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Underwood v. Kahala, LLC

Court of Appeals of Missouri, Southern District, Second Division

June 28, 2018

CYNTHIA J. UNDERWOOD, Plaintiff-Appellant,
v.
KAHALA, LLC, ROBERT W. NUNN, and ROBERT C. BLAIR, Defendants-Respondents.

          APPEAL FROM THE CIRCUIT COURT OF GREENE COUNTY Honorable Jason R. Brown, Circuit Judge

          REVERSED AND REMANDED FOR FURTHER PROCEEDINGS

          WILLIAM W. FRANCIS, JR., J.

         Cynthia J. Underwood ("Underwood") appeals the trial court's judgment dismissing her first amended petition, pursuant to motions to dismiss filed jointly by Robert W. Nunn and Robert C. Blair ("Nunn and Blair"), and separately by Kahala, LLC ("Kahala") (collectively "Respondents"). On appeal, Underwood asserts the trial court erred in sustaining the motions to dismiss. We reverse and remand for further proceedings consistent with this Opinion.

         Facts and Procedural History

         The "facts"-for purposes of our review-are the factual averments in Underwood's amended petition. See Ward v. West County Motor Co., Inc., 403 S.W.3d 82, 84 (Mo. banc 2013). We recite such other facts as are necessary for context.

         On November 13, 2013, Underwood, Nunn and Blair formed Kahala. Underwood, Nunn, and Blair were equal members of Kahala, [1] each holding a 33-1/3 percent ownership interest. The parties also executed an "Operating Agreement."

         Kahala was the owner of real estate that it leased to American Professional Driver Academy, LLC ("APDA"). Underwood operated and managed APDA. Underwood, Nunn, and Blair were also the sole members of APDA.

         On November 6, 2015, Nunn and Blair filed a lawsuit in the Circuit Court of Greene County, entitled Robert W. Nunn and Robert C. Blair v. Cynthia J. Underwood and Kahala, LLC, Case No. 1531-CC01365. In the petition, Nunn and Blair sought judicial dissolution of Kahala, "[i]n accordance with the provisions of Section 347.143.2 RSMo., "[2] for Underwood's failure "to properly manage and operate APDA[.]" Nunn and Blair asserted they were the holders of "a majority of the membership interests in [Kahala]; and, by reasons thereof, have the authority to make all decisions of [Kahala, ]" in reliance on Article II of the Operating Agreement.

         The petition also asserted, in part, that: (1) Nunn and Blair had "contributed substantial sums of money toward the acquisition of the assets of [Kahala], but [Underwood] had made no financial contributions, or no substantial contributions toward the acquisition of same[]"; (2) Nunn and Blair filed a separate lawsuit in Greene County "to dissolve APDA as a result of the failure of [Underwood] to properly manage and operate APDA[]"; (3) if APDA no longer conducted business, then Kahala could "no longer have a tenant or lessee from which to receive rental or lease payments[, ]" and it could not pay expenses involved in maintaining the real estate without loans or contributions from Nunn, Blair, and/or Underwood; and (4) it was "not reasonably practical to continue to own and to hold the real property owned by [Kahala], so that [Kahala] should be dissolved under supervision" of the court.

         The lawsuit remained pending for 120 days at which time Nunn and Blair voluntarily dismissed the suit.

         On June 5, 2017, Underwood filed a four-count "Petition for Judicial Dissolution" against Kahala, Nunn, and Blair. That petition was amended on August 23, 2017. In her "First Amended Petition," Underwood asserted that Nunn and Blair had constructively expelled Underwood as a member of Kahala; barred Underwood from the records and premises of APDA; and withheld Underwood's "distribution of her share of the profits and/or other tax attributes of [Kahala]."

         In Count I (Breach of Contract), Underwood asserted that Nunn and Blair breached the Operating Agreement by expelling Underwood as a member on March 6, 2016, without the written consent of all the members; by dissolving Kahala without the withdrawal of any member; by continuing to carry on the business after the purported dissolution; by denying Underwood access to Kahala's books and records; by denying Underwood access to the business premises of Kahala; and by failing to pay Underwood the value of her membership interest. Underwood requested relief by way of judgment against Nunn and Blair, individually, in an undetermined amount equal to her actual damages, plus 9 percent interest from March 6, 2016, through the date of judgment.

         In Count II (Tortious Interference with Contract), Underwood asserted Nunn and Blair had caused Kahala to breach and/or terminate its contract with her by filing a lawsuit seeking dissolution of Kahala, dismissing the lawsuit, and then claiming the lawsuit was Underwood's withdrawal from Kahala.[3] Underwood requested relief by way of judgment against Nunn and Blair, individually, in an undetermined amount equal to her actual damages, plus 9 percent interest from March 6, 2016, through the date of judgment, and punitive damages.

         In Count III (Breach of Fiduciary Duty), Underwood asserted that Nunn and Blair, as majority members of Kahala, breached their fiduciary duty by expelling Underwood as a member on March 6, 2016, without the written consent of all the members; by continuing to carry on the business after the purported dissolution; by denying Underwood access to Kahala's books and records; by denying Underwood access to the business premises of Kahala; by failing to pay Underwood the value of her membership interest; and by filing a lawsuit seeking dissolution of Kahala, dismissing the lawsuit, and then claiming the lawsuit was Underwood's withdrawal from Kahala. Underwood requested relief by way of judgment against Nunn and Blair, individually, in an undetermined amount equal to her actual damages, plus 9 percent interest from March 6, 2016, through the date of judgment, and for punitive damages.

         In Count IV (Action for Judicial Dissolution), Underwood asserted that Nunn and Blair exceeded the authority conferred upon them by law; carried on, conducted and/or transacted business of Kahala in a fraudulent and/or illegal manner; and abused their powers contrary to public policy of the state of Missouri. Underwood requested relief by way of judgment dissolving Kahala, liquidation of Kahala's assets, and judgment against Nunn and Blair, individually, in an undetermined amount equaling the value of her 33-1/3 percent ownership interest, plus 9 percent interest from March 6, 2016, through the date of judgment.

         On September 21, 2017, Nunn and Blair filed a joint motion to dismiss Underwood's First Amended Petition, along with suggestions, asserting Underwood did not have legal capacity to sue, pursuant to Rule 55.27(a)(3), [4] and that Underwood failed to state a claim upon which relief could be granted, pursuant to Rule 55.27(a)(6). In their suggestions in support, Nunn and Blair asserted they had filed a petition on November 6, 2015, requesting judicial dissolution of Kahala due to Underwood's failure to properly operate and manage APDA. Nunn and Blair argued that "120 days after the commencement of the lawsuit discussed above," Underwood "ceased to be a member of [Kahala], and the company was dissolved[, ]" pursuant to section 347.123(5).[5] Exhibits A and B (the alleged Nunn and Blair petition, and the alleged Operating Agreement, respectively) were attached to the suggestions.

         Nunn and Blair further argued that Article V of the Operating Agreement provided that "[Kahala] is dissolved upon the withdrawal of any member[, ]" and that upon dissolution, the company "continues until the winding up of the affairs of the Company is completed and articles of termination have been filed with the Secretary of State."

         Nunn and Blair also asserted that Kahala was "in the 'winding up' phase" and that they were "following all Missouri laws and abiding by the Operating Agreement."

         Kahala filed a separate motion to dismiss that incorporated the suggestions of Nunn and Blair.

         On October 31, 2017, the trial court heard argument on the motions to dismiss, and took the matter under advisement. The trial court requested additional suggestions from the parties.

         In their supplemental suggestions, Nunn and Blair again incorporated a copy of their petition filed in Nunn v. Underwood, et al., Case No. 1531-CC01365, and reiterated some of the same arguments made in their initial suggestions.

         Nunn and Blair made additional arguments concerning the effect of section 347.123(5), the language of the Operating Agreement; the Missouri Limited Liability Company Act ("MLLCA"); and Underwood's rights as an "assignee" under section 347.121(3).

         Underwood's suggestions in opposition to the motions to dismiss addressed "the issue of the construction and intent of Section 347.123(5)." Underwood argued that the statute "must not be read to provide a nonsensical result[, ]" because the "rule of statutory construction, alone, resolves the issue before the Court." Underwood argued that it would be "nonsensical" that the legislature would have intended to allow "any managing member of a limited liability company in Missouri to bring a dissolution action against the company, name the other . . . managing members as defendants, seek no relief against any of his/her fellow managing members, and somehow become the sole decision maker on behalf of the company simply by keeping his/her dissolution alive for 120 days[, ] and "would also be inconsistent with the statutory duty each managing member owes to all members of a limited liability company[, ]" under section 347.088.

         The trial court entered its judgment on November 21, 2017, sustaining the motions to dismiss. ...


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