IN MATTER OF GOLF, L.L.C. (Bankr.D.Neb. 2004)

Case Nos. BK01-80563, BK01-80564, BK01-80565, BK01-80566, BK01-80625, A02-8117.United States Bankruptcy Court, D. Nebraska.
April 22, 2004

MEMORANDUM
TIMOTHY MAHONEY, Chief Judge, Bankruptcy

Trial was held in Omaha, Nebraska, on January 26, 2004, on the plaintiffs’ complaint. Scott Daniel appeared for the debtor plaintiffs, and Michael Whaley, Christopher Tjaden, and John Goldsmith appeared for the defendant. This memorandum contains findings of fact and conclusions of law required by Federal Rule of Bankruptcy Procedure 7052 and Federal Rule of Civil Procedure 52. This is a core proceeding as defined by 28 U.S.C. § 157(b)(2)(E) and (O).

The matter was submitted on documentary evidence. Oral argument was made, and post-trial briefs were submitted.

Judgment will be entered in favor of the defendant.

In July 2000, Golf, L.L.C., and Buena Vista Hospitality Group, along with three individuals, formed an entity called Collegiate Clubs, L.L.C. The purpose of Collegiate Clubs was to develop, own, and operate private golf clubs in affiliation with colleges and universities. Golf, L.L.C. (“Golf”) and Buena Vista Hospitality Group (“BVHG”) each held 35 percent of Collegiate Clubs, one individual held 20 percent, and the two remaining individuals held five percent each. BVHG and Golf served as the

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managers of Collegiate Clubs. The limited liability company was formed under Delaware law.

When Collegiate Clubs was formed, Golf advanced $100,000 for consulting fees incurred prior to Collegiate Clubs’ formation. Repayment of this sum was guaranteed by BVHG:

BVHG Guarantee. BVHG hereby irrevocably, absolutely and unconditionally guarantees to Golf the full and complete payment of any unpaid portion of the Golf contribution for purposes of the Consultant Fee. BVHG shall pay to Golf within ten days after receipt of demand from Golf all unpaid portions of the Consultant Fee contribution which demand may be made by Golf, upon the earlier to occur of any of the following events:

a. Five years from the date of this Agreement; or

b. Dissolution of [Collegiate Clubs]; or

c. Default by [Collegiate Clubs] in its obligations to Golf.

Guarantee Agreement ¶ 3 (Ex. B to Aff. of Gregory Siaperas (Fil. #31)).

Collegiate Clubs’ concept was never realized. It ceased business activities in October 2000. In March 2001, Golf and its related entities filed their Chapter 11 bankruptcy petitions.[1]

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Golf subsequently filed this adversary proceeding to recover the $100,000 contribution, plus 16 percent interest as provided for in the guarantee. The causes of action in the complaint are (1) turnover of property of the bankruptcy estate under 11 U.S.C. § 542(b); (2) breach of contract; and (3) money had and received.

BVHG resists Golf’s efforts to recover the funds, asserting that collection on the guarantee is contingent on the occurrence of any of the events listed in ¶ 3 of the guarantee agreement, none of which have occurred yet.

The parties do not argue that the five-year time period has passed, or that Golf is in default. Rather, the question for the court to decide is the legal question of whether Collegiate Clubs has been dissolved.

The Delaware Limited Liability Company Act provides for dissolution of L.L.C.s under a variety of circumstances, including pursuant to terms as agreed to by the members of the company.

(a) A limited liability company is dissolved and its affairs shall be wound up upon the first to occur of the following:

* * *

(2) Upon the happening of events specified in a limited liability company agreement.

* * *

Del. Code Ann. tit. 6, § 18-801(a)(2).

Collegiate Clubs’ agreements includes provisions for dissolution of the company in Article 12.

Section 12.1 Events of Dissolution. The LLC shall be dissolved and its affairs wound up upon the earliest to occur of the following:
(a) 70% of the Members agree in writing that the LLC shall be dissolved;
(b) the sale or other disposition of all or substantially all of the property of the LLC . . .; or
(c) any other event which by law results in the dissolution of the LLC.

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Section 12.2 Liquidation. Upon the dissolution of the LLC, the assets of the LLC shall be sold and the proceeds remaining . . . shall be distributed to the Members. . . . A reasonable time shall be allowed for the orderly liquidation of the assets of the LLC and the discharge of liability to creditors so as to enable the Members to minimize the normal losses attendant upon a liquidation. . . .

Company Agreement of Collegiate Clubs, L.L.C. (Ex. A to Siaperas Aff. (Fil. #31)).

Accordingly, Collegiate Clubs “is dissolved” if 70 percent of the members so agree, substantially all of the assets are sold, or some other event resulting in legal dissolution occurs.

Approval of 70 percent of the members would require both Golf and BVHG to agree to dissolution. It is uncontroverted that they have not both agreed to dissolve the company.

The issue is whether the company’s assets have been liquidated, and a factual dispute exists on that point. Golf, through its managing member who also managed Collegiate Clubs, argues that as of the petition date, Collegiate Clubs had no remaining property or business operations. Mr. Siaperas testified by affidavit that he personally oversaw and conducted the liquidation of Collegiate Clubs’ property and supervised the closing of all of its bank accounts.

The chief executive officer of BVHG testified by affidavit that Collegiate Clubs has not sold or otherwise disposed of its property. BVHG also provided a copy of the Delaware Secretary of State’s certificate of good standing for Collegiate Clubs, as of January 15, 2004. It appears that a Delaware certificate of formation of a limited liability company remains in effect until a certificate of cancellation is filed. See Del. Code Ann. tit. 6, § 18-203 (“A certificate of cancellation shall be filed in the office of the Secretary of State to accomplish the cancellation of a certificate of formation upon the dissolution and the completion of winding up of a limited liability company[.]”);see also Del. Code Ann. tit. 6, § 18-803(b) (winding-up activities upon dissolution and before the certificate of cancellation is filed).

Because Mr. Siaperas apparently managed the day-to-day operations of Collegiate Clubs, his testimony as to his

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involvement in the liquidation of the company’s assets is credible. However, as BVHG points out, if Collegiate Clubs was in fact liquidated, it was done so unilaterally, as BVHG did not vote for or approve such liquidation. An unauthorized sale of all or substantially all of the property would contravene Section 9.2(a)(vi) of the company agreement, which requires 70 percent approval of “major actions” such as selling or disposing of assets.

There is no evidence of approval or input from any Collegiate Clubs members, other than Golf, regarding the liquidation of the company. Mr. Siaperas testified in his affidavit that he conducted the liquidation, but he cites no authority for his actions. Mr. Frost, the BVHG CEO, testified by affidavit that no sale of assets had occurred; such testimony may be because he was not aware of or consulted about the sale. Golf should not be able to cause the dissolution of the company without the 70 percent approval required by the company agreement, and then declare payment due from BVHG because the company has been dissolved.

The contingencies which would entitle Golf to collect on the guarantee have not yet occurred. Separate judgment will be entered in favor of BVHG.

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JUDGMENT
Trial was held in Omaha, Nebraska, on January 26, 2004, on the plaintiffs’ complaint. Scott Daniel appeared for the debtor plaintiffs, and Michael Whaley, Christopher Tjaden, and John Goldsmith appeared for the defendant.

IT IS ORDERED: Judgment is hereby entered in favor of Buena Vista Hospitality Group. The contingencies which would entitle Golf to collect on the guarantee have not yet occurred. See Memorandum entered this date.

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