Mayeux v. Winder, 25,355.

• Decision Date: 21 December 2005
• Docket Number: No. 25,355.,25,355.
• Citation: 131 P.3d 85,2006 NMCA 028
• Parties: Jerry V. MAYEUX and Sally Brown Mayeux, Plaintiffs-Appellants, v. James R. WINDER and Katrina Erica Winder, Defendants-Appellees.
• Court: Court of Appeals of New Mexico

131 P.3d 85

2006 NMCA 028

Jerry V. MAYEUX and Sally Brown Mayeux, Plaintiffs-Appellants, v. James R. WINDER and Katrina Erica Winder, Defendants-Appellees.

No. 25,355.

Court of Appeals of New Mexico.

December 21, 2005.

COPYRIGHT MATERIAL OMITTED

Hubert & Hernandez, P.A., Beverly J. Singleman, Las Cruces, NM, for Appellants.

Cervantes Moberly, P.C., Joseph Cervantes, Las Cruces, NM, for Appellees.

OPINION

PICKARD, Judge.

{1} In this case, we decide whether the trial court abused its discretion in finding that the managing member of a limited liability land development company (the LLC) did not breach his fiduciary duty to the other members of the LLC. In doing so, we must decide which party should bear the burden of proof in such a case and whether the burden of proof issue was adequately raised below. We also address whether the trial court abused its discretion in (1) allowing the testimony of a witness who was not on Defendant's pretrial witness list and (2) determining that Defendant was the prevailing party for purposes of assessing costs. Finding no abuse of discretion with regard to any of these issues, we affirm.

BACKGROUND

{2} In 1997, Plaintiffs Jerry and Sally Mayeux purchased a lot from Defendant Jim Winder located in one of Defendant's subdivisions. (While Winder and his wife were both named defendants, we refer to them as "Defendant," since all the relevant actions in the case were taken by Mr. Winder.) Because Plaintiffs liked Defendant's style of subdividing, they told him that they would be interested in investing in similar projects. In 1998, the parties purchased some land located in Lincoln and Torrance counties and created a limited liability company, which they called Corona Ranch LLC. Plaintiffs and Defendant and his wife were the only members of the LLC. Under the parties' operating agreement, Defendant was to be the sole managing member of the LLC, and he was authorized to exercise "general supervision, direction and control" over the LLC. The operating agreement also contained a mandatory buyout provision, in which the parties agreed that if Plaintiffs wanted to withdraw from the LLC, Defendant would be required to buy them out. The agreement contained a formula for calculating the purchase price under the mandatory buyout provision.

{3} In addition to Corona Ranch, Defendant was involved in several other land development LLCs. He marketed all of his properties, including the Corona Ranch properties, under one trade name, "Heritage Ranch." Although the parties dispute the level of involvement, Plaintiff Sally Mayeux was involved in bookkeeping for the Corona Ranch LLC. Facts surrounding Sally Mayeux's involvement in the LLC's financial affairs, and the trial court's eventual findings regarding this issue, will be discussed more fully below.

{4} Plaintiffs claim that sometime in 2002, they began to suspect that Defendant was using funds from the Corona Ranch LLC to pay for expenses generated by his other land development projects. At this time, they informed Defendant that they wanted to exercise their rights under the buyout provision. Plaintiffs claimed that their interest in the LLC was worth $1,500,792. Defendant replied that he would buy them out at a price of $205,000. Plaintiffs rejected Defendant's offer and filed suit.

{5} Plaintiffs' original complaint claimed breach of contract based on Defendant's failure to comply with the terms of the buyout provision and fraud based on a breach of fiduciary duty in connection with misappropriation of funds. The complaint also requested an accounting and damages for breach of the covenant of good faith and fair dealing. Plaintiffs later amended their complaint to add a claim for conversion. At trial, Plaintiffs' primary contention seems to have been that Defendant's improper usage of funds had devalued the worth of the company. Plaintiffs specifically allege that Defendant (1) paid his life insurance premiums with LLC funds when there was no benefit to the LLC; (2) paid for advertising for his other Heritage Ranch properties with LLC funds; (3) watered his cattle improperly, causing the nearby village of Corona to refuse to renew an agreement under which water was provided to the Corona Ranch subdivision; (4) paid the water bill for the subdivision with LLC funds, charged the residents fees for water, and then did not reimburse the LLC; (5) hired other people to manage the LLC and paid them with LLC funds, even though the parties had agreed that he would perform all the management duties himself with no extra compensation; (6) claimed that a zoning restriction precluded him from subdividing as planned when in fact there was no such zoning restriction; and (7) failed to keep proper records of expenditures.

{6} After approximately a year and a half of litigation, Defendant moved to amend his answer to include counterclaims seeking recovery based on Plaintiffs' management of the LLC's capital accounts. It appears that the trial court never formally ruled on the motion to amend, but the court's findings and conclusions show that the counterclaims were litigated and that Plaintiffs prevailed on them.

{7} In July 2004, the trial court conducted a three-day bench trial, hearing extensive testimony and admitting numerous exhibits. Plaintiffs testified on their own behalf and put on testimony from numerous fact witnesses. Defendant testified and put on testimony from his accountant and an expert accountant. Defendant testified that based on advice from his accountant, he now valued Plaintiffs' interest in the LLC at $306,666, rather than the approximately $200,000 that he had initially offered. The trial court also allowed Defendant to call Ken Binkley, a partner in the advertising agency employed by Defendant. Plaintiffs objected to Binkley's testimony on the ground that he was not on Defendant's pretrial witness list. Finding no prejudice to Plaintiffs, the trial court allowed the testimony.

{8} After trial, the court issued a memorandum decision. It noted that "[t]he gravamen of the suit is that [Defendant] breached his fiduciary responsibility as Manager of Corona Ranch LLC by self[-]dealing." The court stated:

Having heard the testimony of the parties and their witnesses I am satisfied that [Defendant] did not breach his fiduciary duty to the [Plaintiffs] nor did he breach his contract with them. I am satisfied that there has been no fraud. I am satisfied that the various expenses were reasonably allocated between the various entities and under consistently applied methods.... I find that [Defendant] performed his job as Manager of Corona Ranch LLC in good faith and in the best interest of the Company.

The court denied Defendant's counterclaims, stating, "I do not make a credit for a negative capital account as I was not satisfied with the proof of that amount."

{9} The court awarded Plaintiffs $306,666 for their interest in the LLC, the amount Defendant acknowledged at trial to be owing. The court clarified its decision by adopting many of Defendant's proposed findings of fact and conclusions of law. We address the substance of some of the court's findings and conclusions in our discussion below. Subsequently, the court entered a Judgment and Final Decree, which adopted the memorandum decision and awarded Defendant costs as the prevailing party.

DISCUSSION

1. BREACH OF FIDUCIARY DUTY CLAIM

{10} On appeal, Plaintiffs have abandoned their other claims and argue only that they are entitled to damages based on Defendant's breach of fiduciary duty. Their primary contention seems to be that the trial court applied the wrong standard to their breach of fiduciary duty claim by (1) putting the burden on Plaintiff to show a breach of fiduciary duty rather than requiring Defendant to demonstrate the propriety of his conduct, (2) requiring proof by a preponderance of the evidence rather than by clear and convincing evidence, and (3) failing to apply the high standard appropriate to fiduciary duty claims and instead applying the lower standard appropriate to breach of contract claims. Plaintiffs also argue that the trial court generally abused its discretion in finding, on the evidence presented, that Defendant did not breach his fiduciary duty. Plaintiffs' theory for this argument seems to be that Defendant's failure to keep detailed, written records was enough by itself to constitute a breach of fiduciary duty.

{11} Plaintiffs' appellate briefing sets forth the facts in a light favorable to Plaintiffs. For example, Plaintiffs contend that they "proved" several different instances of self-dealing at trial. They also argue that "[t]here was substantial evidence in the case at bar that [Defendant] placed his own interests above those of Corona Ranch LLC and the [Plaintiffs] as minority, non-managing members in using Corona Ranch LLC assets and monies to benefit his private ranching operation and other land development LLCs in which [Plaintiffs] had no interest." We note that when we review a trial court's factual findings, the presence of evidence supporting the result opposite from that reached by the trial court is not relevant. See Hernandez v. Mead Foods, Inc., 104 N.M. 67, 71, 716 P.2d 645, 649 (Ct.App.1986) (holding that the plaintiff's statement that substantial evidence supported his claims represented "a basic misunderstanding of the function of appellate review," and noting that "[t]he question is not whether substantial evidence would have supported an opposite result; it is whether such evidence supports the result reached"), limited on other grounds by Graham v. Presbyterian Hosp. Ctr., 104 N.M. 490, 723 P.2d 259 (Ct.App.1986).

{12} Despite these statements regarding the strength of their own evidence, Plaintiffs do not appear to actually argue that the trial court's findings were not supported by substantial evidence. Nor do Plaintiffs identify any of the trial court's findings to which they take exception. See ...