Deciding that its prior contract interpretation had relied on a definition provided by an inapplicable article of the agreement, the court reconsidered its ruling granting partial summary judgment as to the plaintiff’s substantial breach-of-contract claim.
In December 2007, Meritage Fund I LLC – of which Plaintiff Williamson Equity Partners LLC is a member – issued a Confidential Private Placement Memorandum offering LLC membership interests to potential investors. An Operating Agreement was later executed between the member investors and the several Defendants, with Defendant JP Fund Management LLC being the Manager of Meritage.
Meritage went on to invest in several properties. However, after losing money and obtaining loans, Meritage began winding up in 2015. As part of the windup process, the Manager facilitated final distributions from Meritage to the member investors and the Manager, including a $1,849,590 distribution to the various Defendants.
Williamson brought this action claiming that, under the Operating Agreement, this distribution would have been proper only had Meritage made money, and then only after the members were provided an eight percent cumulative return on their Net Capital. The court granted summary judgment in favor of Williamson, and the Defendants moved for reconsideration.
The Defendants argue that this court’s prior opinion erroneously imposes a requirement that the Fund should have returned a profit in order to make a distribution pursuant to Article 8 when such a requirement is not found in the language of the Operating Agreement. Rather than “profit,” “net,” or “loss,” the Operating Agreement uses the terms “net proceeds” and “net cash.” Thus, the plain meaning of the terms used in the Operating Agreement require “net cash,” rather than a “profit.” They argue that, because the provision the court interpreted to require a profit also covers instances of refinancing, it could not possibly require a profit because there is never a profit in a refinancing. They assert that it is nonsensical to interpret “net proceeds” to mean “profit.” The Defendants further argue that the court made a factual finding – improper at the summary judgment stage – that there were no net proceeds.
Reconsideration is appropriate in this case. The Operating Agreement states, “If, in connection with, as part of or immediately preceding any dissolution or winding up of the LLC, the LLC receives Net Cash from a Sale or Refinancing, then such Net Cash from a Sale or Refinancing shall be distributed and allocated among the members in accordance with Articles 8 and 9 of this Agreement.” “Net Cash from Sale or Refinancing” is defined as: “the net proceeds from (i) any sale, exchange, condemnation or other disposition of any portion of the LLC’s assets, (ii) any sale, exchange, condemnation or other disposition of any of the Properties or any part thereof, and (iii) any borrowing by the LLC or any Property Owner, in each case less all costs, fees (including Management Fees), expenses and obligations of the LLC and reserves determined by the Manager in its sole discretion.”
In the prior summary judgment hearing, the parties’ arguments were based primarily on the proper procedure for distributing funds under Articles 8 and 9 of the Operating Agreement. Upon review, however, the court interpreted the “net proceeds” language of Article 14 in its holding.
In consideration of the applications of the respective articles, granting summary judgment on the breach of contract claim is improper. The court exceeded the plain meaning of the contract in interpreting “net proceeds” synonymously with “profit.” At the very least, the definition of what constitutes “net proceeds” under the contract is a question of material dispute. Additionally, the remaining value and the proper procedure for distributing proceeds are also material facts subject to the presentation of evidence by the parties.
Accordingly, there is a disputed issue within those documents with regard to whether pursuant to Article 14 the Fund received “Net Cash from a Sale or Refinancing.” Further, if there was “Net Cash from a Sale or Refinancing,” whether it was “distributed and allocated among the Members in accordance with Articles 8 and 9 of [the] Agreement” is a jury question. Therefore, the Plaintiff’s Motion for Summary Judgment is denied.
Williamson Equity Partners LLC v. Jackson, CL17-1096, Apr. 16, 2018. Norfolk Cir. Ct. (Atkinson). VLW No. 018-8-038, 4 pp.