June 25, 2019

Colorado Court of Appeals: Genuine Issues of Material Fact Precluded Judicial Dissolution of LLC

The Colorado Court of Appeals issued its opinion in Gagne v. Gagne on Thursday, September 25, 2014.

Limited Liability Company—Summary Judgment—Judicial Dissolution—Declaratory Judgment—Notice—Attorney Fees.

Paula and Richard Gagne, mother and son, are the sole members of the four limited liability companies (LLCs), each of which owns multi-unit apartment complexes. Richard initiated this action, alleging that he and Paula had been unable to agree on the continued operation and management of the LLCs and had reached an impasse as to an equitable distribution of the LLCs or their assets. Richard requested judicial dissolution of the LLCs, a declaratory judgment regarding their respective rights, and the appointment of a receiver. The district court issued a declaratory judgment, granted partial summary judgment to Paula on Richard’s judicial dissolution claim, denied Richard’s request to require Paula to disgorge the attorney fees that the LLCs paid on her behalf, and denied Richard’s requests for attorney fees.

On appeal, Richard contended that the district court erred in granting partial summary judgment to Paula on his claim for judicial dissolution. The Court of Appeals was unable to determine, as a matter of law, whether the LLC Agreements provide an effective means for resolving the disagreements between Paula and Richard. Because there were genuine issues of material fact precluding the entry of partial summary judgment on Richard’s judicial dissolution claim, the partial summary judgment on that claim was reversed.

Paula and Richard both asserted that the district court erred in its resolution of the parties’ declaratory judgment claims regarding the management of the properties. Because the LLC Agreements are ambiguous regarding these issues, the case was remanded for further findings regarding the parties’ intent.

Paula contended that the district court erred in entering a declaratory judgment regarding (and imposing remedies for her conduct as to) an employment contract she entered into with another son, Jay Gagne, and a loan she made to one of the LLCs in which Paula signed the paperwork as both lender and borrower. Because Richard never asserted any such claims for relief, and because the parties have not argued (and the record does not show) that such claims were tried by implied consent, Paula did not have proper notice of these claims and the court erred in entering a declaratory judgment on these claims.

Richard also contended that the district court erred in denying his motion to disgorge the attorney fees that the LLCs paid on Paula’s behalf in this case. Richard’s action represented an attempt to “undo” the LLCs and distribute their assets, and Paula, acting as Chief Executive Manager of the LLCs, defended against Richard’s efforts to do so. In these circumstances, Paula’s using of LLC funds to defend against Richard’s claims was not improper.

Richard further contended that the district court erred in denying his requests for attorney fees based on the dismissal of Paula’s counterclaims. However, Richard failed to establish that he is entitled to recover fees pursuant to CRS §13-17-201 on the facts of this case. The judgment was affirmed in part, reversed in part, and vacated in part, and the case was remanded with directions.

Summary and full case available here, courtesy of The Colorado Lawyer.

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