Opinion ID: 2537806
Heading Depth: 1
Heading Rank: 6

Heading: Date of Conversion and Valuation of Mr. Lieberman's Equity Interest

Text: [¶35] Mr. Lieberman asserts the district court erred in awarding him a judgment in the amount of $958,475.44. He claims that after his withdrawal he retained his interest in the company and, when Wyoming.com merged into the corporation, was entitled to the return of his ownership share and his share of other benefits the Mossbrooks diverted and retained measured at the time of trial. The Mossbrooks contend the only relief available to Mr. Lieberman was either the return of his capital contribution or the fair value of his ownership share at the time he withdrew. [¶36] The district court concluded that Wyoming.com converted Mr. Lieberman's equity interest on December 31, 2001, the date the company was merged into the corporation, and he was entitled to payment based upon the value of his proportionate share of the company as of the date of merger. As of that date, the district court concluded, Wyoming.com's separate existence as a limited liability company ceased and, pursuant to paragraph 10 of the company articles of organization, Mr. Lieberman was entitled to payment based upon the value of his equity interest. The district court relied upon paragraph 10 of the articles of organization which provided as follows: 10. Return of Capital. The members' right to the return of capital shall be determined from the company's books, as of the effective date of termination of the company, based on generally accepted accounting practices. [¶37] In arriving at the value of Mr. Lieberman's equity interest as of the date of merger, the district court also considered the following paragraphs of Article VI of the operating agreement: 6.1 The Company shall maintain accurate records of the Capital Accounts of the Members. Each Member's capital account shall be credited with: a. The amount of money the Member has contributed to the Company. b. The fair market value of property the [Member] has contributed to the Company. c. The Member's distributive share of Company income and gain. . . . . 6.2 Upon liquidation of the company (or any Member's interest in the Company), liquidating distributions shall in all cases be made in accordance with the positive capital balances of the Members. If any Member has a deficit balance in his capital account following the liquidation of his interest in the Company, as determined after taking into account all capital account adjustments for the Company taxable year during which such liquidation occurs, he is unconditionally obligated to restore the amount of such deficit balance to the Company by the end of such taxable year (or, if later, within 90 days after the date of such liquidation). 6.3 The Members may from time to time declare, and the Company may distribute, accumulated profits determined not necessary for the cash needs of the Company's business. Unless otherwise provided, retained profits shall be deemed an increase in capital contribution of the Company. [¶38] The district court also applied the following statute: § 17-15-126. Distribution of assets upon dissolution. (a) In settling accounts after dissolution, the liabilities of the limited liability company shall be entitled to payment in the following order: (i) Those to creditors, in the order of priority as provided by law, except those to members of the limited liability company on account of their contributions; (ii) Those to members of the limited liability company in respect of their share of the profits and other compensation by way of income on their contributions; and (iii) Those to members of the limited liability company in respect to their contributions to capital. (b) Subject to any statement in the operating agreement, members share in the limited liability company assets in respect to their claims for capital and in respect to their claims for profits or for compensation by way of income on their contributions, respectively, in proportion to the respective amounts of the claims. [¶39] From these provisions, the district court in effect concluded that on December 31, 2001, in addition to his capital contribution, Mr. Lieberman was entitled to his distributive share of any gain in company money and property, plus his share of undistributed money or property, together with his share of profits and income on contributions. From evidence presented by the parties, the district court determined that Mr. Lieberman's 37.62% share of total member capital as of December 31, 2001, was $341,855.20, his share of distributed earnings through 2001 was $341,673.00 and his total equity interest was $683,528.20. That amount together with interest at the statutory rate of 7% per year from January 2002 through 2007 plus interest at the rate of $131.09 from January 1, 2008 to the date of the decision led to a total judgment of $978,475.44, less the $20,000 Wyoming.com had already paid. [¶40] We review the district court's decision following a bench trial by applying the following standards: The factual findings of a judge are not entitled to the limited review afforded a jury verdict. While the findings are presumptively correct, the appellate court may examine all of the properly admissible evidence in the record. Due regard is given to the opportunity of the trial judge to assess the credibility of the witnesses, and our review does not entail re-weighing disputed evidence. Findings of fact will not be set aside unless they are clearly erroneous. A finding is clearly erroneous when, although there is evidence to support it, the reviewing court on the entire evidence is left with the definite and firm conviction that a mistake has been committed. Cook v. Eddy, 2008 WY 111, ¶ 6, 193 P.3d 705, 708 (Wyo. 2008) (citations omitted). With regard to the trial court's findings of fact, we assume that the evidence of the prevailing party below is true and give that party every reasonable inference that can fairly and reasonably be drawn from it. We do not substitute ourselves for the trial court as a finder of facts; instead, we defer to those findings unless they are unsupported by the record or erroneous as a matter of law. Id. The district court's conclusions of law, however, are subject to our de novo standard of review. Id. [¶41] Having considered all of the properly admissible evidence in the record, particularly the membership certificate and the check for $20,000 paid to the district court in the garnishment action, we cannot agree with the district court's determination that Mr. Lieberman's equity interest was to be valued as of December 31, 2001, the date of the merger. [2] It is undisputed that Mr. Lieberman withdrew his membership from Wyoming.com and demanded return of his capital contribution on March 13, 1998. Additionally, it is now undisputed that in accordance with his demand, Wyoming.com wrote him a check for $20,000 and cancelled his membership certificate on April 16, 1998. From that date, Mr. Lieberman's investment in the company as represented by his capital account was zero and he was no longer a member. He did, however, retain his equity interest in the sense that he remained entitled to his share of the company's earnings while he was an investor. [¶42] Mr. Lieberman's situation it turns out was different from that of a transferee. In Lieberman II, ¶ 16, 82 P.3d at 281 (footnote omitted), we said: The operating agreements clearly anticipate a situation where a person could be an equity owner in Wyoming.com but not a member. Provision 4.3 of the Operating Agreement, quoted above, provides that, if a transferee of an ownership interest is not unanimously approved by the remaining members, the transferee maintains the rights of equity ownership but will not be a member. Logically, given the absence of any contractual provision to the contrary, there is no reason to treat a withdrawing member any differently from someone who buys into Wyoming.com without becoming a member. Thus, Lieberman is not a member of Wyoming.com, but he maintains his equity interest and all rights and obligations attendant thereto. However, Paragraph 4.3 of the operating agreement dealing with transfers of shares does not address the situation where a member's capital contribution has been returned. In a transfer, the capital contribution remains with the company and the transferee receives the ownership interest commensurate with the capital contribution. In the present case, there was no remaining capital contribution as of April 16, 1998; consequently, Mr. Lieberman was neither a member nor an investor. To be consistent with the way in which the parties' agreements treat other situations, his interest must be treated as if it was liquidated upon the cancellation of his membership certificate and return of his capital contribution. [¶43] As reflected above, Article VI, paragraph 6.2, of the Wyoming.com operating agreement provided that upon liquidation of any member's interest in the company, liquidating distributions were to be made in accordance with the members' positive capital balances. Paragraph 6.2 further provided that the members' capital accounts were to be credited with the amount of money the member had contributed, the fair market value of property the member contributed and the member's distributive share of company income and gain; the members' capital accounts were to be debited with the amount of money the company distributed to the member, the fair market value of property distributed to the member and the member's distributive share of company loss and deduction. [¶44] Pursuant to these provisions, upon cancellation of Mr. Lieberman's membership and return of his capital contribution, Wyoming.com was required to make liquidating distributions to him in accordance with the amounts credited and debited in his capital account at that time or risk a claim for conversion. Wyoming.com did not make those distributions and, by its failure to do so, converted Mr. Lieberman's equity interest. The district court correctly concluded that Mr. Lieberman established the elements of conversion as a matter of law. That is, he was legally entitled to payment of his equity interest at the time his membership was cancelled and his capital contribution returned; Wyoming.com failed to pay him the value of his equity interest; he demanded payment; Wyoming.com rejected his demand; and he sustained damages. Cross, 7 P.3d at 929. [¶45] While this conclusion is clear from the record presently before us, it was not clear from the record before us in the prior Lieberman cases. Without the cancelled membership certificate, Mr. Mossbrook's testimony that the certificate was in fact cancelled April 16, 1998, and the evidence showing that Wyoming.com paid the $20,000 capital contribution to the district court in the garnishment proceeding, questions remained as to the status of Mr. Lieberman's equity interest. There now being no question that Wyoming.com cancelled Mr. Lieberman's membership certificate and returned his capital contribution on April 16, 1998, it is clear that he was entitled to liquidating distributions as of that same date. Mr. Lieberman has never received those distributions and, pursuant to § 17-15-142, the corporation [3] is liable to him for conversion. [¶46] While this result may, at first blush, seem inconsistent with the statement in Leiberman II that neither Mr. Lieberman nor Wyoming.com could force a liquidation of his interest, we reiterate that the statement was made on the basis of the limited claims and evidence presented. In any event, the statement in Lieberman II never foreclosed Mr. Lieberman from filing a conversion claim. Once he filed the conversion claim and the Mossbrooks presented evidence establishing that his membership and investment ended in 1998, the result was clearWyoming.com was required by the parties' agreements to treat his equity interest as liquidated and its failure to do so was a conversion. [¶47] Before addressing the valuation of the distribution amounts to which Mr. Lieberman was entitled, we find it important to state that even absent the membership certificate, the prior Lieberman decisions were never intended to suggest that Mr. Lieberman had any legitimate claim to a shareholder interest in the successor corporation. The corporation was not a party to any of those proceedings and the Court had no information as to the nature of the corporation at the time those cases were before it. In addition, § 17-15-142(a)(vi) provides: former holders of membership interests of every domestic limited liability company party to the merger are entitled only to the rights provided in the plan of merger. The plan of merger approved by the members of Wyoming.com and shareholders of the corporation provided: The members of the limited liability company having existing capital contributions shall receive a shareholder interest in the corporation in proportion to their percentage of ownership in the limited liability company as stated in the most recent amendment to the articles of organization on file with the Wyoming Secretary of State. The evidence is undisputed that Mr. Lieberman had no existing capital contribution and was not a member at the time of the merger. [¶48] Ordinarily, a determination by this Court that a party is entitled to payment in accordance with the terms of a written agreement would require remand to the district court for determination of the payment amount. This, however, is not an ordinary case. What began in 1998 with a declaratory judgment petition and complaint for dissolution evolved into an unnecessarily complicated and protracted legal battle. [4] We are disinclined to send this back yet again for the district court to resolve. [¶49] We have consistently stated that the goal in awarding damages is to make the injured party whole to the extent that it is possible to measure an injury in terms of money. Bush v. State, 2003 WY 156, ¶ 23, 79 P.3d 1178, 1186 (Wyo. 2003). An injured party is made whole when he is placed in the same financial position he would have been in had the wrong not been committed. Id. In computing damages, the primary objective is to determine the amount of loss, applying whatever rule is best situated to that purpose. Id. The measure of damages for the conversion of personal property is the fair market value of the property at the time of loss. O's Gold Seed Co. v. United Agri-Products Fin. Servs., Inc., 761 P.2d 673, 676 (Wyo. 1988). [5] We have also said that in conversion cases, the equivalent of interest on the value of converted property is recoverable as an element of damages. ANR Prod. Co. v. Kerr-McGee Corp., 893 P.2d 698, 704 (Wyo. 1995). [¶50] Having reviewed the record in its entirety, we conclude the elements of conversion were met in April of 1998, rather than three years later when Wyoming.com was merged into the corporation. However, irrespective of when the conversion occurred, the valuation of Mr. Lieberman's interest must be determined in an equitable manner in light of the parties' agreements and in a manner that reflects the value of his investment and the damages he incurred when Wyoming.com failed to pay him. Even if we were to conclude the conversion occurred at the time of the merger, the value of Mr. Lieberman's interest must still be measured by his share of the value of the company at the time he withdrew and received his capital contribution, together with interest on that amount. In that manner he is made whole and placed in the same financial position he would have been had the wrong not been committed. [¶51] The evidence presented at trial showed that in his March 1998 notice of withdrawal, Mr. Lieberman demanded $400,000 in payment for his interest in Wyoming.com. Although his written demand stated that the $400,000 was based on a recent offer from the majority shareholder, there is no evidence in the record supporting that valuation of his ownership interest. Other than his unsupported $400,000 demand, Mr. Lieberman presented no evidence of the value of his equity interest as of the date he withdrew. [¶52] The Mossbrooks contend that a January 25, 1998, offer to purchase Mr. Mossbrook's interest represents the best estimate of Wyoming.com's value at the time Mr. Lieberman withdrew. Based upon the purchase offer, an independent appraiser retained by the Mossbrooks valued Mr. Lieberman's equity interest on the date of his withdrawal at $100,000. Subtracting from that amount the $20,000 returned to Mr. Lieberman as his capital contribution and the $7,965 paid to him in September 1999, the appraiser concluded his equity interest amounted to $72,035. No evidence was presented refuting the appraisal. From the evidence presented, we conclude the value of Mr. Lieberman's interest at the time and place of the conversion was $72,035 together with interest at the rate of 7% per year from the date of his withdrawal.