Opinion ID: 4105752
Heading Depth: 2
Heading Rank: 1

Heading: Background of Source 1

Text: In 2002, Hodge and Prehn founded Source 1, an Idaho LLC, which designed, produced, and sold merchandise and apparel for its clients.1 For Source 1’s initial years, it did not generate an annual profit. During this time, Prehn made loans to Source 1 with the understanding that he would be paid back with 10% interest accruing annually. Also during this time, Prehn was not paid a salary for a number of months, with the understanding that he would be paid at a later time with interest. Source 1 began to show an annual profit around 2008. Due to his deteriorating relationship with Hodge, Prehn stopped working as a fulltime employee of Source 1 after December 2010, but Hodge worked fulltime until its dissolution in 2012. Hodge was the managing member and main salesperson of Source 1 from its inception until its dissolution, but he was not its only employee. Between the formation of Source 1 in 2002 and February 2011, Bandak, Brown, and Claiborne joined Source 1 as part owners. By the time of its dissolution, the members’ interests in Source 1 were as follows: Prehn—37.975%; Hodge—39.637%; Bandak— 11.025%; and Brown and Claiborne—11.363% (combined). In February 2011, Hodge proposed a salary increase for himself from the $60,000 per year he was being paid at the time, to $144,000 per year. Prehn and Bandak opposed the proposal, but Hodge, Brown, and Clairborne voted in favor, so the increase was approved and effectuated. On November 1, 2011, Source 1 moved its main office to 3637 Lake Harbor Blvd., Boise, Idaho. Unbeknownst to Prehn, Hodge purchased the Lake Harbor building on April 5, 2012. On December 31, 2011, Source 1’s in-house accountant/bookkeeper informed Hodge and Prehn that the outstanding balance on Prehn’s loan was $79,232.51, and that the present balance of back pay Source 1 owed Prehn was $67,500. Source 1 made no further payments to Prehn. Also in 2011, Hodge borrowed $40,000 from Source 1. By April 26, 2012, the remaining balance on his loan was $20,084.61. Hodge has not made any payments on the loan since, but 1 Prior to 2002, Hodge operated Source 1 as a sole proprietorship. 2 argued to the district court that he voluntarily reduced his salary from Source 1 in 2012 and that the reduction should have been credited against his debt. On February 3, 2012, a valuation of Source 1 by a business brokerage firm determined that the most likely selling price for Source 1 was $1,367,068. On March 15, 2012, Hodge made an offer to purchase Prehn’s interest in Source 1 for $337,000. Prehn rejected the proposal.