Summary Dissociation by Unanimous Vote Under § 35-8-803(1)(e)(i), MCA Includes Conduct That Would Force Fiduciary Breaches; Fair-Value Buyouts Must Consider Going-Concern Value

Introduction

In Hebert v. Shield Arms, 2025 MT 199, the Montana Supreme Court addressed two consequential questions for limited liability companies operating under Montana’s Limited Liability Company Act (MLLCA):

• When may members summarily expel another member by unanimous vote because it is “unlawful to carry on the company’s business with the member,” within the meaning of § 35-8-803(1)(e)(i), MCA?
• How must courts determine the “fair value” of a dissociated member’s distributional interest when no operating agreement sets a buyout price, particularly regarding the “going concern value” under § 35-8-809(1)(a), MCA?

The case arose from a breakdown among co-founders of Shield Arms, LLC (SA), a firearms products manufacturer with a federal firearms license, and Shield Development Group, LLC (SDG), an affiliated entity. After documented episodes of erratic, hostile, and business-threatening conduct by Michael A. Hebert, the other members unanimously voted to dissociate him from both companies. Litigation followed over the lawfulness of the dissociation, the valuation of Hebert’s interests, and claims of conversion.

The Court (McKinnon, J.) affirmed in part and reversed in part. Most notably, it held that “unlawful” under § 35-8-803(1)(e)(i), MCA, includes situations where continuing with a member would force the remaining members to violate statutory fiduciary duties or expose the company to tort liability—thereby authorizing summary dissociation by unanimous member vote without first obtaining a judicial expulsion order. At the same time, the Court corrected the valuation framework for SA, holding that a district court must consider a company’s “going concern value” to reach “fair value,” and may need post-dissociation records to appraise that value as of the dissociation date. Justice Rice, joined by Chief Justice Swanson and Justice Shea, concurred in part and dissented in part, sharply disputing the majority’s interpretation of “unlawful.”

Summary of the Opinion

• SA dissociation (affirmed): In the absence of an operating agreement, the MLLCA governs. The Court held the members could summarily expel Hebert under § 35-8-803(1)(e)(i), MCA, because it had become “unlawful” to carry on with him as a member. “Unlawful,” the Court explained, encompasses conduct that would put the other members in breach of their fiduciary duties under § 35-8-310, MCA (e.g., by being reckless to allow ongoing harm), and conduct that exposes the company to tort liability imputable to the company under § 35-8-306, MCA (e.g., slander, tortious interference, hostile work environment). The unanimous-vote pathway was available and appropriate.
• SDG dissociation (affirmed): SDG had a valid operating agreement authorizing dissociation “by unanimous decision of all other members.” The Court rejected Hebert’s “blank signature page” assertion as speculative and unsupported, finding no genuine dispute that the Restated Operating Agreement was effective at the time of dissociation and permitted the expulsion.
• SDG valuation (affirmed): Because SDG’s operating agreement fixed company net worth ($500) and member interests ($100 each), § 35-8-808(3), MCA, controlled. The Court affirmed the $100 valuation of Hebert’s 20% distributional interest.
• SA valuation (reversed and remanded): With no operating agreement setting price, § 35-8-809(1)(a), MCA, required the district court to consider SA’s “going concern value” among other factors. The district court relied only on a balance-sheet snapshot of assets and liabilities and did not consider going concern value. This was error; remand is required for a fair-value determination that includes going-concern analysis. The district court may consider post-dissociation financial records insofar as they are probative of going-concern value as of the dissociation date and should reset expert deadlines accordingly.
• Discovery/expert schedule (vacated guidance on remand): Because valuation must consider going concern value, the district court on remand should revisit the scope of discovery and set new expert deadlines to enable a complete fair-value analysis.
• Conversion (affirmed): Hebert failed to raise a genuine issue of material fact that defendants exercised unauthorized control over his personal property or intellectual property. Documentation showed return/storage of personal items; alleged firearms lists were insufficient. As to IP, Hebert had assigned patent interests (e.g., FLR) to SDG, and there was no evidence of defendants manufacturing or selling inventions solely owned by Hebert.

Analysis

Precedents and Authorities Cited

• Statutory framework and standards:
  • § 35-8-803(1)(e)(i), MCA (summary dissociation by unanimous vote if “it is unlawful to carry on the company’s business with the member”).
  • § 35-8-803(1)(f), MCA (judicial dissociation for wrongful conduct, material breach of duties, or impracticability).
  • § 35-8-310, MCA (member fiduciary duties of loyalty, care, and good faith; duty of care includes refraining from grossly negligent or reckless conduct).
  • § 35-8-306, MCA (imputation of member/manager wrongful acts to company when acting in the ordinary course or with authority).
  • § 35-8-809(1)(a), MCA (fair-value factors, including going concern value, appraisal recommendations, contractual formulas, legal constraints).
  • § 35-8-808(3), MCA (operating agreement controls purchase price/terms when fixed or determinable therein).
• General standards:
  • Wurl v. Polson Sch. Dist. No. 23, 2006 MT 8; Williams v. Plum Creek Timber Co., 2011 MT 271 (summary judgment standards).
  • City of Missoula v. Fox, 2019 MT 250 (statutory interpretation—plain language).
  • White v. Longley, 2010 MT 254; Doll v. Little Big Warm Ranch, LLC, 2024 MT 179 (MLLCA follows the Uniform Act; look to official comments for guidance).
  • Egan Slough Cmty. v. Flathead Cnty. Bd. of Comm’rs, 2022 MT 57; B Bar J Ranch, LLC v. Carlisle Wide Plank Floors, Inc., 2012 MT 246; Mason v. Ditzel, 255 Mont. 364 (discovery/expert deadline discretion).
  • Feller v. First Interstate Bancsystem, Inc., 2013 MT 90 (elements of conversion).
• Dissent’s authorities and Uniform Act commentary:
  • The dissent relied on the Uniform Limited Liability Company Act (ULLCA) Official Comments to distinguish judicial dissociation under § 602 (ULLCA analogue to § 35-8-803(1)(f), MCA), citing examples warranting judicial, not summary, expulsion: All Saints Univ. of Med. Aruba v. Chilana (N.J. App. Div. 2012); Sherwood Park Bus. Ctr., L.L.C. v. Taggart (Or. Ct. App. 2014); CCD, L.C. v. Millsap (Utah 2005).
  • The dissent also drew a structural analogy to dissolution provisions (§§ 35-8-901 and -902, MCA) and cautioned against broadening “unlawful” in dissociation (e)(i) in a way that would disrupt the scheme distinguishing summary versus judicial remedies.

Legal Reasoning

1) “Unlawful to carry on the company’s business with the member” (SA dissociation)

Because SA lacked an operating agreement, dissociation default rules applied. The majority foregrounded the text of § 35-8-803(1)(e)(i), MCA. It reasoned that “unlawful” must at minimum include conduct “contrary to express provisions of law.” It then tied the standard directly to fiduciary duties owed under § 35-8-310, MCA: permitting a member to continue in a governing role amid reckless, destabilizing conduct would be “at least reckless, if not grossly negligent,” thereby causing the remaining members to breach their own duties of care and loyalty in violation of statute. That consequence—an express legal breach—makes continuing “unlawful” within the meaning of (e)(i).

The Court further found the record showed tortious conduct (slander and tortious interference) and a hostile work environment, exposure which is imputable to the company under § 35-8-306, MCA. The combination of threatened liability to vendors/customers (including a cease-and-desist letter and cancelled orders) and employee vulnerability created an emergency justifying immediate, unanimous-vote dissociation under (e)(i). The Court emphasized the structural difference between subsections (e) and (f): (e) requires a unanimous vote and functions as an emergency, nonjudicial remedy; (f) is a judicial remedy available upon application by one member.

2) Operating agreement–based dissociation (SDG)

The Court concluded the SDG Restated Operating Agreement was effective at the time of dissociation, rejecting Hebert’s assertion that his signature was misused. The document bore consistent footers; minutes did not demonstrate revocation; and the signature page aligned with the agreement. Under Article 11.2, dissociation by unanimous decision was authorized, and the undisputed unanimous vote satisfied the provision. This applied § 35-8-803(1)(d), MCA (expulsion pursuant to the operating agreement).

3) Valuation of SDG interest controlled by operating agreement

Because SDG’s agreement fixed net worth ($500) and member interests ($100), § 35-8-808(3), MCA, displaced the default fair-value regime. The $100 payout for Hebert’s 20% interest was affirmed. The Court’s reasoning underscores the enforceability of pre-agreed valuation formulas, even if they yield nominal payouts, so long as they are validly adopted.

4) Fair-value requirement to consider going-concern value (SA)

In contrast, SA lacked a valuation formula. Thus § 35-8-809(1)(a), MCA, controlled and expressly requires courts to consider “going concern value” among other factors. The district court’s asset-liability snapshot failed to capture ongoing business value—brand, customer base, pipeline, and the enterprise’s ability to continue indefinitely. The majority held that relying solely on a balance sheet is inadequate; a proper fair-value analysis must include going concern. Importantly, although fair value is measured as of the date of dissociation, the Court recognized the district court may need post-dissociation financial records to appraise going concern as it existed at that time. Remand directs a full valuation and resets expert/deadline management accordingly.

5) Conversion claims

The Court affirmed summary judgment for defendants, holding that Hebert produced no triable evidence of unauthorized control over his personal property or intellectual property. Storage and return records undermined personal property claims. For IP, the record showed assignments (e.g., the FLR patent) to SDG and no evidence of manufacture or sale of inventions solely owned by Hebert.

The Dissent: A Narrower View of “Unlawful” and Statutory Structure

Justice Rice, joined by Chief Justice Swanson and Justice Shea, would have reversed on Issue 1. The dissent argued that the majority conflated the summary (e) and judicial (f) dissociation tracks and abandoned standard statutory-interpretation tools, including the ULLCA Official Comments. In the dissent’s view:

• “Unlawful” in § 35-8-803(1)(e)(i), MCA, should be read to address literal legal disqualification—circumstances where continuing the business with the member is itself contrary to, prohibited, or unauthorized by law (e.g., legal status changes like revocation of a charter, dissolution, or a disqualifying regulatory bar).
• Alleged torts, breaches of fiduciary duty, and “not reasonably practicable” conduct are quintessential § 35-8-803(1)(f), MCA, grounds needing judicial factfinding and process (preliminary injunctions can protect the company in the interim).
• Reading “unlawful” broadly in (e)(i) collapses the statutory scheme and risks importing the same rationale into dissolution provisions, which also distinguish “unlawful” dissolution from judicial dissolution for a broad set of conduct-based reasons.

By emphasizing statutory structure and ULLCA commentary, the dissent casts the majority’s approach as a significant expansion of summary dissociation.

Impact and Practical Consequences

A. Member Expulsion in Montana LLCs

• Broadened availability of summary dissociation: The majority’s rule allows a unanimous membership to summarily expel a member under § 35-8-803(1)(e)(i), MCA, when continued membership would force fiduciary breaches or expose the company to tort liability—even absent a judicial finding under § 35-8-803(1)(f), MCA. This gives Montana LLCs a powerful, fast-acting tool in emergencies.
• Litigation risk control: Companies can act promptly when a member’s conduct triggers third-party claims, employee safety concerns, or reputational harm. The opinion specifically endorses acting swiftly when cease-and-desist letters, cancelled orders, or employee complaints demonstrate real-time exposure.
• Counterbalance—wrongful dissociation exposure: The majority underscores that unanimity and the threat of a wrongful dissociation claim remain safeguards. Nevertheless, given the dissent’s warning, parties should expect closer scrutiny of records supporting “unlawful” conditions and may see increased litigation over the meaning of “unlawful” in future cases.
• Contracts still matter: The decision reinforces the value of operating agreements that expressly define “cause” for expulsion and specify procedures and valuation formulas. SDG’s outcome illustrates how a well-drafted agreement can streamline both expulsion and payout.

B. Valuation Doctrine in Member Buyouts

• Going-concern value is mandatory to consider: When no operating agreement fixes the price, § 35-8-809(1)(a), MCA, obligates courts to consider going concern value to reach “fair value.” Balance-sheet-only approaches will not suffice.
• Evidence and timing: Although valuation is as of the dissociation date, post-dissociation financial data may be discoverable if it illuminates the enterprise’s going concern value on that date (e.g., trajectory, customer retention, brand strength, orders backlog), subject to the district court’s discretion.
• Expert practice: Parties should expect appraisal paradigms common in shareholder oppression/fair value contexts, including income (DCF), market multiples, and asset approaches, with attention to enterprise goodwill and customer relationships. The Court’s guidance anticipates robust expert work and discovery tailored to intangibles.
• Operating agreement valuations enforced: By affirming SDG’s nominal $100 valuation per interest, the Court confirms that properly adopted formulas control under § 35-8-808(3), MCA, even if outcomes are modest or zero-sum for dissociated members.

C. Discovery Management and Scheduling

• Scope recalibration on remand: The Court invites district courts to recalibrate discovery scope and expert deadlines to accommodate going-concern analyses. This signals that valuation completeness can warrant schedule adjustments, especially where initial discovery was limited to pre-dissociation financials.

D. Conversion Claims

• Proof rigor: Conversion remains evidence-driven. Claimants must document ownership, right of possession, unauthorized control, and damages. Lists and receipts are not enough without linking the items to defendants’ possession or control.
• IP assignments: Where patent rights are jointly filed then assigned to the company, later conversion claims must confront documentary assignments and actual use or exploitation by defendants.

Complex Concepts Simplified

• Dissociation vs. dissolution:
  • Dissociation removes a member from the company; the entity continues.
  • Dissolution ends the company’s existence, triggering winding up.
• Summary vs. judicial dissociation:
  • Summary dissociation (§ 35-8-803(1)(e), MCA): A nonjudicial path, here requiring unanimous member vote, available in limited statutory circumstances (including when it is “unlawful” to continue with the member).
  • Judicial dissociation (§ 35-8-803(1)(f), MCA): Court-ordered removal upon proof of wrongful conduct, duty breaches, or impracticability, initiated by the company or a member.
• “Unlawful” under § 35-8-803(1)(e)(i), MCA:
  • Majority view: Includes situations where continuing would force fiduciary duty violations or expose the company to tort liability—creating an emergency justifying unanimous-vote expulsion.
  • Dissent’s view: Should be limited to literal legal disqualification to continue with the member (e.g., regulatory or corporate status bars), leaving misconduct to the judicial-expulsion track.
• Going-concern value: The worth of a business as an operating enterprise expected to continue indefinitely—capturing intangible value (goodwill, customer relationships, brand, pipeline) beyond its net asset value.
• “Fair value” vs. “fair market value”:
  • “Fair value” in statutory buyouts aims to fairly compensate the member for their pro rata share of the enterprise as a going concern, often without minority or marketability discounts unless the statute or agreement says otherwise.
  • “Fair market value” is a hypothetical price between willing buyer and seller under no compulsion, which may involve discounts; it is not the governing standard here unless adopted by agreement.

Practice Pointers

• Adopt an operating agreement: Define “cause” for expulsion; specify procedures and voting thresholds; and include a buyout mechanism and valuation formula (e.g., appraisal procedures, capitalized earnings, or fixed formulas). SDG’s outcome illustrates the power of clear valuation provisions under § 35-8-808(3), MCA.
• Document emergencies: For summary dissociation under § 35-8-803(1)(e)(i), MCA, contemporaneously collect:
  • Vendor/customer letters (e.g., cease-and-desist), cancellations, lost orders.
  • Employee complaints and safety concerns.
  • Evidence of tortious statements or interference attributable to the member.
  • Board/minutes articulating the fiduciary-duty rationale for immediate action.
• Valuation evidence: Build a record on going concern value:
  • Financial statements proximate to the dissociation date.
  • Customer lists, backlog, pipeline, brand metrics, licensing streams.
  • Management forecasts, orders, and churn/retention data.
  • Expert appraisals using income and market methods.
• Expect discovery flexibility: Seek or resist limited post-dissociation discovery tailored to illuminating going-concern value at the valuation date.
• Manage defamation/tort exposure: If a member’s statements risk tort liability imputable to the company, promptly assess authority and ordinary-course issues under § 35-8-306, MCA, and consider interim measures (e.g., limiting authority, obtaining injunctions) while dissociation processes are underway.

Conclusion

Hebert v. Shield Arms establishes two significant principles for Montana LLC law. First, the Court broadens the scope of “unlawful” in § 35-8-803(1)(e)(i), MCA, to include circumstances where continuing with a member would itself cause violations of express legal duties or expose the company to tort liability, thereby authorizing summary dissociation by unanimous vote as an emergency remedy—without first invoking judicial expulsion under § 35-8-803(1)(f), MCA. The strong three-justice dissent signals that future cases may revisit the boundaries of “unlawful,” but as of now, the majority’s rule governs.

Second, the decision clarifies that “fair value” under § 35-8-809(1)(a), MCA, is not a balance-sheet figure: courts must consider the business as a going concern, which can require targeted post-dissociation discovery to illuminate the enterprise’s value at the valuation date. Where an operating agreement fixes value, however, that bargain will be enforced, even at nominal levels.

Together, these holdings give Montana LLCs clearer tools for rapid response to member misconduct while reinforcing the centrality of careful drafting and robust valuation evidence. Entities should proactively adopt operating agreements that define expulsion triggers and buyout terms; when disputes arise, they should meticulously document legal exposure and assemble comprehensive valuation records. This decision will likely shape member-removal and buyout litigation across Montana’s LLC landscape for years to come.