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Date: 06-14-2002

Case Style: Glenn Ault v. William Brady

Case Number: 01-3174

Judge: 01-3174

Court: United States Court of Appeals for the Eighth Circuit

Plaintiff's Attorney: Unknown

Defendant's Attorney: Unknown

Description: On June 11, 1998, IFS was formed as a manager-managed Arkansas limited liability company for the purpose of marketing a "non-sufficient funds" fee enhancement process to banks. The initial members of IFS and their respective initial interests were as follows: Brady, forty-seven units; Sam Pierce, forty-seven units; Boulderfield (a corporate entity owned equally by Brady and Pierce), four units; and Ault, two units.2 Effective June 12, 1998, Brady, Pierce, and Ault entered into an IFS Operating Agreement, which specified that Brady would be the managing member. IFS employed Ault as a "scout" or salesman on an independent contractor basis.

By June of 1999, Brady and Pierce were involved in a power struggle, and Ault acted as a go-between in an attempt to reach an agreement or compromise. On July 21, 1999, Brady sent Pierce a letter requesting his resignation by July 30 in lieu of termination. Brady also sent a copy of the letter to Ault. On July 27, 1999, Pierce contacted Ault and offered to transfer his units in IFS to Ault. Ault agreed and paid Pierce $150 for Pierce's forty-seven units and $50 for Pierce's two Boulderfield units. The next day, Pierce e-mailed Brady and informed him that he would not resign. Two days later, on July 30, 1999, Brady terminated Pierce "for cause" and informed Pierce that IFS would exercise its option to purchase his units within sixty days.

In one final effort to resolve the situation, on August 5, 1999, Brady, Pierce, and Ault held a "members meeting" in Little Rock. It was during this meeting that Ault revealed to Brady that he owned Pierce's units. Upon learning this information, Brady demanded that Ault turn the units over to IFS, which Ault refused to do. Consequently, in a letter dated August 11, 1999, Brady terminated Ault "for cause" and informed Ault that IFS would buy back all the units he owned pursuant to section 7.2(b) of the Operating Agreement.3 Ault responded by taking the position that Brady had no cause to terminate him and that because he was an independent contractor rather than an employee, section 7.2(b) was not applicable to him and therefore IFS could not buy back his units. On August 31, 1999, Brady executed a "buy-out" letter informing Ault that "the purchase price or consideration that [IFS was] offering [was] 'relief from liability.'"4 Ault responded by filing the instant lawsuit against Brady and IFS.

Ault's original suit, filed on August 30, 1999, sought dissolution of IFS. On August 24, 2000, Ault filed a first amended complaint alleging breach of contract, breach of fiduciary duty, breach of the covenant of good faith and fair dealing or, in the alternative, dissolution. Following discovery, the district court, sua sponte, limited the initial phase of the trial to the issue of whether Ault legally acquired Pierce's ownership interest in IFS and the propriety and impact of Brady's termination of Ault. After a bench trial, the district court found that the transfer from Pierce to Ault was a valid conveyance of Pierce's economic interest in the units transferred, but the transfer failed to convey any voting rights. The district court further found that Brady acted within his authority in terminating Ault's services, but the termination was "without cause." Thus, the district court concluded that IFS has the right to acquire Ault's units for their fair market value ("FMV") rather than the value of Ault's capital account. Phase two of the case was limited to the calculation of the FMV of Ault's shares, which the district court found to be zero. Ault now appeals. We review the district court's interpretation of a contract and application of state law de novo. Lyster v. Ryan's Family Steak Houses, Inc., 239 F.3d 943, 945 (8th Cir. 2001); Clark v. Kellogg Co., 205 F.3d 1079, 1082 (8th Cir. 2000).

* * *

Click the case caption above for the full text of the Court's opinion.

Outcome: For the reasons discussed above, we affirm the numerous orders of the district court.

Plaintiff's Experts: Unavailable

Defendant's Experts: Unavailable

Comments: None



 
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