Gary Froonjian v. Ultimate Combatant, LLC, Ronald Brian Polomny and Natsuko Nakahara , 169 So. 3d 151 ( 2015 )

DISTRICT COURT OF APPEAL OF THE STATE OF FLORIDA
FOURTH DISTRICT
GARY FROONJIAN,
Appellant/Cross-Appellee,
v.
ULTIMATE COMBATANT, LLC, RONALD BRIAN POLOMNY
and NATSUKO NAKAHARA,
Appellees/Cross-Appellants.
No. 4D14-662
[May 27, 2015]
Appeal and cross-appeal of non-final orders from the Circuit Court for
the Seventeenth Judicial Circuit, Broward County; Marina Garcia-Wood,
Judge; L.T. Case No. 13-013874 CACE (18).
Warren B. Kwavnick and Paul D. Shafranski of Cooney Trybus
Kwavnick Peets, PLC, Fort Lauderdale, and Ruben E. Socarras of Marshall
Socarras Grant, P.L., Boca Raton, for appellant/cross-appellee.
Rafael A. Castro, III and David E. Wolff of Appellate Services Par
Excellence, PLLC, Miami, for appellees/cross-appellants.
GERBER, J.
Defendant Gary Froonjian filed a counterclaim and third-party
complaint seeking injunctions after being removed as a member of a
limited liability company and having his membership interest
redistributed. The circuit court entered orders dismissing the injunction
actions with prejudice on the ground that the defendant could not state a
cause of action. While we agree the defendant could not state a cause of
action based on his removal, he could state a cause of action based on the
redistribution. Thus, we affirm in part and reverse in part the dismissal
of the injunction actions.1
1 The appellees cross-appealed from the court’s denial of their motion to dismiss
the counts of the defendant’s counterclaim and third-party complaint seeking an
accounting. Unlike the main appeal for which we have jurisdiction under Florida
Rule of Appellate Procedure 9.130(a)(3)(B) (authorizing appeals from orders
denying injunctions), we do not have jurisdiction of the cross-appeal under rule
In evaluating the defendant’s appeal, our review is de novo. See
Edwards v. Landsman, 51 So. 3d 1208, 1213 (Fla. 4th DCA 2011) (a trial
court’s order granting a motion to dismiss a counterclaim and third-party
complaint is reviewed de novo) (citation omitted). We will present as true
the facts which the defendant alleged in the four corners of his
counterclaim and third-party complaint. See id. (in considering a motion
to dismiss a counterclaim and third-party complaint, a court may not go
beyond the four corners of the counterclaim and third-party complaint and
must accept the facts alleged therein and exhibits attached as true)
(citation omitted).
According to the counterclaim and third-party complaint, third-party
defendants Polomny and Nakahara created a limited liability company
(LLC) to operate a business. They created the LLC by filing articles of
organization with the state. The articles identified Polomny and Nakahara
as the LLC’s “members.” See § 608.402(21) (2013) (“‘Member’ means any
person who has been admitted to a limited liability company . . . and has
an economic interest in a limited liability company which may, but need
not, be represented by a capital account . . . .”).
As would become significant later, Polomny and Nakahara did not
adopt an operating agreement for the LLC. See § 608.402(24), Fla. Stat.
(2013) (“‘Operating agreement’ means . . . written or oral provisions that
are adopted for the management and regulation of the affairs of the limited
liability company and that set forth the relationships of the members,
managers, or managing members and the limited liability company . . . .”).
Polomny later approached the defendant about joining the LLC by
obtaining a one-third “membership interest” and becoming a “managing
member.” See § 608.402(23), Fla. Stat. (2013) (“‘Membership interest’ . . .
means a member’s share of the profits and the losses of the limited liability
company, the right to receive distributions of the limited liability
company’s assets, voting rights, management rights, or any other rights
under this chapter or the articles of organization or operating agreement.”);
§ 608.402(20), Fla. Stat. (2013) (“‘Managing member’ means a member
appointed or elected as a managing member of a member-managed
company.”).
According to the defendant, he accepted the offer and, as a result,
dedicated his time and efforts towards getting the LLC “off the ground” and
9.130. Therefore, we dismiss the cross-appeal without further comment, and
discuss only the defendant’s appeal.
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growing its business. Nakahara filed with the state an amendment to the
LLC’s articles of organization, adding the defendant as a “managing
member.” That same day, Polomny sent the defendant an e-mail
confirming that he would have “equal ownership in [the LLC]” such that
“[a]ny money invested b[y] each person w[ould] be paid back” from the
LLC’s business. However, the e-mail cautioned that there were still “a lot
of things to discuss” and that the parties still “need[ed] to draw up a formal
contract of ownership.”
The following week, Polomny sent the defendant an e-mail stating that
the defendant “was no longer ‘on the LLC,’ that [the defendant] never had
a one-third ownership interest as a member of the [LLC], and that instead,
[the defendant] would be given the ‘opportunity’ to purchase five percent
(5%) of the [LLC’s] equity for $20,000.” Three days later, Nakahara filed
with the state a second amendment to the LLC’s articles of organization,
removing the defendant’s membership interest and redistributing it to
Polomny and Nakahara.
The defendant sent the LLC a letter in which he threatened to sue the
LLC “if his membership interest w[as] not recognized.”
The LLC later filed a declaratory judgment action seeking a
determination of two issues: (1) whether the defendant had a valid claim
as a member in the LLC if there was “no signed writing evidencing that
[Polomny and Nakahara] voted unanimously . . . to admit him as a
member,” see § 608.4232, Fla. Stat. (2013) (“Except as otherwise provided
in the articles of organization or the operating agreement, no person may
be admitted as a member unless a majority-in-interest of the members
consent in writing to the admission of the additional member.”); and (2)
whether Polomny and Nakahara could, by vote, “legally refuse to recognize”
the defendant’s membership interest.
The defendant filed a counterclaim against the LLC and a third-party
complaint against Polomny and Nakahara. Both the counterclaim and the
third-party complaint requested the entry of “a mandatory injunction
requiring the [LLC] to reinstate [the defendant] as a member and one-third
owner.” The defendant also requested an accounting from the LLC. In
support of his requests, the defendant alleged that, because the LLC did
not adopt any operating agreement which may have set forth expulsion
parameters, Polomny’s and Nakahara’s removal and redistribution of his
membership interest via majority vote “wrongfully deprived [him] of his
ownership interest” in the LLC. The defendant reasoned that the Florida
Limited Liability Company Act (Chapter 608, Florida Statutes) does not
provide an LLC “or its members [with] the power to unilaterally take a
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member’s ownership interest in an LLC without that member’s consent or
without payment of due consideration.” Therefore, the defendant alleged,
he maintained his membership interest in the LLC.
The LLC, Polomny, and Nakahara filed motions to dismiss the
counterclaim and third-party complaint. The motions raised two
arguments. First, the motions argued that the defendant lacked standing
to contest his removal because Polomny and Nakahara never consented in
writing to admitting him as an additional member. See § 608.4232, Fla.
Stat. (2013) (“Except as otherwise provided in the articles of organization
or the operating agreement, no person may be admitted as a member
unless a majority-in-interest of the members consent in writing to the
admission of the additional member.”). Second, the motions argued that,
even if the defendant had standing as a member, the counterclaim and
third-party complaint failed to state a cause of action because the lack of
an operating agreement provided Polomny and Nakahara, as a majority of
the LLC’s members, with the “absolute right to [remove the defendant].”
Following a hearing, the circuit court entered an order granting the
motions to dismiss. In the order, the court rejected the motions’ lack of
standing argument on the ground that whether the defendant was
properly added as a company member was an issue “better suited for
summary judgment.” However, the court accepted the motions’ argument
that the defendant’s injunction actions failed to state a cause of action.
The court, citing Kertesz v. Spa Floral, LLC, 994 So. 2d 473, 475 (Fla. 3d
DCA 2008), found that “under Florida law . . . the other members of the
[LLC] had an absolute right to remove” the defendant from the LLC.
Accordingly, the court found the defendant could not amend his claims to
state a cause of action.
This appeal followed. The defendant argues the circuit court erred in
dismissing his injunction actions because “[n]othing in the Florida Limited
Liability Company Act authorizes such involuntary expulsion and
appropriation of a member’s ownership interest. On the contrary, the Act
provides that the interest of a member in a limited liability company is
personal property and . . . majority members have no authority to
unilaterally expel a minority member and divest him of this property
interest.”
We treat the defendant’s argument as two separate issues: (1) whether
Polomny and Nakahara, as the majority members, were authorized to expel
the defendant from the LLC; and (2) whether Polomny and Nakahara, as
the majority members, were authorized to redistribute the defendant’s
membership interest. We address each issue in turn.
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On the first issue, under the facts as alleged in the counterclaim and
third-party complaint, we conclude that Polomny and Nakahara had the
authority to expel the defendant from the LLC. The authority to expel the
defendant existed because the LLC had no operating agreement. Where
an LLC has no operating agreement, “[m]anagement [is] vested in its
members . . . in proportion to the then-current percentage or other interest
of members in the profits of the [LLC]” and “the decision of a majority-in-
interest of the members . . . shall be controlling.” § 608.422(2)(a)-(b), Fla.
Stat. (2013) (emphasis added). See also § 608.4231(3), Fla. Stat. (2013):
If no conflicting voting provision is contained in the articles of
organization or operating agreement:
(a) The members of a limited liability company shall vote in
proportion to their then-current percentage or other allocable
interest in the profits of the limited liability company . . . .
(b) In all matters in which a vote is required, a vote of a
majority-in-interest of the members shall be sufficient unless
provided otherwise in the limited liability company’s articles
of organization or operating agreement or this chapter.
(emphasis added).
Our conclusion that Polomny and Nakahara were authorized under
sections 608.422(2) and 602.4231(3) to expel the defendant from the LLC
is consistent with our sister court’s decision in Kertesz.
In Kertesz, the plaintiff formed an LLC to operate a business. 994 So.
2d at 474. He ultimately granted ownership interests totaling 55% of the
LLC to six other persons. Id. The members later had a falling out which
culminated in the majority removing the plaintiff as the managing
member. Id. at 474-75. The plaintiff filed an action claiming his removal
as managing member caused the LLC to suffer irreparable harm and lose
business and opportunities. He sought: (1) the judicial dissolution of the
LLC based on these circumstances and an alleged deadlock in
management of the LLC; (2) the appointment of a receiver to protect the
LLC’s assets and goodwill; and (3) compensation for “a loss in value of his
member interest in the LLC.” Id. at 475.
The circuit court entered an order granting with prejudice the LLC’s
and other members’ motion to dismiss the action. The third district
affirmed. Our sister court, noting the plaintiff’s express concession that
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the other members owned 55% of the LLC, and that the plaintiff did not
refer to or attach a copy of any articles of organization or operating
agreement for the LLC, concluded the analysis of the plaintiff’s claims was
governed by section 608.4231(3). According to our sister court:
[T]he majority interest holders voted, and [the plaintiff] lost.
. . . The members and LLC cannot be sued simply because
they exercised their prerogative to change management (in the
absence of some wrongful or unlawful basis for that action
that has not been alleged here – prohibited discrimination, for
example, or under the circumstances detailed in the
whistleblower statutes).
....
[The plaintiff’s] legal theory would, if adopted, preclude his
replacement because some of the LLC’s clients preferred
working exclusively with him as manager. The trial court
properly declined to endorse any such restriction on the rights
of the majority members.
Id. at 475-76 (emphasis added; internal footnote omitted).
The defendant seeks to distinguish Kertesz on the ground that, in
Kertesz, the plaintiff was removed by a majority vote from his position as
a managing member. According to the defendant, nothing in Kertesz
supports the idea that majority members can vote to remove a minority
member from the LLC as occurred in this case.
We disagree. Nothing in Kertesz supports the idea that, in the absence
of an operating agreement, any restriction exists on the ability of the
majority members to remove a minority member, without some wrongful
or unlawful basis for that action which has not been alleged here.
However, turning to the second issue, the redistribution of the
defendant’s membership interest is a separate matter. Section 608.431,
Florida Statutes (2013), provides: “An interest of a member in a limited
liability company is personal property.” (emphasis added). See also §
608.402(23), Fla. Stat. (2013) (“‘Membership ‘interest,’ ‘member’s interest,’
or ‘interest’ means a member’s share of the profits and the losses of the
limited liability company, the right to receive distributions of the limited
liability company’s assets, voting rights, management rights, or any other
rights under this chapter or the articles of organization or operating
agreement.”).
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Being personal property, we conclude the majority members cannot
simply redistribute a minority member’s interest to themselves.
Unfortunately, though, chapter 608 does not provide any guidance for the
disposition of a removed member’s interest in an LLC.
However, applying the doctrine of in pari materia, we can deduce two
possible alternatives under chapter 608 for the disposition of a removed
member’s interest in an LLC. See Fla. Dep’t of State, Div. of Elections v.
Martin, 916 So. 2d 763, 768 (Fla. 2005) (“The doctrine of in pari materia is
a principle of statutory construction that requires that statutes relating to
the same subject or object be construed together to harmonize the statutes
and to give effect to the Legislature’s intent.”) (citation omitted).
First, the minority member’s removal may be treated as if the member
withdrew from the LLC as provided in section 608.427, Florida Statutes
(2013). Under that scenario:
Upon withdrawal, a withdrawing member is entitled to receive
any distribution to which the withdrawing member is entitled
under the articles of organization or operating agreement,
and, if not otherwise provided in the articles of organization
and operating agreement, the withdrawing member is entitled
to receive, within a reasonable time after withdrawal, the fair
value of the withdrawing member’s interest in the limited
liability company as of the date of resignation based upon the
withdrawing member’s right to share in distributions from the
limited liability company.
§ 608.427(2), Fla. Stat. (2013) (emphasis added).
Second, in the absence of expulsion procedures in the LLC’s articles of
organization or operating agreement, the removal of a member may be
accompanied by the LLC’s dissolution. Cf. Cadwalader, Wickersham &
Taft v. Beasley, 728 So. 2d 253, 256 (Fla. 4th DCA 1998) (under New York
law, absent a provision in a partnership agreement for expulsion, the
removal of a partner may be accomplished only through dissolution).
Under that scenario, the LLC’s assets, after the settling of the LLC’s
accounts and distribution to creditors, ultimately would be distributed “to
members pro rata in proportion to their then-current percentage, or other
interests in the profits, of the [LLC].” § 608.444(3), Fla. Stat. (2013).
In sum, because the majority members could not simply redistribute
the defendant’s membership interest in the LLC to themselves, we
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conclude the defendant can state a cause of action in his counterclaim
and third-party complaint for an injunction to prevent such redistribution
without proper consideration under the procedures for withdrawal of a
member under section 608.427, Florida Statutes (2013), or after the
procedures for dissolution of the LLC under sections 608.441-.446, Florida
Statutes (2013). Thus, we remand for the reinstatement of the defendant’s
injunction actions with leave to amend the actions in a manner consistent
with our conclusion.
Affirmed in part, reversed and remanded in part, dismissed in part.2
CONNER and KLINGENSMITH, JJ., concur.
* * *
Not final until disposition of timely filed motion for rehearing.
2 By coincidence, after the defendant’s removal from the LLC in 2013, the
Legislature enacted the “Florida Revised Limited Liability Company Act,” effective
as chapter 605, Florida Statutes (2014). Chapter 605 substantially revised
chapter 608 to govern “[t]he internal affairs of a limited liability company.”
§ 605.0104(1), Fla. Stat. (2014). Among the revisions in chapter 608 was the
addition of provisions by which a member can be expelled from the LLC, see §§
605.0602(4)-(6), Fla. Stat. (2014), and by which the expelled member’s interest is
disposed, see § 605.0603(1)(c), Fla. Stat. (2014). Because the defendant’s
removal from the LLC occurred before the Legislature enacted chapter 605, we
are constrained from applying chapter 605’s provisions to this appeal.
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