Clary v. Borrell
| Decision Date | 13 June 2012 |
| Docket Number | No. 4991.,4991. |
| Citation | 398 S.C. 287,727 S.E.2d 773 |
| Court | South Carolina Court of Appeals |
| Parties | Jeffrey S. CLARY & TUG Properties, LLC, Plaintiffs, Of whom Jeffrey S. Clary is Appellant, v. Clifton David BORRELL, Respondent. |
OPINION TEXT STARTS HERE
Kenneth C. Hanson and Walter M. Riggs, Hanson Law Firm, of Columbia, for Appellant.
Page M. Kalish, of Columbia, for Respondent.
Jeffrey S. Clary and TUG Properties, LLC (TUG) instituted this action against Clifton David Borrell for breach of contract and quantum meruit, wherein Clary and TUG asserted Borrell breached the TUG operating agreement entered into by Clary and Borrell. From an order of the trial court granting Borrell summary judgment on both claims, Clary appeals the grant of summary judgment on the breach of contract cause of action. Specifically, Clary contends the court erred in (1) finding there was no genuine issue of material fact in controversy, as Clary provided evidence Borrell signed a statement promising to pay TUG's debts and personally guaranteed TUG loans and (2) determining Borrell's personal guarantee for TUG's loans did not constitute additional capital contributions. We affirm.
On February 2, 2004, Clary and Borrell entered into an operating agreement to form a limited liability company, TUG, with Clary and Borrell each initially contributing around $70,000 for a fifty percent ownership in TUG.1 Clary and Borrell agree that the operating agreement controls the rights and obligations of Clary and Borrell as the members of TUG, and is a valid contract between the two. The operating agreement provided the stated purpose of the company was to buy and sell residential real estate. Article IV of the operating agreement includes the following pertinent provisions:
4.1 Initial contributions.
Each initial member shall make the Capital Contribution described for that Member on Exhibit A at the time and on the terms specified on Exhibit A and shall make such additional capital contributions as may be required of Members from time to time....
4.2 Subsequent contributions.
Without creating any rights in favor of any third parties, each member shall contribute to the Company, in cash, on or before the date specified as hereinafter described that Member's pro rata share of all monies that in the judgment of a Required Interest, is necessary to enable the Company to cause the assets of the Company to be properly operated and maintained and to discharge its costs, expenses, obligations, and liabilities. A Required Interest shall determine and notify each Member of the need for Capital Contributions pursuant to this Section 4.2 when appropriate, which notice must include a statement in reasonable detail of the proposed uses of the Capital Contributions and a date ... before which the Capital Contributions must be made.
4.3 Failure to contribute.
A. If a Member does not contribute by the time required all or any portion of a Capital Contribution that Member is required to make as provided by this Operating Agreement, the Company may exercise, on notice to that Member (the “Delinquent Member”), one or more of the following remedies:
(2) permitting the other Members on a pro rata basis or in such other percentages as they may agree (the “Lending Member,” whether one or more), to advance the portion of the Delinquent Members Capital Contribution that is in default, with the following results:
(a) the sum advanced constitutes a loan from the Lending Member to the Delinquent Member and a Capital Contribution of that sum to the Company by the Delinquent Member pursuant to the applicable provisions of this operating agreement.
4.5 Advanced by Members.
If the Company does not have sufficient cash to pay its obligations, any Member(s) that may agree to do so may advance all or part of the needed funds to or on behalf of the Company. An advance described in this section constitutes a loan from the Member to the Company, ... and is not a Capital Contribution.
Article I of the operating agreement includes the following pertinent definitions:
“Capital Contribution” means any contribution by a Member to the capital of the Company.
“Company” means TUG PROPERTIES, LLC, a South Carolina Limited Liability Company.
“Delinquent Member” means a Member who does not contribute by the time required all or any portion of a Capital Contribution that Member is required to make as provided in this Operating Agreement.
“Lending Member” means those Members, whether one or more, who advance the portion of the Delinquent Member's Capital Contribution that is in default.
“Required Interest” means One Hundred Percent (100%) percent (sic) of all Members.
Article V, dealing with allocations and distributions, includes a provision as follows:
5.1 Allocations of net profits and losses from operations.
Except as may be required by § 704(c) of the Code, and Sections 5.2, 5.3, and 5.4 of this Article V, Net Profits, Net Losses, items of loss of deduction and tax credit and items of income and gain shall be apportioned among the Members as follows:
+-----------------------------------------+
¦ ¦Clifton David Borrell¦50% ¦
+-----+---------------------+-------------¦
¦ ¦Jeffrey S. Clary ¦50% ¦
+-----------------------------------------+
Additionally, the operating agreement provides under Section 3.7 of Article III that, in regard to liability to third parties, “Except as otherwise expressly agreed in writing, no Member shall be liable for the debts, obligations or liabilities of the Company, including under a judgment decree or order of a court.”
By agreement of the parties, Clary managed the day-to-day operations of TUG, while Borrell had no control over such matters and acted more as a “silent partner.” According to Clary, in early 2006, he and Borrell mutually agreed to suspend operations due to the unprofitable nature and lack of capital to continue operations.
In December 2008, Clary and TUG filed this action against Borrell for breach of contract and quantum meruit, citing Article IV, Section 5.1 of the operating agreement, and alleging that Borrell and Clary contributed equally to TUG for a time, but Borrell thereafter refused to provide a fifty percent contribution as required by the operating agreement, causing Clary to expend his own financial resources in a greater percentage to make up for Borrell's shortfall in contributions. Clary further alleged that TUG had certain outstanding obligations, that Clary and Borrell were to share equally in the profits and losses of TUG under the agreement, and though Clary made demands of Borrell to pay his equitable share of expenses and losses, Borrell refused. In addition to the net sum difference between the amount Clary had contributed and the amount Borrell had contributed, as well as a fifty percent contribution for the current obligations of TUG, Clary and TUG sought punitive damages from Borrell as a deterrence of similar conduct in the future. Borrell answered, generally denying the allegations of the complaint and raising various counterclaims.
Thereafter, Borrell filed a motion for summary judgment, basing his motion on the ground that Article V of the operating agreement, relied upon by Clary and TUG, only determined how gains and losses would be apportioned between the members for tax purposes and did not require Borrell to maintain 50% contributions to TUG to match that made by Borrell. Additionally, Borrell maintainedhe complied with Article IV, Section 4.1 of the operating agreement by making the required initial contribution to TUG and that any subsequent contributions to TUG were governed by Article IV, Section 4.2, which would have required Borrell's vote and agreement as a prerequisite to mandatory contributions of the members, which never occurred. Thus, any additional contributions Clary made to TUG would be loans to and liabilities of TUG and would be owed by TUG, not Borrell, to Clary. Further, Borrell noted Section 3.7 of the operating agreement provided that no member was liable for the debts, obligations, or liabilities of TUG, so the obligations of TUG remained with TUG, and were not obligations of the individual members. Borrell therefore maintained he was entitled to summary judgment, as Clary and TUG could present no evidence that he breached the operating agreement. Borrell also argued TUG was not a proper party to litigate this matter against Borrell, because Borrell and Clary are each fifty percent owners, and a vote from them regarding TUG's litigation against Borrell would be deadlocked. Borrell also asserted the action for quantum meruit was not proper, as the parties agreed they were governed by the operating agreement, and quantum meruit is an equitable remedy available only when there is no contract. Lastly, Borrell contended the demand for punitive damages should be struck, because punitive damages are not available in a breach of contract cause of action, or in the alternative under contract theory of quantum meruit. Borrell supported his motion with his affidavit, wherein he stated he complied with Article IV, Section 4.1 of the operating agreement by making his initial required capital contribution, and he “never voted, authorized, consented or agreed to subsequent contributions, which is required by the express terms of Article IV, Section 4.2” of the operating agreement, nor did he waive his right to such.
In response, Clary asserted that, after he and Borrell determined they needed to close down the business, Borrell agreed to make a “final subsequent contribution to zero out the company.” However, when Clary and the accountants attempted to send Borrell records to show the need for subsequent capital contributions to make this happen, Borrell did not want to pay anymore. Clary maintained that both he and Borrell had made subsequent contributions to TUG after their initial capital contributions, but once the decision was...
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