Judgment rendered February 28, 2024. Application for rehearing may be filed within the delay allowed by Art. 2166, La. C.C.P.
No. 55,428-CA
COURT OF APPEAL SECOND CIRCUIT STATE OF LOUISIANA
*****
IN RE: B&B GROUP, LLC, AND GARY BROOKS
Appealed from the First Judicial District Court for the Parish of Caddo, Louisiana Trial Court No. 625,354
Honorable Brady D. O’Callaghan, Judge
MARIONEAUX & WILLIAMS, LLC Counsel for Appellant, By: Wade T. Visconte Gary Brooks
WIENER, WEISS & MADISON, APC Counsel for Appellee, By: Reid A. Jones John Pat Bullock
Before STONE, COX, and STEPHENS, JJ. COX, J.
This civil appeal arises out of litigation concerning the dissolution of
B&B Group, LLC (“B&B Group”). Defendant, Gary Brooks (“Brooks”),
appeals the trial court’s judgment in favor of John Pat Bullock (“Bullock”),
which granted Bullock $8,738.68 in attorney fees and costs, and disbursed
the share of funds from the sale of B&B Group’s property as follows:
$53,059.57 to Brooks and $102,085.25 to Bullock.
FACTS
On June 15, 2015, Bullock and Brooks formed B&B Group. Bullock
and Brooks were the sole members, each sharing a 50% ownership interest
in the limited liability company. No partnership or operating agreement
existed and B&B Group’s sole asset was a commercial strip of property
(“the property”) located on East 70th Street, in Shreveport, Louisiana. On
August 12, 2020, Bullock filed a petition for dissolution of the company, and
among several other claims, alleged that Brooks misused company funds,
breached his fiduciary duty, and was guilty of mismanagement. Brooks then
filed several exceptions in response to the petition. Bullock then filed an
amended petition on January 28, 2021, which again sought to dissolve the
company, to appoint an accountant to liquidate any assets, and to hold
Brooks personally liable for monetary damages.
On April 26, 2021, the parties reached an agreement that was entered
as an order from the trial court that: 1) Ben Walker would be selected as
realtor to sell the property with a 6% commission; 2) Robert Dean and
Spencer Lamb would be appointed as liquidators over B&B Group (“the
liquidators”); and 3) both parties would provide necessary records and
documentation to the liquidators as needed. The property was assessed at $400,000 and the parties submitted sealed bids to the trial court, with
Bullock winning the bid with an offer of $430,100.1 On December 9, 2021,
Bullock sought to enforce the rights of B&B Group and filed a petition to
void two leases encumbering the property described as:
1) Lease Agreement between B&B Group, LLC as Lessor and KOC, Inc. as Lessee dated July 14, 2020 and recorded August 25, 2020 under Registry No. 2801272, Records of Caddo Parish, Louisiana.
2) Lease Agreement between B&B Group, LLC as Lessor and KOC, Inc. as Lessee dated August 27, 2020 and recorded September 10, 2020 under Registry No. 2803076, Records of Caddo Parish, Louisiana.
Bullock claimed that because Brooks signed the leases to his company, K-O-
C, Inc., (“KOC”) d/b/a Fud’s Lounge (“Fud’s”), there was no majority vote
to approve the leases. In response, Brooks filed a petition on January 3,
2022, alongside several other exceptions, to void the sale of the property to
Bullock.
On January 10, 2022, the trial court denied Brooks’ exceptions and
petition to void the sale and granted Bullock’s petition, nullifying the leases.
On January 19, 2022, Bullock filed an ex parte “Motion for Order Requiring
Gary Brooks to Appear at Closing and Sign Closing Documents.” The
motion, in part, provided that “As co-members owning 50% of the interest
of B&B [Group], both Brooks and Bullock must sign the deed transferring
title to the [p]roperty. . . The closing attorney may also require Brooks to
sign additional documents, such as an expired, 2014 Lease.” That same day,
the trial court signed an order, requiring Brooks to appear at the January 31,
1 The letter declaring Bullock as the highest bidder and awarding him the right to purchase the property is not in the record before this Court. However, from the record, it is clear that both parties mutually agreed to submit bids to determine the right to purchase the property, with Bullock submitting the highest bid on September 17, 2021. 2 2022, closing, and “sign all documents attendant to, and necessary to
effectuate, the closing of the sale of the B&B Group, LLC’s property to
Bullock.”
On January 26, 2022, Brooks filed a motion to strike or set aside the
January 19, 2022, order. Brooks argued that the January 19 order was
“improper because [it] deprive[d] [him] of his fundamental due process right
to suspensively appeal this [c]ourt’s January 10, 2022, Partial Final
Judgment and unlawfully voided the 2014 lease that was reconducted as a
matter of law as per La. C.C. art. 2721(2) without the necessary hearing.” A
hearing on the matter was set for March 14, 2022. The following day,
Brooks filed a motion to appeal the January 10, 2022, order. On January 31,
2022, all parties were in attendance and the property was sold from B&B
Group to Bullock’s company, Tokon Industries and Investments, LLC
(“Tokon”). The proceeds of the sale were deposited into the court registry.
That same day, the trial court also granted Brooks’ motion to appeal the
January 10, 2022, order.
On February 9, 2022, Tokon filed a petition to evict KOC, and on
February 24, 2022, the petition was granted. Fud’s eventually abandoned
the property and on March 10, 2022, Brooks requested that the March 14
hearing be removed from the docket because the motion was moot; however,
the hearing continued with only Bullock in attendance. The trial court
denied Brooks’ motion, voided the 2014 lease, and reserved Bullock’s right
to seek attorneys’ fees pursuant to La. R.S. 9:5176(D). On March 23, 2022,
Brooks filed a motion for new trial, arguing that the March 14 judgment was
improper; the motion was denied on May 24, 2022.
3 On May 20, 2022, the liquidators submitted their final report
concerning the forensic accounting of B&B Group and any claims held by or
against Brooks or Bullock. On June 9, 2022, Brooks filed a motion to strike
and traverse the liquidators’ report; specifically, invoices that totaled
$16,404.89, and $36,404.89 in “flagged expenses” to be deducted from
Brooks’ share of the proceeds from the sale of the property. Brooks also
sought to submit additional documentation for consideration. During this
time, Tokon filed a motion to intervene to recover past due rent from KOC,
court costs from the eviction proceeding, and damages to the property. On
August 30, 2022, the liquidators submitted an updated report that was
approved by the parties and the trial court.
On September 26, 2022, the trial court denied Tokon’s motion to
intervene and Brooks’ motion to traverse the liquidators’ report. Thereafter,
Brooks filed a motion to disburse the funds held within the court’s registry,
and in response, Bullock filed a motion for partial summary judgment
seeking attorney fees, as sanctions, as well as an exception of improper use
of summary pleadings. Both motions were set for hearing on January 9,
2023. On December 21, 2022, the liquidators then filed a “Motion for Order
Winding Up and Other Relief” which calculated the distribution of the
remaining assets of the company to each member.
On February 6, 2023, the trial court denied Bullock’s exception of
improper use of summary pleadings but granted his motion for sanctions.
With respect to Brooks’ motion to strike the liquidators’ report regarding
certain “flagged expenses,” the trial court denied the motion, finding first
that the liquidators made several “good faith requests for supporting
documentation before preparing their report,” so that Brooks’ filing of 4 additional documentation after he filed the motion to strike the liquidators’
report was improper.
The trial court noted that “[n]o showing was made nor evidence
submitted to show any impossibility of providing the documentation in
question within the time limits imposed by the liquidators.” Moreover, “no
justification was offered for the motion to strike. The court did not find any
reasonable basis for this claim based on the record of communications
among the parties and liquidators.” With respect to the distribution of the
funds in the registry, the trial court found that the “report of the liquidators
was appropriate, and no argument or evidence was offered that convinced
the court of any deficiency therein.”
From this ruling, the trial court disbursed the funds held within the
court registry, allocating $6,500 to the liquidators, $102,085.25 to Bullock
for his one-half of the membership plus sanctions totaling $8,738.68, and
$53,059.57 to Brooks for his one-half of the membership. From this, Brooks
now appeals, presenting two assignments of error for review.
DISCUSSION
Calculation and Distribution of Funds
By his first assignment of error, Brooks argues that the trial court
improperly calculated his share of the funds because it 1) relied on a report
from the liquidators not filed in the record; 2) did not allow the parties to
traverse the liquidators’ January 19, 2023, report; and 3) did not “correctly
apply the substantive law” in its distribution of funds.
Specifically, Brooks asserts that the liquidators submitted a report of
their calculations of the amount of funds due to each member on January 19,
2023, after the January 9, 2023, hearing. He maintains that the trial court 5 based its final February 7, 2023, ruling on this report without allowing either
party to traverse the record and present arguments regarding the report.
Brooks argues that because the January 19, 2023, report was not made part
of the record, the distribution of funds based on that information should be
reversed.
We disagree. This Court notes at the outset that the report was not
made part of the appellate record. Generally, the appellate court is a court of
record, and may not receive new evidence or consider evidence not in the
appellate record. Sanders v. Rodgers, 54,916 (La. App. 2 Cir. 12/14/22),
352 So. 3d 162. Moreover, of the evidence properly before this Court, there
is no indication that the trial court relied on the January 19, 2023, report as
opposed to the report submitted on May 20, 2022. In issuing its ruling on
the matter, the trial court, without referencing the specific report from the
liquidators, provided, in part, that “the report of the liquidators was
appropriate, and no argument or evidence was offered that convinced the
court of any deficiency therein.”
Accordingly, we find that this portion of Brooks’ assignment of error
lacks merit.
Brooks further argues that the trial court erred in awarding funds due
to each member because it did not correctly apply the substantive law.
Brooks maintains that neither the liquidators nor the trial court considered
La. R.S. 12:1328 when the “flagged expenses” were deducted from each
member’s share. According to Brooks, the only sums that could be deducted
from his share under La. R.S. 12:1328,2 were improper distributions that
2 La. R.S. 12:1328 provides, in part:
6 occurred no later than August 14, 2018, two years before this suit was filed.
In this case, the liquidators identified the following “flagged expenses”
attributable to Brooks:
Brooks maintains that only items 12 through 23, assuming they were
improper distributions, could be deducted from his share of the funds.
Brooks highlights that Bullock also agreed that Brooks could only be liable
for those distributions from August 2018 forward.
Brooks further argues that although items 12 through 23 fell within
the appropriate timeframe, several of the “flagged expenses” were not
improper distributions that could be deducted from his share. Brooks
C. An action to enforce liability under this Section must be brought within two years from the date of which the effect of the distribution is measured under R.S. 12:1327, except that a member or manager held liable under Subsection A of this Section solely because of having voted for or assented to an unlawful distribution may bring an action to enforce his right of contribution under this Section within two years from the date of payment by the member or manager on account of such liability. These time limits shall not be subject to suspension on any ground, nor to interruption except by timely suit.
7 contends that he had documentation clarifying those remaining expenses,3
but the liquidators would not submit a revised report to the court in
consideration of those documents, and the trial court refused to consider the
documents because they were not “timely provided.”
Brooks argues that there was no imposed deadline by either
stipulation of the parties or by law4 that would have prevented him from
submitting supplemental documentation for review. Brooks asserts that
even if a deadline was imposed on the parties, Bullock failed to file a motion
to compel production of documents, and the liquidators did not file a
complaint with the trial court about a missed deadline. Brooks asserts that
the only issue the liquidators drew attention to regarding a delay in issuing
the report came from preparing tax returns for B&B Group.5
La. R.S. 12:1328 provides, in part:
A. Each member, if management is reserved to the members, or manager, if management is vested in one or more managers pursuant to R.S. 12:1312, who knowingly, or without the exercise of reasonable care and inquiry, votes for or assents to a distribution in violation of the articles of organization, an operating agreement, or R.S. 12:1327 shall be jointly and severally liable to the limited liability company for the amount
3 For example, Brooks asserts that “item 21” was not an improper distribution because the money was used to pay B&B Group’s property tax to prevent foreclosure.
4 Brooks cites La. R.S. 12:1337 for the assertion that the distribution of LLC assets to members does not impose any deadline. Specifically, he argues that under this statute, after all “debts and liabilities” have been accounted for, capital contributions are returned to each member, and the remaining amount is owed “in the proportions in which the members share in distributions.”
5 In an email to all parties involved, the liquidators provided the following information:
I wanted to provide an update on our report for B&B Group, LLC. I understand you are waiting on it and that this is one of the only loose ends to resolve this matter. Obviously[,] the timing with tax deadlines has its impact and is causing some delay but the good news is I have everything I need to complete it. I am nearly through it and will be delivering it very soon to the court.
8 of the distribution that exceeds the amount that could have been distributed without violating R.S. 12:1327, the articles of organization, or an operating agreement. Each member shall be liable to the limited liability company for the amount which the member received in violation of this Section.
B. Each member or manager liable under Subsection A of this Section for an unlawful distribution shall be entitled to a contribution from each other member or manager who could be held liable under such Subsection.
C. An action to enforce liability under this Section must be brought within two years from the date of which the effect of the distribution is measured under R.S. 12:1327, except that a member or manager held liable under Subsection A of this Section solely because of having voted for or assented to an unlawful distribution may bring an action to enforce his right of contribution under this Section within two years from the date of payment by the member or manager on account of such liability. These time limits shall not be subject to suspension on any ground, nor to interruption except by timely suit.
Here, Bullock filed his amended motion to dissolve B&B Group on
January 28, 2021. In his petition, Bullock alleged that Brooks was liable for
any monetary damages due to his mismanagement of the company, breach
of fiduciary duty, and any other conduct which “demonstrate[d] a greater
disregard of the duty of care than gross negligence.” Under the provisions
of La. R.S. 12:1328, Brooks can only be held liable for any improper
distribution of funds from B&B Group for two years from the date this suit
was filed.
After parsing the record, it does not appear that such changes in the
liquidators’ report were made to reflect this change. Accordingly, this
matter should be reversed in this limited sense to reflect those changes only.
This Court does not agree with Brooks’ contention that any remaining
“flagged expenses” attributed to him should be reconsidered in light of any
supporting documentation not submitted to the liquidators before the report
was submitted to the trial court. As discussed in further detail below, this 9 Court finds that Brooks was provided ample time to supply the liquidators
with any necessary documents to support his position that the “flagged
expenses” attributed to him were improper.
Attorney Fees and Costs
By his second assignment of error, Brooks argues that the trial court
erred in awarding attorney fees and costs as sanctions. Brooks highlights
that the ruling regarding sanctions should be reversed for the following
reasons:
First, Brooks argues that the appropriate time to request or award
sanctions was when the motion to traverse/strike the liquidators’ invoice and
report was partially denied, or alternatively, when Bullock opposed the
motion to rescind the sale of the property. Brooks maintains that the trial
court had the authority to issue sanctions at that time, but did not. Moreover,
he argues that because Bullock failed to timely reserve his right to seek
sanctions under La. C. C. P. art. 863, the motion for sanctions was untimely
and should have been denied.
Second, Brooks argues that no “exceptional circumstances” existed to
justify an award for the costs Bullock incurred in opposing the motion to
traverse/strike the liquidators’ invoices and report. Brooks asserts that his
motion to traverse the invoices to determine whether the incurred expenses
were reasonable and fair was appropriate because the original invoice was
submitted without any adequate description of the charges, dates, itemization
of the amount of time billed for each task, or specification as to hourly rate
or who performed particular tasks.
Brooks maintains that his motion to traverse the liquidators’ invoice
was successful because the liquidators provided an updated invoice in 10 response to his motion. From this, he argues that because the motion to
traverse/strike the liquidators’ invoice and report was partially successful,
then it follows that “no exceptional circumstances” existed to justify
sanctions on the other portion of his motion to strike the liquidators’ report.
Accordingly, he contends that the $3,000 awarded in sanctions for this
matter was improper.
Finally, Brooks maintains that the award for any expenses Bullock
incurred regarding the motion to rescind the sale of the property and the
cancellation of the leases was also improper. Specifically, Brooks argues
that neither Bullock nor Tokon had standing or legal interest to cancel the
2014 lease. Brooks argues that the “normal course” of business for B&B
Group was that either he or Bullock could sign leases without the approval
of the other and Bullock was aware that there were leases without both of
their signatures.
Brooks further argues that under La. R.S. 12:1329, “individuals
cannot assert property claims as members of an LLC where the disputed
property interests are the property of the separate legal entity.” Brooks
asserts that because Bullock conveyed all of his interests to Tokon when he
purchased the property on January 31, 2022, Bullock relinquished all rights
to enforce any rights because all interests were conveyed to Tokon, who
failed to make a written demand to cancel the 2014 lease or file a declaratory
judgment following the sale of the property.
In his reply brief, Brooks further maintains that sanctions should not
have been awarded against him regarding the motion to rescind the sale of
the property. Brooks asserts that under the contract of sale, paragraph 3
provided: 11 PURCHASER shall have fifteen (15) days from the expiration or earlier termination of the due diligence period to examine title and deliver a copy of PURCHASER’S attorneys opinion to SELLER, setting forth any defects in title and the requirements necessary to perfect same. SELLER, shall have 15 days from delivery of said opinion within which to perfect title and obligates itself to make reasonable efforts to do so at its own expense. If SELLER is unable to perfect title or make same insurable within said time, PURCHASER shall have the option of waiving the defects and accepting title to said property or declaring this contract and agreement null and void, the part payment shall be returned, the SELLER shall be released from his agreement to sell and the PURCHASER shall be released from his agreement to purchase. Failure of either party to comply with the obligations of this paragraph shall constitute a default and shall entitle the other party to specific performance.
Further, the following paragraph of the contract provided that “delivery” of
the property would take place no later than November 15, 2021. Brooks
maintains that Bullock had 15 days to examine title and set forth any defects
for B&B Group to perfect title, but failed to do so. Brooks argues that if
there was a cloud on the property’s title, Bullock was bound to either void
the sale or accept the property subject to the leases, not file a motion to void
the leases to clear the cloud on the title. Brooks asserts that because the trial
court did not have the authority to extend the deadline of the contract and
Bullock did not comply with the details of the contract, sanctions should be
As noted by the trial court, the relevant provision of law in this case
regarding this assignment of error is La. C.C.P. art. 863, which provides:
A. Every pleading of a party represented by an attorney shall be signed by at least one attorney of record in his individual name, whose address shall be stated. A party who is not represented by an attorney shall sign his pleading and state his address.
B. Pleadings need not be verified or accompanied by affidavit or certificate, except as otherwise provided by law, but the signature of an attorney or party shall constitute a certification by him that he has read the pleading, and that to the best of his
12 knowledge, information, and belief formed after reasonable inquiry, he certifies all of the following:
(1) The pleading is not being presented for any improper purpose, such as to harass, cause unnecessary delay, or needlessly increase the cost of litigation.
(2) Each claim, defense, or other legal assertion in the pleading is warranted by existing law or by a nonfrivolous argument for the extension, modification, or reversal of existing law.
(3) Each allegation or other factual assertion in the pleading has evidentiary support or, for a specifically identified allegation or factual assertion, is likely to have evidentiary support after a reasonable opportunity for further investigation or discovery.
(4) Each denial in the pleading of a factual assertion is warranted by the evidence or, for a specifically identified denial, is reasonably based on a lack of information or belief.
C. If a pleading is not signed, it shall be stricken unless promptly signed after the omission is called to the attention of the pleader.
D. If, upon motion of any party or upon its own motion, the court determines that a certification has been made in violation of the provisions of this Article, the court shall impose upon the person who made the certification or the represented party, or both, an appropriate sanction which may include an order to pay to the other party the amount of the reasonable expenses incurred because of the filing of the pleading, including reasonable attorney fees.
E. A sanction authorized in Paragraph D shall be imposed only after a hearing at which any party or his counsel may present any evidence or argument relevant to the issue of imposition of the sanction.
F. A sanction authorized in Paragraph D shall not be imposed with respect to an original petition which is filed within sixty days of an applicable prescriptive date and then voluntarily dismissed within ninety days after its filing or on the date of a hearing on the pleading, whichever is earlier.
G. If the court imposes a sanction, it shall describe the conduct determined to constitute a violation of the provisions of this Article and explain the basis for the sanction imposed.
13 This article is intended to be utilized for exceptional circumstances.
Woods v. Woods, 43,182 (La. App. 2 Cir. 6/11/08), 987 So. 2d 339, writ
denied, 08-2256 (La. 11/21/08), 996 So. 2d 1110. It is not to be used simply
because the parties disagree as to the correct resolution of a legal matter.
Morris v. City of Minden, 50,406 (La. App. 2 Cir. 3/2/16), 189 So. 3d 487,
writ denied, 16-0866 (La. 6/3/16), 192 So. 3d 748.
Further, the slightest justification for the exercise of a legal right
precludes sanctions. Alpine Meadows, L.C. v. Winkler, 49,490 (La. App. 2
Cir. 12/10/14), 154 So. 3d 747, writ denied, 15-0292 (La. 04/24/15), 169 So.
3d 357; Woods, supra. Once the trial court determines that sanctions are
appropriate, it has considerable discretion as to the type and severity of the
sanctions imposed. Alpine Meadows, supra. Therefore, we review the type
and amount of the sanction under the abuse of discretion standard. Id.
Here, the trial court determined that sanctions were appropriate
regarding the following: 1) Brooks’ motion to rescind the sale of the
property, and 2) Brooks’ motion to strike the liquidators’ report. With
respect to the motion to rescind the sale of the property, Brooks argues, in
part, that sanctions should not have been awarded because Bullock and
Tokon lacked standing and legal authority to cancel the leases B&B Group
executed with Fud’s. However, the trial court did not impose sanctions
against Brooks regarding litigation of the leases. Specifically, the trial court
provided:
. . . [T]he court notes that Brooks had a legitimate concern that suspensive appeal rights were at stake. Further, this court perceives the complained of conduct as of such a nature that contemporaneous contempt remedies would have been the appropriate avenue. The court believes that the refusal to execute the cancellation in a timely fashion was problematic but cannot award sanctions because the pleadings filed and signed 14 raised claims fairly subject to controversy and consideration by the court.
Bullock offers an alternative basis for recovering costs and fees under La. R.S. 9:5176(D). However, as Brooks points out in opposition, the technical requirements of that statute were not fully met, and by using a corporation to acquire the property, Bullock is not the ‘owner” as contemplated by the statue.
Brooks further argues sanctions should not have been awarded with
respect to the motion to rescind the sale of the property. However, as the
trial court noted, “there appears to be a fundamental gap between the
allegations in Brooks’ pleadings and the procedural reality.” Brooks argues
that the sale should have been voided because Bullock failed to comply with
the terms of the contract of sale Bullock drafted and submitted to the court
on September 17, 2021. However, after a thorough review of this record, it
is clear that the “contract” Bullock submitted on September 21, 2021, is
merely his proposed bid to the trial court to purchase the property. Bullock
is the only party that signed the document, and Brooks made clear he did not
agree with several of the terms presented in Bullock’s bid.
Although the letter which declared Bullock was the highest bidder and
awarded him the right to purchase the property is not in the record, the
transcript from the January 10, 2022, hearing is clear that the primary
purpose of the sealed bids was merely a vehicle to determine who would
obtain the right to purchase the property, which both parties agreed to. It
appears from the hearing that the primary purpose of executing the sealed
bids was to prevent both parties from inevitably filing an array of petitions
or bids and to quickly and efficiently choose a member to purchase the
property. The trial court indicated that Bullock won the bid and that the
15 matter would proceed with Bullock maintaining the right to purchase the
property.
Importantly, we note that the sealed bid Bullock submitted to the trial
court did not actually convey ownership to Bullock, and the actual sale of
the property did not occur until January 31, 2022, so that Bullock could not
be held liable for the terms of a contract which had not yet occurred.
Moreover, the cash sale deed signed on January 31, 2022, did not contain the
same terms of agreement presented in Bullock’s bid.
Finally, with respect to the sanctions concerning the motion to strike
the liquidators’ report, Brooks maintains that there was no justification for
sanctions regarding the motion to strike the liquidators’ report. Brooks
maintains that the liquidators’ calculations were inappropriate and the
liquidators should have considered additional documents in relation to some
of the “flagged expenses.” Accordingly, the trial court found that Brooks’
motion to traverse the invoices was not frivolous, and declined to award the
full amount requested for sanctions. Although sanctions were not awarded
for the motion to traverse the liquidators’ invoices, the same cannot be said
of the motion to strike the liquidators’ report.
Here, the record reflects that on April 26, 2021, the trial court ordered
both Bullock and Brooks to “fully cooperate with the accountant and real
estate agent along [with] complying with all requests to produce records and
sign any and all necessary documents to list and sell and the commercial
property.” Thereafter, on August 4, 2021, the liquidators sent a letter to both
parties to provide supporting documentation pertaining to the following
information:
16 In a list format, provide the amount of any capital contributions to the entity including initial capital at startup and any cash provided to the entity for the life of the partnership for any reason (Ex: cash for capital improvements or repairs, to alleviate an overdraft balance or provide cash reserves for expenses). The contribution will be presumed to not have occurred unless proper and complete supporting documentation for the contribution is provided to HMV.
There are transactions for which the purpose is not readily apparent, and withdrawals and debit memos with no description. Provide an explanation for the transactions and cash withdrawals listed in Exhibit A.
The liquidators indicated that the “transaction will be deemed a draw from
the capital account of the respective partner unless clear and complete
supporting documentation of the substantive reason for the transaction is
provided.” The liquidators requested a “prompt and complete response”
from both parties. The record reflects that on August 24, 2021, per Brooks’
request, the liquidators sent Brooks’ accountant, the “letter with our
inquiries regarding bank transactions.” On October 14, 2021, the liquidators
sent the August 4, 2021, letter to Brooks’ accountant again.
On November 23, 2021, Brooks’ accountant, Jerry Kutz (“Kutz”),
sent explanations for particular inquiries regarding the information requested
by the liquidators. On November 30, 2021, the liquidators informed Kutz
that they would need supporting documentation for any explanations and
that “unless these can be supported with good evidence, then each partner is
responsible for the reimbursement to the partnership.” Thereafter, on
February 9, 2022, March 29, 2022, and April 26, 2022, the liquidators
informed both parties that their report would be forthcoming. On May 20,
2022, the liquidators informed both parties that their report was finalized and
would be submitted to the trial court on May 23, 2022.
17 On May 31, Kutz informed the liquidators there were supporting
documents for the “flagged expenses” in the report. That same day, the
liquidators informed Kutz that the report had already been submitted to the
trial court. On June 28, 2022, the liquidators sent a letter to the court
providing a detailed explanation of its communication with both parties.
The liquidators indicated that even after they informed Kutz that they would
need supporting documentation, they never received further communication
regarding Brooks’ expenses. The liquidators then noted that:
Only after submitting our report did we start receiving increased communications from Mr. Kutz that he had support for the transactions. We informed Mr. Kutz that we had instructed the members to provide support and it was never provided, so we submitted our findings. We also informed Mr. Kutz that if he has additional information that would substantiate personal expenses by Mr. Brooks, that it should be provided to the Court and that we are more than willing to update our findings if support is available. Still, to date, no such support has been provided, even after numerous requests to provide.
After a review of the record, this Court is again inclined to agree with
the trial court’s findings. The record reflects multiple instances in which the
liquidators requested supporting documentation from Brooks to prepare their
report. Given that the report was not finalized until May 2022, Brooks had
ample time to provide the liquidators with any needed documents before the
report was submitted. Although no specified deadline existed in this matter
by which parties were required to submit documentation, it is clear that the
liquidators reasonably requested the parties to submit documentation in a
timely manner and before the report was submitted to the trial court.
However, because this Court has determined that the liquidators’
report should be amended to reflect a change in calculation of “flagged
expenses” attributed to Brooks under La. R.S. 12:1327, sanctions regarding 18 this matter should be amended with respect to that portion only. The other
portion of the award should be affirmed as there is no clear error in the trial
court’s ruling on the issue.
Attorney Fees
In addition to Brooks’ assignment of errors, Bullock argues that this
Court should award him additional costs and attorney fees incurred for this
appeal in the amount of $5,000. Bullock maintains that an inordinate
amount of time has been spent litigating this matter and that Brooks has not
presented any assignments of error warranting reversal; therefore, this Court,
under La. C. C. P. art. 2164, should award damages, including attorney fees.
The appellate court shall render any judgment which is just, legal, and
proper upon the record on appeal. The court may award damages, including
attorney fees, for frivolous appeal or application for writs, and may tax the
costs of the lower or appellate court, or any part thereof, against any party to
the suit, as in its judgment may be considered equitable. La. C.C.P. art.
2164. This provision is penal in nature and is to be strictly construed. Neal
Through Henshaw v. Cash, 54,579 (La. App. 2 Cir. 6/29/22), 343 So. 3d
324.
Damages for frivolous appeal are allowed only when it is obvious that
the appeal was taken solely for delay, that the appeal fails to raise a serious
legal question, or that counsel is not sincere in the view of the law he
advocates, even though the court is of the opinion that such view is not
meritorious. Id.; Fuller v. Pittard 55,336 (La. App. 2 Cir. 11/15/23), 374 So.
3d 345. The award of damages and attorney fees for a frivolous appeal are
utilized to curtail the filing of appeals that are intended to delay litigation,
harass another party, or those that have no reasonable basis in fact or law. 19 Fuller v. Pittard, supra. Appeals are always favored and, unless the appeal
is unquestionably frivolous, damages will not be allowed. Id.
Given that this Court has determined that a portion of Brooks’
assignments of error on appeal have merit, namely that the liquidators’
report should have removed “flagged expenses” attributed to him from prior
to 2018, we cannot say this appeal is frivolous. Therefore, we deny
Bullock’s request for costs and attorney fees.
CONCLUSION
For the reasons set forth herein, we affirm the trial court’s judgment
regarding sanctions for the motion to rescind the sale of the property; the
opposition regarding the 2014 lease cancellation; and the motion to strike the
liquidators’ report specifically regarding the filing of additional documents;
but reverse and remand sanctions regarding Brooks’ motion to strike the
liquidators’ report related to his allegation that the report was improper with
respect to certain “flagged expenses.” Moreover, we reverse and remand
this matter to reflect changes regarding the distribution of funds solely with
respect to any “flagged expenses” attributed to Brooks, not in accordance
with La. R.S. 12:1328(C). Accordingly, costs of this appeal are to be split
between both parties.
AFFIRMED IN PART; REVERSED IN PART; REMANDED
WITH INSTRUCTIONS.