Menard, Inc. v. Dial-Columbus, LLC

• Decision Date: 26 March 2015
• Docket Number: No. 14–1741.,14–1741.
• Citation: 781 F.3d 993
• Parties: MENARD, INC. a Wisconsin Corporation, Plaintiff–Appellee v. DIAL–COLUMBUS, LLC, a Nebraska limited liability company also known as Dial Columbus, LLC ; DKC–Columbus, LLC, a Nebraska limited liability company, Defendants. Terry L. Clauff, a Nebraska resident, Defendant–Appellant.
• Court: U.S. Court of Appeals — Eighth Circuit

781 F.3d 993

MENARD, INC. a Wisconsin Corporation, Plaintiff–Appellee

v. DIAL–COLUMBUS, LLC, a Nebraska limited liability company also known as Dial Columbus, LLC ; DKC–Columbus, LLC, a Nebraska limited liability company, Defendants.Terry L. Clauff, a Nebraska resident, Defendant–Appellant.

No. 14–1741.

United States Court of Appeals, Eighth Circuit.

Submitted: Oct. 7, 2014.

Filed: March 26, 2015.

Mark Davis Hill, argued, Omaha, NE, (Michael Sean Degan, Omaha, NE, on the brief), for appellant.

Kory D. George, argued, Denver, CO, (Kerry L. Kester, Lincoln, NE, on the brief), for appellee.

Before LOKEN, BEAM, and COLLOTON, Circuit Judges.

Opinion

BEAM, Circuit Judge.

The district court granted summary judgment in favor of Menard, Inc., on its claim that Terry Clauff is jointly and severally liable for a contract he signed on behalf of DKC–Columbus, LLC, before the company came into existence. We reverse.

I. BACKGROUND

Menard is a Wisconsin corporation that owns and operates home improvement stores. Dial–Columbus, LLC, and DKC–Columbus are Nebraska limited liability companies (LLCs). Clauff is a member of both companies.

Menard operated a retail store in the Westgate Center in Columbus, Nebraska, in a building that it subleased (the Sublease) from Wal–Mart Stores, Inc. On August 28, 2006, Menard entered into a Purchase and Sale Agreement (the PA) with Dial–Columbus to purchase a parcel of property (the Property) that Dial–Columbus owned. Clauff signed the PA in his capacity as a managing member of Dial–Columbus. Menard planned to build a new store on the newly acquired Property and wanted to be relieved of its obligations under the Sublease once the new location opened for business. Menard and Dial–Columbus therefore incorporated a provision into the PA providing that Dial–Columbus would assume full responsibility for all terms of the Sublease thirty days after Menard opened its new store, the “Effective Date.” Dial–Columbus's lease assumption responsibilities in the PA specifically included “pay[ing] any and all rents and satisfy[ing] all other obligations under” the Sublease. The PA further stated that Dial–Columbus's responsibilities “were set forth in more detail in the Lease Assignment, Consent & Release” (the Lease Assignment) that was attached as an exhibit to the PA. Dial–Columbus's name, however, appears nowhere in the Lease Assignment. The Lease Assignment instead states that DKC–Columbus sold the Property to Menard and on the stated “Effective Date” agreed to receive by assignment all of Menard's right, title and interest in and to assume all of Menard's liabilities, duties and obligations under the Sublease. The parties (and apparently the district court) seemingly never noticed this discrepancy between the documents until it was pointed out to them at oral argument before this court, and they have provided us no explanation for why or how this discrepancy occurred.

Nonetheless, with the written consent of Wal–Mart, DKC–Columbus and Menard formally executed the Lease Assignment attached to the PA on February 12, 2007. Clauff purported to sign the Lease Assignment in his capacity as a member of DKC–Columbus. However, DKC–Columbus did not file its Articles of Organization with the Nebraska Secretary of State until October 30, 2007, and it is undisputed that the company was not a lawfully organized LLC on the date Clauff signed the Lease Assignment. See Neb.Rev.Stat. §§ 21–2605, 21–2608 (repealed 2013)¹ (providing that a limited liability company is considered organized after the company has filed its articles of organization with the Nebraska Secretary of State and has received a certificate of organization). Clauff and Menard both claim that DKC–Columbus adopted the Lease Assignment after the company formed, but neither party has provided documentary or other evidence that identifies when or how DKC–Columbus did so. Wal–Mart, as sublessor of the Westgate property and beneficiary of the Sublease obligations fully assigned by Menard to Dial–Columbus and DKC–Columbus, demanded that Menard also continue to be secondarily liable for these commitments. Menard agreed to such requirement.

Menard opened its new store in April 2008. The parties agree that thirty days later Dial–Columbus became responsible for the Sublease under the terms of the PA, and that DKC–Columbus also became similarly accountable via its obligations under the Lease Assignment. Either Dial–Columbus or DKC–Columbus paid rent to Wal–Mart for May and June of 2008; however, neither company made any rental payments after June 2008. Both companies also failed to pay the insurance costs and taxes due under the Sublease. The Sublease expired in January 2011, at which time Dial–Columbus and DKC–Columbus jointly owed Wal–Mart more than $700,000.

As contemplated by the assignments, Wal–Mart initially sought to recover from Dial–Columbus and DKC–Columbus. Failing this, it then turned to collecting from Menard under its indemnity commitment. Menard eventually settled with Wal–Mart for $350,000. Menard then brought suit against Dial–Columbus, DKC–Columbus, and Clauff to recover that money. In its pleadings, Menard asserted several theories of recovery against each defendant, including breach of contract and contractual indemnification. All three defendants initially defaulted. However, after the clerk's entry of default, Clauff and Dial–Columbus entered an appearance, and the district court set aside the entry of default as to them. DKC–Columbus never appeared and was thus subjected to default judgment. Fed.R.Civ.P. 55(b).

Clauff and Dial–Columbus jointly filed a pleading in which they denied liability and asserted several affirmative defenses, including estoppel. They then moved to dismiss the case, but the district court denied their motion. Menard subsequently filed a motion for partial summary judgment, asking the court to enter judgment in its favor against each defendant on Menard's breach of contract and contractual indemnification theories. Dial–Columbus did not contest the motion, and the district court entered judgment against it. Clauff opposed the motion, arguing that he was not liable for the Lease Assignment because (1) the future members of DKC–Columbus authorized him to obligate the company to the contract; (2) none of the parties to the Lease Assignment intended for him to be personally liable; and (3) any liability that may have incurred was relieved or discharged after DKC–Columbus formed and adopted the Lease Assignment.

The district court ultimately granted summary judgment in favor of Menard on the grounds that Clauff was liable for the Lease Assignment under Nebraska Revised Statute § 21–2635 (repealed 2013), which provided that “[a]ll persons who assume to act as a limited liability company without authority to do so shall be jointly and severally liable for all debts and liabilities of the company.” Neb.Rev.Stat. § 21–2635. The district court concluded that Clauff did not have authority to obligate DKC–Columbus to the Lease Assignment because the contract was not incidental to the company's organization and DKC–Columbus therefore lacked the capacity to authorize it. See Neb.Rev.Stat. § 21–2608(2) (stating that an unorganized LLC may only transact business or incur debt if such business or debt is incidental to the company's organization).² The district court further determined § 21–2635 imposed what amounted to strict liability on Clauff for this unauthorized contract because he failed to show that Menard agreed to a discharge of his liability. Clauff appeals.

II. DISCUSSION

“We review the district court's grant of summary judgment de novo, viewing the evidence and drawing all reasonable inferences in the light most favorable to [Clauff].” Malloy v. U.S. Postal Serv., 756 F.3d 1088, 1090 (8th Cir.2014). We will affirm only if “there is no genuine dispute as to any material fact and [Menard] is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). The parties agree that Nebraska law governs this dispute. Because no Nebraska appellate court has interpreted the now repealed § 21–2635, our task is to predict the manner in which the Nebraska Supreme Court would interpret the statute. Marvin Lumber & Cedar Co. v. PPG Indus., Inc., 223 F.3d 873, 876 (8th Cir.2000).

Clauff raises what we construe to be three separate arguments in opposition to the district court's holding that he is personally liable for the Lease Assignment. Clauff first contends that, because the future members of DKC–Columbus authorized him to sign the Lease Assignment on behalf of the company, his conduct was authorized for purposes of § 21–2635. Clauff next suggests that the statute does not apply to his conduct because the parties never intended for him to be personally liable for the Lease Assignment. Finally, Clauff contends that, even if he was liable under § 21–2635, DKC–Columbus relieved him from such liability by adopting the contract and commencing performance on it after the company lawfully formed.

A. Clauff's Authority

We begin our analysis by noting that the factual discrepancies between the PA and the Lease Assignment create some uncertainty regarding whether the parties intended to bind Dial–Columbus or DKC–Columbus to the Lease Assignment. The parties, however, represented to the district court and to this court that DKC– Columbus was the intended party to the Lease Assignment. Therefore, for purposes of summary judgment review, we will rely on the parties' representations regarding their intent, bearing in mind that future discovery may reveal that resolution of this issue is far less clear than the parties led the district court to believe.

We find no fault in the district court's conclusion that, based on the summary judgment record, Clauff was not authorized to obligate DKC–Columbus to the Lease Assignment. The Nebraska LLCA prescribed the method by which LLCs could form and prohibited an unorganized LLC from transacting business or incurring debt that...