William Miles Arvin, Jr. v. Daren Carter ( 2022 )

RENDERED: APRIL 22, 2022; 10:00 A.M.
TO BE PUBLISHED
Commonwealth of Kentucky
Court of Appeals
NO. 2021-CA-0151-MR
WILLIAM MILES ARVIN, JR.; AND
KENTUCKY PROPERTY
MANAGEMENT, LLC1 APPELLANTS
APPEAL FROM JESSAMINE CIRCUIT COURT
v. HONORABLE C. HUNTER DAUGHERTY, JUDGE
ACTION NO. 17-CI-00111
DAREN CARTER AND SOUTHERN
TAX SERVICES, LLC APPELLEES
OPINION
AFFIRMING
** ** ** ** **
BEFORE: ACREE, DIXON, AND K. THOMPSON, JUDGES.
DIXON, JUDGE: William Miles Arvin, Jr., and Kentucky Property Management,
LLC, (KPM) appeal from the order and judgment entered on January 4, 2021, by
1
Unbridled Holdings, LLC, was dismissed as an Appellant to this appeal by an order of our
Court entered on October 26, 2021.
the Jessamine Circuit Court. Following review of the record, briefs, and law, we
affirm.
FACTS AND PROCEDURAL BACKGROUND
This case was previously on appeal in Unbridled Holdings, LLC v.
Carter, 607 S.W.3d 188 (Ky. App. 2020) (hereinafter “KPM 1”). We adopt the
following statement of facts herein:
In 2007, Arvin and Carter entered into an
agreement to form a Kentucky limited liability company
to invest in the purchase and redemption of delinquent
tax lien certificates. The two men named their company
Southern Tax Services, LLC (“Southern Tax”). Articles
of organization for Southern Tax were filed with the
Kentucky Secretary of State on or about December 13,
2007. Southern Tax actively purchased tax lien
delinquency certificates for several years after its
formation; however, it ceased doing so well before this
litigation began. At that time, its business activity was
focused almost solely on collections as related to its
existing lien portfolio.
Later, Arvin and Carter formed two additional
Kentucky limited liability companies: [KPM], in 2008
and Unbridled Holdings, LLC (“Unbridled”), in 2012.
The purpose of both companies was to take title to, hold,
and manage the real property acquired by Southern Tax
in conjunction with its tax lien redemption business.
[KPM’s] primary purpose was to purchase and lease
properties long-term, while Unbridled was formed to
acquire riskier properties to lease short-term and then
sell. While the original intent may have been for both
companies to purchase most of their properties from
Southern Tax and its related litigation, as it turned out,
[KPM] acquired very little property from Southern Tax.
In contrast, Unbridled purchased all of its properties from
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Southern Tax and/or its related foreclosure litigation. It
is unclear what Unbridled’s long-term business plans
were in light of Southern Tax’s decision to stop acquiring
new certificates of delinquency.
Arvin and Carter entered into an identical
operating agreement for each company. Arvin, an
attorney licensed to practice law in Kentucky, largely
oversaw the drafting of the articles of organization and
operating agreements. The operating agreements
provided that each company was organized as a
Kentucky limited liability company pursuant to
[Kentucky Revised Statutes (KRS)] 275.001 through
KRS 275.455. The stated purpose of the companies and
the general nature of their businesses “shall include all
transactions of any or all lawful business for which
limited liability companies may be formed under the laws
of the State of Kentucky.” Operating Agreements Sec.
1.9. Management of the companies was vested in their
two members, Arvin and Carter, who were each given
separate authority to oversee “the ordinary and day-to-
day decisions concerning the business affairs” of the
companies. Operating Agreements Sec. 2.1.
Section 2.2 of the operating agreements, entitled
“Binding Authority of Members,” is particularly relevant
to this appeal. It provides:
The parties hereto hereby agree that the members
of the Company shall have the authority to bind
the Company. No person other than a member
shall take any action as a member to bind the
Company, and shall indemnify the Company for
any costs or damages incurred by the Company as
a result of the unauthorized action of such
member. Nothing in this agreement shall prevent
or preclude any member from delegating or
granting any or all of their authority to manage the
company to another member or members. Each
member has the power to do all things necessary or
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convenient to carry out the business and affairs of
the Company, including but not limited to the
following actions:
(i) the entering into contracts and guaranties;
incurring of liabilities; borrowing money, issuance
of notes, bonds, and other obligations; and the
securing of any of its obligations by mortgage or
pledge of any of its property or income;
(ii) the purchase, receipt, lease or other acquisition,
ownership, holding, improvement, use and other
dealing with property wherever located;
(iii) the sale, conveyance, mortgage, pledge, lease,
exchange, and other disposition of property;
(iv) the lending of money, investment and
reinvestment of Company funds, and receipt and
holding of property as security for repayment,
including the loaning of money to Company
members, employees, and agents;
(v) the appointment of employees and agents of the
Company and the establishment of their
compensation;
(vi) the payment of compensation, or additional
compensation to any or all members, and
employees on account of services previously
rendered to the Company, whether or not an
agreement to pay such compensation was made
before such services were rendered;
(vii) the participation in partnership agreements,
joint ventures, or other associations of any kind
with any person(s) or entities;
(viii) the indemnification of member or any other
person.
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Operating Agreements Sec. 2.2.
Section 3.3, entitled “Member’s Management
Rights,” contains a list of certain actions that require the
“unanimous written consent” of the members. The
actions include: (1) the sale, mortgage, or encumbrance
of all or substantially all of the assets; (2) disposal of
goodwill; (3) submission of a company claim to
arbitration; (4) confession of a judgment; (5) commission
of an act that would make it impossible for the company
to carry on its ordinary course of business; (6)
amendment of the operating agreement; (7) amendment
of the articles of organization; and (8) continuation of the
company after an event causing dissolution. Operating
Agreements Sec. 3.3. Section 5.1 additionally provides
that “no member shall have any right to sell, transfer, or
assign an interest in the Company without the written
consent and approval of all of the members.” Operating
Agreements Sec. 5.1.
Section 6.1 governs events causing dissolution. It
lists various scenarios whereby the companies may be
dissolved. The two events relevant to this litigation are
contained in subsections (b) and (c). Subsection (b)
allows dissolution pursuant to “any order of a court of
competent jurisdiction requiring dissolution.” Operating
Agreements Sec. 6.1. Subsection (c) permits dissolution
by “the unanimous written consent of all members
entitled to vote to dissolve the Company.” Id.For several years, Arvin and Carter managed the
companies peacefully and with little discord. Arvin
performed most of the day-to-day management with the
assistance of two full-time employees; Carter generally
allowed Arvin to do so without objection or interference.
In June of 2015, things changed dramatically. Arvin and
Carter became embroiled in a bitter personal dispute
unrelated to the companies. While the dispute itself did
not involve the companies, the acrimony soon worked its
way into the members’ management of the companies.
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Before long, there was a breakdown of all
communication between the two men such that they
refused to speak to one another on any subject, including
management of the companies. Since June of 2015, all
of their communications with one another have been in
writing. A series of electronic messages between Arvin
and Carter dating from July 28, 2015, through February
23, 2017, was admitted into the record below by Arvin to
show the total breakdown of their business relationship.
Initially, the disputes between the two related
primarily to Southern Tax. Carter complained about
Arvin charging Southern Tax for legal work he
performed and demanded that the company pay him a
share of the legal fees as he claims Arvin had initially
promised to do. Arvin eventually hired an outside law
firm to perform all the legal work for Southern Tax.
Carter made other demands regarding Southern Tax; he
requested that the physical office space of Southern Tax
and Unbridled be moved, that Southern Tax’s investment
strategies be changed, and insisted he must be informed
on all operational matters and approve any decisions in
writing. Arvin contends that he did as much as he could
to appease Carter and salvage their business relationship
even though doing so caused operational chaos and
financial loss.
As Carter attempted to become more involved in
the management of the companies, the parties’ business
relationship continued to decline. The parties could not
come to any agreement regarding the businesses. The
problems were compounded because the operating
agreements vested both Arvin and Carter with “the power
to do all things necessary or convenient to carry out the
business and affairs of the Company” and did not provide
a mechanism for resolving disputes related to those
affairs. Despite this provision, in an email dated August
12, 2015, Carter instructed Mike Wade, one the
companies’ employees, that he did not want the
companies to do anything unless both he and Arvin
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authorized it in writing. His email to Mr. Wade states:
“Going forward I am only comfortable if we both sign
anything that is related to any of our companies that we
have a joint interest in. This also includes any checks
written by the companies.”
When a commercial property owned by [KPM], a
mini mall, needed roof maintenance, Arvin and Carter
could not agree on whether to replace or patch the roof.
According to Arvin, the parties’ inability to make a
decision caused the roof to go unrepaired for many
months risking the loss of the mall’s tenants.
Additionally, the parties began to contradict one
another’s day-to-day business decisions. On one
occasion, Carter fired the sole employee of Southern Tax
and Unbridled. The employee stayed on at Arvin’s
request, but Carter refused to acknowledge the individual
was an employee and refused to approve any work done
by him. Additionally, at one point, Carter suggested that
he would not agree to anything Arvin proposed for any of
the three companies until Arvin agreed to move Southern
Tax’s office space.
Arvin testified that Carter’s demands and
objections to the companies’ operations had nothing to
do with his desire to benefit the companies or act in their
best interests; rather, Arvin believes that Carter was
simply trying to punish Arvin and make his life more
difficult. In fact, Arvin testified that Carter went so far as
to make statements that he did not care how much money
he lost so long as Arvin lost the same amount.
Things reached a boiling point when Carter
accused Arvin of embezzling money from the companies.
At this point, Arvin concluded that he could not stay in a
business relationship with someone who would accuse
him of criminal conduct. Shortly thereafter, Arvin sent
an electronic message to Carter asking him to consent to
the dissolution of the companies. Carter refused to
consent to dissolve Southern Tax; however, he expressed
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a willingness to sell Unbridled’s real property holdings
and to buy-out Arvin’s interests in [KPM’s] real
property. It appears that nothing came of this offer
because Arvin wanted out of all three companies.
In the midst of this escalating dissension, Arvin
received an unsolicited offer to purchase Southern Tax’s
entire tax lien portfolio for $210,000.00. According to
Arvin, the specific terms of the offer were such that the
net value of the offer to Arvin and Carter was
approximately $400,000.00. Arvin believed the offer
was “incredibly generous and remarkable from a business
perspective.” Because the operating agreement required
the unanimous written consent of the members for the
sale of substantially all the company’s assets, Arvin
could not unilaterally accept the offer; to move forward,
Arvin had to obtain Carter’s written consent, which
Carter refused to give on the basis that the value of the
company’s lien portfolio was much greater than
$210,000.00. This led Arvin to offer Carter the right to
buy out his interest in Southern Tax’s lien portfolio for
one-half of the third party’s total offer amount. If Carter
thought the portfolio was worth much more than
$210,000.00, Arvin could see no reason for Carter to pass
up such a bargain. However, Carter refused Arvin’s
offer.
Ultimately, Arvin concluded that he and Carter
would never be able to effectively manage their
companies. Arvin wanted out, and with Carter unwilling
to voluntarily agree to dissolve the three companies, the
only remedy he believed available to him was forced
judicial dissolution. On February 20, 2017, after nearly
two years of acrimony, Arvin filed a petition in
Jessamine Circuit Court seeking to have the three
companies ordered dissolved pursuant to KRS 275.290.
Carter objected to court-ordered dissolution.
The trial court conducted a two-day evidentiary
hearing. After Arvin rested his case, Carter moved for a
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dismissal pursuant to [Kentucky Rules of Civil Procedure
(CR)] 41.02(2). The trial court denied the motion with
respect to Southern Tax; however, it sustained the motion
with respect to Unbridled and [KPM]. The trial court
entered a final judgment on June 13, 2018. Therein, it
explained that it dismissed Arvin’s petition to dissolve
Unbridled and [KPM] because Arvin “failed to introduce
evidence sufficient to establish a prima facie case that it
was not reasonably practicable to carry on the businesses
[of these two companies] in conformity with the
operating agreements for each.” In support of its
conclusion, the trial court made the following findings of
fact: (1) the operating agreement of each company
permits either member acting alone to do all things
necessary or convenient to carry on the day-to-day
business and affairs of the company; (2) the business of
[KPM] is the rental of real estate long-term with no plan
to sell; (3) the business of Unbridled is the rental of real
estate until sale; and (4) there is no deadlock with regard
to the management of the day-to-day operations of either
[KPM] or Unbridled and both businesses are still
functioning.
In contrast, the trial court’s final judgment ordered
Southern Tax to be dissolved. It found that Southern Tax
had not purchased any tax liens since 2012 and had been
in the process of winding down its business for the last
several years, and that Carter and Arvin could not agree
on selling Southern Tax’s remaining assets. The trial
court concluded that the parties’ inability to agree on
whether to sell Southern Tax’s remaining assets
authorized it to “wind down the affairs of [Southern Tax]
and judicially dissolve it” pursuant to KRS 275.290.
Thereafter, Arvin filed this appeal challenging the
trial court’s dismissal of his petition as related to the
dissolution of [KPM] and Unbridled.
Id. at 190-95 (footnotes omitted).
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In KPM 1, we vacated the trial court’s judgment “insomuch as it
dismissed the petition for dissolution of [KPM], and Unbridled Holdings, LLC,
and remand[ed] for additional proceedings[.]” Id. at 199. On remand, the trial
court reviewed the existing record considering the guidance from the appellate
opinion. It then issued an order and judgment reaffirming its prior judgment
dismissing the demand to dissolve KPM and Unbridled. This appeal followed.
STANDARD OF REVIEW
“On appellate review of a ruling on a defendant’s CR 41.02 motion,
we will overturn the trial court only for an abuse of discretion. An abuse of
discretion will be found when the trial court’s decision is arbitrary, unreasonable,
unfair, or unsupported by sound legal principles.” Id. at 196 (internal quotation
marks and citations omitted).
ANALYSIS
On appeal, Arvin contends the trial court abused its discretion by
dismissing his petition to dissolve KPM as a Kentucky limited liability company
(“LLC”). Judicial dissolution of an LLC is authorized by KRS 275.290, which
provides, in pertinent part:
(1) The Circuit Court for the county in which the
principal office of the limited liability company is
located, or, if none, in the county of the registered office,
may dissolve a limited liability company in a proceeding
by a member if it is established that it is not reasonably
practicable to carry on the business of the limited
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liability company in conformity with the operating
agreement.
(2) If after a hearing the court determines that one (1) or
more grounds for judicial dissolution exist, it may enter a
decree of dissolution[.]
(Emphasis added.)
Unfortunately, prior to KPM 1, there was no published case law
interpreting the meaning of “not reasonably practicable” as used in this context in
Kentucky. KPM 1, 607 S.W.3d at 197. Consequently, that panel looked to other
states and found that while “there is no universally accepted standard or definition
of ‘not reasonably practicable’. . . almost all the outside authorities permit judicial
dissolution under the ‘not reasonably practicable’ standard in situations short of
deadlock.” Id. It further held “the ‘not reasonably practicable’ standard requires
the trial court to conduct a multifaceted analysis which takes into account a number
of different factors that go well beyond whether there is a technical deadlock.” Id.
KPM 1 referred to the factors found in Gagne v. Gagne, 338 P.3d
1152 (Colo. App. 2014), as an example of what our courts should consider in
determining whether a party has met the “not reasonably practicable” standard for
dissolution of an LLC. These include:
(1) whether the management of the entity is unable or
unwilling reasonably to permit or promote the purposes
for which the company was formed; (2) whether a
member or manager has engaged in misconduct; (3)
whether the members have clearly reached an inability to
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work with one another to pursue the company’s goals; (4)
whether there is deadlock between the members; (5)
whether the operating agreement provides a means of
navigating around any such deadlock; (6) whether, due to
the company’s financial position, there is still a business
to operate; and (7) whether continuing the company is
financially feasible.
Id. at 1160. KPM 1 noted this “list is not exhaustive and no one factor is
determinative.” KPM 1, 607 S.W.3d at 198.
The prior panel further instructed that the “not reasonably practicable”
standard “does not require that the purpose of the company, as set out in the
operating agreement, be completely frustrated or totally impossible to fulfill before
the trial court can order judicial dissolution.” Id. Instead, it “allows for dissolution
where the disagreement or conflict among the members regarding the means,
methods, or finances of the company’s operations is so fundamental and intractable
as to make it unfeasible for the company to carry on its business as originally
intended.” Id.
On remand, the trial court was directed to consider all the Gagne
factors, not just whether the parties were deadlocked. Per the appellate
instructions, the trial court issued a 19-page order and judgment discussing the
Gagne factors and the relevant facts in the record pertaining to each in its decision
to affirm its previous judgment. Even so, Arvin takes issue with the trial court’s
analysis of the following factors: (1) whether the management of the entity is
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unable or unwilling reasonably to permit or promote the purposes for which the
company was formed; (2) whether a member or manager has engaged in
misconduct; (3) whether the members have clearly reached an inability to work
with one another to pursue the company’s goals; and (4) whether there is deadlock
between the members.2 We will discuss each, in turn.
First, Arvin argues the management of KPM is unable or unwilling
reasonably to permit or promote the purposes for which the company was formed.
The language of KPM’s operating agreement is broad. Its stated purpose and the
general nature of its business “shall include all transactions of any or all lawful
business for which limited liability companies may be formed under the laws of the
State of Kentucky.” Operating Agreement Sec. 1.9. See also KPM 1, 607 S.W.3d
at 191. Yet, the trial court, as noted in KPM 1, found its “primary purpose was to
purchase and lease properties long-term[.]” Id. Arvin’s contention that this was
not the purpose of KPM is not borne out by the record. Regardless, Arvin failed to
demonstrate that his conflict with Carter did not reasonably permit the business of
KPM to be carried out.
2
Arvin failed to challenge the trial court’s findings on the following elements: (5) whether the
operating agreement provides a means of navigating around any such deadlock; (6) whether, due
to the company’s financial position, there is still a business to operate; and (7) whether
continuing the company is financially feasible. Failure to raise an issue on appeal is tantamount
to waiver. “An appellant’s failure to discuss particular errors in his brief is the same as if no
brief at all had been filed on those issues.” Milby v. Mears, 580 S.W.2d 724, 727 (Ky. App.
1979) (citation omitted).
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Second, although Arvin agrees with the trial court’s finding that he
did not commit any misconduct, he takes issue with the trial court’s finding that
Carter did not engage in misconduct. However, Arvin fails to raise any issues of
alleged misconduct regarding KPM, but instead relies on allegations concerning
Carter’s conduct regarding Southern Tax insisting that the effects of the conduct
dealing with Southern Tax bled over to KPM. More than mere insinuations are
needed however, for Arvin to make a prima facie argument that Carter engaged in
misconduct regarding KPM. Arvin’s failure to do so is fatal to his argument on
this point. Thus, the trial court did not err in finding Arvin failed to present
sufficient evidence to survive dismissal on this point.
Third, Arvin claims KPM’s members have clearly reached an inability
to work with one another to pursue the company’s goals. Yet, he has provided no
proof that KPM’s goals are not being met. The trial court correctly found that the
company’s long-term leasing style, coupled with the fact that daily operations are
managed by a third party, has kept the parties’ disdain for one another from
frustrating the realization of KPM’s goals. While the situation between Arvin and
Carter is clearly not optimal, we cannot say the trial court abused its discretion in
refusing to dissolve KPM because of their personal issues. Their contempt for one
another has not yet had an impact so significant on KPM’s business as to render its
operation “not reasonably practicable.”
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Fourth, and finally, Arvin contends there is a deadlock between the
members of KPM. KPM 1 acknowledged that there was at least some deadlock,
but also stated “[t]his type of deadlock of course will be present in almost every
judicial dissolution case that results in a hearing.” Id. at 198 n.7. Aside from their
disagreement on whether to continue the operation of KPM, the only other specific
instance Arvin presented at trial to prove deadlock concerned a roof in need of
repair. Carter agreed to have a temporary fix applied for no greater than $10,000
while Arvin insisted on a more permanent and expensive repair. Arvin refused to
approve spending $10,000 to repair the roof, and at the time of the final hearing, it
was still unrepaired. Nevertheless, considering the record as a whole, we cannot
say the trial court abused its discretion by determining Arvin failed to present
adequate proof of deadlock or any of the other Gagne factors to satisfy the “not
reasonably practicable” standard. Consequently, we cannot say the trial court erred
by dismissing Arvin’s petition to dissolve KPM.
CONCLUSION
Therefore, and for the foregoing reasons, the order of the Jessamine
Circuit Court is AFFIRMED.
ACREE, JUDGE, CONCURS.
THOMPSON, K., JUDGE, CONCURS IN RESULT ONLY.
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BRIEFS FOR APPELLANTS: BRIEF FOR APPELLEES:
David Russell Marshall Anthony J. Gonzalez
Keene, Kentucky Lexington, Kentucky
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