In re Kite Ranch v. Powell Family of Yakima

• Decision Date: 08 April 2008
• Docket Number: No. S-07-0197.,No. S-07-0196.,S-07-0196.,S-07-0197.
• Parties: In the Matter of KITE RANCH, LLC, a Wyoming limited liability company: Galen Dunmire and Rebecca Dunmire, husband and wife, as joint tenants, Appellants (Plaintiffs), v. POWELL FAMILY OF YAKIMA, LLC, a Washington limited liability company, Douglas Brickman, individually, and Douglas Brickman and Anne Brickman, husband and wife and as joint tenants, Appellees (Defendants). In the Matter of Kite Ranch, LLC, a Wyoming limited liability company: James Hedstrom and Donna Hedstrom, husband and wife, as joint tenants, Appellants (Plaintiffs), v. Powell Family of Yakima, LLC, a Washington limited liability company, Douglas Brickman, individually, and Douglas Brickman and Anne Brickman, husband and wife and as joint tenants, Appellees (Defendants).
• Court: Wyoming Supreme Court

181 P.3d 920

2008 WY 39

In the Matter of KITE RANCH, LLC, a Wyoming limited liability company:

Galen Dunmire and Rebecca Dunmire, husband and wife, as joint tenants, Appellants (Plaintiffs), v. POWELL FAMILY OF YAKIMA, LLC, a Washington limited liability company, Douglas Brickman, individually, and Douglas Brickman and Anne Brickman, husband and wife and as joint tenants, Appellees (Defendants).

In the Matter of Kite Ranch, LLC, a Wyoming limited liability company:

James Hedstrom and Donna Hedstrom, husband and wife, as joint tenants, Appellants (Plaintiffs), v. Powell Family of Yakima, LLC, a Washington limited liability company, Douglas Brickman, individually, and Douglas Brickman and Anne Brickman, husband and wife and as joint tenants, Appellees (Defendants).

No. S-07-0196.

No. S-07-0197.

Supreme Court of Wyoming.

April 8, 2008.

Representing Appellants Galen Dunmire and Rebecca Dunmire: M. Gregory Weisz of Pence and MacMillan LLC, Laramie, Wyoming.

Representing Appellants James Hedstrom and Donna Hedstrom: William H. Vines of Jones, Jones, Vines & Hunkins, Wheatland, Wyoming.

Representing Appellees Powell Family of Yakima, LLC, Douglas Brickman and Anne Brickman: F. Scott Peasley and Frank D. Peasley of Peasley Law Office, Douglas, Wyoming. Argument by Mr. Frank D. Peasley.

Before VOIGT, C.J., and GOLDEN, HILL, KITE, and BURKE, JJ.

KITE, Justice.

[¶ 1] All of the parties to this appeal are members of Kite Ranch, LLC (Kite Ranch), a Wyoming limited liability company, which owns a ranch in Albany County. Galen and Rebecca Dunmire (Dunmires) and James and Donna Hedstrom (Hedstroms) filed a declaratory judgment action seeking a determination of the parties' respective rights in the company. Powell Family of Yakima, LLC (Powell) and Douglas and Anne Brickman (Brickmans) petitioned the district court for a preliminary injunction granting Powell the right to manage Kite Ranch during the pendency of the litigation and enjoining Dunmires and Hedstroms from interfering with its management of the limited liability company. The district court granted and subsequently amended a preliminary injunction in favor of Powell and Brickmans. Dunmires and Hedstroms appealed claiming the district court improperly amended the preliminary injunction without allowing them to be heard and the amended preliminary injunction was improper because it did not require Powell to preserve the status quo of the limited liability company during the pendency of the litigation. We conclude the district court properly amended the order because it did not substantively change the preliminary injunction, but simply corrected a clerical error. In addition, we detect no abuse of discretion in the injunctive relief granted by the district court. Consequently, we affirm.

ISSUES

[¶ 2] Dunmires and Hedstroms phrase the issues on appeal as:

I. Did the district court abuse its discretion by amending a preliminary injunction without a hearing and before allowing plaintiffs to respond to defendants' motion to amend the preliminary injunction?

II. Does the amended preliminary injunction improperly fail to require Defendant Powell to preserve the status quo and impermissibly allow Powell to affect the parties' substantive rights during the pendency of the action?

Powell and Brickmans do not set forth a separate statement of issues.

FACTS

[¶ 3] In 2001, Dunmires, Hedstroms and Brickmans discussed purchasing a ranch in Albany County. The purchase price of the ranch was $ 1.1 million. They approached Powell about providing funds to help with the purchase. Powell agreed to provide $300,000 toward the purchase price of the ranch.

[¶ 4] The parties secured a loan from First National Bank (FNB) for the bulk of the purchase price. The FNB loan was evidenced by a promissory note and mortgage on the ranch property. All members, except Powell, personally guaranteed the note, and Dunmires supplied additional real property to secure the FNB loan. FNB required the borrowers to form a business entity as a condition of the loan and to limit Powell's ownership in the new entity to a "maximum of 20%." FNB also stated that the equity Powell provided could "not be accounted for through a note or mortgage."

[¶ 5] Hedstroms and Brickmans executed articles of organization for Kite Ranch on December 26, 2001. Dunmires, Brickmans, Hedstroms and Powell contributed initial capital of $1,000, with 20 percent coming from Powell and 26.66 percent from each of the other members. The articles were filed with the Wyoming Secretary of State's office. However, the members did not execute an operating agreement, even though proposed agreements were apparently circulated among them.

[¶ 6] Kite Ranch operated as a cattle ranch over the next few years, leasing its property for grazing purposes. All of the members except Powell met periodically to discuss business matters, although the meetings were not formal as no official notice was given prior to the meetings and minutes were not kept. During this time, approximately $220,000 of Powell's equity contribution was returned to it, leaving it with a capital account of approximately $80,000. Dunmires provided approximately $415,000 in funds to Kite Ranch during those years. The company's financial records indicate that Dunmires' contributions were carried as loans to the company. The company's accountant testified that Dunmires directed her to designate the funds as loans.

[¶ 7] In 2006, Powell and Brickmans became concerned about the management of the company. Powell and Hedstroms executed contradictory leases on behalf of the company, leasing the ranch property to different individuals for the 2007 grazing season. In addition, the FNB note fell into default when it matured on November 1, 2006.

[¶ 8] On January 12, 2007, Dunmires and Hedstroms filed a complaint for a declaratory judgment against Powell and Brickmans. They also named the limited liability company as an involuntary plaintiff. They sought a declaration of the parties' respective interests, rights and responsibilities with respect to the limited liability company. Powell and Brickmans responded with a petition for a temporary restraining order and preliminary injunction giving Powell management authority over the company and enjoining Dunmires and Hedstroms from exercising any management authority.

[¶ 9] The district court denied the application for a temporary restraining order, but set a hearing on the petition for a preliminary injunction. In the meantime, Dunmires and Hedstroms filed a petition for appointment of a receiver to manage Kite Ranch. The district court heard the two pending motions on April 12, 2007. After the hearing, the district court issued a decision letter, generally granting Powell's and Brickmans' petition for a preliminary injunction and denying Dunmires' and Hedstroms' petition for appointment of a receiver. The parties could not agree on the wording of an order, and Dunmires and Hedstroms filed an objection to Powell's and Brickmans' proposed order, claiming the powers granted to Powell were overly broad. Among other things, they were concerned that Powell would sell the ranch property and/or change the members' rights with respect to the company by amending the articles of organization or adopting an operating agreement. The district court finally entered Powell's and Brickmans' version of the order, but interlineated some restrictions on Powell's management power.

[¶ 10] The interlineated language created an inconsistency in the order — the right to mortgage and/or lease the property was both granted and denied. Consequently, Powell and Brickmans filed a motion to amend the order to clarify their right to mortgage and lease the property. The district court granted the requested relief without holding a hearing or waiting for Dunmires and Hedstroms to reply to the motion to amend the order. Dunmires and Hedstroms appealed from the amended order.

DISCUSSION

1. Procedure for Amendment of Preliminary Injunction Order

[¶ 11] The original order granting Powell's and Brickmans' petition for a preliminary injunction stated in relevant part:

2. As required in the absence of an operating agreement by Wyo. Stat. Ann. § 17-15-116 (Lexis Nexis 2005), the Powell Family of Yakima, LLC, as the only member of Kite Ranch, LLC with a positive capital account and an initial capital contribution of Three Hundred Thousand Dollars ($300,000.00) be and the same is awarded exclusive management authority of Kite Ranch, LLC, including those powers and rights specifically conferred by Wyo. Stat. Ann. § 17-15-104 (Lexis Nexis 2005),¹ until further order of this Court except § 17-15-104(a)(iii); (a)(x); (a)(xii). [Judge's initials]

(footnote added). The underlined part of the order was handwritten by the district judge, presumably in response to Dunmires' and Hedstroms' objections to Powell's and Brickmans' proposed order.

[¶ 12] The powers granted to Powell under the original order included those set out in Wyo. Stat. Ann. §§ 17-15-104(a)(ii) and (vi) (LexisNexis 2005) which allowed it to lease and/or mortgage the property:

(ii) Purchase, take, receive, lease or otherwise acquire, own, hold, improve, use and otherwise deal in and with real or personal property, or an interest in it, wherever situated; [and]

. . .

(vi) Make contracts and guarantees and incur liabilities, borrow money at such rates of interest as the limited liability company may determine, issue its notes, bonds and other obligations and secure any of its obligations by mortgage or pledge of all or any part of its property, franchises and income[.]

[¶ 13] The interlineated language, however, denied Powell the powers under § 17-15-104(a) to:

(iii) Sell, convey, mortgage, pledge, lease, exchange, transfer and otherwise dispose of all or any part of its property and assets;

. . .

(x) Make and alter operating agreements, not inconsistent with its articles of organization or with the...