Weddell v. H20, Inc.
|01 March 2012
|271 P.3d 743,128 Nev. Adv. Op. 9
|Rolland P. WEDDELL; Granite Investment Group, LLC; and High Rock Holding, LLC, Appellants, v. H2O, INC.; Michael B. Stewart, an Individual and as Trustee of the Michael B. Stewart Trust; Empire Energy, LLC; Empire Group, LLC; Empire Foods, LLC; Empire Farms, LLC; Orient Farms, LLC; White Paper, LLC; Empire Geothermal Power, LLC; Nevada Energy Park, LLC; Amor II Corporation; M.B.S., Inc.; Tahoe Rose, LLC; Clearwater River Properties, LLC; Honalo Kai, LLC; Sierra Rose, LLC; Sundance Farms, LLC; GNV Enterprises, LLC; Kosmos Lease Holdings, LLC; Granite Creek Land & Cattle, LLC; Empire Seed Company Limited Partnership; Geor II Corporation; San Emidio Resources, Inc.; San Emidio Aggregate, Inc.; and Juniper Hill Partners, LLC, Respondents.
|Nevada Supreme Court
[271 P.3d 745]
Day R. Williams, Carson City; Sisco & Naramore and Kenneth D. Sisco, Norco, CA, for Appellants.
Robison, Belaustegui, Sharp & Low and F. DeArmond Sharp, Keegan G. Low, and Kristen L. Martini, Reno, for Respondents.Before SAITTA, C.J., CHERRY and GIBBONS, JJ.
In this appeal, we consider distinct issues arising from a fall-out between business partners. We first consider whether a judgment creditor divests a dual member and manager of a limited-liability company of his managerial duties. In doing so, we determine the rights and remedies of a judgment creditor pursuant to NRS 86.401. We conclude that a judgment creditor has only the rights of an assignee of the member's interest, receiving only a share of the economic interests in a limited-liability company, including profits, losses, and distributions of assets. Therefore, the judgment creditor and holder of a charging order against appellant Rolland P. Weddell's membership interests is simply entitled to Weddell's economic interest in appellant Granite Investment Group, LLC. For this reason, we reverse the district court's judgment relating to the scope of the charging order against Weddell's membership interests and remand this matter to the district court for further proceedings concerning Weddell's managerial interests in Granite.
We next consider whether a party may file a notice of pendency of actions on an option to purchase a membership interest in a limited-liability company. In resolving this issue, we define the scope of NRS 14.010 and conclude that parties should only file a notice of pendency when the action directly involves real property—more specifically, concerning actions for the foreclosure of a mortgage upon real property or actions affecting the title of possession of real property. In the matter before us, we conclude that the notice of pendency filed by Weddell is unenforceable, as the action on which it is based concerned an alleged expectancy in the purchase of a membership interest in respondent Empire Geothermal Power, LLC, and, thus, did not involve a direct legal interest in real property.
Lastly, we consider whether substantial evidence exists to support the district court's finding that Weddell had no ownership interest in respondent H2O, Inc. After meticulously reviewing the record, we conclude that substantial evidence supports the district court's findings that Weddell was merely an agent on behalf of respondent Michael B. Stewart and has never acquired an ownership interest in H2O. Accordingly, we affirm the district court's judgment in all other aspects.
Between 2000 and 2007, Stewart and Weddell entered into a business relationship concerning a number of different projects,
[271 P.3d 746]
ranging from garlic farming to geothermal energy. Several disputes arose among the two parties, ultimately leading to the collapse of their business relationship. Upon the relationship's demise, Weddell filed a complaint asserting numerous claims against Stewart. Stewart also filed a complaint and asserted numerous counterclaims. After a four-day bench trial, the district court found in Stewart's favor on all counts. Weddell, on behalf of himself and his respective companies, filed this appeal. Below, we recapture the pertinent facts surrounding the collapse of Stewart and Weddell's relationship.Granite Investment Group & High Rock Holding
Stewart and Weddell were both involved in some respect with Granite Investment Group and appellant High Rock Holding, LLC. In December 2004, Weddell was elected manager of Granite. Several months later in May 2005, Stewart and Weddell signed an amended and restated operating agreement (Granite operating agreement).1
According to the Granite operating agreement, Stewart received 1.5 votes and Weddell received 1 vote. Several years later, in October 2007, Stewart used his majority voting power to allegedly remove Weddell as manager. Thereafter, Stewart ostensibly elected himself manager of Granite. However, pursuant to section 5.10 of the Granite operating agreement, a manager can only be removed by the unanimous affirmative vote of all of the members. Additionally, section 5.2 does not prohibit more than one manager at a time.
When Weddell was elected manager of the Granite Investment Group, he was also elected manager of High Rock Holding. To reflect the management changes at High Rock, Stewart and Weddell entered into an amended and restated operating agreement whereby Stewart had 1.5 votes and Weddell had 1 vote (High Rock operating agreement). Likewise, in October 2007, Stewart used his superior voting power to remove Weddell as manager of High Rock. While the Granite operating agreement required a unanimous affirmative vote of the members, the similarly numbered section of the High Rock operating agreement only required an affirmative vote of the members.
In October 2008, in an unrelated matter, the district court granted an application by a creditor to charge Weddell's membership interest in Granite and High Rock, among other Weddell entities, for over $6 million. Pursuant to NRS 86.401,2 the charging order entitled the creditor to any and all disbursements and distributions, including interest, and all other rights of an assignee of the membership interest. Thereafter, Stewart purportedly purchased Weddell's remaining membership interest in Granite for $100 in
[271 P.3d 747]
accordance with section 10.2 of the Granite operating agreement. 3
The district court concluded that the charging order divested Weddell of both membership and managerial rights in Granite and High Rock upon the tender of purchase money made by Stewart.4 The district court also concluded that Stewart is the sole manager of Granite and High Rock.Empire Geothermal Power
During the course of the litigation, Weddell filed a notice of lis pendens against Stewart and Empire Geothermal Power, among others, clouding the title to Empire Geothermal's real property. Subsequently, Empire Geothermal filed a motion to cancel the notice of pendency under NRS 14.015, asserting that the underlying action was for monetary damages and was not an action to foreclose on or an action affecting the title or possession of real property as mandated by NRS 14.010. In his opposition, Weddell asserted that the action involved real property because he was entitled to 100 percent of the membership interest in Empire Geothermal, including a geothermal power plant and 20,000 acres of geothermal leases.
During a hearing on the motion, the district court focused on the language in Stewart and Weddell's option agreement: “Granite Investment Group [,] LLC[,] shall purchase from [Stewart] entities their membership interest in Empire Geothermal Power.” Following the hearing, the district court ordered that the notice of pendency recorded by Weddell be canceled, finding that Weddell's alleged expectancy in the purchase of the membership interest in Empire Geothermal involved personal property interests, not real property interest. The district court found that Weddell failed to establish that his action was for the foreclosure of a mortgage upon real property or that it affected the title or possession of real property as required by NRS 14.015(2)(a).H2O, Inc.
In the early 1980s, Stewart began farming garlic in Empire, Nevada. Stewart's food-processing company, Empire Foods, LLC, received a loan from a bank in 1999. Shortly thereafter, Empire Foods filed for Chapter 11 bankruptcy due to a decline in the garlic market. Stewart had Weddell, his business associate at the time, negotiate with the bank to reduce the loan. Instead of the bank taking the garlic inventory and the accounts receivable that were the original collateral to the loan, Weddell was able to extinguish nearly half of Stewart's debt.
In exchange for his successful negotiation with the bank, Weddell received a 15–percent interest in High Rock Holding from Stewart. According to Weddell, Stewart also promised him that he would receive $2.5 million in compensation if and when the funds became available. Stewart denies that he made such a promise. The alleged promise of $2.5 million was not memorialized on paper; nor were there any witnesses to the statements between Stewart and Weddell at the time the promise was purportedly made.
Apparently, in May 2004, Stewart gave Weddell a check for $2.5 million, with which Weddell ultimately purchased 100 percent of the stock (10,000 shares) in H2O, Inc. Shortly thereafter, Weddell assigned his alleged interest in H2O to White Paper, LLC, an entity owned and operated by Stewart. In June 2007, Weddell transferred any and all interest that he had in the shares of H2O stock to Stewart. Subsequently, a dispute arose as to whether the $2.5 million used to purchase the H2O stock belonged to Weddell
[271 P.3d 748]
or Stewart and, thus, whether the stock was purchased for the benefit of Weddell or Stewart. The district court held that Weddell had never acquired an interest in the stock of H2O and was acting merely as Stewart's agent when he purchased the shares. The district could found that the...
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