Larimer County District Court No. 12CV56 Honorable Devin R.
Odell, Judge
Otis,
Bedingfield & Peters, LLC, Jennifer Lynn Peters, Timothy
R. Odil, Lia Szasz, Greeley, Colorado, for Plaintiff-Appellee
Burg
Simpson Eldredge Hersh & Jardine, P.C., David P. Hersh,
Diane Vaksdal Smith, Lisa R. Marks, D. Dean Batchelder,
Nelson Boyle, Englewood, Colorado, for Defendant-Appellant
OPINION
J.
JONES, JUDGE
¶
1 Paula Gagne appeals the district court's judgment
dissolving four limited liability companies in which she and
one of her sons, Richard Gagne, were the only members (the
LLCs). Paula[1]
contends that the district court erred by dissolving the four
LLCs, in determining how the dissolutions would occur, and in
calculating each member's portion of the LLCs'
assets. She hasn't convinced us, however, that the
district court erred in any respect, and so we affirm the
judgment and remand for the court to determine Richard's
reasonable attorney fees incurred on appeal.
I.
Background
¶
2 Some of the factual background relevant to this case is set
forth in the prior division's decision in Gagne v.
Gagne, 2014 COA 127 (Gagne I). We repeat it
only as necessary and add to it developments occurring after
the prior division's remand.
¶
3 Paula and Richard are mother and son. In the mid-2000s,
they agreed to a joint business venture in which Paula would
buy apartment complexes and Richard would manage them. They
created three LLCs in 2006 to buy and manage three such
properties and created a fourth LLC in 2008 to buy and manage
a fourth such property. (All of the apartment buildings are
in Fort Collins.) The district court found, with ample record
support, that the primary purpose of these LLCs was "to
provide a joint business between [Richard] and [Paula], so
that the parties would be partners in a business and so that
[Richard] would have an occupation and a means to support his
family." The initial LLC operating agreements provided
that Paula and Richard would own each LLC fifty-fifty, but
that Richard would have fifty-one percent voting rights in
each.
¶
4 It didn't take long, however, for Paula and
Richard's relationship, already strained, to devolve into
a more or less constant state of acrimony. Litigation ensued,
with Paula claiming that Richard was using the LLCs'
funds for his personal benefit. The parties settled. They
entered into new operating agreements in August 2010. They
remained fifty-fifty owners, but this time Paula got
fifty-one percent voting rights. As now relevant, each of the
identical operating agreements also provides as follows:
• Paula's contributions are money (in specified
amounts), while Richard's are "in-kind." The
parties acknowledged that these in-kind contributions had
caused appreciation of the LLCs' equity in the apartment
buildings.
• The success of the venture "requires the active
interest, support, cooperation, and personal attention
of" both Paula and Richard.
• Paula is "Chief Executive Manager" of the
LLC, with "primary responsibility for managing" the
LLC.
• The Chief Executive Manager "shall perform [her]
[m]anagerial duties in good faith, in a manner [she]
reasonably believe[s] to be in" the LLC's
best interests. (Emphasis added.)
• The Chief Executive Manager is liable to the LLC and
its members for any loss resulting from her
"fraud, gross negligence, willful misconduct,
or . . . wrongful taking." (Emphasis added.)
• Richard's company, Home Solutions, Inc. (HSI),
will manage the property for a minimum of two years, with
possible extensions. Should a new property manager be
desired, HSI has a right of first refusal.
• If the property is sold, Paula has "a preferred
status for the distribution of net revenues from the
sale" to repay her cash capital contribution and any
other loans or advances. If any proceeds remain, they will be
divided evenly.
• Paula has "the sole right and discretion to
sell" the property, subject to certain conditions.
• Paula has "the sole right and discretion to
refinance" the LLC's property, again subject to
certain conditions, including that she act consistently with
her status as a "fiduciary for the members."
¶
5 Unfortunately, the hatchet didn't stay buried for long.
There were arguments and allegations, confrontations and
criticisms - a continual pattern of regrettable behavior that
left the parties on hostile terms. Perhaps inevitably,
Richard sued, seeking judicial dissolution of the LLCs under
section 7-80-810(2), C.R.S. 2018, as well as a declaratory
judgment as to his and Paula's respective rights and
obligations vis-a-vis the LLCs.
¶
6 The district court appointed a receiver for the LLCs, but
later decided that the receiver should act as a custodian
during the litigation. Some time down the road, the court
granted Paula's motion for summary judgment on the
dissolution claim. Following a trial, the court resolved the
remaining issues. Neither Richard nor Paula was entirely
satisfied. Both appealed.
¶
7 The prior division held that the district court hadn't
applied the right test in determining whether dissolution was
appropriate. Drawing primarily on case law from other
jurisdictions, it gave a nonexclusive list of seven factors
that a court must consider. Gagne I, ¶ 35. It
remanded the case for additional proceedings to resolve
genuine issues of fact material to those
factors.[2]
¶
8 On remand, the court held another trial on the judicial
dissolution claim. The court entered a thorough,
well-reasoned order concluding that dissolution is
appropriate. Following another evidentiary hearing, the court
entered another thorough, well-reasoned order setting forth
how the dissolutions will proceed, essentially saying who
will get what (and why). In brief, the court ordered that
Richard and Paula will each receive two of the apartment
buildings - an in-kind distribution of LLC assets. This is to
be accomplished by a so-called "drop and swap"
exchange. Finding that Paula had engaged in a great deal of
self-dealing misconduct, the court adjusted the parties'
respective shares of the assets' values to account for
money Paula had wrongfully pulled out of the LLCs.
¶
9 Only Paula appeals.
II.
Discussion
¶
10 Paula's contentions on appeal fall into three general
categories. First, she contends that the court erred, both
legally and factually, in ordering dissolution of the LLCs.
Second, she contends that the court erred in ordering an
in-kind distribution of the LLCs' assets, rather than
ordering the assets sold and resulting proceeds distributed
to the members. Third, she contends that the court erred in
ordering various adjustments to each member's side of the
ledger. We aren't persuaded that the district court erred
in any respect.
A. The
Court Properly Ordered Dissolution
1.
Legal Framework
¶
11 Section 7-80-110(2) provides that
[a] limited liability company may be dissolved in a
proceeding by or for a member or manager of the limited
liability company if it is established that it is not
reasonably practicable to carry on the business of the
limited liability company in conformity with the operating
agreement of said company.
¶
12 In Gagne I, the division held that "to show
that it is not reasonably practicable to carry on the
business of a limited liability company, a party seeking a
judicial dissolution must establish 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." Gagne I, ¶ 31. In
determining whether the party seeking judicial dissolution
has met this burden, the court should consider the following
seven nonexclusive factors:
(1) whether the company's managers are unable or
unwilling to pursue the purposes for which the company was
formed;
(2) whether a member or manager has committed misconduct;
(3) whether it's clear that the members aren't able
to work with each other to pursue the company's purposes;
(4) whether the members are deadlocked;
(5) whether the company's operating agreement provides a
means of resolving any deadlock;
(6) whether, in light of the company's financial
condition, there remains a business to operate; and
(7) whether allowing the company to continue is financially
feasible.
Id. at ¶ 35. No one factor is dispositive, and,
conversely, a party seeking dissolution isn't required to
establish all the factors. Id. at ¶ 36.
2. The
District Court's Findings
¶
13 The district court expressly addressed each of the seven
factors identified above. Its findings as to each factor
were, in summary, as follows:
(1) Paula and Richard are unwilling or unable to promote the
purposes for which they formed the LLCs. In particular, Paula
has ensured that Richard can't actively participate in
what were supposed to be joint businesses - joint businesses
created, in large part, so that Richard "would have an
occupation and a means to support his family." She has
done this by refusing to work with Richard in any way;
shutting him out of any role in decision-making; terminating
HSI's role as property manager without cause; and giving
a primary business role to her other son, Jay, who also
refuses to work with Richard. In short, Paula has rendered
Richard a mere passive observer of the LLCs' operations,
contrary to the ...