Weiner v. Naegele
Filing
41
ORDER granting in part 29 Motion for Summary Judgment (Written Opinion). Signed by Senior Judge David S. Doty on 7/16/2012. (PJM)
UNITED STATES DISTRICT COURT
DISTRICT OF MINNESOTA
Civil No. 11-855(DSD/AJB)
Bruce Weiner,
Plaintiff,
ORDER
v.
Robert O. Naegele, III,
Defendant.
Melissa M. Weldon, Esq., David M. Wilk, Esq. and Larson
King, LLP, 30 East Seventh Street, Suite 2800, St. Paul,
MN 55101, counsel for plaintiff.
Norman J. Baer, Esq., Steven C. Kerbaugh, Esq. and
Anthony, Ostlund, Baer & Louwagie P.A., 90 South Seventh
Street, Suite 3600, Minneapolis, MN 55402, counsel for
defendant.
This matter is before the court upon the motion for summary
judgment by defendant.
Based on a review of the file, record and
proceedings herein, and for the following reasons, the court grants
the motion in part.
BACKGROUND
This business dispute arises out of investments made by
plaintiff Bruce Weiner and defendant Robert O. Naegele, III.
In
2008, Naegele approached Weiner to invest in luxury real estate
being developed by nonparties John Niemi, Loren Gerch and Robert
Verratti
(the
Developers)
Breckenridge Project).
in
Breckenridge,
Colorado
(the
The Breckenridge Project consisted of two
high-end housing developments, one located on a private gondola
stop and the other near the Blue River.
At some point in 2008, Naegele approached Weiner about the
Breckenridge Project.
Over the next several months, Weiner and
Naegele considered investing in the developments. Weiner met Niemi
at the site in December 2008, and discussed the project with
Naegele; Niemi; Naegele’s attorney, Brian Schoenborn; and Naegele’s
adviser, Arnold Abens, Jr. Weiner Dep. 56:14–25. Weiner also used
a consultant, James Crisanti, to conduct due diligence.
Id. at
27:7–11.
When asked about previous dealings, Naegele told Weiner
that
had
he
been
“involved
with
a
successful
real
estate
development in Eagle[, Colorado] with John Niemi, [his] longtime
friend.” Naegele Dep. 89:2–4.
Naegele did not tell Weiner that he
had ongoing transactions with the Developers.
Naegele initially suggested that Weiner purchase equity in the
project.
Weiner declined and offered to loan money to Naegele to
purchase equity.
Weiner Dep. 61:9–15, 19–21.
Naegele declined,
and discussions continued. Weiner testified that a conversation on
February 22, 2009, occurred “after we kind of decided to make the
investment.”
Id. at 181:22–182:7.
However, on March 11, 2009,
Crisanti sent an email to Naegele stating that he and Weiner “can’t
get comfortable” because “the uncertain state of the mezz[anine]
2
debt gives us pause.”
Weldon Aff. Ex. 43.1
Ultimately Weiner and
Naegele decided to purchase an existing mezzanine loan.2
To facilitate the investments, Weiner and Naegele used a law
firm from Minnesota (Minnesota counsel) that Naegele said had “been
involved from the start here and understand[s] the project, the
deal and our security needs.”
See Kerbaugh Aff. Ex. 16, at 120.
Naegele’s family had used the firm before and kept one of its
attorneys,
Schoenborn,
on
a
monthly
retainer.
Id.
Weiner
requested a budget and a not-to-exceed number from Minnesota
counsel.
Weldon Aff. Ex. 72, at 8159.
The parties and Minnesota
counsel agreed to a not-to-exceed figure of $50,000.
Id. at 8158.
On March 23, 2009, Minnesota counsel organized Breckenridge
Investors LLC (Breckenridge Investors) as a Minnesota limitedliability company.
Id. Ex. 44.
Weiner and Naegele are the only
members, and each has a fifty-percent governance right and voting
interest.
Id. Ex. 45, at 618, 622–23, 628.
Weiner has a two-
thirds share and Naegele has a one-third share of the membership
interests and financial rights.
Id. at 628.
1
Counsel for Weiner and Naegele state that they attached true
and correct copies of various documents to their respective
affidavits. Other than depositions they attended, it appears that
counsel have no basis from personal knowledge to make such an
affirmation. See Fed. R. Civ. P. 56(c)(4). The parties do not
challenge the authenticity or admissibility of the exhibits, and
the court accepts them for purposes of this motion.
2
Mezzanine refers to the subordinate position of the debt or
loan.
3
A board of governors composed of Weiner and Naegele governs
Breckenridge Investors.
Id. at 622–23.
All major decisions must
be made by a majority of the voting interest.
A single member does
not “have authority to act on behalf of the Company or bind the
Company with respect to any matter within the scope of” a major
decision.
Id. at 623 (§ 5.3).
“Making any expenditure in an
aggregate amount of more than $1,000” is a major decision.
Id.
Naegele is the chief manager, chief executive officer and
chief financial officer/treasurer, president and secretary.
Id.
The member-control agreement states: “Neither the Company nor any
Member shall have any claim against any Manager based upon or
arising out of any act or omission made by such Manager in good
faith, provided such Manager was not grossly negligent or guilty of
willful misconduct.”
Id. at 624 (§ 6.6).
On March 30, 2009, Breckenridge Investors formed Summit SH
Holdings, LLC (Summit Holdings).
Summit Holdings is a Delaware
limited-liability
sole
Investors.
company
whose
member
is
Breckenridge
On April 2, 2009, Summit Holdings purchased a $6.2
million mezzanine loan to the Breckenridge Project for $3 million
from Merchants Mortgage & Trust Corporation (Merchants).
50.
Id. Ex.
Weiner contributed $2 million and Naegele contributed $1
million.
The Merchants loan was subordinate to senior lender JP
Morgan and was secured by personal guarantees by Niemi, Verratti,
4
Gerch and Mesatex LLC (Mesatex).3
Id. Ex. 47, at 557 (§ 1.1(h)).
As further security, Weiner and Niemi agreed that Weiner and
Naegele could take over the project if the Developers failed.
Id.
Ex. 48, at 94.
Weiner and Naegele also agreed to provide direct capital to
Mesatex
through
Breckenridge
Investors.
On
March
30,
2009,
Breckenridge loaned $500,000 to Mesatex, with the loan personally
guaranteed by Niemi and his wife.
Id. Exs. 52, 53.
Niemi and his
wife agreed to provide personal financial statements at the end of
each calendar year.
Id. Ex. 53, at 673 (§ 5.01(b)(iii)).
agreed to
reasonable legal
pay
transaction.
all
Id. at 677 (§ 7.02).
fees
associated
Mesatex
with the
As with the Summit Holdings
investment, Weiner contributed two-thirds of the loan and Naegele
contributed one-third of the loan.
In June 2009, Mesatex and
Breckenridge Investors agreed to increase the loan to $1 million.
The Breckenridge Project failed. Indeed, as early as April 2,
2009,
Minnesota
counsel
told
Weiner
and
Naegele
that
the
Breckenridge project “is in significant trouble” and that “Niemi is
scrambling to keep the creditors back.”
5438.
Kerbaugh Aff. Ex. 20, at
Breckenridge Investors and Summit Holdings entered into
forbearance
agreements
in
July
3
and
December
2009.
Weiner
Mesatex is the entity that owned AZCO and AZCO II, entities
that owned the Breckenridge Project real estate. Mesatex was owned
by Veretti, Gerch and Niemi, along with other unidentified
investors. Niemi Dep. 7:8–8:19.
5
encouraged Breckenridge Investors to remove the Developers and take
over the project.
Naegele refused.
Instead, he worked with the
Developers to pursue additional capital (the Prosperity Option).
Weiner
did
101:20–25.
not
support
the
Prosperity
Option.
Weiner
Dep.
The Prosperity Option also failed.
In September 2010, Breckenridge Investors and Summit Holdings
issued
notices
of
default.
Weiner
wanted
to
enforce
the
guarantees, but Naegele refused, saying that the guarantors had no
money and that if Breckenridge Investors and Summit Holdings
enforced the guarantees, the guarantors would declare bankruptcy
and file counterclaims against Weiner and Naegele.
Breckenridge
Investors and Summit Holdings then hired independent counsel in
Colorado (Colorado counsel). Colorado counsel advised Breckenridge
Investors and Summit Holdings to file a complaint against the
guarantors.
Weldon Aff. Ex. 65, at 198.
Colorado counsel also
advised that Weiner and Naegele would prevail against potential
counterclaims by the guarantors.
Id. Ex. 71, at 201.
Naegele did
not agree to enforce the guarantees and did not file suit.
Meanwhile, in October 2009, when the legal fees reached
$147,678, Schoenborn demanded that Weiner and Naegele pay the full
amount and seek reimbursement from the Developers.
Id. Ex. 73, at
244. On October 29, 2009, Weiner agreed to pay $55,000 and Naegele
paid $65,000 to Minnesota counsel, with the remainder, including
future services, to be paid by the Developers.
6
Id. Ex. 77, at 291.
Naegele then confirmed that he would “not pursue Bruce [Weiner] and
Longboat4 in the event that [Schoenborn] pursues me for outstanding
legal fees owed related to the Breckenridge transactions.” Id. Ex.
78, at 299.
After filing the present action, Weiner learned that Naegele
misrepresented — and failed to disclose — the extent of his
financial connections to the Developers.
several ongoing projects.
Naegele in fact had
One, named Aidan’s Meadow,5 was funded
by Niemi, Gerch and an entity called Vail Valley Ventures, which
included as members Naegele, Abens and Schoenborn.
90:3–6.
Naegele
contributed $100,000
in capital
Naegele Dep.
and
gave
a
$500,000 guarantee, which remained active at the time of the events
that led to the present action.
See id. at 91:20–92:10; Weldon
Aff. Ex. 58, at 13 (as of 2009, “very little debt” remained
outstanding).
Niemi, Abens and Schoenborn also executed personal
guarantees related to the Aidan’s Meadow project.
See Weldon Aff.
Ex. 59, at 11,260.
The Aidan’s Meadow guarantors had a duty to notify their
lender of “any material adverse change in the business, property,
assets, operations or condition, financial or otherwise ... of any
Guarantor” and a declaration of bankruptcy or insolvency by any
4
Longboat is an investment company controlled by Weiner.
Weiner Dep. 10:24–11:2.
5
The Aidan’s Meadow project appears also to be called Aidan’s
Ranch.
7
guarantor operated as an event of default on the loan.
at 11,275, 11,281.
Id. Ex. 59,
Naegele and Schoenborn each had a 12.5%
interest in Aidan’s Meadow, and it appears each made $83,750 in
profits from their investments.
Schoenborn
both
advised
Id. Ex. 68, at 9934.
Naegele
throughout
the
Abens and
Breckenridge
Project.
Naegele was also working with Niemi, Gerch and Verratti on a
project in Silt, Colorado through an entity called 8 Angels.
Naegele made a personal investment of approximately $75,000, and
gave a personal guarantee of $320,000 for a loan to 8 Angels.
Ex. 60, at 9427.
Id.
Naegele’s guarantee remained active at the time
of the events that led to the present action.
Niemi invested
$225,000 with an unlimited personal guarantee; Gerch also gave an
unlimited personal guarantee.
The insolvency or bankruptcy of any
party to the 8 Angels loan acted as an event of default.
61, at 10,318.
Id. Ex.
Naegele did not disclose the Aidan’s Meadow or 8
Angels guarantees or transactions to Weiner because he thought it
was not “any of his business.”
Naegele Dep. 112:5–25.
On April 7, 2011, Weiner filed the present action, claiming
breach of contract and breach of fiduciary duty. Weiner also seeks
a declaration of his rights under the Breckenridge Investors
member-control agreement.
Naegele filed a counterclaim of breach
of contract and a request for equitable relief under Minnesota
Statutes § 322B.833.
Naegele further seeks a declaration that
8
Weiner
is
liable
for
his
share
of
Breckenridge
Investors’s
outstanding legal bills. Naegele moves for summary judgment on all
claims and counterclaims.
DISCUSSION
“The court shall grant summary judgment if the movant shows
that there is no genuine dispute as to any material fact and the
movant is entitled to judgment as a matter of law.”
P. 56(a).
Fed. R. Civ.
A fact is material only when its resolution affects the
outcome of the case.
242, 248 (1986).
Anderson v. Liberty Lobby, Inc., 477 U.S.
A dispute is genuine if the evidence is such that
it could cause a reasonable jury to return a verdict for either
party.
See id. at 252.
The court views all evidence and inferences in a light most
favorable to the nonmoving party.
See id. at 255.
The nonmoving
party must set forth specific facts sufficient to raise a genuine
issue for trial; that is, the nonmoving party “must do more than
simply show that there is some metaphysical doubt as to the
material facts.”
Reeves v. Sanderson Plumbing Prods., Inc., 530
U.S. 133, 150 (2000); see Anderson, 477 U.S. at 249–50; Celotex v.
Catrett, 477 U.S. 317, 324 (1986). Moreover, if a plaintiff cannot
support each essential element of his claim, the court must grant
9
summary judgment, because a complete failure of proof regarding an
essential element necessarily renders all other facts immaterial.
Celotex, 477 U.S. at 322-23.
I.
Weiner’s Claims
A.
Summit Holdings
Although Weiner’s opposition brief suggests claims arising out
of Summit Holdings, the complaint contains no such claims.
Compl. ¶¶ 34–53.
briefs.
See
A plaintiff may not amend a complaint through
See Morgan Distrib. Co., Inc. v. Unidynamic Corp., 868
F.2d 992, 995-96 (8th Cir. 1989).
Therefore, to the extent that
Weiner now attempts to bring claims as to Summit Holdings, they are
not properly before the court.
Even if Weiner had pleaded claims related to Summit Holdings,
a cause of action belonging to a limited-liability company may only
be brought by the company or as a derivative action6 by a member.
See Popp Telecom, Inc. v. Am. Sharecom, Inc., 361 F.3d 482, 492
(8th Cir. 2004).
In the present action, Naegele’s acts allegedly
6
The claim is derivative where the injury is to the limitedliability company and indirectly to a member. Wessin v. Archives
Corp., 592 N.W.2d 460, 464 (Minn. 1999) (addressing direct and
derivative claims in corporation context). The result is the same
under Delaware law. To bring a direct action, the “claimed direct
injury must be independent of any alleged injury to the
corporation.” Tooley v. Donaldson, Lufkin & Jenrette, Inc., 845
A.2d 1031, 1039 (Del. Super. Ct. 2004). That is, the individual
“must demonstrate that the duty breached was owed to the
stockholder and that he or she can prevail without showing an
injury to the corporation.” Id. The present action is derivative.
The injuries claimed by Weiner are also injuries to Summit
Holdings.
10
injured
Summit
Holdings
and
indirectly
injured
Breckenridge
Investors. Weiner is not a member of Summit Holdings; Breckenridge
Investors is its only member. Breckenridge Investors did not bring
a derivative action.
Therefore, Weiner lacks standing to assert
claims on behalf of Summit Holdings, and for this additional
reason, these claims are not properly before the court.
B.
Breckenridge Investors
1.
To
Breach of Fiduciary Duty
prevail
on
a
claim
for
breach
of
fiduciary
duty,
a
plaintiff must prove the existence of a fiduciary duty, breach of
that duty, damages and proximate causation.
See State Farm Fire &
Cas. v. Aquila Inc., 718 N.W.2d 879, 887 (Minn. 2006) (elements of
negligence claim); Padco, Inc. v. Kinney & Lange, 444 N.W.2d 889,
891 (Minn. Ct. App. 1989) (negligence and breach of fiduciary duty
claims use same elements).
analogous to partners.
Members of a closely held company are
See Pedro v. Pedro, 489 N.W.2d 798, 801
(Minn. Ct. App. 1992) (citing Westland Capital Corp. v. Lucht Eng’g
Inc., 308 N.W.2d 709, 712 (Minn. 1981) (describing closely held
corporation as “partnership in corporate guise”)).7
the
managers
fiduciary
and
members
relationship
of
that
a
closely
imposes
7
the
held
As a result,
company
highest
“have
standard
a
of
Chapter 322B of Minnesota Statutes codifies limitedliability companies. The Reporter’s Notes to Chapter 322B state
that “the case law and Reporter’s Notes of chapter 302A [Minnesota
Business Corporation Act] should be used to interpret and apply”
Chapter 322B.
11
integrity and good faith.”
Wenzel v. Mathies, 542 N.W.2d 634, 641
(Minn. Ct. App. 1996) (analyzing closely held corporation); see
Minn. Stat. § 322B.833, subdiv. 4 (“[T]he court shall take into
consideration the duty that all members in a closely held limited
liability company owe one another to act in an honest, fair, and
reasonable manner in the operation of the limited liability company
....”).
Whether a member has breached a fiduciary duty to another
member is generally a question of fact.
See Berreman v. W. Publ’g
Co., 615, N.W.2d 362, 367 (Minn. Ct. App. 2000).
In the present
action, Weiner claims that Naegele breached the duty of full
disclosure by failing to disclose conflicting financial ties with
the Developers and breached the duty of loyalty by failing to
enforce the Breckenridge Investors loan guarantees.
a.
Duty to Disclose
In Minnesota “[t]he general rule is that one party to a
transaction has no duty to disclose material facts to the other”
unless
a
fiduciary
relationship
exists
between
the
parties.
Children’s Broad. Corp. v. Walt Disney Co., 245 F.3d 1008, 1021
(8th Cir. 2001) (quoting L & H Airco, Inc. v. Rapistan Corp., 446
N.W.2d 372, 380 (Minn. 1989)).
Parties dealing at arm’s length do
not have a fiduciary relationship.
N.W.2d 86, 91 (1954).
limited-liability
Shema v. Thorpe Bros., 62
In contrast, members of a closely held
company
have
12
a
duty
to
disclose
material
information about the company.
See Berreman, 615 N.W.2d at 371
(“[T]he fiduciary duties of shareholders in a close corporation
include
the
duty
to
disclose
material
information
about
the
corporation.”).
Naegele first argues that he had no duty to disclose his
ongoing dealings with the Developers, because Weiner decided to
invest before Breckenridge Investors formed.
In support, Naegele
cites Weiner’s testimony that a conversation on February 22, 2009,
occurred “after we kind of decided to make the investment.” Weiner
Dep. 181:22–182:7. Weiner responds that he decided to invest after
Breckenridge Investors formed.
In support, Weiner cites the March
11, 2009, email from Crisanti to Naegele in which Crisanti states
that “the uncertain state of the mezz[anine] debt gives us pause.”
Weldon Aff. Ex. 43.
A
jury
represents
a
could
conclude
decision
that
not to
the
invest
discussion about the investment.
13
March
or
11,
merely
2009,
email
shows ongoing
As a result, a dispute remains
over the timing of Weiner’s decision.8
A reasonable jury could
find in favor of either party as to the timing of the decision,9
and therefore, Naegele’s argument fails.
Naegele next argues that even if a fiduciary relationship
existed, he did not breach the duty of disclosure because none of
the information he withheld was material.
Specifically, Naegele
argues that his investments in Aidan’s Meadow and 8 Angels had no
connection to the Breckenridge Project, because the entities set up
to borrow and develop those projects were different from the
entities involved in the Breckenridge Project. See Naegele Aff. ¶¶
4–8, ECF No 26.
Facts are material if there is “a substantial likelihood that
the disclosure of the omitted fact would have been viewed by the
reasonable investor as having significantly altered the ‘total mix’
of information made available.”
Berreman, 615 N.W.2d at 371
(adopting probability-magnitude test from Basic, Inc. v. Levinson,
8
Weiner does not argue that a partnership formed — and
fiduciary duties attached — before he and Naegele organized
Breckenridge Investors.
Cf. Minn. Stat. § 323A.0202 (“[T]he
association of two or more persons to carry on as co-owners a
business for profit forms a partnership, whether or not the persons
intend to form a partnership.”).
9
The court notes that once Breckenridge Investors formed,
Naegele owed fiduciary duties to Weiner, and Breckenridge Investors
did not invest in the Breckenridge Project for several days after
it was formed. See Weldon Aff. Ex. 52 (guarantee from John and
Suzanne Niemi to Breckenridge Investors dated March 31, 2009).
During that period, the duties of disclosure, loyalty and good
faith attached.
14
485 U.S. 224, 231 (1988)).
The record contains evidence that the
guarantors of the other projects were intimately involved in the
Breckenridge Project as developer, guarantor, investor, attorney
and adviser. Guarantees in the other projects contained provisions
that could have led to loan defaults if Breckenridge Investors had
enforced the Niemi guarantees.
A declaration of bankruptcy by
Niemi would allow the lender to call the loan and trigger the
guarantees of Naegele, Abens and Schoenborn.
This information is
relevant to the value of the Niemi guarantees.
Moreover, the
record supports a finding that the nature and extent of Naegele’s
dealings with Niemi were important to Weiner in making his decision
to invest.
See Abens Aff. 39:3–5 (“[I]t was a big deal to Bruce
[Weiner] to know who John Niemi was and what we’ve done in the past
with him, how its [sic] turned out.”). The record further supports
a finding that Weiner required the Niemi guarantees.
Dep. 138:1–3.
See Naegele
As a result, a reasonable jury could find for either
party, and therefore the argument fails.
Naegele next argues that even if he breached the duty of
disclosure as to material information, the Breckenridge Investors
member-control agreement absolves him of liability unless he failed
to act in good faith or was grossly negligent or guilty of willful
misconduct.10
See Weldon Aff. Ex. 45, § 6.6.
10
Good faith in this
The parties do not address whether this provision of the
member-control agreement defines the elements of claim or the
(continued...)
15
context means dealing “openly, honestly and fairly” with other
members.
See Pedro, 489 N.W.2d at 801.
facts may constitute fraud.
Silence as to material
Appletree Square I Ltd. P’ship v.
Investmark, Inc., 494 N.W.2d 889, 892 (Minn. Ct. App. 1993).
The present record contains facts from which a reasonable jury
could conclude that Naegele did not act honestly and openly when he
failed to disclose his relationships and financial ties to the
Developers.
As a result, the record supports a finding that
Naegele failed to act in good faith, and this argument fails.
Naegele also argues that Weiner cannot show causation for the
loss.
In support, Naegele points to Weiner’s testimony that
Naegele’s personal guarantees of other projects “didn’t result in
the failure of the Breckenridge Project.”
Weiner Dep. 217:12–17.
But the question of causation is not whether Naegele’s deception
caused the Breckenridge Project to fail, it is whether it caused
Weiner to invest.
A reasonable jury could find that Naegele’s
breach caused Weiner to invest — or to structure his investment —
to a degree or in a manner that he would not have with proper
disclosure. Therefore, Naegele is not entitled to summary judgment
as to the decision to invest.
10
(...continued)
requisites of a defense. The court need not resolve the question,
however, because the outcome is the same based on the present
record: neither party is entitled to summary judgment regardless of
the burden, because each has introduced sufficient evidence to
create a genuine dispute.
16
b.
Duty of Loyalty
Naegele argues that the member-control agreement also absolves
him
of
liability
guarantees.
for
his
decision
not
to
enforce
the
Niemi
Specifically, Naegele argues that he decided in good
faith not to enforce the guarantees, because the Developers were
without assets and legal action could cause the Developers to
assert
counterclaims
against
Weiner,
Naegele,
Breckenridge
Investors and Summit Holdings. See Naegele Dep. 145:13–14 (“I know
that their balance sheets are pretty — pretty pathetic.”).
Weiner
responds that the decision not to act was motivated by self
interest created by Naegele’s other financial relationships with
the Developers.
Weiner also
argues
that
the
Developers
had
substantial assets in the Aidan’s Meadow and 8 Angels entities, and
that Naegele knew about those assets because he too had financial
interests in those projects.
See Weldon Aff. Exs. 66, 69; Niemi
Dep. 44:16–25; Abens Dep. 52:8–10.
As a result, a genuine dispute
remains as to the Developers’s assets.
Moreover, the record contains evidence that Colorado counsel,
who had no conflicting financial interest in the other projects,
advised Breckenridge Investors to enforce the guarantees, and found
the fear of counterclaims to be unfounded.
Given the evidence in
the record, a genuine dispute remains about whether Naegele acted
openly and honestly in good faith.
for either party.
17
A reasonable jury could find
Summary judgment is warranted, however, even if Naegele failed
to act in good faith.
To prove a breach of fiduciary duty that
does not involve a transaction with the company, a member “must
allege facts which show that the action attacked is so far opposed
to the true interests of the corporation as to lead to the clear
inference that no officer thus acting could have been influenced by
an honest desire to secure such interests.”
N.W.2d 56, 59 (Minn. 1982).
Westgor v. Grimm,
318
The question of whether to pursue
legal action on behalf of a company “is, like other business
questions, ordinarily a matter of internal management and is left
to the discretion of the directors.” Id. at 59 (citation omitted).
Weiner has not introduced evidence from which a reasonable jury
could find that no officer acting honestly would have acted as
Naegele did. Therefore, summary judgment is warranted as to breach
of the duty of loyalty claim based on failure to enforce the Niemi
guarantees.
2.
Breach of Contract
The court construes a member-control agreement to determine
and enforce the intent of the parties.
Cf. Valspar Refinish, Inc.
v. Gaylord’s, Inc., 764 N.W.2d 359, 364 (Minn. 2009); Senour Mfg.
Co. v. Church Paint & Mfg. Co., 84 N.W. 109, 110 (Minn. 1900)
(applying
rules
incorporation).
unambiguous
of
contract
construction
to
articles
of
When parties express their intent in plain,
terms,
the
language
18
governs
and
“there
is
no
opportunity for interpretation or construction.”
Carl Bolander &
Sons, Inc. v. United Stockyards Corp., 215 N.W.2d 473, 476 (Minn.
1974).
Weiner claims that Naegele breached section 5.3 of the
member-control agreement by incurring legal fees in excess of
$250,000.
Naegele argues that the parties intended to authorize
him to obtain all legal services.
Section 5.3(b) of the member-control agreement requires the
approval of both Weiner and Naegele for expenditures over $1,000,
and expressly strips the authority of a single member to make “any
expenditure in the aggregate amount of more than $1,000.”
See
Kerbaugh Aff. Ex. 34, at 4563. This language is plain, unambiguous
and expansive.
The court need not look beyond the language to
discern the intent of the parties, and Naegele’s argument fails.
Moreover, Naegele’s argument fails even if the court were to
consider other evidence of intent.
Minnesota counsel agreed to
place a “not-to-exceed” amount of $50,000 on the Breckenridge
Project. Naegele Dep. 18:20–19:5; see Weldon Aff. Ex. 72, at 8158;
Id. Ex. 74, at 81; Id. Ex. 79, at 120.
As a result, the record
supports a finding that Naegele was authorized to spend up to
$50,000 for legal fees, and amounts above that were subject to
approval under the member-control agreement. In the end, the legal
fees
approached
$250,000.
Therefore,
19
Weiner
has
introduced
evidence from which a reasonable jury could find that Naegele
breached the member-control agreement, and summary judgment is not
warranted.
3.
Declaratory Judgment
Weiner also seeks a declaration of his rights under the
member-control agreement regarding payment of the legal fees.
Naegele argues that Weiner is liable for his pro rata share of
legal fees in excess of amounts already paid. The court disagrees.
Naegele agreed that “it was always understood that the project and
the [D]evelopers would ultimately be responsible for any fees
related to the project work.” See Naegele Dep. 126:8–14. However,
Naegele
did
not
ask
the
Developers
to
pay
the
bills.
Id.
126:17–127:17.
Further, negotiations between Weiner and Naegele terminated
Weiner’s liability for legal fees related to the Breckenridge
Investors transactions.
reached
$147,678,
In October 2009, when the legal fees
Minnesota
counsel
demanded
that
Weiner
and
Naegele pay the full amount and then seek reimbursement from the
Developers.
Weldon Aff. Ex. 73, at 244.
On October 29, 2009,
Weiner agreed to pay $55,000 and Naegele paid $65,000 to Minnesota
counsel, with the remainder, including future services, to be paid
by the Developers.
Id. Ex. 77, at 291.
Naegele then confirmed
that he would “not pursue Bruce [Weiner] and Longboat in the event
that [Minnesota counsel] pursues me for outstanding legal fees owed
20
related to the Breckenridge transactions.”
Id. Ex. 78, at 299;
Naegele Dep. 129:17–22 (“I wouldn’t come after him for any past
work.”).
As a result, Naegele’s argument fails.
Naegele also argues that Weiner waived objection to continued
billing by Minnesota counsel because Crisanti continued to contact
Schoenborn.
Weiner responds that Crisanti was acting only as a
consultant.
Weiner testified that Crisanti acted as “our agent”
but clarified that Crisanti did not have decision-making authority.
Weiner Dep. 237:11–238:1. However, even assuming that Crisanti was
Weiner’s agent, the parties agreed that the Developers, not Weiner
and Naegele, would be responsible for legal fees incurred after
October 2009.
Moreover, at the time Crisanti contacted Minnesota
counsel, he was unaware of the potential conflict of interest
caused by the attorney’s financial ties to other projects.
As a
result, even if Crisanti were Weiner’s actual or apparent agent,
Weiner is not responsible for additional fees incurred. Therefore,
summary judgment is not warranted in Naegele’s favor.
II.
Naegele’s Counterclaims
A.
Breach of Contract
Naegele first claims that Weiner breached section 6.6 of the
member-control agreement by bringing the instant action.
Section
6.6 absolves Naegele from claims for acts taken in good faith.
The
court has already determined that a reasonable jury could find that
Naegele did not act in good faith by failing to disclose the extent
21
of his financial ties to the Developers and failing to enforce the
Niemi guarantees.
As a result, Weiner has not breached section
6.6, and this argument fails.
Naegele next argues that Weiner has breached the membercontrol agreement by attempting to force Naegele to vote in a
particular manner.
Specifically, Naegele appears to argue that by
instituting the present action, Weiner is pressuring him to violate
subdivision 2 of section 322B.356 and section 322B.663 of Minnesota
Statutes.
This
argument
discussion.
The statutes do not support a cause of action against
Weiner under these facts.
is
frivolous,
and
does
not
merit
Therefore, summary judgment in favor of
Naegele is not warranted.
B.
Judicial Intervention and Equitable Remedies
A court may grant equitable relief when “the governors or
those in control of the limited-liability company have acted
fraudulently, illegally, or in a manner unfairly prejudicial toward
one or more members in their capacities as members or governors of
any limited liability company.”
1(2)(ii).
Minn. Stat. § 322B.833, subdiv.
Naegele argues that Weiner’s failure to pay legal fees
after October 2009 is “dishonest, unfair and unreasonable” to
Naegele.
Def.’s Mem. Supp. 27.
The court disagrees.
It has
already determined that Weiner fulfilled his obligations regarding
legal fees via the October 2009 agreement.
judgment in favor of Naegele is not warranted.
22
Therefore, summary
CONCLUSION
Accordingly, based on the above, IT IS HEREBY ORDERED that:
1.
The motion for summary judgment [ECF 29] is granted in
part, consistent with this order; and
2.
days
The parties shall contact the magistrate judge within 21
from
the
date
of
this
order
to
schedule
a
settlement
conference.
Dated:
July 16, 2012
s/David S. Doty
David S. Doty, Judge
United States District Court
23
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