Kearns & Associates Company et al v. Carter et al

Filing 50

RULING denying 32 Motion for Partial Summary Judgment; granting in part and denying in part 37 Motion for Partial Summary Judgment.. Signed by Magistrate Judge Stephen C. Riedlinger on 11/2/2011. (CMM)

UNITED STATES DISTRICT COURT
MIDDLE DISTRICT OF LOUISIANA

KEARNS & ASSOCIATES COMPANY, ET
AL.

CIVIL ACTION

VERSUS

NUMBER 10-439-SCR

RICKY S. CARTER, ET AL
RULING ON MOTIONS FOR PARTIAL SUMMARY JUDGMENT
Before the court is a Motion for Partial Summary Judgment
filed by the defendant Ricky S. Carter. Record document number 32.
Also before the court is the Plaintiff’s Motion for Partial Summary
Judgment filed by plaintiff Kearns & Associates Company d/b/a Steam
& Process Repairs.

Record document number 37.

Both motions are

opposed.1
Background
Plaintiffs Kearns & Associates Company d/b/a Steam & Process
Repairs (“Steam”) and S&P Specialties Company, L.L.C. (“S&P”) filed
this action against defendants Ricky S. Carter and Ricky Carter &
Associates, Inc. (“RCA”) seeking damages resulting from an alleged
breach of contract and fiduciary duty.

Plaintiffs alleged that

Steam entered into an agreement with Carter to form S&P, a company
that marketed and sold a product called Novalar.
chief

executive

officer

and

managing

member

Carter was the
of

S&P

responsible for the day to day operations.

1

Record document numbers 36 and 44, respectively.

and

was

Plaintiffs alleged that in June 2009 Carter, through RCA,
transferred control of sales of Novalar from S&P to RCA and then
sold the product directly through his own company.

Plaintiffs

alleged that RCA sold Novalar to S&P at a significant mark-up
rather than purchasing the product for S&P directly from the
manufacturer.

Plaintiffs also alleged that Carter fraudulently

registered the Novalar trademark under his own name rather than in
the name of S&P.

Plaintiffs alleged that Carter engaged in other

acts of self-dealing including: (1) unilaterally raising his salary
without Steam’s approval; (2) electing to lease equipment from his
own separate company, RCA, to the financial disadvantage of S&P and
without full disclosure and consent from the plaintiffs; and, (3)
allowing

S&P

to

pay

rent

that

was

clearly

in

excess

of

then-existing market rates.
Defendant Carter filed a counterclaim against the plaintiffs
which alleged that the plaintiffs wrongfully and unilaterally
ousted Carter from his manager position at S&P and terminated his
employment agreement with S&P without cause.

Carter sought the

following: (1) a declaratory judgment that Carter owns the Novalar
trademark and the product formulas; (2) specific performance and
damages arising from the breach by Steam of the Agreement to Buy
and Sell Agreement Membership Interests in S&P Specialties Company,
L.L.C. (hereafter, “Buy-Sell Agreement”) ; (3) damages for unpaid
profit distributions; (4) a declaratory judgment that S&P owes

2

Carter certain profits; (5) a declaratory judgment that Steam’s
purported removal of Carter as the managing member of S&P was
unlawful; (6) damages for failure to make 401(k) contributions; (7)
damages for Carter being required to perform manual labor beyond
the scope of his Employment Agreement; (8) damages for unlawful
attempts to change the management and ownership of S&P; and, (9) a
declaratory

judgment

that

S&P

terminated

Carter’s

Employment

Agreement without cause.2
Under

to

the

terms

of

the

Operating

Agreement

of

S&P

Specialities Company, L.L.C. (hereafter, “Operating Agreement”)
executed by parties, “[u]pon withdrawal [of a member of S&P], the
withdrawing Member shall be entitled to the fair market value of
his

pro

rata

membership

interest

in

the

LLC

which

shall

be

determined as set forth in Paragraph 4” of the Buy-Sell Agreement.3
Paragraph 4 of the Buy-Sell Agreement states as follows:
The parties have negotiated and agreed that the
value of S & P is the sum shown on the attached Exhibit
“A”. They shall annually redetermine the value and enter
the then current value on the attached Exhibit “A”, or a
substituted exhibit, which entry shall be valid only if

2

Record document number 24, Answer,
Crossclaims, ¶¶ 93 - (unnumbered) 105.
3

Counterclaims,

and

Record document number 32-2, Declaration of Ricky S. Carter,
attached exhibit 1, Operating Agreement of S & P Specialties
Company, L.L.C., ¶ 7.3.
The same agreement is found at record
document number 36-1, exhibit 1A.
The Buy-Sell Agreement uses the term “Section” when referring
to its provisions, but sometimes the parties use the term
“Paragraph.” This ruling uses the latter term except when quoting
the language of the agreement.
3

signed by the parties indicated by their assents and
dated.
The failure of the parties to amend the value, or to
negotiate therefor, shall not invalidate this Agreement
or cause its termination.
However, should they fail to
amend or expressly reconfirm the last value shown on
Exhibit “A” for twenty-four (24) months from the date of
the last valuation confirmed on Exhibit “A”, then the
values shall no longer be applicable to this Agreement,
and the value shall then be determined as follows, unless
otherwise unanimously agreed upon among the parties (or
their respective successors).
The buyer and seller shall each select a business
appraiser. The two (2) appraisers shall determine the
value, or should they fail to determine an agreed value
within thirty (30) days, they shall appoint a third
business appraiser to make the determination. The value
so determined shall be binding on the parties.[]4
Exhibit “A” was never completed by the parties.
subsequently
appraisal.

appointed

a

business

appraiser

who

Each party
prepared

an

Carter argued that Steam is obligated to purchase his

membership interest at 50% of the “value” of S&P., which he argued
means the fair market value.

In a footnote in his supporting

memorandum, Carter asserted the use of the term “Book Value” in
Exhibit “A” of the Buy-Sell Agreement was a mistake, and that the
value of S&P would either be a negotiated value or an appraised
value.5
Carter sought a summary judgment finding that the Steam is
obligated under the Buy-Sell Agreement to purchase his membership

4

Record document number 32-2, exhibit 2, Section 4, p. 7.
The same agreement is found at record document number 36-1, exhibit
1B.
5

Record document number 32-1,
4

interest for 50% of the value of S&P.

Steam argued that the

Carter’s breach of the Operating Agreement nullified the effects of
the Buy-Sell Agreement, including the mandatory sale provision.
With respect to determining the value the Carter’s interest in S&P,
the Steam argued that a plain reading of the Buy-Sell Agreement
shows that Carter is only entitled to 50% of the book value S&P,
which is determined by Exhibit “A” attached to the agreement.

In

the alternative, the plaintiff argued that the fair market value of
the Carter’s membership rights in S&P is 33 1/3% of its value
because he is entitled to only 1/3 of the company’s distributions.
Applicable Law
Summary judgment is only proper when the moving party, in a
properly supported motion, demonstrates that there is no genuine
issue of material fact and that the party is entitled to judgment
as a matter of law.

Rule 56(a), Fed.R.Civ.P.; Anderson v. Liberty

Lobby, Inc., 477 U.S. 242, 247, 106 S.Ct. 2505, 2510 (1986).

If

the moving party carries its burden under Rule 56(c), the opposing
party must direct the court’s attention to specific evidence in the
record which demonstrates that it can satisfy a reasonable jury
that it is entitled to verdict in its favor.
252, 106 S.Ct. at 2512.
metaphysical

doubt

as

Anderson, 477 U.S. at

This burden is not satisfied by some
to

the

material

facts,

conclusory

allegations, unsubstantiated assertions or only a scintilla of
evidence.

Little v. Liquid Air Corp., 37 F.3d 1069, 1075 (5th Cir.
5

1994).

In resolving the motion the court must review all the

evidence and the record taken as a whole in the light most
favorable to the party opposing the motion, and draw all reasonable
inferences in that party’s favor.
S.Ct. at 2513.

Anderson, 477 U.S. at 255, 106

The court may not make credibility findings, weigh

the evidence or resolve factual disputes.

Id.; International

Shortstop, Inc. v. Rally’s, Inc., 939 F.2d 1257, 1263 (5th Cir.
1991), cert. denied, 502 U.S. 1059, 112 S. Ct. 936 (1992).
The

substantive

law

dictates

which

facts

are

material.

Littlefield v. Forney Independent School Dist., 268 F.3d 275, 282
(5th Cir. 2001).

In this case the parties’ Buy-Sell Agreement is

controlled by Louisiana contract law.

Initially the court is

required to decide whether the meaning of the plain text of the
contract is clear and unambiguous.

American Electric Power Co.

Inc. v. Affiliated FM INS. Co., 556 F.3d 282, 287 (5th Cir. 2009).
“Under Louisiana law, the interpretation of an unambiguous contract
is an issue of law for the court.”
Inc.,

Apache Corp. v. W & T Offshore,

626 F.3d 789, 794, (5th Cir. 2010), citing, Amoco Prod. Co.

v. Tex. Meridian Res. Exploration Inc., 180 F.3d 664, 668 (5th Cir.
1999).
The interpretation of a contract is based on the common intent
of the parties.

LSA-C.C. art. 2045.

The intent of an unambiguous

contract may evaluated from the face of the document, without
considering extrinsic evidence.
6

Preston Law Firm, L.L.C. v.

Mariner Health Care Management Co., 622 F.3d 384, 392 (5th Cir.
2010), citing, In re Liljeberg Enters., Inc.,304 F.3d 410, 439-40
(5th Cir. 2002).

Words and phrases in a contract are to given

their plain, ordinary and generally prevailing meaning.

Sims v.

Mulhearn Funeral Home, Inc., 956 So.2d 583, 589 (La. 2007); LSAC.C. 2047.

“Each provision in a contract must be interpreted in

light of the other provisions so that each is given the meaning
suggested by the contract as a whole.”

LSA-C.C. art. 2050.

“When

the words of a contract are clear and explicit and lead to no
absurd consequences, no further interpretation may be made in
search of the parties' intent.”

LSA-C.C. art. 2046.

Analysis
Paragraph 3 of the Buy-Sell Agreement provides that in the
event of termination of Carter’s employment with S&P for any
reason, his membership interests in S&P must be purchased by the
other members at a value to be determined in accordance with “the
provisions of Section 4,” which then refers to the attached Exhibit
“A.” The Buy-Sell Agreement does not include the term “fair market
value.”

Although the Section 7.3 of Operating Agreement states

that a member withdrawing without just cause “shall be entitled to
the fair market value of his pro-rata membership interest in the
LLC which shall be determined as set forth in Paragraph 4” of the
Buy-Sell Agreement, this is not the situation presented in this
case. Carter did not “withdraw” from the S&P.

7

Even if Section 7.3

is relevant to the interpretation of the Buy-Sell Agreement, it
specifically

provides

that

the

“fair

market

value” is

determined by Paragraph 4 of the Buy-Sell Agreement.

to

be

Because

Paragraph 4 determines the meaning of “fair market value,” no other
definition is applicable.

Carter’s assertion that use of the term

“Book Value” in Exhibit “A” was a mistake is not supported by
either of his declarations or other summary judgment evidence.6
The parties were to initially and annually negotiate and agree
upon the value to use in Exhibit “A.”

It is undisputed that the

parties never completed Exhibit “A.” The Buy-Sell Agreement states
in Paragraph 4 that a failure to negotiate the values “shall not
invalidate this Agreement or cause its termination,” and provides
a solution in such circumstance by specifically stating:
... should they [the buyer and the seller] fail to amend
or expressly reconfirm the last value shown in Exhibit
“A”...then that value shall no longer be applicable to
this Agreement, and the value shall instead be determined
as follows...
The buyer and the seller shall each select a
business appraiser.
The two (2) appraisers shall
determine the value or, should they fail to determine an
agreed value within thirty (30) days, they shall appoint
a third business appraiser to make the determination.
The value so determined shall be binding upon the
parties.7
The term “value” used in Paragraph 4 unambiguously means the

6

Carter’s second declaration was filed with his memorandum in
opposition to the plaintiff’s Motion for Partial Summary Judgment.
Record document number 44-2.
7

Buy-Sell Agreement, Paragraph 4, p. 7 (emphasis added).
8

numerical value from Exhibit “A.”

The numerical value to be used

in Exhibit “A” is the “Book Value of S&P.”

Therefore, the parties

intended to used the Book Value to determine the value of the
parties’ membership interests in S&P.

Because the record does not

contain any evidence indicating that the calculation method set
forth in Exhibit “A” was revoked, the Book Value must be used by
the appointed appraisers to determine the “value” for the purpose
of Buy-Sell Agreement.
Carter’s argument that the term “value” in Paragraph 4 should
be interpreted as the appraised value, because it was to be
determined by appraisers, is unpersuasive. The word “value,” which
specifically refers to the numerical value to be entered in Exhibit
“A,” was not amended or distinguished from its initial meaning at
any later point in the Buy-Sell Agreement.8
Steam’s argument that the mandatory purchase requirement of
Buy-Sell Agreement is invalidated by the Carter’s breach of the
Operating

Agreement

is

unpersuasive.

The

conflicting

facts

contained in Carter’s declarations9 and Lori Kneepel’s declaration10

8

Because the Buy-Sell Agreement, as interpreted herein,
provides for a purchase price of the Carter’s membership interests
at 50% of the Book Value of S&P, it is not necessary to address the
plaintiffs’ alternative argument that the fair market value of the
Carter’s membership interest in S&P is 33 1/3 % of its value.
9

Record document numbers 32-2 and 44-2.

10

Record document number 38, Exhibit 1, Declaration of Lori
Kneepel.
9

demonstrate the existence of genuine issues of material fact
concerning the Carter’s alleged breach of contract and fiduciary
duties.
Steam has also failed to demonstrate that a breach of the
Operating

Agreement

Agreement.

would

have

any

effect

on

the

Buy-Sell

The mandatory sale provision is found exclusively

Paragraph 3 of the Buy-Sell Agreement and specifically states:
In the event of the termination of Carter’s employment
with S & P (for any reason), Carter [] shall sell and the
other member(s) shall [] buy, all of Carter’s membership
interest, as described below.11
Steam has not cited legal authority which supports it argument
that a breach of the Operating Agreement permits nonperformance of
the Buy-Sell Agreement.

While the agreements reference each other

in certain sections,12 the agreements are independent and there is
no language in either the Operating Agreement or the Buy-Sell
Agreement that indicates a breach of one would invalidate the
other.

In

fact,

the

Buy-Sell

Agreement

contains

a

specific

provision providing exclusive terms for its termination, and does
not provide for termination upon breach of the Operating Agreement

11

Buy-Sell Agreement, Paragraph 3, p. 4.

12

As discussed above, while the Operating Agreement contains
a provision for purchase of membership interests upon voluntary
withdrawal of a member without just cause and reference Paragraph
4 of the Buy-Sell Agreement, this clause has no effect on the BuySell Agreement’s mandatory sale provision.
10

or fiduciary duties.13
For these reasons, the court finds that the Buy-Sell Agreement
requires plaintiff Kearns & Associates Company d/b/a Steam &
Process Repairs to purchase defendant Carter’s membership interests
in S&P at 50% of its Book Value.
Conclusion
Accordingly, the Motion for Partial Summary Judgment filed by
the defendant Ricky S. Carter is denied.

Plaintiff’s Motion for

Partial Summary Judgment is granted in part and denied in part.
The court finds that the Buy-Sell Agreement requires plaintiff
Kearns & Associates Company d/b/a Steam & Process Repairs to
purchase defendant Carter’s membership interests in S&P at 50% of
its Book Value, as established by the parties’ appointed appraisers
or by the third appraiser appointed by them should they fail to
agree on the Book Value.

In all other respects, the plaintiff’s

motion is denied.
Baton Rouge, Louisiana, November 2, 2011.

STEPHEN C. RIEDLINGER
UNITED STATES MAGISTRATE JUDGE

13

Buy-Sell Agreement, Paragraph 8, p. 9.
11