Kirksey v. Grohmann
| Decision Date | 30 July 2008 |
| Docket Number | No. 24600.,24600. |
| Citation | 754 N.W.2d 825,2008 SD 76 |
| Parties | Lorraine E. KIRKSEY, f/k/a Lorraine E. Bach, and Lucille E. Ruby, Plaintiffs and Appellants, v. Dorothy E. GROHMANN and Eileen C. Randell, Defendants and Appellees. |
| Court | South Dakota Supreme Court |
Dwight A. Gubbrud of Bennett, Main & Gubbrud, P.C., Belle Fourche, South Dakota, Attorneys for plaintiffs and appellants.
Ronda Miller, Belle Fourche, South Dakota, Attorney for defendant and appellees.
[¶ 1.] Four sisters inherited equal ownership in their family's land. They formed a limited liability company, conveying their property interests to the company in exchange for equal ownership in the LLC. One sister lives on the land and manages the LLC, and another sister leases the land for livestock grazing. Two other sisters live a great distance from the land. These sisters, who once agreed, are now divided. They speak only through their lawyers. Two sought to terminate the lease and dissolve the LLC; the other two opposed it. A majority vote is required, but the sisters are deadlocked. Judicial dissolution was sought and the circuit court granted summary judgment against it. On appeal, we conclude that it is not reasonably practicable for the company to continue and the economic purpose of the LLC is being unreasonably frustrated. We reverse and remand for an order of judicial dissolution.
[¶ 2.] On July 10, 2001, Grace Kirksey died. She had four daughters: Lucille Ruby, Lorraine Kirksey, Dorothy Grohmann, and Eileen Randell. Grace left her four daughters equal ownership interest in 2,769 acres of land in Butte County, South Dakota, and 401 acres in Crook County, Wyoming. These tracts composing the Kirksey land have been in the family for over 100 years. Grohmann lives on and manages this land, and Randell lives in Rapid City, South Dakota. Kirksey lives in California, and Ruby lives in Colorado.
[¶ 3.] On October 7, 2002, the four daughters formed a limited liability company, Kirksey Family Ranch, LLC, to hold title to the land. Each sister conveyed her one-quarter interest in the property to the LLC in exchange for a 25% ownership in the company. Grohmann would serve as the manager. They formed the LLC (1) to avoid paying certain estate taxes by employing a special use valuation, (2) to keep the land in the family, and (3) to keep ownership interest in the real property with the sisters and not their spouses.
[¶ 4.] At the time of their mother's death, the land was valued at $550,000. With the special use valuation, it was reported to be valued at $215,000. To obtain the benefit of this valuation certain family members were required, among other things, to retain ownership in the land for ten years, and it was to be used for agricultural purposes. The eldest sister, Grohmann, had lived on the Kirksey land as a hired hand before their mother's death. Grohmann, Kirksey, and Randell each owned grazing livestock on the land. To continue the agricultural operation, the sisters decided that the LLC would lease the land to Grohmann, Kirksey, and Randell.
[¶ 5.] A lease agreement was executed in October 2002, effective September 1, 2002. It provided for an initial term of five years, to be automatically renewed for another year unless either party gave written notice of intent to terminate within ninety days before the termination of the lease. The annual rental rate was set at $14,263.20. The LLC, as the landlord, was responsible for all the real estate taxes and insurance.
[¶ 6.] Not long after the formation of the LLC, relations deteriorated. According to Kirksey, Grohmann and Randell "failed or refused to share information" with her on the operation of the ranch, on which she owned livestock as a tenant to the lease. She claimed that she wrote Grohmann "dozens of pages of letters" to resolve disagreements and requested information about livestock and other issues. She insisted that Grohmann did not provide the requested information and, if she did, it was either inaccurate or unreliable. Also, according to Kirksey, Grohmann and Randell subleased 401 acres of the land without notice to the LLC, as required by the lease agreement.
[¶ 7.] Grohmann, on the other hand, said that she always gave Kirksey necessary information. She further contended that the LLC was given notice of the sublease because the members of the LLC, the sisters, were aware of the sublease arrangement when Grohmann initially divided up the sublease payments equally and attempted to share them with all the LLC members. Grohmann said that Kirksey accepted the payment, but Ruby did not as she was not a tenant to the lease.
[¶ 8.] Because of her continued frustrations with Grohmann and Randell, Kirksey sold them her interest in the livestock in 2003. Grohmann and Randell were then the only tenants on the lease agreement. This, however, did not end the contentious relationship between the sisters. Kirksey and Ruby hired a real estate agent to value the Kirksey land. It was estimated to be worth in excess of $3.2 million. Kirksey and Ruby then sought to terminate the lease agreement, dissolve the LLC, and partition the land.
[¶ 9.] A meeting of the LLC was held on May 30, 2006. Ruby moved and Kirksey seconded a motion to terminate the lease agreement. Grohmann and Randell opposed, and the motion failed. Thereafter, Ruby moved and Kirksey seconded a motion to dissolve the LLC. This motion also failed when Grohmann and Randell opposed. All major actions taken by the LLC required a majority vote of its members. Because Grohmann and Randell had no desire to terminate the lease or dissolve the LLC, the parties remained deadlocked.
[¶ 10.] Kirksey and Ruby petitioned the circuit court for relief. Citing SDCL 47-34A-801, Kirksey and Ruby requested that the court dissolve the LLC because its economic purpose was unreasonably frustrated and it was not reasonably practicable to carry on the company's business in conformity with the articles of organization and the operating agreement. According to Kirksey, the strained relationship between the sisters made it impossible for any major decision making. Moreover, Kirksey claimed that "Grohmann and Randell have a personal financial interest in continuing the lease agreement and preventing dissolution of the LLC," all to her and Ruby's detriment.
[¶ 11.] On cross motions for summary judgment, the circuit court denied Kirksey and Ruby's petition and granted Grohmann and Randell's motion for summary judgment. Kirksey and Ruby appeal, asserting that the court erred when it granted summary judgment against judicial dissolution of the LLC.
[¶ 12.] Summary judgment is proper when the law is correctly applied and there are no genuine issues of material fact. Rush v. U.S. Bancorp Equip. Fin., Inc., 2007 SD 119, ¶ 7, 742 N.W.2d 266, 268 (quoting Heib v. Lehrkamp, 2005 SD 98, ¶ 19, 704 N.W.2d 875, 882) (citing SDCL 15-6-56(c); Keystone Plaza Condo. Ass'n v. Eastep, 2004 SD 28, ¶ 8, 676 N.W.2d 842, 846)). Several facts are undisputed. Kirksey Family Ranch, LLC is a family enterprise, created to keep title to land held in the family for over a century and to maintain ranching operations. Each sister invested in the company her one-quarter interest in the land with the understanding that she would have an equal say in the company's operations and equal ownership in its assets. When the sisters formed the LLC, they provided no way to break a tie vote between them and no way to end a deadlock. Today, the sisters are divided and speak only through their legal counsel. There being no avenue for relief in the operating agreement, two sisters ask the courts to intervene.
[¶ 13.] Through SDCL 47-34A-801, the Legislature provided courts with the limited power to order dissolution of an LLC if certain statutory standards are met. Under SDCL 47-34A-801(a)(4)(i) and SDCL 47-34A-801(a)(4)(iii), a court may judicially dissolve an LLC if "the economic purpose of the company is likely to be unreasonably frustrated" or "it is not otherwise reasonably practicable to carry on the company's business in conformity with the articles of organization and the operating agreement[.]"
[¶ 14.] How these statutory standards may be satisfied has not yet been detailed by this Court. A consistent view in other jurisdictions is that a limited liability company is governed by its articles of organization and operating agreement. See Horning v. Horning Const., LLC, 12 Misc.3d 402, 816 N.Y.S.2d 877, 881 (N.Y.Sup.Ct.2006); Historic Charleston Holdings, LLC v. Mallon, 365 S.C. 524, 617 S.E.2d 388, 393 (S.C.Ct.App.2005); Dunbar Group, LLC v. Tignor, 267 Va. 361, 593 S.E.2d 216, 219 (2004). Beyond this, however, there is no prevailing interpretation of the terms "not reasonably practicable" and "economic purpose ... unreasonably frustrated" in relation to dissolution of limited liability companies. See SDCL 47-34A-801.
[¶ 15.] Nevertheless, the cases interpreting language similar to our statutory terminology, whether involving a partnership or a limited liability company, are instructive. In defining what it means for it to "not be reasonably practicable" for a company to continue, one court consulted a dictionary to apply a plain and ordinary meaning. Taki v. Hami, 2001 WL 672399 (Mich.Ct.App.) (unpublished) (). The Taki court held that "`reasonably practicable' may properly be defined as capable of being done logically and in a reasonable, feasible manner."1 Id. at 3. Another court emphasized that "[t]he standard set forth by the Legislature is one of reasonable practicability, not impossibility." PC Tower Ctr., Inc. v. Tower Ctr. Dev. Assoc., L.P., 1989 WL 63901, 6 (Del.Ch.) (unpublished) (). Under this view, the standard does not require that the purpose of the company, as set out in the operating agreement, be completely frustrated to warrant...
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