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RAO, Inc. v. Nicholson

Court of Appeals of Minnesota

June 10, 2013

ROA, Inc., Appellant, Daniel Ashbach, Plaintiff,
v.
Timothy J. Nicholson, et al., Respondents, North Star Processing, LLC, Respondent, and North Star Processing, LLC, Counterclaim Plaintiff, Respondent,
v.
ROA, Inc., Counterclaim Defendant, Appellee, Daniel Ashbach, Counterclaim Defendant.

UNPUBLISHED OPINION

Ramsey County District Court File No. 62-CV-10-1734

Michael D. Schwartz, Brandon M. Schwartz, Schwartz Law Firm, Oakdale, Minnesota (for appellant)

Gregory T. Spalj, Kristine Kroenke, Fabyanske, Westra, Hart & Thomson, P.A., Minneapolis, Minnesota (for respondents Nicholson, et al.)

Adam S. Huhta, Huhta Law Firm, PLLC, Minneapolis, Minnesota (for respondent North Star Processing, LLC)

Considered and decided by Johnson, Chief Judge; Schellhas, Judge; and Hooten, Judge.

JOHNSON, Chief Judge

This case arose from a dispute between members of a limited liability company. At trial, appellant proved that respondents breached fiduciary duties. As a remedy, appellant received $615, 600 in a buy-out of its interest in the company. Appellant also was awarded $36, 686 in attorney fees. Appellant now argues that both the amount of the buy-out and the award of attorney fees should be larger. We conclude that appellant has not established an abuse of discretion with respect to the amount of the buy-out. But we conclude that appellant is entitled to a larger award of attorney fees because appellant obtained a greater benefit for the company and its members than is recognized by the existing fee award. Therefore, we affirm in part, reverse in part, and remand for further proceedings with respect to the award of attorney fees.

FACTS

The parties' briefs contain a thorough recitation of the history of their business dealings and the disputes between the parties when the case was commenced and when it was tried. For purposes of this appeal, we will provide an abbreviated version of the facts, as necessary to resolve the issues raised.[1]

North Star Processing, LLC (NSP) is a limited liability company, organized under Delaware law. During the relevant time period, NSP had five members with direct and/or indirect interests in the company. Appellant ROA, Inc., is owned by Daniel Ashbach and had a 24% interest in NSP through direct and indirect interests. Prior to this dispute, Ashbach had been an officer of NSP but was not involved in the operations of the company after 2007. Respondent Peter Duddleston is the president of NSP and indirectly had a 24% interest in NSP. Respondent Michael Doolan is the secretary of NSP and indirectly had a 24% interest in NSP. Respondent Timothy Nicholson is the CEO and chairman of the board and directly and indirectly had a 14% interest in NSP. Respondent Douglas Lundberg is the treasurer and in charge of operations and directly and indirectly had a 14% interest in NSP.

In 2005, NSP's management wished to expand the company's operations by building a second facility with additional equipment. The company could obtain financing only if all members with more than a 20% interest in the company provided loan guaranties. ROA owned 24% of NSP, but Ashbach refused to guarantee a loan unless ROA received certain payments from the company, which the other members were not willing to provide.

In April 2007, the other members of NSP formed NSH Group, LLC, as an alternative means of facilitating NSP's expansion. NSH built a warehouse and installed equipment that was useful to NSP's business. NSH borrowed money to fund the construction and the acquisition of equipment, and NSP guaranteed NSH's loan by pledging all of NSP's assets as collateral. NSH then leased both the warehouse building and the equipment to NSP.

In November 2009, ROA and Ashbach commenced this action against NSP, the other NSP members, and NSH, alleging, among other theories, breach of fiduciary duties. The complaint included derivative claims brought on behalf of NSP. While the case was pending, respondents essentially conceded that NSP provided NSH with unduly favorable terms in their contracts. An expert appraiser retained by NSP determined that NSP had transferred real estate to NSH at a price that was below market value. The expert also determined that the rental rates in the real-estate lease and the equipment lease were above fair market value. Based on the expert's findings, NSH reimbursed NSP to the extent that past ...


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