REPLY BRIEF OF APPELLANT, DENNIS KILPATRICK

Transcription

1 E-Filed Document Jul :20: CA SCT Pages: 25 IN THE SUPREME COURT OF MISSISSIPPI CAUSE NO CA DENNIS KILPATRICK Appellant VERSUS WHITE HALL ON MS RIVER, LLC Appellee APPEAL FROM THE CHANCERY COURT OF HARRISON COUNTY, MISSISSIPPI SECOND JUDICIAL DISTRICT IN CAUSE NO. C (4) REPLY BRIEF OF APPELLANT, DENNIS KILPATRICK Oral Argument Requested. Robert T. Schwartz (MSB# 10482) Christian J. Strickland (MSB# ) SCHWARTZ, ORGLER & JORDAN, PLLC 2355 Pass Road Biloxi, MS Telephone: (228) Facsimile: (228) robert@sojlaw.net christian@sojlaw.net ATTORNEYS FOR APPELLANT, DENNIS KILPATRICK

2 TABLE OF CONTENTS TABLE OF CONTENTS TABLE OF AUTHORITIES REPLY I. White Hall fails to cite any binding authority to support their argument that an unsigned operating agreement, or an alleged oral agreement to pay $500,000.00, is enforceable upon Kilpatrick, or otherwise created a prerequisite to Kilpatrick s membership in White Hall...3. II. White Hall attempts to minimize its ratification of Kilpatrick as a one-time member of White Hall, and fails to adequately address its admissions that Kilpatrick, at one time, was considered a member of White Hall...6. A. The Admission of Cvitanovich s Testimony...6. B. The Admissions of the Tax Returns...8. III. IV. White Hall, in its Brief, presents a mischaracterization of Kilpatrick and Kilpatrick s testimony at trial Kilpatrick made an adequate showing, by clear and convincing evidence, that he is entitled to a constructive trust V. White Hall summarily failed to provide any specific or cogent facts that supported the conclusion that the chancellor did not err in its findings of fact and conclusions of law VI. Because Equity follows the Law, the premise of the trial Court s findings, as well as White Hall s argument, being the principle of equity, is misplaced because it does not follow the law VII. CONCLUSION

3 TABLE OF AUTHORITIES CASES: Brothers v. Winstead, 129 So.3d 906 (Miss. 2014)...5, 6, 16. Cotton v. McConnell, 435 So.2d 683, 685 (Miss. 1983) Fought v. Morris, 543 So.2d 167 (Miss. 1989) Harrell v. St. John, 792 F. Supp. 2d 933 (2011) (S.D. Miss. 2011)...5, 6. Joel v. Joel, 43 So.3d 424 (Miss. 2010)...16, 17. McCarty v. State, 554 So. 2d 909 (Miss. 1989) Stark v. Anderson, 748 So.2d 838 (Miss. Ct. App. 1999) State ex rel. Moore v. Mopus, 578 So.2d 624 (Miss. 1991)...5. White v. White, 557 So.3d 480 (Miss. 1989) STATUTES: Miss. Code Ann et seq. (Rev. 2009)...4. Miss. Code Ann (Rev. 2010)...4. Miss. Code Ann (Rev. 2009)...5, 6. Miss. Code Ann (Rev. 2009)...8, 12, 13, 17, 18, 19, 20, 21, 22. OTHER AUTHORITIES: Luther T. Munford, Missisippi Appellate Practice, Sect (2010) James W. Shelson, Mississippi Chancery Practice, 36:3 (2013 Ed)...19, 20. James W. Shelson, Mississippi Chancery Practice, 2:24 (2013 Ed) James W. Shelson, Mississippi Chancery Practice, 2:26 (2013 Ed) Section 4 of HB General Session

4 In its response, the Appellee, White Hall on MS River, LLC ( White Hall, or, Appellee ), fails to present any binding legal authority which supports its contention that the alleged oral agreement between the parties to contribute $500,000.00, or any purported, unsigned operating agreement was enforceable against Dennis Kilpatrick ( Kilpatrick or Appellant ), or otherwise created a prerequisite to Kilpatrick s membership in White Hall. White Hall cited as its only authority, a 2010 revision of the Mississippi Limited Liability Company Act, which is not binding upon the case at bar because it was enacted after the relevant time period in this case, and the statute cannot be applied retroactively. Further, White Hall attempts to minimize its ratification of Kilpatrick as a one-time member of White Hall, and altogether fails to address its admission that Kilpatrick, at one time, was considered a member of White Hall. White Hall fails to show any authority or factual support for the conclusion that Kilpatrick, as a member of White Hall is not entitled to an equitable or legal interest in White Hall. White Hall, in its Brief, mischaracterizes the testimony of Kilpatrick and other witnesses, and wrongfully asserts that Kilpatrick did present sufficient evidence for the creation of a constructive trust. White Hall failed to provide any specific or cogent facts that supports the erroneous conclusion made by the Chancellor in his findings of fact and conclusions of law. Finally, because Equity follows the Law, the premise of the trial Court s findings, as well as White Hall s argument, being the principle of equity, is misplaced because it does not follow the law. I. White Hall fails to cite any binding authority to support their argument that an unsigned operating agreement, or an alleged oral agreement to pay $500,000.00, is enforceable upon Kilpatrick, or otherwise created a prerequisite to Kilpatrick s membership in White Hall. White Hall fails to present any binding legal authority which supports its contention that 3

5 Kilpatrick was bound by an alleged oral agreement to contribute $500, for membership in White Hall, or that the purported unsigned operating agreement was enforceable upon Kilpatrick, or otherwise created a prerequisite to Kilpatrick s membership in White Hall. White Hall cited as its only authority a statute, namely, a 2010 revision of the Mississippi Limited Liability Company Act: Mississippi Code Ann. Sect (t) (Rev. 2010). (Appellee s Brief, at 15). This statute is simply not binding upon the case at bar because it was enacted after the relevant time periods in this case, and the statute cannot be applied retroactively. What is also baffling about this erroneous citation is the fact that, on the same page, the Appellee s Brief contains a footnote, footnote 2, which reads, The Revised Mississippi Limited Liability Company Act did not become effective until January 1, Accordingly, since most of the acts involved in this litigation occurred prior to January 1, 2011, (including the creation of the Company and payment of all monies by Kilpatrick) the previously enacted Limited Liability Act is cited as authority. See Sect et seq. Mississippi Code Ann. (Rev. 2009). (Appellee s Brief, footnote 2, at 14-15). It is curious that White Hall cites as its only authority for the central argument of their Brief a statutory provision, by which they acknowledge was not in effect, and thus not binding on the case at bar. White Hall s footnote is correct, and the 2010 revision of the statute is not binding in the case at bar, per Section 4 of HB General Session, which states that the pertinent 2010 revisions to the Mississippi Limited Liability Company Act shall only take effect after January 1, 2011, being the effective date of the revised act. White Hall concedes that since most of the acts involved in this litigation occurred prior to January 1, 2011, the previously enacted Limited Liability Act (i.e. the 2009 revised version of the Mississippi Limited Liability Company Act) is cited as authority. (Appellee s Brief, at 14-15). It is clear that the 2010 revision is not the applicable statute in this 4

6 case. See, State ex rel. Moore v. Mopus, 578 So.2d 624 (Miss. 1991) (holding in part that statutory enactments have prospective force only, unless a contrary intention is manifested). There is no manifestation of an intent for the 2010 revision to act retroactively. Hence, because their only authority for their central argument is not good law, there is a complete absence of precedence for White Hall s contention that any of the alleged operating agreements, unsigned or oral, had any enforceability against Kilpatrick. Nor is there any precedence in White Hall s Brief that these unenforceable agreements created a prerequisite to Kilpatrick becoming a member of White Hall, i.e. the alleged requirement to pay $500, White Hall s Brief simply makes factual, conclusory allegations regarding Kilpatrick s behavior, and is bereft of any mandatory legal authority for their central argument whatsoever. Kilpatrick s Brief provided ample authority for his argument that White Hall s purported operating agreement was not enforceable, and neither was any alleged oral agreement requiring every person to contribute $500, in order to become a member of White Hall. As stated in Kilpatrick s Brief, in order for an operating agreement to be enforceable under the MLLCA, [it] must initially be agreed to by all of the members. Miss. Code Ann (2)(a)(Rev. 2009). It is further well settled that [a] promise by a member to contribute to the limited liability company is not enforceable unless set out in a writing signed by the member. Harrell v. St. John, 792 F. Supp. 2d 933 (2011) (S.D. Miss. 2011)(quoting Miss. Code Ann (1)). In Brothers v. Winstead, 129 So.3d 906 (Miss. 2014), the Mississippi Supreme Court held that it was error for a trial court to consider an oral offer to make cash contributions where the terms of that offer were not contained in an operating agreement. (Appellant s Brief, 15-17). White Hall admits that the purported operating agreement was not signed by Kilpatrick. (Appellee s Brief, at 11). 5

7 Furthermore, the lower Court found that the alleged operating agreement (which White Hall is still arguing on appeal to be enforceable) was not in effect as of the date of the filing of the certificate of formation of White Hall with the Secretary of State. (Record, Vol. 3, at 283). Thus, no alleged agreement to pay $500, to White Hall is enforceable against Kilpatrick, and there is no basis for this conclusion in the record, nor any authority for this in the Brief of White Hall. This Court should look to Miss. Code Ann (2)(a)(Rev. 2009), Harrell v. St. John, 792 F. Supp. 2d 933 (2011) (S.D. Miss. 2011) (quoting Miss. Code Ann (1)), and Brothers v. Winstead, 129 So.3d 906 (Miss. 2014) for authority supporting the proposition that no alleged agreement to pay $500, to White Hall is enforceable upon Kilpatrick, and, thus, the lower Court s judgment should be reversed. II. White Hall attempts to minimize its ratification of Kilpatrick as a one-time member of White Hall, and fails to adequately address its admissions that Kilpatrick, at one time, was considered a member of White Hall. A. The Admission of Cvitanovich s Testimony As stated in Kilpatrick s Appellate Brief, White Hall s central witness, Dominick Nicky Cvitanovich ( Cvitanovich ), made a key admission at trial: At one time, Kilpatrick was considered by White Hall to be a member of White Hall. As stated in Kilpatrick s Brief, It became clear at trial that Kilpatrick was considered a member by White Hall, but, then, once Cvitanovich unilaterally decided that he was not a member, his membership was terminated: Q. When did ya ll decide consider Mr. Kilpatrick was no longer considered to be a member of White Hall? A. Pretty much once we decided to sell it... (emphasis added). (Record, Vol. 6, at 308). 6

8 This is an admission by Cvitanovich and White Hall that prior to the sale to Soterra Corporation ( Soterra ) of a portion of the White Hall property, Kilpatrick was a member of the Company. This admission makes the chancellor s finding that Kilpatrick was never a member an erroneous finding because it is clearly contrary to the evidence at trial. (Record, Vol. 6, at 373). (Appellant s Brief, at 14). This admission was simply never addressed by White Hall in their Brief. White Hall merely repeats over and over that Kilpatrick was never a member of White Hall, in contradiction to its own witness testimony. (Appellee s Brief, at 13). The simple reason that Cvitanovich s admission was not addressed, is because it is clear from the record that Kilpatrick was in fact ratified, accepted, and fully considered a member of White Hall, prior to the sale to Soterra. Kilpatrick s testimony corroborated the fact that he was once a member, but then had his membership taken away, being effectively squeezed out, or disassociated by White Hall. The issue then becomes whether Kilpatrick s membership, which undisputedly existed at one time, entitles him to the market value of his contributions to White Hall, which Kilpatrick addressed in his Appellate Brief and White Hall did not. There is ample precedence to support the proposition that Kilpatrick is entitled to the market value of his contributions to White Hall, no matter how long Kilpatrick was a member. The applicable provisions of the Mississippi Limited Liability Company Act make no stipulations as to how long a member must be a member before he becomes eligible for reimbursement of his share of the Company, but it simply provides that the member is entitled to such. Section of the Mississippi Limited Liability Company Act provides that unless otherwise provided by the certificate of formation or operating agreement, upon dissociation any dissociating member is entitled to receive... within a reasonable time after the dissociation, the fair value of his interest in the limited liability company as of the date of dissociation.... Miss. Code 7

9 Ann (Rev. 2009) (emphasis added). There is no qualification made in the statute as to how long a member must be a part of the company, or how much monies the member must contribute before he is entitled to the fair value of his interest. Thus, Kilpatrick is entitled to the fair value of his interest in White Hall. B. The Admissions of the Tax Returns The tax returns of White Hall, in evidence at trial, further constitute key admissions to Kilpatrick s membership. (Record, Vol. 5, at 189, 190, 194, 196). White Hall, in its Brief, appears to argue that it was under some sort of duress from their accountant, and that there was no other way of completing the tax returns without listing Kilpatrick as a member. This is incorrect. Furthermore, this is a mischaracterization of the testimony at trial. White Hall admits in their Brief that the accountant, Ms. Jane Strojny, who prepared all the tax returns testified that she and Mr. Cvitanovich had conversations about whether Kilpatrick could be a member because he had not paid his full contribution and she advised Mr. Cvitanovich to consult an attorney to determine if Kilpatrick was a member according to the company s operating agreement. (Transcript Vol 2, Pg. 196). (Appellee s Brief, at 18). Here, it is abundantly clear that the accountant made no recommendation, instructions, or advice as to how to fill out the returns. Who was listed as members on the returns was the sole decision of Cvitanovich. That is why Ms. Strojny recommended Cvitanovich speak to an attorney before he listed Kilpatrick as a member. White Hall s Brief exaggerates the testimony at trial that, Incidentally, even if Kilpatrick only has an economic interest in the LLC, there is no separate form or different procedure mandated by the IRS to differentiate the economic interest from those who have membership status. (Transcript Vol. 2, Pg. 203, lines 22-28). (Appellee s Brief, at 18). This is a misrepresentation of 8

10 the record: Q. Now, is there a separate form or different procedure if someone just has an economic interest in an LLC but is not actually a member? A. Not that I m familiar with. There are a lot of forms, but not that I ve ever personally used. (Record, Vol. 5, at 203). This is a much different answer than the one alleged in White Hall s Brief. Ms. Strojny never states that there is no separate form or different procedure mandated by the IRS to differentiate the economic interest from those who have membership status, as White Hall s Brief purports. (Appellee s Brief, at 18) (Emphasis added). Ms. Strojny testified that there are lots of forms, but none that she ever used, which listed a person who held interest in an LLC as a nonmember of that LLC. This actually favors Kilpatrick s position because it highlights that, in Ms. Strojny s experience, every tax return form she used equated those who were listed as members as those who had an interest, and there was no differentiation. Ms. Strojny s testimony further confirms that it was Cvitanovich who made the decision to name Kilpatrick as a member: Q. So basically I think your testimony is, is that based on the information that was provided to you by Mr. Cvitanovich, that s the way you prepared the tax returns? A. Correct.... Q. It s not the accountant s duty to actually determine who is a member of the LLC? That s being provided by the members or the managing partner of the LLC? 9

11 A. Correct. (Transcript, Vol. 5, at 203, Lines 13-17; at 204, Lines 9-13). It is clear from the record that it was Cvitanovich himself who considered Kilpatrick a member of White Hall by including him on the tax returns. Cvitanovich was under no duress or pressure to include Kilpatrick on the returns, and could have instructed his accountant to seek other forms to include Kilpatrick as a non-member on the returns if his membership status was truly in question. White Hall s next fallacious claim is that Kilpatrick s expert accountant, Gregory L. Fairly, CPA, admitted that even in situations where a nonmember gains an interest in a member s company by death or judgment, that nonmember would still be listed on the same IRS form Schedule K-1 as a member even though they do not become a member. (Transcript Vol. 2, Pg ). (Appellee s Brief, at 19). The actual testimony of Mr. Fairey was as follows: Q. Let s suppose we have a member who dies and their membership is then transferred to an heir or a spouse or a beneficiary that does not hold that professional license? A. What would happen in that case, or how would you account for that? Q. Exactly. A. I think you - - well, speaking from experience, I know what would happen. You would end up buying out that partner. That partner would no longer be part of the professional association. The new - - you wouldn t have a professional association, or PLLC, if you didn t - - if they weren t all professionals in that case. Q. Right. A. So

12 Q. Okay. A. - - I mean, in essence, the exiting partner would end up being purchased out, right? Q. I would assume as a partner - - as a - - as a member of the partner - - still as a member and a K-1 passing through to that member or to the estate of that member, more or less in that case, as a final K-1. A. I would think. Q. But they would still also just receive a K-1; would they not? A. Oh, yeah, yeah. Q. But that wouldn t necessarily mean that they would become a member of the LLC? A. No. I guess you could say that. Q. All right. As a matter of fact, that s one of the advantages of having an LLC, that if you have a judgment creditor or a nonentity, that they don t necessarily have voting rights or specific rights in the LLC simply because they have an economic interest? A. And they generally would be limited partners as well, would they not? Q. Well, that s what I m asking you. A. I think they would be a limited partner, not a general partner, yes. (Record, Vol. 3, Pg. 216, Lines 27-29; Pg. 217, Pg. 218, Lines 1-13). White Hall interprets this testimony at trial to mean that Kilpatrick, though listed as a member on multiple years of tax returns, is only listed as a member because, as White Hall alleges, there is no other way to list Kilpatrick as an interest holder, other than the status of member. However, this was not the testimony of Mr. Fairey: Q. So, the tax returns filed would be correct; is that right? 11

13 A. Except for as we said the designation as either a managing member or a limited member. (Record, Vol. 3, Pg. 223, Lines 13-17). Mr. Fairey s testimony does not minimize the importance of the subject tax returns, but states that White Hall could have listed Kilpatrick under a lesser membership, or limited membership, which it did not do. Mr. Fairey s testimony actually accentuates the importance of the subject tax returns as evidence that Kilpatrick was, in fact, listed as an unadulterated member of White Hall. The fact that there are other types of persons or entities that could receive limited membership from a general member does not negate the fact that Kilpatrick was listed as a full member on the subject tax returns. As Mr. Fairey testified, corroborating the testimony of Ms. Strojny, White Hall could have listed Kilpatrick as a limited member, or sought other tax forms, or had its accountant seek other tax forms if Kilpatrick s membership was in question but they did not. The reason for this is because Kilpatrick was ratified, accepted, and received as a full member of White Hall, and, thus, is entitled to the rights of a member upon disassociation. Miss. Code Ann (Rev. 2009). White Hall further erroneously claims that both professional expert accountants who testified admitted that regardless of whether an individual is listed as a member on a tax return does not mean that the individual becomes a member. (Transcript Vol. 2, Pg. 218, lines 1-3; Transcript Vol. 2, Pg. 203). (Appellee s Brief, at 19). This is not the testimony of Mr. Fairey, nor of Ms. Strojny. On the contrary, Mr. Fairey testified that Kilpatrick could have been designated as a limited member. It is vital to point out that Section of the Mississippi Limited Liability Company Act provides that unless otherwise provided by the certificate of formation or operating agreement, upon dissociation any dissociating member is entitled to receive... within a reasonable 12

14 time after the dissociation, the fair value of his interest in the limited liability company as of the date of dissociation.... Miss. Code Ann (Rev. 2009) (emphasis added). The statute does not qualify what kind of member one must be in order to receive the fair value of his interest it simply holds that any dissociating member is entitled to such. Id. Hence, White Hall s assertion that there was no other way to identify Kilpatrick on the tax return and that by listing him as a member did not make him a member... is without any foundation in the record. Furthermore, White Hall s assertion that the tax returns do not amount to an admission of White Hall that Kilpatrick was, in fact, a member of White Hall, is without merit, as they are documents sworn to by Cvitanovich as Manager of White Hall under penalty of perjury, and are direct admissions. White Hall failed to show in their Brief any authority or factual support for the conclusion that Kilpatrick, as a member, is not entitled to an equitable or legal interest in White Hall. It is clear from the record that Kilpatrick was a member of White Hall by the admissions of White Hall and other relevant evidence. Thus, the judgment of the lower Court should be reversed. III. White Hall, in its Brief, presents a mischaracterization of Kilpatrick and Kilpatrick s testimony at trial. In its Brief, White Hall makes an accusation that Kilpatrick was secretly working on a deal to purchase his own property in Yazoo County, Mississippi with his sons to be used for hunting purposes. (Appellee s Brief, at 7, 12). Aside from being untrue, this is completely irrelevant. The central issues on appeal are whether Kilpatrick is entitled to his interest in White Hall as a member, and whether the trial court erred in its findings of fact and conclusions of law, in view of the testimony and evidence at trial. This assertion that Kilpatrick secretly purchased another piece of property is immaterial. Also, there is simply no evidence in the record that supports any allegations that Kilpatrick was secretly doing anything, let alone secretly purchasing another piece of 13

15 property, as if this was a crime. White Hall relies completely on conjecture and speculation on this point. Further, aside from being irrelevant, this is a mischaracterization of the actual testimony. White Hall cites to the record in Volume 1, Page 116 on this issue. The record does not show that anything secret was done by Kilpatrick, as seen in the cross-examination of Kilpatrick by counsel for White Hall: Q. But in 2010, you and your actually you bought another piece of property in Yazoo County for approximately $650,000, didn t you? A. No, sir. Q. Who did? A. An LLC that I am a part of. Q. Okay. And that s the Three K, LLC? A. Yes, sir. Q. The three Ks being you and your two sons? A. Yes, sir (Record, Vol. 4, at 116). There is clearly nothing secret here. Kilpatrick truthfully testified that another LLC to which he belonged had acquired property not at issue in the subject litigation. There is no evidence of secrecy or bad faith. Nor is this relevant to the case at bar, because Kilpatrick s ability or inability to make a payment does not have anything to do with whether he was a member of White Hall, and whether he is entitled to his interest in White Hall, because there is no enforceable agreement which would necessitate Kilpatrick to pay any certain amount to White Hall in order to claim membership or the rights of a member upon disassociation. 14

16 White Hall also asserts, inaccurately, that Kilpatrick acted wrongfully because he could have borrowed the money to pay the allegedly required sum of $500, to White Hall as a prerequisite for membership, but that Kilpatrick didn t want to do that. (Appellee s Brief, at 22). White Hall attempted to show that White Hall suffered financial hardship as a result of this alleged behavior of Kilpatrick, as if this constitutes grounds for withholding from Kilpatrick his share of contributions to White Hall after he was disassociated from White Hall. Kilpatrick would show that this is also a mischaracterization of the testimony at trial. The actual excerpt from the record, from cross-examination of Kilpatrick by counsel for White Hall, clarifies the point: Q. You couldn t borrow moneys from anybody else? A. Well, I could have borrowed it, but I couldn t acquire - - I couldn t sell something and get it, no, sir. (Record, Vol. 4, Page 108) (emphasis added). Here, it is evident that White Hall s misstated the answer of Kilpatrick. White Hall s counsel asked if Kilpatrick could have borrowed the money to pay the additional sum to equal a total $500,000 contribution, as if this was the necessary prerequisite for membership to White Hall. Kilpatrick s eventual answer was no, sir. Kilpatrick s answer was certainly nothing like he could have borrowed the money, but didn t want to do that. Furthermore, this is also irrelevant to the case at bar, because Kilpatrick s ability or inability to make a payment does not have anything to do with whether he was a member of White Hall, and if he is entitled to his interest in White Hall, because there is no enforceable agreement which would necessitate Kilpatrick to pay any additional amount in order to claim membership or the rights of a member upon disassociation. IV. Kilpatrick made an adequate showing, by clear and convincing evidence, that he is entitled to a constructive trust. 15

17 White Hall attempts to persuade this Court that Kilpatrick did not provide a sufficient evidentiary basis for the alternative relief requested by Kilpatrick, being a constructive trust. White Hall also included in its Brief a partial quote from Kilpatrick s Brief which implies Kilpatrick did not cite to any specific part of the record in support of his entitlement to a constructive trust, or give clear example of wrongdoing on the part of White Hall to entitle Kilpatrick to a constructive trust, which does not tell the whole story. (Appellee s Brief, at 22). The full quote from Kilpatrick s Brief is as follows: Through the exhibits at trial, the testimony of Kilpatrick and his expert witness, and through the admissions of White Hall and its witnesses, Kilpatrick proved that White Hall committed wrong and unconscionable conduct by refusing to return to Kilpatrick the monies he contributed for membership, then denied his status as a member, and ousted and/or squeezed out Kilpatrick from White Hall without any authority, and in such a way that contradicts the principles of equity and good conscience. See, Joel v. Joel, 43 So.3d 424 (Miss. 2010). These actions by White Hall constitute a violation of the duty of good faith and loyalty in dealings with members of limited liability company. Brothers v. Winstead, 129 So. 3d 906, 918 (citing Fought v. Morris, 543 So.2d 167 (Miss. 1989). (Appellant s Brief, at 21). In light of the record, Kilpatrick provided clear examples of wrongdoing which entitle Kilpatrick to a constructive trust, the most obvious of which are the admissions of White Hall that Kilpatrick was a member at one time, contributed $186,500.00, to the Company and then was squeezed out, thereby denying Kilpatrick his due share in White Hall, or a return of his capital contributed to said Company. It has been admitted that, at one time, Cvitanovich and White Hall considered Kilpatrick to be a member, accepted and ratified him as such, then, once he was effectively squeezed out or disassociated from White Hall, denied him his interest in White Hall, or a return of his investment, 16

18 in contravention to Miss. Code Ann (Rev. 2009). The facts of (1) Cvitanovich s admission that Kilpatrick was a member (Record, Vol. 6, at 308), as well as (2) the admissions of the tax returns (Record, Vol. 5, at 189, 190, 194, 196), (3) the treatment of Kilpatrick as an unadulterated member, like all the other members, as conceded in White Hall s Brief (Appellee s Brief, at 22), and (4) the undisputed denial of a return to Kilpatrick of his $186,500, invested in White Hall after being disassociated, are in direct contravention to Miss. Code Ann (Rev. 2009), constitute clear and convincing evidence to support a finding of (1) fraud, actual or constructive; (2) duress; (3) abuse of confidence; (4) commission of wrong; (5) any form of unconscionable conduct, artifice, concealment, or questionable means; or (6) any way against equity and good conscience, necessary for a Court s imposition of a constructive trust. Joel v. Joel, 43 So.3d at 424. The testimony of Cvitanovich as to the reason for White Hall s denial of Kilpatrick s interest sheds light: Q. Why do you believe that Mr. Kilpatrick doesn t deserve any moneys? A. Because after we had to sell property, I mean, we took way more loss than they did. I mean, I would have been happy to only lose 115,000. You know, I know - - I mean, like I said, I buy stuff now. You know, if I buy a car, house, anything, I don t pay the note, I don t get it back, so - - Mr. McDonnell: Okay. I think that s all we have, Your Honor. (Record, Vol. 6, at 313, Lines 6-15). This is undeniable evidence of the propriety of a constructive trust: The reason why Kilpatrick was denied his rights and interest in White Hall was not because he was not ever considered a member (Cvitanovich already admitted that Kilpatrick was a member. (Record, Vol. 17

19 6, at 308)), but because Cvitanovich did not think Kilpatrick deserved it. There is simply no provision in the applicable provisions of the Mississippi Limited Liability Company Act which allows for an LLC to unilaterally deny a member his interest upon disassociation because the LLC allegedly lost money during the member s affiliation with the LLC, or because the manager of the LLC does not think he deserves it. See Miss. Code Ann (Rev. 2009). The judgment of the lower Court should be reversed, and a constructive trust granted to Kilpatrick. V. White Hall summarily failed to provide any specific or cogent facts that supported the conclusion that the chancellor did not err in its findings of fact and conclusions of law. White Hall does not make any specific showing of how the loss occurred to White Hall, but merely makes vague references to the Court s findings which also do not make specific calculations of any actual deficit, or loss to White Hall. (Appellee s Brief, at 23). White Hall ambiguously refers to an amount of land White Hall lost, as well as that White Hall s tax returns all reflect a loss. White Hall then referred to Mr. Cvitanovich s calculations of alleged losses, but made no reference to any calculations of the Court, likely because the Court did not reveal its mode of calculating the loss attributable to Kilpatrick. (Record, Vol. 3, at 284). White Hall s Brief simply did not respond to Kilpatrick s argument that the Court failed to consider White Hall s gain of $473, through the sale of land to Soterra. (Trial Exhibit 24; Record, Vol. 5, at 274). This case should be reversed on this issue alone (as well as on the other issues on appeal), because the Court did not provide, nor did the record elucidate, any evidence or calculation of a loss or hit to White Hall, such that Kilpatrick should be denied what the law clearly provides him to receive. Miss. Code Ann (Rev. 2009). (Record, Vol. 3., at 282). Thus, the Court erred in its findings of fact and conclusions of law. 18

20 While it is true that (c)hallenges to a chancellor s findings of fact are almost invariably unsuccessful because of the limited scope of appellate review, there are two main exceptions to this deferential standard of review: (a) If the trial judge fails to make specific findings and makes only general findings, or makes no findings at all, the scope of review is considerably broader ; and (b) Where the Court adopts findings of fact submitted by a party. James W. Shelson, Mississippi Chancery Practice, 36:3 (2013 Ed) (citing Cotton v. McConnell, 435 So.2d 683, 685 (Miss. 1983); McCarty v. State, 554 So. 2d 909 (Miss. 1989); Luther T. Munford, Missisippi Appellate Practice, Sect (2010); Stark v. Anderson, 748 So.2d 838 (Miss. Ct. App. 1999)). Here, in the case at bar, the first exception applies. Under this exception, the more broad scope of review is especially true when the trial judge s findings on the precise points at issue on appeal are not clearly inferable from the findings made. Mississippi Chancery Practice, 36:3 (citing White v. White, 557 So.3d 480 (Miss. 1989). In the case sub judice, an exception to the deferential standard applies, because the lower Court did not make specific findings, but, rather, general findings, with regard to its calculations of how White Hall was attributed a loss, which the Court used to conclude that White Hall could deny Kilpatrick his right to reimbursement or an equitable interest in White Hall under Miss. Code Ann (Rev. 2009). In White Hall s Brief, it cited to no specific findings in the lower Court s judgment, because there were none to cite to. The lower Court made general findings regarding a hit to White Hall: The Court s judgment charged Kilpatrick with the sum of $72,000.00, being termed as 1/5th of the $360, hit taken by Whitehall on the sale of 1269 acres to Soterra. (Record, Vol. 3., at 282). However, the evidence presented at trial reflects that there was no hit or loss on the sale of the 1269 acres to Soterra, but rather a profit was made thereon by White Hall. (Record, Trial Transcript, 19

21 Vol. 4, at 140). Specifically, the 1269 acres was sold to Soterra for the sum of $3,074,787.00, being the sum of $2, per acre. (Trial Exhibit 24). The same property (with other lands) had been purchased by White Hall for the sum of $2, per acre in December of (Trial Exhibit 8). Based upon the same, White Hall made a profit of $ per acre on the sale to Soterra which is a gain of $473, (Trial Exhibit 24; Record, Vol. 5, at 274). Accordingly, to the extent the Judgment declares that a loss on the sale to Soterra occurred and that Kilpatrick should be charged with the sum of $72,000.00, being 1/5th of said loss, the same is contrary to the documentary evidence and exhibits introduced at trial. The Court s judgment falls within the exception to deferential review because, on this point, the trial judge s findings on the precise points at issue on appeal are not clearly inferable from the findings made. Mississippi Chancery Practice, 36:3. The lower Court, because of this curious calculation of a hit to White Hall, then found that Kilpatrick was not entitled to recover from White Hall because it outweighs the investment made by Kilpatrick. (Record, Vol. 3., at 284). There is simply no provision in the applicable provisions of the Mississippi Limited Liability Company Act which allow for an LLC to unilaterally deny a member his interest upon disassociation because the LLC allegedly lost money during the member s affiliation with the LLC. See Miss. Code Ann (Rev. 2009). There is no support in the record, nor in the law to support these findings and conclusions of the lower Court, and, therefore, reversal is proper. VI. Because Equity follows the Law, the premise of the trial Court s findings, as well as White Hall s argument, being the principle of equity, is misplaced because it does not follow the law. Equity follows the Law This is a time-tested concept of our laws which has been essential to Courts of Equity in Mississippi, as pointed out by Judge Griffith: Therefore, in 20

22 adjudicating questions of legal right, title or interest, equity follows and applies legal rules. Where the law has positively declared that there shall be no right and no remedy, equity cannot assume to create a right, nor interpose to punish a remedy; but where it is not declared that there shall be no remedy, equity follows the law as far as the law goes... James W. Shelson, Mississippi Chancery Practice, 2:24 (2013 Ed) (emphasis added). White Hall s arguments in their Appellate Brief, as well as the lower Court s findings, enunciated on the grounds of equity, did not follow the law of Miss. Code Ann (Rev. 2009). It has been admitted, by Cvitanovich at trial, as well as evidenced by the tax returns of White Hall, that Dennis Kilpatrick was a member of White Hall. (Record, Vol. 6, at 308; Vol. 5, at 189, 190, 194, 196). Following that premise, the law holds that a member of a company, upon its dissociation, is due the fair value of his interest in the limited liability company. Miss. Code Ann (Rev. 2009). Equity, therefore, must follow this law in upholding Kilpatrick s right to the fair value of his interest in White Hall. The Brief of the Appellee, White Hall, as well as the findings of fact and conclusions of law of the lower Court, fall short of this Maxim of Equity, in that they do not follow this law, and therein lies their fallacy. The Court also went on to constructively create a right for White Hall, i.e. attributing to it a loss caused by Kilpatrick while he was allegedly not a member, when, in fact, it was Kilpatrick who suffered a loss when he was effectively squeezed out of White Hall and not given his fair market share of interest in White Hall after his disassociation. (Record, Vol. 3., at 282). This was a case of equity being misplaced because it did not follow the law. White Hall s brief is primarily premised on the principle of equity, specifically that of unclean hands. (Appellee s Brief, at 12). So, too, were the findings of fact of the lower Court. (Record, Vol. 3., at 374). However, as Judge Griffith warns, It is easy to state the scope of this 21

23 maxim, but not so easy to apply it, and caution must be taken not to misapply it. The maxim will not be applied contrary to the settled rules of equity jurisdiction, including the principle that equity follows the law. James W. Shelson, Mississippi Chancery Practice, 2:26 (2013 Ed) (emphasis added). The case sub judice presents a clear example of misapplication of equity, because the law of Miss. Code Ann (Rev. 2009) was not followed, and the judgment of the lower Court should be reversed. Conclusion White Hall has failed to present any binding legal authority which supports its contention that any oral agreement existed between the parties to contribute $500, for membership in White Hall, or any purported, unsigned operating agreement was enforceable against Kilpatrick, or otherwise created a prerequisite to Kilpatrick s membership. White Hall cited as its sole authority a statute, namely, a 2010 revision of the Mississippi Limited Liability Company Act, which is not binding upon the case at bar because it was enacted after the relevant time period in this case, and the statute cannot be applied retroactively. Further, White Hall attempts to minimize its ratification of Kilpatrick as a one-time member of White Hall, and altogether fails to address its admission that Kilpatrick, at one time, was considered a member of White Hall. White Hall s Brief is bereft of any authority or factual support for the conclusion that Kilpatrick, as a member, is not entitled to an equitable or legal interest in White Hall. White Hall, in its Brief, mischaracterizes the testimony of Kilpatrick, and wrongfully asserts that Kilpatrick did not make a sufficient evidentiary showing that he is alternatively entitled to a constructive trust. White Hall summarily failed to provide any specific or cogent facts that supported the conclusion that the chancellor did not err in its findings of fact and conclusions of law. Finally, because Equity follows the Law, the premise of the trial 22

24 Court s findings, as well as White Hall s argument, being the principle of equity, is misplaced because it does not follow the law. The Appellant would submit to this Court that, when equity does not follow the law, the result is inequity, and the misapplication of equity, through disregard to the law, metes out injustice, instead of justice. This is the result in the case at bar. The Appellant respectfully renews his request for the relief asserted in his Appellate Brief. RESPECTFULLY SUBMITTED this 1 st day of July, DENNIS KILPATRICK BY: SCHWARTZ, ORGLER & JORDAN, PLLC BY: /s Robert T. Schwartz ROBERT T. SCHWARTZ, For the Firm Robert T. Schwartz (MSB# 10482) Christian J. Strickland (MSB# ) SCHWARTZ, ORGLER & JORDAN, PLLC 2355 Pass Road Biloxi, MS Telephone: (228) Facsimile: (228) robert@sojlaw.net christian@sojlaw.net 23

25 CERTIFICATE OF SERVICE I, Robert T. Schwartz, attorney for the Appellant, Dennis Kilpatrick, do hereby certify that I have this day filed the forgoing Brief of Appellant via the MEC electronic filing system which sent notice of said filing to the following: John McDonnell, Esq Howard Avenue, Suite B Biloxi, MS and I have further sent a true and correct copy of the same via U.S. First Class Mail, postage prepaid to the following: Hon. Carter Bise Harrison County Chancery Court P.O. Box 1542 Gulfport, MS This the 1 st day of July, Robert T. Schwartz (MSB# 10482) Christian J. Strickland (MSB# ) SCHWARTZ, ORGLER & JORDAN, PLLC 2355 Pass Road Biloxi, MS Telephone: (228) Facsimile: (228) robert@sojlaw.net christian@sojlaw.net /s Robert T. Schwartz ROBERT T. SCHWARTZ 24