Background
Paquette and Thompson had a long-running real estate partnership since the 1990s, flipping properties together. In 2004, Thompson formed Westwood Lane LLC with both as members. After successfully flipping the 53 Westwood Lane property and splitting proceeds fifty-fifty, they targeted the Blue Hills Avenue property in Hartford in 2009. Thompson lacked sufficient funds to participate, so Paquette funded the entire purchase. Thompson initially took title and executed a declaration of trust confirming he held the property for Paquette’s benefit, then transferred the property to Westwood Lane via quitclaim deed and transferred all of his membership interest in the LLC to Paquette for one dollar on February 27, 2009.
For the next eleven to twelve years, Paquette managed and improved the property, paid taxes and insurance, collected rents, and treated it as his own. In 2020, when Paquette identified a buyer, Thompson confirmed via email that the property and LLC had been “granted to you in 2009” and the plaintiff had “full authority to sell.” The property sold in March 2021 for $155,331.61 in net proceeds. Thompson then instructed the settlement agent not to release the funds, claiming he was revoking his prior authorization. Paquette filed an interpleader action to determine entitlement to the $147,130.19 in disputed funds held in court.
The Court’s Holding
The central dispute was whether Paquette or Westwood Lane was entitled to the proceeds. Thompson argued the Connecticut Uniform Limited Liability Company Act (CULLCA), effective July 1, 2017, governed the case, and that a 2009 membership interest transfer alone does not terminate membership under CULLCA § 34-259a. The appellate court rejected this approach, holding that the applicable law was the Connecticut Limited Liability Company Act (CLLCA) in effect in 2009 when Thompson’s transfer occurred. Under CLLCA § 34-172(d), a member who assigns his entire membership interest ceases to be a member when any assignee becomes a member with respect to that interest. Because Paquette was already a member, Thompson’s transfer of all his interest to Paquette in 2009 caused Thompson to cease being a member, making Paquette the sole member.
The court affirmed the trial judge’s credibility determinations, which found Paquette’s testimony credible that he was a member of Westwood Lane, while finding Thompson’s testimony that he was the sole member not credible. Post-transfer conduct supported this finding: Thompson filed no tax returns for the LLC after 2009, played no active role in its affairs, and himself confirmed in the 2020 email and 2021 resolutions that Paquette had full authority over the property and was entitled to its proceeds. As sole member of Westwood Lane, Paquette was entitled to all distributions, which included the property sale proceeds.
Key Takeaways
- Statutory construction: When determining which law governs an LLC membership issue, courts apply the law in effect at the time of the transaction, not the law in effect when litigation arises. A 2009 transfer is governed by 2009 law, even if the case is litigated in 2023-2026.
- Membership termination: Under pre-2017 Connecticut law, a complete transfer of all membership interests, when the transferee is already a member, causes the original member to cease membership immediately upon transfer.
- Deference to trial courts: Appellate courts give substantial weight to trial judges’ credibility determinations about witness testimony and do not second-guess those findings on appeal unless clearly erroneous.
- Conduct supports status: A member’s post-transfer conduct—such as failure to file tax returns, lack of involvement in company affairs, and explicit confirmation of another’s authority—supports findings about current membership status.
Why It Matters
This decision clarifies a critical principle for LLC practitioners and litigants: when statutory law changes, the applicable version depends on when the operative transaction occurred, not when disputes arise. Here, the defendants’ entire theory rested on applying 2017-era law to a 2009 transfer, which the court rejected. This means businesses cannot rely on favorable statutory changes to rewrite membership consequences of transactions completed under prior law. For anyone involved in LLC disputes, the timing of statutory amendments is dispositive.
The decision also reinforces appellate deference to trial-court credibility findings in close factual disputes. Although Thompson and Paquette offered conflicting testimony about membership status, the trial judge heard them testify, observed their demeanor, and found Paquette credible. That judgment—not appellate second-guessing—controls. For practitioners advising on membership disputes, post-transaction conduct and documentary evidence of member intent can become critical if membership status is later contested, particularly if one party’s testimony is contradicted by their own actions over time.