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Larimer County District Court No. 12CV56. Honorable Devin R. Odell, Judge.
Otis & Peters, LLC, Jennifer Lynn Peters, Timothy R. Odil, Greeley, Colorado, for Plaintiff-Appellee and Cross-Appellant.
Burg Simpson Eldredge Hersh & Jardine, P.C., David P. Hersh, Diane Vaksdal Smith, Kevin M. Bemis, Englewood, Colorado, for Defendants-Appellants and Cross-Appellees.
Opinion by JUDGE GABRIEL. Webb and Miller, JJ., concur.
[¶1] In this dispute between the members of four limited liability companies (the LLCs), defendant, Paula Gagne, appeals the district court's declaratory judgment, and plaintiff, Richard Gagne, cross-appeals that same judgment as well as the district court's rulings (1) granting partial summary judgment to Paula Gagne on his judicial dissolution claim, (2) denying his request to require Paula Gagne to disgorge the attorney fees that the LLCs paid on her behalf, and (3) denying his requests for attorney fees. For clarity and ease of reference, and without intending any disrespect to the parties, we will refer to the parties by their first names.
[¶2] Addressing an apparent matter of first impression, we construe section 7-80-810(2), C.R.S. 2014, which governs the judicial dissolution of a limited liability company, and conclude that a limited liability company may be dissolved if a party seeking a judicial dissolution shows that the managers and members of the company are unable to pursue the purposes for which the company was formed in a reasonable, sensible, and feasible manner. Applying this standard here, we conclude that genuine issues of material fact preclude the entry of partial summary judgment on Richard's judicial dissolution claim and therefore reverse the partial summary judgment on that claim.
[¶3] We further conclude that (1) paragraph 4 of each of the LLCs' Membership Agreements (LLC Agreements) is ambiguous and that further findings are required as to the parties' intent; (2) the district court erred in issuing a declaratory judgment on matters for which a declaration was not sought; and (3) although the district court erred in concluding that section 13-17-201, C.R.S. 2014, applies only to C.R.C.P. 12(b) motions filed by defendants, and not to such motions when filed by plaintiffs seeking to dismiss counterclaims, Richard has failed to establish a right to such fees on the facts of this case.
[¶4] In all other respects, we affirm.
[¶5] Paula and Richard are mother and son, and they are the sole members of the four LLCs, each of which owns multi-unit apartment complexes. Paula and Richard's business relationship has been exceedingly difficult, and it has been marked by extreme dysfunction, allegations of physical altercations, mutual distrust, ongoing allegations of wrongdoing by the other, and legal proceedings or threats thereof.
[¶6] The LLC Agreements provide that Paula is the LLCs' Chief Executive Manager and that she has fifty-one percent of the memberships' voting rights. The Agreements acknowledge, however, that Richard has made in-kind contributions earning him
an equal ownership interest in the LLCs' income and accumulation of assets. The Agreements further state, in their recitals, that the LLCs' success " requires the active interest, support, cooperation, and personal attention of the Members."
[¶7] As pertinent here, paragraph 4 of each of the LLC Agreements concerns the management of the LLCs' properties, and it details the property management rights and obligations of Paula, Richard, and Home Management Solutions, Inc. (HSI), a company owned and operated by Richard and his wife. That paragraph provides, in part, that HSI shall be responsible for all property management of the LLCs' assets for a period of twenty-four months for $50 per unit per month. Thereafter, the members could, by unanimous agreement, vote to extend the agreement with HSI on identical terms. Alternatively, HSI was given the first right of refusal to continue property management for $25 per unit per month, for successive twelve-month renewable terms, unless Paula determined that HSI had engaged in gross negligence or insurmountable disagreements arose.
[¶8] In January 2011, the parties held a week-long meeting regarding the LLCs' future. This meeting resulted in mediation before a third-party mediator. At the conclusion of the mediation, the mediator produced a draft memorandum of agreement, but neither party signed it. Thereafter, Richard prepared so-called " minutes" of the parties' week-long meeting (Meeting Minutes). Both parties signed these Minutes and initialed each page. These Minutes state, " As a result of Mediation and further discussions, the following items were resolved." The Minutes then provide, among other things, that HSI shall have the " ongoing first right of refusal" to manage the LLCs' properties for $50 per unit per month.
[¶9] Approximately one year later, Richard initiated the present action, alleging that he and Paula had been unable to agree on the continued operation and management of the LLCs and had reached an impasse as to an equitable distribution of the LLCs or their assets. As pertinent here, Richard brought claims for (1) judicial dissolution of the LLCs and (2) a declaratory judgment setting forth his and Paula's respective rights, status, and legal relations and concerning, among other things, the LLCs' ownership interests and management. Richard also sought the appointment of a receiver. Although the court initially granted the motion to appoint a receiver, it later redesignated the receiver as a custodian to operate the LLCs during the present litigation.
[¶10] Paula responded to Richard's complaint by denying his principal allegations and asserting counterclaims against him for unjust enrichment, conversion, " constructive trust," breach of fiduciary duty, and " specific performance." Richard moved to dismiss these counterclaims for failure to state a claim on which relief could be granted, and the court granted his motion. Richard then sought attorney fees pursuant to section 13-17-201, but the court deferred ruling on that motion.
[¶11] In the interim, Paula moved for partial summary judgment on Richard's judicial dissolution claim. The court granted this motion in a detailed written order, reasoning, in pertinent part, that (1) the LLC Agreements provided a means of navigating around membership deadlock; and (2) the purpose of the LLCs, namely, the operation of the apartment complexes, could continue on a profitable basis in accord with the LLC Agreements' terms, even in the absence of cooperation between the parties.
[¶12] While the above-described pretrial motions were being litigated, HSI sent a letter to the custodian purporting to exercise its first right of refusal pursuant to paragraph 4 of the LLC Agreements. Paula responded with a letter to the custodian stating that she had determined that HSI had committed gross negligence and that insurmountable disagreements had arisen between her and HSI. Paula thus asserted that HSI did not have the first right of refusal to continue as the property manager. The parties did not then engage in mediation regarding this dispute.
[¶13] The case proceeded to trial on the parties' respective declaratory judgment claims. As pertinent here, in pretrial papers
framing the issues for trial, Richard asserted that the Meeting Minutes amended the first right of refusal granted to HSI in the LLC Agreements and granted HSI an ongoing right of first refusal, without limitation, so long as the LLCs owned the subject real properties. Richard further asserted that HSI had timely exercised this first right of refusal but that Paula was seeking to terminate HSI and replace it with another property manager.
[¶14] Paula, in contrast, argued that under the LLC Agreements, she retained the authority to remove HSI as property manager and properly exercised that right.
[¶15] Trial commenced, and at the beginning of the trial, Richard's counsel informed the court that he had learned that Paula had entered into an employment contract with another son, Jay Gagne. Richard claimed that this contract, which Paula had concealed from him, represented a breach of, among other things, Paula's fiduciary duties to the LLCs. Richard thus advised the court that he intended to move for reconsideration of the partial summary judgment on his judicial dissolution claim, and he orally requested that the court recast the custodian as a receiver.
[¶16] The parties proceeded through the evidentiary portion of the trial, and after trial, Richard filed his promised motion to reconsider the partial summary judgment ruling, as well as a written motion to redesignate the custodian as a receiver. These motions were based on Paula's contract with Jay. In addition, Richard alluded to a loan that Paula had made to one of the LLCs in which Paula signed the paperwork as both lender and borrower.
[¶17] The district court ultimately issued a lengthy and comprehensive order disposing of the above-described motions and the claims remaining before it.
[¶18] The court first denied Richard's renewed motion for the appointment of a receiver and his motion to reconsider the court's grant of partial summary judgment on his judicial dissolution claim. Although the court concluded that Paula's actions in hiring Jay and in making the loan to one of the LLCs did not support converting the custodian to a receiver or granting a judicial dissolution, the court noted that these facts raised legitimate concerns that the court could address by less drastic means.
[¶19] The court then proceeded to address the parties' declaratory judgment claims relating to the issues of property management. The court began its analysis by assuming without deciding that the Meeting Minutes represented an agreement between the parties to amend the LLC Agreements. The court concluded, however, that, at most, this agreement amended only the portion of paragraph 4(C) that established HSI's rate of pay for continued management. It did not constitute an amendment superseding the other provisions of paragraph 4. The court then found that paragraph 4 gave Paula the right to act unilaterally in selecting a property manager but that if she did so, Richard would be absolved of his obligations to contribute his services for property management or to pay a portion of the cost of any subcontracted property management.
[¶20] The court then proceeded to the issues of the contract with Jay and the LLC loan, which issues the court said it could address in the context of the parties' declaratory judgment claims. The court concluded that Paula's conduct in signing the contract with Jay represented a breach of her contractual duty (in the LLC Agreements) to act in good faith, and the court ordered Paula to indemnify, defend, and hold harmless the LLCs and Richard for any claims, including attorney fees and court costs, arising from or related to the contract with Jay. The court likewise found that Paula's conduct in making the LLC loan was a breach of her contractual duty of good faith, and it declared the loan null and void and ordered that it be considered a capital contribution by Paula to the borrower LLC.
[¶21] Thereafter, Richard requested that the district court order, among other things, that Paula disgorge and return to the LLCs the attorney fees paid to Paula by the LLCs for her defense against Richard's claims. Richard further requested that the court award him attorney fees based on (1) the court's declaration that Paula must indemnify
him for all claims, including attorney fees, arising from or related to the contract with Jay; and (2) the fee-shifting provision in the LLC Agreements, given the court's declaration that Paula had breached those agreements. The court denied these requests and also denied Richard's prior request for attorney fees pursuant to section 13-17-201, on which the court had deferred ruling. As pertinent here, the court concluded that section 13-17-201 applied only to defendants who obtain C.R.C.P. 12(b) dismissals of another party's complaint, and not to a plaintiff who obtains a C.R.C.P. 12(b) dismissal of a counterclaim.
[¶22] Paula now appeals, and Richard cross-appeals.
II. Judicial Dissolution
[¶23] Richard contends that the district court erred in granting partial summary judgment to Paula on his claim for judicial dissolution. We agree.
A. Standards of Review and Statutory Construction
[¶24] We review de novo an order granting a motion for summary judgment. Colo. Cmty. Bank v. Hoffman, 2013 COA 146, ¶ 36, 338 P.3d 390, 396. Summary judgment is proper only when the pleadings and supporting documents show that there is no genuine issue of material fact and that the moving party is entitled to judgment as a matter of law. C.R.C.P. 56(c); Colo. Cmty. Bank, ¶ 36, 338 P.3d at 396. In determining whether summary judgment is proper, a court grants the nonmoving party any favorable inferences reasonably drawn from the facts and resolves all doubts in favor of the nonmoving party. Colo. Cmty. Bank, ¶ 36, 338 P.3d at 396. In responding to a properly supported summary judgment motion, however, the nonmoving party " may not rest upon mere allegations or denials in its pleadings, but must provide specific facts demonstrating the existence of a genuine issue for trial." Sender v. Powell, 902 P.2d 947, 950 (Colo. App. 1995); accord C.R.C.P. 56(e).
[¶25] We likewise review issues of statutory construction de novo. See Chittenden v. Colo. Bd. of Soc. Work Exam'rs, 2012 COA 150, ¶ 11, 292 P.3d 1138, 1140. Our primary purpose in statutory construction is to ascertain and give effect to the intent of the General Assembly. Id. We look first to the language of the statute, giving words and phrases their plain and ordinary meanings. Id. We read words and phrases in context and construe them according to their common usages. Id. at ¶ 11, 292 P.3d at 1141.
[¶26] In addition, we must interpret a statute in a way that best effectuates the purpose of the legislative scheme. Id. at ¶ 12, 292 P.3d at 1141. When a court construes a statute, it should read and consider the statute as a whole and interpret it in a manner giving consistent, harmonious, and sensible effect to all of its parts. Id. In doing so, a court should not interpret the statute so as to render any part of it either meaningless or absurd. Id.
[¶27] If the statute is unambiguous, we look no further. Id. at ¶ 13, 292 P.3d at 1141. We may, however, look to the decisions of other states applying statutes comparable to our own. LaFond v. Sweeney, 2012 COA 27, ¶ 33, ___ P.3d ___, ___ ...