Martin K. Berks Environmental Attorneys Group, LLC, and Environmental Attorneys Group,P.C. v. Gregory A. Cade , 158 So. 3d 438 ( 2014 )

REL:06/27/2014
Notice: This opinion is subject to formal revision before publication in the advance
sheets of Southern Reporter. Readers are requested to notify the Reporter of Decisions,
Alabama Appellate Courts, 300 Dexter Avenue, Montgomery, Alabama 36104-3741 ((334)
229-0649), of any typographical or other errors, in order that corrections may be made
before the opinion is printed in Southern Reporter.
SUPREME COURT OF ALABAMA
OCTOBER TERM, 2013-2014
_________________________
1110423
_________________________
Martin K. Berks; Environmental Attorneys Group, LLC,
and Environmental Attorneys Group, P.C.
v.
Gregory A. Cade et al.
Appeal from Jefferson Circuit Court
(CV-08-903634)
On Application for Rehearing
PER CURIAM.
APPLICATION OVERRULED. NO OPINION.
Stuart, Bolin, Parker, Murdock, Main, Wise, and Bryan,
JJ., concur.
Shaw, J., concurs specially.
Moore, C.J., dissents.
1110423
SHAW, Justice (concurring specially).
I concur in overruling the application for rehearing.
The present appeal arises from the most recent case in a
series of actions stemming from the dissolution of
Environmental Attorneys Group, LLC, a law firm ("EAG, LLC"),
and the competing claims of the various parties, who are
former partners in and/or employees of EAG, LLC, to certain
fees. The defendants/counterclaim plaintiffs below -- Martin
K. Berks, EAG, LLC, and Environmental Attorneys Group, P.C.
("EAG, P.C.") -- appeal from the trial court's order
dismissing, with prejudice, their counterclaim and third-party
complaint.
On original submission, this Court affirmed the trial
court's judgment, without an opinion. Berks v. Cade, [No.
1110423, October 18, 2013] ___ So. 3d ___ (Ala. 2013). On
rehearing, the appellants object to both this Court's
affirmance and its decision not to issue an opinion. I write
specially to explain why I concur with both decisions.
Facts and Procedural History
In 1989, J. William Lewis formed Environmental Litigation
Group, P.C. ("ELG, P.C."), a law firm specializing in toxic-
2
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tort representation. 1 Berks and Mark Rowe were both
subsequently employed by ELG, P.C., as attorneys, and Cade was
employed, beginning in 1993, as a paralegal/investigator.
In 2001, Berks and Rowe formed EAG, LLC. Pursuant to the
articles of incorporation, Berks and Rowe were the sole
members of EAG, LLC, and each retained a 50% ownership
interest. At some point thereafter, Cade was hired by EAG,
LLC, as a paralegal. Cade subsequently obtained his juris
doctorate and passed the Alabama bar examination and was
employed by EAG, LLC, as an associate attorney.
In 2004, Cade planned to separate from EAG, LLC, and EAG,
LLC, 2 sued Cade in the Jefferson Circuit Court (CV-04-0752)
seeking injunctive relief against Cade, who, it alleged, was
attempting to "steal cases from EAG, [LLC,] ... by signing
[engagement] contracts in his own name instead of the EAG[,
1
ELG, P.C., at the time of its formation, was
incorporated under the name "J. William Lewis Professional
Corporation." Thereafter, it underwent several name changes,
including "Asbestos Litigation Group, P.C." in 1990 and
finally ELG, P.C., in 1991.
2
Although the action was purportedly initiated on behalf
of EAG, LLC, Rowe's affidavit testimony reflects that Berks
solely undertook that litigation and that "[Rowe] did not
approve or grant authority for Berks to file a complaint on
behalf of [EAG, LLC,] or to enter into a mediation agreement
between [EAG, LLC,] and Cade.
3
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LLC,] name." Following court-ordered mediation, the parties
ultimately resolved their dispute. The terms of the
negotiated settlement agreement provided, in pertinent part:
"[Cade] shall be entitled to 50% of the fees from
the creosote related personal injuries and property
damage claims in the cases from Hattiesburg, MS, and
Florala, AL. [EAG, LLC,] shall be entitled to 50% of
such fees as well as fees from all other claims from
such cases, with each principal of [EAG, LLC,]
entitled to half. Wilbur Colom's law firm shall be
associated in the Florala creosote cases on the same
basis as the Hattiesburg cases. [Cade] shall request
Colom's firm to disburse any monies due to be
disbursed or paid to [EAG, LLC,] or [Cade] in
accordance with this agreement.
"[Cade] shall take and be responsible for handling
to a conclusion the Hattiesburg and Florala cases
and the following cases (to the exclusion of all
other cases or matters coming out of [EAG, LLC's]
data bases):
"1. Michael Walker
"2. Wells vs. Georgia Pacific
"3. Kelly vs. Georgia Pacific
"4. Abraham Gandy
"5. Bubbet[t]
"6. Garrison
"7. Orbie Cantrell
"8. Earl Ridley
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"[Cade] shall reimburse [EAG, LLC,] for all out of
pocket expenses incurred in the above named cases
one through eight within 30 days. [Cade] shall be
entitled to all fees from cases one through eight
except cases 4 and 5. [Cade] shall pay an amount
equal to one-third of the net fees collected from
cases 4 and 5 to [EAG, LLC,] when, as and if
collected. [EAG, LLC,] shall continue to handle all
cases and matters for clients identified in [EAG,
LLC's] records or data bases except the Florala, and
Hattiesburg cases and cases one through eight above.
"[EAG, LLC,] agrees to cause the above styled
lawsuit to be dismissed with prejudice and to have
the court either strike the pleadings and other
papers filed from the record or to have the case
sealed.
"[Cade] shall be given possession of the files for
the Hattiesburg and Florala cases as well as cases
one through eight above. [Cade] shall cause a copy
of the contracts for the Hattiesburg cases to be
delivered to [EAG, LLC,] within 30 days. [EAG, LLC,]
and [Cade] shall provide each to the other a copy of
any contract in the Hattiesburg and Florala cases
received on or after the date of this agreement
within a week after receipt. [Cade] shall provide
[EAG, LLC,] with an updated client list for the
Hattiesburg and Florala cases once each month."
The case was thereafter dismissed with prejudice and the
record sealed.
Also in 2004, Berks communicated to the existing clients
of EAG, LLC, his intention to leave EAG, LLC, and to form EAG,
P.C., a new law firm formed solely by Berks. In conjunction
with that plan, Berks requested that clients of EAG, LLC, sign
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new engagement contracts with EAG, P.C. Ultimately, Rowe
separately formed The Rowe Law Firm, LLC, on April 2, 2004;
Cade formed The Cade Law Firm, LLC, on that same date; and
Berks formed EAG, P.C., on April 5, 2004. EAG, LLC,
effectively ceased operation in February 2004, but the firm
was not then dissolved. 3
On March 1, 2005, Cade replaced Lewis as a shareholder,
director, officer, and employee of ELG, P.C. 4 When Cade
joined ELG, P.C., it and Cade jointly continued to represent
Cade's existing clients, including those referenced in the
2004 settlement agreement.
In February 2006, Rowe sued Berks and Berks's law firm,
EAG, P.C., in the Jefferson Circuit Court (CV-06-749). Rowe's
claims were resolved via mediation in July 2006, and that
action was subsequently dismissed. As part of their mediated
3
Although Berks had communicated to Cade and to Rowe in
February 2004 his intention to dissolve EAG, LLC, at that
time, the record reflects that he later decided not to
dissolve the LLC because "[he] figured it would be less
complicated ... once they collected money on Florala and
Hattiesburg...."
4
Cade's deposition testimony reflects that he is now the
sole remaining principal of ELG, P.C. Cade also indicated
that, at the time of his deposition in the underlying matter,
the Cade Law Firm continues to exist as an undissolved
limited-liability company.
6
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settlement, Rowe and Berks agreed "to the dissolution of EAG,
LLC pursuant to the applicable provisions of the Operating
Agreement." 5
5
With regard to dissolution, the EAG, LLC, operating
agreement provides, in full, as follows:
"Article 10 -- DISSOLUTION AND LIQUIDATION OF
THE COMPANY
"10.1 Dissolution. The Company shall be
dissolved upon the earliest to occur of the
following:
"(a) The written consent of Members
holding one or more Voting Interests which
taken together equal or exceed two-thirds
(2/3) of all Voting Interests to dissolve
the Company.
"(b) When there is no remaining
Member, unless either of the following
applies:
"(i) the holders of all the
Economic Rights in the Company
agree in writing, within ninety
(90) days after cessation of
membership of the last Member, to
continue the legal existence and
business of the Company and to
appoint one or more new members;
or
"(ii) the legal existence
and business of the Company is
continued and one or more new
members are appointed in the
manner stated in the Articles of
Organization or this Agreement.
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"(c) The merger of the Company with
one or more other entities and the Company
is not the successor limited liability
company in such merger, or the
consolidation of the Company with one or
more other entities.
"(d) The entry of a decree of judicial
dissolution by the circuit court of the
county in which the Articles of
Organization were filed.
"10.2 Winding Up Upon Dissolution. After the
dissolution of the Company, the Members (or such
other Persons as the Act [the Alabama Limited
Liability Company Act, Ala. Code 1975, § 10-12-1 et
seq., repealed by Act No. 2009-513, Ala. Acts 2009,
effective January 1, 2011] may require or permit)
shall wind up the affairs of the Company and shall
file Articles of Dissolution with the office of the
Judge of Probate of the county where the Articles of
Organization were filed, and take such other actions
as may be necessary or appropriate to terminate the
Company. The Members or other Persons winding up
the Company's business may: (a) preserve the
Company's business or property as a going concern
for a reasonable time; (b) prosecute and defend
actions and proceedings, whether civil, criminal or
administrative; (c) settle and close the Company's
business; (d) dispose of and transfer property; (e)
discharge the Company's liabilities; (f) distribute
the assets of the Company; and (g) perform other
necessary and appropriate acts.
"10.3 Distribution and Dissolution. Upon the
winding up of the Company, the Company's assets
shall be distributed in the following order of
priority:
"(a) To creditors, including Equity
Owners who are creditors to the extent
8
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Although Berks and EAG, P.C., subsequently sought to have
the 2006 negotiated settlement set aside, the trial court
denied that request and Berks's subsequent appeal was
apparently dismissed without opinion. In August 2007, Rowe
accepted employment with ELG, P.C. –- where Cade worked –- as
an associate attorney.
In October 2008, one of the matters referenced in the
2004 settlement agreement, M.C. v Pactiv et al. (identified as
the "Florala cases" in the 2004 settlement agreement set out
above), settled. Upon learning of the settlement, counsel,
purportedly acting on behalf of Berks and EAG, LLC, notified
permitted by law, in order of priority;
"(b) To present and former Equity
Owners for interim distributions; and
"(c) To Equity Owners in accordance
with the positive Capital Account balances
of the Equity Owners, as determined after
taking into account all Capital Account
adjustments for the Company's taxable year
during which the liquidation occurs.
"The Company may offset damages for breach of this
Agreement by an Equity Owner whose interest is
liquidated (either upon the withdrawal of the Member
or the liquidation of the Company) against the
amount otherwise distributable to such Equity
Owner."
9
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counsel of record in the Florala cases by letter that,
purportedly pursuant to the settlement agreement, Berks and
EAG, LLC, 6
"assert[ed] a lien against any and all fees and
expenses to be paid from the settlement proceeds to
Gregory Cade, Robert Palmer, Fred DeLeon, Mark Rowe,
Lee Gresham, Hoyt Harp and [ELG, P.C.,], its agents
and/or representatives, attorneys, and members."
At or around that same time, EAG, LLC, filed a "Motion to
Enforce Settlement Agreement" in case no. CV-04-0752, which
motion was originally granted but later vacated. Cade
received the settlement proceeds from the Florala cases on or
around November 14, 2008.
In November 2008, Cade and his employer, ELG, P.C.
(hereinafter sometimes collectively referred to as "the
plaintiffs"), sued Berks; EAG, LLC; and Berks's firm, EAG,
P.C. (hereinafter sometimes collectively referred to as "the
defendants"); and various fictitiously named defendants in the
Jefferson Circuit Court. Specifically, the verified complaint
included the following counts:
6
The letter fails to include a designation indicating
whether the purported representation included EAG, LLC, or
EAG, P.C. I presume, however, given the subsequent procedural
history, that the letter was meant to refer to the claim of
EAG, LLC.
10
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Count I Injunctive Relief
Count II Breach of Contract
Count III Tortious Interference
Count IV Conspiracy to Tortiously Interfere
with Contracts
Count V Fraudulent Inducement Regarding
Settlement Agreement
Count VI Conversion of Attorney Fees (Gandy and
Bubbett cases)
Count VII Declaratory Judgment 7
Count VIII Accounting
The defendants subsequently answered and counterclaimed,
alleging that they had complied in all respects with the terms
of the 2004 settlement agreement but that Cade had repeatedly
7
In particular, the plaintiffs sought a judgment from the
trial court declaring that, as a result of the alleged
wrongful conduct of Berks and EAG, LLC, Cade and ELG, P.C.,
were not obligated to remit the fees otherwise due under the
2004 settlement agreement.
11
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breached that agreement. 8 Their counterclaim included the
following counts:
Count I Breach of Contract
Count II Tortious Interference with
Contract
Count III Unjust Enrichment
8
More specifically, the counterclaim alleged that Cade's
conduct in breach of the 2004 settlement agreement was as
follows
"(a) he has not reimbursed Defendants for all out of
pocket expenses incurred in the cases he was being
allowed to handle; (b) he has not paid to [EAG,] LLC
an amount 'equal to one-third of the net fees
collected' in the Gandy case; (c) he has not
reimbursed any of the expenses in the Bubbett case
nor did he take over primary responsibility for the
Bubbett case (No. 5) or do any work on behalf of Mr.
Bubbett subsequent to the Settlement Agreement; (d)
he has not provided copies of any contracts in the
Hattiesburg or Florala cases received on or after
the date of the Settlement Agreement; (e) he has
never provided an updated client list for the
Hattiesburg or Florala cases, much less provided one
each month; (f) he has concealed settlements in the
Hattiesburg group of cases from Defendants; (g) he
has not paid "50% of such fees as well as fees from
all other claims" from the Hattiesburg cases to
[EAG,] LLC (either directly or through the Colom
firm) (h) he has not paid "50% of such fees as well
as fees from all other claims" from the Florala
cases to [EAG,] LLC (either directly or through the
Colom firm) (i) he failed to direct Colom's firm to
disburse any monies due to be disbursed or paid to
[EAG,] LLC in accordance with the Settlement
Agreement."
12
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Count IV Accounting
Count V 9 Fraudulent Suppression
Rowe subsequently moved, pursuant to Rule 24(a), Ala. R.
Civ. P., to intervene in the underlying case. In support of
his request, Rowe alleged both "[t]hat the entity known as
[EAG, LLC], is still an active limited liability corporation
and has not been closed" and that Rowe "ha[d] a property
interest in any claims made for attorney fees on behalf of
[EAG, LLC]." 10 Upon an emergency motion by the defendants, the
trial court ordered that the plaintiffs pay the clerk of the
trial court the $2,399,125 fee received by them in conjunction
with the resolution of the Florala cases. That same order
granted, per the parties' stipulation in open court, Rowe's
motion to intervene and his alignment as a plaintiff. The
trial court, however, subsequently granted the plaintiffs'
"Motion to Reconsider" and rescinded the portion of the order
requiring the plaintiffs to pay the designated amount to the
clerk.
9
Count V was added later by amendment.
10
Rowe's intervention motion appears inconsistent in that
it purports to express his individual property interest in any
attorney-fee claim made by EAG, LLC, but requests that Rowe be
allowed to intervene "on behalf of [EAG, LLC]."
13
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In March 2009, Rowe demanded, pursuant to the terms of
the 2006 mediated settlement agreement, that Berks take steps
to formally dissolve EAG, LLC. Also in 2009, Berks and EAG,
LLC, filed a third-party complaint against Lewis, the founder
of ELG, P.C. –- the firm Cade worked for -- and against Robert
L. Palmer, then a member and the president of ELG, P.C. That
pleading alleged that Palmer and Lewis had "intentionally and
maliciously interfered with Cade's performance of the terms of
the [2004] Settlement Agreement...."
Lewis and Palmer later moved to dismiss the third-party
complaint on, among others, the following grounds:
"11. EAG, LLC, is the only possible proper party
to the third party complaint. However, EAG, LLC,
ceased to operate or to have any employees in
February 2004, leaving as its only activity that of
winding down. Part of winding down was EAG, LLC's
performance of the terms of the [2004] Settlement
Agreement by which it was to turn over possession of
the files and client contracts for specified cases
to Cade so he could handle the cases to their
conclusion. According to Rowe, Cade and Amy [Pyle]
Berks, EAG, LLC, did not deliver possession of the
files and client contracts to Cade. ... Berks
testified at deposition that he had no evidence that
EAG, LLC, delivered possession of the files to Cade.
...
"12. EAG, LLC, could have been a proper party to
bring the third party complaint but it was not
authorized to do so. Berks had no authority as a
less-than-majority owner of EAG, LLC, to cause EAG,
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LLC, to file the third party complaint. EAG, LLC's
Operating Agreement states that all 'decisions
concerning the business and affairs of the Company
shall be made, unless otherwise provided by Section
6.2, by members holding a majority interest.' ...
The Operating Agreement defines a majority interest
as 'one or more Voting Interests which taken
together exceed fifty percent (50%) of the aggregate
of all Voting Interests.' ... Consequently, Rowe
and Berks, neither having a majority interest, would
have had to both vote to file the third party
complaint as an act of EAG, LLC, for the decision to
be valid.
"13. Rowe did not authorize EAG, LLC, to file
the third party complaint. Berks admits that Rowe
is [a] member of EAG, LLC, and the members did not
vote to file the counterclaim. ..."
(Footnotes omitted.) Lewis and Palmer supported the foregoing
claims with numerous evidentiary submissions.
ELG, P.C., moved for a summary judgment in its favor
declaring that the 2004 settlement agreement was unenforceable
as a result of the alleged breach of that agreement by EAG,
LLC, specifically Berks, in failing to surrender files
identified in the agreement and in keeping all fees received
in the Gandy and Bubbett cases also identified in the
agreement. In that same motion, ELG, P.C., argued that any
counterclaim asserted by Berks, individually, was due to be
dismissed based on his alleged lack of standing to pursue any
such claim. More specifically, ELG, P.C., alleged that Berks
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"is a member of EAG, LLC, and is not seeking to enforce his
rights as a member or manager against or liability to EAG,
LLC," and that Berks was not a party to the 2004 settlement
agreement, on which the claims were based; thus, ELG, P.C.,
argued that "EAG, LLC, is the only possible proper party to
the counterclaim." It further argued:
"EAG, LLC, would have been a proper party to
bring the counterclaim but it was not authorized to
do so. EAG, LLC's Operating Agreement states that
all 'decisions concerning the business and affairs
of the Company shall be made, unless otherwise
provided by Section 6.2, by members holding a
majority interest.' The Operating Agreement defines
a majority interest as 'one or more Voting Interests
which taken together exceed fifty percent (50%) of
the aggregate of all Voting Interests.'
Consequently, Rowe and Berks, neither having a
majority interest, would have had to both vote to
have EAG, LLC, file the counterclaim for the filing
to be valid, Berks alone had no authority to cause
EAG, LLC, to file the counterclaims.
"Berks admitted that Rowe is [a] member of EAG,
LLC, and the members did not vote to file the
counterclaim. The counterclaim is due to be
dismissed because EAG, LLC's members did not
properly authorize the filing on the limited
liability company's behalf."
(Emphasis original.)
Rowe also subsequently moved to dismiss any claims
purportedly made on behalf of EAG, LLC, and by Berks,
individually, on virtually identical grounds. In addition to
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Berks's purported lack of authority to act on behalf of EAG,
LLC, and Berks's purported lack of any individual interest
making him a "proper party," Rowe further alleged that, as the
other 50% interest holder in EAG, LLC, Rowe had not agreed to
hiring counsel or filing litigation on behalf of EAG, LLC.
Rowe's motion was supported by, among other exhibits, his
sworn statement to the foregoing effect and by a copy of the
sealed 2006 settlement agreement reached in case no. CV-06-
749, which purportedly reflected that at no time had Rowe ever
surrendered his equity interest in EAG, LLC.
On February 24, 2010, Rowe filed formal articles of
dissolution for EAG, LLC, with the Jefferson Probate Court.
That document reflected that the dissolution had been
authorized by the vote and written consent of all members on
July 19, 2006. Immediately thereafter, Rowe filed a motion
seeking, in the underlying action, to disqualify counsel of
record for EAG, LLC, on the ground that their hiring violated
the terms of the EAG, LLC, operating agreement in that the
members of EAG, LLC, had not voted to pursue any action on its
behalf and that, in the absence of such approval, Berks was
not authorized to bind EAG, LLC. Rowe's motion included
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numerous supporting exhibits. ELG, P.C., Palmer, and Lewis
subsequently filed a motion joining Rowe's motion seeking to
disqualify counsel for EAG, LLC. Cade, too, later joined
Rowe's motion.
The plaintiffs subsequently filed their own motion
seeking, in part, to dismiss the counterclaim and third-party
complaint based on the trial court's alleged lack of subject-
matter jurisdiction. Specifically, relying primarily on the
assertions set out above, they contended that "[EAG, P.C.],
and ... Berks ... do not have the capacity or authority to
assert the claims they have made and that [the trial court],
therefore, [did] not have subject matter jurisdiction over the
claims."
In response to Rowe's motion to disqualify counsel, Berks
alleged that Rowe's own "unclean hands," resulting from Rowe's
alleged breach of fiduciary duty owed to EAG, LLC, prevented
Rowe from participating in the underlying litigation and/or
obtaining relief from the court. Berks also requested that
the trial court vacate the order permitting Rowe's
intervention and expunge the formal dissolution Rowe filed in
the Jefferson Probate Court, which requests Rowe opposed.
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Thereafter, the plaintiffs renewed their request to
dismiss the counterclaim and third-party complaint based on
the trial court's alleged lack of subject-matter jurisdiction
based on Berks's lack of standing to file those pleadings. In
response, the defendants renewed their prior request --
allegedly based upon fears stemming from the anticipated
dissolution of ELG, P.C. -- that the trial court require the
plaintiffs to escrow the $1,199,562.50 in disputed fees from
the Florala cases. The plaintiffs opposed that motion, noting
that the funds at issue had been disbursed in the ordinary
course of the business of ELG, P.C., and that, as the trial
court had previously determined, the claim at issue was not a
claim to specific funds but a potential claim for damages.
They further disputed the possibility that ELG, P.C., would be
dissolved before the underlying claims were resolved. The
trial court subsequently denied the motion to escrow the
funds. It also entered, after a hearing, an order finding
that neither Rowe nor Berks had voted for or authorized the
hiring of counsel and holding that "[t]he Operating Agreement
does not allow members to cease their membership by a
voluntary act and specifies that membership terminates only
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upon the occurrence of an event described in the Alabama
Limited Liability Company Act." As a result, the trial court
made the following "Conclusions of Law":
"EAG, LLC's Operating Agreement states that the
company is dissolved upon [t]he written consent of
Members holding one or more Voting Interests which,
taken together equal or exceed two-thirds (2/3) of
all Voting Interests. ... Berks and Rowe, the sole
members of EAG, LLC, who together held one hundred
percent (100%) of the Voting Interests, gave their
written consent to dissolution on July 19, 2006,
when they signed the Settlement Agreement. The
Alabama Limited Liability Company Act provides that
a limited liability company is dissolved upon the
occurrence of the first event specified in the
company's articles of organization, its operating
agreement or the Act to result in dissolution. See
Ala. Code [1975, §] 10-12-37....
"At the moment the written consent specified by
the Operating Agreement was given by all of its
members, EAG, LLC, was dissolved pursuant to Alabama
Code [1975, §] 10-12-37, which states that '[a]
limited liability company is dissolved ... upon the
occurrence of the first of the following events: (1)
Events specified in the articles of organization or
the operating agreement....' Once the dissolution
occurs, the limited liability company is to
immediately begin to wind up its business and may
not carry on any business except that necessary and
appropriate to wind up and liquidate its business
and affairs. ... Ala. Code [1975, §] 10-12-40....
While winding up the business and affairs of a
limited liability company may be a process,
dissolution is not.
"After the dissolution occurs pursuant to
Alabama Code [1975, §] 10-12-37, it is mandatory
that the company file articles of dissolution with
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the judge of probate for the county in which the
company's articles of organization were filed. See
Ala. Code [1975, §] 10-12-42.... The language of
the statute makes it clear, however, that filing the
articles of dissolution has nothing to do with
causing or completing the dissolution. The
dissolution has already occurred by the time the
articles of dissolution are filed and the articles
are filed to give third parties notice that
dissolution has occurred. The commentary to Alabama
Code [1975, §] 10-12-42, explains the purpose of
filing the articles of dissolution as follows:
"'It provides for filing of the articles of
dissolution upon the commencement of
winding up. The filing is intended to
serve as notice to third parties that the
limited liability company is being wound up
and as a means of limiting the liability of
members for subsequent actions of the
limited liability company other than
actions necessary for the winding up.'
"Ala. Code [1975, §] 10-12-42 ... (Commentary)
(emphasis added). The date of the limited liability
company's dissolution also triggers a limitation on
its ability to commence an action or proceeding
against third parties and provides protection from
claims against the company. The period of time
within which a dissolved limited liability company
is to wind up its business and affairs is two years
from the date of dissolution. See Nix v. W.R. Grace
& Co. CONN., 830 F. Supp. 601, 602 (S.D. Ala. 1993);
Hutson v. Fulgham Industries, Inc., 869 F.2d 1457,
1460 (11th Cir. 1989); Ala. Code [1975, §§]
10-12-45, 10-4-381, 10-2B-14.06, 10-2B-14.07 (and
the Commentary thereto), 10-12-39, 10-12-40,
10-12-43, and 10-12-44.
"The limitation on the amount of time a
dissolved limited liability company has to wind up
is based on a legislative policy that there must be
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a definite point in time when claims by and against
dissolved business entities must cease. Nix v. W.R.
Grace & Co. CONN, 830 F. Supp. [601] at 604 [(S.D.
Ala. 1993)]. Absent a survival statute, common law
would cause a dissolved entity's ability to bring
and defend claims to end immediately upon the
dissolution date. Id. A claim not brought within
the time period is extinguished. Id. Claims of the
limited liability company assigned to a member by a
general assignment are also extinguished if not
brought within the wind-up period. Id. at 605.
Members of a dissolved limited liability company do
not succeed to any unassigned assets after the
wind-up period except fixed corporate assets and
real property... Hutson v. Fulgham [Indus., Inc.],
869 F.2d [1457] at 1464 [(11th Cir. 1989)].
"The decisions in Hutson and Nix were based on
Alabama Code [1975, §] 10-2A-203, which provided
that:
"'The dissolution of a corporation ...
shall not take away or impair any remedy
available to or against such corporation,
its directors, officers or shareholders,
for any right or claim existing, or any
liability incurred, prior to such
dissolution if action or other proceeding
thereon is commenced within two years after
the date of dissolution.'
"Id. Although Alabama Code [1975, §] 10-2A-203, has
been repealed, it was replaced by Alabama Code
[1975, §§] 10-28-14.06 and 10-2B-14.07. The
Commentary to Alabama Code [1975, §] 10-2B-14.07,
states that ...[t]he provision of the former Alabama
Act most nearly corresponding to section 10-2B-14.07
is section 10-2A-203, providing for the survival of
remedies against a dissolved corporation for a
period of two years. Section 10-2B-14.07 of this
Act continues the two year time limitation of prior
22
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law. ... Ala. Code [1975, §] 10-2B-14.07 ...
(Commentary).
"Alabama Code [1975, §] 10-12-45(f), states that
a limited liability company formed to provide
professional services is subject to the provisions
of the Revised Alabama Professional Corporation Act
which subjects professional corporations to the
provisions of the Alabama Business Corporation Act
of which Alabama Code [1975, §§] 10-2B-14-06 and
10-12-14.07, are a part. Further, Alabama Code
[1975, §§] 10-12-43 and 10-12-44, are virtually the
same, word-for-word, as Alabama Code [1975, §§]
10-2B-14.06 and 12-2B-14.07, which apply to limited
liability companies.
"The Court also has considered Alabama Code
[1975, §] 10-12-40, of the Limited Liability Company
Act, entitled Survival of Remedy After Dissolution,
which provides that a dissolved limited liability
company continues its existence but cannot engage in
any business other than that necessary to wind up
its business. Specifically, dissolution does not
terminate or suspend a proceeding pending by or
against the limited liability company on the
effective date of dissolution. Ala. Code [1975, §]
10-12-40(b)(2).... The implication is that
dissolution does terminate the dissolved limited
liability company's ability to initiate new,
non-pending proceedings. The law clearly
contemplates that a limited liability company must
complete the winding up of its business within, at
most, two years from the date on which the event
resulting in its dissolution occurred.
"There is no dispute that more than two-thirds
of the holders of Voting Interests in EAG, LLC,
entered into a written consent to dissolve on July
19, 2006. According to the company's operating
agreement and Alabama Code [1975, §] 10-12-37, such
a written consent resulted in the immediate
dissolution of EAG, LLC, and the beginning of the
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winding-up period. Consequently, EAG, LLC, was
barred from conducting any new business or asserting
claims against others after July 19, 2008, two years
following its dissolution date. The hiring of a
lawyer and asserting claims against the plaintiffs
and third-party defendants herein in the name of
EAG, LLC, after July 19, 2008, was barred by the
Alabama survival of remedy statutes and caselaw. The
attorneys purporting to represent EAG, LLC, are due
to be disqualified.
"The defendants have argued that Rowe ceased to
practice law with EAG, LLC, in February or March
2004, that he breached his fiduciary duties by
competing against EAG, LLC, with Cade, and that he,
as a consequence, ceased to be a member of EAG, LLC,
before he signed the Settlement Agreement on July
19, 2006, consenting to the dissolution of EAG, LLC.
The evidence is otherwise.
"Any member of EAG, LLC, was permitted under the
Operating Agreement to compete with EAG, LLC. Berks
clearly engaged in competition with the company when
he sent letters to EAG, LLC's clients soliciting
them to sign up with [EAG, P.C.], in February 2004.
The Operating Agreement also provides that a member
cannot cease membership in EAG, LLC, by a voluntary
act but only through the occurrence of events
specified in the Alabama Limited Liability Company
Act. Alabama Code [1975, §] 10-12-36, lists the
events which will result in the cessation of a
member's membership in a limited liability company.
There is no evidence that any of the events which
would cause Rowe to lose membership in EAG, LLC,
occurred.
"... [I]ndeed, Berks made the same allegations
against Rowe in ... CV-2006-0749, in a verified
motion to set aside the July 19, 2006, Settlement
Agreement with Rowe and the motion was denied.
Berks's appeal of the court's decision to deny the
motion was unsuccessful.
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"Even were the defendants' argument correct that
Rowe ceased to be a member prior to the execution of
the Settlement Agreement, Berks would have been the
sole owner of EAG, LLC, and would have been the
holder of 100 percent of the Voting Interests when
he signed the consent to dissolve EAG, LLC, on July
19, 2006.
"The effect would be the same: the immediate
dissolution of EAG, LLC, on July 19, 2006, by the
written consent to dissolution of those holding
two-thirds or more of the Voting Interests. The bar
of the survival of remedy statutes and caselaw would
likewise be the same and EAG, LLC, would have no
authority to hire a lawyer or to initiate claims
after July 19, 2008.
"The defendants maintain that, even if EAG, LLC,
has been dissolved, Berks takes EAG, LLC's assets
either by assignment or as the sole owner upon
dissolution, including any contract and tort claims
the company had against Cade. The defendants'
resulting position is that Berks is not barred from
asserting the counterclaims and the claims in the
third party complaint because he became the owner of
the claims when EAG, LLC, dissolved. The law is
otherwise. A general assignment of all corporate
claims does not preserve them past the wind-up
period and Berks does not succeed to such claims by
virtue of having been a member of EAG, LLC, by
operation of law or otherwise. Nix, 830 F. Supp. at
605. Even if the law provided for the assignment of
such claims to former company members, there is no
evidence of an assignment by EAG, LLC, of any of its
property to anyone. In fact, Berks testified at
deposition that he has no interest in the claims
other than as [a] member of EAG, LLC.
"Berks and [EAG], P.C., are certainly entitled
to employ legal counsel of their choosing to defend
claims made against them and to pursue claims
belonging to them. Neither Berks nor [EAG], P.C.,
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has standing, however, to assert claims that
belonged to EAG, LLC. The Court notes that the 2004
settlement agreement (at mediation) was between Cade
and EAG, LLC. Berks and [EAG], P.C., were not
parties to that agreement which is the basis for the
claims asserted against the plaintiffs and the third
party defendants in this action. It does not appear
that Berks has any claims of his own to assert in
this case.
"The defendants argued that Rowe and the
plaintiffs admitted that EAG, LLC, ha[d] not been
dissolved when the plaintiffs named EAG, LLC, as a
party in the complaint and Rowe intervened based on
assertions that he is entitled to half of any monies
awarded to EAG, LLC, in this case. The Court notes
that on the dates that the complaint and the motion
to intervene were filed, there was no public record
reflecting EAG, LLC's dissolution because the
company's articles of dissolution were not filed
until February 4, 2010, well after the complaint and
motion were filed. Regardless of any individual's
belief that EAG, LLC, ha[d] not been dissolved, an
event required to dissolve it has occurred and it is
dissolved as a matter of law. As a matter of law,
EAG, LLC, was dissolved on July 19, 2006, when all
of its members gave their written consent to the
dissolution.
"Had EAG, LLC, not been dissolved, the outcome
of the motion to disqualify would be the same. EAG,
LLC's Operating Agreement provides that the business
of the company is to be conducted in accordance with
a vote by the holders of fifty-one percent (51%) of
the Voting Interests in EAG, LLC. The evidence is
that Rowe, a fifty percent (50%) Voting Interest
holder, has not and will not vote in favor of having
EAG, LLC, hire an attorney or to pursue the
counterclaims and third party claims filed in this
case. Based on its Operating Agreement and the
evidence, EAG, LLC, has not been authorized to
employ legal counsel or to proceed with its claims
26
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in this case. The attorneys appearing of record for
EAG, LLC, are due to be disqualified.
"The Defendants' Motion to Vacate and Expunge is
due to be granted as to vacating the order allowing
Rowe's intervention. Rowe's purpose for his
appearance was to assert an interest in the possible
proceeds of claims asserted by EAG, LLC, and to
prevent the company from incurring liability by
attempting to collect on claims Rowe believes do not
exist. This Court having found that EAG, LLC's
winding-up period has expired, any claims it had
having been extinguished and its having no legal
existence, Rowe has no further interest in the
outcome of the case. To the extent the defendants'
motion seeks to expunge the public record of the
articles of dissolution of EAG, LLC, filed by Rowe,
it is due to be denied. EAG, LLC, was, in fact,
dissolved and the filing of the articles of
dissolution is mandatory."
(Footnotes omitted .) The trial court's order contained
adjudications in keeping with the foregoing findings.
In response, the defendants filed a "Motion to Alter,
Amend or Stay" the trial court's order, in which they
requested, in light of plans to appeal, that the trial court
either stay or delete the portion of the foregoing order
directing counsel to withdraw within 10 days. The trial court
granted that request.
Following the trial court's entry of the above order, the
plaintiffs, Palmer, and Lewis renewed their summary-judgment
request by means of a joint motion. Specifically, they relied
27
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on the trial court's legal conclusions, as set out above, as
further support for the defendants' alleged lack of standing
and the trial court's resulting lack of subject-matter
jurisdiction.
Thereafter, the defendants filed a "Motion to Reconsider
and Vacate" alleging that the above holdings of the trial
court were contrary to Alabama's Limited Liability Company Act
in that § 10A-5-7.03(b), Ala. Code 1975, purportedly "does not
require a vote of the members to take any action once the LLC
begins winding up." They further alleged that, as the member
tasked with winding up affairs of the EAG, LLC, Berks was
entitled both to defend the underlying claims and to prosecute
the related counterclaims and that the claims were not barred
by former § 10-12-43, Ala. Code 1975, as a result of the
exception created in former § 10-12-44, Ala. Code 1975,
relating to claims unknown to a limited-liability company at
the time of dissolution. 11 The defendants also filed their own
motion seeking a partial summary judgment as to counts III,
IV, and VI of the complaint filed by Cade and ELG, P.C. –-
11
The cited former Code sections, however, deal with
claims against a dissolved limited-liability company, both
known to the limited-liability company, see former § 10-12-43,
and unknown, see former § 10-12-44.
28
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which, they contended, were the only remaining viable claims
-- and alleging that the only damages claimed by Cade and ELG,
P.C., and established by the record were nonrecoverable
attorney fees.
In response, Rowe again sought to intervene,
individually, and to strike all pleadings filed by defendants'
counsel after the entry of the trial court's disqualification
order. The plaintiffs similarly filed a response in
opposition and a request to strike the defendants' partial-
summary-judgment motion.
The trial court denied the defendants' "Motion to
Reconsider and Vacate" in light of the findings from its prior
order, as set out above. By separate order, the trial court
granted the renewed motion of the plaintiffs and of Lewis and
Palmer for a summary judgment, also based on its prior
findings and conclusions of law, namely that the defendants
"have no standing to assert claims owned by [EAG, LLC],
because [EAG, LLC,] never authorized them to assert the claims
in accordance with [EAG, LLC's] operating agreement." The
trial court, therefore, concluded that it lacked subject-
matter jurisdiction over the counterclaim and third-party
29
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claims, and, as a result, it dismissed those claims and the
claims asserted by the plaintiffs against EAG, LLC, with
prejudice. Thereafter, the plaintiffs requested that the
trial court dismiss with prejudice counts III, IV, and VI of
their complaint, which, they conceded, represented the only
remaining counts, and enter a final judgment disposing of the
underlying matter in its entirety. The trial court granted
that motion; the defendants timely appealed.
Standard of Review
"'On an appeal from a dismissal based on a lack
of standing ..., we must view the allegations of the
complaint in the light most favorable to the
plaintiff, resolve all doubts in the plaintiff's
favor, and uphold the ruling of the trial court only
if we determine that the plaintiff cannot establish
a right to judicial review under any set of facts
provable under the allegations of the complaint.
Richards v. Department of Revenue & Finance, 454
N.W.2d 573, 574 (Iowa 1990). No presumption of
correctness exists as to the trial court's
application of the law to the facts. Jayroe v.
Hall, 624 So. 2d 522 (Ala. 1993). The issue of
standing presents a pure question of law, and the
trial court's ruling on that issue is entitled to no
deference on appeal. Richards v. Cullen, 152 Wis.
2d 710, 712, 449 N.W.2d 318, 319 (Wis. App. 1989).'"
Packaging Acquisition Corp. v. Hicks, 893 So. 2d 299, 301-02
(Ala. 2004) (quoting Medical Ass'n of Alabama v. Shoemake, 656
So. 2d 863, 865 (Ala. Civ. App. 1995)). Accordingly, this
30
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Court would review de novo the issue whether the trial court
erred in granting the motion to dismiss based on its finding
as to its lack of subject-matter jurisdiction. See Ex parte
Morgan Asset Mgmt., Inc., 86 So. 3d 309, 313-14 (Ala. 2011).
Discussion
The defendants identify numerous alleged errors on the
part of the trial court. The actual argument portion of their
brief, however, appears limited to the following: (1) a
challenge to the trial court's findings as to the effective
date of the dissolution and winding up of EAG, LLC; (2) a
challenge to the trial court's determination that Berks
possessed no individual standing to assert claims to the fees
due EAG, LLC, under the 2004 settlement agreement; and (3) a
challenge to the trial court's ruling allowing Rowe to
intervene, including a challenge to the trial court's
decision, as urged by Rowe, that EAG, LLC, could neither hire
31
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counsel to defend itself nor assert counterclaims. 12
Defendants' brief, at pp. 39-40.
1. Dissolution of EAG, LLC
Initially, the defendants challenge the trial court's
determination that EAG, LLC, was dissolved on July 19, 2006,
pursuant to the terms of the settlement agreement reached by
Berks and Rowe in case no. CV-06-749. Contrary to that
finding, the defendants maintain that, purportedly in
accordance with statutory provisions governing the dissolution
of a limited-liability company, dissolution does not occur
until all members agree, the limited-liability company's
affairs are wound up, and articles of dissolution have been
filed in the appropriate county. Thus, according to the
defendants, the July 2006 agreement between Berks and Rowe to
dissolve EAG, LLC, was, as provided for in § 10A-5-7.01(2),
Ala. Code 1975, merely the initial step in dissolving EAG,
LLC, and the actual dissolution was not effected until the
12
To the extent any of the 14 issues identified by the
defendants in the "Statement of the Issues" portion of their
brief are not actually covered by the argument portion of
their brief, those claims would be deemed waived. See, e.g.,
Tucker v. Cullman-Jefferson Counties Gas Dist., 864 So. 2d
317, 319 (Ala. 2003) (stating that issues not raised and
argued in brief are waived).
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subsequent steps of winding up, governed by § 10A-5-7.03, Ala.
Code 1975, and the filing of formal articles of dissolution,
see § 10A-5-7.06, Ala. Code 1975, were completed.
In support of this claim, the defendants note both that
§ 10A-5-7.04, Ala. Code 1975, provides that "[a] dissolved
limited liability company continues its existence but may not
carry on any business except that necessary or appropriate to
wind up and liquidate its business and affairs," and that,
pursuant to § 10A-5-7.03, the person charged with winding up
the limited-liability company may "[p]reserve the company
business or property as a going concern for a reasonable time;
prosecute and defend actions and proceedings, whether civil,
criminal, or administrative; [and] settle and close the
limited liability company's business." In light of the plain
language of § 10A-5-7.04, as set out above, the defendants
also argue that Berks had "a reasonable time" in which to wind
up the affairs of EAG, LLC, including collecting the disputed
fees, and was not, as the trial court concluded, subject to
the fixed two-year winding-up period imposed on corporations
by former § 10-2A-203, Ala. Code 1975. The defendants further
point to the fact that, here, the subject cases did not settle
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and the disputed fees were not received and, thus, Cade's
alleged breach of the 2004 settlement agreement did not occur
until more than two years had elapsed from the July 2006
settlement agreement between Berks and Rowe.
A. Dissolution
Despite their purported reliance on the "plain text" of
the applicable statutes governing the dissolution of limited-
liability companies, the defendants appear, in my opinion, to
wholly ignore the effects of those statutes. Initially, as do
the plaintiffs, I note that § 10A-5-7.01, Ala. Code 1975,
provides, in pertinent part:
"A limited liability company is dissolved and
its affairs shall be wound up upon occurrence of the
first of the following events:
"(1) Events specified in the governing
documents.
"(2) Written consent of all members to
dissolve.
"...."
(Emphasis added.)
Here, the governing document, namely the operating
agreement of EAG, LLC, specifically provides that "[EAG, LLC,]
shall be dissolved upon ... [t]he written consent of Members
34
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holding one or more Voting Interests which taken together
equal or exceed two-thirds (2/3) of all Voting Interests to
dissolve the Company." See note 5, supra. It is undisputed
that, pursuant to the terms of the July 2006 settlement
concluding case no. CV-06-749, Berks and Rowe agreed "to the
dissolution of EAG, LLC." Therefore, as the trial court
concluded, dissolution clearly occurred when, as provided for
in the operating agreement and as specified in 10A-5-7.01,
Berks and Rowe agreed in writing to dissolve EAG, LLC. In
fact, that written agreement satisfies both of the foregoing
prerequisites in § 10A-5-7.01.
I see nothing to suggest, as the defendants allege on
appeal, that the trial court concluded that, pursuant to its
dissolution in July 2006, EAG, LLC, "automatically ceased to
exist." Defendants' brief, at p. 40. Instead, the trial
court's order, as set out above, plainly indicates, as also
described in § 10A-5-7.01, that, following the occurrence of
the specified "[e]vents of dissolution[,] a limited liability
company is dissolved and its affairs shall be wound up."
The defendants appear to argue that, because the filing
of articles of dissolution pursuant to § 10-5-7.06, Ala. Code
35
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1975, is mandatory, dissolution is not effected until that
filing occurs. The plain language of § 10A-5-7.06, however,
specifically provides that the articles of dissolution are to
be filed with the appropriate probate court "[a]fter the
dissolution of the limited liability company pursuant to §
10A-5-7.01 ...." (Emphasis added.) Therefore, the statute
itself makes clear that the formal filing is not a part of the
actual dissolution process but, rather, a mere follow-up
formality to place the public on notice that the dissolution
has occurred. 13 The defendants cite no authority suggesting
13
In at least two separate places in their brief to this
Court, the defendants appear to contend briefly that the
articles of dissolution filed by Rowe failed to meet the
statutory requirements of § 10A-5-7.06. Defendants' brief, at
pp. 44 n.15, 46. More specifically, the defendants indicate
that "[t]here was no evidence of compliance offered by Rowe"
and that the articles were, therefore, due to be expunged.
Defendants' brief, at p. 44 n.15. To the extent that the
defendants intended this to be a separate claim, I note that
they have included no real explanation or any supporting
authority demonstrating how the articles of dissolution were
deficient. Accordingly, because they failed to comply with
the requirements of Rule 28(a)(10), Ala. R. App. P., they have
waived this potential claim for purposes of appellate review.
See City of Birmingham v. Business Realty Inv. Co., 722 So. 2d
747, 752 (Ala. 1998) ("When an appellant fails to cite any
authority for an argument on a particular issue, this Court
may affirm the judgment as to that issue, for it is neither
this Court's duty nor its function to perform an appellant's
legal research.").
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otherwise. The trial court, therefore, did not err in
concluding that the dissolution of EAG, LLC, occurred in July
2006 -- when Rowe and Berks agreed to dissolution pursuant to
the terms of the mediated settlement agreement reached in case
no. CV-06-749.
B. Winding up
The defendants next contend that during the process of
winding up a limited-liability company, the limited-liability
company, as specified in § 10A-5-7.03, Ala. Code 1975,
continues its existence "for a reasonable time," during which
it may not engage in any new business, but the person charged
with winding up the limited-liability company may, among other
acts, "prosecute and defend actions and proceedings." See
also § 10A-5-7.04(a), Ala. Code 1975 ("A dissolved limited
liability company continues its existence but may not carry on
any business except that necessary or appropriate to wind up
and liquidate its business and affairs."). Thus, in light of
the plain language of § 10A-5-7.03, the defendants contend
that the trial court erred in fixing the winding-up period at
the automatic, two-year cut-off period applied to corporations
under former § 10-2A-203, Ala. Code 1975. In further support
37
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of this allegation of error, the defendants note that the
disputed fees were not paid and thus not subject to collection
until over two years after the 2006 dissolution date.
The plaintiffs appear to concede that EAG, LLC, continued
"to exist ... for the limited purpose of carrying out only
that business necessary to wind up and liquidate."
Plaintiffs' brief, at p. 18. They counter, however, that that
process was to be undertaken by the members who, at all times,
remained bound by the terms of the operating agreement. See
Harbison v. Strickland, 900 So. 2d 385, 391 (Ala. 2004). More
specifically, they argue that no vote occurred during the
winding-up period authorizing either member or EAG, LLC, to
prosecute the subject claims.
Although I agree that the trial court's application of a
two-year winding-up period appears to conflict with the
"reasonable time" language found in § 10A-5-7.03, the
defendants, nonetheless, have failed to convince me that the
trial court's decision in this regard constitutes reversible
error. 14 First, I note that, other than a citation to the
14
The plaintiffs contend on appeal, as the trial court
also apparently concluded, "that a limited liability company
formed to provide professional services is subject to the
Revised Alabama Professional Corporation Act and is,
38
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general statutory authority set out above, the defendants fail
to identify any supporting authorities applying those sections
to factual scenarios similar to the one before us or
establishing what is a "reasonable time" for winding up as
contemplated by the Code. Notably, the defendants similarly
fail either to discuss or to attempt to distinguish the
authorities cited in the trial court's order as support for
the challenged finding. I, therefore, question whether the
defendants' argument in this regard comports with the
requirements of Rule 28, Ala. R. App. P.
This Court has repeatedly cautioned that
"'Rule 28(a)(10), Ala. R. App. P., requires that
arguments in an appellant's brief contain "citations
to the cases, statutes, other authorities, and parts
of the record relied on." Further, "it is well
settled that a failure to comply with the
requirements of Rule 28(a)(10) requiring citation of
authority in support of the arguments presented
provides this Court with a basis for disregarding
those arguments." State Farm Mut. Auto. Ins. Co. v.
Motley, 909 So. 2d 806, 822 (Ala. 2005) (citing Ex
parte Showers, 812 So. 2d 277, 281 (Ala. 2001)).
This is so, because "'it is not the function of this
therefore, subject to the Alabama Business Corporation Act"
and the two-year limitations period on winding up corporate
affairs upon dissolution. Plaintiffs' brief, at p. 31. As
discussed in more detail below, however, an analysis of this
particular argument would not be necessary, because the trial
court's findings are due to be affirmed on other grounds.
39
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Court to do a party's legal research or to make and
address legal arguments for a party based on
undelineated general propositions not supported by
sufficient authority or argument.'" Butler v. Town
of Argo, 871 So. 2d 1, 20 (Ala. 2003)(quoting Dykes
v. Lane Trucking, Inc., 652 So. 2d 248, 251 (Ala.
1994)).'"
Prattville Mem'l Chapel v. Parker, 10 So. 3d 546, 560 (Ala.
2008) (quoting Jimmy Day Plumbing & Heating, Inc. v. Smith,
964 So. 2d 1, 9 (Ala. 2007)). Here, as noted above, the
defendants have failed to include any citation to authority in
support of the argument presented. "It is the appellant's
burden to refer this Court to legal authority that supports
its argument." Madaloni v. City of Mobile, 37 So. 3d 739, 749
(Ala. 2009). In the absence of such, the defendants have
waived this claim on appeal.
In addition, I am unconvinced that it was unreasonable on
the part of the trial court to infer that the statutory
winding-up period for one type of corporate entity may serve
as a presumptively reasonable winding-up period for another.
Certainly, as noted above, the defendants have failed to
identify any authority stating that it may not.
Finally, I see nothing to indicate, as Berks argues, that
he was, in fact, charged by Rowe with sole responsibility for
40
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winding up the business of EAG, LLC. Instead, the terms of
the 2006 settlement agreement appear to indicate that Berks
was charged only with taking steps to formally dissolve EAG,
LLC, i.e., filing articles of dissolution. 15 I further note
that, also pursuant to the terms of that agreement, Berks and
Rowe agreed to proceed with dissolution pursuant to the
applicable terms of the operating agreement. As to
dissolution, the operating agreement plainly states that
"[t]he Members" are the appropriate party to pursue litigation
on behalf of ELG, LLC. See note 5, supra. Thus, even if, as
Berks argues, the underlying counterclaim was the direct
result of his purported efforts at "winding up," there is
nothing suggesting that, in that role, he was excused from the
requirement of obtaining a majority vote in favor of his
actions before proceeding on behalf of EAG, LLC. In light of
the foregoing, I see no error in this regard.
2. Berks's Individual Standing
A. Devolvement of Assets of EAG, LLC, to Members upon
Dissolution
15
In fact, it was Berks's failure to carry out this
responsibility that led to the subsequent filing of articles
of dissolution by Rowe.
41
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The defendants next contend that, assuming that the trial
court correctly ruled that EAG, LLC, was dissolved, the
interest in the contested cases held by EAG, LLC, as set out
in the 2004 settlement agreement, devolved to Berks pursuant
to the distribution of the assets of EAG, LLC, as provided for
in § 10A-5-7.05. Thus, Berks maintains, he possessed a
sufficient interest to impart the requisite standing to assert
the claims accruing to EAG, LLC, under the 2004 settlement
agreement. I disagree.
The cited Code section merely provides the following
"order of priority" for distributing the assets of a
dissolving limited-liability company during the winding-up
period:
"(1) To creditors, including members who are
creditors to the extent allowed by Section
10A-5-3.01 or otherwise permitted by law, in order
of priority as provided by law, except those
liabilities to members of the limited liability
company for interim distributions or on account of
their contributions.
(2) Except as otherwise provided in the
governing documents, to members of the limited
liability company and former members for interim
distributions and in respect of their contributions.
(3) Except as otherwise provided in the
governing documents, to members first for the return
of their contributions and second with respect to
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their interests in the limited liability company, in
the proportions in which the members share in
distributions."
In support of his apparent contention that the foregoing
supports his claim of individual standing to assert claims
belonging to the former limited-liability company, Berks cites
a single appellate decision from Washington state for the
general proposition that title to limited-liability-company-
owned assets and property devolve to the owners of the
limited-liability company upon dissolution of the limited-
liability company. See Sherron Assocs. Loan Fund V (Mars
Hotel) LLC v. Saucier, 157 Wash. App. 357, 237 P.3d 338(2010). Notably, however, the Saucier court's decision
concerned the devolution of a perfected judgment held by a
defunct limited-liability company and its finding that "[a]
judgment is an intangible asset." 157 Wash. App. at 363, 237
P.3d at 363.
Berks, however, offers only his own unsupported argument
–- failing to cite to this Court any binding authority –-
indicating that the claim at issue, an inchoate contract
right, is an "asset" of EAG, LLC, that would have devolved to
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the members of EAG, LLC, upon its dissolution. 16 In fact,
Berks acknowledges that he was unable to find any Alabama law
to support his claim. I note, however, that both Hutson v.
Fulgham Industries, Inc., 869 F.2d 1457 (11th Cir. 1989), and
Nix v. W.R. Grace & Co.-Conn., 830 F. Supp. 601 (S.D. Ala.
1993), which were cited in the order of the trial court from
which Berks appeals, appear to stand for the contrary
proposition.
Specifically, in Nix, the federal district court
discussed and applied the holding of the United States Court
of Appeals for the Eleventh Circuit in Hutson as follows:
"In a small number of cases, courts have held
corporate survival statutes inapplicable to suits
filed by shareholders of a dissolved corporation
even though those actions were based on injuries to
the corporation. In each of those instances,
however, the court's reasoning was based on the
equitable principle that a corporation's assets
devolve to its shareholders, and the shareholder in
each case could identify 'a tangible property asset'
which had devolved by operation of law or which had
16
Any contention by Berks that, as a result of Rowe's
departure, Berks was the sole remaining member of EAG, LLC,
and thus the only one entitled to assert claims purportedly
accruing to EAG, LLC, appears meritless. See Richard A.
Thigpen, Alabama Corporation Law § 1:18 (4th ed. 2012) ("Under
[the Code], the departure of one or more members does not work
an automatic dissolution of a company even where the company
is left with no remaining members." (footnote omitted)).
44
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been assigned to the shareholder. Davis v. St. Paul
Fire & Marine Ins. Co., 727 F. Supp. 549, 551
(D.S.D. 1989). This exception is consistent with
the purpose of the corporate survival statutes
because 'the other party is not prejudiced by
allowing a cause of action relating to collection of
a tangible asset since the assignee of that property
has a fixed and identifiable right separate from the
corporations' original right.' Id. at 551–52.
"For example, in Jenot v. White Mountain
Acceptance Corp., 124 N.H. 701, 474 A.2d 1382 (1984)
and Shute v. Chambers, 142 Ill. App. 3d 948, 97 Ill.
Dec. 92, 492 N.E.2d 528 (Ill. App. Ct.1986), former
shareholders sued corporate debtors whose debts were
evidenced by a note or mortgage and were of a fixed
or ascertainable amount. In contrast, the amount,
or even the existence, of any debt between the
defendants in the instant case and Bel Air
Corporation is disputed. In Carmichael v. Halstead
Nursing Center, Ltd., 237 Kan. 495, 701 P.2d 934(1985) and Levy v. Liebling, 238 F.2d 505 (7th Cir.
1956), cert. denied, 353 U.S. 936, 77 S.Ct. 812, 1
L. Ed. 2d 759 (1957), the corporation's claims
against the defendant had been reduced to judgment
before dissolution and were therefore considered to
be corporate assets. In this case, there is
obviously no judgment since plaintiff's claims
against these defendants have never been litigated.
"It is this limited exception that was the focus
of the Hutson opinion. Like Nix, the plaintiff in
Hutson claimed that the breach of contract and tort
claims he asserted were assets of the dissolved
corporation and became his either by operation of
law or by assignment. The issue in Hutson was
'whether Foresco [the dissolved corporation]
possessed any corporate assets to which Hutson, as
a former Foresco shareholder, became legally
entitled upon Foresco's dissolution.' Hutson, 869
F.2d at 1461. The appellate court addressed
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Hutson's fraud and breach of contract claims
separately.
"In discussing the contract claim, the court,
citing Jenot, recognized that the corporate survival
statutes 'were not intended "to supplant the
equitable rule that former shareholders succeed to
the assets of a dissolved corporation,"['] but held
that it was 'unwilling, however, to extend the
equitable rule so far as to recognize a "property
interest" in an unasserted corporate contract claim
which involves evidentiary problems and factual
disputes.' Id. at 1462–63. The Court then went on
to state that such contract claims 'must be asserted
within the wind-up period (or be properly assigned)
to survive dissolution.'
"Based on the latter statement, Nix asserts that
a mere general assignment of all corporate claims
will defeat the survival statute. Moreover, Nix
argues that since defendants have not challenged the
validity of the general assignment, the assignment
must have been proper. Plaintiff ignores the
appellate court's holding that an unasserted breach
of contract claim is not a property interest or
asset. See also Canadian Ace Brewing Co. v. Joseph
Schlitz Brewing Co., 629 F.2d 1183 (7th Cir. 1980)
(distinguishing between an unasserted claim and a
claim reduced [to] judgment prior to dissolution,
the latter being extinguished after the wind-up
period ends). A corporation cannot assign a property
interest that does not exist. Consequently, the
validity of the Bel Air Corporation's general
assignment is inconsequential."
830 F. Supp. at 604-05.
The defendants thus fail to convince me that the claims
of EAG, LLC, which were based upon the plaintiffs' disputed
breach of the 2004 settlement agreement, were, in fact, the
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type of asset contemplated by § 10A-5-7.05. See Hutson, 869
F.2d at 1463 n.15 (explaining the Court's holding as
"declin[ing] to include unasserted corporate contract claims
within the equitable [devolution] rule's operation"). In the
absence of Berks's actual ownership of the claim of EAG, LLC,
which Berks purported to assert below, I cannot fault the
trial court for finding that Berks lacked the ability to
pursue the claim. 17
17
"'This Court may affirm a trial
court's judgment on "any valid legal ground
presented by the record, regardless of
whether that ground was considered, or even
if it was rejected, by the trial court."'
General Motors Corp. v. Stokes Chevrolet,
Inc., 885 So. 2d 119, 124 (Ala. 2003)
(quoting Liberty Nat'l Life Ins. Co. v.
University of Alabama Health Servs. Found.,
P.C., 881 So. 2d 1013, 1020 (Ala. 2003));
Vesta Fire Ins. Corp. v. Milam & Co.
Constr., 901 So. 2d 84, 104 (Ala. 2004)
('Subject to limited exceptions, an
appellate court will affirm a summary
judgment on the basis of a law or legal
principle not invoked by the moving party
or the trial court, even though an
appellate court will not reverse a summary
judgment on the basis of a law or legal
principle not first argued to the trial
court by the nonmoving party.' (footnote
omitted)). However, this Court has stated:
'This rule fails in application only where
due-process constraints require some notice
at the trial level, which was omitted, of
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B. Berks's Individual Standing Pursuant to the 2004
Settlement Agreement
Alternatively, the defendants maintain that, even
assuming, as the trial court concluded, that the rights of
EAG, LLC, under the 2004 settlement agreement did not devolve
to Berks upon its dissolution, Berks nonetheless possessed
standing to assert claims under that agreement as an intended
third-party beneficiary of the 2004 settlement agreement.
Specifically, they point to the language of the 2004
settlement agreement providing that payment of the disputed
fees was to be made to EAG, LLC, with "each principal of [EAG,
LLC,] entitled to half." Thus, the defendants contend, Berks
is an identified third-party beneficiary of that agreement,
the basis that would otherwise support an
affirmance, such as when a totally omitted
affirmative defense might, if available for
consideration, suffice to affirm a
judgment, or where a summary-judgment
movant has not asserted before the trial
court a failure of the nonmovant's evidence
on an element of a claim or defense and
therefore has not shifted the burden of
producing substantial evidence in support
of that element.' [Liberty Nat'l Life Ins.
Co. v.] University of Alabama Health Servs.
[Found., P.C.], 881 So. 2d [1013] at 1020
[(Ala. 2003)] (citations omitted)."
Warren v. Hooper, 984 So. 2d 1118, 1121 (Ala. 2007).
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who is entitled to assert a claim that the 2004 settlement
agreement has been breached.
Pursuant to the authorities cited by the defendants:
"To recover under a third-party-beneficiary
theory, [Berks] must show: (1) that the contracting
parties intended, at the time the contract was
created, to bestow a direct benefit upon a third
party; (2) that the claimant was the intended
beneficiary of the contract; and (3) that the
contract was breached."
Ex parte Steadman, 812 So. 2d 290, 295 n.3 (Ala. 2001).
Further, "[a] third person has no rights under a contract
between others," and no standing to sue based on a breach of
that contract, "unless the contracting parties intend that the
third person receive a direct benefit enforceable in court."
Russell v. Birmingham Oxygen Serv., Inc., 408 So. 2d 90, 93
(Ala. 1981) (citations omitted).
In Russell, where a nonparty to a noncompete agreement
attempted to enforce that agreement based upon his ownership
of the contracting company, this Court noted:
"Appellees argue that it makes no difference
whether Birmingham Oxygen or Southeastern Medical
enforces the non-competition agreement, since Barney
C. Eller wholly owns both corporations and it was
him with whom Edwards and Russell dealt. This
contention is without merit. A corporation is an
entity created by compliance with statutory
requirements. A corporation has the right to sue
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and be sued just like a natural person. Alabama
Constitution, Article XII, § 240; Code 1975, §
10-2A-20(2). A corporation, just like an
individual, must enforce its own rights and
privileges."
408 So. 2d at 93.
Here, it is clear, based upon the language of the 2004
settlement agreement, that the right to payment that was
created under that agreement accrued to EAG, LLC, to whom the
payment was explicitly due. After -- and only after --
payment had been made to EAG, LLC, did the agreement explain
how it was to be divided among the members thereof. Thus the
agreement evinces an intent only to directly benefit EAG, LLC,
which is also the only party entitled to sue if the promised
payment was not made. 18 Russell, supra. Consequently, only
an indirect benefit was bestowed on Berks and Rowe pursuant to
the agreement, solely in their capacity as principals of EAG,
LLC. Therefore, the trial court also did not err in
concluding that Berks lacked the ability to enforce the 2004
settlement agreement as a third-party beneficiary thereof.
3. Rowe's Intervention
18
Presumably, however, if EAG, LLC, had, in fact, received
the funds and had failed to distribute them equally to both
Rowe and Berks, Berks would have had a derivative claim
against EAG, LLC.
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Finally, the defendants contend that the trial court
erred in granting Rowe's request to intervene on behalf of
EAG, LLC, pursuant to Rule 24, Ala. R. Civ. P. More
specifically, they assert that the grounds cited by Rowe in
his intervention motion were insufficient to sustain the trial
court's ruling in that Rowe's interests were purportedly
adequately represented by the defendants' opposition to the
plaintiffs' complaint and further that Rowe's postintervention
position constituted a breach of the members' duties imposed
on Rowe by § 10A-5-3.03, Ala. Code 1975. In sum, the
defendants argue that by permitting Rowe's intervention on
allegations including that EAG, LLC, constituted an ongoing
entity, 19 but permitting Rowe to successfully represent, in
subsequent pleadings, that EAG, LLC, had been dissolved in
July 2006, the trial court "erroneous[ly] refus[ed] to apply
§ 10A-5-3.03(f)(1-3), and the law on judicial estoppel."
Defendants' brief, at p. 56. See, e.g., Ex parte First
Alabama Bank, 883 So. 2d 1236, 1241 (Ala. 2003) ("'The
doctrine of judicial estoppel "applies to preclude a party
19
The plaintiffs explain that this initial position was
taken by all parties based on the continued existence of EAG,
LLC, in public records.
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from assuming a position in a legal proceeding inconsistent
with one previously asserted."'" (quoting Jinright v. Paulk,
758 So. 2d 553, 555 (Ala. 2000), quoting in turn Selma Foundry
& Supply Co. v. Peoples Bank & Trust Co., 598 So. 2d 844, 846
(Ala. 1992))).
This appears to be a nonissue. As set out in the facts
above, Rowe's intervention was the result of a "stipulation
and agreement reached in open court," by all parties to the
underlying proceeding, who apparently conceded that "Rowe ...
[should be] made a party ... and ... aligned as a
Plaintiff...." It thus appears that the defendants' own claim
that the intervention was improper would be precluded by the
very judicial-estoppel principles they raise on appeal. First
Alabama Bank, supra. Alternatively, the defendants, by their
conduct below, invited the error of which they now complain.
See Ex parte King, 643 So. 2d 1364, 1366 (Ala. 1993) ("[The
doctrine of invited error] provides that a party may not
complain of error into which he has led the court." (citing
Aetna Life Ins. Co. v. Beasley, 272 Ala. 153, 157, 130 So. 2d
178, 182 (1961))).
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In addition, to the extent that the defendants' claim
represents a challenge to the trial court's failure to
immediately grant the defendants' motion seeking to vacate the
trial court's intervention order, I also fail to see any error
in that regard. Not only was Rowe aligned as a plaintiff from
the outset, as the plaintiffs note, but also, as both sets of
parties represent in their respective briefs, the trial court
did, in fact, subsequently vacate the order permitting Rowe's
intervention. Thus, any potential relief from the trial
court's order permitting the alleged erroneous intervention of
Rowe has already been obtained, and the resulting challenge to
the intervention order is moot. See Woods v. SunTrust Bank,
81 So. 3d 357, 363 (Ala. Civ. App. 2011).
Conclusion
Based on the foregoing, I conclude that the trial court's
judgment was entered without error and is, in all aspects, due
to be affirmed. Because I see little, if any, precedential
value in a published opinion, I concurred in the Court's
decision to affirm the trial court's judgment without an
opinion and I now concur in overruling the application for
rehearing.
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MOORE, Chief Justice (dissenting).
Martin Berks, Environmental Attorneys Group, LLC ("EAG"),
and Environmental Attorneys Group, P.C., apply for rehearing
of this Court's no-opinion affirmance of the trial court's
summary judgment. Because I believe that the trial court
improvidently entered a summary judgment, I would grant the
application for rehearing and reverse this Court's decision on
original submission. Therefore, I respectfully dissent.
I. Facts and Procedural History
In 2001, attorneys Martin Berks and Mark Rowe formed EAG
to pursue toxic-tort litigation. Berks and Rowe were the sole
members of the limited-liability company, and each retained a
50% membership and voting interest. Gregory Cade was an
associate attorney with EAG with no membership interest.
In 2004 Cade left EAG, which then sued him for allegedly
attempting to steal its clients and pending toxic-tort cases.
Cade and EAG settled that dispute in mediation, agreeing that
Cade could take with him certain toxic-tort cases and
establishing a formula to divide any fees that might be
derived from those cases. Also in 2004, Berks and Rowe went
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their separate ways, forming new individual firms and doing no
new business through EAG.
In 2006, Rowe sued Berks for Rowe's share of the assets
of EAG. As part of a mediated settlement, Berks and Rowe
agreed to dissolve EAG. Rowe also accepted a cash payment in
lieu of his claim to fees from EAG's pending toxic-tort cases.
In 2007 Rowe joined the law firm where Cade was working --
Environmental Litigation Group, P.C. ("ELG"). In November 2008
one of the cases covered by the 2004 settlement agreement
between EAG and Cade settled, generating a $2.4 million fee.
After Cade received the settlement proceeds, he and ELG sued
Berks and EAG seeking to avoid paying EAG any portion of the
fee. Cade and ELG argued that Berks had breached the 2004
settlement agreement, thus relieving Cade of the duty to
perform his portion of that contract. Berks and EAG
counterclaimed, seeking a 50% share of the fee pursuant to the
2004 settlement agreement.
Rowe moved to intervene on behalf of EAG, arguing that as
a 50% member he had an interest in the $2.4 million fee.
However, Rowe later switched his position, arguing that as a
member of EAG he had not authorized EAG to hire counsel to
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defend Cade and ELG's action and to counterclaim for the $1.2
million fee. Rowe further moved to disqualify counsel for EAG
on the ground that he had not voted to permit EAG to sue for
the withheld fee. Thus, Rowe effectively became an adversary
of EAG, though still nominally a member.
The trial court granted the motion to disqualify counsel,
thus disabling EAG from defending the suit and asserting its
counterclaims. The court also denied Berks's personal claim to
the assets of EAG as a successor in interest, thus preventing
him from seeking a portion of the $2.4 million fee as a third-
party beneficiary. The trial court subsequently entered a
summary judgment for the plaintiffs based on the reasoning in
its order disqualifying counsel. With EAG unable to
counterclaim for a portion of the fees, Cade and ELG then
dismissed their own remaining claims, concluding the case.
II. Standard of Review
"We review a trial court's summary judgment de novo,
giving the judgment no presumption of correctness." Baldwin v.
Branch, 888 So. 2d 482, 484 (Ala. 2004). A summary judgment is
proper when there is "no genuine issue as to any material fact
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and ... the moving party is entitled to a judgment as a matter
of law." Rule 56, Ala. R. Civ. P.
III. Analysis
The trial court, relying on a portion of the Business and
Nonprofit Entities Chapter of the Alabama Code, 20 ruled that
EAG ceased to exist in 2008, two years after Rowe and Berks
agreed to dissolve it. But the part of the Code applicable to
limited-liability companies ("the LLC Code") specifically
provides that a limited-liability company ("LLC") has a
"reasonable time" in which to wind up its affairs. §
10A-5-7.03, Ala. Code 1975. A specific statute in the LLC Code
would ordinarily prevail over a parallel rule in the Business
Corporations Code, even if construed to apply also to LLCs.
"Where statutes in pari materia are general and specific, the
20
Sections 10A-1-9.21 and -9.22, Ala. Code 1975 (formerly
§§ 10-2B-14.06 and -14.07), provide only a two-year survival
of claims against a dissolved domestic entity. They do not
similarly bar claims asserted by the entity. By contrast,
predecessor § 10-2A-203, Ala. Code 1975, cited by the trial
court in its order, eliminated any "remedy to or against such
corporation." (Emphasis added.) The court equated § 10-2A-203,
superseded in 1994 and thus not applicable to this case, with
§§ 10-2B-14.06 and -14.07 in its limiting effect on claims
brought by the dissolved entity. Section 10A-5-8.01(g) (former
§ 10-12-45), Ala. Code 1975, generally applies "restrictions
imposed on professional corporations by the Alabama
Professional Corporation Law" to limited-liability companies
that render professional services.
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more specific statute controls the more general statute."
Crawford v. Springle, 631 So. 2d 880, 882 (Ala. 1993). Surely
it was reasonable to keep the entity in existence beyond two
years to "wind up" the receipt of fees from cases pending at
the time dissolution was undertaken.
Additionally, Rowe's effort to prevent EAG from asserting
entitlement to fees arising from the 2004 settlement agreement
is a forbidden act of disloyalty to EAG. A member in a member-
managed LLC owes a fiduciary duty of loyalty to the LLC.
"A member's duty of loyalty to a member-managed
limited liability company and its members is limited
to each of the following:
"....
"(2) To refrain from dealing with the limited
liability company in the conduct or winding up of
the limited liability company's business as or on
behalf of a party having an interest adverse to the
limited liability company."
§ 10A-5-3.03(f), Ala. Code 1975 (emphasis added). An LLC
member also has an "obligation of good faith and fair dealing"
in activities in relation to the LLC. § 10A-5-3.03(h), Ala.
Code 1975. Further, the governing documents of an LLC may not
eliminate the duty of loyalty or the obligation of good faith
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and fair dealing. §§ 10A-5-3.03(l)(2) and -3.03(l)(4), Ala.
Code 1975.
Rowe successfully argued to the trial court that, as a
member of EAG with a 50% voting interest, he could prevent the
entity from taking legal action to collect funds owed to it.
He also successfully argued that by withholding his vote he
could prevent EAG from defending itself in the action brought
by Cade and ELG. But Rowe's duty of loyalty to EAG precluded
his taking action either for himself or for another "adverse
to the limited liability company." ELG, the law firm for which
both Cade and Rowe worked, obviously had an interest adverse
to EAG in not sharing the settlement funds Cade had received
from cases that were the subject of the 2004 settlement
agreement. By using his vote as a member of EAG to prevent EAG
from claiming funds that derived from the 2004 settlement
agreement between EAG and Cade, Rowe violated his duty of
loyalty to EAG.
Because "limited liability companies are creatures of
statute," Harbison v. Strickland, 900 So. 2d 385, 389 (Ala.
2004), "operating agreements of limited liability companies
... incorporate the provisions of the statutes that allow for
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the creation of such agreements." 900 So. 2d at 391. "Thus,
the plain language of § 10-12-21(l), Ala. Code 1975 [the
predecessor statute to § 10A-5-3.03(l)], does not allow an
operating agreement for a limited liability company ... to
eliminate a manager's duty of loyalty ...." 900 So. 2d at 390.
See also Polk v. Polk, 70 So. 3d 363, 371 (Ala. Civ. App.
2010) (citing Harbison).
Rowe was not at liberty to employ his voting power to
prevent EAG from litigating its right to fees derived from the
2004 settlement agreement. His nonwaivable fiduciary duty of
loyalty precludes his effort to act contrary to the interests
of EAG. By failing to read the duty of loyalty into the
operating agreement for EAG, the trial court entered a summary
judgment on a ground forbidden by the LLC Code.
IV. Conclusion
By applying a general two-year winding-up provision from
the Business Corporations Code rather than the specific
"reasonable time" provision from the LLC Code, the trial court
wrongly held that EAG ceased to exist as a legal entity prior
to Cade and ELG's filing their action against it. By failing
to read the operating agreement in light of the statutory duty
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of loyalty, the trial court mistakenly permitted Rowe to
stymie EAG's capacity to defend itself. Because both rulings
were legally incorrect, I would grant the application for
rehearing, reverse the trial court's summary judgment, and
remand the case for EAG to litigate its counterclaims.
61