operations
- Any misconduct by members or managers
Operating Agreement Drafting: Encourages drafters to include exit mechanisms (shotgun provisions, buyout formulas, arbitration clauses) to avoid involuntary dissolution on summary judgment.
Estate-Planning LLCs: Highlights the risks of two-person management deadlocks in family LLCs and the importance of deadlock-resolution planning where property value is at stake.

Complex Concepts Simplified

Judicial Dissolution: A court-ordered termination of an LLC’s legal existence and appointment of a liquidator to wind up its affairs.
Summary Judgment: A procedure to resolve a case without trial when no genuine issue of material fact exists.
Managerial Deadlock: A situation where the required voting threshold (here, unanimous consent of two managers) cannot be met, paralyzing decision-making.
Practicable vs. Possible: “Practicable” means reasonably feasible given the circumstances, whereas “possible” could include impractical or wildly speculative options.
Operating Agreement: The LLC’s charter document setting out managers’ powers, voting rules and business purpose.

Conclusion

The James H.Q. Davis Trust decision clarifies the judicial dissolution standard under N.C.G.S. § 57D-6-02(2)(i) by defining “not practicable” as “unfeasible” and articulating a multifactor framework for courts to apply. By affirming dissolution where two co-managers sat intractably deadlocked with no contractual escape hatch, the Supreme Court of North Carolina sends a strong message: operating agreements must anticipate deadlocks, and courts will not allow LLCs to remain in prolonged inertia when their statutory purpose cannot reasonably be achieved.

This ruling will guide attorneys and business court judges in evaluating future deadlock-driven dissolution petitions, reinforce careful governance design in closely held LLCs, and underscore the importance of exit provisions in operating agreements.