Yadav v. Agrawal

• Docket Number: 0698-22-2
• Decision Date: 31 October 2023
• Parties: SANDEEP YADAV, ET AL. v. RAJEEVA AGRAWAL, ET AL.
• Court: Court of Appeals of Virginia

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SANDEEP YADAV, ET AL.
v.
RAJEEVA AGRAWAL, ET AL.

No. 0698-22-2

Court of Appeals of Virginia

October 31, 2023

FROM THE CIRCUIT COURT OF HANOVER COUNTY J. Overton Harris, Judge

Michael L. Donner, Sr. (Peter E. Schurig; Setliff Law, P.C., on briefs), for appellants.

Charles M. Sims (Rachael L. Loughlin; O'Hagan Meyer, PLLC, on brief), for appellees.

Present: Chief Judge Decker, Judges Malveaux and Causey Argued at Richmond, Virginia

MEMORANDUM OPINION ^[*]

MARY BENNETT MALVEAUX JUDGE

Sandeep Yadav and 3T Federal Solutions, LLC (collectively, "Yadav") appeal from a declaratory judgment of the circuit court in which the court found that Rajeeva Agrawal and Poonam Agarwal ("the Agrawals") had the necessary voting power under an operating agreement to execute a written consent removing Yadav as manager of 3T Federal Solutions, LLC ("3T Federal"). On appeal, Yadav argues that the circuit court erred in: (1) ruling that the Agrawals had the necessary voting power to remove him as manager of 3T Federal; (2) focusing solely on Section 2.4 of the operating agreement to support its conclusion that voting was to be in proportion to contribution; (3) failing to consider extrinsic evidence to determine the meaning of terms in the operating agreement related to voting; and (4) failing to treat the designated agreed value of the

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contributions in the January 2009 operating agreement as the actual amount of contributions made by the members. For the following reasons, we affirm the circuit court's ruling.

I. BACKGROUND

In 2001, husband and wife Rajeeva and Poonam Agarwal founded 3P Software Solutions, which became 3T Federal. Sandeep Yadav became a member in 2005. At the time he joined the company, Yadav was a service-disabled veteran. By the end of 2008, 3T Federal had two members, Rajeeva Agrawal, who held a 49% membership interest in the company, and Yadav, who held a 51% membership interest. The parties testified that Yadav was given a 51% membership interest to allow 3T Federal to bid on federal set-aside contracts for veterans.

Prior to 2009, 3T Federal did not have a written operating agreement, and each member's vote counted equally. Later, Rajeeva gave Poonam half of his membership interest. The Agarwals testified that Rajeeva did so because they had more financial risk in 3T Federal and wanted to have two votes while Yadav had one.

In January 2009, the members entered into a written operating agreement which specified that 3T Federal was organized as a Virginia limited liability company ("LLC").^[1] The operating agreement also provided that the company was member-managed by all three members.^[2] Section 2.1 of the operating agreement required that the "[m]embers initially shall contribute to the Company capital as described in Exhibit 3 attached to this Agreement." Exhibit 3 of the agreement provided that the members' initial contribution to 3T Federal's capital was "stated to be $200,000," with Yadav contributing $102,000 and the Agrawals each contributing $49,000. Yet, at the time of the execution of the agreement, the members did not make the capital

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contributions stated in Exhibit 3. Likewise, from 2009 through 2019, the members made no capital contributions to the LLC.

In 2011, the members sought 3T Federal's certification by the United States Department of Veterans Affairs ("VA") as a service-disabled, veteran-owned small business ("SDVOSB"). To obtain SDVOSB certification, a service-disabled veteran must own 51% or more of a company. See Veterans Contracting Grp., Inc. v. United States, 135 Fed.Cl. 610, 613 (2017) ("To qualify for . . . certification as an SDVOSB, '[a] small business concern must be unconditionally owned and controlled by one or more eligible . . . service-disabled veterans.'" (alteration in original) (quoting 38 C.F.R. 74.2(a))). The members also sought Section 8(a) certification by the United States Small Business Administration ("SBA") for 3T Federal. To qualify for certification, SBA's Section 8(a) program requires a company to be majority-owned by a person defined as disadvantaged by the agency.^[3] See Desa Grp., Inc. v. U.S. SBA, 190 F.Supp.3d 61, 63 (D.D.C. 2016) ("To be eligible for the Section 8(a) program, a business must be 'unconditionally owned and controlled by one or more socially and economically disadvantaged individuals.'" (quoting 13 C.F.R. § 124.101)). 3T Federal retained an outside consultant to assist the certification process for both programs.

Based on the consultant's advice, the members modified the January 2009 operating agreement by agreement dated December 1, 2011, appointing Yadav as 3T Federal's manager "for the duration of the 8a term." The members then entered into a subsequent December 19, 2011 operating agreement which provided that "all matters shall be decided by Fifty One Percent vote of the interests held by Members present in person or by proxy and confirmed by another initial member having at least 24.50% interest." Rajeeva testified that he required the inclusion

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of this specific provision before signing the agreement to ensure that Yadav would have to consult him or Poonam prior to Yadav making decisions for the company.

In May 2012, Yadav received a letter from the VA informing him that 3T Federal did not qualify as a SDVOSB because he, the service-disabled veteran, did "not have full control over all decisions" under the parties' operating agreement. 3T Federal submitted a request for reconsideration by the VA. Around the same time, the members learned that the SBA had denied Section 8(a) certification for 3T Federal.

The members then entered into another amended operating agreement in June 2012. Rajeeva testified that they entered into this agreement due to the SBA's rejection of their application for Section 8(a) certification. The June 2012 operating agreement provided in Section 2.4 that voting would be "in accordance with the percentage of ownership interest in the Company of each Member," and "all matters shall be decided by Fifty One Percent vote of the interests held by Members . . . except the election or removal of a Manager, which shall require the affirmative consent of the Member upon whom eligibility to participate in the SBA's 8(a) program is based."

Rajeeva testified that after the execution of the June 2012 operating agreement he told Yadav that he was uncomfortable with the agreement because he did not feel that it gave him an adequate say in management decisions. Yadav asked Rajeeva to wait to amend the agreement until after they received a response to their SDVOSB certification.

On September 17, 2012, the VA sent Yadav another letter, informing him that under the amended operating agreement 3T Federal still did not meet the requirements for SDVOSB certification. One day later, Steve Koprince, an attorney, reviewed the VA's denial letter and drafted 3T Federal's request for reconsideration. In an email to Yadav, Koprince stated that in reviewing the June 2012 operating agreement, regarding the prior language of Section 2,

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I read this section as allowing any Member to call a vote, with no quorum required, and stating that a majority of those present would decide the outcome of the vote. In other words, as I read it, the operating agreement would allow a minority member to call a meeting, be the only one to attend, and make company policy by a unanimous vote. I am sure this was not what was intended, but it could impact your eligibility if the CVE (or SBA) were to read it the same way. To that end, I changed Section 2.4(c) to provide that a quorum exists only when at least 51% of Members are present. In other words, your presence is required for a valid meeting. I cleaned up other portions of 2.4(c) and (d) to correspond with this change.

After consulting Koprince, the members entered into another operating agreement dated September 19, 2012. The September 2012 operating agreement did not include the provisions from the June 2012 operating agreement that the members shall vote "in accordance with the percentage of ownership interest in the Company of each Member" and that "all matters shall be decided by Fifty One Percent vote of the interests held by Members." Instead, the September 2012 operating agreement provided in Section 2.4 that "all matters shall be decided by majority vote." Yadav testified that these changes were made to guarantee that 3T Federal would obtain SDVOSB status. Rajeeva testified that when Yadav approached him with the September 2012 operating agreement, Yadav noted that under the agreement "all matters should be decided by the majority vote." According to Rajeeva, Yadav explained to him that this meant that the Agrawals would have a majority vote while Yadav would have 51% of the membership interest and manage the daily operations of the company.

3T Federal obtained Section 8(a) status in August 2012. In January 2013, the company was certified by the VA as a SDVOSB. At trial, Yadav introduced VA forms signed by the Agrawals indicating that "at least 51% of [3T Federal] is owned and controlled . . . by veterans or service-disabled veterans" and correspondence from the VA explaining that 3T Federal did not qualify as a SDVOSB because Yadav, the service-disabled veteran, did "not have full control over all decisions" under the parties' prior operating agreement.

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In 2019, the business relationship between Rajeeva and Yadav became strained. On August 26, 2019, Yadav, acting as manager of 3T Federal, terminated the Agrawals' employment with the company. Afterward, the Agrawals signed a written consent, dated October 21, 2019, removing Yadav as the manager of 3T Federal. Yadav refused to comply with the written consent and continued to act as the company's manager.

The Agrawals filed a complaint for declaratory judgment, asking the circuit court to hold that under the written consent they had...