BioConvergence, LLC v. Menefee

• Decision Date: 01 June 2018
• Docket Number: Court of Appeals Case No. 53A04–1708–PL–1810
• Citation: 103 N.E.3d 1141
• Parties: BIOCONVERGENCE, LLC, and Alisa K. Wright, Appellants–Defendants, v. Julie MENEFEE, Appellee–Plaintiff.
• Court: Indiana Appellate Court

103 N.E.3d 1141

BIOCONVERGENCE, LLC, and Alisa K. Wright, Appellants–Defendants,

v.Julie MENEFEE, Appellee–Plaintiff.

Court of Appeals Case No. 53A04–1708–PL–1810

Court of Appeals of Indiana.

FILED June 1, 2018

Attorneys for Appellants: Robert L. Burkart, Jean M. Blanton, Ziemer Stayman Weitzel & Shoulders, LLP, Evansville, Indiana

Attorneys for Appellee: Darren A. Craig, Michele Lorbieski Anderson, Frost Brown Todd LLC, Indianapolis, Indiana

Brown, Judge.

[1] BioConvergence, LLC ("BioConvergence") and Alisa K. Wright ("Alisa") appeal the trial court's January 12, 2017 order addressing summary judgment and denying their request for attorney fees and the trial court's July 14, 2017 order denying their claim for attorney fees. BioConvergence and Alisa raise two issues which we consolidate and restate as whether the trial court clearly erred or abused its discretion in denying their request for attorney fees. We affirm.¹

Facts and Procedural History

[2] Julie and Greg Menefee met Alisa and her husband, Lance, in 1992 and became friends. BioConvergence, a service provider to the life sciences industry, was organized in 2004 by Alisa, Lance, John Brooks, and Jeff Schwegman, had its grand opening in April 2006, and had its first full year of doing work in 2007. Since its inception, Alisa was a majority member of BioConvergence. In October 2005, Greg accepted Alisa's invitation to join BioConvergence's Board of Advisors. After joining the Board of Advisors, Greg signed a confidentiality agreement on October 18, 2005.

[3] In late 2007, Alisa contacted Greg and asked if he and Julie would be able to loan BioConvergence $400,000. Alisa told Greg and Julie that she had an agreement with "Chase for a line of credit that they backed off of and so she needed the money to be able to have operating capital for BioConvergence." Transcript Volume 4 at 96–97. On November 21, 2007, Alisa sent Greg an email message, which stated in part: "As you and Lance are meeting later this morning, you'll want to take a look at this when you talk. This is a draft valuation and Blue & Co is doing a review on it. Based on the discussion I had with Blue, the valuation is in the ballpark." Plaintiff's Exhibit 60.

[4] On December 19, 2007, Alisa sent an email to Greg, which was addressed to "Greg and Julie" and stated in part:

On behalf of the [BioConvergence] owners, we welcome you to our group and appreciate your contributions as we go about making [BioConvergence] a successful business venture!

The plans are for the Menefees to become owners in Jan 2008. Until that time, they will help us meet short term cashflow needs by loans under promissory notes. Some additional details and action items are:

* * * * *

3. Other

a. Greg and Julie to decide who will make the capital contribution (Greg & Julie, Greg, Julie, Julie's trust, etc.)

b. Current valuation of the company confirmed by Blue & Co, BioC's accounting firm, in December 2007 at $9,267,841—setting the new value per unit at $131.05.

c. $400,000 + $131.05/unit = 3052.39 B1 units or approximately 4% of the company (total could vary based on interest accrued and how it is handled)

Plaintiff's Exhibit 68. In December 2007 and February 2008, Julie and Greg loaned BioConvergence $400,000 evidenced by promissory notes which were unsecured.

[5] On November 17, 2008, Julie, as the individual "in which Subscription is made," and Alisa, CEO of BioConvergence, entered into a "BIOCONVERGENCE LLC CLASS B–1 UNIT SUBSCRIPTION AGREEMENT" (the "Subscription Agreement"). Plaintiff's Exhibit 9. The agreement provided in part that Julie "subscribes for and agrees to purchase 3,333 Class B–1 Units of membership interest (the ‘Units’) of BioConvergence LLC, an Indiana limited liability company (the ‘Company’), at a price of $120.00 per Unit, for a total purchase price of $400,000.00 (the ‘Purchase Price’)." Id.

[6] The Subscription Agreement states:

2. Representation and Warranties of Undersigned. The undersigned hereby represents and warrants as follows:

(a) All information provided to the Company by the undersigned is true and correct in all respects as of the date hereof.

(b) The undersigned has sufficient knowledge and experience in business and financial matters to evaluate the merits and risks of an investment in the Company.

(c) The undersigned has been afforded access to all material books, records and contracts of the Company, and the undersigned has had an opportunity to ask questions of and receive answers from the Company, or a person or persons acting on its behalf, concerning the terms and conditions of this investment; and all such questions have been answered to the full satisfaction of the undersigned.

* * * * *

(e) The undersigned understands that the sale of the Units has not been registered under the Securities Act of 1933, as amended (the "Securities Act"), or any state securities law in reliance on an exemption therefrom for non-public offerings and further understands that the sale of the Units has not been approved or disapproved by the United States Securities and Exchange Commission, or any other federal or state agency.

(f) The undersigned is acquiring the Units for the undersigned's own account, for investment purposes only, and not with a view to the sale or other distribution thereof, in whole or in part, and is aware that there are substantial restrictions on the transferability of the Units. The undersigned must bear the economic risk of an investment in the Units for an indefinite period of time because the sale of the Units has not been registered under the Securities Act, and therefore, the Units cannot be sold unless such sale is subsequently registered under the Securities Act or an exemption from such registration is available. The undersigned has no right to require the Company to (i) register the Units under federal or state securities law at any time, or join in any future registration, or (ii) take the action required to make Rule 144 under the Securities Act available for resale of the Units.

(g) The undersigned agrees that the Units purchased will not be sold, transferred, pledged or hypothecated without registration under the Securities Act and any applicable state securities laws, or until the undersigned has obtained an opinion of counsel satisfactory to the Company that such registration is not required in connection with such transaction.

(h) The undersigned agrees that any certificate representing the Units may contain the following legend:

"THE SECURITIES REPRESENTED HEREBY WERE ACQUIRED FOR INVESTMENT ONLY AND NOT FOR RESALE, SUCH SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAW (COLLECTIVELY, THE "SECURITIES LAWS ").

SUCH SECURITIES MAY NOT BE SOLD, ASSIGNED, TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS (1) THE SALE OF SECURITIES IS FIRST REGISTERED UNDER THE SECURITIES LAWS, OR (2) THE COMPANY SHALL HAVE RECEIVED AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT REGISTRATION UNDER THE SECURITIES LAWS IS NOT REQUIRED."

The undersigned further agrees that the Company may issue stop transfer instructions to its transfer agent (if any) or make a notation to such effect on its appropriate records.

(i) The undersigned agrees that no commission or other remuneration shall be paid to any person in connection with the offer or sale of the Units.

(j) The undersigned falls within one or more of the categories indicated below by the Subscriber's initials next to each applicable category (INITIAL ALL THAT ARE APPLICABLE):

__v__ Individual $1,000,000 Net Worth Test. Any natural person whose net worth, or joint net worth with that person's spouse, at the time of the Subscriber's purchase exceeds $1,000,000.

__v__ Individual $200,000 Income Test. Any natural person who had an individual income in excess of $200,000 in each of the two most recent years or a joint income with that person's spouse in excess of $300,000 in each of those years and who has a reasonable expectation of reaching the same income level in the current year.

_____ Other Persons. Persons not meeting any of the above, but otherwise acceptable to the Company. Not more than 35 such other persons may be accepted.

The foregoing representations and warranties shall be true and accurate as of the date hereof, and as of the date of delivery of the Purchase Price to the Company and shall survive such delivery.

3. Representations and Warranties of the Company.

* * * * *

5. Indemnification.

(a) The undersigned acknowledges that the undersigned understands the meaning and legal consequences of the representations and warranties contained in paragraph 2 hereof, and he hereby agrees to indemnify and hold harmless the Company and each director, officer, employee and agent thereof from and against any and all loss, damage or liability due to or arising out of breach of any representation or warranty of the undersigned contained in this Subscription Agreement.

(b) The Company acknowledges that the Company understands the meaning and legal consequences of the representations and warranties contained in paragraph 3 hereof, and hereby agrees to indemnify and hold harmless the undersigned and his heirs, personal representatives and assigns from and against any and all loss, damage or liability due to or arising out of breach of any representation or warranty of the Company contained in this Subscription Agreement.

Id.

[7] In July 2012, Alisa called Greg and asked for Julie, but she was not there, and Alisa told Greg that the unit value for BioConvergence had dropped to $15.50. Greg received a power of attorney and requested documents from BioConvergence.

[8] On August 12, 2013, Julie filed a complaint against BioConvergence and Alisa asserting: Count I, injunction to compel production of corporate books and records; Count II, securities fraud; Count III, fraud; and Count IV, breach of fiduciary duty. Julie's complaint alleged that facts common to all counts included in part that Alisa, on behalf of...