STEVEN CHADWICK v. ROBERT HUNTOON and GEORGE SWEARENGIN

CourtMissouri Court of Appeals
DecidedSeptember 16, 2021
DocketSD36850
StatusPublished

This text of STEVEN CHADWICK v. ROBERT HUNTOON and GEORGE SWEARENGIN (STEVEN CHADWICK v. ROBERT HUNTOON and GEORGE SWEARENGIN) is published on Counsel Stack Legal Research, covering Missouri Court of Appeals primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
STEVEN CHADWICK v. ROBERT HUNTOON and GEORGE SWEARENGIN, (Mo. Ct. App. 2021).

Opinion

STEVEN CHADWICK, ) ) Respondent ) ) No. SD36850 vs. ) ) FILED: September 16, 2021 ROBERT HUNTOON, and ) GEORGE SWEARENGIN, ) ) Appellants. )

APPEAL FROM THE CIRCUIT COURT OF GREENE COUNTY

Honorable Michael J. Cordonnier

AFFIRMED

This case requires us to decide whether a member of a limited liability company

("LLC") expelled without cause is entitled to compensation for his member's interest

under the company's operating agreement. Robert Huntoon and George Swearengin

("Appellants") expelled Steven Chadwick ("Respondent") without cause from Liberty

Home Solutions, LLC (the "Company"). Following his expulsion from the Company,

Respondent filed a petition against the remaining members of the Company alleging he

was entitled to be compensated for his member's interest. The trial court entered

judgment in Respondent's favor, awarding him actual damages, punitive damages, and

attorney's fees. Appellants appeal the trial court judgment, raising eight points challenging: the trial court's interpretation of the operating agreement (points 1, 2, 3,

and 5); the trial court's determination of the value of the Company (point 4); the denial

of Appellants' affirmative defense of accord and satisfaction (point 6); and the trial

court's award of punitive damages (point 7) and attorney's fees (point 8). Finding no

merit in Appellants' points, we affirm.

Factual and Procedural Background

In March 2007, Respondent and Appellants entered into a contract ("operating

agreement") for the operation of the Company, which was in the business of home

remodeling and repairs. The operating agreement gave each member a one-third

interest in the Company. From 2013 to 2017, the Company's yearly total membership

distributions averaged over $170,000 and its total income exceeded $2.5 million.

In May 2018, Appellants expelled Respondent without cause pursuant to section

7.4(A) of the operating agreement, which states, in pertinent part, that Appellants would

assume all indebtedness and would indemnify Respondent from liability on the

company's debts. "In addition, the remaining Members and the Company shall pay the

expelled Member the sum of $1,000 per week for twelve (12) weeks commencing not

later than two (2) weeks after the expulsion." Respondent was given a check in the

amount of $1,000 and a letter informing him he had been expelled as a member

"without cause[.]" The letter stated Respondent would receive 12 payments of $1,000 as

required by section 7.4(A) of the operating agreement and that Appellants would

assume all indebtedness and would indemnify him from liability on the company's

2 debts.1 Respondent received and cashed 11 more payments of $1,000. Following

Respondent's expulsion, Appellants continued operating the business.

Respondent filed a petition against Appellants seeking compensation for his

member's interest.2 Appellants filed an answer and asserted the affirmative defense of

accord and satisfaction based on Respondent's acceptance of the 12 payments of $1,000.

The case was tried to the trial court, which ruled in Respondent's favor. The trial

court determined a Company member had two sets of interests: (1) participation rights

and (2) distribution rights. The trial court found the 12 payments of $1,000 following

Respondent's expulsion were payments for "participation rights" under section 7.4(A) of

the operating agreement and were not intended to compensate the member for his

distribution rights. The trial court found Appellants' testimony about the intent of

section 7.4(A) of the operating agreement to be not credible. The trial court also

determined the expulsion of Respondent was a "Dissociation Event" described in Article

VIII of the operating agreement. Further, since Appellants did not purchase

Respondent's member's interest, the trial court found Respondent retained the interest

and was entitled to distributions from the Company in the amount of $4,500 per month

for 23 months following his expulsion, totaling the sum of $103,500. The trial court

further found Respondent's expulsion constituted a dissociation event triggering a "Buy-

out Default" under section 8.3(A) of the operating agreement and awarded Respondent

damages for breach of contract in the amount of $300,000 (1/3 of $900,000, which the

1 The letter also advised that Respondent would receive a portion of a recent member's distribution upon the return of a Company vehicle. 2 Respondent's petition stated claims for: declaratory judgment declaring a right to withdrawal (Count 1);

breach of the operating agreement (Count 2); breach of the duty of good faith and fair dealing (Count 3); breach of fiduciary duties (Count 4); and conversion (Count 5). Counts 4 and 5 sought actual and punitive damages.

3 trial court found to be the "value" of the Company). The trial court determined

Appellants breached a fiduciary duty owed to Respondent and awarded punitive

damages in the amount of $25,000. Respondent was also awarded attorney's fees in the

amount of $44,000. This appeal follows.

Points 1, 2, and 5

Because our analysis of points 1, 2, and 5 rely on the same principles of law, we

address them together. In point 1, Appellants argue the trial court erred in determining

Respondent was entitled to compensation "not specifically provided for within section

7.4(A) because the operating agreement . . . did not provide for payments to be made to

an expelled member other than the $1,000.00 payments for a period of twelve (12)

weeks." Appellants' point 5 follows the same logic as point 1, arguing the operating

agreement did not entitle an expelled member to distributions after the date of his

expulsion. In point 2, Appellants argue the trial court erred in determining the

operating agreement provided members with two types of property interests,

"participation rights" and "distribution rights." Each of these points assume that

Section 7.4(A) limits compensation to a member expelled without cause to 12 payments

of $1,000 and that a member becomes divested of his member's interest upon

expulsion.

Standard of Review

We will affirm the trial court's judgment unless there is no substantial evidence to

support it, it is against the weight of the evidence, or it erroneously declares or applies

the law. Nicolazzi v. Bone, 564 S.W.3d 364, 370 (Mo. App. E.D. 2018). The

interpretation of an LLC's operating agreement is a question of law, which we review de

novo. CB3 Enters. LLC v. Damas, 415 S.W.3d 163, 166 (Mo. App. W.D. 2013).

4 Discussion

Appellants argue that Section 7.4(A) limits compensation to a member expelled

without cause to 12 payments of $1,000. The trial court, in rejecting Appellants'

argument, determined that the 12 payments referenced in Section 7.4(A) were intended

as compensation for the loss of Respondent's right to participate in the management of

the Company but did not extinguish his rights to distributions. Whether this

determination was in error turns on the effect expulsion without cause has on a

member's rights to distributions under the operating agreement.

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Bluebook (online)
STEVEN CHADWICK v. ROBERT HUNTOON and GEORGE SWEARENGIN, Counsel Stack Legal Research, https://law.counselstack.com/opinion/steven-chadwick-v-robert-huntoon-and-george-swearengin-moctapp-2021.