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Kite Ranch, LLC v. Dunmire

June 24, 2010

IN THE MATTER OF KITE RANCH, LLC, A WYOMING LIMITED LIABILITY COMPANY: POWELL FAMILY OF YAKIMA, LLC, A WASHINGTON LIMITED LIABILITY COMPANY, DOUGLAS BRICKMAN, INDIVIDUALLY, AND DOUGLAS BRICKMAN AND ANNE BRICKMAN, HUSBAND AND WIFE, AND AS JOINT TENANTS, APPELLANTS (DEFENDANTS),
v.
GALEN DUNMIRE AND REBECCA DUNMIRE, HUSBAND AND WIFE, AS JOINT TENANTS AND JAMES HEDSTROM AND DONNA HEDSTROM, HUSBAND AND WIFE, AS JOINT TENANTS, APPELLEES (PLAINTIFFS).



Appeal from the District Court of Albany County The Honorable Jeffrey A. Donnell, Judge.

The opinion of the court was delivered by: Voigt, Chief Justice.

Before VOIGT, C. J., and GOLDEN, HILL, KITE, and BURKE, JJ.

[¶1] This is an appeal from a district court order determining the ownership and management rights of the members of a limited liability company (the LLC). A secondary question has been presented as to whether the district court adjudicated issues that were not raised by the pleadings. We affirm in part and reverse in part.

ISSUES

[¶2] 1. Can a party be a member of a limited liability company without evidence of a contribution to capital?

2. Under the Wyoming Limited Liability Company Act (the Act), do economic and non-economic rights of company members vest in proportion to contributions to capital or pursuant to the articles of organization?

3. Does Wyoming law recognize a distinction between contributions to capital as initially listed in the articles of organization of a limited liability company, and as reflected on the company's books and records?

4. Did the district court commit reversible error by adjudicating claims made against the unrepresented limited liability company?

5. Were issues related to dissolution of the limited liability company ripe for adjudication?

FACTS

[¶3] This case previously was before this Court on the limited issue of the propriety of an injunction that had been granted by the district court and, for convenience's sake, we will simply re-state the facts as they were stated in the opinion issued in that matter:

In 2001, Dunmires, Hedstroms and Brickmans discussed purchasing a ranch in Albany County. The purchase price of the ranch was $1.1 million. They approached Powell about providing funds to help with the purchase. Powell agreed to provide $300,000 toward the purchase price of the ranch.

The parties secured a loan from First National Bank (FNB) for the bulk of the purchase price. The FNB loan was evidenced by a promissory note and mortgage on the ranch property. All members, except Powell, personally guaranteed the note, and Dunmires supplied additional real property to secure the FNB loan. FNB required the borrowers to form a business entity as a condition of the loan and to limit Powell's ownership in the new entity to a ―maximum of 20%.‖ FNB also stated that the equity Powell provided could ―not be accounted for through a note or mortgage.‖

Hedstroms and Brickmans executed articles of organization for Kite Ranch on December 26, 2001. Dunmires, Brickmans, Hedstroms and Powell contributed initial capital of $1,000, with 20 percent coming from Powell and 26.66 percent from each of the other members. The articles were filed with the Wyoming Secretary of State's office. However, the members did not execute an operating agreement, even though proposed agreements were apparently circulated among them.*fn1

Kite Ranch operated as a cattle ranch over the next few years, leasing its property for grazing purposes. All of the members except Powell met periodically to discuss business matters, although the meetings were not formal as no official notice was given prior to the meetings and minutes were not kept. During this time, approximately $220,000 of Powell's equity contribution was returned to it, leaving it with a capital account of approximately $80,000. Dunmires provided approximately $415,000 in funds to Kite Ranch during those years. The company's financial records indicate that Dunmires' contributions were carried as loans to the company. The company's accountant testified that Dunmires directed her to designate the funds as loans.

In 2006, Powell and Brickmans became concerned about the management of the company. Powell and Hedstroms executed contradictory leases on behalf of the company, leasing the ranch property to different individuals for the 2007 grazing season. In addition, the FNB note fell into default when it matured on November 1, 2006.

On January 12, 2007, Dunmires and Hedstroms filed a complaint for declaratory judgment against Powell and Brickmans. They also named the limited liability company as an involuntary plaintiff. They sought a declaration of the parties' respective interests, rights and responsibilities with respect to the limited liability company. Powell and Brickmans responded with a petition for a temporary restraining order and preliminary injunction giving Powell management authority over the company and enjoining Dunmires and Hedstroms from exercising any management authority.

In re Kite Ranch, LLC, 2008 WY 39, ¶¶ 3-8, 181 P.3d 920, 922 (Wyo. 2008) (Kite Ranch I).

[¶4] In Kite Ranch I, we affirmed the district court's grant of a preliminary injunction giving Powell the authority to manage the ranch during the pendency of these proceedings. Id. at ¶ 32, at 929. We noted, however, that the district court's factual findings at that stage of the proceedings were ―subject to being revisited at the trial . . . .‖ Id. at ¶ 25, at 927 n.4.*fn2 The matter then returned to the district court, where a motion for partial summary judgment was heard on February 18, 2009, and a bench trial on remaining issues was held on May 26-27, 2009. The district court issued decision letters on February 23, 2009, and June 9, 2009, and a final order on July 20, 2009. This appeal followed. Additional facts will be presented in the following discussion as they pertain to specific issues.

STANDARD OF REVIEW

[¶5] Our standards for reviewing orders granting summary judgment are well established:

We review a summary judgment in the same light as the district court, using the same materials and following the same standards. Summary judgment is proper only when there are no genuine issues of material fact and the prevailing party is entitled to judgment as a matter of law.

A motion for summary judgment places an initial burden on the movant to make a prima facie showing that no genuine issue of material fact exists and that summary judgment should be granted as a matter of law. Once a prima facie showing is made, the burden shifts to the party opposing the motion to present specific facts showing that a genuine issue of material fact does exist. We analyze challenges to a grant of summary judgment by reviewing the record in a light most favorable to the party opposing the motion giving him all favorable inferences that can be drawn from the facts. Conclusory statements or mere opinions are insufficient, however, to satisfy an opposing party's burden.

Gayhart v. Goody, 2004 WY 112, ¶ 11, 98 P.3d 164, 168 (Wyo. 2004) (quoting Moore v. Lubnau, 855 P.2d 1245, 1248 (Wyo. 1993)) (citations omitted). ―Summary judgment may be the appropriate resolution in a declaratory judgment action.‖ Coffinberry v. Bd. of County Comm'rs of County of Hot Springs, 2008 WY 110, ¶ 3, 192 P.3d 978, 979 (Wyo. 2008).

[¶6] We recently reiterated our standard for reviewing the findings of fact and conclusions of law of a district court after a bench trial:

The factual findings of a judge are not entitled to the limited review afforded a jury verdict. While the findings are presumptively correct, the appellate court may examine all of the properly admissible evidence in the record. Due regard is given to the opportunity of the trial judge to assess the credibility of the witnesses, and our review does not entail re-weighing disputed evidence. Findings of fact will not be set aside unless they are clearly erroneous. A finding is clearly erroneous when, although there is evidence to support it, the reviewing court on the entire evidence is left with the definite and firm conviction that a mistake has been committed.

Further, with regard to the trial court's findings of fact, we assume that the evidence of the prevailing party below is true and give that party every reasonable inference that can fairly and reasonably be drawn from it. We do not substitute ourselves for the trial court as a finder of facts; instead, we defer to those findings unless they are unsupported by the record or erroneous as a matter of law.

The district court's conclusions of law are, however, subject to our de novo standard of review.

Vargas Ltd. P'ship v. Four "H" Ranches Architectural Control Comm., 2009 WY 26, ¶ 9, 202 P.3d 1045, 1049-50 (Wyo. 2009) (internal citations omitted). Statutory construction is a question of law that we review de novo. State ex rel. Wyo. Dep't of Revenue v. Hanover Compression, LP, 2008 WY 138, ¶ 8, 196 P.3d 781, 784 (Wyo. 2008).

DISCUSSION

Can a party be a member of a limited liability company without evidence of a contribution to capital?

[¶7] Powell and Brickmans contend that, despite the statement in the Articles of Organization that cash contributions were being made ―at this time‖-Powell, $200.00; Brickmans, $266.67; Hedstroms, $266.67; and Dunmires, $266.67-there was no evidence at trial that anyone but Powell actually made a capital contribution. It follows, Powell asserts, that nobody but Powell ever became a member of the LLC.

[¶8] This issue was resolved by the district court via summary judgment. On December 12, 2008, Dunmires filed a motion for partial summary judgment, asking the district court to determine that Powell, Brickmans, Dunmires, and Hedstroms were the members of the LLC, that their capital contributions equaled the amounts and percentages set forth in the Articles of Organization, and that the members' equity ownership in the LLC was in the same percentages. In a decision letter issued February 23, 2009, followed by an order filed April 15, 2009, the district court held that the four parties listed were, indeed, the members of the LLC, but left the two remaining issues for trial.

[¶9] The district court's conclusions that Powell, Brickmans, Dunmires, and Hedstroms were all members of the LLC was based on two precepts. First, the district court found that ―[i]t is clear that, at the time Kite Ranch, LLC was formed, Powell, Brickmans, Hedstroms, and Dunmires were intended to be ‗members' in the limited liability company.‖ Second, the district court cited Wyo. Stat. Ann. § 17-15-121(a)(i) (LexisNexis 2009), for the proposition that ―a member is liable to the LLC for the difference between his contributions to capital as actually made and as state[d] in the articles of organization.‖ In other words, whether or not a member actually made the stated capital contribution is not determinative of that member's ―membership‖ in the LLC.

[¶10] We will affirm the summary judgment on this point. It is clear that Powell, Brickmans, Hedstroms, and Dunmires were intended to be, and became, the members of the LLC. The communications with FNB anticipated that these would be the members. The Articles of Organization identified them as the members. Furthermore, in what amounts to an admission on this point, Powell signed an Authorization and Consent form on December 28, 2001, identifying the members of the LLC as Powell, Brickmans, Hedstroms, and Dunmires.

[¶11] As noted by the district court, Wyo. Stat. Ann. § 17-15-121(a)(i) states that a member may or may not yet have made the capital contribution attributed to him or her in the articles of organization. Furthermore, Wyo. Stat. Ann. § 17-15-109(a) (LexisNexis 2009) declares that issuance of the certificate of organization is ―conclusive evidence that all conditions precedent required to be performed by the members have been complied with . . . .‖ So, if payment of the initial capital contribution were to be seen as a prerequisite to membership, such was conclusively established by issuance of the certificate of organization to the LLC on December 28, 2001.

[¶12] Powell and Brickmans would like the law to be that, until a limited liability company actually has a person's initial capital contribution ―in hand,‖ that person is not and cannot be a member of the limited liability company. They cite no law to that effect, and the statutes cited above do not contain that requirement. Instead, the statutes make the member liable to the limited liability company for the difference between the amount of his stated capital contribution and the amount actually contributed. Consequently, even if the facts are viewed in the light most favorable to Powell and Brickmans, and we assume that Brickmans, Hedstroms, and Dunmires did not each pay the stated $266.67, that fact does not mean they are not members of the LLC.*fn3

Under the Wyoming Limited Liability Company Act, do economic and non-economic rights of company members vest in proportion to contributions to capital or pursuant to the articles of organization?

[ΒΆ13] An analysis of pertinent parts of the Act is helpful in responding to this question. In Lieberman v. Wyoming.com LLC, 11 P.3d 353, ...


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