the state of new york hastings and aaron appeal the eight hundred eighty thousand dollars award that the trial court made of the distributional interest of lincoln provisions inc the appellee whom i refer to as lincoln in hastings appellee lincoln provisions is an illinois corporation headquartered in chicago is controlled by the stevens family and who is headed up by james stevens according to exhibit three in the record on march fourth two thousand and ten lincoln provisions and aaron formed hastings they did that by filing articles of organization in the secretary of state's office of the state of illinois in accordance with the requirements of chapter eight zero five act one eighty the so called of the smith third illinois compiled statutes the so called illinois limited liability company act and i would say a preface that the only way limited liability company act historically had a profound influence on the uniform acts that were later adopted and i believe ninety six in two thousand  allowed by the operating remit he had the right under illinois law in effect to put his interest to the company which made limited liability companies very fragile under illinois law in any event this company was formed by the filing and in the filing it was stated that the order that the hippity would be member managed that's important because a member managed company is defined in the statutory provisions of the illinois act as being in entity that has stated in its articles that its member management so it was a trial court here concluded it was a member managed even though the parties practically believed that it was to be manager managed by lincoln as all mentioned in just a moment the trial court found that the filing of the articles that named the two members but didn't specify a percentage just said this is going to be members managed by these two entities the trial court found that as a result of that filing each of the members had a fifty percent interest in the entity that is each held fifty percent of hastings said the trial court the trial court then concluded that there was no written operating agreement nor did the parties reach any meeting of the minds about any matter of fact or thing about how they were going to run this i don't remember at this point but if it does judge guys to talk about how he arrived at the fifty fifty split is there anything in the record  relied on to get that or just the fact that they said there were two members what you just said there is no reference at all in any finding of fact the judge gusset the magistrate judge who handled this by consent there was no finding of fact that he made that the parties had an agreement that they reached an agreement that they were each to hold fifty percent of something which we'll talk about in just a second that finding was said in paragraph five of his findings and in that citation where he said that each owned fifty percent of the company he referenced exhibit three which is the articles this is a very odd situation where you have a company formed under law noir law which would no doubt liability company that has no operating agreement judge gossett apparently without saying it concluded i believe the north have an operating room has been writing you will note the sparsity there is no authority under illinois law whether a operating room has to be in writing or not the best read of the statute is is that in or writing suffices for the reason stated but no eleven in my brief i also call the court's attention to thirty five days fifty which also speaks in terms of a written agreement being necessary to establish the vent after which a member managed or a manager managed member they couldn't if it had to be in writing why would they have had to mention a writing or the point that when you look at what occurred here is the trial court made no finding as to any subsidiary finding of how this got to be fifty fifty but fifty fifty in this case is important put in context if you're talking about profits are you talking about the final distribution of the equity are you talking about management it's absolutely clear under the act in a fifteen to ash three members have equal management the absence of a contrary provision in the operating agreement so that without more without an operating room of these members in yours and that enough we have a world or an operating agreement says when you get these distributions in this way and all that typically what happens isn't corns with the internal revenue code section one dot seven zero for the regs so that you have a provision that you adopt ca and you distribute in accordance with liquidation of the catholic counts which means you get your return a capital back under van or the county and then your share the profits however here we have none of that so what do we do with fifteen x five a makes a clear out of the act and that suggested in wyoming law without the statute behind him one should construe that statute to mean that you look at the hypothetical amount that the member would get if there were liquidation as of the applicable valuation date that's the date you look at you look at the hypothetical amount the fat person would get if there were a liquidation now first you would say well let's go to the operating agreement see where what you get in that a bit when we have not here so it is then we have to look at the statute and the statute is clear the first thing you do is take a return of the capital and then the balance of the assets after all capitals return to the individuals is then elec hated in equal shares of the partners in the absence of a different provision when you think about what i just said the eight hundred eighty thousand dollar word here is astounding it's astounding for this reason lincoln provisions inc had one hundred thousand dollars in its contribution to capital said the trial court at the time that the  disassociation was determined or in the crowd court july second which we think is clearly wrong should and should mention six i'm not going to belabor that right now this is too important on these points but the point of the matter is on that day the judge said and we agree with his value of three nine but we disagree that he didn't reduce it for the obvious amount he should have under fifteen days seven before the amount that aaron had contributed in excess of his share of a million seventy but the but the three point nine million in total assets that were in the company three point eight million of that was contributed by pierrots in one hundred thousand of that was contributed by lincoln the trial court awarded lincoln seven hundred eighty thousand dollars it put down one hundred thousand dollars on or about march of two thousand and ten and four months later it had a recovery of seven hundred eighty thousand dollars at the seven hundred eighty percent profit cash on cash and it came out of have the money come from well the total value the enterprise was three point nine and my clients put in three point eight it's pretty clear that the seven eighty came from two sources number one the millions seventy thousand contribution that my client made to make up the shortfall that lincoln didn't make in coming to the table lincoln was supposed to put up thirty percent of the cash and did so one million seventy of that three now it was my guy putting up a capital contribution in excess of his agreed contribution under fifteen day seven b of the act that's a debt that should have been reduced that three nine so where did the rest of the money come from the rest of the money came from aaron's capital contribution five thirty five came from that million seventy that should have been reduced of that seven eighty in excess of the hundred thousand the guy that like it had in it and the other two forty five came right out of our capital contribution after the smoke cleared three point nine minus seven  the company with about a million twenty or three million and twenty and our people put in three eight that doesn't seem fair it's wrong it's completely wrong because it fails to take into account the distribution that lincoln would have had under the statute thirty nice days ten b i would also note that even in the absence of the statute there was a specific agreement on this that that capital is to go back seventy thirty there is there is enormous amount of evidence of the two operating agreement so provided the emails from dominant as in his june july in his july second letter which i didn't mention also states that the only amount that they were looking for an equity was half of what was left over after capital contributions were returned which is exactly what the court didn't do this is a bizarre result it isn't an equitable it's just plain flat wrong the judge did not take into account the guiding principles of the statute to measure th interest and in so doing affected a terribly an equitable result who would ever agree to put in capital seventy percent of the capital and then only get fifty percent back only a moron would do that and yet that's what the trial court in dissolution basis and that the illinois limited liability company act thirty five dash ten that's the statute of the portion of the act the two which they're arguing and in fact it is a disassociation and under the disassociation standard thirty five sixty five the court applied that correctly and the court's findings are sound and based on substantial evidence the  it would be fifty fifty in a disassociation the facts in the way this partnership this entity came together was that the proof family was essentially the money behind it and the records clear that they understand he was your client was posed to put up the management but they didn't they didn't manage so well they were or were get it it's you know they did if they'd run the company for a while they all see for a while that the one thing but what did what a judge got to rely on is they were fifty fifty in the disassociation well my understanding is significant testimony and evidence that  our clients found the opportunity they had the know how they invested the time the expertise and the skills to develop a business plan the business plan was extensive he made those findings that was evidence before the court i'm i'm not necessarily saying it's found in his order in the state first what factual findings did he make to say that this record supports a fifty fifty split and then we can go to what it is in the record that well my recollection your honor is that he evaluated the testimony that our clients were the ones that put together the opportunity put together the business plan you're back to the record again i'm like what did he say what that you know it's been a while since i've looked at it but i don't remember him as a gossip explaining making findings about how he got to the fifty fifty and correct correct me if i'm wrong you know the case better than i do but what findings did he think i'm looking at page two of the memorandum in order your honor and  i think it just goes back to the the sweat equity that i've been discussing the sweat equity contributed and the business plan which  entity utilized after the fact and testimony was given that the business plan will sound and that they thought the venture could be profitable going forward using that as one paragraph five on page two  conclusion plain even for us each well the fifty percent interest in haiti right what is that based on well i concur by simply reading the memorandum order it doesn't go into specific detail i can you tell me what you think it's basically all right i think it's i think it's based on the significant evidence before the court at the trial court that perche group was the money and lincoln provision identify the opportunity had all the experience invested months and months of their efforts bringing this opportunity from a concept to something that could be put into effect presuming that the real estate could be purchased and assets purchased in the bankruptcy court the business plan was sound the testimony of pierrots is that he was utilizing that same business plan or was going to moving forward and given their lack of knowledge in the industry all of what our clients had put forth in terms of the overall plan and potential relationships with customers placing of the product and all the things that actually make this profitable business was done by our clients so the opportunity was in a package and the fact is these folks just couldn't get to an operating agreement so it was a business that was ready to go but for the fact that they couldn't come together on the operating agreement and so i think the court looked at the agreement of the parties to do the capital infusions at seventy thirty as an understanding between the parties that essentially twenty percent of from the thirty to fifty on a fifty fifty was that kind of a sweat equity the putting together of the plan and the opportunity that's that's my understanding i understand the court's point that it's not specifically laid out in the order  but that's my understanding of how it came to be on explained with the argument that mr betterman makes which is is simply is fairness argument which is that your client put in one hundred thousand dollars and gets back eighty gets his hundred thousand dollars back plus hundred eighty thousand what what your response to that well my response to that is the value the appraisal value a year before the trial was twelve point five million we had asked the trial and evidence was put on by our clients that the true value was eighteen million no contrary evidence was put on by the appellant and so we looked long and hard at th gosh eight hundred eighty thousand for you ation of eighteen to twelve million but we found that the court head analyzed the facts correctly the standard overview was clear and to our dismay didn't find clear otherwise we would have been appealing across appealing on the valuations so it's true but the hundred thousand was put in but what was the value of that i mean the real estate itself was purchased or three point nine million and that was that was a transaction that was closed two days prior to our disassociation so that was a value of the business and that was testimony of i believe three of our prior alone just the real estate and there was no evidence that the real estate or the valuation had dropped in the intervening year and as the court may recall this was from zero nine to two thousand and ten so in zero nine valuation given other market factors  we believe the evidence showed was quite reasonable so with that we believe this is a fact intensive case and there's no clear error there's been no showing of clear error and the fact purchase a three point nine the only appraisal evidence is twelve point five so bringing that opportunity to the table arguably could be an eight point five million dollars benefit presumably that was step one and then step two was putting together a very complicated business plan of how to run and operate this facility which would be dedicated at least somewhat to kosher cuts and marketing which is a different industry of which our clients had substantial history and they had been in the meat business and business for decades the stevens family that is and the pyrex group was more looking to be investors and the backers so i'm not sure how relevant is within the would that affect the the ongoing value of the company if you didn't have your clients and management was that discussed when they were evaluating the business of fees out you don't anybody to manage you don't have the cattle to slaughter that are readily available anyway no we well first of all purchase testified that he believed based on the business plan and what was involved with that that he could take that and go forward and run a profitable business and the business did not dissolve as a result of all our clients choosing to disassociate so i would say no because our clients were ready willing and able to place the cattle to run the business but for the fact that they couldn't get to an understanding an operating agreement between the two of them which we contend well i'm sure each party contends it's because the other party has been difficult but we were ready willing and able to put this in motion and that same plan was then taken and kept by hastings and mr pierrots and he testified at the trial that he believed that the plan was sound and that they intended to move forward on that basis the company in business could be profitable based on what failed in fact his own mr prove his own testimony at trial said they intended to and believe they could move forward without us on our plan was that they couldn't get together on well i think it had to do somewhat with the management there was some question of member managed and manager managed and who was going to have that role and who would ultimately have that's  case and not a dissolution case based on the testimony of appellants themselves mr betterman didn't address it but they have some theories in the briefing that there was a failsafe agreement reached that there were some discussions back and forth between the lawyers of whether or not the parties could come to some agreement regarding operating agreement but there was never an agreement the lawyers talking back and forth and drafts of agreement passing back and forth did not create an agreement and the trial judge a value added that correctly and since there was nothing signed and there was no agreement you simply go back and apply that statute which we've discussed  but when you have the order minute we parted at three twenty three oh thank you judge without with all due respect to counsel counsel said there was an appraisal in the record for twelve point five million you look very hard and find no appraisal in the record for twelve point five million you will find the declaration of of the praiser and he said that they had zero nine appraiser was wholly unreliable he said there were national trends of the downturn in the market no nine that he didn't find there were changing conditions of the equipment trial court correctly found that that was nonsense and it is nonsense it is very disingenuous to suggest that there is a twelve point five l you on this property can say there is none i would also point out to the court that with respect to this idea that you don't use the dissolution provision to measure the value of a distribution right i would queery then work now on the default provisions of the act what provision of the actors lincoln suggest we should look to to determine what the extent nature of the distribution right is in this l l c there is no practical other alternative then to use the measure provided in the dissolution provisions and that makes sense because you'll note that under thirty five dash sixty five see if the agreements not consummated the disgruntled associated member gets to go to dissolution and as if there were no sale order that's an important provision but it suggests to me rather clearly is that the measure by statute is right which is carefully provided for in thirty five days ten b out so look at lieberman now i gotta admit i'm citing a dissenting opinion by looked in vain and i couldn't find any guidance on this but that judge wyoming you know was the first state that had it and if you look at his dissenting opinion he pretty well predicted the way the law would go by changes in the statute i'm talking about judge layman but he found that the use of the dissolution provisions made sense because that's a legislative determination probably to determine the value of the equity and why should the departing partner get anything different than he would get the dissolution if only one guy's leaving why should he get the same amount that he would have gotten if everybody left there's no law the other thing is is the uniform partnership back provides for that that you have this hypothetical liquidation and measure the distribution based on whatever the provisions would be provided for for distribution the fact that i'm it's a disassociation and we're using dissolution provisions is necessary because there's no other provision in the act we can use the measure exactly what the extent nature of those rights are that we're going to value for the distributional rights bear in mind that we're not going the membership interest we're out of a membership interest would include the right to manage all that sort of thing we're just valuing the naked right to distributions  to money over time this failsafe agreement did exist in june twenty first they've met and they have the agreement is memorialized in the last paragraph of the fifty eight everybody agreed to it and the simply ignored the evidence i can understand and  safe was if one guy went forward and the other die didn't go the guy that didn't go would get cashed out for what he had in the deal was real simple and you could see in the e mail trail that was what lincoln was suggesting all the way look at exhibits two thirty five eighty one eighty three no question that this was the deal and it we relied on that deal we went forward we put up the three point nine million three point eight of ours and reliance on the fact that i'm out of time thank you very much you give us the better