Sara Lee Corporation v. Sycamore Family Bakery et al

Filing 479

MEMORANDUM DECISION AND ORDER adopting the Receiver's recommendations and ordering the Receiver: (1) to promptly pay EarthGrains $1.1 million in cash; and (2) liquidate sufficient LLC real estate assets to allow for the payment of the remaining distributions, $2,759,898.96, to EarthGrains. Signed by Judge Dale A. Kimball on 11/14/2019. (eat)

______________________________________________________________________________
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF UTAH

EARTHGRAINS BAKING
COMPANIES, INC.,
Plaintiff,

MEMORANDUM DECISION
& ORDER

vs.
Case No. 2:09CV523DAK
SYCAMORE FAMILY BAKERY INC.,
and LELAND SYCAMORE,

Judge Dale A. Kimball

Defendant.

On July 10, 2019, R. Wayne Klein, the court-appointed Receiver of the assets of the
Sycamore Family LLC, submitted a Report and Recommendation on Accounting for
Distributions to Members of Sycamore Family LLC. On August 7, 2019, Plaintiff Earthgrains
Baking Companies, Inc., filed a Motion to Implement the Receiver’s Recommendations for
Distributions from the Sycamore Family LLC. The parties have fully briefed the issues raised in
the Report and Recommendation.
The Receiver has completed his forensic accounting, determination of what expenditures
and imputed benefits should be deemed distributions, and allocation of those expenditures and
benefits to each LLC member. The Report and Recommendation addressed: (1) whether the
analysis of expenditures used to perform the calculation should include all expenditures by the
Sycamore Family LLC or exclude those related to the income generating and operational aspects
of the Sycamore Family LLC; (2) which types of financial transactions and asset uses should be

treated as distributions; (3) how particular financial transactions and asset uses should be
allocated among members of the Sycamore Family LLC; (4) how the proportionate share of
distributions that would be owed to Leland Sycamore should be calculated considering his 48%
membership interest in the Sycamore Family LLC and distributions to other members of the
Sycamore Family LLC; (5) what payment should be made to EarthGrains now from funds
controlled by the Receiver; (6) what assets should be made available to satisfy the Judgment; and
(7) prospects of the LLC being able to make future distributions to EarthGrains.
Based on the information and records the Receiver was able to review, the Receiver made
two calculations of distributions owed to EarthGrains. EarthGrains has agreed to focus on
payment of the lesser amount of $3,859,898.96. The Receiver recommends that he pay
EarthGrains $1.1 million from the available cash in the Sycamore Family LLC’s bank accounts
and liquidate sufficient LLC real estate to pay EarthGrains the remaining $2.7 million. The court
agrees that selling LLC assets to generate funds is the only feasible option since the Receiver
found that the LLC assets do not generate sufficient income and foreclosure on Leland
Sycamore’s interest in the LLC is not practical.
The Sycamores’ objections to the Receiver’s recommendations raise many issues the
court has already ruled upon in previous orders. There is no basis for the court to revisit those
issues. The Sycamores also raise irrelevant objections casting blame on EarthGrains and the
Sycamores’ attorneys for the Sycamores’ failure to cooperate and adhere to the court’s orders.
None of these objections changes the fact that distributions are owing to EarthGrains.
The Receiver thoroughly analyzed the basis for each distribution. The Sycamores’
objections regarding the Receiver’s determinations on what LLC expenditures should be treated
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as distributions are without merit. The Receiver properly treated a “loan” to the Sycamores’
daughter as a disguised distribution and accurately calculated imputed rent. The Sycamores’ lack
of documentation on these matters make their contentions nothing more than speculation. The
court concludes that all legitimate interests of other LLC owners would be adequately protected
by the Receiver’s recommendations.
The Sycamores further claim that the Receiver’s recommendations are against Utah law.
The Sycamores contend that the Utah Limited Liability Act (“LLC Act”) does not allow for the
liquidation of the LLC’s real estate assets. However, the LLC Act contemplates this remedy by
allowing a Receiver to be appointed and orders put in place to give effect to the charging order.
The Sycamores claim liquidation of the LLC’s real estate assets is not allowable because it would
force the members of the LLC to accept a creditor of Leland Sycamore. But the Receiver’s
recommendation does not require acceptance of a creditor, it advocates for selling assets to raise
liquid assets. Because the LLC does not have sufficient cash assets to make the payments that
should have been made to EarthGrains, and the LLC will not be able to do so in any reasonable
amount of time, liquidation gives effect to the Charging Order as contemplated by the LLC Act.
The Sycamores provide no argument as to why real estate holdings should be treated differently
from cash assets with respect to ensuring compliance with the Charging Order.
The LLC also argues that the Receiver can only make imputed distributions to
EarthGrains that occurred after he became Receiver. However, this eviscerates the purpose of
the Charging Order and the Court’s Order Appointing Receiver. The appointment of the
Receiver was as a necessary remedy for the Sycamores’ contempt. Allowing the Receiver to only
make payments occurring after the Receiver’s appointment would forgive five years of disregard
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for the Charging Order. The appropriate time frame is from the date of the Charging Order not
the date the Receiver was appointed.
In addition, the Sycamores argue that Nevada law should apply to the Charging Order.
However, the court has previously found that the Sycamores waived this argument by not timely
filing objections to the entry of the Charging Order when it was entered. Furthermore, the
Charging Order does not implicate the internal affairs of the LLC, it merely relates to the LLC’s
obligation to a third party.
Moreover, there are no grounds for disqualifying the Receiver or investigating his
contacts with EarthGrains. Some level of communication between the Receiver and parties to
the case is necessary and to be expected. Nothing out of the ordinary has occurred in this case.
The court, therefore, adopts the Receiver’s recommendations and orders the Receiver: (1)
to promptly pay EarthGrains $1.1 million in cash; and (2) liquidate sufficient LLC real estate
assets to allow for the payment of the remaining distributions, $2,759,898.96, to EarthGrains.
DATED this 14th day of November, 2019.
BY THE COURT:

DALE A. KIMBALL
United States District Judge

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