Patmon v. Hobbs

495 S.W.3d 722, 2016 Ky. App. LEXIS 125, 2016 WL 3886831
CourtCourt of Appeals of Kentucky
DecidedJuly 15, 2016
DocketNO. 2014-CA-001411-MR
StatusPublished
Cited by4 cases

This text of 495 S.W.3d 722 (Patmon v. Hobbs) is published on Counsel Stack Legal Research, covering Court of Appeals of Kentucky primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Patmon v. Hobbs, 495 S.W.3d 722, 2016 Ky. App. LEXIS 125, 2016 WL 3886831 (Ky. Ct. App. 2016).

Opinion

OPINION

THOMPSON, JUDGE:

Ann Patmon, individually and on behalf of American Leasing and Management, LLC, appeals' from a judgment of the Jefferson Circuit Court.1 Patmon argues that the trial court awarded inadequate damages on her claims that Hobbs breached his statutory duties owed as a managing [724]*724■member of American Leasing and Hobbs diverted a business opportunity.

The parties have been in litigation for over a decade. In 2004, a bench trial was conducted to determine the membership interests in American Leasing. The trial court found that Hobbs holds a 51% membership interest in American Leasing, Pat-mon a 44% interest, and Bruce Gray, who is not party to this appeal, the remaining 5%.

A second bench trial conducted in 2007 concerned Hobbs’s violations of statutory and common law fiduciary duties owed to American Leasing. An extensive statement of the facts was given in Patmon v. Hobbs, 280 S.W.3d 589 (Ky.App.2009), which we refer to as Patmon I. Those same facts are repeated only as necessary to understand the present appeal.

American Leasing is a Kentucky Limited Liability Company (LLC) involved in construction and build-to-suit leases. In early 2004, American Leasing had two existing leases, including one for O’Reilly Auto Parts in Shively, Kentucky. It was also about to begin three additional leases for O’Reilly Auto Parts (O’Reilly leases).

Soon after joining American Leasing as its managing member, in February 2004, Hobbs formed a competing company, American Development & Leasing, LLC. He later sent a letter to Ed Randall at O’Reilly informing him that the O’Reilly leases would be changed to substitute American Development as the landlord for American Leasing. After convincing Randall that as the managing member of American Development Hobbs had authority to make the substitution, the leases were transferred to American Development without consideration paid to American Leasing and without the consent of the remaining disinterested LLC members.

Hobbs later formed another company, Habeeb & Hobbs, LLC, with Steve Ha-beeb, and that company assumed the leases. By the end of November 2004, American Development served as general contractor for the O’Reilly leases allowing Hobbs to profit from the construction phase as well as the leases. After the construction of the O’Reilly properties was complete, Hobbs sold his and American Development’s interests in Habeeb & Hobbs to H&G Management, LLC, a company partially owned by Habeeb, for $110,000.

Patmon filed an action against Hobbs alleging breach of Kentucky Revised Statutes (KRS) 275.170 and common law fiduciary duties for his diversion of the O’Reilly leases to American Development. At a bench trial, evidence was introduced that during his tenure as a managing member of American Leasing, Hobbs received a benefit from when American Leasing paid $7,500 in his personal legal fees, $853 of his personal telephone bill, and $1,527.45 to create an O’Reilly sign for American Development, all without the consent of American Leasing’s disinterested members. In addition to damages claimed for Hobbs’s diversion of funds from American Leasing, Patmon presented proof as to the value of the leases based on construction income, profits from rental income, and the value of the land purchased with the rental income.

Hobbs defended his actions opining that American Leasing did not have the financial ability to take advantage of the O’Reilly leases. He testified that American Leasing previously had difficulty in paying a U.S. Bank loan for the existing O’Reilly Shively project. He opined that U.S. Bank indicated it would not provide additional financing and the company had inadequate funding for the O’Reilly leases.

[725]*725Patmon admitted at trial- that she did not know how American Leasing would have financed the O’Reilly leases.. However, she argued that while American Leasing did not have sufficient cash to finance the leases, U.S. Bank had previously loaned $520,000 to American Leasing for the Shively O’Reilly lease project. Prior to making that loan, U.S. Bank recommended approval of a $3 million credit line to allow American Leasing to develop the O'Reilly leases. The estimated cost for all four leases, including the Shively O’Reilly -lease, was less than that amount. There was also evidence that Gray, who had considerable assets, and gave his personal guaranty to U.S. Bank could have obtained alternative financing if U.S. Bank declined the loan.

The trial court found that Hobbs had wrongfully taken money from American Leasing and awarded Patmon $18,980.46. However, no damages were awarded for -the value of the diverted O’Reilly leases which, Patmon asserted, was derived from the construction income, profits from the rental income, and value of the land purchased through the rental income. The court ruled as follows:

In this case the evidence is clear that ALM did not have the financial ability to undertake the [O’Reilly leases]. In fact, Patmon acknowledged that she did not know whether ALM could have gotten the funding for the leases. Moreover, Habeeb, who ultimately provided the financial backing of the leases, testified he would not have had any involvement with ALM due to Richard D. Pearson’s affiliation with the company.!2] Accordingly, Hobbs’s dubious conduct with respect to the [O’Reilly leases] did not rise to the level of a diverted opportunity constituting a violation of KRS 275.170.

■ Patmon appealed resulting in this Court’s opinion in Patmon I, which affirmed the trial court’s findings that Hobbs violated his duties owed to American Leasing under KRS 275.170. Patmon I,- 280 S.W.3d at 595. KRS 275.170 states in part:

Unless otherwise provided in a written operating agreement:
(1) With respect to any claim for breach of the duty of care, a member or manager shall not be hable, responsible, or accountable in damages or otherwise to the limited liability company or the members of the limited liability company for any action taken or1 failure to act on behalf of the limited liability company unless the act or omission constitutes wanton or reckless misconduct.
(2) The duty of loyalty applicable to each member and manager shall be to account to the limited liability company and hold as trustee for it any profit or benefit‘derived by that person without the consent of more than one-half (½) by number of the disinterested managers, or a majority-in-interest of the members from:'
(a) Any transaction connected with the conduct or winding up of the limited liability company; or ’ "
(b) Any use by the member or manager of its property, including, but not limited to; confidential or proprietary information of the limited liability company or other matters entrusted to the person as a result of his or her status as manager or member;

The Patmon I

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Cite This Page — Counsel Stack

Bluebook (online)
495 S.W.3d 722, 2016 Ky. App. LEXIS 125, 2016 WL 3886831, Counsel Stack Legal Research, https://law.counselstack.com/opinion/patmon-v-hobbs-kyctapp-2016.