HADLOCK, J.
This case arises out of a series of transactions in which a member of Sherwood Park Business Center, LLC (SPBC), Brad Taggart, attempted to transfer his interest in that company to BT of Sherwood, LLC (BT). Taggart later transferred interests in BT to attorney John Berman.
On appeal, defendants challenge the trial court's judgment. In particular, they challenge (1) the trial court's ruling that Taggart's transfer to BT is void; (2) the court's expulsion of Taggart effective January 1, 2008; and (3) the court's determination that Emmert and Jehnke did not have a fiduciary obligation or, if they did, that they did not breach that obligation. In addition, on cross-appeal, Taggart asserts that, even if the court properly expelled him from SPBC, it improperly calculated the buyout amount for his 25 percent interest in SPBC. As explained below, we reject all of those challenges and affirm the trial court's judgment.
Because the parties' dispute focuses on the law — both contractual and statutory — that governs various interests in SPBC, we describe the pertinent legal provisions in some detail. SPBC is a limited liability company that was formed in 1999 to develop a small office complex. Under ORS chapter 63, which relates to Oregon limited liability companies, and the company's operating agreement, the interests of SPBC's members in the LLC are not freely transferable. Section 11 of the operating agreement governs the
A member may, however, assign his or her right to receive distributions without first obtaining the consent of the other members of the company under Section 11.2 of the operating agreement:
Although members' interests — other than the right to receive distributions — are not freely transferrable, the SPBC operating agreement spells out circumstances in which a member may transfer his or her interest in the company without obtaining consent. As pertinent here, under Section 11.3(b), a member may "transfer the Member's ownership interest without being subject to Section 11.1" when the transfer is "to a trust or other entity controlled by the Member." Notwithstanding such a transfer to a member-controlled entity, however,
Section 11.4, in turn, provides:
In sum, under the SPBC operating agreement, a member can transfer his or her interest in the company to another entity that the member controls, without first offering to sell the interest to the other members, but that entity will not become a member of SPBC until the conditions of Section 11.4 are satisfied. Additionally, under ORS 63.249(6),
In addition to limiting how a membership interest may be transferred, the SPBC operating agreement also governs how membership interests may be terminated. First, Section 12.1 of the agreement provides that "[n]o Member shall withdraw from the Company without first obtaining the consent of all
We note that defendants request that we exercise our discretion to review this case de novo. See ORS 19.415(3)(b) (describing discretionary de novo review). We decline to do so, as this is not an exceptional case where such review would be appropriate. See ORAP 5.40(8)(c) (court will review record de novo "only in exceptional cases"). Accordingly, we state the facts consistently with the trial court's findings, supplemented with uncontroverted information from the record. See Eagles Five, LLC v. Lawton, 250 Or.App. 413, 416 n. 2, 280 P.3d 1017 (2012) (Explaining that, in cases where we do not conduct de novo review, "we review the trial court's legal conclusions for errors of law and are bound by the trial court's factual findings if they are supported by any evidence in the record").
After its formation in 1999, SPBC was initially managed by Taggart and had four original members — Taggart, Jehnke, John Hoffard, and Anthony Benthin.
To finance development of the office complex, SPBC borrowed money and, under the terms of the loans, each member of the LLC was required to sign a guarantee. In addition, each member was required to provide the lenders with annually updated financial information and, through 2004, each did so.
Late in 2004, Taggart began having financial difficulties and companies in which he was an owner or manager began to have cash flow problems. For at least one of those companies — Builder's, Inc. — Taggart diverted funds intended for payroll tax withholding to his own use. In early 2005, that company was placed in bankruptcy and Taggart disappeared for a period of time. Also in 2005, Taggart was removed as SPBC's manager and replaced by Jehnke.
In addition to diverting funds from Builder's, Inc., in late 2004 or early 2005, Taggart diverted approximately $30,000 from SPBC for his own purposes. SPBC initiated an arbitration proceeding; Taggart was represented by attorney Berman during that proceeding. Ultimately, the arbitrator concluded that Taggart had converted funds from SPBC and breached his fiduciary duty to that company. A judgment was entered in favor of SPBC and against Taggart in 2008. Eventually, Berman paid that judgment.
During 2006, 2007, and 2008, SPBC attempted to refinance its loans. Taggart refused repeatedly to produce the information required to complete those desired transactions. Had Taggart disclosed his financial information during that time period, the disclosure would have revealed that he was not solvent. Moreover, the bank with which SPBC was attempting to refinance would not lend the company money while litigation was pending between its principles. That litigation included, in addition to the arbitration proceeding, another case involving Emmert and Taggart that began in 2006. Accordingly, SPBC was unable to refinance the loans.
In mid-2007, Berman advised Taggart to form an LLC and transfer his interest in SPBC to that LLC. Berman told Taggart that he could then freely sell his interest in the newly formed LLC to a third party without complying with restrictions imposed by the SPBC operating agreement on transfers of membership interests in SPBC. Berman assisted Taggart in forming BT (the new LLC) in July 2007. Taggart held 100 percent of the membership interests in that LLC and transferred his entire interest in
Berman then e-mailed SPBC's attorney and informed him that Taggart had transferred his interest in SPBC. He stated:
No documentation of the transfer was provided to SPBC at that time.
In late 2007, Berman took a security interest in Taggart's interest in BT to secure payment of his fees. Then, in December of that year, Berman agreed to purchase an interest in BT; he paid BT $100,000 and received a membership interest equal to 50 percent of what Taggart had and BT then immediately paid Taggart $100,000 in exchange for 50 percent of his existing interest in BT. As a result, Berman became half-owner of BT. In transactions in May and July of 2008, Berman acquired the remainder of Taggart's interest in BT for a total of an additional $100,000.
SPBC filed this action in late 2008. Among other things, SPBC sought to have the trial court expel Taggart from SPBC, declare that Taggart's attempted transfer of his interest in SPBC to BT was invalid, declare that BT had no interest in SPBC, and unwind the transactions between Taggart and BT. For its part, as relevant on appeal, BT asserted that Emmert and Jehnke had breached their fiduciary duty to it.
Before the trial began, Taggart obtained a discharge of his debts in bankruptcy and filed a motion to dismiss the claims against him on the basis of that discharge. At the beginning of the trial, the court addressed that motion. The court noted that it was "not going to enter any money judgments against * * * Taggart, but I think there's some other claims that involve him that don't involve money." Taggart asserted, however, that an "attempt to unwind anything * * * would include * * * Taggart's obligation to pay money back and that's * * * a financial impact on him. I think the Bankruptcy Code says that pre-petition conduct cannot be relied upon to cause financial liability to [a discharged] person." Plaintiffs stated that they did not seek any monetary relief against Taggart, and that dismissal was not appropriate because "there is a nonmonetary claim for expulsion" and "Taggart needs to remain in the case for purposes of the expulsion claim." The court agreed:
For all of those reasons, the court concluded that it was appropriate to terminate Taggart's membership in SPBC.
Moreover, the court determined that Taggart had not successfully transferred his SPBC membership interest to BT before that interest terminated:
However, the court observed that, under ORS 63.249(6), such a transfer would be effective as to the limited liability company only after notice and proof of the transfer were provided to the managers of the company, and "[t]hat did not happen." According to the court,
In the court's view, "they didn't do all the details right, so it never got done right." Accordingly, the court determined that the "purported transfer to BT of Sherwood violated the Operating Agreement and ORS 63.249(6)" and was not permissible.
As an alternative basis for its ruling, the trial court explained that — even if Taggart had successfully transferred his SPBC membership interest to BT — it disagreed with defendants' contention that Taggart could then transfer his interest in BT to any third party he wished. The court concluded that defendants' contention was incorrect given the provisions of the statutory scheme and the operating agreement which, in the court's view, was "designed to protect SPBC and its members from having to tolerate new members who are not of their choosing or liking." Thus, "[e]ven if BT of Sherwood had accepted a proper assignment of Taggart's interest in SPBC" — which the court had concluded it did not — "it could not transfer that interest to anyone else." Furthermore, the court concluded, "only members or assignees of members who have been approved by the membership can receive distributions of profits or losses from SPBC."
As to BT's claims against Emmert and Jehnke, the court concluded that there was no breach of fiduciary duty for two independent reasons: (1) as a matter of law, neither Emmert nor Jehnke owed fiduciary obligations to BT, and (2) even if they did owe a fiduciary duty, they did not breach it.
Based on those conclusions, as noted, the court entered a judgment in which it, among other things, (1) declared that Taggart's attempted transfer of his membership interest in SPBC was unauthorized and, accordingly, BT had no interest in SPBC; (2) expelled Taggart from SPBC, effective January 1, 2008, as a result of his wrongful conduct; (3) declared that defendants "were not members or authorized assignees of an existing member of [SPBC] in 2008, 2009, or the present" and, accordingly "they were and are not entitled to receive any distributions or allocations of profits or losses of [SPBC] since 2008"; and (4) concluded that Emmert and Jehnke were entitled to purchase Taggart's 25 percent interest in SPBC as follows:
BT's claims relating to the asserted breach of fiduciary duty by Emmert and Jehnke were dismissed with prejudice. On appeal, defendants challenge the trial court's judgment.
Defendants contend that the trial court erred in determining that Taggart's transfer of his interest in SPBC violated the operating agreement and Oregon law and, therefore, BT had no interest in SPBC. With respect to that issue, defendants first assert that, although, under ORS 63.249(6), a transfer could not be effective as to or binding on SPBC until SPBC received "notice and proof of the transfer," SPBC did receive proof as required.
To address whether SPBC was provided with proof of the transfer of Taggart's interest pursuant to ORS 63.249(6), we begin by considering the meaning of that term. See State v. Gaines, 346 Or. 160, 171-72, 206 P.3d 1042 (2009) (to determine legislative intent, we examine the text and context of relevant statutes, along with any helpful legislative history offered by the parties).
Here, based on those definitions, along with the trial court's factual findings, SPBC was clearly given notice of Taggart's transfer of his interest to BT. Both communications that defendants point to — the e-mail from Berman and the statement by Taggart during the meeting — met the minimal standard that SPBC be notified (that is, be told) of the transfer. However, as discussed, the statute requires more than that. Under ORS 63.249(6), both notice and proof were required for the assignment to be effective as to SPBC. And, contrary to defendants' contention, the communications in question did not provide SPBC with evidence to establish that the transfer had occurred. Indeed, as defendants acknowledge, the "notice" requirement is less demanding than the "proof" requirement. The informal communications were insufficient to satisfy the more rigorous requirement that defendants provide proof of the assignment to SPBC. Accordingly, we conclude that the trial court correctly determined that, although defendants provided notice of the transfer in 2007, proof of the assignment by Taggart of his SPBC membership interest to BT was not provided until after this litigation began.
We next consider the trial court's analysis of the legal significance of that absence of proof. In that regard, the trial court found that, by the time SPBC received proof of the
Again, under the terms of the operating agreement, a member "may not sell any portion of his or her member interest without first offering in writing to sell such interest to the other Members at a price to be determined by the offering Member." A member may, under Section 11.2 of the operating agreement, "assign the Member's right to receive distributions * * * without consent of the other Members." Such an assignment does not "divest the assignor of voting or other rights as a Member, other than the right to receive distributions." Under Section 11.3 of the agreement, a member may also transfer his or her interest to an "entity controlled by the Member." When a member transfers his or her interest to a controlled entity, that entity may be admitted as a substitute member where it meets the requirements set forth in the operating agreement.
Here, the trial court's finding that Taggart attempted to transfer to BT his membership interest in SPBC (as opposed to merely the right to receive distributions from the company) is supported by the evidence. As noted, in a document entitled "TRANSFER OF MEMBERSHIP INTEREST," Taggart purported to transfer "all of his right, title and interest in and to Sherwood Park Business Center, LLC, an Oregon limited liability company, which interest is 25 percent of the issued and outstanding membership interests therein." Although the operating agreement would have generally prevented Taggart from transferring his membership interest in SPBC without first offering it to other members, Taggart could permissibly have transferred his interest to BT as an entity he controlled. Furthermore, Section 11.4 of the operating agreement provided an avenue (which Taggart did not utilize) by which BT could have become a substitute member in Taggart's place. However, as discussed above, under ORS 63.249(6), even an otherwise permissible transfer of Taggart's interest in SPBC would be "effective as to and binding on [SPBC] only after reasonable notice of and proof of the assignment" was provided. That is, until proof was provided, the assignment did not (1) become valid or operative, see Webster's at 724 (defining "effective" as "taking effect: VALID, OPERATIVE"); Black's at 592 (defining "effective" as "in operation"), or have legal force as to SPBC, see Webster's at 217 ("binding" means "imposing an obligation, duty, or responsibility," or "requiring submission"); Black's at 190 (defining "binding" as "having legal force").
Here, as discussed, Taggart failed to provide proof of the transfer of his interest in SPBC to BT until after the commencement of this litigation and, by the time proof was provided, BT was not an entity Taggart controlled. Instead, as the trial court observed, by the time proof of the transfer was provided, all of Taggart's interest in BT had been sold to Berman. Thus, by the time that the attempted transfer could have been valid, operative, or have legal force as to SPBC, BT was not an entity to which Taggart's interest could be transferred absent a prior offer to sell to the other members of SPBC. In light of the foregoing, the trial court did not err in concluding that Taggart did not properly transfer his membership interest in SPBC to BT, and we reject defendants' challenge to that ruling.
In their final argument related to the import of ORS 63.249(6), defendants assert that, even if the communications from Taggart and his attorney did not constitute "proof" for purposes of that statute, that lack of proof should have no effect on the validity
We turn next to defendants' assertion that the trial court erred in concluding that Taggart was subject to expulsion pursuant to ORS 63.209. Again, pursuant to that provision, a member may be expelled from an LLC where the member is "guilty of wrongful conduct that adversely and materially affects the business or affairs of the limited liability company" or where the member "has willfully or persistently committed a material breach of the articles of organization or any operating agreement * * * to the extent that it is not reasonably practicable to carry on the business or affairs of the limited liability company with that member." ORS 63.209(1)(b)(A), (B). The court found that Taggart had stolen a large amount of money from SPBC, had intentionally failed to provide financial information, and had made himself unavailable to carry on the business. Accordingly, the court concluded, Taggart was subject to expulsion under both ORS 63.209(1)(b)(A) and (B). Based on that conclusion, the court expelled Taggart effective January 1, 2008.
On appeal, defendants do not challenge the trial court's findings regarding Taggart's conduct nor do they assert that those findings do not provide a proper basis for expulsion from an LLC. Instead, defendants contend that Taggart could not be expelled from SPBC because he had already transferred his interest to BT.
Our conclusions thus far obviate the need to address a number of defendants' remaining arguments. Specifically, defendants assert that "there were no restrictions on the change in control of BT" and, in their sixth, seventh, and eighth assignments of error, challenge the trial court's conclusions (1) that BT could not transfer the interest in SPBC that it had acquired from Taggart (2) that distributions and allocations of profits or losses in SPBC could be made only to members of SPBC or assignees approved by members, and (3) that neither Emmert nor Jehnke owed a fiduciary duty to BT and, even if one existed, they did not breach it. Defendants' assertions regarding all of those
Taggart contends on cross-appeal that, even if the trial court did not err in expelling him from SPBC, it erred in describing how Emmert and Jehnke could purchase his interest in SPBC. In that regard, the court ordered:
Pointing to Section 12.5 of the operating agreement, Taggart argues that the purchase price should be calculated based on SPBC's fair market value as of January 1, 2008 — the date as of which the trial court declared that Taggart was expelled from the company — and that the interest rate should be the rate in effect on that date. For the reasons set out below, we disagree.
Under Section 12.3 of the operating agreement, upon the expulsion or withdrawal of a member, "the remaining Members, within 120 days thereafter, * * * may elect to purchase the interest of the affected Member pursuant to the provisions of Section 12.5." Section 12.5 of the agreement, in turn, provides:
(Emphasis added.)
In Taggart's view, the "event giving rise to the election to purchase" occurred on January 1, 2008 — the date the court stated in the judgment that Taggart was deemed to have been expelled. Plaintiffs respond that the "event giving rise to the election" is the court's declaration that Taggart was expelled from SPBC (not Taggart's earlier acts that were the basis for the expulsion), which occurred at the time the judgment was entered. In their view, they could not elect to purchase Taggart's share of SPBC until the judgment was entered and, therefore, the entry of the judgment expelling Taggart should be considered the "date of the event giving rise to the election to purchase."
Again, Section 12.3 of the agreement gives Jehnke and Emmert the right to elect to purchase Taggart's interest in SPBC within 120 days of his expulsion. Section 12.5, in turn, provides that interest accrues "from the date of the election to purchase" and the interest is calculated based on the "date of the event giving rise to the election to purchase." Thus, the key date under the agreement is the date upon which the event occurs that gives members the right to purchase another member's interest. As noted, it is Taggart's expulsion that gives rise to Emmert and Jehnke's right to purchase the membership interest in this case. Although, as Taggart observes, the trial court's declaration was that Taggart was expelled effective January 1, 2008, the expulsion did not occur automatically or by operation of law. Instead, it was the entry of the court's judgment that operated to expel Taggart from SPBC. Until the court entered the judgment, the other members of SPBC had no right to purchase Taggart's interest. Thus, based on the terms of the agreement, the date of the "event giving rise to the election to purchase" was the date of the judgment and the trial court did not err in ordering that the purchase price for Taggart's interest in SPBC be calculated with reference to that date.
Affirmed on appeal and cross-appeal.
Because, as explained, we agree with the trial court's ruling that Taggart was subject to expulsion, we need not address that alternate basis for ruling that Taggart's interest could be terminated.