Opinion ID: 1591711
Heading Depth: 1
Heading Rank: 2

Heading: Issues and Arguments

Text: Steele argues for a reversal of the order on three grounds. First, he contends that he has valid contractual rights to a portion of the proceeds from the insurance policies and the sale of the Rosenfeld building. Second, he argues that he is entitled to some of the proceeds under the doctrine of equitable conversion. Third, he insists that he is entitled to a share of the proceeds based upon a theory of equitable estoppel.
Steele contends that the oral agreement between Elkins and him constituted an executory contract for the purchase of a one-third membership interest in Rosenfeld, to be fully performed upon payment in full of the agreed-upon price for the third floor of the building. Furthermore, Steele insists that Elkins and he reached an oral agreement after the fire, that is, a second oral agreement, to the effect that the balance of the purchase price due Elkins [from Steele under the original oral agreement] would be paid from `Steele's share' of the insurance proceeds.  Steele's brief, at 38 (emphasis added; footnote omitted). Under the second oral agreement, according to Steele, Steele's purchase price was paid in full  as soon as Elkins received Nationwide's check, which was issued on December 21, 2001, and at that point Steele was entitled to full membership in Rosenfeld and a right to a portion of the remaining insurance proceeds and the proceeds from the sale of the Rosenfeld building. Steele's brief, at 38 (emphasis added). Thus, he contends that the executory contract has been fully performed and that he is entitled to a share of the proceeds. In the alternative, Steele contends that he need not be a full member of Rosenfeld, as member is defined in the Alabama Limited Liability Company Act, Ala. Code 1975, § 10-12-1 et seq. (the Act), to acquire a right to a one-third distribution of the insurance proceeds. Steele's brief, at 37. Ala.Code 1975, § 10-12-2(j) defines a member as [a] person reflected in the required records of a limited liability company as the owner of some governance rights of a membership interest in the limited liability company. (Emphasis added.) Steele does not assert that he ever had any governance, i.e., voting, rights in Rosenfeld before Rosenfeld received the insurance proceeds. Instead, he argues that the rights of membership in an Alabama limited liability company may essentially be bifurcated into financial rights and full membership (i.e., governance) rights. Steele's brief, at 33. Under this theory, according to Steele, a [full] member assigns his [financial] interest to another party, which party is not made a substituted member until completing the formalities of the Operating Agreement and Act, but [who] does obtain the financial rights of the transferor, who retains formal membership, and thus, voting rights. Id. In this manner, Steele insists, he obtained financial rights when [Rosenfeld] was formed, and had contracted, once his payments to Elkins were complete, to obtain full membership (i.e., governance) rights as well. Id. Thus, he contends, in essence, that his initial affiliation with Rosenfeld involved two independent contracts: the first being fully executed for the transfer of financial rights; the second being executory for the eventual transfer of voting rights. [2] He argues that the declaratory judgment must be reversed, based on the trial court's failure to find the existence of a fully executed enforceable contract. Elkins contends, however, that his oral agreement with Steele, standing alone, is insufficient, under [the Act] and under the terms of the governing [instruments] of [Rosenfeld], to give Steele [an interest] in [Rosenfeld]. Elkins's brief, at 24. In that connection, Ala.Code 1975, § 10-12-33, provides, in pertinent part: (a) Except as otherwise provided in the operating agreement: (1) An assignee of an interest in a limited liability company may become a member only if the other members unanimously consent. The consent of a member may be evidenced in any manner specified in the operating agreement, but in the absence of such a specification, consent shall be evidenced by a written instrument, dated and signed by the member.  (Emphasis added.) Article VI of the articles states:  Additional members may be admitted but only upon the unanimous written consent of the then existing members. (Emphasis added.) Similarly, § 9.1(B) of the operating agreement prohibits the admission of additional members without the prior written consent of Members holding at least seventy-five (75%) of the membership interests (other than the Member who is the transferor of such transferee). (Emphasis added.) [3] It is undisputed that there is no writing purporting to constitute the assent of Glover, who, the trial court found, owned one third of Rosenfeld. Elkins argues that the fact that no ... written [approval of the purported] assignment was ever executed is fatal to [Steele's] attempt to claim any benefits of membership in [Rosenfeld]. Elkins's brief, at 33 (emphasis added). We agree. The clear and unambiguous provisions of the Act, the articles, and the operating agreement require the written consent of Glover to Steele's becoming a member of Rosenfeld. Section 9.3 of the operating agreement states: Transfers in violation of the provisions of this Article shall be null and void and of no effect for any purpose.  (Emphasis added.) Assuming, without deciding, the legal validity of bifurcating the rights of membership as Steele advocates, Steele does not explain how  in the absence of compliance with the provisions for transfers  the purported assignment of the whole or any part of a package of interests is effective. Steele says only that the parties' failure to comply with the requirements cannot now be used by [Elkins] to his advantage and Steele's detriment. Steele's brief, at 36. However, he cites no authority in his principal brief for the proposition that this Court can ignore noncompliance with those requirements. Authority for this argument appears for the first time in Steele's reply brief. The law of Alabama provides that where no legal authority is cited or argued, the effect is the same as if no argument had been made.  Bennett v. Bennett, 506 So.2d 1021, 1023 (Ala.Civ.App.1987) (emphasis added). [A]n argument may not be raised, nor may an argument be supported by citations to authority, for the first time in an appellant's reply brief. Improved Benevolent & Protective Order of Elks v. Moss, 855 So.2d 1107, 1111 (Ala.Civ.App. 2003), abrogated on other grounds, Ex parte Full Circle Distribution, L.L.C., 883 So.2d 638 (Ala.2003). Where an appellant first cites authority for an argument in his reply brief, it is as if the argument was first raised in that reply brief, and it will not be considered. [4] For these reasons, Steele has failed to demonstrate that he has a contractual right to a portion of the proceeds.
Next, Steele argues that he is entitled to one-third of ... the insurance proceeds under the theory of equitable conversion, because the LLC interest was effectively destroyed during the time in which Steele's contract for purchase of the interest was executory. Steele's brief, at 52 (emphasis added). We disagree with the application of the doctrine of equitable conversion to the transfer of an interest in a limited liability company. An interest in a limited liability company is personal property. Ala.Code 1975, § 10-12-6 (emphasis added). However, this doctrine of equitable conversion is applicable only when there is a specifically enforceable contract between the parties, and the changes in the rights, duties, powers, and liabilities of the parties that result from the making of the contract are consequences of the equitable right to specific performance, Roberts v. Adams, 47 P.3d 690, 695 (Colo.Ct.App.2001) (emphasis added), in contracts for the sale of real estate. See also Passey v. Great Western Assocs. II, 174 Ariz. 420, 427, 850 P.2d 133, 140 (Ariz.Ct.App.1993) (the doctrine [of equitable conversion] applies only to real estate contracts that are capable of being specifically performed); People v. Alexander, 663 P.2d 1024, 1030 n. 6 (Colo.1983); III American Law of Property § 11.22, at 62-63 (1952). Because this case involves the purported transfer of an interest in personalty, i.e., an interest in Rosenfeld, Steele's equitable-conversion argument has no merit. In an apparent attempt to circumvent the consequences of this rule that the doctrine of equitable conversion applies only to real-estate contracts capable of specific performance, Steele urged the trial court  for the first time in his posttrial motion to alter, amend, or vacate the judgment  to pierce the veil of Rosenfeld, and regard the purported transfer of an interest in Rosenfeld as, in fact, a contract for the sale of real estate. Specifically, Steele argued: The operations of [Rosenfeld] are such as to justify the court's disregard of the entity, piercing the veil and treating Elkins, Glover, and Steele as one-third owners of the [Rosenfeld] building. Thus, Steele would have an executory contract for the purchase of his interest in the building and would be entitled to a 1/3 share of the insurance proceeds under the doctrine of equitable conversion. (Emphasis added.) In its order overruling the posttrial motion, the trial court expressly declined to consider the issue of piercing the corporate veil. It is well settled that a trial court has the discretion to consider a new legal argument in a post-judgment motion, but is not required to do so, and that [w]e will reverse only if the trial court abuses that discretion. Green Tree Acceptance, Inc. v. Blalock, 525 So.2d 1366, 1369-70 (Ala.1988). See also Diamond v. Aronov, 621 So.2d 263, 266-67 (Ala.1993); Blackmon v. King Metals Co., 553 So.2d 105, 106 (Ala.1989); D.J. Sherwood Transp., Inc. v. Road Shows, Inc., 656 So.2d 884, 887 (Ala.Civ.App.1995). The trial court did not exceed its discretion in declining to consider this argument.
Finally, Steele contends that Elkins should be  estopped to deny Steele's status as a member, or, alternatively, from withholding consent to Steele's becoming a member of Rosenfeld. Steele's brief, at 41 (emphasis added). More specifically, he argues: By presenting Steele with his LLC `package' Elkins, in effect, made the representation to Steele that by performing the terms of the promissory note and agreement to purchase, Steele would become a full member of [Rosenfeld]. Relying on this representation, Steele, who had already contributed $20,000 in the form of a down payment, began making, and Elkins continued accepting, the installment payments required under the note and agreement as well as the . . . payments for taxes and insurance. Steele was also allowed to remain in possession of the third floor of the Rosenfeld Building. . . . According to the arrangement between Elkins and Steele, once the insurance proceeds were paid to Elkins, Steele's obligation to him under the note was completely satisfied. [Elkins] cannot now be allowed to deny the validity of the agreement, or alternatively, to withhold [his] consent. In fact, there was ample evidence before the trial court indicating that both Elkins and Glover knew of and consented to Steele being a member of Rosenfeld, LLC. Steele's brief, at 47-48. Elkins, however, contends that to afford Steele membership status in Rosenfeld in the complete absence of any of the formal requisites imposed by statute or Operating Agreement for the addition of a member would impermissibly afford him membership by estoppel. Elkins's brief, at 42-43. We agree with Elkins. In Vergos v. Waterman Building Partnership, 613 So.2d 383, 389 (Ala.1993), this Court said: The courts of some states have held that, `[a]s between the parties themselves, there may exist an estoppel to allege or deny a partnership relation.' 68 C.J.S. Partnership § 21 (1950). ... This Court has not adopted that position. In Waters v. Union Bank of Repton, 370 So.2d 957, 960 (Ala.1979), we held that a partnership `is never established by implication or operation of law, at least in the situation where the dispute concerning the existence of a partnership is between the parties.' (Emphasis added.) On that basis, this Court refused to entertain an estoppel theory asserted by a seven-member partnership to prevent the dissociation of the signatory of a letter agreement purporting to make the signatory a member, where two of the members had not assented in writing as required by the partnership agreement, notwithstanding that the signatory had `held himself out to third parties as a partner, participated in the management of the Partnership, was provided privileged and confidential Partnership information by the other partners, was treated as a partner and considered to be a partner by the other members of the Partnership.' 613 So.2d at 387. Otherwise stated, among the parties to a partnership, membership cannot be acquired by estoppel. The provisions pertinent to this case are fully consistent with this rule, and we see no reason to apply a different rule in the context of a limited liability company. See Ala.Code. 1975, § 10-12-8(a) (providing that, for statutory purposes, limited liability companies are generally treated as partnerships). Under § 10-12-33(a)(1), membership accretion must be evidenced by a written instrument, dated and signed by all the existing members. (Emphasis added.) Likewise, the articles condition the admission of additional members upon the unanimous written consent of the then existing members. Art. VI (emphasis added). We will not disregard the plain meaning of these provisions in order to afford Steele membership in Rosenfeld on the basis of implied representations and the purported acquiescence of Glover and Elkins in certain actions by Steele.