Investcorp v. Simpson Investment Co., 89,518

• Decision Date: 19 March 2003
• Docket Number: No. 89,518,89,518
• Citation: 85 P.3d 1140,277 Kan. 445
• Parties: INVESTCORP, L.P., et al., Appellants, v. SIMPSON INVESTMENT COMPANY, L.C., Appellee.
• Court: Kansas Supreme Court

277 Kan. 445

85 P.3d 1140

INVESTCORP, L.P., et al., Appellants, v. SIMPSON INVESTMENT COMPANY, L.C., Appellee.

No. 89,518

Supreme Court of Kansas

Opinion filed March 19, 2003.

Mick Lerner, of Law Office of Mick Lerner, P.A., of Overland Park, argued the cause and was on the briefs for appellants.

John L. Vratil, of Lathrop & Gage, L.C., of Overland Park, argued the cause and Jeffrey R. King, of the same firm, was with him on the brief for appellee.

The opinion of the court was delivered by

NUSS, J.:

This case involves a dispute over attorney fees and other expenses between two factions of the Simpson Investment Company, L.C. (Company), a Kansas limited liability company. One faction primarily consists of six members who withdrew from the Company, and the other faction consists of four of the five members who remained. The district court denied the withdrawing members' motion for declaratory judgment which requested that they not be required to share in paying expenses incurred by the Company totaling approximately $240,000. The withdrawing members appealed, and we transferred the case from the Court of Appeals on our own motion pursuant to K.S.A. 20-3018(c).

The parties raise a total of 11 arguments in their briefs which surround the main issue: Who is to pay for the expenses? The answer is, the Company, i.e., all of its members, including those who withdrew. Consequently, the judgment of the district court is affirmed.

FACTS

Background

These factions have brought their disputes to this court once before. An excellent background is provided in Investcorp, L.P. v. Simpson Investment Co., L.C., 267 Kan. 840, 983 P.2d 265, modified 267 Kan. 875, 983 P.2d 265 (1999) (Investcorp I). A recapitulation, however, is necessary to understand the present controversy.

Company was formed in 1991 by two brothers, Donald and Alfred Simpson, to manage various land holdings of the Simpson family. Donald and Alfred, together with Alfred's son Mark Simpson, were eventually selected as managers.

The operations of the Company are governed by an Amended and Restated Operating Agreement (operating agreement). Presently, the sole asset of the Company is 104 acres of commercial property at the northeast corner of 135th Street and Pflumm in Johnson County. It has been held by the family since 1941 and is estimated to be worth over $10 million. Donald and Alfred created several trusts for the benefit of their respective family members and themselves. These trust entities comprise the membership of the Company. (All members but one, Investcorp, L.P., are trusts.)

The two Simpson families had contradictory ideas about the disposition of the 104 acres. Since the family differences were not resolved, Alfred's family (spearheaded by Mark) decided to force dissolution of the Company by withdrawing as members. The withdrawing members were Investcorp, L.P. (Kansas limited partnership), the Kimberly S. Markey Trust, the Kelly S. Moran Trust, the Marty Aarreberg Trust, the Marshall A. Moore Trust, and the Shauna S. Simpson Trust. Together with one remaining member, the Christopher A. Moran Trust, the withdrawing members owned approximately 50% of the Company. They gave notice of their resignations on April 10, 1996, which became effective 6 months later per the operating agreement.

The remaining members were those from Donald's family — the Nina S. Boyd Trust, the Jana E. Simpson Trust, the Reed A. Simpson Trust and the Marshall T. Simpson Trust — and one actually aligned with Alfred's family, the Christopher A. Moran Trust, for which Mark Simpson served as trustee. The remaining members, from Donald's family, owned approximately 50% of the Company.

After the resignations, the Company refused to proceed with dissolution, even though the operating agreement required unanimous consent of the remaining members to continue, and the Christopher A. Moran Trust did not consent to continuation. The withdrawing members then sought dissolution by suing the Company on October 15, 1996, only 5 days after their resignations became effective. They also sought appointment of Mark Simpson as receiver to preside over the resultant liquidation and distribution of assets and further sought recovery of their attorney fees and costs.

After the district court reviewed competing motions for summary judgment, it filed its journal entry on June 6, 1997, granting partial summary judgment to the withdrawing members because unanimous consent of the remaining members to continue the Company had not been obtained. It therefore determined that the Company "is in dissolution . . . and should immediately take the steps . . . to conclude that dissolution." The Company did not appeal this ruling.

On August 18, 1997, the district court filed its journal entry granting a partial summary judgment to the Company. It denied the withdrawing members' request to appoint a receiver and placed control of dissolution in the Company and its current members — which specifically excluded the withdrawing members — "through the proper managers of the Company or otherwise." The withdrawing members appealed this latter order as well as one dated February 6, 1998, in which the district court refused to conduct an evidentiary hearing regarding the competence and trustworthiness of the remaining members to carry out the dissolution order.

On July 16, 1999, this court affirmed in part, reversed in part, and remanded. In reversing the district court and holding that the withdrawing members remained Company members during dissolution, we relied upon the language of the operating agreement chosen by the parties, particularly section 9.2 captioned Effect of Dissolution. This court concluded that because other sections of the operating agreement, i.e., sections 8.7 and 9.3, specifically refer to remaining members, and section 9.2 does not, then 9.2 applies to all members, including those who have withdrawn. 267 Kan. at 848. Contained in our holding was an acceptance of the withdrawing members' argument that "member" includes a withdrawing member having a financial interest in the Company's assets. 267 Kan. at 846, 848, 850.

After each party filed a motion to modify under Supreme Court Rule 7.06 (2003 Kan. Ct. R. Annot. 52), and the Company sought rehearing, we denied the motion for rehearing but modified the original opinion. See Investcorp, L.P. v. Simpson Investment Co., L.C., 267 Kan. 875, 983 P.2d 265 (1999). This court then held:

"(1) The Company through its manager trustees controls dissolution, (2) the plaintiffs [withdrawing members] are `members' of the Company during dissolution, and (3) refusing to appoint a receiver was not error. On remand, the district court has jurisdiction to: (a) monitor its previous orders as modified by this opinion, (b) decide who the managers are to control dissolution, and (c) consider any appropriate future matters that may arise concerning the Company's dissolution, including the appointment of a receiver, if either the requirements of Browning v. Blair, 169 Kan. 139, 218 P.2d 233 (1950) (fraud, breach of fiduciary duty, or waste) or a showing of good cause have been met and the interests of all members will best be protected by the appointment of such receiver." 267 Kan. at 877.

Present Controversy

The present controversy concerns certain Company expenses incurred from October 21, 1996, through May 30, 2002, which obviously includes the time the case was on appeal before this court, i.e., March 13, 1998, to October 29, 1999. According to the withdrawing members, the expenses generally included certain attorney fees and costs related to the Company's defense of the lawsuit; interest and other expenses regarding a Company loan; and certain marketing, surveying, and miscellaneous expenses. The expenses totaled approximately $240,869. The withdrawing members allege that almost all of the expenses were incurred after December 20, 1996, when the remaining members voted to remove Alfred and Mark as managers, retained Donald, and added Donald's son Reed as a manager.

The expenses, other than attorney fees of approximately $175,000, included attempts to find a purchaser or purchasers for the property. They also included payment of principal and interest on funds drawn against a $245,000 line of credit for Company expenses with First National Bank of Kansas. This line of credit was authorized by the December 22, 1997, vote at a meeting of the remaining members and secured by a mortgage on part of the property, the Company's only asset. Mark Simpson attended the meeting and objected to the proposed action.

The attorney fees were primarily incurred by the Company when it defended the litigation in the district court. These efforts included, but were not limited to, answering the October 15, 1996, lawsuit; responding to the plaintiffs' motion for a temporary restraining order filed in April 1997, which sought to preclude the Company from incurring any liquidation expenses; and responding to plaintiffs' motion to enforce judgments filed July 17, 1998, while the case was on appeal and ultimately journalized on June 30, 2000 (journal entry re plaintiffs' motion to enforce judgments) after our decision in Investcorp I. The attorney fees were also incurred by the Company when it filed a motion for declaratory relief in April 2000 and responded to plaintiffs' cross-motion for declaratory relief filed June 27, 2000, which resulted in the court's memorandum ruling on opposing motions for declaratory judgment dated January 8, 2002, denying both motions.

The attorney fees were also incurred by the Company when it responded to the May 30, 2002, motion for limited declaratory relief filed by the withdrawing members. There, they asked the court to order that they not be required to share in paying the expenses incurred by the managers, Donald and Reed, and that the remaining members who had selected these managers should alone bear the loss. The district...