Venture Sales, LLC v. Perkins

• Decision Date: 26 April 2012
• Docket Number: No. 2010–CA–01552–SCT.,2010–CA–01552–SCT.
• Citation: 86 So.3d 910
• Parties: VENTURE SALES, LLC, Gary Fordham and David E. Thompson v. Walter Ray PERKINS.
• Court: Mississippi Supreme Court

86 So.3d 910

VENTURE SALES, LLC, Gary Fordham and David E. Thompson

v.Walter Ray PERKINS.

No. 2010–CA–01552–SCT.

Supreme Court of Mississippi.

April 26, 2012.

Thomas E. Schwartz, S. Robert Hammond, Jr., Hattiesburg, attorneys for appellants.

Paul H. Holmes, Moselle, Marcus A. McLelland, attorneys for appellee.

Before WALLER, C.J., RANDOLPH and CHANDLER, JJ.

WALLER, Chief Justice, for the Court:

¶ 1. Gary Fordham, David Thompson, and Venture Sales, LLC, appeal from the order of the Forrest County Chancery Court dissolving Venture Sales pursuant to Mississippi Code Section 79–29–802 (Rev.2009).¹ Because substantial evidence exists to support the chancellor's determination, we affirm the judgment. Because the chancellor did not address winding up the company following dissolution, we remand the case to the chancery court to wind up the affairs of Venture Sales pursuant to Mississippi Code Sections 79–29–803 through 79–29–807 (Rev.2009).

FACTS AND PROCEDURAL HISTORY

¶ 2. Walter Ray Perkins owned 27.7 acres of land on Highway 42 in Petal, Mississippi. Sometime in the late 90s, Perkins was approached by Fordham and Thompson about a potential business venture involving this land.² Perkins, Fordham, and Thompson eventually agreed that Fordham and Thompson would acquire the 438 acres of land that adjoined Perkins's land to the south; then, the parties would combine their respective land, along with some cash, and form a venture to develop the land.

¶ 3. After Fordham and Thompson purchased the 438 acres, Perkins contributed his land as well as $155,378.59 in cash to Venture Sales, an already-existing company in which Fordham and Thompson were partners. Fordham and Thompson contributed their land to Venture Sales, along with $1,459.12 in cash, each. The cash and land contributions were structured such that Perkins, Fordham, and Thompson each would own one-third of the company.

¶ 4. Following the contributions, the operating agreement of Venture Sales was revised to reflect the arrangement. The Restated Purpose of Venture Sales, set forth in Section 1.02 of the Restated Limited Liability Company Agreement for Venture Sales, LLC (“the operating agreement”), was stated as follows:

The purpose of the Company is to initially acquire, develop and sale [sic] commercial and residential properties near Petal, Forrest County, Mississippi and subsequently at other locations to be decided by the Company and to conduct any other lawful business, purpose, or activity as decided by the Members.

The language, “acquire, develop and sale [sic] ...” is the main issue in this dispute.

¶ 5. The parties signed the new operating agreement on February 18, 2000, and gave the agreement an effective date of January 1, 2000. At the time the company was formed, Perkins was working as an assistant coach for the Cleveland Browns, a professional football team, and was living in Ohio. Perkins stated at trial that he relied on Fordham and Thompson, who had experience in the mobile-home business,to devote their time and energy to the development of the Venture Sales property.

¶ 6. As of the beginning of this litigation, the property remained undeveloped and virtually unchanged. According to Fordham and Thompson, there are several causes, outside the members' control, for the delay in development. However, during this time, Fordham and Thompson have successfully developed at least two other subdivisions with approximately 200 collective houses within twenty-five miles of the Venture Sales property.

¶ 7. In early 2009, Venture Sales negotiated an option contract for the sale of a portion of its land, however the contract expired before it closed. Also in 2009, Venture Sales listed its entire property for sale for $5.2 million, but the listing expired without a deal. Fordham requested the members' approval to list the property for $3.5 million, but Perkins did not agree.

¶ 8. In February 2010, Perkins filed an application for judicial dissolution of Venture Sales. Following a trial, the chancellor found that, based on the property's history, the company's inability to get the required funding for development, and the uncertainty regarding the economic climate in the area, it was not reasonably practicable to carry on the business of Venture Sales. The chancellor therefore ordered the company dissolved. Fordham, Thompson, and Venture Sales now appeal.

ISSUES

¶ 9. Fordham and Thompson raise three issues on appeal:

I. Whether the chancellor erred as a matter of law in ordering the dissolution of a solvent limited liability company based on the application of one dissatisfied member.

II. Whether the chancellor erred by ordering the dissolution of Venture Sales because his judgment was not supported by substantial evidence, he abused his discretion, he was manifestly wrong, and his findings were clearly erroneous.

III. If the chancellor is affirmed in ordering the dissolution of Venture Sales, whether the chancellor erred in failing to order that a winding up of Venture Sales proceed pursuant to Mississippi Code Sections 79–29–803 through 79–29–807, with the Manager of Venture Sales being directed to proceed with winding up Venture Sales pursuant to these statutes.

¶ 10. While Fordham and Thompson present three issues for appeal, issues I and II address the same question—whether the chancellor erred in ordering the dissolution of Venture Sales. Accordingly, issues I and II will be analyzed together.

STANDARD OF REVIEW

¶ 11. On appeals from chancery court, this Court employs a limited standard of review. Corp. Mgmt. v. Greene County, 23 So.3d 454, 459 (Miss.2009). We review a chancellor's decision for abuse of discretion. Estate of Davis v. O'Neill, 42 So.3d 520, 524 (Miss.2010). We will not disturb a chancellor's factual findings “when supported by substantial evidence unless ... the chancellor abused his discretion, was manifestly wrong, clearly erroneous or applied an erroneous legal standard.” Id. (quoting Greene County, 23 So.3d at 459). This Court will affirm a chancellor's decision when it is supported by substantial credible evidence. Reddell v. Reddell, 696 So.2d 287, 288 (Miss.1997). Questions of law are reviewed de novo. Biglane v. Under the Hill Corp., 949 So.2d 9, 14 (Miss.2007).

DISCUSSION

I. The chancellor's judgment dissolving Venture Sales was supported by substantial evidence and was not an abuse of discretion.

¶ 12. Mississippi Code Section 79–29–802 (Rev.2009) allows a member of a limited liability company to apply to the chancery court for an order of dissolution of the company in certain circumstances. The chancellor may order dissolution of a limited liability company when:

(a) It is not reasonably practicable to carry on the business in conformity with the certificate of formation or the limited liability company agreement; or

(b) The managers or the members in control of the limited liability company have been guilty of or have knowingly countenanced persistent and pervasive fraud or abuse of authority or persistent unfairness toward any member, or the property of the limited liability company is being misapplied or wasted by such persons.

Miss.Code Ann. § 79–29–802 (Rev.2009).

¶ 13. The chancellor determined that there was no fraud, abuse of authority, persistent unfairness, or waste of company property by any Venture Sales members. Accordingly, the chancellor's decision to dissolve Venture Sales was solely because he determined it was “not reasonably practicable” for Venture Sales to carry on its business in conformity with its operating agreement. Miss.Code Ann. § 79–29–802(a) (Rev.2009).

¶ 14. The Mississippi Limited Liability Company Act (“MLLCA”) does not define “not reasonably practicable.” Furthermore, no Mississippi cases to date interpret what constitutes “not reasonably practicable” or “reasonable practicability.” In such a situation, we look to other jurisdictions that have considered the matter. Hood v. State, 17 So.3d 548, 555 (Miss.2009); Byrd v. The Miss. Bar, 826 So.2d 1249, 1252 (Miss.2002).

¶ 15. Several courts have addressed what constitutes “not reasonably practicable” in the context of judicial dissolution of a company. Judicial dissolution has been described as a remedy extreme in nature, and one that is to be granted sparingly. See In the Matter of the Dissolution of 1545 Ocean Ave., LLC, 72 A.D.3d 121, 129–130, 893 N.Y.S.2d 590 (N.Y.App.Div.2010); In re Arrow Inv. Advisors, LLC, 2009 WL 1101682, at *2 (Del.Ch.2009). In some cases, finding that it is “not reasonably practicable” for a company to continue operating requires a showing that the business “cannot continue ‘in accord with its ... operating agreement.’ ” 1545 Ocean Ave., 72 A.D.3d at 130, 893 N.Y.S.2d 590 (quoting Dunbar Group, LLC v. Tignor, 267 Va. 361, 593 S.E.2d 216, 219 (2004)); but see Kirksey v. Grohmann, 754 N.W.2d 825, 830 (S.D.2008) (ordering dissolution even though the business could continue despite the deadlock). Generally, dissolution under this standard does not require that a company's purpose has been “completely frustrated.” PC Tower, Inc. v. Tower Ctr. Dev. Assoc., L.P., Civ. A. No. 10788, 1989 WL 63901, at *5 (Del.Ch. June 8, 1989); Fisk Ventures, LLC v. Segal, Civ. A. No. 3017–CC, 2009 WL 73957, at *4 (Del. Ch. Jan. 13, 2009). Dissolution generally has been deemed appropriate when a company's economic purpose is not being met, or when the company is failing financially. 1545 Ocean Ave., 72 A.D.3d at 130, 893 N.Y.S.2d 590;PC Tower, 1989 WL 63901, at *6;Fisk Ventures, 2009 WL 73957, at *5–6. At least one court has ordered the dissolution of a company that, while financially stable and with assets that exceeded its liabilities, was functioningsimply as a “residual, inertial status quo.” Haley v. Talcott, 864 A.2d 86, 96 (Del.Ch.2004). When a company “cannot effectively operate under the operating agreement to meet and achieve the purpose for which it was created,” dissolution has been allowed. 1545 Ocean Ave., 72 A.D.3d...