Gagne v. Gagne

• Citation: 459 P.3d 686
• Decision Date: 21 March 2019
• Docket Number: Court of Appeals No. 17CA2036
• Parties: Richard GAGNE, Plaintiff-Appellee, v. Paula GAGNE, Defendant-Appellant.
• Court: Court of Appeals of Colorado

459 P.3d 686

Richard GAGNE, Plaintiff-Appellee,

v.Paula GAGNE, Defendant-Appellant.

Court of Appeals No. 17CA2036

Colorado Court of Appeals, Division V.

Announced March 21, 2019

Otis, Bedingfield & Peters, LLC, Jennifer Lynn Peters, Timothy R. Odil, Lia Szasz, Greeley, Colorado, for Plaintiff-Appellee

Burg Simpson Eldredge Hersh & Jardine, P.C., David P. Hersh, Diane Vaksdal Smith, Lisa R. Marks, D. Dean Batchelder, Nelson Boyle, Englewood, Colorado, for Defendant-Appellant

Opinion by JUDGE J. JONES

¶1 Paula Gagne appeals the district court’s judgment dissolving four limited liability companies in which she and one of her sons, Richard Gagne, were the only members (the LLCs). Paula¹ contends that the district court erred by dissolving the four LLCs, in determining how the dissolutions would occur, and in calculating each member’s portion of the LLCs’ assets. She hasn’t convinced us, however, that the district court erred in any respect, and so we affirm the judgment and remand for the court to determine Richard’s reasonable attorney fees incurred on appeal.

I. Background

¶2 Some of the factual background relevant to this case is set forth in the prior division’s decision in Gagne v. Gagne , 2014 COA 127, 338 P.3d 1152 ( Gagne I ). We repeat it only as necessary and add to it developments occurring after the prior division’s remand.

¶3 Paula and Richard are mother and son. In the mid-2000s, they agreed to a joint business venture in which Paula would buy apartment complexes and Richard would manage them. They created three LLCs in 2006 to buy and manage three such properties and created a fourth LLC in 2008 to buy and manage a fourth such property. (All of the apartment buildings are in Fort Collins.) The district court found, with ample record support, that the primary purpose of these LLCs was "to provide a joint business between [Richard] and [Paula], so that the parties would be partners in a business and so that [Richard] would have an occupation and a means to support his family." The initial LLC operating agreements provided that Paula and Richard would own each LLC fifty-fifty, but that Richard would have fifty-one percent voting rights in each.

¶4 It didn’t take long, however, for Paula and Richard’s relationship, already strained, to devolve into a more or less constant state of acrimony. Litigation ensued, with Paula claiming that Richard was using the LLCs’ funds for his personal benefit. The parties settled. They entered into new operating agreements in August 2010. They remained fifty-fifty owners, but this time Paula got fifty-one percent voting rights. As now relevant, each of the identical operating agreements also provides as follows:

• Paula’s contributions are money (in specified amounts), while Richard’s are "in-kind." The parties acknowledged that these in-kind contributions had caused appreciation of the LLCs’ equity in the apartment buildings.

• The success of the venture "requires the active interest, support, cooperation, and personal attention of" both Paula and Richard.

• Paula is "Chief Executive Manager" of the LLC, with "primary responsibility for managing" the LLC.

• The Chief Executive Manager "shall perform [her] [m]anagerial duties in good faith , in a manner [she] reasonably believe[s] to be in" the LLC’s best interests. (Emphasis added.)

• The Chief Executive Manager is liable to the LLC and its members for any loss resulting from her "fraud , gross negligence, willful misconduct, or ... wrongful taking ." (Emphasis added.)

• Richard’s company, Home Solutions, Inc. (HSI), will manage the property for a minimum of two years, with possible extensions. Should a new property manager be desired, HSI has a right of first refusal.

• If the property is sold, Paula has "a preferred status for the distribution of net revenues from the sale" to repay her cash capital contribution and any other loans or advances. If any proceeds remain, they will be divided evenly.

• Paula has "the sole right and discretion to sell" the property, subject to certain conditions.

• Paula has "the sole right and discretion to refinance" the LLC’s property, again subject to certain conditions, including that she act consistently with her status as a "fiduciary for the members."

¶5 Unfortunately, the hatchet didn’t stay buried for long. There were arguments and allegations, confrontations and criticisms — a continual pattern of regrettable behavior that left the parties on hostile terms. Perhaps inevitably, Richard sued, seeking judicial dissolution of the LLCs under section 7-80-810(2), C.R.S. 2018, as well as a declaratory judgment as to his and Paula’s respective rights and obligations vis-a-vis the LLCs.

¶6 The district court appointed a receiver for the LLCs, but later decided that the receiver should act as a custodian during the litigation. Some time down the road, the court granted Paula’s motion for summary judgment on the dissolution claim. Following a trial, the court resolved the remaining issues.

Neither Richard nor Paula was entirely satisfied. Both appealed.

¶7 The prior division held that the district court hadn’t applied the right test in determining whether dissolution was appropriate. Drawing primarily on case law from other jurisdictions, it gave a nonexclusive list of seven factors that a court must consider. Gagne I , ¶ 35. It remanded the case for additional proceedings to resolve genuine issues of fact material to those factors.²

¶8 On remand, the court held another trial on the judicial dissolution claim. The court entered a thorough, well-reasoned order concluding that dissolution is appropriate. Following another evidentiary hearing, the court entered another thorough, well-reasoned order setting forth how the dissolutions will proceed, essentially saying who will get what (and why). In brief, the court ordered that Richard and Paula will each receive two of the apartment buildings — an in-kind distribution of LLC assets. This is to be accomplished by a so-called "drop and swap" exchange. Finding that Paula had engaged in a great deal of self-dealing misconduct, the court adjusted the parties’ respective shares of the assets’ values to account for money Paula had wrongfully pulled out of the LLCs.

¶9 Only Paula appeals.

II. Discussion

¶10 Paula’s contentions on appeal fall into three general categories. First, she contends that the court erred, both legally and factually, in ordering dissolution of the LLCs. Second, she contends that the court erred in ordering an in-kind distribution of the LLCs’ assets, rather than ordering the assets sold and resulting proceeds distributed to the members. Third, she contends that the court erred in ordering various adjustments to each member’s side of the ledger. We aren’t persuaded that the district court erred in any respect.

A. The Court Properly Ordered Dissolution

1. Legal Framework

¶11 Section 7-80-110(2) provides that

[a] limited liability company may be dissolved in a proceeding by or for a member or manager of the limited liability company if it is established that it is not reasonably practicable to carry on the business of the limited liability company in conformity with the operating agreement of said company.

¶12 In Gagne I , the division held that "to show that it is not reasonably practicable to carry on the business of a limited liability company, a party seeking a judicial dissolution must establish that the managers and members of the company are unable to pursue the purposes for which the company was formed in a reasonable, sensible, and feasible manner." Gagne I , ¶ 31. In determining whether the party seeking judicial dissolution has met this burden, the court should consider the following seven nonexclusive factors:

(1) whether the company’s managers are unable or unwilling to pursue the purposes for which the company was formed;

(2) whether a member or manager has committed misconduct;

(3) whether it’s clear that the members aren’t able to work with each other to pursue the company’s purposes;

(4) whether the members are deadlocked;

(5) whether the company’s operating agreement provides a means of resolving any deadlock;

(6) whether, in light of the company’s financial condition, there remains a business to operate; and

(7) whether allowing the company to continue is financially feasible.

Id. at ¶ 35. No one factor is dispositive, and, conversely, a party seeking dissolution isn’t required to establish all the factors. Id. at ¶ 36.

2. The District Court’s Findings

¶13 The district court expressly addressed each of the seven factors identified above. Its findings as to each factor were, in summary, as follows:

(1) Paula and Richard are unwilling or unable to promote the purposes for which they formed the LLCs. In particular, Paula has ensured that Richard can’t actively participate in what were supposed to be joint businesses — joint businesses created, in large part, so that Richard "would have an occupation and a means to support his family." She has done this by refusing to work with Richard in any way; shutting him out of any role in decision-making; terminating HSI’s role as property manager without cause; and giving a primary business role to her other son, Jay, who also refuses to work with Richard. In short, Paula has rendered Richard a mere passive observer of the LLCs’ operations, contrary to the operating agreements’ acknowledgment that the success of each LLC "requires the active interest, support, cooperation, and personal attention of the members."

(2) Paula engaged in misconduct in managing the LLCs for several years. The court gave many examples. Most illustrate that Paula has treated the LLCs as her personal piggy bank. Paula took many actions with LLC funds which served no legitimate business purpose but only her own self-interest. These include unnecessarily loaning money to the LLCs on terms favorable to her, distributing LLC funds to herself without good reason, paying "rent" to herself out of LLC funds, paying professionals working

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