Don't Bet the Business

If you've ever been involved in a business deal sealed with a handshake, a partial signature and a whole lot of assumptions, the Michigan Court of Appeals has a cautionary tale for you.  

In its unpublished opinion issued on Feb 19, the appellate court addressed three consolidated appeals in Value Save Property, LLC v. Sattam, Docket Nos. 366285, 369975 and 370472, and affirmed the trial court's rulings in all three. The decision is a masterclass in why operating agreements matter, why signatures matter and why assuming you're a "member" of a company isn't the same as actually being one.

The Setup: A Business Deal Goes Sideways

The case centers on a business dispute between Wisam Sattam on one side and Eddie Barash and Raid Yousef on the other, over two Michigan LLCs: Value Save Property, LLC (VSP) and Barash Yousef Holdings II, LLC (BYH II).

VSP was the landlord of a commercial building in Detroit known as the Livernois Property. Barash Yousef Holdings, LLC (BYH), co-owned equally by Barash and Yousef, held a 40% interest in VSP from its formation in 2005, with four other members splitting the remaining 60% in equal 15% shares.

In August 2018, Sattam entered into a purchase agreement with those four minority members to buy their collective 60% interest for approximately $819,392 — though Sattam later acknowledged he actually paid closer to $500,000 in cash after receiving discounts from some of the sellers. The purchase agreement included signature lines for both Barash and Yousef, as representatives of BYH, to approve the assignment of membership interests. Here's the catch: only Yousef signed. Barash never did.

Barash later testified he didn't object to the sale "in theory," but he assumed the shares would be split three ways — among himself, Yousef and Sattam — not that Sattam alone would walk away with 60% of the company. Nonetheless, Barash never signed the purchase agreement.

Fast forward to 2021, and things got ugly. Sattam attempted to remove Barash as the manager of VSP and install himself in that role. He even tried to evict a longstanding tenant from the property. That triggered a cascade of lawsuits, and the courts eventually had to sort out the fundamental question: was Sattam actually a member of VSP?

The Core Legal Issue: What Does It Take to Become an LLC Member?

This is where the opinion really shines for anyone interested in business formation law. Under the Michigan Limited Liability Company Act (MCL 450.4101 et seq.), an LLC is an unincorporated membership organization, and a "member" is defined as someone who has been "admitted" as a member under the rules set out in MCL 450.4501. In other words, merely purchasing an interest or shares does not automatically make you a member.

When someone seeks to become a member of an LLC after its formation, MCL 450.4501(2)(a) requires that the person comply with the provisions of the operating agreement prescribing the requirements for admission. If there are no such provisions, admission requires the unanimous vote of existing members. That statutory framework places the operating agreement at the center of the analysis.

VSP's operating agreement was unambiguous on this point. Section 8.5 stated that under no circumstances could any purchaser, assignee or transferee be admitted as a substitute member except in accordance with Section 8.6. Without being admitted as a member, a transferee had no right to vote on or participate in the company's affairs. Section 8.6.1, in turn, required that members holding a majority of the outstanding shares in the company consent to the transferee's admission.

Once the four minority members sold their shares, BYH became the only remaining member of VSP. And because Barash and Yousef were equal 50/50 members and managers of BYH, neither one individually held a majority interest. That meant both of them had to approve Sattam's admission as a member — and Barash never signed.

The appellate court put it plainly: Sattam's belief that the purchase agreement was "completely executed" even though Barash's signature line was left blank was "unreasonable and irrelevant to the language of the operating agreement."

Agency Law: Could Yousef Sign for Barash?

Sattam tried to argue his way around the missing signature by invoking principles of agency law — specifically, that Yousef had apparent or implied authority to sign on Barash's behalf. The appellate court wasn't buying it.

Under Michigan law, a principal is bound by an agent's actions only when those actions are taken with actual or apparent authority. Apparent authority must be "traceable to the principal" and cannot be established solely by the acts of the purported agent. The appellate court found no evidence that Barash ever manifested that Yousef could act on his behalf, and no acts or appearances that would have led a reasonable third party to believe Yousef was acting as Barash's agent.

Making matters worse for Sattam, he did not raise the implied authority argument until his motion for reconsideration in the trial court, meaning it was not properly preserved for appeal. And the evidence Sattam attached for the first time on reconsideration — including Barash's deposition transcript from a related case and various loan documents — was properly excluded because Sattam had failed to participate in discovery and never explained why those documents couldn't have been produced earlier.

Even if the appellate court had considered Barash's deposition testimony, Barash never testified that he authorized Yousef to sign on his behalf or that he agreed to the sale without his own signature. The loan documents similarly did not demonstrate any acts or appearances that would establish agency.

BYH II: Tax Returns Don't Make You a Member

In the second consolidated appeal (Docket No. 369975), Sattam claimed he was a 25% member of BYH II and brought claims for shareholder oppression, breach of fiduciary duty and other relief. His principal evidence? A 2018 Schedule K-1 tax form identifying him as a 25% partner. The appellate court found this insufficient. Tax documents, the appellate court held, are simply not proof of membership in an LLC because they do not establish that the person was admitted as a member in accordance with the operating agreement.  

BYH II's operating agreement contained its own detailed admission requirements — including majority member consent, furnishing tax identification information, executing a written agreement to be bound by the operating agreement, and reimbursing the company's transfer costs. Sattam admitted outright that he had no written agreements with BYH II and admitted by failure to respond to discovery requests that he never purchased a membership interest.

Sattam's attempt to invoke Michigan's Nonprofit Corporation Act (MCL 450.2489) and the Business Corporation Act (MCL 450.1491a) was also rejected because BYH II is an LLC — a distinct corporate structure governed by its own statutory scheme — not a nonprofit or business corporation.

Res Judicata: You Only Get One Bite at the Apple

In the third appeal (Docket No. 370472), Sattam and VSP tried to bring additional claims against Barash, BYH and Yousef in what was effectively a second lawsuit challenging many of the same issues. The appellate court applied the doctrine of res judicata to bar these claims.

Res judicata prevents parties from relitigating claims that were or could have been resolved in a prior action. The appellate court found that all three elements were satisfied. The first case was decided on the merits through a declaratory judgment; both cases involved the same parties or their privies; and the claims in the second case arose from the same transaction as the first.

Sattam argued that because he technically filed his case first in Wayne Circuit Court, res judicata shouldn't apply. The appellate court rejected this, explaining that the doctrine turns on which case was adjudicated first, not which was filed first. Sattam also argued that a stay of enforcement on the first judgment should have prevented res judicata from attaching, but the appellate court cited longstanding Michigan precedent that "a judgment pending on appeal is deemed res judicata."

Why This Case Matters Going Forward

So, what should business owners, investors and their attorneys take away from Value Save Property v. Sattam? Several things.

First, the decision reinforces the primacy of operating agreements in Michigan LLC law. If the operating agreement spells out the requirements for becoming a member, those requirements must be followed to the letter. A course of conduct — even years of participating in the business — does not substitute for formal compliance with the operating agreement.

Second, this case is a stark reminder that one co-member's signature is not enough when the operating agreement requires majority or unanimous approval. In a 50/50 LLC, both members need to act together. Anyone purchasing an interest in a company with multiple owners should insist on getting all required signatures before closing or risk being treated as a mere transferee with limited rights.

Third, the decision confirms that tax documents — K-1s, partner worksheets and the like — do not establish LLC membership under Michigan law. This is an important point for practitioners to communicate to clients, because many business participants assume that being listed on a K-1 is tantamount to being a legal member of the entity.

Fourth, the appellate court's treatment of agency law here serves as a useful refresher. Apparent authority must always be traceable to the principal, not the agent. And parties who fail to gather and present relevant evidence during discovery cannot save their case by attaching new documents to a motion for reconsideration.

Finally, the res judicata analysis underscores the importance of raising all available claims and counterclaims the first time around. If you find yourself on the defense in a declaratory-judgment action, don't sit on potential counterclaims — bring them or risk losing them forever.

While this is an unpublished opinion and, therefore, not binding precedent in Michigan, it is a thorough and well-reasoned application of well-established principles under the Michigan Limited Liability Company Act, agency law and the doctrine of res judicata. For anyone involved in buying, selling or managing membership interests in a Michigan LLC, the message is clear: read your operating agreement, follow its procedures and get every required signature on the dotted line.