K.C. Properties v. Lowell Inv. Partners

• Decision Date: 13 March 2008
• Docket Number: No. 07-471.,07-471.
• Citation: 280 S.W.3d 1,373 Ark. 14
• Court: Arkansas Supreme Court
• Parties: K.C. PROPERTIES OF N.W. ARKANSAS, INC. and Buildings, Inc., Appellants, v. LOWELL INVESTMENT PARTNERS, LLC; Pinnacle Management Services, LLC; Tim Graham; Bill W. Schwyhart; J.B. Hunt; Ozark Mountain Water Park, LLC; J.B. Hunt, LLC; Schwyhart Holding, LLC; and Tim Graham, LLC, Appellees.

280 S.W.3d 1

373 Ark. 14

K.C. PROPERTIES OF N.W. ARKANSAS, INC. and Buildings, Inc., Appellants, v. LOWELL INVESTMENT PARTNERS, LLC; Pinnacle Management Services, LLC; Tim Graham; Bill W. Schwyhart; J.B. Hunt; Ozark Mountain Water Park, LLC; J.B. Hunt, LLC; Schwyhart Holding, LLC; and Tim Graham, LLC, Appellees.

No. 07-471.

Supreme Court of Arkansas.

March 13, 2008.

Cypert, Crouch, Clark & Harwell, PLLC, by: James E. Crouch, Springdale, AR, for appellants.

Kenneth R. Shemin, Fayetteville, AR, for appellees.

JIM GUNTER, Justice.

This appeal arises from an order of the Washington County Circuit Court granting a motion for summary judgment filed by Appellees Lowell Investment Partners, LLC (LIP); Pinnacle Management Services, LLC (PMS); Tim Graham (Graham); Bill W. Schwyhart (Schwyhart); J.B. Hunt (Hunt); Ozark Mountain Water Park, LLC (Ozark); J.B. Hunt, LLC (Hunt, LLC); Schwyhart Holding, LLC (Schwyhart, LLC); and Tim Graham, LLC (Graham, LLC). Appellants KC Properties (KC) and Buildings, Inc. (Buildings) appeal. We reverse the circuit court's order granting summary judgment and remand for further proceedings.

On August 5, 2004, KC and LIP entered into an operating agreement as members of Ozark. Pursuant to that operating agreement, LIP owned fifty-one percent of Ozark and KC owned forty-nine percent. PMS was named manager of Ozark. Ozark was created for the purpose of "operation of the water park at or near the intersection of Interstate 540 and Highway 264 in Lowell, Arkansas." The park was to occupy 16.58 acres of an approximately thirty-four acre tract of land at that site. The land was owned by Pinnacle Hills Realty (PHR), an LLC in which Schwyhart, LLC; Graham, LLC; and J.B. Hunt, LLC are members. Schwyhart, LLC; Graham, LLC; and J.B. Hunt, LLC are also the members of PMS. Schwyhart, Hunt, and Graham are the managers of PMS. The property was to be sold to Ozark for $3,000,000. That same day, Buildings entered into a contract with Ozark to construct the water park on the subject property on a cost-plus-six-percent basis.

On September 10, 2004, PHR entered into a real-estate contract with Parker Northwest Properties, LLC to sell the entire property located at the intersection of Interstate 540 and Highway 264. PHR sold the entire thirty-four acres for $8,250,000. KC filed suit against Appellees for breach of contract and breach of fiduciary duties in Washington County Circuit Court. KC contended that, because the subject property was to be sold to Ozark for $3,000,000, Ozark missed an opportunity to own property that was worth at least $1,023,088.25 more than what Ozark paid for it, and therefore, lost at least $501,313.24 in damages. Buildings sued for breach of contract contending that it lost a six-percent profit, which would have been $410,760. On January 23, 2007, the Washington County Circuit Court granted summary judgment in favor of Appellees on all counts. Appellants KC and Buildings now bring their appeal.

I. Standard of review

Summary judgment is to be granted by a circuit court only when it is clear that there are no genuine issues of material fact to be litigated, and the party is entitled to judgment as a matter of law. Bennett v. Spaight, 372 Ark. 446, 277 S.W.3d 182 (2008) (citing Wagner v. General Motors Corp., 370 Ark. 268, 258 S.W.3d 749 (2007)). Once the moving party has established a prima facie entitlement to summary judgment, the opposing party must meet proof with proof and demonstrate the existence of a material issue of fact. See Bennett, supra (citing Pakay v. Davis, 367 Ark. 421, 241 S.W.3d 257 (2006)). On appellate review, this court determines if summary judgment was appropriate based on whether the evidentiary items presented by the moving party in support of the motion leave a material fact unanswered. Id. This court views the evidence in a light most favorable to the party against whom the motion was filed, resolving all doubts and inferences against the moving party. Id. Our review focuses not only on the pleadings, but also on the affidavits and other documents filed by the parties. Id.

II. Points on appeal

A. Ark.Code Ann. § 4-32-304

For their first point on appeal, Appellants argue that the circuit court erred in holding that Ark.Code Ann. § 4-32-304 (Repl.2001) prohibits a member of a limited-liability company from suing a fellow member and manager for breach of contract and breach of fiduciary duty. Appellants specifically argue that the circuit court erred in holding that neither the members of Ozark nor its manager were proper parties to this lawsuit pursuant to § 4-32-304. Appellants contend that § 4-32-304 only applies to situations where a third party seeks to hold a member of an LLC liable for the debt, obligation, or liability of the LLC or another member thereof, but does not provide a shield for a member's or manager's own acts or omissions.

Appellees respond, arguing that the circuit court was correct in its holding. Specifically, Appellees assert that Appellants' claims against PMS must fail because the operating agreement states that the Manager shall not be held liable under a judgment, decree, or order of court for a debt, obligation, or liability of the company. Appellees contend that Appellants' claims against Graham, Schwyhart, Hunt, and their respective LLCs must fail because they were not parties to the operating agreement in their individual or corporate capacities. Appellees assert that, with respect to the breach-of-fiduciary-duty claims, the only members of Ozark were LIP and KC. Further, Appellees argue that Ark.Code Ann. § 4-32-304 eliminates breach of contract and tort liability for LIP, Graham, Schwyhart, Hunt, and Ozark.

This case presents an issue involving statutory interpretation. When reviewing issues of statutory interpretation, the first rule in considering the meaning and effect of a statute is to construe it just as it reads, giving the words their ordinary and usually accepted meaning in common language. Talbert v. U.S. Bank, N.A., 372 Ark. 148, 271 S.W.3d 486 (2008) (citing Maddox v. City of Fort Smith, 369 Ark. 143, 251 S.W.3d 281 (2007)). When the language of a statute is plain and unambiguous, there is no need to resort to rules of statutory construction. Id. A statute is ambiguous only where it is open to two or more constructions, or where it is of such obscure or doubtful meaning that reasonable minds might disagree or be uncertain as to its meaning. Id. When a statute is clear, however, it is given its plain meaning, and we will not reach for legislative intent; rather, that intent must be gathered from the plain meaning of the language used. Id. We are very hesitant to interpret a legislative act in a manner contrary to its express language, unless it is clear that a drafting error or omission has circumvented legislative intent. Id.

Arkansas Code Annotated § 4-32-304, which addresses the liability of members, provides:

Liability of Members to Third Parties

Except for the personal liability for acts or omissions of those providing professional service as set forth in § 4-32-308, a person who is a member, manager, agent or employee of a limited liability company is not liable for a debt, obligation, or liability of limited liability company, whether arising in contract, tort, or otherwise or for the acts or omissions of any other member, manager, agent or employee of the limited liability company.

Id. The Arkansas Small Business Entity Tax Through Act, Ark.Code Ann. § 4-32-402 (Repl.2001), also addresses the liability of members, stating:

Unless otherwise provided in an operating agreement:

(1) A member or manager shall not be liable, responsible, or accountable in damages or otherwise to the limited liability company or to the members of the limited liability company for any action taken or failure to act on behalf of the limited liability company unless the act or omission constitutes gross negligence or willful misconduct;

Id.

While the plain language of § 4-32-304 seems to shield one member of a limited-liability company from being held liable to another member, the language of § 4-32-402 clearly allows members to be held liable to other members of the limited-liability company when an act or omission constitutes gross negligence or willful misconduct. Statutes relating to the same subject are said to be in pari materia and should be read in a harmonious manner, if possible. See Weiss v. Maples, 369 Ark. 282, 253 S.W.3d 907 (2007). The title of § 4-32-304, "Liability of members to third parties," clarifies the intent of the legislature in enacting this statute and allows it to be read harmoniously with § 4-32-402. We have long held that the title of an act is not controlling in its construction, although it is considered in determining its meaning when such meaning is otherwise in doubt. Baker Refrigeration Systems, Inc. v. Weiss, 360 Ark. 388, 201 S.W.3d 900 (2005). The title may only be examined for the purpose of shedding light on the intent of the legislature. Id. Thus, when both the language of § 4-32-304 and its title are read together, it is clear that the legislature intended to prohibit suit by a third party against one member of a limited-liability company for another member's actions.

The circuit court ruled that, even if § 4-32-304 allowed members to sue other members, summary judgment was still proper because Graham, Schwyhart, Hunt, and their respective LLCs were not members. The operating agreement states that the agreement "is entered into and shall be effective as of August 5, 2004, by and among the Company, the Manager, and all Persons who are identified as Members on Exhibit A attached hereto. . . ." Exhibit A attached to the agreement lists only LIP and KC as members. Therefore, according to the agreement, Hunt, Graham, Schwyhart, and their LLCs were not members of Ozark and § 4-32-304 does not apply to them.

Because LIP and KC were the only members of Ozark with PMS...