The assignment of a member's interest in an LLC does not automatically give the acquiring party the right to sue for fraud or fraudulent transfers. See Patel v. Diplomat 1419VA Hotels, LLC, A20A1672, 2021 WL 837086 (Ga. Ct. App. Mar. 5, 2021).
Pursuant to O.C.G.A. § 44-12-24, “a right of action is assignable if it involves, directly or indirectly, a right of property. A right of action for personal torts, for legal malpractice, or for injuries arising from fraud to the assignor may not be assigned.” Federal and state courts construing O.C.G.A. § 44-12-24 have held that fraud claims are not assignable. In the case at hand, Appellant argued that the fraud related to property, and could therefore be assigned, because the claims dealt with the interest in the LLC, which the LLC Act construes as personal property. Id. at *4; O.C.G.A. § 14-11-501(a). The Court rejected this argument stating the claim was purely based in fraud -- expressly prohibited from such assignments in the statute -- and it would be "hard to imagine a fraud claim that does not, in some way, concern, a property interest." Id.
The court notes that had Appellant been in a position to bring the suit for fraud on behalf of his deceased mother's estate it would move forward as he would then have standing. See Id.; citing Allen v. Dominy, 272 Ga. 399, 400, 529 S.E.2d 363 (2000); Ealy v. Tolbert, 209 Ga. 575, 576, 74 S.E.2d 867 (1953); Rogers v. Taintor, 93 Ga. App. 54, 54-55 (1), 90 S.E.2d 629 (1955). However, since the interest had already been assigned to him in the will, he had asserted the claim in his individual capacity, not on behalf of her estate.
The Court also stated Appellant did not have standing to assert a fraudulent transfer claim under the Uniform Fraudulent Transfers Act because those claims were also not assignable based on the same reasoning as above. Id. at *5.
Lastly, the Court of Appeals discussed contractual provisions when the performance of repayment is at the sole discretion of the paying party. Appellant stated that the LLC's managers were not paying back the interest in good faith, however the Court disagreed. The specific operating agreement provision at issue stated:
[i]t is agreed that [Vimla’s] capital contribution shall accrue at 8% interest and be payable by company on a semi-monthly basis subject to cash flow determined by general partners.
Here, the manner of performance was left entirely to the discretion of the general partners. The Court noted that while most agreements contain a requirement to exercise good faith, there is an exception when "an agreement by its express terms grants the party absolute or uncontrolled discretion in making a decision." Id. at *7; quoting ULQ, LLC v. Meder, 293 Ga. App. 176, 179 (1), 666 S.E.2d 713 (2008). Therefore, the general partners had no duty of good faith since they had complete discretion on how to repay the capital contribution based on cash flow pursuant to the operating agreement.