Submitted October 6, 2014.
Appeal from United States District Court for the District of Nebraska - Omaha.
For Lincoln Provision, Plaintiff - Appellee: David Domina, Brian E. Jorde, DOMINA LAW GROUP, Omaha, NE.
For Aron Puretz, Hastings Acquisition, LLC, nominal defendant, Defendant - Appellants: W. Patrick Betterman, LAW OFFICES OF W. PATRICK BETTERMAN, Omaha, NE.
Before RILEY, Chief Judge, WOLLMAN and BYE, Circuit Judges.
WOLLMAN, Circuit Judge.
Aron Puretz and Hastings Acquisition, LLC (Hastings), appeal from the district court's order awarding Lincoln Provision, Inc. (Lincoln), $880,000 plus interest as fair value for Lincoln's ownership interest in Hastings. We reverse and remand.
In March 2010, Lincoln, an Illinois meat-packing company seeking to cut production costs, and Puretz, a New York real-estate investor, formed Hastings as an Illinois member-managed limited liability company (LLC) for the purpose of bidding on two Nebraska cattle-processing plants that were being sold at a bankruptcy auction. Lincoln and Puretz agreed that Puretz would contribute 70% of the acquisition and start-up capital required for their joint venture and that Lincoln would contribute 30%. To account for the disproportionate capital contributions, Lincoln agreed to manage the plants and to provide roughly 40,000 head of cattle per year to be processed at the plants.
Later in March 2010, Hastings filed standard form Illinois Articles of Organization, Article 7 of which requires an LLC to state whether it is to be managed by its members or by a manager. The Hastings Articles state, " The Limited Liability Company has management vested in the member(s)," and then list Lincoln and Puretz as the company's two members. The Illinois standard form Articles did not require Hastings to disclose other details about the company's financing or operations. Lincoln and Puretz intended to set out these details in the company's operating agreement once they had agreed on the various terms.
To bid on the cattle-processing plants in the upcoming bankruptcy auction, Hastings was required to make an initial earnest-money deposit of $250,000 to an escrow account. Puretz contributed $150,000 and Lincoln contributed $100,000 to the total amount. Hastings thereafter submitted a successful bid of $3,900,000 for the two plants.
Meanwhile, negotiations between Lincoln and Puretz regarding the future operation and ongoing financing of Hastings began to deteriorate, and the members were unable to settle on terms for the company's operating agreement. Although Lincoln, Puretz, and their respective attorneys exchanged numerous emails and draft operating agreements, they could not agree on several major issues, including the members' respective shares of profits and losses, authority for day-to-day management decisions, and the procedures for calculating the value of the members' respective ownership interests in the company. The members met on June 21, 2010, in a final attempt to resolve their differences. Notes prepared to summarize
the discussions at this meeting describe the issues upon which the members apparently agreed, including that the members' capital contributions would be repaid in full before the company's profits ...