By Chris Bankler

In Camino Real Developers, LLC v. RivenRock, LLC, Judge Brian Stagner addressed a question that arises whenever an LLC interest changes hands: can a purchaser acquire the benefits of a membership interest while avoiding the obligations imposed by the company agreement?

The court’s answer was no.

The opinion is notable because it treats an LLC membership interest not as a free-standing asset, but as a bundle of rights and obligations defined by the company agreement itself. In doing so, the court repeatedly returned to a central theme: the characteristics of a membership interest remain attached to the interest when it is transferred.

The Dispute

In 2017, Dan Addante and Jack Dyer formed Camino Real to develop a luxury RV park in Caldwell County, Texas. The company’s governing agreement established two functionally distinct categories of ownership. The capital provider (initially JLR Mansions, LLC, holding a 50% interest) was responsible for funding future capital needs and debt service. The remaining 50% was held by Addante and Dyer, who contributed industry expertise and construction know-how.

The agreement also contained a dilution provision. If the capital provider failed to fund required capital contributions, the company could admit a new capital provider and dilute the existing holder’s interest proportionally. And the agreement ensured this bargain would survive any change in ownership: the first page warned in bold, capital letters that transfers were “SUBJECT TO CERTAIN RESTRICTIONS,” and Section 10.3 provided that every transfer would be “subject to all of the terms, conditions, restrictions and obligations” of the agreement.

In 2018, RivenRock acquired JLR Mansions’ 50% interest. Its principals and counsel received copies of the company agreement on at least three occasions before closing. The honeymoon was short-lived. Years of litigation in Caldwell County followed, and the Third Court of Appeals ultimately reversed a trial-court declaration that RivenRock was not bound by the agreement.

Then, in June 2025, RivenRock announced it would stop funding the company. The consequences were immediate: the company defaulted on its mortgage, and its managers identified urgent capital needs exceeding $6.3 million. The managers invoked Section 4.2, made a capital call, and when RivenRock refused to contribute, admitted a replacement capital provider and diluted RivenRock’s interest. Camino Real filed suit to confirm the validity of that dilution.

The Court’s Rulings

Judge Stagner began with first principles.

The court rejected the premise that a membership interest exists independently from the governing agreement that created it:

“A membership interest is not a free-standing asset that exists independently of the company’s governing documents. It is a creature of contract: a defined bundle of rights, obligations, and conditions. The Company Agreement identifies the members, defines their ownership percentages, allocates management authority, governs distributions, and establishes the consequences of failing to meet capital obligations. Without the Agreement, there is no way to know what ‘50% owner’ actually means.” (¶ 37)

That concept drives the remainder of the opinion.The court explained that RivenRock was attempting to separate the rights associated with ownership from the obligations associated with ownership. In Judge Stagner’s view, Texas law does not permit that result:

“RivenRock’s theory would require the Court to view a membership interest as a cafeteria plan from which a transferee may pick and choose. Under this approach, a party could claim a right to 50% of the profits (created by the Agreement) while rejecting the duty to fund capital calls (also created by the Agreement). Texas law does not permit that sort of selective acceptance.” (¶ 38)

The court viewed the rights and obligations created by the company agreement as inseparable components of the same ownership interest.

The Dilution Provision Runs With the Interest

The court next turned to the specific dilution mechanism at issue.  The company agreement created what the court described as a “capital-provider interest.” The holder received the benefits associated with that position, but also assumed the obligation to fund future capital needs. If the holder failed to do so, the agreement authorized dilution.

Judge Stagner emphasized that these provisions must be read together:

“The obligation to fund capital and the risk of dilution are not separate concepts accidentally placed in neighboring subsections. They are corresponding features of the same ownership interest. One defines the benefit of holding the capital-provider position; the other defines the consequence of failing to perform it.” (¶ 41)

The critical question therefore became whether those characteristics disappeared when the interest was transferred from the original holder to RivenRock.

The court concluded they did not.  Invoking both property-law concepts and the language of the company agreement, Judge Stagner explained:

“JLR Mansions held a 50% interest subject to dilution under Section 4.2(b). It could no more transfer that interest free of that characteristic than a property owner could convey mortgaged land free of the mortgage lien. The restriction travels with the property.” (¶ 43)

The court further relied on transfer provisions within the company agreement itself, including language stating that every transfer was “subject to all of the terms, conditions, restrictions and obligations” of the agreement and that the agreement was binding on successors and assigns.

The Court Refuses to Read Section 4.2 Out of the Agreement

The opinion also contains a straightforward but important contract-construction point.  After RivenRock refused to fund the capital call, the company admitted a replacement capital provider and diluted RivenRock’s interest pursuant to Section 4.2(b).

The court concluded that RivenRock’s interpretation would effectively eliminate the provision entirely:

“A capital obligation that may be ignored without consequence, and a dilution provision enforceable only with the diluted party’s consent, would have no practical operation at all.” (¶ 50)

Because Texas courts seek to give effect to all contractual provisions, the court refused to adopt an interpretation that would render the dilution mechanism meaningless.

The 2023 Statutory Amendment Did Not Change the Result

RivenRock also pointed to the Legislature’s 2023 addition of Section 101.052(g) of the Business Organizations Code, which expressly provides that assignees of LLC interests are bound by company agreements whether or not they sign them.

The court was unpersuaded. Judge Stagner observed:

“Legislatures routinely codify principles already reflected in common law or existing contractual practice, whether to promote uniformity or resolve uncertainty at the margins.” (¶ 52)

More importantly, the court concluded it did not need the statute at all. The company agreement itself expressly provided that transferred interests remained subject to the agreement’s restrictions and obligations.

LLC Members Do Not Own LLC Assets

The opinion concludes by rejecting RivenRock’s assertion that it owned an undivided 50% interest in Camino Real’s underlying assets.

The court explained:

“Under Texas law, a membership interest in an LLC is personal property. It does not confer on the member any direct ownership of the entity’s assets.” (¶ 54)

Judge Stagner further emphasized why that distinction matters:

“That separation is essential to the LLC form. It preserves the entity’s independence, protects its creditors, and allows ownership interests to be transferred without fragmenting title to the Company’s assets.” (¶ 55)

Conclusion and Takeaways

This opinion is less about capital calls than it is about the nature of LLC ownership itself. Three points stand out.

First, a membership interest is a creature of contract. Judge Stagner repeatedly framed it as a package of rights, restrictions, obligations, and conditions defined by the company agreement. Under that framework, a purchaser acquires the interest as it exists, not a modified version containing only the provisions it likes.

Second, transfer restrictions and dilution rights are characteristics of the interest itself, not personal obligations that vanish when the holder changes. If that reasoning gains traction, it could prove useful in future disputes involving assignees, successor members, and other provisions that parties attempt to characterize as binding only on original signatories.

Third, for practitioners drafting LLC agreements, the case underscores the importance of explicit successor-and-assign language. The court repeatedly returned to contractual provisions stating that transferred interests remained subject to the agreement’s “terms, conditions, restrictions and obligations,” language that ultimately helped support the conclusion that “the restriction travels with the property.”

In the end, the opinion stands for a simple proposition: you cannot claim the benefits of ownership while disclaiming the obligations that define it.

The opinions expressed are those of the authors and do not necessarily reflect the views of the firm, its clients, or any of its or their respective affiliates. This article is for informational purposes only and does not constitute legal advice. For more information, please contact Chris Bankler or a member of the Trial & Appellate Litigation practice.

Meet Chris

Chris Bankler focuses on the resolution of disputes for businesses and financial institutions. He counsels clients through the process of complex business litigation, including general business disputes, fraud claims, breach of fiduciary duty cases, and complex business bankruptcy litigation. He has served as litigation counsel in more than 100 cases in state and federal courts, as well as FINRA and AAA arbitrations.