Historic Charleston Holdings, LLC v. Mallon, 4004.

• Decision Date: 26 August 2005
• Docket Number: No. 4004.,4004.
• Citation: 617 S.E.2d 388
• Parties: HISTORIC CHARLESTON HOLDINGS, LLC, Respondent, v. Gerard MALLON, Dixie Holdings, LLC, and Dixie Developers, LLC, Defendants, Of whom Gerard Mallon is the, Appellant.
• Court: South Carolina Supreme Court

617 S.E.2d 388

HISTORIC CHARLESTON HOLDINGS, LLC, Respondent, v. Gerard MALLON, Dixie Holdings, LLC, and Dixie Developers, LLC, Defendants Of whom Gerard Mallon is the, Appellant.

No. 4004.

Court of Appeals of South Carolina.

Heard April 4, 2005.

Decided June 27, 2005.

Rehearing Denied August 26, 2005.

COPYRIGHT MATERIAL OMITTED

Deborah Harrison Sheffield, of Columbia, for Appellant.

Charles P. Summerall, IV, of Charleston, for Respondent.

BEATTY, J.:

Gerard Mallon appeals the master-in-equity's order awarding Historic Charleston Holdings, LLC, one-half of the proceeds from the sale of a piece of property owned by Dixie Holdings, LLC, of which both Mallon and Historic Charleston Holdings were members. Additionally, Mallon appeals the master-in-equity's refusal to conduct an accounting, as well as the award of prejudgment interest, attorney's fees, and costs to Historic Charleston Holdings. We affirm in part, reverse in part, and remand.

FACTS

In June of 1998, Gerard Mallon formed Dixie Holdings, LLC, a member-managed, term limited liability company. Mallon, William Storen,¹ and Historic Charleston Holdings, LLC (HCH) executed an operating agreement as the three members of Dixie Holdings. Priestly Coker and Cynthia Coker were the sole members of HCH.² Subsequently, HCH and Mallon also became members in Dixie Developers, LLC. However HCH ultimately sold its interest to Mallon, leaving Mallon as the sole member of Dixie Developers.

The members formed Dixie Holdings for the purpose of purchasing, renovating, and selling various real properties. Although Dixie Holdings' operating agreement did not specify each member's duties, the record indicates Priestly Coker (Coker) performed accounting and financial related services,³ Mallon, through his construction company, renovated the properties, and Storen acted as the real estate agent in locating potential investment properties and later marketing them.

Shortly after the execution of the operating agreement, Mallon, Storen, and Coker on behalf of HCH, amended the operating agreement to reflect the members' interest in Dixie Holdings. This amendment stated Mallon and HCH each owned a 49.5% interest and Storen owned a 1% interest.

Dixie Holdings purchased four properties located in Charleston, South Carolina. According to Mallon, a dispute arose between Mallon and Coker after Dixie Holdings sold two of those properties because Coker failed to provide financial information related to Dixie Holdings and Dixie Developers. Although Mallon had been given money from the proceeds of those sales, he believed he had not separately been compensated for work performed in renovating those properties.

In December 1999, the parties executed a written agreement in connection with a members' meeting that took place several days prior. The agreement provided for an audit of Dixie Holdings and stated if the members could not resolve their differences, then an arbitrator would be appointed by agreement of the parties. In addition, the agreement stated, in pertinent part:

The primary function of the formation of these companies is purchase and sale of Real Estate.

Sales are to be made while these matters are being dealt with.

The sales proceeds can be held in an escrow account. OR [othen [sic] written accepted offer].

Coker gave Mallon a box containing some of the company's financial records in April 2000.

After the execution of this agreement, Dixie Holdings sold the third property, referred to by the parties as "15 Felix Street," on April 14, 2000. Coker testified that, pursuant to the parties' December 1999 agreement, he believed the net proceeds from the sale were to be placed in an escrow account until the parties determined what expenses needed to be paid and Mallon had been compensated for any related expenses. The net proceeds of $41,845.30 were given to Mallon, who placed them in a bank account in the name of Dixie Developers,⁴ of which he had sole signatory authority. Despite requests from Coker within days of the closing that Mallon place the funds in a proper escrow account, Mallon retained the funds in the separate account and maintained sole signatory authority. As a result, HCH, individually and in a derivative capacity as a member of Dixie Holdings, brought suit against Mallon, Dixie Holdings, and Dixie Developers⁵ on October 11, 2002.⁶

In its complaint, HCH alleged five causes of action. HCH requested: (1) a judicial decree winding up and dissolving Dixie Holdings; (2) a full and complete accounting of Dixie Holdings including transfers between it and Dixie Developers and Mallon; (3) injunctive relief reversing Mallon's diversion of funds and restraining Mallon from taking any action that would damage either HCH or Dixie Holdings' interests; (4) a declaratory judgment regarding each member's rights pursuant to section 15-53-10 of the South Carolina Code; and (5) attorney's fees pursuant to section 33-44-1104 of the South Carolina Code. In addition to these causes of action, HCH requested the court award "full relief under Section 33-44-801, an accounting, declaratory relief, injunctive relief, fair distribution, attorney's fees, pre-judgment interest, costs, and such other relief as the Court may deem appropriate."

After the circuit court referred the case to a master-in-equity, Mallon submitted an answer. In his answer, Mallon asserted "an accounting is appropriate for both parties, and that Coker, who acted as the financial officer of Dixie [Holdings] has repeatedly and improperly failed to prepare a proper accounting, which should now be done." Mallon also claimed entitlement to reimbursement for services he performed on various properties of Dixie Holdings that exceeded the proceeds Dixie Holdings received from the sale of 15 Felix Street.

Immediately prior to trial, the master heard several motions in limine submitted by HCH. In one motion, HCH requested the exclusion of any documents not submitted prior to November 21, 2003, when the parties exchanged discovery. The master granted HCH's request. Mallon did not object to the master's decision.

The master proceeded with a trial on the issues raised by the parties. At trial, Mallon presented a statement of charges in which he claimed he was owed $9,280 for work performed on four Felix Street properties, including $1,900 for work performed on 15 Felix Street. In his order, the master denied Mallon's request for an accounting concluding he had "not timely requested, and waived, any right to an accounting." The master also determined Mallon was not entitled to reimbursement for any alleged expenses associated with properties owned by Dixie Holdings or Dixie Developers because the parties had a "course of dealing of determining expenses prior to property sales and paying authorized expenses from the sale proceeds." The master found HCH was entitled to receive one-half of the proceeds from the sale of 15 Felix Street, plus prejudgment interest on its half of the proceeds at the rate of 8.75% from the closing date of 15 Felix Street until the entry of judgment. Finally, the master awarded HCH attorney's fees and costs pursuant to section 33-44-1104 of the South Carolina Code "based upon the record, the Affidavit of Counsel, and the factors applying to an award of fees and costs . . . ."

The master directed Mallon to turn over the proceeds from 15 Felix Street to HCH's counsel to be disbursed to HCH thirty days after the entry of his order. The master also authorized HCH to deliver articles of termination pursuant to section 33-44-805 of the South Carolina Code to the Secretary of State for filing. No post-trial motions were filed, and this appeal followed.

STANDARD OF REVIEW

In the underlying action, HCH sued in a derivative capacity for an accounting and injunctive relief. Actions for an accounting, for an injunction, and shareholder derivative actions are all actions in equity. See Lee v. Lee, 251 S.C. 533, 536, 164 S.E.2d 308, 309 (1968) (holding an action against a guardian ad litem for misappropriated funds was essentially an action for an accounting which was equitable in nature); Wiedemann v. Town of Hilton Head, 344 S.C. 233, 236, 542 S.E.2d 752, 753 (Ct.App.2001) ("Actions for injunctive relief are equitable in nature."); Anthony v. Padmar, 320 S.C. 436, 445, 465 S.E.2d 745, 750 (Ct.App.1995) (noting that derivative actions are equitable). In an action in equity referred to a master for final judgment, this court may find facts in accordance with its own view of the preponderance of the evidence. Van Blarcum v. City of N. Myrtle Beach, 337 S.C. 446, 450, 523 S.E.2d 486, 488 (Ct.App.1999). However, we should not ignore the findings of the trial judge, who had the opportunity to hear and observe the witnesses. Id.

LAW/ANALYSIS

I. Accounting

Mallon argues the master erred in refusing to order an accounting because one was necessary prior to the dissolution of Dixie Holdings.⁷ We agree.

The Uniform Limited Liability Company Act outlines certain procedures for actions brought by members of a limited liability company. Section 33-44-410 allows a member to maintain an action against the limited liability company or another member "for legal or equitable relief, with or without an accounting" to enforce, in pertinent part:

(1) the member's rights under the operating agreement;

(2) the member's rights under this chapter; and

(3) the rights that otherwise protect the interests of the member, including rights and interests arising independently of the member's relationship to the company.

S.C.Code Ann. 33-44-410(a) (Supp.2004). Certain events may cause the dissolution and winding up of a limited liability company, including where a member has applied for dissolution and there is a judicial decree to the effect that:

(a) the economic purpose of the company is likely to be unreasonably frustrated;

(b) another member has engaged in conduct relating to the company's business that makes it not...