Court Opinion

ID: 9853827
Source: CourtListenerOpinion
Date Created: 2023-09-24 05:56:01.152854+00
Date Added: 2024-06-11T09:20:09.757078
License: Public Domain

Justice PLEICONES:
I respectfully dissent from part I and part II of the majority opinion.
I agree with the majority in their finding that the master committed harmless error in holding that the relief granted to *439HCH was justified by Mallon’s dissociation from Dixie. I also agree with the majority’s finding that the master did not abuse his discretion in excluding evidence of self-dealing and misappropriation of Dixie’s funds by Coker. Moreover, I agree with the majority that the master erred in awarding prejudgment interest to HCH, because the amount awarded HCH was not liquidated at the time the parties’ claims to the proceeds arose. Furthermore, I agree with the majority that HCH failed to plead the instant case as a shareholder derivative action; therefore, the master erred in awarding attorney’s fees under § 83-44-1104 (2006) of the LLC Act. However, I respectfully disagree with the majority’s finding that Mallon is not entitled to a full accounting for Dixie Holdings, and that HCH is entitled to one-half of the proceeds from the sale of 15 Felix Street.
Pursuant to S.C.Code Ann. § 33^14-103 (2006), operating agreements are binding contracts which are superior to statutory authority where they are in place. Statutory law; however, will apply if the operating agreement is silent as to some matter. Therefore, when a court is deciding a controversy between limited liability company members, it must first evaluate the operating agreement regarding a particular issue prior to looking to the statutory law governing areas not covered by the agreement.
Section 12.6 of the Dixie Holdings’ operating agreement is relevant to Mallon’s claims for reimbursement and the need for a full accounting. The section, entitled “Final Accounting,” states that “each of the members shall be furnished with a statement setting forth the assets and liabilities of the Company as of the date of the complete liquidation,” and “[ujpon compliance by the Company with the foregoing distribution plan, the Members shall cease to be such, and they shall execute and cause to be filed any and all documents necessary with respect to termination and cancellation.”
Dixie Holdings’ operating agreement thus requires an accounting prior to dissolution.10 Because the operating agreement required an accounting, and since operating agreements govern the affairs of the company and the conduct of its *440business according to § 33-44-103 (2006) of the LLC Act, an accounting is necessary prior to the dissolution of Dixie Holdings’ and the distribution of the $41,845.30 from the sale of 15 Felix Street.
Even if an accounting were not mandatory according to the operating agreement, a full accounting would have been necessary according to statute under the facts of this case. Pursuant to § 33^4 — 410(a)(1) (2006) of the S.C.Code, a member is entitled to maintain a suit for an accounting. When that request is made in the context of an action winding up the business of a limited liability company, courts are required to determine the assets, discharge obligations to creditors, and distribute the surplus to members. S.C.Code Ann. § 33-44-806(a) (2006). In order to complete the winding up of Dixie Holdings, I would hold that a full accounting is required and necessary under the LLC Act even if it were not required by the agreement.
*441Further, I respectfully disagree with the majority that Mallon waived his right to an accounting. As defined by Janasik v. Fairway Oaks Villas Horizontal Prop. Regime, 307 S.C. 339, 344, 415 S.E.2d 384, 387-88 (1992), a waiver is a voluntary and intentional abandonment or relinquishment of a known right.
The majority finds that Mallon waived his right to an accounting by failing to independently resolve the matter when he and Coker both had access to the bank records. I respectfully disagree. Dixie Holdings’ operating agreement does not list each Member’s role within the limited liability company. Each member; however, carried out specific duties: Coker performed accounting and financial related services, Storen acted as the real estate agent, and Mallon renovated the properties. Mallon was also a cosignatory on the first Dixie Developers bank account and equally capable of acquiring the bank records. Having access to the bank records is not the equivalent of an accounting. In order to complete a formal accounting necessary for the dissolution of a company, one must have access to all financial documents such as the company’s income statements and balance sheets. Since Mallon did not have access to all documents necessary to compete a full accounting he could not have waived this right. Moreover, there is no evidence of a voluntary and intentional relinquishment of Mallon’s contractual statutory rights.
Both HCH and Mallon in their pleadings requested a full accounting. In his answer, Mallon asserted “an accounting is appropriate for both parties, and that Coker, who acted as the financial officer of Dixie [Holdings] has repeatedly and improperly failed to prepare a proper accounting, which should now be done.” Therefore, there is no evidence that Mallon voluntarily and intentionally abandoned his right to an accounting.
In conclusion, I am in agreement with the Court of Appeals holding that this case should be remanded for a full accounting of the LLC, and the proceeds from the sale of 15 Felix Street should be held in an escrow account, in accordance with the operating agreement, for the benefit of Dixie Holdings until a final accounting is performed and the appropriate amounts distributed accordingly.
*442For the reasons stated above, the Court of Appeals decision should be affirmed in part, reversed in part, and the matter remanded to the master for a full accounting.

. I disagree with the majority's assertion that the operating agreement does not require an accounting prior to dissolution. In construing a *440contract, this Court’s main concern is to ascertain and give effect to the intention of the parties. D.A. Davis Const. Co., Inc. v. Palmetto Properties, Inc., 281 S.C. 415, 315 S.E.2d 370 (1984). The order of the sentences in section 12.6 suggests the chronology of the actions. The section sets forth the accounting requirement and then provides that ”[u]pon the compliance by the Company with the foregoing distribution plan” the Company will terminate. This suggests that the accounting should be completed before dissolution. Reading the policy in this way also produces a more reasonable result, since an accounting prior to liquidation may have an impact upon distribution, while an accounting after liquidation will not. "Common sense and good faith are leading touchstones of construction of provisions of contract; where one construction makes provisions unusual or extraordinary and another construction, which is equally consistent with language employed, would make it reasonable, fair, and just, latter construction must prevail.” C.A.N. Enterprises, Inc. v. South Carolina Health and Human Services Finance Com'n, 296 S.C. 373, 373 S.E.2d 584 (1988). Finally, in ascertaining the intent of the parties, we may examine the situation of the parties as well as their purposes at the time the contract was entered into. Klutts Resort Realty, Inc. v. Down'Round Development Corp., 268 S.C. 80, 232 S.E.2d 20 (1977). As noted above, the parties met and signed the operating agreement in part due to dissatisfaction with Coker's responses to multiple requests by Mallon and Storen for full financial accounting of Dixie. Given the events leading up to the meeting, it is unlikely that the parties intended for the operating agreement to require a final accounting after dissolution, at which point the assets would be distributed. The more logical reading is that the provision was meant to provide Mallon and Storen with assurances that they were receiving their fair share of the assets.