Felton v. Spitz et al

Filing 140

ORDER granting 75 and 84 Motion for Summary Judgment except for plaintiff's claim that defendants breached section 9.3 of the operating agreement. Parties may file supplemental materials as follows: Briefs in Support due 8/2/2010. Briefs in Opposition due 8/12/2010. Signed by District Judge Barbara B. Crabb on 7/12/10. (rep)

F e l ton v. Teel Plastics, Inc. et al

Do c. 140

IN THE UNITED STATES DISTRICT COURT FO R THE WESTERN DISTRICT OF WISCONSIN --------------------------------------------C O L IN CHRISTOPHER FELTON, OPINION AND ORDER Plaintiff, 09-cv-180-bbc v. T EEL PLASTICS, INC. and JAY L. SMITH, D efendan ts. --------------------------------------------Fro m 2000 to 2008, plaintiff Colin Christopher Felton and defendant Teel Plastics, In c. jointly owned Teel Global Resources Tech, LLC. Defendant Teel Plastics owned 70% of the company, plaintiff owned 30% and defendant Jay Smith was the manager. Plaintiff left the company in 2004 after a number of disagreements with defendant Smith, but he kept his 30% interest in the company. Plaintiff had no other contact with the company until early 2009, when he received notice that defendant Teel Plastics had exercised its right under § 9.01 of the operating agreement to dissolve the company. Relying on an accounting perfor m ed by Virchow Krause several months earlier, defendants determined that Teel G lob al had no assets to distribute because it was more than $5 million in debt to defendants Teel Plastics and Smith. 1

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Plaintiff filed this lawsuit in March 2009. In his pro se complaint, he asserted two " c o u n ts " : one for "unauthorized disclosure of confidential information" and one for

"negligent management" of a Teel Global project. Dkt. #1. After obtaining counsel, he filed an amended complaint in which he abandoned his original claims and asserted new ones for b reach of fiduciary duty, breach of contract and violations of Wis. Stat. Ch. 183. In addition , plaintiff requested an accounting. In an order dated October 5, 2009, I granted defendan ts' motion to dismiss plaintiff's breach of fiduciary claim because plaintiff alleged in ju ries to Teel Global rather than to himself. Dkt. #46. N o w before the court are two motions for summary judgment filed by defendants on plaintiff's remaining claims. Dkts. ##74 and 84. With the exception of the claim for an acco un ting under § 9.3 of the operating agreement, plaintiff has failed to develop a m eanin gful argument or set forth specific facts in support of his statutory claims and his claim s for breach of contract. Summary judgment will be granted to defendants on these c la i m s . With respect to plaintiff's claim for an accounting under § 9.3, I agree with defendants that plaintiff has failed to make any showing that the accounting conducted by V irchow Krause in 2008 incorrectly calculated Teel Global's assets and liabilities by more th an $5 million. However, the Virchow Krause accounting valued the company as of D ecem ber 2007 and the company was not dissolved until December 2008. Although § 9.3 2

of the operating agreement required an accounting "from the date of the last previous acco un tin g until the date of dissolution," no accounting was conducted after dissolution. N either side addressed the questions whether defendants (rather than Teel Global) are the appropriate parties to be sued for enforcement of § 9.3 and whether specific p erfo rm an ce is appropriate under the circumstances of this case. Accordingly, I am directing the parties to submit supplemental materials answering these questions. F ro m the parties' proposed findings of fact and the record, I find that the following facts are undisputed.

U N D IS PU T ED FACTS A. Formation of Teel Global In 1996, plaintiff Colin Felton formed Global Resources, LLC in Madison, Wisconsin "to develop materials, products and processes utilizing natural fiber-thermoplastic com posites." The process involves combining fibers made out of natural materials such as w ood with plastics to create products such as roof panels and hot tub siding. Global R esources sold the composite materials to third parties for injection molding. In 1998 plaintiff began looking for investors in his company. Between 1998 and 2 0 0 0 plaintiff met several times with defendant Jay Smith, who was the owner of defendant T eel Plastics, Inc., a Wisconsin manufacturer of plastic tubing, fiberglass and other plastic 3

pro ducts. In February 2000, plaintiff and defendants formed Teel Global Resources Tech, LLC. D efendan ts drafted the operating agreement, which included the following provisions: 4.12 Liability for Certain Acts. The Manager(s) shall perform their managerial duties in good faith, in a manner they reasonably believe to be in the best in terests of the Company, and with such care as an ordinarily prudent person in a like position would use under similar circumstances. A Manager who so p erfo rm s the duties of Manager shall not have any liability by reason of being or having been a Manager of the Company. Except as provided in the W isconsin Act or this Agreement, a Manager shall not be liable to the Co m pany or to any Member for any loss or damage sustained by the Co m pany or any Member, unless the loss or damage is the result of fraud, w illful misconduct, material breach of fiduciary duty or a wrongful taking by the Manager. *** 7.3 Books and Records. The Company shall establish such books, records and accou nts for the Company as are customary for businesses similarly situated an d as accurately reflect the financial condition and position of the Company in accordance with generally accepted accounting principles consistently a p p li e d . *** 8.6 Notice of Fundamental Company Transactions. The Manager shall p ro vid e Felton with written notice of (a) merger, consolidation or reo rgan izatio n of the Company; (b) sale, lease, exchange or other disposition o f all or substantially all of the Company's property or assets; or adoption of an y plan or agreement to do any of the foregoing. *** 9.1 Dissolution, The Company shall not be dissolved upon the dissociation of 4

any Member. Rather, the Company shall only be dissolved upon the o ccu rren ce of any of the following events: (a) By the written agreement of M e m bers owning or holding at least a majority of the outstanding Units; or (b) Upon the judicial dissolution of the Company pursuant to the Wisconsin Act. *** 9.3 Liquidation. Upon dissolution, an accounting shall be made of the a c co un ts of the Company and of the Company's assets, liabilities and o p eratio n s, from the date of the last previous accounting until the date of d i s s o lu ti o n . U n d er the agreement, defendant Teel Plastics owned 70% of the membership interests and plaintiff owned 30%. Defendant Smith was the manager of Teel Global. Under a separate agreem ent, plaintiff became an employee of Teel Global.

B. Management of Teel Global In 2001 defendant Teel Plastics constructed a building for Teel Global's operations. T e e l Plastics' monthly mortgage payment for the building was $16,427; Teel Global paid T eel Plastics $16,500 a month in rent. In April 2002, plaintiff wrote defendant Smith, expressing "concerns regarding the viab ility and path" of Teel Global. Plaintiff believed that Teel Global was "quickly l[o]sing [its] advantage as THE natural fiber composites company" because it did "not have a definitive corporate strategy for rapidly capturing market share" and it had "not committed

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to a single `first' product that will establish [it] in the marketplace and generate needed in co m e for continued product development." Plaintiff set forth a number of proposals for S m ith's consideration. Plaintiff and defendant Smith met to discuss plaintiff's concerns. (T he parties dispute Smith's response to the letter.) In 2003 and 2004 representatives of defendant Teel Plastics and Teel Global met w ith Elk Corporation, a roofing manufacturer, regarding the potential manufacture of a roo fing product. In February 2004 Teel Plastics formed TGRT Roofing, LLC, which entered into a "Product Development, Purchase and Sale Agreement" with Elk to "design, develop, test and produce a prototype composite polymer roofing product." (Plaintiff refers to the pro duct as "Panelshake," but the evidence he cites does not use that name.) Neither plaintiff no r Teel Global held any interest in the new company. On February 12, 2004, plaintiff sent a memo to defendant Smith about the Elk contract and various other issues. He wrote that he did not "see any real problems with" the con tract, but wanted "to get an understanding of [his] role in the new company." He listed a number of concerns and stated that he "would like to reduce [his] time commitment to k eep [his] stress level under control." Finally, he stated that he "would like to get a copy of [T eel Global's] tax returns (including all K-1s) for the past years, amend [Teel Global's] O p eratin g Agreement, enter into an employment or consulting agreement and organize and sign an operating agreement for Teel-GRT Roofing LLC." Smith spoke to plaintiff about the 6

m atters in the memo. (Neither side proposed any fact about the content of that discussion or discussions.) Plaintiff's lawyer sent Smith a followup memo dated February 26, 2004, but S m ith did not respond to it. In March 2004, plaintiff resigned as an employee, but retained his 30% interest in Teel Global. A patent was "developed and obtained . . . for the composite roofing panel that was to be manufactured for the Elk project." (It is not clear from the parties' proposed findings of fact who owned the patent. Oddly, neither side submitted a copy of the patent or even identified the patent number.) In April 2006 Elk terminated its contract with TGRT R o o fing after "the product" failed a "fire test." "[T]he product was never commercially lau nch ed and . . . no sales were ever recorded." Dft. Teel Plastics' PFOF ¶ 26, dkt. #77; P lt.'s Resp. to Dft. Teel Plastics' PFOF ¶ 26, dkt. #123. Plaintiff's expert values the "Panelshake" product at between $ 2.2 million and $7.3 m illio n . In January 2009, defendant Teel Plastics made a presentation to Owens-Corning regarding Panelshake. In 2005 defendant Teel Plastics entered into a confidentiality agreement with Dow A gro scien ces, LLC, to develop a natural fiber composite deck board product. In 2006, Dow app roa ched Teel Plastics about a project involving pest control and termite stakes. This project was listed on the Teel Global "Opportunities Evaluation," which projected "potential yearly sales" at $1 million to $2 million. It listed the "probability of [the] project" as 50%. 7

In addition, the evaluation stated, "[i]f pricing and development plan and sales agreement are agreed upon, then I think the probability increases to 85-90% that project will move forw ard." In December 2008 Dow and defendant Teel Plastics were completing the plan to conduct test runs. The tests took place in February 2009. By the summer of 2009, Dow had hir ed Baker Tilly (formerly Virchow Krause) to seek an investor for the project. Baker Tilly p rep ared a memorandum that was given to investors, which included the following info rm ation : Dow and Teel Plastics had been working on the project together for some time, D ow would guarantee the price of the capital investment and it was a very attractive op po rtunity (in that it should provide a return of 18% with very little risk), assuming sales of one million units. By 2010, the assumption increased to more than three million units. T e el Plastics and Dow entered into a contract in April 2010. T eel Global did not have its own bank account, separate from defendant Teel Plastics' accou nt.

C. Dissolution of Teel Global According to defendants' records, Teel Global did not have net income for any of the years it existed. In 2008, defendant Smith and Thomas Thompson (chief financial officer of Teel Plastics) began to consider dissolving Teel Global. At the request of defendant Teel 8

Plastics, Virchow, Krause and Company, LLP, conducted an evaluation of the company. D efendants did not inform the accounting firm about the Dow project or provide it the d ocu m e nt titled "TGRT Opportunities." (Defendants say that the Dow project was too sp ecu lative at that point to use it in the valuation.) In its August 2008 report, Virchow

Krause concluded that, as of December 2007, Teel Global had $925,000 in assets, but that it owed $5.75 million to Teel Plastics and $283,000 to Smith. Virchow Krause did not give an opinion on "whether the financial statements of [Teel Global] . . . presents fairly, in all m aterial respects, the financial position of" Teel Global. After that report, Smith and T ho m pso n agreed to dissolve Teel Global. O n December 11, 2008, Thompson emailed plaintiff, asking for his current address. D efendants Smith and Teel Plastics executed a Consent of Manager and Majority member, d isso lvin g and liquidating Teel Global. Articles of Dissolution dated December 22, 2008 w ere filed with the Wisconsin Department of Financial Institutions. In a bill of sale signed by defendant Smith, Teel Global transferred all of its assets to defendant Teel Plastics in exchan ge for "cancell[ing]" all of Teel Global's debt to Smith and $643,000 of Teel Global's debt to Teel Plastics. Plaintiff responded to Thompson's email on December 23, 2008. At that time, cou nsel for Teel Plastics sent plaintiff all the documents related to the dissolution.

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O PIN IO N A. Subject Matter Jurisdiction "The first question in every case is whether the court has jurisdiction." Avila v. Pap pas, 591 F.3d 552, 553 (7th Cir. 2010). Even if the parties do not raise the issue, courts h ave an independent obligation to determine whether the case before them falls within one of the classes of cases that Congress has authorized the federal judiciary to decide. B uchel-R uegsegger v. Buchel, 576 F.3d 451, 453 (7th Cir. 2009). The parties have raised no federal question in this case, so the only potential basis for jurisdiction is 28 U.S.C. § 1332 , which requires a showing that each defendant is a citizen of a different state from the p lain t if f and that the amount in controversy is more than $75,000. Smart v. Local 702 International Brother of Electrical Workers, 562 F.3d 798, 803 (7th Cir. 2009); Smoot v. M azda Motors of America, Inc., 469 F.3d 675, 676 (7th Cir. 2006). The parties make a common mistake by stating in their proposed findings of fact that p lain tiff is a "resident" of Texas and defendant Smith is a "resident" of Wisconsin. "[R]esiden ce and citizenship are not synonyms and it is the latter that matters for purposes o f diversity jurisdiction." Meyerson v. Harrah's East Chicago Casino, 299 F.3d 616, 617 (7th Cir. 2002). See also McMahon v. Bunn-O-Matic Corp., 150 F.3d 651, 653 (7th Cir. 19 98 ) ("An allegation of residence is inadequate ."). A person is not a "citizen" of a state under § 1332 simply because he lives there; he must intend to remain in the state as well. 10

D akura s v. Edwards, 312 F.3d 256, 258 (7th Cir. 2002). Although the distinction may seem to be a subtle one, on multiple occasions the Court of Appeals for the Seventh Circuit has criticized and even sanctioned parties for failing to establish diversity jurisdiction with precise facts. E.g., Camico Mutual Insurance Co. v. Citizens Bank, 474 F.3d 989, 992 (7th C ir. 2007) (criticizing plaintiff because "the amended complaint only alleged the residence of two of the accounting firm's members without stating the citizenship of each of the acco un tin g firm's members"); BondPro Corp. v. Siemens Power Generation Corp., 466 F.3d 56 2 (7th Cir. 2006) (sanctioning lawyers $1000 for failing to identify citizenship of parties). Although the parties did not include facts about plaintiff's and defendant Smith's citizenship in their proposed findings of fact, the error is harmless because the record shows that plaintiff is a citizen of Texas and defendant Smith is a citizen of Wisconsin. Earlier in the case, plaintiff filed an affidavit in which he averred that he intends to stay in Texas in defin itely. Dkt. #39. Defendant Smith admitted in his answer that he was a citizen of W iscon sin. Dkt. #48, at ¶ 4. Because the parties agree in their proposed findings of fact th at defendant Teel Plastics is incorporated in Wisconsin and has its principal place of busin ess there, dkt. # 123, at ¶ 2, plaintiff has met his burden to show that his citizenship is different from defendants'. Hoagland ex rel. Midwest Transit, Inc. v. Sandberg, Phoenix & von Gontard, P.C., 385 F.3d 737, 741 (7th Cir. 2004) (corporation is citizen of state of inco rpo ration and state in which its principal place of business is located). 11

T h e only information about the amount in controversy in the proposed findings of fact is plaintiff's conclusory allegation that "the amount in controversy exceeds the sum of o r value of $75,000, exclusive of interest and costs." Plt.'s PFOF ¶ 1, dkt. #124.

D efendants do not directly dispute that allegation, but they "[a]ffirmatively allege that Plaintiff has failed to produce any evidence establishing that he is entitled to $1 or more fro m Defendants." Dfts.' Resp. to Plt.'s PFOF ¶ 1, dkt. #131. Although defendants deny th at plaintiff has proven damages, it does not matter for the purpose of establishing jurisdiction whether plaintiff is ultimately able to prove more than $75,000 in damages. N ightingale Home Healthcare, Inc. v. Anodyne Therapy, LLC, 589 F.3d 881, 886 (7th Cir. 2009 ) ("Ordinarily a failure to prove any damages does not disturb jurisdiction under a statu te that sets a damages threshold. The failure is a failure on the merits rather than a failu re of jurisdiction."); Oshana v. Coca-Cola Co., 472 F.3d 506, 513 (7th Cir. 2006) ("W hether [the plaintiff] actually recovers more than $75,000 is immaterial."). Rather, the q u e stio n is whether plaintiff satisfied the amount in controversy at the time he filed the am ended complaint. In the amended complaint, plaintiff alleged that the amount in controversy was greater than $75,000 and defendants did not deny that allegation. "When the jurisdictional th resh old is uncontested, [the court] generally will accept the plaintiff's good faith allegation o f the amount in controversy unless it appears to a legal certainty that the claim is really for 12

less than the jurisdictional amount." McMillian v. Sheraton Chicago Hotel & Towers, 567 F.3d 839, 844 (7th Cir. 2009) (quotations omitted). Because plaintiff alleged in his

com plaint that defendants in many instances kept for themselves large sums of money that should have been allocated to Teel Global, I cannot say that "it appears to a legal certainty" that plaintiff's claims were worth less than $75,000 when he filed the complaint.

B. Accounting Plaintiff devotes most of his attention to his claim for an accounting. In his amended com plaint, plaintiff alleged that he needed an accounting because defendants "hold property belonging to [him]--[his] interest in the assets of [Teel Global]," but he "does not know the am ou nt of his property held by defendants." Am. Cpt. ¶¶ 38-39, dkt. #20. Plaintiff does no t give any further explanation of the basis for this claim in his amended complaint or his brief, but his allegation that defendants are wrongfully holding his share of Teel Global's assets suggests that he believes defendant Teel Plastics concluded incorrectly when it d isso lved Teel Global that Teel Global's liabilities outweighed its assets by more than $5 m illion. Thus, he wants an accounting to help him show that Teel Global was actually in the black when it was dissolved and that he is entitled to his share of the company's assets. Altho ug h the standard for obtaining an accounting is not clearly defined, it is an equitable remedy and therefore not an absolute right. Richman v. Security Savings and Loan 13

Association, 57 Wis. 2d 358, 362-363, 204 N.W.2d 511, 513 (1973). In the cases cited by the parties, courts have most often concluded that an accounting is an appropriate remedy w h en the plaintiff has shown that the defendant owes him money, but through no fault of his own, the plaintiff is unable to determine the amount. E.g., ABM Marking, Inc. v. Zanasi Fratelli, S.R.L., 353 F.3d 541, 545 (7th Cir. 2003) (defendant owed plaintiff royalties, but plaintiff could not determine amount because of defendant's inadequate records); State v. C h icago & N.W. Railway Co., 132 Wis. 345, 112 N.W. 515, 519 (1907) (accounting o rd ered to determine amount of licensing fees due). See also Antigo Superior Nursing H o m e, Inc. v. First Federal S & L Association, 51 Wis. 2d 196, 200-02, 186 N.W.2d 265, 2 6 7 -6 8 (1971) ("The need for discovery as to amounts due under all the agreements and liabilities deriving therefrom creates the reason and ground for seeking and being entitled to equity jurisdiction."). The party seeking an accounting has the burden to show that he has a right to one. 1 Am. Jur. 2d Accounting § 66, at 695 (2005). A t the outset, plaintiff faces the difficulty that defendants conducted an accounting in 2008 through an accounting firm. If defendants had presented no evidence of the co m p an y's actual worth, it would be reasonable to require an accounting. Perkins v. Brown, 901 N.E.2d 63, 66 (Ind. Ct. App. 2009) (ordering accounting because "[n]o evidence was p resen ted regarding what the actual finances of [the company] were prior to the dissolution, including what income was actually received and what the actual expenses of the LLC were 14

durin g this period of time"). However, it makes little sense to require defendants to undergo the expense of conducting a second accounting unless plaintiff has adduced evidence that the first one failed to reflect Teel Global's true financial condition at the time of dissolution. H isto ric Charleston Holdings, LLC v. Mallon, 673 S.E.2d 448, 454 (S.C. 2009) (declining to require second accounting when plaintiff failed to show that benefit of doing so would justify delay and expense); cf. Kennedy v. Miller, 582 N.E.2d 200 (Ill. Ct. App. 1991) ("If a party seeks credits against the accounting, such party has the burden to prove them.") Further, because the only purpose of an accounting is to show that the defendants owe plain tiff money, I would be unwilling to order another one unless plaintiff's evidence should suggest that the accounting firm's appraisal is wrong by more than $5 million. 1A C.J.S. Acco un ting § 6 (2005) (underlying purpose of accounting is to prevent unjust enrichment). Although it would defeat the purpose of an accounting to require plaintiff to show in advan ce everything a new accounting would reveal, I agree with defendants that plaintiff is no t entitled to go on a burdensome, expensive fishing expedition without making a p relim in ary showing that doing so will change the original result. 1 Am. Jur. 2d Accounting § 57, at 684 (2005) (accounting not appropriate if it "would result in great inconvenience an d possible oppression to the defendant"). Plaintiff has not made the necessary showing. Much of plaintiff's evidence is directed at proving the wrong issue. For example, plaintiff argues that defendant Teel Plastics 15

charged Teel Global too much in rent, excluded Teel Global from potentially lucrative business deals, disregarded plaintiff's opinions, failed to invest in Teel Global and generally engaged in "self-dealing transactions unfair to" Teel Global before the dissolution. Plt.'s Br., dkt. #119, at 9. However, the purpose of an accounting is not to allow a dissatisfied party to second-guess every business decision made throughout a company's existence. An

acco un tin g determines what a company actually was worth at the time of dissolution, not w hat it could have been worth if the company had been managed differently. I have dismissed the complaint as to plaintiff's breach of fiduciary duty claim, so plaintiff cannot show that he is entitled to an accounting by submitting evidence that defendants did not run Teel G lobal the way he believes they should have. If plaintiff believed that defendants were run nin g the company into the ground, he could have brought a derivative suit, but he chose n o t to. O n c e plaintiff's evidence and argument about defendants' mismanagement is d isregard ed , plaintiff has little left to support his claim. The only specific criticisms of V irchow Krause's valuation in plaintiff's proposed findings of fact is that Virchow Krause failed to consider the value of the Panelshake roofing product and the value of a potential pro ject with Dow Agrosciences. This argument falls short for several reasons. First, it is not clear what plaintiff means when he says that the accounting firm failed to properly credit Teel Global's involvement with the Panelshake "product" and the Dow 16

"pro ject." In particular, plaintiff fails to explain how a "product" or a "project"can be used to value a company. If Teel Global had intellectual property rights in a valuable product or p ro cess, that would be a company asset. However, plaintiff never identifies with any s p ecificity any intellectual property in Teel Global's possession at the time of dissolution. In fact, plaintiff's position seems to be that the patent or patents involved in the Panelshake pro duct were assigned to defendant Teel Plastics, not Teel Global. Although plaintiff seems to believe that the patent or patents should have been assigned to Teel Global, that is another issue outside the scope of the lawsuit. (Defendants' position is that Teel Global was the original assignee of the patent, but that the patent was transferred to Teel Plastics after the dissolution to offset plaintiff's debt. If that is the case, plaintiff would have to show that defendants failed to properly value the patent, which he has not done.) With respect to the D o w project, plaintiff refers generally in his proposed findings of fact to "trade secrets" and "con fidential and protected information," without identifying what these might be. Plaintiff says that Virchow Krause should have considered Teel Global's potential future sales to Dow, but he never explains how, in the absence of a contract or other exclusive right, predictions about a future business relationship can be valued in the context o f a dissolution. Defendants cite T & HW Enterprises v. Kenosha Associates, 206 Wis. 2d 591, 605, 557 N.W.2d 480, 485 (Ct. App. 1996), for the proposition that future profits are o ften too speculative to provide a basis for damages. This case is not directly on point 17

b ecau se it involves a determination of damages for a breach of contract rather than a determ ination of the value of a company, but plaintiff cites no authority that would support a different rule under the facts of this case. Plaintiff's argument about potential future sales of the company seems to be less about what Teel Global was actually worth at the time of dissolution and more about what the company could have been worth if defendants had held out longer. That is, plaintiff seem s to be challenging defendant Teel Plastics' decision to dissolve the company when it did. Plaintiff does not deny that § 9.1 of the operating agreement gave Teel Plastics the right to dissolve Teel Global without plaintiff's approval. However, he says that Teel Plastics had a fiduciary duty to consider Teel Global's interests before deciding to dissolve. Plaintiff cites no authority for the argument that defendant Teel Plastics would breach a fiduciary duty by doing what the operating agreement authorized it to do. However, even if Teel Plastics breached such a duty, it is too late to raise that issue now. In the order granting defendants' motion to dismiss with respect to plaintiff's breach of fiduciary claim, I did not read the complaint as including a claim that defendant Teel Plastics breached a fiduciary duty to plaintiff by dissolving Teel Global when it did. Plaintiff never filed a m otio n for reconsideration, arguing that I construed his claim too narrowly. Although plaintiff seems to be attempting to assert such a claim now, summary judgment is not the tim e to bring new claims into the case. Grayson v. O'Neill, 308 F.3d 808, 817 (7th Cir. 18

2 0 0 2) (plaintiff "may not amend his complaint through arguments in his brief in opposition to a motion for summary judgment") (quoting Shanahan v. City of Chicago, 82 F.3d 776, 781 (7th Cir.1996)). See also EEOC v. Lee's Log Cabin, Inc., 546 F.3d 438, 443 (7th Cir. 2 0 0 8) ("The very first mention of [the new claim] came in the EEOC's response to Log C abin 's motion for summary judgment, and the [district] court was entitled to regard this as `too late' to change so basic a factual premise in the case.") Even if I assume that defendants' accounting was deficient because it failed to take into consideration "the Panelshake product" or "the Dow project," plaintiff has failed to adduce any specific evidence showing that defendants undervalued Teel Global by more than $5 million. Only two of plaintiff's proposed findings of fact address this issue. In proposed fin din g of fact no. 55, plaintiff says that "Robinwood Consulting estimates the net present value of the Panelshake as $7.3 million under one scenario and $2.2 million under another scenario ." He cites generally to four different expert reports to support that proposed fact. In proposed finding of fact no. 60, he says that the "Dow termite stakes project was listed o n the `TGRT Opportunities Evaluation,' which stated potential yearly sales were $1.2 m illio n dollars and estimated the project at 50% probability increasing to 85-90% pro bab ility if certain conditions were met." Neither of these proposed facts is anything other than a mere conclusion. Plaintiff d oes not provide any support for them or explain how he arrived at them. These omissions 19

are fatal to his claim at the summary judgment stage. Lujan v. National Wildlife Federation, 497 U.S. 871, 888 (1990) ("The object of [summary judgment] is not to replace conclusory allegations of the complaint or answer with conclusory allegations of an affidavit."); Hall v. Bo dine Electric Co., 276 F.3d 345, 354 (7th Cir. 2002) ("It is well-settled that conclusory allegations . . . do not create a triable issue of fact."); Drake v. Minnesota Mining & M anufacturing Co., 134 F.3d 878, 887 (7th Cir. 1998) ("Rule 56 demands something more specific than the bald assertion of the general truth of a particular matter[;] rather it requires affidavits that cite specific concrete facts establishing the existence of the truth of the matter asserted."). Under this court's summary judgment procedures, "[a]ll facts necessary to sustain party's position on a motion for summary judgment must be explicitly proposed as findin gs of fact." Helpful Tips for Filing a Summary Judgment Motion, attached to Prelim in a r y Pretrial Conference Order, dkt. #29. If the support for these conclusions is lurkin g somewhere in the record, it is not defendants' or this court's obligation to find it. C h elio s v. Heavener, 520 F.3d 678 (7th Cir. 2008) ("Given the often daunting nature of m otions for summary judgment, we have emphasized the importance of local rules and have con sistently and repeatedly upheld a district court's discretion to require strict compliance w ith its local rules.") (internal quotations omitted). Alternatively, plaintiff argues that the records used in the 2008 accounting are unreliable. For example, in proposed finding of fact no. 74, plaintiff states that "[t]he 20

statem ents of underlying financial information that Virchow Krause used to appraise [Teel G lob al] were unreliable due to use of commingled cash accounts, [Teel Global] had fixed assets on its books that benefited other Teel properties, improper recording of expenses, and overcharging for certain outside services." In proposed finding of fact no. 84, plaintiff says that defendants kept "inadequate records." Plaintiff is on the right track. An order for an accounting may be appropriate when the "accounts between the parties are of such a com plicated nature that only a court of equity can satisfactorily unravel them." Zell v. Jacoby-B ender, Inc., 542 F.2d 34, 36 (7th Cir. 1976). However, it is not enough for plaintiff to assert generally that defendants' records are a hopeless mess. He must show that ordinary discovery is inadequate to provide the answers he seeks. Kempner Mobile Electronics, Inc. v. Southwestern Bell Mobile Systems, 428 F.3d 706, 715 (7th Cir. 2005) (upholding denial o f accounting because"all of the accounting information pertinent to Kempner's claims could an d should have been revealed through discovery"); Zell, 542 F.2d at 36 ("Legal remedies should not be characterized as inadequate merely because the measure of damages may necessitate a look into the plaintiff's business records.") Without providing any details about the allegedly inadequate report, plaintiff has not made the required showing for an accou nting. Finally, plaintiff says that he was hindered in assessing the accuracy of the accounting beca us e defendants withheld documents in discovery. However, if plaintiff believed that 21

defendan ts were withholding relevant documents, the proper response would have been to file a motion to compel under Fed. R. Civ. P. 37 rather than remain silent until it is time to "put up or shut up." Hammel v. Eau Galle Cheese Factory, 407 F.3d 852, 859 (7th Cir. 20 05 ). At a minimum, plaintiff should have filed a motion for additional discovery under Fed. R. Civ. P. 56(f) as soon as defendants filed their motion for summary judgment. Even if I construed plaintiff's argument as raising a belated request under Rule 56(f) fo r additional discovery, I would deny the motion. Rule 56(f) requires the party seeking relief to identify the "specific evidence which [he] might have obtained from [additional discovery] that would create a genuine issue [of] material fact." Davis v. G.N. Mortgage Co rp., 396 F.3d 869, 885 (7th Cir. 2005). Plaintiff supports his argument with nothing but a conclusory allegation, stating in his proposed findings of fact that he "requested and did not receive other documents." Plt.'s PFOF ¶ 97, dkt. #124. He does not provide either a general description of the documents he believes he did not receive or an explanation of their relevance in showing that defendants valued Teel Global incorrectly. O n e potential limitation of the accounting defendants performed is that it did not co ver the last year before Teel Global was dissolved. I address this issue in the context of plaintiff's claim for breach of § 9.3 of the operating agreement.

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B . Breach of Contract In his summary judgment brief, plaintiff argues that defendants violated four pro visio ns of the operating agreement: (1) § 4.12, "Liability for Certain Acts"; (2) § 7.3, "B o o ks and Records"; (3) § 8.6, "Notice of Fundamental Company Transactions"; and (4) § 9.3, "Liquidation." I will start with defendants' two general objections to these claims. T h e first of these is that plaintiff does not have "standing" to bring a breach of co ntract claim because the claims belong to Teel Global instead of plaintiff as an individual. That conclusion, defendants say, follows necessarily from this court's October 5, 2009 decision in which I dismissed plaintiff's complaint as to his breach of fiduciary duty claim because the basis for that claim was an allegation that defendants had devalued the assets o f Teel Global, an injury that belonged to Teel Global rather than plaintiff. Dkt. #46, at 101 3 (citing Notz v. Everett Smith Group, Ltd., 2009 WI 30, 316 Wis. 2d 640, 764 N.W.2d 9 0 4 ; Jorgensen v. Water Works, Inc., 2001 WI App 135, ¶¶ 18-19, 246 Wis. 2d 614, 630 N .W .2d 230; Rose v. Schantz, 56 Wis. 2d 222, 201 N.W.2d 593 (1972); Read v. Read, 20 5 Wis. 2d 558, 556 N.W.2d 768 (Ct. App.1996)). I disagree with defendants that the dismissal of plaintiff's breach of fiduciary duty claim requires dismissal of the breach of contract claims. As plaintiff points out, an

im portant difference between the two types of claims is that plaintiff is a party to the op erating agreement. Generally, contracts create enforceable rights between those who sign 23

th em . Becker v. Crispell-Snyder, Inc., 2009 WI App 24, ¶ 9, 316 Wis. 2d 359, 366, 763 N .W .2d 192, 196 ("A party wishing to enforce a contract must either be a party to that co n tract or a third-party beneficiary."). Defendants cite no authority for the proposition that the general rule does not apply to operating agreements for limited liability companies. N o n e of the cases they cite applying the "derivative action doctrine" involved a claim for b reach of contract. Krier v. Vilione, 2009 WI 45, 317 Wis. 2d 288, 766 N.W.2d 517 (co m m o n law tort and statutory claims); Kagan v. Edison Bros. Stores, Inc., 907 F.2d 690, 6 9 2 (7th Cir. 1990) (tort). See also Decker v. Decker, 2006 WI App 247, 298 Wis. 2d 141, 7 2 6 N.W.2d 664 (assuming that parties who signed operating agreement could sue for violation s of that agreement) It may be that some claims involving breach of an operating agreement could belong to the company rather than the parties who signed the contract, but that depends on w h eth er the particular provision that was allegedly breached is directed toward protecting the interests of the company or the individual party. In this case, defendants simply argue generally that the derivative action doctrine applies to plaintiff's breach of contract claims. T hey do not address the language of each provision, although it is clear that at least some of these provisions create individual rights and obligations of the parties. For example, § 8.6 of the operating agreement required "[t]he Manager" to "provide Felton with written notice" of particular events. It would make no sense to treat a breach of that provision as an injury 24

to the company rather than to plaintiff individually. In any event, because defendants fail to develop an argument that the derivative action doctrine applies to any of the provisions p lain tiff is asserting in this case, that argument is forfeited. Carmichael v. Village of Palatine, Illinois, 605 F.3d 451, 460-61 (7th Cir. 2010); General Auto Service Station v. C ity of Chicago, 526 F.3d 991, 1006 (7th Cir. 2008). D efendan ts' second general objection is that plaintiff's breach of contract claims must b e dismissed because plaintiff has not proven damages. This argument confuses claims for breach of contract with tort violations. "The victim of a breach of contract is always entitled to nominal damages if he proves a breach but no damages. The victim of a tort, usually not." O lym pia Hotels Corp. v. Johnson Wax Development Corp., 908 F.2d 1363, 1372 (7th Cir. 1 9 9 0) (citing Vasselos v. Greek Orthodox Community, 24 Wis. 2d 376, 129 N.W.2d 243 (1 964)). Thus, lack of damages is not grounds for dismissal. I turn next to the particular provisions plaintiff is asserting in this case and defendan ts' specific objections to those assertions.

1. Section 4.12 A rguing that he has a cause of action under the contract for wrongs done to him, plain tiff points to the last sentence of § 4.12, which states that "a Manager shall not be liable to the Company or to any Member for loss or damage sustained by the Company or to any 25

M em ber, unless the loss of damage is the result of fraud, willful misconduct, material breach o f fiduciary duty or a wrongful taking by the Manager." Plaintiff's reliance on this provision is misplaced. The provision makes it clear that it does not create a cause of action; rather, it limits the types of claims that may be asserted against the manager to those involving "fraud, willful misconduct, material breach of fiduciary duty or a wrongful taking by the M an ager." Of the claims in this list, breach of fiduciary duty is the only one that plaintiff raised in his complaint, but I dismissed that claim in the October 5, 2009 order because it w as a claim of the company rather than plaintiff individually. Plaintiff cannot revive that claim simply by repackaging it as a breach of contract by defendant Smith. Plaintiff did not allege in his complaint any claims for fraud, willful misconduct or a w ro ngful taking, so he cannot raise them now. In any event, even if these claims were p ro p erly before the court, plaintiff has forfeited them by failing to develop any supporting argu m e nt or set forth specific facts in support of them. In the section of his brief discussing § 4.12, plaintiff says without elaboration that he "claims that Smith's conduct amounts to fraud, willful misconduct, material breach of fiduciary duty and wrongful taking by the M anager." Plt.'s Br., dkt. #119, at 21. He includes a separate section about "willful m iscon duct," in which he responds to defendants' argument that they did not engage in "w i llfu l misconduct" as understood by the Wisconsin courts in Gottsacker v. Monnier, 2007 W I App 34, 2007 WL 259836 (unpublished) (interpreting "willful failure to deal fairly" 26

u n d er Wis. Stat. § 183.402), and IGL-Wisconsin Awning, Tent and Trailer Co., Inc. v. G reater Milwaukee Air and Water Show, Inc., 185 Wis. 2d 864, 520 N.W.2d 279 (Ct. Ap p. 1994) (interpreting "wilful misconduct" under Wis. Stat. §§ 181.287 and 181.297). H ow ever, plaintiff's only argument is that those cases are not controlling because the court m ust engage in a "fact specific inquiry." Plt.'s Br., dkt. #119, at 23. That is not helpful. Plain tiff does not identify a particular cause of action for "willful misconduct" that would a p ply to this case, much less explain why he believes defendant Smith engaged in such m isconduct. Similarly, plaintiff says that defendants committed fraud in various ways, but h e fails to propose specific facts supporting these allegations or explain how any of these alleged acts meet the elements for a fraud claim.

2. Section 7.3 T h is section required "[t]he Company" to "establish such books, records, and accounts for the Company as are customary for businesses similarly situated and as accurately reflect the financial condition and position of the Company in accordance with generally accepted accounting principles consistently applied." Even if I assume that § 7.3 gives one member a right to sue another member for inadequate record-keeping, this claim fails because plaintiff has not proposed any specific findings of fact regarding any alleged deficiencies in Teel Global's records. 27

3. Section 8.6 T his section required "The Manager" to provide plaintiff with "written notice"of a "disposition of all or substantially all of the Company's property or assets." The parties do not seem to dispute that § 8.6 applied to the dissolution. In addition, the parties agree that defendan ts informed plaintiff of the dissolution and the transfer of Teel Global's assets to defendants, but not until after the events occurred. Because this claim applies to defendant Smith only, a threshold question is whether a violation of this provision could constitute "willful misconduct" or fraud as required by § 4.1 2 to permit a claim against defendant Smith. Plaintiff does not address this question in the context of his discussion of this claim. Instead, he focuses on the question whether the w o r d "notice" necessarily implies that plaintiff was entitled to be informed of the dissolution before it occurred or whether notification after-the-fact is sufficient. The agreement does not define the term and dictionaries and case law do not provide a uniform definition. Some autho rities define "notice" as a "warning." E.g., American Heritage Dictionary 1203 (4th ed. 2000) However, other authorities define "notice" simply to mean "knowledge," without a temporal element. State Central Credit Union v. Bayley, 33 Wis. 2d 367, 370, 147

N .W .2d 265, 268 (1967); Black's Law Dictionary (8th ed. 2004). Plaintiff concedes that "[t]he term `notice' has different meanings [and] is therefore ambiguous." Plt.'s Br., dkt. # 11 9, at 19. Although I agree with plaintiff that an ambiguous contract should be construed 28

again st the drafter, Liebovich v. Minnesota Insurance Co., 2008 WI 75, ¶ 32, 310 Wis. 2d 7 5 1 , 773, 751 N.W.2d 764, 774, plaintiff's concession counsels against a finding that any breach by defendant Smith was willful or fraudulent. If defendant Smith chose one of two r e aso n ab le interpretations, it is difficult to argue that he engaged in willful misconduct or fraud, even if he chose the interpretation that better served his own interests. In any event, because plaintiff fails to develop an argument on this issue, he has forfeited it.

4. Section 9.3 U nd er this section, "[u]pon dissolution, an accounting shall be made of the accounts o f the Company's and of the Company's assets, liabilities and operations, from the date of th e last previous accounting until the date of dissolution." The parties agree that no

a cc oun tin g was performed for the year 2008; the Virchow Krause accounting valued the co m p an y as of December 2007. D e fen dan ts ' only argument with respect to this provision is that plaintiff has not proven any damages because he has not demonstrated that Teel Global decreased its debt o r acquired any additional assets in 2008. This argument fails because plaintiff does not h ave to prove damages to prove a breach of contract. Olympia Hotels, 908 F.2d at 1372. H ow ever, this claim raises two other questions that neither side addressed in their briefs. The first is whether defendants may be sued at all for a violation of § 9.3. The 29

p ro visio n does not expressly identify either of the defendants as responsible for performing the accounting; it just says that one must be performed. Because the accounting is for Teel G lobal, it may be that Teel Global was the proper party to be sued. E.g., Gottlieb v. N orthriver Trading Co. LLC, 58 A.D.3d 550 (N.Y. App. Div. 1st Dept. 2009). Although p lain tiff suggests in his brief that Teel Global could not be named as a party in litigation after dissolution, this view seems to be contrary to Wisconsin law. Wis. Stat. § 183.0903(3) ("D issolution of a limited liability company does not . . . [p]revent commencement of a civil . . . proceeding by or against the limited liability company.") Alternatively, if Teel Global is not the proper party, it is not clear whether the responsible party is defendant Teel Plastics as the party that ordered the dissolution or defendant Smith as Teel Global's manager. A second issue is whether plaintiff is entitled to specific performance of this provision. B eca us e specific performance is an equitable remedy, its allowance or refusal "rests in the d iscretio n of the court." Edlin v. Soderstrom, 83 Wis.2d 58, 70, 264 N.W.2d 275, 281 (19 78 ). Courts must consider a number of factors, including the fairness of ordering relief u nd er the circumstances. McKinnon v. Benedict, 38 Wis. 2d 607, 617-18, 157 N.W.2d 66 5, 669-70 (1968). B ecau se neither side addressed these issues, I will give them an opportunity to do so. In addressing the second question, the parties should discuss whether it is appropriate to ord er specific performance in this case without a showing that doing so could lead to an 30

aw ard of damages and, if not, which party should bear the burden of proving damages or the lack of damages. Further, in anticipation of the possibility that an accounting might be o rd ered , the parties should address their view of the proper scope of the accounting and subm it a proposed order.

C. Statutory Claims P lain tiff contends that defendants violated several statutes in Wis. Stat. ch. 183, w hich govern the creation, management and dissolution of limited liability companies. In its opening brief, defendant Teel Plastics discusses each statute plaintiff identified in his am ended complaint and explains why it believes it has not violated any of the statutes. Dft. Teel Plastics' Br., dkt. #76, at 22-23. In his brief, plaintiff devotes one sentence to the m erits of his claims under Wis. Stat. ch. 183: "Violation of §§ 183.0402, .0903 and 0905 rely upon the same facts supporting Plaintiff's breach of contract claims under sections 4.12 an d 9.3 of the operating agreement." Plt.'s Br., dkt. #119, at 25. That is insufficient to p reserve this claim. Each of these statutes contains numerous provisions covering varying subjects. Even if plaintiff is relying on the same facts used to support his other claims, plaintiff cannot defeat defendants' motions for summary judgment without at least id en tifyin g the particular statutory provision he believes defendants violated and explaining the basis for his belief. 31

OR DER IT IS ORDERED that 1. The motions for summary judgment filed by defendants Teel Plastics, Inc., dkt. # 74 , and Jay Smith, dkt. #84, are GRANTED on all claims, with the exception of plaintiff C o lin Christopher Felton's claim that defendants breached § 9.3 of the operating agreement by failing to perform an accounting "from the date of the last previous accounting until the date of dissolution." A decision is reserved on that claim pending the receipt of additional briefing from the parties. 2. The parties may have until August 2, 2010, in which to file supplemental materials addressing the following issues: (1) whether defendant Teel Plastics or defendant Smith or both may be sued under § 9.3 of the operating agreement; (2) whether plaintiff is entitled to specific performance for a violation of § 9.3; and (3) the proper scope of the order, in the event that the court orders specific perfor m an ce under § 9.3. The parties may have until August 12, 2010, in which to

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file responses to any other party's materials. E n tered this 12th day of July, 2010. B Y THE COURT: /s/ B AR B AR A B. CRABB D istrict Judge

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