### IN THE COURT OF APP EALS OF TENNESS EE AT KNOXVI LLE Jul y 1, 200 3 S es sio n
MELI NDA ANDERSON, ET AL 

### . v. BRET T WI LDER, ET AL 

### .

Appeal f romthe Circ uit Court for Knox County No. 2-778-01 Har old Wimber ly, Jr., Judge

F ILED NOVEMBER 21, 2003

No. E2003-00460-COA- R3-CV

This case involves a dispute betwe en member s of a limited liabilitycomp any(“L L C”) entitled Future Point Administrative Service s, LL C. The Plaintiffs were expelled from the LL C by a vote of the Def endants, who tog ether

owned 53% of FuturePoint. The P laintiffs rec eived a buy out price of $ 1 5 0.00 per ow nership unit in Future Point after they wer e expelled, pursuant to the op e ratin g a g re e men t of th e LL C. Sh ortly a ft e r the e xpuls ion , th e De fe nd a nts so ld 4 99 ow ne rs hip
un its , a mou nti ng to a 49 .9 % int e re st in the LL C, to a thi rdpa rt y a t a pr ic e of $2 50 .0 0 p e r o wn e rs hip unit. Plaintiffs f

iled this a ction, alleg ing, among other thing s, that the Def endants’ a ctions violated the ir fi du c iary du ty a nddu ty of g oo d f a ith to P la int if

fs . D e fe nd a nts mov e d for su mma ry jud g me nt, arg uing that their ac tions wer e authorized by the oper ating ag ree ment and that they acte d in good faith in expelling the Plaintiffs. The Trial Court gr anted summary judgme nt in Defe ndants’ fa vor. We vaca te the orde r of summary judgme nt and re mand.
Tenn.R.App .P . 3 Appeal as of Right; Judgme nt of th e Circ uit Court Vacat ed; Cause Rem anded

H OUS TON M. G O D D A RD , P.J ., delivere d the opinion of the court, in which H ER SCH EL P. F RAN KS and D. M I CH A EL S WI NEY , J J ., joined.

B r ia n C. Q u is t, K n o xv il le , f o r th e A p p e ll a n ts , M e li n d a A n d e r s o n , A la n B

. Z im me r ma n , Ch e rr y W. Z immerman, Charle s F. Qua de, Janine R. Quade , Wil liam Thompson & Assoc iates, I nc., Micha el A. Atkin s, She rry

L y nn Tu rn e r, a ndPa tr ic k L . M art in

L ewis S. Howar d, J r. and H eathe r R. Gunn, Knoxvil le, for the Appellee s, Br et t W ilder, De e De e Wil der, Micha el E. Cox , L amar r Stout, Anna Stout, Tim othy Welles, Kelly

We ll e s , D ennis Fr eema n, and Rhonda Shockley

OP IN ION

Future Point Admi nistrative S ervices, LL C, was cr eate d by the parties on or about January 1 , 2 0 0 0 , at which time they executed the ope rating ag ree ment for the c ompany . Future PointA nn a St out was i ncor r ect l y i dent i f i ed i n t he com pl ai nt as “Sus an St out

. ” Lamarr S t out , he r hu s band, s t at ed 1
i n hi s d ep o si t i o n t hat hi s wi fe go es by t he ni cknam e Susi e, whi ch p res um ab l y was t he source o f t he error.
-2- commence d the business of administering third party medical c laims in early

2000. Owner ship of the company

was divided into “ owner ship units.” One owner ship unit amounted to one-tenth of one perc ent owner ship of the company

. The owner ship inter est, and amount of ca pital contributed for the sta rtup of F utu re Poi nt, of

e a c h p art y

is i llu str a te d in the fo llo wi ng c ha rt :
Member N ame Owner ship I ntere st Capital Cont ributed

Wil liam Thompson & Associates, 100 units (10%) $15,000 I nc. (Plaintiff) Charles a nd J anine Qua de (Plaintiffs) 100 units (10%) $15,000 Michae l Atkins and Sherry Turner (Plaintiffs) 100 units (10%) $15,000 Patrick L . Martin (Plaintiff) 100 units (10%) $15,000 Alan and Che rry

Z immerman (Plaintiffs) 40 units (4%) $ 6,000 Melinda Ande rson (Plaintiff) 30 units (3%) $ 4,500

Br ett and De e De e Wilder (De fenda nts) 200 units (20%) -0- Michae l E. Cox (De fenda nt) 100 units (10%) $15,000 L amar and Anna Stout (Defenda nts) 100 units (10%) $15,000

1 Timothyand Ke lly

Welles (Def

endants) 100 units (10% ) $15,000 Dennis F ree man and Rhonda Shockle y 30 units (3%) $ 4,500 (De fenda nts)

As ca n be see n from the c hart, e ach me mber c ontributed $150.00 per own ership unit, with the exception of Def

endants B rett and D ee D ee Wilder.
The pa rties set up F uturePoint as a member -mana g ed LL C. The oper ating ag ree ment pro v i d es fo r a ma nag ement committee “ to oversee and mana g e the business ope rations of the Compa ny .” Th e op e ratin g a g re e me nt g ive s th e ma na g e me nt c omm itt e e the po we r a nda uth or ity to contra ct on behalf of the company by a majority

vote. Futur ePoint’s manag ement committee wa s comprised of Plaintiffs Micha el Atkins, Charles Qua de, and B ill Thompson, and Defe ndants L amar r Stout and Bre tt W ilder.
On September

10, 2001, a members’ meeting took pla ce at the Future Point offices, at whic h two o ffe rs to purcha se owne rship units were disc ussed. Eac h offe r wa s at a pric e of $250.00 pe r owner ship unit. At t his ti m e, F uturePoint had g ener ated a n amount of excess ca sh on hand in the amount of $63,000.00.

On September 14, 2001, the following actions we re taken by the Def endants, a s shown by a docume nt sty led “Ac tions taken by written consent of the member s of Futur ePoint Adminis trative Service s, LL C”:-3- I n lieu of a me eting of the Membe rs of F uturePoint Administ ra t i ve Se rv ic e s, LL C ( the “ Compa ny ” ), a Te nn e sse e lim ite d li abil ity company , in acc ordan ce with the provisions of Section 48-233-101 of the Te nnessee L imited L iability Company Act and Article 8.10 of t h e O p er at i n g Agr ee m en to f t h e C o m p an y , M em b er s h o l d i n g a majority of Units and who own Governa nce Rig hts with voti ng power e qual to th e vo tin g po we r tha t w ou ld b e re qu ir e d to take the sa me action at a meeting of t he Members at which all Members ar e pre sent he re by take the fo llo wi ng a c tio ns :
The following Resolutions ar e here by adopted by vote of the
a fo re sa id M e mbe rs :
RESOL VED, pursua nt to Article 13.6 of the O perating Ag ree ment of the Company , the fol lowing Me mbers ar e her eby expelled from the Company eff ective a s of the date here of:

Wil liam Thompson & Associates, I nc. Mike A. Atkins and/or Sherry L y nn Turner Pa tr ic k L . M art in a nd

/or De bo ra h N . M art in Charles F . Quade and/or Janine R. Quade Melinda Ande rson and/or A dam & Wil liam Derr eber ry Alan Z immerman and/or Che rry W. Zimmerman

RESOL VED F URTHER, pursuant to Article XVI I of the Ope rating Ag ree ment of the Company , the Oper ating Ag ree ment is hereby amende d to delete in its entirety , Ar t i cl e I X and the Ma nag ement Commi ttee crea ted t here under; such functions pre viouslyconducte d by the Mana g ement Committ ee to be here af ter c onducted by

the Chief Mana g er, B rett Wilder.

RESOL VED F URTHER, pursuant t o Article X of the Ope rating Ag ree ment, Charles F. Quade is he reby remove d as Secr etary of the Company and L amar

r Stou t i s h er eby

elec ted as Sec reta

ry of the Company

. Pursuant to the terms of the ope rating agr ee m en t , the re maining me mbers of the company bo ug ht the ow ne rs hip int e re sts of the e xpe lle d me mbe rs a t a pr ic e of $1 50 .0 0 p e r m e mbe rs hip un it. On Oc tob e r 1 1, 20 01 , the re ma ini ng me mbe rs of F utu re Poi nt so ld a tot a l of 49 9 me mbe rs hip un its to a Don Allen at a price of $250.00 per unit.

Th e Pla int if

fs br ou g ht thi s ac tio n on De c e mbe r 17, 20 01 , all e g ing br e a c h o f f idu c iary du ty and bre ach of

the statutory

and common law duty

of g ood faith and fair dealing

. Def endants moved-4-

for s u mm ar y

ju d g me n t, ar g u in g th a t th e ir a c ti o n s w e r e e xp r e s s ly

p e r mi tt e d u n d e r

th e o pera ting
a g re e me nt, a ndthat th e y

a cte d in g oo d f

a ith in e xpe lli ng the Pla int if fs . Sp e c if

ic a lly , D e fe nd a nts
re lie d u po n th e fo llo wi ng pr ov isi on of the op e ratin g a g re e me nt:

13.6 Ex pulsion of a Member. The Com pany may expel a Member, with o r wi t hout cause , from the Company upon a vote or

written consent of the Members w ho ho ld a majority of Units. I n the eve nt of a Member’ s expul sion, the remaining Members sha ll be obliga ted to purcha se the e x pelled Membe r’s F inancial Rig hts at the Ag ree d Price a nd on the Ag ree d Terms wi t hin thirty(30) da y s of such expuls ion. The re maining Members shall purc hase the expelled Me mbe r’ s Fin a nc ia l Rig hts in p ro po rt ion to the ir F ina nc ia l Rig hts (excluding the Offe red F inancial Rig hts), or in such other pr oportion as they may ag ree

. The Trial Court gr anted the D efe ndants summary judgme nt, finding only that “no genuine issues of materia l fac t exi st f

or adjudication and the Def endants are entitled to summary judgme nt as a matter of law.” Plaintiffs ha ve appe aled this ruling , raising the issue, which we restate , of whe ther the Trial Court erre d in gr anting summary judgme nt.

I n Staples v. CBL & Associates, Inc

. , 1 5 S. W.3 d 8 3, 89 (T e nn

. 20 00 ) the Te nn e sse e Sup re me Court sta ted the following as to the standard of revie w specific ally applicable to s u mmary jud g me nts : The standards governing the assessment of e vidence in the summary

judgme nt context are also we ll esta b l i s h ed. C ourts must view the
e vid e nc e in the lig ht m os t f a vo ra ble to the no nmo vin g pa

rt y a ndmus t also draw all rea sonable infere nces in the nonmoving part y ’s favor. See Robinson v. Ome r , 9 52 S.W. 2da t 42 6; By rd v . H all , 847 S.W .2d
a t 210- 11

. Cou rt s sh ou ld g ra nt a su mma ry jud g me nt o nly

wh e n b oth t h e f a c t s a n d t h e i n f

e r e n c e s t o b e d r a w n f

r o m t h e f a c t s p e rm it a
rea sonable pe rson to rea ch only one conclusion. See McCall v. W ilder , 9 13 S.W. 2d15 0, 15 3 ( Te nn . 1 99 5) ; Carvell v. Bottoms , 900 S.W .2d 23, 26 (Tenn. 1995)

. We be g in w ith the Plaintiffs’ assertion that the majority share holders in a membe r-mana g ed,
c los e ly -h e ld L

L C st a ndin a

fi du c iary re la tio ns hip to the min or ity sh are ho lde rs , suc h as P la int if fs in this case. We quote f

rom Plaintiffs’ brief

as follows in summarizing t heir a rg ument in this reg ard:
[I ]t is well settled in Tennesse e that the majority share holders of a corpor ation owe a

fiduciary duty to the minorityshare holders. Nelson
v . M ar tin , 9 58 S.W. 2d64 3, 64 7 ( Te nn .1 99 7) ; Mike v. Po Group, I nc ., 93 7 S. W.2 d 7 90 , 79 3 ( Te nn .1 99 6) ; Nelms v. W eave r , 681 S.W .2d-5- 54 7, 54 9 ( Te nn .1 98 4) ; Dale v. Thomas H. Temple Co. , 208 S.W .2d 34 4, 35 2 ( Te nn .1 94 8) . Wh ile c or po ra tio ns a re “ fi c tio na l” e nti t i e s c r e a t e d b y s t a t u t e , t h e f i d u c i a r y d u t y o f t h e m a jor ity sh a re ho lde rs to t he min or ity is a matter of common law. The Tenne ssee B usiness Corporation Act at T.C.A. § 48-11-101 et se q. me nti on s n oth ing abo ut an y fi du c iary du ty ow e d b y ma jority sh are ho lde rs to m ino ri ty

sh are ho lde rs

. Acc ording ly , why

should the majority

members of

a member -mana g ed limited liabilit y company not owe the same fiduciary

duty to the minority ? They

should. There is no reason to distinguish the two forms of business e nterprise . I ndeed, me mber-ma naged limit ed liability companies a

re g overne d
mor e lik e pa

rt ne rs hip s th a n c on ve nti on a l c or po ratio ns. S in ce i t is a lso we ll e sta bli sh e d a s a fundame ntal rule of pa

rtnerships, that a l l p ar t n ers, not just the majority , owe e ach othe r fiducia ry du tie s ( Lightf

oot v. Hardaway , 751 S.W .2d 844, 849 (Tenn.Ct.App.1988)) , it log ically follows that
a ma jority of the me mbe rs of a n “ LL C” sh ou ld ow e a fi du c iary du ty to the min or ity

me mbe rs jus t like the duty

a majority

of the shar eholder s of an “ I nc.” ow e the minority share holders.

An ana ly sis of the nature and history of t he limited liabilit y

company is helpful in addre ssing this fi d u ci ar y d u t y question. The L L C is a relatively

new f orm of business entity , a hy brid which “incor porate s certain benef

icial aspe cts of a pa

rtnership with certain benef icial aspe cts of a corpor ation.” Annotation, Con str uc tio n a nd Ap pli c ati on of L im ite d Li ab ili ty Com pa ny Ac ts , 79 A. L .R. 5th68 9. Th is A .L .R. a nn otatio n c on ta ins the fo llo wi ng he lpf ul o bs e rv a tio ns :

I t is im portant to kee p the history of LL C development in perspe ctive wh e n w or kin g wi th L

L Cs a ndc ou rt

int e rp re ta tio ns of

LL C a c ts. . . . The ty pical LL C act is usually

a hy brid of provisions culled fr om the i ndividual state’s partnership statutes and business c orpora tion law.
*** [W]he n a cou rt is inte rp re tin g a n L L C ac t or a g re e me nt, the c ou rt wi ll focus on the pa

rticular a spect of th e L L C t hat g ives rise to the problem, with empha sis on the foundational business form f rom which that cha

ra c teris ti c o rig inated. Usua lly , the particular a spect c an be tr a c e d to e ith e r the c or po rate c omp on e nts or

the pa rt ne rs hip components of the L

L C act or a g ree ment. I n such ca ses where the char acte ristic orig inated fr om the partne rship aspec ts of t he L L C, the court will use the e stablished princip[ le]s and prec edent of the partne rship law to re solve th e i s s u e. . .I n such ca ses wher e the char acte ristic orig inated fr om the corpor ate a spects of the L L C , the court will u t i liz e the e stablished princip[le] s and pre cede nt of corpor ate law to resolve the issue.

79 A.L .R.5th at pag e 698.

I t is well-rec og nized that a fiduciary rela tionship ex ists between membe rs of e ither a partne rship or a c losely -held c orporation under establishe d principles of both pa rtnership law and-6-

corporate law . I n Lightf

oot v. Hardaway , 7 5 1 S. W. 2 d 8 4 4 ( T e n n

. A p p

. 1 9 8 8 ) , th e c o u r t s tated as fo llo ws re g ard ing bu sin e ss p art ne rs hip s:

The funda mental rule tha t the relationship of partners is fiduciary and imp os e s o n the m the ob lig a tio n o f the utm os t g oo d f a ith a ndint e g ri ty in their dea lings with one another with r espec t to partne rship aff airs is universally

rec og nized in the m odern cases a nd is reinforc ed by the Un if or m Pa rt ne rs hip Ac t..

.. Al so we ll e sta bli sh e d is the app lic abil ity of t h is f id u c ia r y d u ty o n th e s a leo f

o n e p ar tn e r ' s in te r e s t t o a n o th er p ar t n e r , t h e c o u r t s o f

t e n c h ar a c t e r i z i n g th e d u ty a s b e i n g " p ar t i c u l ar l y" or " espec ially " a

pplicable to this situation. Although it is no long er dis pu te d, a t le a st in th e ory , th a t su c h a sa le wi ll b e su sta ine d o nly wh e n it is m a de in g oo d fai th, f

or a fa ir c on sid e ratio n, a ndon a

fu ll and complete disclosure of all important information as to value, the
ru le ' s a pp lic a tio n is by

no me a ns a s c le ar a ndsimple a s it s st a te me nt; and the s p ec ific conte nt of such terms as "g ood", " fair" , "f ull", and "importa nt" c an be known only by rela ting the pa

rticular c onduct and circ umstances of

the parties to the results rea ched in the c ases. Lig h t f o ot , 751 S.W .2d at 849 (quoting 4 A.L .R.4th at pag e 1128-29) . The Ge nera l Assembly has
c lari fi e d th e du tie s o we d b y pa rt ne rs by pa ssa g e in 2 00 1 o f T .C. A. 61 -1 -4 04 , w hic h p rov id es in
re le va nt p art

a s f oll ow s: (a) The only fiduciary duties a partne r owes to the partne rship and the oth e r p art ne rs are the du ty of loy a lty a nd the du ty of c are se t f orth i n subsections (b) a nd (c)

. (b) A pa rtner' s duty

of loy alty to the partne rship and the other partne rs i s l i m i t ed t o t h e f

o l l o wi n g: (1) To a ccount to the pa rtnership an d hold as trustee f or it any property , profit, or be nefit derived by the partner in the conduct a nd winding up of the partne rship business or derived from a use by the partn er of

partne rship property , including the appropriation of a p ar t n e r s h i p o p p o r t u n i t y; (2) To ref

r a in f r o m d e a li n g w ith th e p ar tn e r s h ip in th e c o n d u c t or wi nd ing up of

the pa rt nersh ip b us ine ss a s o r o n b e ha lf of a pa rt y having an intere st adverse to the partne rship; and
(3) To r efr ain from c ompeting w ith the partnership in the conduct of the partnership business befor e the dissolution of the partne rship.

***-7- (d) A pa rtner sha ll di s ch ar ge t he duties to the partnership and the other pa rtners unde r this a ct or under the partnership ag ree ment and exercise any rig hts c onsistently with the obligation of g ood faith and fa i r d ea l i n g. (e) A partner doe s not v i o l at e a dutyor oblig ation under this ac t or under the partne rship ag ree ment mere ly beca use the partne r' s conduct fu rthe rs the pa

rt ne r' s o wn int e re st.

Th e Sup re me Cou rt ha s pro vid e d the fo llo wi ng g uid a nc e a s r e g ard s me mbe rs of c or po rate
a sso c ia tio ns :
Th is C ou rt ha s sta te d tha t majo ri ty sh are ho lde rs ow e a fi du c iary du ty to minorityshare holders. Mike v. Po Group, I nc. , 937 S.W .2d 790, 79 3 ( Te nn .1 99 6) ; Nelms v. W eave r , 681 S.W .2d 5 47, 549 (Tenn.1984) , cert. de nied , 476 U.S. 1118, 106 S.C t. 1976, 90 L .Ed.2d 66 0 ( 1986 ); Dale v. Thomas H. Tem ple Co. , 186 Tenn. 69, 208 S. W. 2 d 3 4 4 , 3 5 2 ( 1 9 4 8 )

. T h e Co u r t o f A p p e a ls s tate d in Johns v. Cal dwe ll , 601 S.W .2d 37 (Tenn.A pp.1980), "O ur courts are pr ompt to redre ss the injuries to minoritysto ck h o l d ers caused by the
wro ngdo in gs of m ajo ri tyst ock ho ld ers ." Id. at 4 1 (c i t i n g Mc Cam pb e ll v. Fountai n Head Railroad Co. , 111 Tenn. 55, 77 S.W. 1070 (1903)). ** * I n Intertherm v . Olympic Ho mes Systems , 569 S.W .2d 467 (Tenn.A pp.1978), t he court noted that the transa ctions of majority or dominant shareholde rs will be closely scrutinized for g ood faith and fa ir ne ss i f c ha lle ng e d. Th e c ou rt state d th a t it

wo uld" app ly

the ru le
o f c l o s e s c ru t i n y a n d p l a c e t h e b u r d e n o n t h e s h a r e h o l d e r t o j u s t i f y a tr a ns a c tio n w ith his c or

po ratio n o nly

wh e n th e sh arehol de r o wn s a majority of stock, or is shown to dominate or control the c orpora tion to a si gnif ica nt degree i n s om e ot her w ay ." Id. at 472.
*** Th e Cou rt

ha s n ot a dd re sse d s pe c if

ic a lly the iss ue s p re se nte d in thi s case , the re lationship between sha re h o l ders in a c lose corpor ation wh e re the re is n o maj orit y or do min a nt s ha

re ho lde r a ndthe dis pu te rel at es t o the share holders' interests as sha reholde rs. The Court of Appea ls relied upon the de cision in W ilkes v. Springs i d e N

ursing Home, I nc. , 3 7 0 M a s s

. 8 4 2 , 3 5 3 N

. E

. 2 d 6 5 7 ( 1 9 7 6 ) , in w hich the Massac husetts court held there is a fiduciary rela tionship between share holders of a

close corpora tion. I n W

ilkes , the Court stated that

" sto c kh old e rs in the c los e c or po ratio n o we on e a no the r s ub sta nti a lly the s ame fiduciary duty in the operation of t he ente rprise tha t partner s-8- owe t o o ne an ot her. " Id. 3 5 3 N. E

. 2 d at 6 6 1 (q u o t i n g Donahue v

. Rodd Electrotype Co. , 367 Mass. 578, 328 N.E.2d 505, 515 (1975) ). Th at s tan dard of d ut y

is on e of "u tm os t goo d fai th and lo y alt y ."
*** Ba sed on these principles, [defenda nts] Martin and Ga mmon, tog e ther and se pa

rate ly , w e re ob lig a te d to de a l f a ir ly a ndho ne stl y with [ plaintiff] Ne lson and could not ac t out of avarice, malice , or s e l f

- i n t e r e s ti n v i o l a t i o n o f t h e i r f i d u c i ar y d u t y t o him a s a share holder.

Ne lso n v . M

ar tin , 958 S.W .2d 643, 647-49 (Te nn.1997), ov e rru le d in pa rt o n o the r grou nd s by Trau-Med of Ame rica, Inc. v . Allstate Ins. Co., 71 S.W .3d 692 (Tenn.2002)

. Def endants in the present case arg ue that an L L C is a “cre ature of statute” a nd beca use the LL C Act, found at T.C.A. 48- 201-101 et seq. , does not specif ically p rescribe a

fiduciary duty of
ma jority sh are ho lde rs to a min or ity , th is C ou rt sh ou ld n ot r e c og nize su c h a du ty . D e fe nd a nts c ite the ca se of Mc Ge e v . B e st , 106 S. W .3d 48 (Tenn.A pp.2002) in support of their a rg ument. The McG ee c ou rt

state d a s f

oll ow s r e g ard ing the LL C A c t: The statute in question def ines the fidu ci ar y duty

of member s of a member- manag ed LL C a s one owing to the LL C, not t o i n dividual members. We ca nnot contrave ne the intent of the L eg islature.
McGee, 1 0 6 S

. W .3d at 64. The McG ee case was in esse nce a n employ ment dispute and did not involve an alleg ation of oppression by a majority

share holder g roup. The McG ee Court noted that “this case boils down to a ra ther unc omplicated dispute controlled by the employ ment contra ct and the Oper ating Ag ree ment. . .The only issue involved is w hether termination of the e mploy ment was for c ause.” McG ee , 106 S.W .3d at 67.

Th e statut e a t issu e he re is T.C .A . 4 8- 24 0- 10 2, a ndit p ro vid e s in pe rt ine nt p art a s f oll ow s: (a) FIDUCIAR Y DUTY OF ME MB ERS OF MEMBER-MAN AGED LL C. Ex cept a s provided in the articles or oper ating ag ree ment, every member of

a member- manag ed L

L C must ac count to the LL C for any benef it, and hold as t rustee for it any profits derive d by the member without the consent of the other members from an ytransac tion
connec ted with the formation, conduct, or liquidation of the L L C or from any use by the member of i ts property including, but not limited to, confidential or pr oprietary information of the LL C or other matters
e ntr us te d to the me mbe r a s a re sult of su ch per so n' s st a tus a s a member.-9- (b) STANDARD OF CONDUCT. A m ember of a me mber-ma nag ed LL C sh a ll d isc ha

rg e su c h me mbe r' s du tie s a s a me mbe r, inc lud ing a ll duties as a membe r of a

committee:
(1) In g ood faith;
(2 ) Wi th the c are a n o rd ina ri ly pr ud e nt p e rs on in a like po sit ion wo uld exercise unde r similar circ umstances; and
(3 ) In a ma nn e r the me mbe r r e a so na bly be lie ve s to be in the be st int e re st o f the LL C.

Pursuant to the above analy sis, we are of the opi nion that finding a majority share holder of an L L C stands in a fiduciary rela tionship to the minority , simil ar to the Supre me Court’s teac hing in Nelson re g ard ing a c or po ratio n, is wa

rr a nte d in this ca se . Suc h a ho ldi ng do e s n ot c on fl ic t w ith the statute, and is in kee ping w ith the statutory require ment that eac h LL C member discha rg e all of his or her duties in g ood faith.

We n ow turn to the qu e sti on of wh e the r D e fe nd a nts ’ a c tio ns , vi ewedin the lig ht m os t favo ra b l e t o Plaintiffs under our summary judgme nt standard, c ould rea sonably be said to have violated their fiduc i ar y d u ty of dea ling f

airly and honestly

with the minorityPlaintiffs, and ac ting in good f aith toward the m.

I n support of their motion for summary judgme nt, Defe ndants M r. Wilder, Mr. Cox , Mr. Sto ut, Mr

. F re e ma n, Mr

. Wel le s, a nd Ms. Sho c kle y e a c h fi le d a n a ff ida vit , id e nti c a l in e ve ry

a sp e c t, wh ic h a lle g e d a s f

oll ow s:
Prior to the vote being take n to expel P laintiff member s, I was a war e that th e P l aintiff member s of the mana g ement committee we re p l a n n i n g t o v o t e t o d i s t r i b u t e t h e r e m a i n i n g c a s h o f t h e c o m p a n y, app ro xima te ly

$6 0, 00 0, to the me mbe rs , in c lud ing the mse lve s. I did not b e li e v e th is w o u ld b e b e n e f ic ia l to th e c o mp a n y a s it would not
a llo w the c omp a ny

to m e e t payro ll a ndoth e r f ina nc ia l ob lig a ti on s, without most , if not all, of the membe rs ag ree ing to loan tha t money back to the c ompany

.
As noted abo v e , th e me mb e r s o f F u tu r e Po in t m e t o n Se p te mb e r 1 0 , 2 0 0 1 , to d is c u s s tw o distinct offers to purc hase ownership uni ts in the company , one fr om Healthca re Ec onomics Group, LL C, and one from Don Allen, who eve ntually purcha sed 499 owne rship units. P laintiff Mr. Atkins fi le d a n a ff

ida vit statin g in r e le va nt p art

a s f oll ow s: My po sit ion on the su bje c t of F utu rePoi nt’ s c a sh in the ba nk ha d to do wi th the g e ne ra l off

er fro m H e a lth Care Ec on omi c s ( HC E) to-10- purcha se intere sts in the company that wa s being discussed Se pte mbe r 1 0, 20 01 , a s se t f orth i n para gra

ph 24 of the Compla int

. By the September

10, 20 0 1 , m em bers mee ting, that HCE of fer was for $250.00 per unit a nd contemplated the Future Point m em b ers reta ining the excess cash on hand of a bout $63,000.00. There fore , the HC E o ff e r h a d a va lue of $3 13 .0 0 p e r u nit

fo r a ny on e wh o w a nte d to sell. T h e o f

f e r p r e s e n te d b y

M r

. Wi ld e r

f r o m D o n A ll e n w a s f

or $ 2 5 0

. 0 0 p er unit but was silent on the subject of the e x cess c ash. I then sug g ested, a s a point of discussion, that to make the two offe rs c omp ara ble , if pe rs on s w e re to b e a uth or ize d by the me mbe rs to s e ll their interests to A llen, then perha ps those persons should rece ive their share of the e x cess c ash. Their investments had ea

rned it, they deser v e d it , th e r e h a d n e v e r b e e n a p r e v io u s d r a w , a n d s in c e they
wo uld be ta xed on it, the n th e y ou g ht t o h a ve it. Th is i s w ha t I sa id at the September

10, 2001, members meeting as a point of discussion. As Allen’s offe r was for 50% of the Company or less, not eve ry one would b e s el l i n g, and ther efor e not all the ca sh would be dra wn. There would be ample c ash on hand to ope rate Future Point. The ins i n u a t i o n t h a t I w o u l d a d v o c a t e t a k i n g o u t a l l t h e c a s h to c a us e Future Point t o g o out of business is absurd. I reque sted a manag ement committee meeting for Septembe r 12 , 2 00 1. On Wed ne sd a y S e pte mbe r 1 2, 20 01 De fe nd a nt B re tt Wil der r epre s en t ed t o me that he would a rra ng e to pay

any one who
wa nte d to se ll the a mou nt of $3 00 pe r un it wh ic h wa s c omp ara ble to the value of

the Allen off

er ( $313.00 per unit). That same day I spoke to Defe ndant Tim Welles and Welles confirmed this. I n rel i ance u p o n t h es e r ep re s en t at i o n s , I d ro p p e d m y i n s i s t en ce o n h o l d i n g a Manag ement Committ ee me eting that d ay , and the mee ting wa s ag ree d to be held the morning of September 14, 2001. No manag ement

c o mmit te e me e ti n g to ok place September 14, 2001. As rela y ed to me af ter the f act, pr i or to the sche duled Manag ement Commi ttee meeting , on the morning o f F ri day September 14, 2001 the Def endants c onducted a

secr et member s meeting without notice to me and voted to disband the Mana g ement Commi ttee and e x p el m y self and the other Plaintiffs as membe rs fr om F utu re Poi nt.

Pla int if f M r. Qu a de te sti fi e d b y

a ff ida vit a s f oll ow s:

I have first hand knowledg e of B rett Wilder’s re al re ason for causing my se lf a ndthe oth e rs to b e e xpe lle d. I n g e ne ra l, tha t r e a so n was to expel us at a low price and sell the i ntere sts taken at a hig h price . As it specifica lly

perta ined to Bill Thompson and I , his reason no doubt-11- included the f

act that B ill and I would not go a long w ith the plan he pr e se nte d to us Ma y

31 , 200 1, to expe l ce rt a in m e mbe rs a ndtake the ir i ntere sts and sell them at a hig her price to one of the offe rors a t the time. Mr. Wil der e ven re duced his plan t o a s p re adshee t, a copy of which is attac hed as Exhibi t A. He had it all fig ured out. That sprea dsheet re flec ts how we would a ll ga in by expelling 30% of the interests of the company

. Those selec ted for the chopping block by Mr . Wil de r w e re Mik e Atkin s, Pa t Ma rt in, Rho nd a

Sho c kle y , D e nn is Fr eema n, the Z immermans, and Melinda Ander son. I t was my view that th e se of

fe rs to p ur c ha se int e re sts in the c omp a ny we re of fe rs in g ener al, and the refore to the me mbers as a whole, and not just for a few of us to usur

p – simply beca

use we knew about the off ers a nd the other membe rs at the time did not. Bill Thomps o n and I told Mr. Wil der tha t we would n o t go along with that scheme , it was not ethical, a nd that these off

ers neede d to [ be] presente d to all members for discussion. I t se e ms that my eff

orts t o d o rig ht b y

my fe llo w p art ne rs in the c omp a ny g ot me e xpe lle d a nd wi tho ut a job a t F utu re Poi nt. Th is was most disappointing, especially to see that Rhonda [Shockley ] and Dennis [Fre eman] voted to expel me after I had stood up for not
e xpe lli ng the m.
Def endant Mr. Wilder testified by deposition r eg arding the sprea dsheet ref err ed to a bove and his pla n to e xpe l c e rt a in m e mbe rs of the c omp a ny

a s f oll ow s: A: [Mr. W ilder] During the meeting when we discussed the potential expuls ion and the g uilt byassociation topics, during that meeting we wer e bra instorming, al l of us, about what would we do, and w e rea liz ed it was a

more c omplicated thin g t h an we e nvisioned, expuls ion of someone. And we were discussing various sce narios of wait a minute, whe n y ou do that, how do y o u d o t h at in an LL C. I mean, we had an ag ree ment there , we were rea ding, w e we re sa y ing well, y ou know, t hose shares would have to become the owner ship of persons who a

ren’ t expelled. This was a w orkshee t where we we re try ing to do the ma th on that, what kind of sce nario.

*** Q: And there ’s no n am es on any of these r ows, but are y ou talking
abo ut e xpe lli ng thr e e me mbe rs wi th a 10 pe rc e nt i nte re st?

A: No. As I

rec all, we w ere talking a bout expelli ng Martin, Atkins and the 10 perc ent repr esente d by the other small member s, smaller share holders that combined to 10.-12- Q: L et’s see who those mig ht be.

*** Q : B e c a u s e [P la in ti f

f ] A n d e r s o n is th r e e [p e r c e n t] ?

A: Uh-huh.
Q: Z immermans wer e f

o u r, F ree man and Shockley wer e thre e, that adds up to 10?

A: Cor re c t. Dur ing that me e tin g we we re ta lki ng abo ut w ha t if thi s occur red, how would it work.
Q: Tell me about the next line here , say s total sa le price , $ 50,000; what is that? I s that the sale of inter ests to Mr. Allen? And ar e y ou not say ing tha t we’r e g oing to se ll 30 perce nt of the company to Mr. Allen for $50,000?

A: I don’t reme mber that $50,000 fig ure. B ut, I do know that during the meeting as we wer e discussing this scenario, we k n ew t hat at
so me po int

we wo uldbe se lli ng int e re sts a ndif we bo ug ht–
Q: I f y ou boug ht low, y ou could sell hig h?

A: I n th is p art ic ula

r s itu a tio n, that’ s w ha t th is i s sh ow ing y ou , y e s. *** Q: The fir st ga in would b e t hat if y ou repur chase 30 perc ent of the int e re sts , b ut sel l 20 pe rc e nt o f the c omp a ny , th e fi rs t g a in i s a rea llocation of member ship perce ntag es amongst the re maining
me mbe rs ?

A: That’s c orre ct.
Q: T h at ’s re fl ec t ed i n t h e fi n al co l u m n t h at s ay s fi n al p er ce n t age int e re st?

A: Cor re c t.
Q: For example, y our intere st would go up f rom 20 perc ent to 22.86 pe rc e nt?

A: Ye s.-13-

The re cord c ontains a written offe r fr om Mr. Wil der to Mr. Free man and Ms. Shockley , dated Se pte mbe r 1 4, 20 01 , w hic h s ta te s in its e nti re ty a s f oll ow s:

I do here by

offe r to purcha se 30 units of y o u r ownership (including financ ial rig hts a nd g overning rig hts) of Future Point Admi nistrative Se rv ic e s, LL C fo r the su m of $1 0, 00 0. 00

. Th is p ur c ha se of fe r i s v a lid fo r a pe ri odof 10 day s, wi th c los ing of

sa le to b e c omp le te d w ith in 10 da y s of y ou r writt e n a c c e pta nc e of thi s of fe r. Th is p ur c ha se wi ll
c omp ly wi th a ll t e rm s o f the F utu re Poi nt A dmi ni st rat ive Se rv ic e s, LL C Opera ting Ag ree ment. I n the eve nt that a ny member e x erc ises their rig ht to purchase said share s at the ag ree d price ($4,500.00), I
a g re e to p a y

y ou the dif

fe re nc e of $5 ,5 00 .0 0 wi th in 10 da y s o f s a id purcha se.

Mr. Fr eema n and Ms. Shockley returne d a sig ned letter of ac cepta nce the same da y , September 14, 2001, stating “ [w] e ac cept y our offer a s written and ve rbally described to eac h of us on this date.” T h e s am e d ay , the Def

endants, who a long w ith the votes of Mr. F ree man and Ms. Shockley controlled 53 pe rce nt of the membership units a nd voting power of the company , voted to expel the Plaintiffs as described above

. Th e ba sis fo r Defe nd a nts ’ a rg ume nt tha t th e y

e xpe lle d th e Pla int if

fs in g oo d f

a ith is the ir
a ss e r t i o n t h a t “ t h e P l a i n t i f f m e m b e r s o f t h e m a n a g e m e n t c o m m i t t e e w e r e p l a n n i n g t o vo te to distribute the rema ining c ash of the co m p an y , approximately $60,000, to the members, including the mse lve s. ” F utu re Poi nt’ s ma na g e me nt c omm itt e e h a d th e a u th o ri ty an d r e sp on sib ili ty

to d ist ri bu te the ne t c a sh fl ow of

the c omp a ny

to the me mbe rs . U p u nti l th is p oin t, i t app e ars that no c a sh distributions had bee n made to any member of the company

. The rec ord ref lects that af

ter Plaintiffs
wer e expelled, the compa ny made c ash distributions to t he re maining me mbers in amounts of $13,405.20 on Marc h 27, 2002 and $40,000.00 on April 4, 2002. I n their af fidavits, Plaintiffs Mr. Quade and Mr. Atkins deny Def endants’ al leg ation that they intended to distribute the re maining cash a mong the members.

Plaintiffs further a

rg ue that De fenda nts’ assertion is false and pre text ual for at least two
rea sons. F irst, severa l of the expelled members, Ms. Ande rson, Mr. and Mr s. Z immerman, and Mr

. Martin, wer e not on the manag ement committee and thus had no r ole in any alleg ed dec ision to m ake
a c a sh dis tr ibu tio n. Mr . Q ua de of fe re d a no the r r e a so n in so me wh a t c olo rf ul f a sh ion in h is a ff

ida vit :
Th e D e f e n d a n t s c l a i mi n t h e i r

a f f i d a v i t s t h a tm y s e l f, M i k e A t k i n s, and B ill Thompson, as members of the manag ement committee, wer e planning to vote to distribute all the remaining cash of the company so as to cause the company to not meet its pa yroll and other financ ial ob lig a tio ns . T his is j us t no t tru e . F or on e thi ng , I

WAS O NE SUC H PAYROL LOB L I GATI ON. Tha t is, Iworke d at Futur ePoint. The-14- notion that I

would vote to ruin my

investment and put my self out of
a job is n uts !

We f indthat th e re e xists a

g e nu ine iss ue of

ma te ri a l f

a c t r e g ard ing wh e the r the De fe nd a nts ’ actions in expelling t he mi nority Plaintiffs wer e taken in g ood faith, as require d by the L L C Act, or whether they expelled Plainti ffs solely in order to f

orce the acquisition of their membership units at a pric e of $150.00 in orde r to sell them at $250.00 per unit, in viol ation of their f iduciary duty

.
I n ad dit ion , the re is a leg iti ma te iss ue ra ise d as to whe the r the sa le of Mr . Fre e ma n a ndMs. Sho c kle y ’s ow ne rs hip un its to Mr . Wil de r v iol a te d th e op e ratin g a g re e me nt, a s a lle g e d b y Pla int if fs

. Th e op e ratin g a g re e me nt c on ta ins the fo llo wi ng pr ov isi on re g ard ing the tr a ns fe r o f f ina nc ia l r ig hts i n t h e c o m p a n y:

13.3 Voluntary

L ifetime Tra nsfer s. No Member may make a Vo lun tary

L if e tim e Tr a ns fe r o f F ina nc ia l Rig hts ex cept pur su a nt t o this S ec tion. Any

Member w ho wishes to make sa id Voluntary L ifetime Transfer

must promptly send a notice to e ach other Membe r. Such notice shall include a description of the proposed Tr ansfe r, the price and terms on which the F inancial Rig hts are to be Transf err ed, the n a me , a d d r e s s a n d b u s in e s s o r o c c u p a ti o n o f

th e p r o p osed transfe ree , and any

other fa cts t hat ar e, or w ould rea sonably be deeme d to be , materia l to the proposed Transf er. The M em ber wi sh ing to m ake a

Vo lun tary

L if e tim e Tr a ns fe r s ha ll b e de e me d to h av e offe red to sell his or her Financ ial Rights otherw ise to be transfe rre d to the ot her Members. The other Members sha ll have the option to buy the Offere d Financ ial Rights at either ( a) the price and terms set forth in the notice of propose d Transf er or (b) at the Ag ree d Pr ic e a ndon the Ag re e d Te rm s. Ea c h oth e r Me mbe r sh a ll ha ve sixty (60) da y s from such notice in which to elec t to buy all or any portion of the Offe red Financ ial Rights. The other Members ma y

elec t to buy the Off ere d Financ ial Rights in proportion to their re spective Financ ial Rights (e x cluding the Offere d Financ ial Rights), or in such other proportion as they

may ag ree

.
I t is n o t cl ear

from the r ecor d whether Plaintiffs were g iven any opportunity

to purcha se the membership units and financia l rig hts of Mr. Fr eema n and Ms. Shockley . There is nothing in the
rec ord to sug g est that they wer e offere d this opportunity , and Plaintiffs’ brie f ar g ues that they wer e n o t. T h e r e th u s e xis ts a n is s u e o f w h e th e r th e s a le o f

M r

. F r e e ma n a n d M s

. Sh o c k le y ’ s f in a n cial rig hts to Mr. W ilder comporte d with the terms of the ope rating ag ree ment. Finally , it is not entirely clea r fr o m t h e record e x actly who paid the $10,000.00 to Mr. Fr eema n and Ms. Shockley . Mr. Wilder testified as follows in his deposition:-15- Q: Were t h e Fr eema ns and the Shockley s [s ic] paid with a Future Point check?

A: I believe so, but I ’m not certain.

I f the purc hase price of

the 30 units owned by

Mr. Fr eema n and Ms. S h o ck ley was pa id by

Mr. Wil der out of c ompany

funds, it would not only

be a pote ntial violation of Mr. Wi lder’s duty to the minorityshare holders, but also a pote ntial violation of his dutyto the LL C itself. I n addition to the fac t that the $333.33 per unit paid to Mr. Free man and Ms. Shockley arg uably was more than marke t
va lue , th e tr a ns a c tio n it se lf wa s o ne wh ic h w ou ld q uit e fo re se e ably e mbr oil th e com pany

a ndits
me mbers in l iti g a tio n. Th e qu e sti on of the so ur c e of

the pu rc ha se pr ic e of

Mr . Fre e ma n a ndMs. Shockley ’s owner ship units i s to be determined by the trier of

fac t on remand.

For the fore g oing rea sons, w e find there are questions of materia l fac t reg arding whether the Def endant’ s actions in expelling t he mi nority Plaintiffs were taken in g ood faith and in a ccor dance with their fiduciary duty to them. The Tria l Court’s gr ant of summary judgme nt is vacate d, and the
c a us e re ma nd e d for pr oc e e din g s con sis te nt w ith thi s o pin ion . Co sts on app e a l are a dju dg e d a g a ins t the Appellee s Br ett Wil der, Micha el E. Cox , L amar r Stout, Timot hy

Welles, Dennis Fr eema n, and R h o n d a S h o c k l e y.

_________________________________________ HOUSTON M. GO DDARD, PRESI DING JUDGE