Justia.com Opinion Summary: Gary Fordham, David Thompson, and Venture Sales, LLC appealed a chancery court order that dissolved Venture Sales pursuant to Mississippi Code Section 79-29-802 (Rev. 2009). Walter Ray Perkins owned 27.7 acres of land. Sometime in the late 90s, he was approached by Fordham and Thompson about a potential business venture involving his land. Perkins, Fordham, and Thompson eventually agreed that Fordham and Thompson would acquire the 438 acres of land that adjoined Perkins's land; the parties would combine their respective land, along with some cash, and form a venture to develop the land. Following the contributions, the operating agreement of Venture Sales was revised to reflect the arrangement. The parties signed the new operating agreement in 2000. In February 2010, Perkins filed an application for judicial dissolution of Venture Sales. Following a trial, the chancellor found that, based on the property's history, the company's inability to get funding for development, and the uncertainty regarding the economic climate in the area, it was not reasonably practicable to carry on the business of Venture Sales. The chancellor therefore ordered the company dissolved. Upon review, the Supreme Court determined that the chancellor's decision to order the dissolution of Venture Sales was not an abuse of discretion: substantial evidence existed supporting the chancellor's determination that it was not reasonably practicable for Venture Sales to carry on business in conformity with its operating agreement.
Receive FREE Daily Opinion Summaries by Email Download as PDF
Loading PDF...
<![CDATA[
IN THE SUPREME COURT OF MISSISSIPPI
NO. 2010-CA-01552-SCT
VENTURE SALES, LLC, GARY FORDHAM AND
DAVID E. THOMPSON
v.
WALTER RAY PERKINS
DATE OF JUDGMENT:
TRIAL JUDGE:
COURT FROM WHICH APPEALED:
ATTORNEYS FOR APPELLANTS:
ATTORNEYS FOR APPELLEE:
NATURE OF THE CASE:
DISPOSITION:
MOTION FOR REHEARING FILED:
MANDATE ISSUED:
08/27/2010
HON. JOHNNY LEE WILLIAMS
FORREST COUNTY CHANCERY COURT
THOMAS E. SCHWARTZ
S. ROBERT HAMMOND, JR.
PAUL H. HOLMES
MARCUS A. McLELLAND
CIVIL - OTHER
AFFIRMED AND REMANDED - 04/26/2012
BEFORE WALLER, C.J., RANDOLPH AND CHANDLER, JJ.
WALLER, CHIEF JUSTICE, FOR THE COURT:
¶1.
Gary Fordham, David Thompson, and Venture Sales, LLC, appeal from the order of
the Forrest County Chancery Court dissolving Venture Sales pursuant to Mississippi Code
Section 79-29-802 (Rev. 2009).1
1
Because substantial evidence exists to support the
Title 79, Chapter 29 of the Mississippi Code constitutes the Mississippi Limited
Liability Company Act. This chapter was substantially revised in 2010. The revisions,
which took effect on January 1, 2011, dealt in part with the process of judicial dissolution
of an LLC. Section 79-29-802 was repealed, and Section 79-29-803 was revised and now
provides the process for judicial dissolution. However, because this action was filed in 2010,
it is governed by the prior version of the statutes. See Miss. Code Ann. § 79-29-1317 (Supp.
chancellor’s determination, we affirm the judgment. Because the chancellor did not address
winding up the company following dissolution, we remand the case to the chancery court to
wind up the affairs of Venture Sales pursuant to Mississippi Code Sections 79-29-803
through 79-29-807 (Rev. 2009).
FACTS AND PROCEDURAL HISTORY
¶2.
Walter Ray Perkins owned 27.7 acres of land on Highway 42 in Petal, Mississippi.
Sometime in the late 90s, Perkins was approached by Fordham and Thompson about a
potential business venture involving this land.2 Perkins, Fordham, and Thompson eventually
agreed that Fordham and Thompson would acquire the 438 acres of land that adjoined
Perkins’s land to the south; then, the parties would combine their respective land, along with
some cash, and form a venture to develop the land.
¶3.
After Fordham and Thompson purchased the 438 acres, Perkins contributed his land
as well as $155,378.59 in cash to Venture Sales, an already-existing company in which
Fordham and Thompson were partners. Fordham and Thompson contributed their land to
Venture Sales, along with $1,459.12 in cash, each. The cash and land contributions were
structured such that Perkins, Fordham, and Thompson each would own one-third of the
company.
¶4.
Following the contributions, the operating agreement of Venture Sales was revised
to reflect the arrangement. The Restated Purpose of Venture Sales, set forth in Section 1.02
2011) (stating that revisions do not apply to actions commenced before mandatory
application date).
2
Perkins originally became acquainted with Fordham when Fordham’s church, First
Baptist Church of Petal, purchased land from Perkins.
2
of the Restated Limited Liability Company Agreement for Venture Sales, LLC (“the
operating agreement”), was stated as follows:
The purpose of the Company is to initially acquire, develop and sale [sic]
commercial and residential properties near Petal, Forrest County, Mississippi
and subsequently at other locations to be decided by the Company and to
conduct any other lawful business, purpose, or activity as decided by the
Members.
The language, “acquire, develop and sale [sic] . . .” is the main issue in this dispute.
¶5.
The parties signed the new operating agreement on February 18, 2000, and gave the
agreement an effective date of January 1, 2000. At the time the company was formed,
Perkins was working as an assistant coach for the Cleveland Browns, a professional football
team, and was living in Ohio. Perkins stated at trial that he relied on Fordham and
Thompson, who had experience in the mobile-home business, to devote their time and energy
to the development of the Venture Sales property.
¶6.
As of the beginning of this litigation, the property remained undeveloped and virtually
unchanged. According to Fordham and Thompson, there are several causes, outside the
members’ control, for the delay in development. However, during this time, Fordham and
Thompson have successfully developed at least two other subdivisions with approximately
200 collective houses within twenty-five miles of the Venture Sales property.
¶7.
In early 2009, Venture Sales negotiated an option contract for the sale of a portion of
its land, however the contract expired before it closed. Also in 2009, Venture Sales listed
its entire property for sale for $5.2 million, but the listing expired without a deal. Fordham
requested the members’ approval to list the property for $3.5 million, but Perkins did not
agree.
3
¶8.
In February 2010, Perkins filed an application for judicial dissolution of Venture
Sales. Following a trial, the chancellor found that, based on the property’s history, the
company’s inability to get the required funding for development, and the uncertainty
regarding the economic climate in the area, it was not reasonably practicable to carry on the
business of Venture Sales.
The chancellor therefore ordered the company dissolved.
Fordham, Thompson, and Venture Sales now appeal.
ISSUES
¶9.
Fordham and Thompson raise three issues on appeal:
I.
II.
Whether the chancellor erred by ordering the dissolution of Venture
Sales because his judgment was not supported by substantial evidence,
he abused his discretion, he was manifestly wrong, and his findings
were clearly erroneous.
III.
¶10.
Whether the chancellor erred as a matter of law in ordering the
dissolution of a solvent limited liability company based on the
application of one dissatisfied member.
If the chancellor is affirmed in ordering the dissolution of Venture
Sales, whether the chancellor erred in failing to order that a winding up
of Venture Sales proceed pursuant to Mississippi Code Sections 79-29803 through 79-29-807, with the Manager of Venture Sales being
directed to proceed with winding up Venture Sales pursuant to these
statutes.
While Fordham and Thompson present three issues for appeal, issues I and II address
the same question – whether the chancellor erred in ordering the dissolution of Venture Sales.
Accordingly, issues I and II will be analyzed together.
STANDARD OF REVIEW
¶11.
On appeals from chancery court, this Court employs a limited standard of review.
Corp. Mgmt. v. Greene County, 23 So. 3d 454, 459 (Miss. 2009). We review a chancellor’s
4
decision for abuse of discretion. Estate of Davis v. O’Neill, 42 So. 3d 520, 524 (Miss. 2010).
We will not disturb a chancellor’s factual findings “when supported by substantial evidence
unless . . . the chancellor abused his discretion, was manifestly wrong, clearly erroneous or
applied an erroneous legal standard.” Id. (quoting Greene County, 23 So. 3d at 459). This
Court will affirm a chancellor’s decision when it is supported by substantial credible
evidence. Reddell v. Reddell, 696 So. 2d 287, 288 (Miss. 1997). Questions of law are
reviewed de novo. Biglane v. Under the Hill Corp., 949 So. 2d 9, 14 (Miss. 2007).
DISCUSSION
I.
The chancellor’s judgment dissolving Venture Sales was supported by
substantial evidence and was not an abuse of discretion.
¶12.
Mississippi Code Section 79-29-802 (Rev. 2009) allows a member of a limited
liability company to apply to the chancery court for an order of dissolution of the company
in certain circumstances. The chancellor may order dissolution of a limited liability company
when:
(a)
It is not reasonably practicable to carry on the business in conformity
with the certificate of formation or the limited liability company
agreement; or
(b)
The managers or the members in control of the limited liability
company have been guilty of or have knowingly countenanced
persistent and pervasive fraud or abuse of authority or persistent
unfairness toward any member, or the property of the limited liability
company is being misapplied or wasted by such persons.
Miss. Code Ann. § 79-29-802 (Rev. 2009).
¶13.
The chancellor determined that there was no fraud, abuse of authority, persistent
unfairness, or waste of company property by any Venture Sales members. Accordingly, the
5
chancellor’s decision to dissolve Venture Sales was solely because he determined it was “not
reasonably practicable” for Venture Sales to carry on its business in conformity with its
operating agreement. Miss. Code Ann. § 79-29-802(a) (Rev. 2009).
¶14.
The Mississippi Limited Liability Company Act (“MLLCA”) does not define “not
reasonably practicable.” Furthermore, no Mississippi cases to date interpret what constitutes
“not reasonably practicable” or “reasonable practicability.” In such a situation, we look to
other jurisdictions that have considered the matter. Hood v. State, 17 So. 3d 548, 555 (Miss.
2009); Byrd v. The Miss. Bar, 826 So. 2d 1249, 1252 (Miss. 2002).
¶15.
Several courts have addressed what constitutes “not reasonably practicable” in the
context of judicial dissolution of a company. Judicial dissolution has been described as a
remedy extreme in nature, and one that is to be granted sparingly. See In the Matter of the
Dissolution of 1545 Ocean Ave., LLC, 72 A.D.3d 121, 129-130 (N.Y. App. Div. 2010); In
re Arrow Inv. Advisors, LLC, 2009 WL 1101682, at *2 (Del. Ch. 2009). In some cases,
finding that it is “not reasonably practicable” for a company to continue operating requires
a showing that the business “cannot continue ‘in accord with its . . . operating agreement.’”
1545 Ocean Ave., 72 A.D.3d at 130 (quoting Dunbar Group, LLC v. Tignor, 593 S.E.2d
216, 219 (Va. 2004)); but see Kirksey v. Grohmann, 754 N.W.2d 825, 830 (S.D. 2008)
(ordering dissolution even though the business could continue despite the deadlock).
Generally, dissolution under this standard does not require that a company’s purpose has
been “completely frustrated.” PC Tower, Inc. v. Tower Ctr. Dev. Assoc., L.P., Civ. A. No.
10788, 1989 WL 63901, at *5 (Del. Ch. June 8, 1989); Fisk Ventures, LLC v. Segal, Civ.
A. No. 3017-CC, 2009 WL 79357, at *4 (Del. Ch. Jan. 13, 2009). Dissolution generally has
6
been deemed appropriate when a company’s economic purpose is not being met, or when the
company is failing financially. 1545 Ocean Ave., 72 A.D.3d at 130; PC Tower, 1989 WL
63901, at *6; Fisk Ventures, 2009 WL 79357, at *5-6. At least one court has ordered the
dissolution of a company that, while financially stable and with assets that exceeded its
liabilities, was functioning simply as a “residual, inertial status quo.” Haley v. Talcott, 864
A.2d 86, 96 (Del. Ch. 2004). When a company “cannot effectively operate under the
operating agreement to meet and achieve the purpose for which it was created,” dissolution
has been allowed. 1545 Ocean Ave., 72 A.D.3d at 130.
¶16.
While no definitive, widely accepted test or standard exists for determining
“reasonable practicability,” it is clear that when a limited liability company is not meeting
the economic purpose for which it was established, dissolution is appropriate. See 1545
Ocean Ave., 72 A.D.3d at 130; Kirksey, 754 N.W.2d at 828; Percontino v. Camporeale, No.
BER-C-5-05, 2005 WL 730234, at *3 (N.J. Sup. Ct. March 24, 2005). In making this
determination, we must first look to the company’s operating agreement to determine the
purpose for which the company was formed. See 1545 Ocean Ave., 72 A.D.3d at 130.
¶17.
Venture Sales’ operating agreement states that the company’s purpose is “to initially
acquire, develop and sale [sic] commercial and residential properties near Petal, Forrest
County, Mississippi.” (Emphasis added.) At trial, Fordham admitted that the company was
formed for the purpose of acquiring and developing property. Yet, more than ten years after
Venture Sales was formed with Perkins as a member, the property remains completely
undeveloped. Fordham and Thompson have offered a number of reasons why development
has been delayed to this point.
7
¶18.
In 2003, the Venture Sales property was annexed to the City of Petal, and in 2005 the
property was rezoned to “planned unit development,” the zoning needed for development.
Also in 2005, Hurricane Katrina struck the coast of Mississippi, which affected the Petal area
and specifically delayed Venture Sales’ engineer of record from working on the Venture
Sales property. In 2006, the City of Petal provided the property access to sewage, which the
appellants claim had theretofore been cost-prohibitive. Fordham and Thompson also point
to the 2007 national housing market decline and the plummeting of the stock market in 2008,
causing the financial markets to freeze. Fordham said he believed that, if Venture Sales
would have begun development in 2008 or 2009, the company would now be bankrupt.
Finally, Fordham and Thompson contend that the new subdivision regulations passed by the
City of Petal in 2007, increasing the required thickness of asphalt, substantially increased the
cost of development.
¶19.
Despite these alleged hindrances, Fordham and Thompson have, during this ten-year
period, successfully formed two other LLCs and have developed at least two other
subdivisions with around 200 houses, collectively, within twenty-five miles of the subject
property. More importantly, though, Fordham and Thompson presented no evidence that
Venture Sales would be able to develop the land as intended within the foreseeable future.
When asked by the trial court when Venture Sales might be able to begin developing as it had
planned, Fordham could not say. Fordham and Thompson admitted that it would take around
$8 million to “kick off” construction of the subdivision as planned, and the chancellor found
that Venture Sales was currently unable to get additional bank loans or other funding needed
to begin development.
8
¶20.
Fordham and Thompson claim that it is reasonably practicable for Venture Sales to
continue operating. They argue that Venture Sales’ assets exceed its liabilities, that there has
been development along the Highway 42 corridor that runs in front of the Venture Sales
property, and that the economy in the City of Petal is improving. In essence, their argument
is that the company has the financial means to “weather the storm” and that the economy is
improving. However, while Venture Sales currently may be solvent, and while the economy
may be improving overall, Fordham and Thompson have not shown that Venture Sales can
meet the purpose for which it was formed – developing and selling its property.
¶21.
Fordham and Thompson claim that Perkins has blocked Venture Sales from taking
advantage of certain “business opportunites,” such as selling the property at a reduced price
of $3.5 million, or offering six lots located on the back side of the property for $30,000 each.
However, these “business opportunities” were merely ideas from Fordham about how to
make use of the property. Fordham and Thompson presented no evidence that individuals
were ready to purchase the property, or portions of it, at these prices. Furthermore, as
discussed above, they presented no evidence that Venture Sales could develop the property,
which is the purpose for which the company was formed.
¶22.
In support of their argument, Fordham and Thompson point to two cases, 1545 Ocean
Avenue and Arrow, where courts refused to dissolve limited liability companies. However,
each of these cases is easily distinguishable from today’s.
¶23.
In 1545 Ocean Avenue, a limited liability company was formed to purchase a piece
of property, rehabilitate an existing building, and build a second building for commercial
rental.
1545 Ocean Ave., 72 A.D.3d at 123. One member’s independent construction
9
company unilaterally began working on the construction project, despite protests from the
other member. Id. at 123-124. However, the protesting member took no other action to stop
the work being done on the project. Id. at 124. Tension between the members mounted, but
work continued on the buildings. Id. When the project was only a few weeks away from
completion, the protesting member filed a petition for dissolution in the Supreme Court of
Suffolk County, New York. Id. at 124-125. The lower court granted the petition, but the
New York Supreme Court, Appellate Division, reversed. Id. at 123.
¶24.
The appellate court recognized that the dispute between the members had not
frustrated the purpose of the LLC. Id. at 132. Because the work was all but completed, and
because the protesting member tacitly had ratified the continued construction on the project,
the court reversed the order of dissolution and dismissed the petition. Id. at 132-33.
¶25.
Unlike the company in 1545 Ocean Avenue, Venture Sales is not fulfilling the
purpose stated in its operating agreement. The company was formed for the purpose of
developing and selling its property, and no development has taken place during the more than
ten years since the company’s formation. Unlike the project at issue in 1545 Ocean Avenue,
there is no evidence that Venture Sales has any plans or the financial wherewithal for any
development in the near future, if ever. The only “business opportunities” that the appellants
offer are merely their own offers to sell the property. The situation in 1545 Ocean Avenue
was substantially different than that of Venture Sales.
¶26.
In Arrow, the Delaware Chancery Court refused to order the dissolution of a limited
liability company based on the petition of a member who was dissatisfied with the direction
of the company. Arrow, 2009 WL 1101682. The company, Arrow Investment Advisors,
10
LLC, had been formed only two years prior to the filing of the petition for dissolution. Id.
at *1. The petitioning member had been ousted as the company’s CEO. Id. In his petition,
the member complained that the company was pursuing strategies that were not aimed
toward performing its original business plan. Id. at *3.
¶27.
The court noted that the company had not enjoyed immediate profitability and had
decided to pursue strategies that were not part of its original business plan. Id. at *2.
However, the court found that these strategies were still within the confines of the company’s
purpose. Id. at *3. The court held that dissolution was improper for “a two-year old LLC
with a broad purpose clause [that] has experienced some adversity.” Id.
¶28.
Unlike Arrow, Venture Sales is not a relatively new entity. Perkins became a member
of Venture Sales in 2000 and has been awaiting development of the property ever since.
Furthermore, Perkins does not simply disagree with the strategic choices taken by
management. See id. at *3. Perkins petitioned for dissolution because Venture Sales’
purpose – development and sale of commercial and residential property – has never come
into fruition and apparently will not in the foreseeable future. Venture Sales is not a “startup” that has “merely . . . not experienced a smooth glide to profitability.” See id. at *2-3.
Rather, Venture Sales has existed for more than ten years and has yet to achieve, or even
begin fulfilling, its stated purpose.
¶29.
For the above-stated reasons, we hold that the chancellor did not abuse his discretion
by granting the petition for dissolution of Venture Sales. Accordingly, we affirm the
chancellor’s judgment.
II.
The winding up of Venture Sales
11
¶30.
In his order, the chancellor did not make provisions for winding up Venture Sales.
Fordham and Thompson argue that the chancellor should have ordered Fordham, as manager
of Venture Sales, to proceed with winding up the company in accordance with the MLLCA.
Perkins agrees that the MLLCA provides the process for winding up a limited liability
company, and does not object to a remand on this issue. Since this issue has not yet been
addressed at the chancery court, and since the parties are in agreement that remand is
necessary, we remand to the chancery court for winding up the affairs of Venture Sales.
CONCLUSION
¶31.
The chancellor’s decision to order the dissolution of Venture Sales was not an abuse
of discretion. More than ten years after its formation, Venture Sales has not met, and will
not meet in the near future, its economic purpose. Substantial evidence exists supporting the
chancellor’s determination that it was not reasonably practicable for Venture Sales to carry
on business in conformity with its operating agreement. We therefore affirm the chancellor’s
order of dissolution and remand for the winding up of Venture Sales.
¶32. AFFIRMED AND REMANDED.
CARLSON AND DICKINSON, P.JJ., RANDOLPH, LAMAR, KITCHENS,
CHANDLER, PIERCE AND KING, JJ., CONCUR.
12
]]>
