Raml v. Raml, 4:15-CV-04154-RAL

• Decision Date: 25 September 2017
• Docket Number: 4:15-CV-04154-RAL
• Parties: MARTIN T. RAML, Plaintiff, v. DONALD J. RAML, Defendant.
• Court: U.S. District Court — District of South Dakota

MARTIN T. RAML, Plaintiff, v. DONALD J. RAML, Defendant.

4:15-CV-04154-RAL

UNITED STATES DISTRICT COURT DISTRICT OF SOUTH DAKOTA SOUTHERN DIVISION

September 25, 2017

ORDER GRANTING MOTION FOR SUMMARY JUDGMENT

Plaintiff Martin Raml (Martin) and Defendant Donald Raml (Don)¹ are brothers who were also business partners in a South Dakota limited liability company called Lake Area Apartments (LAA). Don obtained complete ownership of LAA in 2010 as confirmed through a declaratory judgment action. When Martin filed for bankruptcy less than a year later, he was aware of his potential claims against Don concerning LAA but he failed to disclose those claims to the bankruptcy court. Judicial estoppel bars Martin from asserting those claims now in this case.

I. Facts

Martin is a real estate broker in Arizona and Don is a certified public accountant in Watertown, South Dakota. Doc. 40 at ¶¶ 4, 5; Doc. 43 at ¶¶ 4, 5. LAA was a member-managed company, with Don acting as LAA's "Designated Member." Doc. 46-3 at 5; Doc. 45-1 at 5; AUF² at ¶ 2; Doc. 48 at ¶ 2. Martin initially owned 50% of LAA while RVHL, a corporation comprised of Don and his three accounting partners, initially owned the other 50%. Doc. 40 at ¶ 2; Doc. 43 at ¶ 2;Doc. 1 at ¶ 15; Doc. 44 at 2. Martin and RVHL each invested $500 of capital in LAA when the company was formed in May 2000. Doc. 40 at ¶¶ 1, 3; Doc. 43 at ¶¶ 1, 3. The parties also executed a contract "for the purpose of establishing a Buy/Sell Agreements [sic] and of setting forth the terms under which the members in [LAA] shall sell their respective share of [LAA] upon withdrawal from [LAA]." Doc. 42-1 at 19; Doc. 46-4 at 1. As relevant here, the Buy/Sell Agreement provided:

The members desire a smooth transition upon the withdrawal or death of a member, and, accordingly, set the following parameters to be binding upon one of the events aforementioned:

. . . .

2) It is agreed that RVHL, Inc., from its share of distribution proceeds will pay Martin Raml $75,000 plus accumulated interest at a rate of 8% from the date of closing. RVHL, Inc., will be paid for any accrued management fees prior to any member distributions and payment to Martin Raml for the aforementioned $75,000 and accumulated interest. Upon dissolution of the corporation, or upon Martin's death, if there are not enough assets after the debt service is retired and all other creditors are paid, Martin will not be liable to RVHL, Inc., for any unpaid management fees, likewise RVHL, Inc. will not be liable to Martin for the aforementioned $75,000.

Doc. 42-1 at 19; 46-4 at 1.

In May 2000, LAA purchased two apartment buildings in Watertown from companies in which Martin was a partner. Doc. 40 at ¶ 6; Doc. 43 at ¶ 6. According to Martin, he had $150,000 of equity in the apartments at the time LAA purchased them, and the $75,000 discussed in the Buy/Sell Agreement was meant "to balance out the equity/capital invested by the members at the startup of LAA." Doc. 46 at ¶ 8; see also Doc. 40 at ¶ 11; Doc. 43 at ¶ 11.

Martin was paid $75,000 in 2003. Doc. 43 at ¶ 13; Doc. 43 at ¶ 13; Doc. 42-2 at 44. He contends that Don paid him this $75,000 from an LAA distribution rather than from RVHL's own share of distribution as Martin believes the contract required. Doc. 43 at ¶ 13; Doc. 46 at ¶ 7. Martin believes that because he owned 50% of LAA, RVHL really only paid him half of the $75,000. Martin also contends that the $75,000 payment burdened the apartments and the cash flow therefrombecause Don and his partners, without Martin's approval, paid Martin by borrowing $50,000 against the apartment and taking the other $25,000 from operating reserves. Doc. 46 at ¶ 8.

In late 2005, RVHL decided to get out of the apartment business and to sell its shares of LAA. Doc. 40 at ¶ 14; Doc. 43 at ¶ 14; Doc. 42-2 at 23-25. According to Don, LAA's local bank wanted him to have an "ownership presence" in LAA before the bank would finance the buyout of RVHL. Doc. 40 at ¶ 15; Doc. 43 at ¶ 15; Doc. 45-1 at 11-12. In December 2005, the parties entered into a contract for the buyout of RVHL. Doc. 40 at ¶ 16; Doc. 43 at ¶ 16; Doc. 42-2 at 23-25. Under the contract, Martin agreed that Don would become a member of LAA while RVHL would withdraw. Doc. 40 at ¶ 18; Doc. 43 at ¶ 18; Doc. 42-2 at 23. Martin would own 75% of the company and Don would own 25%, but Martin would receive 100% of LAA's profits and losses. Doc. 40 at ¶ 19; Doc. 43 at ¶ 19; Doc. 42-2 at 24. The contract also provided that on or before January 1, 2007, Martin would purchase Don's interest in LAA for $5,000 and Don would then be deemed to have withdrawn from LAA. Doc. 40 at ¶¶ 20-21; Doc. 43 at ¶¶ 20-21; Doc. 42-2 at 25. If Martin failed to purchase Don's interest by the January 1, 2007 deadline, however, Don's share of profits and losses in LAA would increase to 25% while Martin's would decrease to 75%. Doc. 40 at ¶ 21; Doc. 43 at ¶ 21; Doc. 42-2 at 25. The buyout of RVHL occurred in 2006, with RVHL receiving $214,200 for its 50% interest in LAA. Doc. 40 at ¶ 16; Doc. 43 at ¶ 16. To finance the buyout, Martin and Don signed a mortgage on behalf of LAA in favor of Dacotah Bank on March 29, 2006. Doc. 46-6 at 16; Doc. 45-1 at 14-15; AUF at ¶ 15; Doc. 48 at ¶ 15. Don was not in Arizona when the mortgage was signed, although the notary block on the mortgage states that Don and Martin personally appeared before the notary in Arizona at the time of signing. AUF at ¶ 16; Doc. 48 at ¶ 16; Doc. 46-6 at 16. Martin failed to pay Don the $5,000 by January 1, 2007, and in fact has never done so. Doc. 40 at ¶ 22; Doc. 43 at ¶ 22.

The 2008 financial crisis caused serious problems for Martin's real estate investments in Arizona. Doc. 40 at ¶ 23; Doc. 43 at ¶ 23. In hopes of recovering, Martin wanted to buy otherproperties while prices were low; he believed he owned 100% of LAA and therefore had "plenty of equity" to support these purchases. Doc. 40 at ¶ 24; Doc. 43 at ¶ 24. Although Don advised against it, Martin decided to pledge equity in LAA as security for a promissory note with Merlin Jeitz. Doc. 40 at ¶¶ 25-28; Doc. 43 at ¶¶ 25-28; Doc. 42-2 at 10-11, 29-31. Martin apparently borrowed $25,000 from Jeitz on February 11, 2009, pledging $250,000 of equity in LAA as security.³ Doc. 40 at ¶¶ 27-28; Doc. 43 at ¶¶ 27-28; Doc. 42-2 at 29-31.

In emails sent in March and August of 2009, Martin assured Don that Jeitz would be paid. Doc. 42-2 at 41-42. As of February 2017, however, Martin estimates that he has only paid Jeitz $12,317 of the $25,000, plus interest, he owes him. Doc. 40 at ¶ 32; Doc. 43 at ¶ 32.

The $25,000 loan from Jeitz did not solve Martin's financial difficulties. He asked Don for money from LAA several times in 2009, intending to use this money to avoid defaulting on his Arizona properties. Doc. 40 at ¶¶ 33, 35; Doc. 43 at ¶¶ 33, 35; Doc. 42-2 at 13-14; Doc. 42-4 at 3-8; Doc. 42-5 at 1. In March 2009, Martin sought $100,000 from LAA, asking Don to borrow this amount from the bank. Doc. 40 at ¶¶ 38-39; Doc. 43 at ¶¶ 38-39. Don agreed to do so, but wanted more control over LAA if he was going to guarantee another loan to the company. Doc. 40 at ¶ 40; Doc. 43 at ¶ 40. Thus, Don and Martin negotiated and entered into a written agreement dated March 10, 2009 (2009 Agreement). Doc. 40 at ¶¶ 42-44; Doc. 43 at ¶¶ 42-44; Doc. 42-2 at 45-46; Doc. 46-7 at 1-2.

Under the 2009 Agreement, Martin would receive $100,000 that LAA would borrow from the bank and Don would personally guarantee that loan. Doc. 42-2 at 45. In exchange for Don guaranteeing the $100,000 loan, Martin agreed that unless he met four conditions "on or before12/15/09," he would "transfer his entire equity rights of ownership in [LAA] to Donald for no additional consideration." Doc. 42-2 at 45. The four conditions Martin agreed to meet were:

1) securing alternate financing to relieve Don of his personal guarantees on LAA's debt obligations;

2) paying Don $30,000 in guarantor fees generated for guaranteeing LAA's obligations since 2006;

3) paying Jody Raml, Don's wife, $500 per month for administrative duties and $275 per month for cleaning the properties; and

4) buying out Don's equity interest in LAA for a price of the payoff of all the mortgaged debt and releasing Don from all personal liability.

Doc. 42-2 at 45. The 2009 Agreement also provided that Jeitz's $25,000 loan to Martin was not an obligation of LAA and that Martin would pay Jeitz from the $100,000 he was borrowing from LAA. Doc. 40 at ¶¶ 45-46; Doc. 43 at ¶¶ 45-46; Doc. 42-2 at 46.⁴

In September 2009, Don emailed Martin offering to purchase Martin's interest in LAA. Doc. 40 at ¶ 54; Doc. 43 at ¶ 54; Doc. 42-1 at 5; Doc. 47-2 at 4; Doc. 42-4 at 6. Don testified that Martin needed more money and had asked Don to' put together a buyout proposal. Doc. 42-1 at 5; Doc. 47-2 at 4. Don stated in the email that the offer did "not change the current agreement between us which is in force and is to come due at the end of 2009." Doc. 42-4 at 6.

The parties dispute whether Don ever extended the December 15, 2009 deadline. In an October 6, 2009 email to Martin, Don wrote that he had decided "to stick to our original agreement which matures on December 31, 2009."⁵ Doc. 42-2 at 47; Doc. 40 at ¶ 56; Doc. 43 at ¶ 56. On December 10, 2009, Don wrote Martin an email saying that Don had "decided not to extend." Doc. 42-2 at 48; Doc. 40 at ¶ 56; Doc. 43 at ¶ 56. Don testified that he never extended the December 15, 2009 deadline, either orally or in writing. Doc. 40 at ¶ 58; Doc. 43 at ¶ 58; Doc. 42-1 at 8-9. Don said that his reasons for refusing to extend the deadline included Martin's divorce, Martin failing torepay Jeitz, Martin's continual need for money, and Martin's harassment of family members. Doc. 42-1 at 9. Don points to emails from Martin in December 2009 requesting an extension to show that Don never actually extended the deadline as Martin alleges. Doc. 42-4 at 14-18. Martin testified that Don orally agreed...