Sumlin Constr. Co., LLC v. Taylor

• Decision Date: 11 October 2002
• Parties: SUMLIN CONSTRUCTION CO., L.L.C., et al. v. William Buck TAYLOR III et al.
• Court: Alabama Supreme Court

850 So.2d 303

SUMLIN CONSTRUCTION CO., L.L.C., et al. v. William Buck TAYLOR III et al.

1010943.

Supreme Court of Alabama.

October 11, 2002.

Rehearing Denied December 20, 2002.

L. Daniel Mims, Mobile, for appellants.

Mylan R. Engel and Edgar P. Walsh of Engel, Walsh & Associates, Mobile, for appellees.

HARWOOD, Justice.

On November 10, 1999, Sumlin Construction Co., L.L.C. (hereinafter "the LLC"), and Ray J. Sumlin (hereinafter "Sumlin") sued William Buck Taylor III and American Construction Corporation in the Mobile Circuit Court. Sumlin brought his action derivatively on behalf of the LLC and also asserted individual claims.¹ On February 23, 2001, the defendants filed an answer and counterclaim. In their counterclaim, the defendants alleged that Sumlin had violated the operating agreement of the LLC and had breached his fiduciary duty.

The parties filed a succession of pleadings and motions, resulting ultimately in the following dispositions pertinent to this appeal: a summary judgment was entered for the defendants as to all claims of both plaintiffs against both defendants and the counterclaim was dismissed. Later, however, the trial court reinstated the LLC's claims, only to again enter a summary judgment for the defendants as to them. While the LLC's claims were pending, the summary judgment against Sumlin was certified as final and appealable pursuant to Rule 54(b), Ala. R. Civ. P. After the summary judgment was entered on the LLC's claims, Sumlin and the LLC filed a notice of appeal. The appeal as to Sumlin was dismissed by this Court as untimely on April 12, 2002, because the time for taking his individual appeal, as triggered by the Rule 54(b) certification, had expired, and Sumlin's request to this Court for leave to file a Rule 60(b), Ala. R. Civ. P., motion with the trial court relative to his individual claims was denied. Accordingly, in the final analysis, the only claims eligible for consideration on this appeal are Sumlin's derivative claims on behalf of the LLC. We shall, nonetheless, continue to refer to Sumlin where appropriate.

Sumlin and the LLC argued on appeal that the summary judgment for the defendants on Sumlin's derivative claims was erroneous because, they say, the trial judge could not properly have held contrary to any of these propositions: 1) judicial estoppel would not apply against Sumlin; 2) the LLC and Sumlin are the real parties in interest for a derivative claim, or opposed to the trustee in Sumlin's bankruptcy proceeding; and 3) Sumlin possessed standing to bring the derivative action on behalf of the LLC. Because we consider the standing issue to be dispositive of the appeal, we do not fully address the other two arguments.

Our review of a summary judgment is de novo.

"In reviewing the disposition of a motion for summary judgment, `we utilize the same standard as the trial court in determining whether the evidence before [it] made out a genuine issue of material fact,' Bussey v. John Deere Co., 531 So.2d 860, 862 (Ala.1988), and whether the movant was `entitled to a judgment as a matter of law.' Wright v. Wright, 654 So.2d 542 (Ala.1995); Rule 56(c), Ala. R. Civ. P. When the movant makes a prima facie showing that there is no genuine issue of material fact, the burden shifts to the nonmovant to present substantial evidence creating such an issue. Bass v. SouthTrust Bank of Baldwin County, 538 So.2d 794, 797-98 (Ala.1989). Evidence is `substantial' if it is of `such weight and quality that fair-minded persons in the exercise of impartial judgment can reasonably infer the existence of the fact sought to be proved.' Wright, 654 So.2d at 543 (quoting West v. Founders Life Assurance Co. of Florida, 547 So.2d 870, 871 (Ala. 1989)). Our review is further subject to the caveat that this Court must review the record in a light most favorable to the nonmovant and must resolve all reasonable doubts against the movant. Wilma Corp. v. Fleming Foods of Alabama, Inc., 613 So.2d 359 (Ala.1993); Hanners v. Balfour Guthrie, Inc., 564 So.2d 412, 413 (Ala.1990)."

Hobson v. American Cast Iron Pipe Co., 690 So.2d 341, 344 (Ala.1997).

The record reveals that on April 23, 1998, Ray J. Sumlin entered into an operating agreement with William Buck Taylor III and American Construction Corporation (of which Taylor was the sole shareholder) to form Sumlin Construction Co., L.L.C. The operating agreement provided, in pertinent part:

"The parties to this Agreement, desiring to form a limited liability company pursuant to the provisions of the Alabama Limited Liability Company Act (the `Act') hereby constitute themselves a limited liability company for the purposes and on the terms and conditions set forth in this Agreement.

"NOW, THEREFORE, in consideration of the mutual promises of the parties, and of good and valuable consideration, the receipt and sufficiency of which hereby is acknowledged, it is mutually agreed by the parties as follows:

"1. Formation and Name. The parties to this Agreement have formed a limited liability company under the name `SUMLIN CONSTRUCTION CO., L.L.C.' (the `Company'), pursuant to the provisions of the Act and this Agreement.

"....

"5. Members and Percentage Interest. The names ... of the Members of the Company are Ray J. Sumlin... and American Construction Corporation.... Member American Construction Corporation shall have a financial interest in the company of five-sixths (5/6ths) until such time as it shall have received $150,000 plus an additional amount equal to a factor of 9% per annum on the outstanding balance, from time to time. At such time, its financial interest shall be reduced to 50%. Member Sumlin shall have a financial interest [in] the company of 1/6th, until such time as he shall have received $30,000, plus an additional amount equal to a factor of 9% per annum on the outstanding balance, from time to time. At such time, his financial interest shall be increased to 50 percent interest.

"....

"6.1 Contributions: Member American Construction Corporation shall contribute $150,000 in cash or acceptable securities to the company, and Member Sumlin shall contribute certain items of equipment to be agreed upon by the Managers having a value of $30,000.

"....

"7.1 The management of the Company shall be vested in two Managers who shall be Ray J. Sumlin and William Buck Taylor, III. Either Manager shall have the right to name a substitute for himself. Manager Taylor may not be replaced without the permission of American Construction Corporation, and then it shall have the right to name his successor. Manager Sumlin shall not be replaced without his permission, and he shall have the right to name his successor.

"7.2 The Managers may, from time to time, designate a person or entity to act as Administrative Manager of the Company who may be known as President. Ray J. Sumlin shall serve as the initial Administrative Manager. The Administrative Manager shall be the principal executive officer of the Company, and subject to the control of the Managers, shall in general supervise and control all of the business and affairs of the Company. He shall, when present, preside at all meetings of the Members and Managers. He, or other Managers designated by a majority of the Managers, may sign deeds, mortgages, bonds, contracts, or other instruments which the Managers have authorized to be executed, except in cases where the signing and execution thereof shall be expressly delegated by the Members or shall be required by law to be otherwise signed or executed....

"....

"11. Restrictions on Members. No member without the prior written consent of all the Managers, shall:

"(a) Mortgage or pledge the Member's Interest in the Company;

"(b) Assign, transfer, pledge, compromise, or release any claim of the Company, or arbitrate or consent to the arbitration of any disputes or controversies involving the Company;

"(c) Use the name, credit or property of the Company for any purpose other than a proper Company purpose;

"(f) Do any act in conflict with the Company business or which would make it impossible to carry on its business.

"12. Substitute Members. No Member shall have the right to grant the right to become a substitute member to an assignee of any part of his interest, except with the prior written consent of all of the Managers or as otherwise provided herein or as provided in the Articles of Organization.

"13. Withdrawal. Prior to the dissolution and winding up of the business of the Company, no Member may voluntarily withdraw from the Company except with the prior written consent of all of the Managers.

"....

"16. Waiver or Partition. The Members hereby waive any right to take any other action that otherwise might be available to them for the purpose of severing their relationship with the Company or their interest in the assets held by the Company from the interest of the other Members.

"16.11 Applicable Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Alabama."

The articles of organization of the LLC provide, in pertinent part:

"ARTICLE II

"The LLC shall have perpetual duration.

"....

"ARTICLE VI

"The transfer of membership interest and the admission of additional members shall be governed by Sections 31, 32, 33, 34, and 35 of the Alabama Limited Liability [Company] Act, as amended from time to time, to the extent the same is not contrary to the Operating Agreement, as amended from time to time, except that the consent required in each instance of admission, transfer or assignment shall be that of 100% of the Managers. The Members shall not have the right to vote or consent to the admission of Members or the transfer or assignment of interests in the LLC.

"The above notwithstanding, any Member shall have the right to transfer to any other Member their interests, (or any part thereof) including all rights incident thereto, without the consent of any other Member or any Managers."

Subsequently, Taylor...