California Business Divorce: California Court Recognizes LLC Member Lists as Trade Secrets in Recent Ruling
California Court Recognizes LLC Member Lists as Trade Secrets in Recent Ruling
When an LLC member suspects the company is playing favorites with redemption requests, how much access should they have to the membership rolls to investigate? In a recent decision relevant to California limited liability companies, the Court of Appeal for the Sixth Appellate District held in Perry v. Stuart Perry v. Stuart, 2025 Cal. App. LEXIS 334 (6th Dist. 2025) that an LLC's member list can constitute a trade secret, allowing managers to redact member names and addresses even when faced with a statutory demand for books and records inspection.
The Dispute
The case arose when LLC member Dahlex LP sought to inspect Milestone Financial LLC's records, including its complete member list with names, addresses, contributions, and profit-sharing information. Dahlex's request was motivated by concerns that Milestone had violated its operating agreement's "first come basis" redemption policy—specifically, that another member (Raab) had received a full $250,000 redemption before Dahlex's earlier withdrawal request was fully satisfied.
Dahlex argued it needed the member list to verify whether other members had submitted withdrawal requests before June 2021 and to track the timing and amounts of redemption payments to ensure compliance with the operating agreement's redemption procedures.
The Manager's Trade Secret Defense
Milestone's manager, William Stuart, successfully argued that the member list qualified as a trade secret under Civil Code Section 3426.1. Stuart demonstrated that he had "invested time, money and effort to find people willing to invest" in Milestone's unique lending business, including "thousands of hours" in marketing, advertising, and soliciting potential members. Crucially, Stuart showed that:
- The member list was not publicly available
- Access was limited to those with "a need to know"
- All persons with access agreed to keep it confidential
- Disclosure to competitors would allow them to "save all the money, time and effort required to find people willing to make this unique investment"
The Court's Balancing Act
The Court of Appeal faced competing statutory schemes: the LLC Act's broad inspection rights under Corporations Code Section 17704.10 versus trade secret protection under Civil Code Section 3426.1. Applying established principles of statutory interpretation, the court held that trade secret protection—being the more specific statute—takes precedence over the general inspection rights.
However, the court's ruling was notably limited in scope. While finding that the member list itself constituted a trade secret warranting redaction of names and addresses, the court explicitly rejected the manager's request to extend this protection to member names appearing in other documents subject to the inspection demand.
Key Takeaways
A few of the key takeaways from this case include:
- Member lists can qualify as trade secrets when managers can demonstrate substantial effort and expense in developing their investor base, particularly for unique or specialized business opportunities.
- Trade secret protection is narrow—it applies only to the curated list itself, not to member names that may appear elsewhere in the company's books and records.
- The burden is on the manager to prove trade secret status with specific evidence of secrecy efforts and economic value.
- Confidentiality agreements in operating agreements support, but don't automatically establish, trade secret protection.
This case underscores the importance of implementing and documenting robust confidentiality measures around investor lists from the outset. For members seeking inspection rights, the decision confirms that while member lists may be redacted, most other company documents remain subject to full disclosure under the LLC Act's inspection provisions.
