On May 15, 2026, Judge Brian Stagner of the Texas Business Court issued a ruling in Camino Real Developers, LLC v. RivenRock, LLC that reinforces a fundamental principle of Texas LLC law: a membership interest cannot exist independently of the company agreement that defines it. The decision offers guidance for businesses and practitioners navigating Texas LLC ownership transfers and the enforceability of company agreement provisions.

The Dispute

Camino Real Developers, LLC was formed in 2017 to develop a luxury RV park in Caldwell County, Texas. The company agreement created two distinct categories of members: (1) a capital providing member (JLR Mansions, LLC) that owned 50% of the Camino Real and was responsible for 100% of its funding needs, and (2) two non-capital providers (Dan Addante and Jack Dyer), who each owned 25% of Camino Real.

Unlike the non-capital providers, the capital provider was subject to dilution under Camino Real’s company agreement if the capital provider failed to meet capital calls. If that happened, Camino Real could admit a new capital provider, and the existing capital provider’s ownership interest would be “diluted proportionally.”

In late 2018, RivenRock, LLC purchased JLR Mansions’ 50% interest in Camino Real. Before doing so, RivenRock received multiple copies of Camino Real’s company agreement, which (among other things) stated in bold, capital letters on the first page that any membership-interest transfer was subject to certain restrictions and that the agreement was binding on successors and permitted assigns.

Subsequently, a dispute arose between RivenRock and Addante/Dyer regarding whether RivenRock was bound by the voting rights in Camino Real’s company agreement or if a separate letter of intent had given RivenRock supermajority voting rights. The dispute was ultimately resolved by the Texas Court of Appeals, which (among other things) vacated a trial court ruling that RivenRock was not bound by Camino Real’s company agreement.

Shortly after the appellate court’s ruling in April 2025, RivenRock announced it would no longer fund Camino Real and claimed (as it had in the earlier litigation) that it was not bound by Camino Real’s company agreement. Without RivenRock’s funding, Camino Real defaulted on its mortgage and needed $6.3 million of capital.

Camino Real’s managers issued a capital call to address the $6.3 million shortfall, but RivenRock refused to pay. The managers then admitted a new capital provider and proportionately diluted RivenRock pursuant to Camino Real’s company agreement. At the same time, Camino Real filed suit seeking declarations from the Texas Business Court confirming the propriety of its actions.

The Court’s Analysis

Res Judicata Defense Fails. At the outset, RivenRock argued that the earlier litigation resolved in 2025 barred Camino Real’s claims due to res judicata. Rejecting this argument, the Texas Business Court found that res judicata did not apply because the Texas Court of Appeals had vacated the trial court’s ruling that RivenRock was not subject to Camino Real’s company agreement. Under Texas law, a ruling reversed on appeal has no preclusive effect and cannot be relied on for res judicata. Additionally, the Texas Business Court noted that Camino Real’s claims were based on events that occurred after the earlier litigation was resolved; thus, the earlier litigation could not have resolved Camino Real’s current claims, which were based on different facts and legal theories.

Membership Interests Are “Creatures of Contract.” The Texas Business Court then considered RivenRock’s argument that it could obtain the benefit of owning 50% of Camino Real while avoiding the burdens associated with being the capital provider under the company agreement. The court rejected this argument by emphasizing the contractual nature of a Texas LLC membership interest:

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 court further held that, absent the company agreement, there would be no way to determine what RivenRock’s rights and obligations were. Additionally, Texas law bars a party from accepting the benefits of a contract while rejecting its burdens. RivenRock could not simply pick and choose which rights and obligations it wished to accept. Instead, its ownership interest in Camino Real and the company agreement’s terms were “legally inseparable,” and RivenRock was stuck with all benefits and burdens.

Obligations Run With the Membership Interest. Relying on Texas property law, the court found that RivenRock’s ownership interest in Camino Real was burdened with the same obligations previously held by JLR Mansions. Just as a property owner cannot transfer mortgaged land free of the mortgage lien, JLR Mansions could not transfer its 50% ownership interest in Camino Real to RivenRock free of the capital provider’s obligations in the company agreement. Thus, RivenRock acquired its membership interest subject to the company agreement’s dilution provisions.

The 2023 Statutory Amendment. RivenRock also argued that it was not subject to the company agreement’s restrictions because of a 2023 amendment to the Texas Business Organizations Code. That amendment made Texas LLC members and assignees bound by company agreements regardless of whether they signed them. According to RivenRock, the amendment showed that, before 2023, Texas LLC members and assignees were not bound by company agreements if they did not sign them. The court disagreed, noting that the Texas Legislature often codifies existing legal principles to promote uniformity and that an amendment does not necessarily mean that the law was different before the amendment’s enactment. Moreover, regardless of the amendment, the company agreement’s express terms were controlling, precluding RivenRock’s arguments against dilution.

Key Takeaways for Businesses

1. Membership interests may come with strings attached. Acquirors of Texas LLC membership interests should understand their interests are governed by the company agreement and come with all related rights, obligations, and restrictions.
2. Company agreements should include clear transfer provisions. Company agreements should contain explicit provisions addressing what happens when membership interests are transferred and whether the transferee is subject to and bound by the agreement’s terms.
3. Capital obligations and dilution provisions are enforceable. The court validated the use of dilution mechanisms as a contractual remedy for failure to meet capital calls.
4. Members do not own LLC assets directly. The court clarified that membership interests are personal property and do not confer direct ownership of the entity’s underlying assets.

Conclusion

Camino Real Developers v. RivenRock serves as an important reminder that Texas LLC membership interests are defined by the governing company agreement. Parties acquiring such interests should conduct thorough due diligence and understand that they take the interest subject to all existing terms – including potentially unfavorable provisions like dilution.