Opinion ID: 2716832
Heading Depth: 2
Heading Rank: 2

Heading: Winding up

Text: The defendants next contend that during the process of winding up a limited-liability company, the limited-liability company, as specified in § 10A-5-7.03, Ala. Code 1975, continues its existence for a reasonable time, during which it may not engage in any new business, but the person charged with winding up the limited-liability company may, among other acts, prosecute and defend actions and proceedings. See also § 10A-5-7.04(a), Ala. Code 1975 (A dissolved limited liability company continues its existence but may not carry on any business except that necessary or appropriate to wind up and liquidate its business and affairs.). Thus, in light of the plain language of § 10A-5-7.03, the defendants contend that the trial court erred in fixing the winding-up period at the automatic, two-year cut-off period applied to corporations under former § 10-2A-203, Ala. Code 1975. In further support 37 1110423 of this allegation of error, the defendants note that the disputed fees were not paid and thus not subject to collection until over two years after the 2006 dissolution date. The plaintiffs appear to concede that EAG, LLC, continued to exist ... for the limited purpose of carrying out only that business necessary to wind up and liquidate. Plaintiffs' brief, at p. 18. They counter, however, that that process was to be undertaken by the members who, at all times, remained bound by the terms of the operating agreement. See Harbison v. Strickland, 900 So. 2d 385, 391 (Ala. 2004). More specifically, they argue that no vote occurred during the winding-up period authorizing either member or EAG, LLC, to prosecute the subject claims. Although I agree that the trial court's application of a two-year winding-up period appears to conflict with the reasonable time language found in § 10A-5-7.03, the defendants, nonetheless, have failed to convince me that the trial court's decision in this regard constitutes reversible error. 14 First, I note that, other than a citation to the 14 The plaintiffs contend on appeal, as the trial court also apparently concluded, that a limited liability company formed to provide professional services is subject to the Revised Alabama Professional Corporation Act and is, 38 1110423 general statutory authority set out above, the defendants fail to identify any supporting authorities applying those sections to factual scenarios similar to the one before us or establishing what is a reasonable time for winding up as contemplated by the Code. Notably, the defendants similarly fail either to discuss or to attempt to distinguish the authorities cited in the trial court's order as support for the challenged finding. I, therefore, question whether the defendants' argument in this regard comports with the requirements of Rule 28, Ala. R. App. P. This Court has repeatedly cautioned that 'Rule 28(a)(10), Ala. R. App. P., requires that arguments in an appellant's brief contain citations to the cases, statutes, other authorities, and parts of the record relied on. Further, it is well settled that a failure to comply with the requirements of Rule 28(a)(10) requiring citation of authority in support of the arguments presented provides this Court with a basis for disregarding those arguments. State Farm Mut. Auto. Ins. Co. v. Motley, 909 So. 2d 806, 822 (Ala. 2005) (citing Ex parte Showers, 812 So. 2d 277, 281 (Ala. 2001)). This is so, because 'it is not the function of this therefore, subject to the Alabama Business Corporation Act and the two-year limitations period on winding up corporate affairs upon dissolution. Plaintiffs' brief, at p. 31. As discussed in more detail below, however, an analysis of this particular argument would not be necessary, because the trial court's findings are due to be affirmed on other grounds. 39 1110423 Court to do a party's legal research or to make and address legal arguments for a party based on undelineated general propositions not supported by sufficient authority or argument.' Butler v. Town of Argo, 871 So. 2d 1, 20 (Ala. 2003)(quoting Dykes v. Lane Trucking, Inc., 652 So. 2d 248, 251 (Ala. 1994)).' Prattville Mem'l Chapel v. Parker, 10 So. 3d 546, 560 (Ala. 2008) (quoting Jimmy Day Plumbing & Heating, Inc. v. Smith, 964 So. 2d 1, 9 (Ala. 2007)). Here, as noted above, the defendants have failed to include any citation to authority in support of the argument presented. It is the appellant's burden to refer this Court to legal authority that supports its argument. Madaloni v. City of Mobile, 37 So. 3d 739, 749 (Ala. 2009). In the absence of such, the defendants have waived this claim on appeal. In addition, I am unconvinced that it was unreasonable on the part of the trial court to infer that the statutory winding-up period for one type of corporate entity may serve as a presumptively reasonable winding-up period for another. Certainly, as noted above, the defendants have failed to identify any authority stating that it may not. Finally, I see nothing to indicate, as Berks argues, that he was, in fact, charged by Rowe with sole responsibility for 40 1110423 winding up the business of EAG, LLC. Instead, the terms of the 2006 settlement agreement appear to indicate that Berks was charged only with taking steps to formally dissolve EAG, LLC, i.e., filing articles of dissolution. 15 I further note that, also pursuant to the terms of that agreement, Berks and Rowe agreed to proceed with dissolution pursuant to the applicable terms of the operating agreement. As to dissolution, the operating agreement plainly states that [t]he Members are the appropriate party to pursue litigation on behalf of ELG, LLC. See note 5, supra. Thus, even if, as Berks argues, the underlying counterclaim was the direct result of his purported efforts at winding up, there is nothing suggesting that, in that role, he was excused from the requirement of obtaining a majority vote in favor of his actions before proceeding on behalf of EAG, LLC. In light of the foregoing, I see no error in this regard. 2. Berks's Individual Standing A. Devolvement of Assets of EAG, LLC, to Members upon Dissolution 15 In fact, it was Berks's failure to carry out this responsibility that led to the subsequent filing of articles of dissolution by Rowe. 41 1110423 The defendants next contend that, assuming that the trial court correctly ruled that EAG, LLC, was dissolved, the interest in the contested cases held by EAG, LLC, as set out in the 2004 settlement agreement, devolved to Berks pursuant to the distribution of the assets of EAG, LLC, as provided for in § 10A-5-7.05. Thus, Berks maintains, he possessed a sufficient interest to impart the requisite standing to assert the claims accruing to EAG, LLC, under the 2004 settlement agreement. I disagree. The cited Code section merely provides the following order of priority for distributing the assets of a dissolving limited-liability company during the winding-up period: (1) To creditors, including members who are creditors to the extent allowed by Section 10A-5-3.01 or otherwise permitted by law, in order of priority as provided by law, except those liabilities to members of the limited liability company for interim distributions or on account of their contributions. (2) Except as otherwise provided in the governing documents, to members of the limited liability company and former members for interim distributions and in respect of their contributions. (3) Except as otherwise provided in the governing documents, to members first for the return of their contributions and second with respect to 42 1110423 their interests in the limited liability company, in the proportions in which the members share in distributions. In support of his apparent contention that the foregoing supports his claim of individual standing to assert claims belonging to the former limited-liability company, Berks cites a single appellate decision from Washington state for the general proposition that title to limited-liability-companyowned assets and property devolve to the owners of the limited-liability company upon dissolution of the limitedliability company. See Sherron Assocs. Loan Fund V (Mars Hotel) LLC v. Saucier, 157 Wash. App. 357, 237 P.3d 338 (2010). Notably, however, the Saucier court's decision concerned the devolution of a perfected judgment held by a defunct limited-liability company and its finding that [a] judgment is an intangible asset. 157 Wash. App. at 363, 237 P.3d at 363. Berks, however, offers only his own unsupported argument –- failing to cite to this Court any binding authority –- indicating that the claim at issue, an inchoate contract right, is an asset of EAG, LLC, that would have devolved to 43 1110423 the members of EAG, LLC, upon its dissolution. 16 In fact, Berks acknowledges that he was unable to find any Alabama law to support his claim. I note, however, that both Hutson v. Fulgham Industries, Inc., 869 F.2d 1457 (11th Cir. 1989), and Nix v. W.R. Grace & Co.-Conn., 830 F. Supp. 601 (S.D. Ala. 1993), which were cited in the order of the trial court from which Berks appeals, appear to stand for the contrary proposition. Specifically, in Nix, the federal district court discussed and applied the holding of the United States Court of Appeals for the Eleventh Circuit in Hutson as follows: In a small number of cases, courts have held corporate survival statutes inapplicable to suits filed by shareholders of a dissolved corporation even though those actions were based on injuries to the corporation. In each of those instances, however, the court's reasoning was based on the equitable principle that a corporation's assets devolve to its shareholders, and the shareholder in each case could identify 'a tangible property asset' which had devolved by operation of law or which had 16 Any contention by Berks that, as a result of Rowe's departure, Berks was the sole remaining member of EAG, LLC, and thus the only one entitled to assert claims purportedly accruing to EAG, LLC, appears meritless. See Richard A. Thigpen, Alabama Corporation Law § 1:18 (4th ed. 2012) (Under [the Code], the departure of one or more members does not work an automatic dissolution of a company even where the company is left with no remaining members. (footnote omitted)). 44 1110423 been assigned to the shareholder. Davis v. St. Paul Fire & Marine Ins. Co., 727 F. Supp. 549, 551 (D.S.D. 1989). This exception is consistent with the purpose of the corporate survival statutes because 'the other party is not prejudiced by allowing a cause of action relating to collection of a tangible asset since the assignee of that property has a fixed and identifiable right separate from the corporations' original right.' Id. at 551–52. For example, in Jenot v. White Mountain Acceptance Corp., 124 N.H. 701, 474 A.2d 1382 (1984) and Shute v. Chambers, 142 Ill. App. 3d 948, 97 Ill. Dec. 92, 492 N.E.2d 528 (Ill. App. Ct.1986), former shareholders sued corporate debtors whose debts were evidenced by a note or mortgage and were of a fixed or ascertainable amount. In contrast, the amount, or even the existence, of any debt between the defendants in the instant case and Bel Air Corporation is disputed. In Carmichael v. Halstead Nursing Center, Ltd., 237 Kan. 495, 701 P.2d 934 (1985) and Levy v. Liebling, 238 F.2d 505 (7th Cir. 1956), cert. denied, 353 U.S. 936, 77 S.Ct. 812, 1 L. Ed. 2d 759 (1957), the corporation's claims against the defendant had been reduced to judgment before dissolution and were therefore considered to be corporate assets. In this case, there is obviously no judgment since plaintiff's claims against these defendants have never been litigated. It is this limited exception that was the focus of the Hutson opinion. Like Nix, the plaintiff in Hutson claimed that the breach of contract and tort claims he asserted were assets of the dissolved corporation and became his either by operation of law or by assignment. The issue in Hutson was 'whether Foresco [the dissolved corporation] possessed any corporate assets to which Hutson, as a former Foresco shareholder, became legally entitled upon Foresco's dissolution.' Hutson, 869 F.2d at 1461. The appellate court addressed 45 1110423 Hutson's fraud and breach of contract claims separately. In discussing the contract claim, the court, citing Jenot, recognized that the corporate survival statutes 'were not intended to supplant the equitable rule that former shareholders succeed to the assets of a dissolved corporation,['] but held that it was 'unwilling, however, to extend the equitable rule so far as to recognize a property interest in an unasserted corporate contract claim which involves evidentiary problems and factual disputes.' Id. at 1462–63. The Court then went on to state that such contract claims 'must be asserted within the wind-up period (or be properly assigned) to survive dissolution.' Based on the latter statement, Nix asserts that a mere general assignment of all corporate claims will defeat the survival statute. Moreover, Nix argues that since defendants have not challenged the validity of the general assignment, the assignment must have been proper. Plaintiff ignores the appellate court's holding that an unasserted breach of contract claim is not a property interest or asset. See also Canadian Ace Brewing Co. v. Joseph Schlitz Brewing Co., 629 F.2d 1183 (7th Cir. 1980) (distinguishing between an unasserted claim and a claim reduced [to] judgment prior to dissolution, the latter being extinguished after the wind-up period ends). A corporation cannot assign a property interest that does not exist. Consequently, the validity of the Bel Air Corporation's general assignment is inconsequential. 830 F. Supp. at 604-05. The defendants thus fail to convince me that the claims of EAG, LLC, which were based upon the plaintiffs' disputed breach of the 2004 settlement agreement, were, in fact, the 46 1110423 type of asset contemplated by § 10A-5-7.05. See Hutson, 869 F.2d at 1463 n.15 (explaining the Court's holding as declin[ing] to include unasserted corporate contract claims within the equitable [devolution] rule's operation). In the absence of Berks's actual ownership of the claim of EAG, LLC, which Berks purported to assert below, I cannot fault the trial court for finding that Berks lacked the ability to pursue the claim. 17 17 'This Court may affirm a trial court's judgment on any valid legal ground presented by the record, regardless of whether that ground was considered, or even if it was rejected, by the trial court.' General Motors Corp. v. Stokes Chevrolet, Inc., 885 So. 2d 119, 124 (Ala. 2003) (quoting Liberty Nat'l Life Ins. Co. v. University of Alabama Health Servs. Found., P.C., 881 So. 2d 1013, 1020 (Ala. 2003)); Vesta Fire Ins. Corp. v. Milam & Co. Constr., 901 So. 2d 84, 104 (Ala. 2004) ('Subject to limited exceptions, an appellate court will affirm a summary judgment on the basis of a law or legal principle not invoked by the moving party or the trial court, even though an appellate court will not reverse a summary judgment on the basis of a law or legal principle not first argued to the trial court by the nonmoving party.' (footnote omitted)). However, this Court has stated: 'This rule fails in application only where due-process constraints require some notice at the trial level, which was omitted, of 47 1110423 B. Berks's Individual Standing Pursuant to the 2004 Settlement Agreement Alternatively, the defendants maintain that, even assuming, as the trial court concluded, that the rights of EAG, LLC, under the 2004 settlement agreement did not devolve to Berks upon its dissolution, Berks nonetheless possessed standing to assert claims under that agreement as an intended third-party beneficiary of the 2004 settlement agreement. Specifically, they point to the language of the 2004 settlement agreement providing that payment of the disputed fees was to be made to EAG, LLC, with each principal of [EAG, LLC,] entitled to half. Thus, the defendants contend, Berks is an identified third-party beneficiary of that agreement, the basis that would otherwise support an affirmance, such as when a totally omitted affirmative defense might, if available for consideration, suffice to affirm a judgment, or where a summary-judgment movant has not asserted before the trial court a failure of the nonmovant's evidence on an element of a claim or defense and therefore has not shifted the burden of producing substantial evidence in support of that element.' [Liberty Nat'l Life Ins. Co. v.] University of Alabama Health Servs. [Found., P.C.], 881 So. 2d [1013] at 1020 [(Ala. 2003)] (citations omitted). Warren v. Hooper, 984 So. 2d 1118, 1121 (Ala. 2007). 48 1110423 who is entitled to assert a claim that the 2004 settlement agreement has been breached. Pursuant to the authorities cited by the defendants: To recover under a third-party-beneficiary theory, [Berks] must show: (1) that the contracting parties intended, at the time the contract was created, to bestow a direct benefit upon a third party; (2) that the claimant was the intended beneficiary of the contract; and (3) that the contract was breached. Ex parte Steadman, 812 So. 2d 290, 295 n.3 (Ala. 2001). Further, [a] third person has no rights under a contract between others, and no standing to sue based on a breach of that contract, unless the contracting parties intend that the third person receive a direct benefit enforceable in court. Russell v. Birmingham Oxygen Serv., Inc., 408 So. 2d 90, 93 (Ala. 1981) (citations omitted). In Russell, where a nonparty to a noncompete agreement attempted to enforce that agreement based upon his ownership of the contracting company, this Court noted: Appellees argue that it makes no difference whether Birmingham Oxygen or Southeastern Medical enforces the non-competition agreement, since Barney