IN THE COURT OF APPEALS OF TENNESSEE

AT KNOXVILLE

July 1, 2003 Session

MELINDA ANDERSON, ET AL. v. BRETT WILDER, ET AL.

 Appeal from the Circuit Court for Knox County

No. 2-778-01 Harold Wimberly, Jr., Judge

FILED NOVEMBER 21, 2003

No. E2003-00460-COA-R3-CV

This case involves a dispute between members of a limited liability company (“LLC”)

entitled FuturePoint Administrative Services, LLC. The Plaintiffs were expelled from the LLC by

a vote of the Defendants, who together owned 53% of FuturePoint. The Plaintiffs received a buyout

price of $150.00 per ownership unit in FuturePoint after they were expelled, pursuant to the

operating agreement of the LLC. Shortly after the expulsion, the Defendants sold 499 ownership

units, amounting to a 49.9% interest in the LLC, to a third party at a price of $250.00 per ownership

unit. Plaintiffs filed this action, alleging, among other things, that the Defendants’ actions violated

their fiduciary duty and duty of good faith to Plaintiffs. Defendants moved for summary judgment,

arguing that their actions were authorized by the operating agreement and that they acted in good

faith in expelling the Plaintiffs. The Trial Court granted summary judgment in Defendants’ favor.

We vacate the order of summary judgment and remand.

Tenn.R.App.P. 3 Appeal as of Right; Judgment of the Circuit Court Vacated; 

Cause Remanded

HOUSTON M.GODDARD,P.J., delivered the opinion of the court, in which HERSCHEL P.FRANKS and

D. MICHAEL SWINEY, JJ., joined.

Brian C. Quist, Knoxville, for the Appellants, Melinda Anderson, Alan B. Zimmerman, Cherry W.

Zimmerman, Charles F. Quade, Janine R. Quade, William Thompson & Associates, Inc., Michael

A. Atkins, Sherry Lynn Turner, and Patrick L. Martin

Lewis S. Howard, Jr. and Heather R. Gunn, Knoxville, for the Appellees, Brett Wilder, Dee Dee

Wilder, Michael E. Cox, Lamarr Stout, Anna Stout, Timothy Welles, Kelly Welles, Dennis Freeman,

and Rhonda Shockley

OPINION

FuturePoint Administrative Services, LLC, was created by the parties on or about January

1, 2000, at which time they executed the operating agreement for the company. FuturePoint
Anna Stout was incorrectly identified in the complaint as “Susan Stout.” Lamarr Stout, her husband, stated 1

in his deposition that his wife goes by the nickname Susie, which presumably was the source of the error.

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commenced the business of administering third party medical claims in early 2000. Ownership of

the company was divided into “ownership units.” One ownership unit amounted to one-tenth of one

percent ownership of the company. The ownership interest, and amount of capital contributed for

the startup of FuturePoint, of each party is illustrated in the following chart:

Member Name Ownership Interest Capital Contributed

William Thompson & Associates, 100 units (10%) $15,000

Inc. (Plaintiff)

Charles and Janine Quade (Plaintiffs) 100 units (10%) $15,000

Michael Atkins and Sherry Turner (Plaintiffs) 100 units (10%) $15,000 

Patrick L. Martin (Plaintiff) 100 units (10%) $15,000

Alan and Cherry Zimmerman (Plaintiffs) 40 units (4%) $ 6,000

Melinda Anderson (Plaintiff) 30 units (3%) $ 4,500

Brett and Dee Dee Wilder (Defendants) 200 units (20%) -0-

Michael E. Cox (Defendant) 100 units (10%) $15,000

Lamar and Anna Stout (Defendants) 100 units (10%) $15,000 1

Timothy and Kelly Welles (Defendants) 100 units (10%) $15,000

Dennis Freeman and Rhonda Shockley 30 units (3%) $ 4,500

(Defendants) 

As can be seen from the chart, each member contributed $150.00 per ownership unit, with the

exception of Defendants Brett and Dee Dee Wilder. 

The parties set up FuturePoint as a member-managed LLC. The operating agreement

provides for a management committee “to oversee and manage the business operations of the

Company.” The operating agreement gives the management committee the power and authority to

contract on behalf of the company by a majority vote. FuturePoint’s management committee was

comprised of Plaintiffs Michael Atkins, Charles Quade, and Bill Thompson, and Defendants Lamarr

Stout and Brett Wilder. 

On September 10, 2001, a members’ meeting took place at the FuturePoint offices, at which

two offers to purchase ownership units were discussed. Each offer was at a price of $250.00 per

ownership unit. At this time, FuturePoint had generated an amount of excess cash on hand in the

amount of $63,000.00. 

On September 14, 2001, the following actions were taken by the Defendants, as shown by

a document styled “Actions taken by written consent of the members of FuturePoint Administrative

Services, LLC”:
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In lieu of a meeting of the Members of FuturePoint Administrative

Services, LLC (the “Company”), a Tennessee limited liability

company, in accordance with the provisions of Section 48-233-101

of the Tennessee Limited Liability Company Act and Article 8.10 of

the Operating Agreement of the Company, Members holding a

majority of Units and who own Governance Rights with voting power

equal to the voting power that would be required to take the same

action at a meeting of the Members at which all Members are present

hereby take the following actions:

The following Resolutions are hereby adopted by vote of the

aforesaid Members:

RESOLVED, pursuant to Article 13.6 of the Operating Agreement of

the Company, the following Members are hereby expelled from the

Company effective as of the date hereof:

William Thompson & Associates, Inc.

Mike A. Atkins and/or Sherry Lynn Turner

Patrick L. Martin and/or Deborah N. Martin

Charles F. Quade and/or Janine R. Quade

Melinda Anderson and/or Adam & William Derreberry

Alan Zimmerman and/or Cherry W. Zimmerman

RESOLVED FURTHER, pursuant to Article XVII of the Operating

Agreement of the Company, the Operating Agreement is hereby

amended to delete in its entirety, Article IX and the Management

Committee created thereunder; such functions previously conducted

by the Management Committee to be hereafter conducted by the

Chief Manager, Brett Wilder. 

RESOLVED FURTHER, pursuant to Article X of the Operating

Agreement, Charles F. Quade is hereby removed as Secretary of the

Company and Lamarr Stout is hereby elected as Secretary of the

Company. 

Pursuant to the terms of the operating agreement, the remaining members of the company

bought the ownership interests of the expelled members at a price of $150.00 per membership unit.

On October 11, 2001, the remaining members of FuturePoint sold a total of 499 membership units

to a Don Allen at a price of $250.00 per unit. 

The Plaintiffs brought this action on December 17, 2001, alleging breach of fiduciary duty

and breach of the statutory and common law duty of good faith and fair dealing. Defendants moved
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for summary judgment, arguing that their actions were expressly permitted under the operating

agreement, and that they acted in good faith in expelling the Plaintiffs. Specifically, Defendants

relied upon the following provision of the operating agreement:

13.6 Expulsion of a Member. The Company may expel a Member,

with or without cause, from the Company upon a vote or written

consent of the Members who hold a majority of Units. In the event

of a Member’s expulsion, the remaining Members shall be obligated

to purchase the expelled Member’s Financial Rights at the Agreed

Price and on the Agreed Terms within thirty (30) days of such

expulsion. The remaining Members shall purchase the expelled

Member’s Financial Rights in proportion to their Financial Rights

(excluding the Offered Financial Rights), or in such other proportion

as they may agree. 

The Trial Court granted the Defendants summary judgment, finding only that “no genuine issues of

material fact exist for adjudication and the Defendants are entitled to summary judgment as a matter

of law.” Plaintiffs have appealed this ruling, raising the issue, which we restate, of whether the Trial

Court erred in granting summary judgment. 

In Staples v. CBL & Associates, Inc., 15 S.W.3d 83, 89 (Tenn. 2000) the Tennessee Supreme

Court stated the following as to the standard of review specifically applicable to summary

judgments:

The standards governing the assessment of evidence in the summary

judgment context are also well established. Courts must view the

evidence in the light most favorable to the nonmoving party and must

also draw all reasonable inferences in the nonmoving party’s favor.

See Robinson v. Omer, 952 S.W.2d at 426; Byrd v. Hall, 847 S.W.2d

at 210-11. Courts should grant a summary judgment only when both

the facts and the inferences to be drawn from the facts permit a

reasonable person to reach only one conclusion. See McCall v.

Wilder, 913 S.W.2d 150, 153 (Tenn. 1995); Carvell v. Bottoms, 900

S.W.2d 23, 26 (Tenn. 1995).

We begin with the Plaintiffs’ assertion that the majority shareholders in a member-managed,

closely-held LLC stand in a fiduciary relationship to the minority shareholders, such as Plaintiffs in

this case. We quote from Plaintiffs’ brief as follows in summarizing their argument in this regard:

[I]t is well settled in Tennessee that the majority shareholders of a

corporation owe a fiduciary duty to the minority shareholders. Nelson

v. Martin, 958 S.W.2d 643, 647 (Tenn.1997); Mike v. Po Group, Inc.,

937 S.W.2d 790, 793 (Tenn.1996); Nelms v. Weaver, 681 S.W.2d
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547, 549 (Tenn.1984); Dale v. Thomas H. Temple Co., 208 S.W.2d

344, 352 (Tenn.1948). While corporations are “fictional” entities created by statute, the fiduciary duty of the majority shareholders to the minority

is a matter of common law. The Tennessee Business Corporation Act at T.C.A. § 48-11-101 et seq.

mentions nothing about any fiduciary duty owed by majority shareholders to minority shareholders.

Accordingly, why should themajority members of a member-managed limited liability company not

owe the same fiduciary duty to the minority? They should. There is no reason to distinguish the two

forms of business enterprise. Indeed, member-managed limited liability companies are governed

more like partnerships than conventional corporations. Since it is also well established as a

fundamental rule of partnerships, that all partners, not just the majority, owe each other fiduciary

duties (Lightfoot v. Hardaway, 751 S.W.2d 844, 849 (Tenn.Ct.App.1988)), it logically follows that

a majority of the members of an “LLC” should owe a fiduciary duty to the minority members just

like the duty a majority of the shareholders of an “Inc.” owe the minority shareholders. 

An analysis of the nature and history of the limited liability company is helpful in addressing

this fiduciary duty question. The LLC is a relatively new form of business entity, a hybrid which

“incorporates certain beneficial aspects of a partnership with certain beneficial aspects of a

corporation.” Annotation, Construction and Application of Limited Liability Company Acts, 79

A.L.R.5th 689. This A.L.R. annotation contains the following helpful observations:

It is important to keep the history of LLC development in perspective

when working with LLCs and court interpretations of LLC acts.

. . . The typical LLC act is usually a hybrid of provisions culled from

the individual state’s partnership statutes and business corporation

law.

***

[W]hen a court is interpreting an LLC act or agreement, the court will

focus on the particular aspect of the LLC that gives rise to the

problem, with emphasis on the foundational business form from

which that characteristic originated. Usually, the particular aspect can

be traced to either the corporate components or the partnership

components of the LLC act or agreement. In such cases where the

characteristic originated from the partnership aspects of the LLC, the

court will use the established princip[le]s and precedent of the

partnership law to resolve the issue. . .In such cases where the

characteristic originated from the corporate aspects of the LLC, the

court will utilize the established princip[le]s and precedent of

corporate law to resolve the issue.

79 A.L.R.5th at page 698. 

It is well-recognized that a fiduciary relationship exists between members of either a

partnership or a closely-held corporation under established principles of both partnership law and
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corporate law. In Lightfoot v. Hardaway, 751 S.W.2d 844 (Tenn.App.1988), the court stated as

follows regarding business partnerships:

The fundamental rule that the relationship of partners is fiduciary and

imposes on them the obligation of the utmost good faith and integrity

in their dealings with one another with respect to partnership affairs

is universally recognized in the modern cases and is reinforced by the

Uniform Partnership Act.... Also well established is the applicability

of this fiduciary duty on the sale of one partner's interest to another

partner, the courts often characterizing the duty as being "particularly"

or "especially" applicable to this situation. Although it is no longer

disputed, at least in theory, that such a sale will be sustained only

when it is made in good faith, for a fair consideration, and on a full

and complete disclosure of all important information as to value, the

rule's application is by no means as clear and simple as its statement;

and the specific content of such terms as "good", "fair", "full", and

"important" can be known only by relating the particular conduct and

circumstances of the parties to the results reached in the cases. 

Lightfoot, 751 S.W.2d at 849 (quoting 4 A.L.R.4th at page 1128-29). The General Assembly has

clarified the duties owed by partners by passage in 2001 of T.C.A. 61-1-404, which provides in

relevant part as follows:

(a) The only fiduciary duties a partner owes to the partnership and the

other partners are the duty of loyalty and the duty of care set forth in

subsections (b) and (c).

(b) A partner's duty of loyalty to the partnership and the other partners

is limited to the following:

(1) To account to the partnership and hold as trustee for it any

property, profit, or benefit derived by the partner in the conduct and

winding up of the partnership business or derived from a use by the

partner of partnership property, including the appropriation of a

partnership opportunity;

(2) To refrain from dealing with the partnership in the conduct or

winding up of the partnership business as or on behalf of a party

having an interest adverse to the partnership; and

(3) To refrain from competing with the partnership in the conduct of

the partnership business before the dissolution of the partnership.

***
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(d) A partner shall discharge the duties to the partnership and the

other partners under this act or under the partnership agreement and

exercise any rights consistently with the obligation of good faith and

fair dealing.

(e) A partner does not violate a duty or obligation under this act or

under the partnership agreement merelybecause the partner's conduct

furthers the partner's own interest.

The Supreme Court has provided the following guidance as regards members of corporate

associations:

This Court has stated that majority shareholders owe a fiduciary duty

to minority shareholders. Mike v. Po Group, Inc., 937 S.W.2d 790,

793 (Tenn.1996); Nelms v. Weaver, 681 S.W.2d 547, 549

(Tenn.1984), cert. denied, 476 U.S. 1118, 106 S.Ct. 1976, 90 L.Ed.2d

660 (1986); Dale v. Thomas H. Temple Co., 186 Tenn. 69, 208

S.W.2d 344, 352 (1948). The Court of Appeals stated in Johns v.

Caldwell, 601 S.W.2d 37 (Tenn.App.1980), "Our courts are prompt

to redress the injuries to minority stockholders caused by the

wrongdoings of majority stockholders." Id. at 41 (citing McCampbell

v. Fountain Head Railroad Co., 111 Tenn. 55, 77 S.W. 1070 (1903)).

 ** *

In Intertherm v. Olympic Homes Systems, 569 S.W.2d 467

(Tenn.App.1978), the court noted that the transactions of majority or

dominant shareholders will be closely scrutinized for good faith and

fairness if challenged. The court stated that it would "apply the rule

of close scrutiny and place the burden on the shareholder to justify a

transaction with his corporation only when the shareholder owns a

majority of stock, or is shown to dominate or control the corporation

to a significant degree in some other way." Id. at 472. 

***

The Court has not addressed specifically the issues presented in this

case, the relationship between shareholders in a close corporation

where there is no majority or dominant shareholder and the dispute

relates to the shareholders' interests as shareholders. The Court of

Appeals relied upon the decision in Wilkes v. Springside Nursing

Home, Inc., 370 Mass. 842, 353 N.E.2d 657 (1976), in which the

Massachusetts court held there is a fiduciary relationship between

shareholders of a close corporation. In Wilkes, the Court stated that

"stockholders in the close corporation owe one another substantially

the same fiduciary duty in the operation of the enterprise that partners
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owe to one another." Id. 353 N.E.2d at 661 (quoting Donahue v.

Rodd Electrotype Co., 367 Mass. 578, 328 N.E.2d 505, 515 (1975)).

That standard of duty is one of "utmost good faith and loyalty." 

***

Based on these principles, [defendants] Martin and Gammon,

together and separately, were obligated to deal fairly and honestly

with [plaintiff] Nelson and could not act out of avarice, malice, or

self-interest in violation of their fiduciary duty to him as a

shareholder.

Nelson v. Martin, 958 S.W.2d 643, 647-49 (Tenn.1997), overruled in part on other grounds by

Trau-Med of America, Inc. v. Allstate Ins. Co., 71 S.W.3d 692 (Tenn.2002).

Defendants in the present case argue that an LLC is a “creature of statute” and because the

LLC Act, found at T.C.A. 48-201-101 et seq., does not specifically prescribe a fiduciary duty of

majority shareholders to a minority, this Court should not recognize such a duty. Defendants cite

the case of McGee v. Best, 106 S.W.3d 48 (Tenn.App.2002) in support of their argument. The

McGee court stated as follows regarding the LLC Act:

The statute in question defines the fiduciary duty of members of a

member-managed LLC as one owing to the LLC, not to individual

members. We cannot contravene the intent of the Legislature.

McGee, 106 S.W.3d at 64. The McGee case was in essence an employment dispute and did not

involve an allegation of oppression by a majority shareholder group. The McGee Court noted that

“this case boils down to a rather uncomplicated dispute controlled by the employment contract and

the Operating Agreement. . .The only issue involved is whether termination of the employment was

for cause.” McGee, 106 S.W.3d at 67.

The statute at issue here is T.C.A. 48-240-102, and it provides in pertinent part as follows:

(a) FIDUCIARY DUTYOFMEMBERSOFMEMBER-MANAGED

LLC. Except as provided in the articles or operating agreement, every

member of a member-managed LLC must account to the LLC for any

benefit, and hold as trustee for it any profits derived by the member

without the consent of the other members from any transaction

connected with the formation, conduct, or liquidation of the LLC or

from any use by the member of its property including, but not limited

to, confidential or proprietary information of the LLC or other matters

entrusted to the member as a result of such person's status as a

member.
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(b) STANDARD OF CONDUCT. A member of a member-managed

LLC shall discharge such member's duties as a member, including all

duties as a member of a committee:

(1) In good faith;

(2) With the care an ordinarily prudent person in a like position would

exercise under similar circumstances; and

(3) In a manner the member reasonably believes to be in the best

interest of the LLC.

Pursuant to the above analysis, we are of the opinion that finding a majority shareholder of

an LLC stands in a fiduciary relationship to the minority, similar to the Supreme Court’s teaching

in Nelson regarding a corporation, is warranted in this case. Such a holding does not conflict with

the statute, and is in keeping with the statutory requirement that each LLC member discharge all of

his or her duties in good faith. 

We now turn to the question of whether Defendants’ actions, viewed in the light most

favorable to Plaintiffs under our summary judgment standard, could reasonably be said to have

violated their fiduciary duty of dealing fairly and honestly with the minority Plaintiffs, and acting

in good faith toward them. 

In support of their motion for summary judgment, Defendants Mr. Wilder, Mr. Cox, Mr.

Stout, Mr. Freeman, Mr. Welles, and Ms. Shockley each filed an affidavit, identical in every aspect,

which alleged as follows:

Prior to the vote being taken to expel Plaintiff members, I was aware

that the Plaintiff members of the management committee were

planning to vote to distribute the remaining cash of the company,

approximately $60,000, to the members, including themselves. I did

not believe this would be beneficial to the company as it would not

allow the company to meet payroll and other financial obligations,

without most, if not all, of the members agreeing to loan that money

back to the company. 

As noted above, the members of FuturePoint met on September 10, 2001, to discuss two

distinct offers to purchase ownership units in the company, one from Healthcare Economics Group,

LLC, and one from Don Allen, who eventually purchased 499 ownership units. Plaintiff Mr. Atkins

filed an affidavit stating in relevant part as follows:

My position on the subject of FuturePoint’s cash in the bank had to

do with the general offer from Health Care Economics (HCE) to
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purchase interests in the company that was being discussed

September 10, 2001, as set forth in paragraph 24 of the Complaint.

By the September 10, 2001, members meeting, that HCE offer was

for $250.00 per unit and contemplated the FuturePoint members

retaining the excess cash on hand of about $63,000.00. Therefore, the

HCE offer had a value of $313.00 per unit for anyone who wanted to

sell. The offer presented by Mr. Wilder from Don Allen was for

$250.00 per unit but was silent on the subject of the excess cash. I

then suggested, as a point of discussion, that to make the two offers

comparable, if persons were to be authorized by the members to sell

their interests to Allen, then perhaps those persons should receive

their share of the excess cash. Their investments had earned it, they

deserved it, there had never been a previous draw, and since they

would be taxed on it, then they ought to have it. This is what I said

at the September 10, 2001, members meeting as a point of discussion.

As Allen’s offer was for 50% of the Company or less, not everyone

would be selling, and therefore not all the cash would be drawn.

There would be ample cash on hand to operate FuturePoint. The

insinuation that I would advocate taking out all the cash to cause

FuturePoint to go out of business is absurd. 

I requested a management committee meeting for September

12, 2001. On Wednesday September 12, 2001 Defendant Brett

Wilder represented to me that he would arrange to pay anyone who

wanted to sell the amount of $300 per unit which was comparable to

the value of the Allen offer ($313.00 per unit). That same day I spoke

to Defendant Tim Welles and Welles confirmed this. In reliance

upon these representations, I dropped my insistence on holding a

Management Committee meeting that day, and the meeting was

agreed to be held the morning of September 14, 2001.

No management committee meeting took place September 14,

2001. As relayed to me after the fact, prior to the scheduled

Management Committee meeting, on the morning of Friday

September 14, 2001 the Defendants conducted a secret members

meeting without notice to me and voted to disband the Management

Committee and expel myself and the other Plaintiffs as members

from FuturePoint.

Plaintiff Mr. Quade testified by affidavit as follows:

I have first hand knowledge of Brett Wilder’s real reason for causing

myself and the others to be expelled. In general, that reason was to

expel us at a low price and sell the interests taken at a high price. As

it specifically pertained to Bill Thompson and I, his reason no doubt
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included the fact that Bill and I would not go along with the plan he

presented to us May 31, 2001, to expel certain members and take their

interests and sell them at a higher price to one of the offerors at the

time. Mr. Wilder even reduced his plan to a spreadsheet, a copy of

which is attached as Exhibit A. He had it all figured out. That

spreadsheet reflects how we would all gain by expelling 30% of the

interests of the company. Those selected for the chopping block by

Mr. Wilder were Mike Atkins, Pat Martin, Rhonda Shockley, Dennis

Freeman, the Zimmermans, and Melinda Anderson. It was my view

that these offers to purchase interests in the company were offers in

general, and therefore to the members as a whole, and not just for a

few of us to usurp – simply because we knew about the offers and the

other members at the time did not. Bill Thompson and I told Mr.

Wilder that we would not go along with that scheme, it was not

ethical, and that these offers needed to [be] presented to all members

for discussion. 

It seems that my efforts to do right by my fellow partners in

the company got me expelled and without a job at FuturePoint. This

was most disappointing, especially to see that Rhonda [Shockley] and

Dennis [Freeman] voted to expel me after I had stood up for not

expelling them.

Defendant Mr. Wilder testified bydeposition regarding the spreadsheet referred to above and

his plan to expel certain members of the company as follows:

A: [Mr. Wilder] During the meeting when we discussed the potential

expulsion and the guilt by association topics, during that meeting we

were brainstorming, all of us, about what would we do, and we

realized it was a more complicated thing than we envisioned,

expulsion of someone. And we were discussing various scenarios of

wait a minute, when you do that, how do you do that in an LLC. I

mean, we had an agreement there, we were reading, we were saying

well, you know, those shares would have to become the ownership of

persons who aren’t expelled. This was a worksheet where we were

trying to do the math on that, what kind of scenario.

***

Q: And there’s no names on any of these rows, but are you talking

about expelling three members with a 10 percent interest?

A: No. As I recall, we were talking about expelling Martin, Atkins

and the 10 percent represented by the other small members, smaller

shareholders that combined to 10. 
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Q: Let’s see who those might be.

***

Q: Because [Plaintiff] Anderson is three [percent]?

A: Uh-huh.

Q: Zimmermans were four, Freeman and Shockley were three, that

adds up to 10?

A: Correct. During that meeting we were talking about what if this

occurred, how would it work.

Q: Tell me about the next line here, says total sale price, $50,000;

what is that? Is that the sale of interests to Mr. Allen? And are you

not saying that we’re going to sell 30 percent of the company to Mr.

Allen for $50,000?

A: I don’t remember that $50,000 figure. But, I do know that during

the meeting as we were discussing this scenario, we knew that at

some point we would be selling interests and if we bought–

Q: If you bought low, you could sell high?

A: In this particular situation, that’s what this is showing you, yes.

***

Q: The first gain would be that if you repurchase 30 percent of the

interests, but sell 20 percent of the company, the first gain is a

reallocation of membership percentages amongst the remaining

members?

A: That’s correct. 

Q: That’s reflected in the final column that says final percentage

interest?

A: Correct.

Q: For example, your interest would go up from 20 percent to 22.86

percent?

A: Yes.
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The record contains a written offer from Mr. Wilder to Mr. Freeman and Ms. Shockley, dated

September 14, 2001, which states in its entirety as follows: 

I do hereby offer to purchase 30 units of your ownership (including

financial rights and governing rights) of FuturePoint Administrative

Services, LLC for the sum of $10,000.00. This purchase offer is valid

for a period of 10 days, with closing of sale to be completed within

10 days of your written acceptance of this offer. This purchase will

comply with all terms of the FuturePoint Administrative Services,

LLC Operating Agreement. In the event that any member exercises

their right to purchase said shares at the agreed price ($4,500.00), I

agree to pay you the difference of $5,500.00 within 10 days of said

purchase.

Mr. Freeman and Ms. Shockley returned a signed letter of acceptance the same day, September 14,

2001, stating “[w]e accept your offer as written and verbally described to each of us on this date.”

The same day, the Defendants, who along with the votes of Mr. Freeman and Ms. Shockley

controlled 53 percent of the membership units and voting power of the company, voted to expel the

Plaintiffs as described above. 

The basis for Defendants’ argument that they expelled the Plaintiffs in good faith is their

assertion that “the Plaintiff members of the management committee were planning to vote to

distribute the remaining cash of the company, approximately $60,000, to the members, including

themselves.” FuturePoint’s management committee had the authority and responsibility to distribute

the net cash flow of the company to the members. Up until this point, it appears that no cash

distributions had been made to any member of the company. The record reflects that after Plaintiffs

were expelled, the company made cash distributions to the remaining members in amounts of

$13,405.20 on March 27, 2002 and $40,000.00 on April 4, 2002. In their affidavits, Plaintiffs Mr.

Quade and Mr. Atkins deny Defendants’ allegation that they intended to distribute the remaining

cash among the members. 

Plaintiffs further argue that Defendants’ assertion is false and pretextual for at least two

reasons. First, several of the expelled members, Ms. Anderson, Mr. and Mrs. Zimmerman, and Mr.

Martin, were not on the management committee and thus had no role in any alleged decision to make

a cash distribution. Mr. Quade offered another reason in somewhat colorful fashion in his affidavit:

The Defendants claim in their affidavits that myself, Mike Atkins,

and Bill Thompson, as members of the management committee, were

planning to vote to distribute all the remaining cash of the company

so as to cause the company to not meet its payroll and other financial

obligations. This is just not true. For one thing, I WAS ONE SUCH

PAYROLL OBLIGATION. That is, I worked at FuturePoint. The
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notion that I would vote to ruin my investment and put myself out of

a job is nuts!

We find that there exists a genuine issue of material fact regarding whether the Defendants’

actions in expelling the minority Plaintiffs were taken in good faith, as required by the LLC Act, or

whether they expelled Plaintiffs solely in order to force the acquisition of their membership units at

a price of $150.00 in order to sell them at $250.00 per unit, in violation of their fiduciary duty. 

In addition, there is a legitimate issue raised as to whether the sale of Mr. Freeman and Ms.

Shockley’s ownership unitsto Mr. Wilder violated the operating agreement, as alleged by Plaintiffs.

The operating agreement contains the following provision regarding the transfer of financial rights

in the company:

13.3 Voluntary Lifetime Transfers. No Member may make a

Voluntary Lifetime Transfer of Financial Rights except pursuant to

this Section. Any Member who wishes to make said Voluntary

Lifetime Transfer must promptly send a notice to each other Member.

Such notice shall include a description of the proposed Transfer, the

price and terms on which the Financial Rights are to be Transferred,

the name, address and business or occupation of the proposed

transferee, and any other facts that are, or would reasonably be

deemed to be, material to the proposed Transfer. The Member

wishing to make a Voluntary Lifetime Transfer shall be deemed to

have offered to sell his or her Financial Rights otherwise to be

transferred to the other Members. The other Members shall have the

option to buy the Offered Financial Rights at either (a) the price and

terms set forth in the notice of proposed Transfer or (b) at the Agreed

Price and on the Agreed Terms. Each other Member shall have sixty

(60) days from such notice in which to elect to buy all or any portion

of the Offered Financial Rights. The other Members may elect to buy

the Offered Financial Rights in proportion to their respective

Financial Rights (excluding the Offered Financial Rights), or in such

other proportion as they may agree. 

It is not clear from the record whether Plaintiffs were given any opportunity to purchase the

membership units and financial rights of Mr. Freeman and Ms. Shockley. There is nothing in the

record to suggest that they were offered this opportunity, and Plaintiffs’ brief argues that they were

not. There thus exists an issue of whether the sale of Mr. Freeman and Ms. Shockley’s financial

rights to Mr. Wilder comported with the terms of the operating agreement. 

Finally, it is not entirely clear from the record exactly who paid the $10,000.00 to Mr.

Freeman and Ms. Shockley. Mr. Wilder testified as follows in his deposition:
-15-

Q: Were the Freemans and the Shockleys [sic] paid with a

FuturePoint check?

A: I believe so, but I’m not certain.

If the purchase price of the 30 units owned by Mr. Freeman and Ms. Shockley was paid by Mr.

Wilder out of company funds, it would not only be a potential violation of Mr. Wilder’s duty to the

minority shareholders, but also a potential violation of his duty to the LLC itself. In addition to the

fact that the $333.33 per unit paid to Mr. Freeman and Ms. Shockley arguably was more than market

value, the transaction itself was one which would quite foreseeably embroil the company and its

members in litigation. The question of the source of the purchase price of Mr. Freeman and Ms.

Shockley’s ownership units is to be determined by the trier of fact on remand. 

For the foregoing reasons, we find there are questions of material fact regarding whether the

Defendant’s actions in expelling the minority Plaintiffs were taken in good faith and in accordance

with their fiduciary duty to them. The Trial Court’s grant of summary judgment is vacated, and the

cause remanded for proceedings consistent with this opinion. Costs on appeal are adjudged against

the Appellees Brett Wilder, Michael E. Cox, Lamarr Stout, Timothy Welles, Dennis Freeman, and

Rhonda Shockley.

_________________________________________

HOUSTON M. GODDARD, PRESIDING JUDGE