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Moultrie v. Wall

Supreme Court of Alabama

February 6, 2015

Frank A. Moultrie
Charles O. Wall II and Autauga Automotive, LLC

Released for Publication September 15, 2015.

Page 829

Appeal from Autauga Circuit Court. (CV-11-900263). John B. Bush, Trial Judge.

For Appellant: Albert L. Jordan, Susan E. McPherson, Wallace, Jordan, Ratliff & Brandt, LLC, Birmingham; Clifford W. Cleveland II, Robert E. Riddle, Cleveland & Riddle Attorneys at Law, LLC, Prattville.

For Appellees: Frank Hawthorne, Hawthorne & Meyes, LLC, Montgomery; Lee M. Russell, Jr., W. Allen Sheehan, Capell & Howard, P.C., Montgomery; George P. Walthall, Jr., Prattville.

BRYAN, Justice. Moore, C.J., and Stuart, Parker, Shaw, and Wise, JJ., concur.


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BRYAN, Justice.

This case involves the ownership interests in and control of Autauga Automotive, LLC (" Autauga Automotive" ), a limited liability company that owns and operates a Ford Motor Company (" Ford" ) franchise in Prattville known as Gilmore Ford. Frank A. Moultrie appeals from a judgment of the Autauga Circuit Court holding that the interests of Charles O. Wall II and Moultrie in the profits and losses of Autauga Automotive were 90% and 10%, respectively, but that Moultrie was divested of his 10% interest for failing to pay a required capital contribution.[1] We affirm in part, reverse in part, and remand the cause to the circuit court with instructions.

I. Facts and Procedural History

In early 2009, Wall and Jesse Mariner began negotiations to purchase the assets of Gilmore Ford, an existing automobile dealership in Prattville. As part of their planned purchase of Gilmore Ford, Wall and Mariner applied to Ford to become a franchise dealership, but Ford rejected their application because of their lack of experience. On July 8, 2009, Wall and Mariner filed articles of organization for Autauga Automotive, which listed Wall and Mariner as the only members, in the Autauga Probate Court. Mariner was named the manager of Autauga Automotive. Wall and Mariner also signed an operating agreement for Autauga Automotive that provided in paragraph IV that Wall and Mariner " agree to share in all post formation capital contributions, profits, and surplus of [Autauga Automotive] according to their percentage of ownership." Paragraph IV stated that Wall and Mariner each owned an undivided 50% interest in Autauga Automotive. Paragraph VII of the operating agreement, which concerns " Division of Profits and Losses," provides:

" Each of the owners shall own an interest in [Autauga Automotive] as set forth in Paragraph IV, entitled 'Capital Contributions,' except as the same may hereafter vary or change as provided in Paragraph V, entitled 'Contributions of Additional Capital.' All profits of [Autauga Automotive] shall be shared by each of said members according to the percentage of interest each member owns."

Paragraph VIII of the operating agreement, which concerns the " Rights and Duties of the Parties," provides:

" Company decisions and actions shall be decided by a majority in interest of the members, at a meeting regularly called with notice to all members. For purposes of determining a 'majority in interest', a member's interest will be his/her interest in profits and losses as set forth in Paragraph VII, and a majority

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will mean fifty-one percent (51%) or more."

Initially, Mariner contributed $300,000 in capital to Autauga Automotive, and Wall contributed approximately $5,000 in capital with the intention of paying Mariner the rest of Wall's part of the capital contribution from Wall's share of the earnings of Autauga Automotive.

At some point before Mariner and Wall formed Autauga Automotive, Mariner and Wall approached Moultrie, who had experience in the automobile-sales industry with other dealerships, to help with their application to become a Ford franchise dealership. According to Mariner, he and Wall offered Moultrie " 10% of the company for his signature for Ford." On July 17, 2009, Wall submitted another dealer application to Ford that indicated that Mariner and Wall each owned a 45% interest in Autauga Automotive and that Moultrie owned a 10% interest.[2] Ford rejected the application because of Mariner's " background." At that point, the parties realized that Mariner could not be involved in Autauga Automotive " on paper," and they decided that Mariner had to be removed as a member of Autauga Automotive.

On July 20, 2009, Mariner, Wall, and Moultrie signed an amendment to Autauga Automotive's articles of organization that stated: " [T]he members unanimously voted and have received approval of the Manager for Jesse Mariner to transfer his 50% interest and for Charles O. Wall to transfer 1% of his interest in Autauga Automotive, LLC to: Frank Moultrie." [3] The amendment also provided that Wall replaced Mariner as the manager of Autauga Automotive. At the same time, Mariner, Wall, and Moultrie filed an amendment to Autauga Automotive's operating agreement that modified paragraph IV of the agreement as follows:

" The undersigned owners agree that Jesse J. Mariner has transferred his 50% interest and Charles O. Wall is transferring 1% of his interest in Autauga Automotive, LLC, to Frank Moultrie. As such, the owners agree to share in all post formation capital contributions, profits, and surplus of [Autauga Automotive] according to their percentage of ownership. The amended ownership interest in the business and company as follows: Frank Moultrie 51% [and] Charles O. Wall 49%."

According to Mariner and Wall, this agreement was only to placate Ford and their " agreement of men" was still that profits and losses would be split 45%, 45%, and 10%, with Moultrie's interest in Autauga Automotive being only 10%. Wall sent an amended prospective dealership application to Ford on July 27, 2009, that reflected Moultrie's 51% interest and Wall's 49% interest. That application was approved.

Because on paper Mariner was no longer a member of Autauga Automotive and because he had contributed a significant amount of capital to Autauga Automotive, Mariner wanted reassurance that he was still " part of the deal." According to Wall and Mariner, Moultrie drew up an agreement that was supposed to reflect the actual agreement of the parties, that is, that Moultrie had only a 10% interest in Autauga Automotive. That agreement, which was dated August 24, 2009 (" the August

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2009 agreement" ) and was signed by Wall, Mariner, and Moultrie, stated:

" Agreement For Purchase of Gilmore Ford Assets & Franchise by Autauga Automotive LLC[.] Autauga Automotive LLC & Jesse Mariner & Charlie Wall & Frank Moultrie Agree to:
" A Sell 10% of Franchise & Autauga Automotive LLC to Frank Moultrie for $1.00 and other considerations such as franchise approval & guarantees to Ford Motor Co.
" B Frank Moultrie retains the 10% for [five] years & participates accordingly w[ith] any & all profit distributions as 10% owner of Autauga Automotive LLC/Ford franchise.
" C At the end of the [five] years Autauga Automotive, LLC has the option to repurchase Frank Moultrie's 10% at book value of the LLC & Ford franchise. At the end of the [five] years a condition of the buyout must be that Frank Moultrie is released from any & all guarantees to Ford Motor Co. & Ford Motor Credit and any and all other guarantees associated w[ith] [the] LLC & franchise."

On September 15, 2009, Wall and Moultrie signed an application for a wholesale financing and security agreement with Ford, which is essentially a line of credit from Ford to use to purchase inventory for the dealership. On October 1, 2009, Wall and Mariner took out a $200,000 loan from River Bank & Trust for use by Autauga Automotive, and, on the same day, Autauga Automotive purchased the assets of Gilmore Ford. Also on October 1, 2009, Wall and Moultrie signed a sales and service agreement with Ford, which established Autauga Automotive as an authorized Ford dealership. In that agreement, Moultrie is recognized as having 51% and Wall 49% of " interest equity voting."

Although Mariner was not a member of Autauga Automotive, he worked for Gilmore Ford and " ran the sales side of the store" from Autauga Automotive's purchase of the dealership until approximately July or August 2010. During that time, Autauga Automotive operated in accordance with the August 2009 agreement. Moultrie did not work at the dealership, and he did not maintain an office at the dealership. Moultrie was supposed to transfer ownership of inventory from his other dealerships and cash to Autauga Automotive in the amount of $1,003,300 as a capital contribution, but he never did so, and he never contributed any other capital.[4]

In December 2009, Mariner, Wall, and Moultrie attended a year-end tax-planning meeting for Autauga Automotive, along with Annamarie Jones, a certified public accountant hired by Autauga Automotive, and Michael Frakes, the comptroller of Gilmore Ford. Moultrie told Jones that he was not an active member of the business and that he should be allocated only 10% of Autauga Automotive's profits. Jones asked for documentation to support that division of profits because it was a deviation from the terms of the operating agreement, but no one at the meeting mentioned the August 2009 agreement between Wall, Moultrie, and Mariner. Jones prepared K-1 forms for Wall and Moultrie that allocated 90% of the profits of Autauga Automotive to Wall and 10% of the profits of Autauga Automotive to Moultrie.

Jones conducted another tax-planning meeting in April 2010. Although Moultrie was invited to this meeting, he did not

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attend. Wall and Frakes were present at this meeting, and Jones was instructed to make the same allocation of profits and losses as she had made in 2009. Jones again asked for documentation to support this allocation because it was not the allocation provided for in the operating agreement, but Wall told her that he was " getting that." Jones prepared 2010 K-1 forms for Wall and Moultrie that once again allocated 90% of the profits to Wall and 10% of the profits to Moultrie.

By October 2010, Mariner was no longer working at the dealership, and, at that time, Moultrie had replaced Mariner as a guarantor on the $200,000 note Wall and Mariner had executed in October 2009. After Mariner stopped working at the dealership, Wall and Moultrie began repaying Mariner for the capital he had contributed to Autauga Automotive. In May 2011, Wall and Moultrie signed as guarantors of a $400,000 note they used, in part, to repay Mariner for his capital contribution to Autauga Automotive.

On April 6, 2011, Jones received a call from Vince Studeman, Moultrie's personal accountant, disputing the allocation of profits and losses in the 2010 tax returns. However, Jones had already given the returns to the parties for filing and, apparently, the 2010 tax returns were not modified before they were filed. In September 2011, Jones attended a meeting with Wall, Frakes, and Moultrie, but the dispute about allocation of profits and losses was not resolved. Jones asked Wall for documentation supporting the 90/10 allocation of profits and losses, but Wall did not tell her about the August 2009 agreement. At this meeting, Moultrie stated that he believed he was entitled to 51% of " everything," not just capital.

On October 5, 2011, Moultrie went to the Gilmore Ford dealership and asked Wall to sign five signature pages and refused to tell Wall what he was agreeing to by signing those pages. Wall refused to sign the pages and left the premises. After Wall left, Moultrie told Frakes that if Wall did not sign those signature pages by the next morning, he was going to have Wall removed as the manager of Autauga Automotive. Moultrie's brother eventually e-mailed Frakes 80 pages of loan documents that were connected to the 5 signature pages. Wall agreed to sign for the loan, which indebted Autauga Automotive in the amount of $800,000 for the benefit of other automobile dealerships that Moultrie was connected to, on the condition that Moultrie agree to sell his interest in Autauga Automotive. On October 6, 2011, Moultrie signed a letter of intent to sell his " 51% interest" in Autauga Automotive to Wall on January 2, 2012, and it indicated that the " agreed buyout amount" would be determined at a later date.

On November 21, 2011, Moultrie sent Wall a " Notice of Special Meeting of Members of Autauga Automotive, LLC." The meeting was scheduled for December 5, 2011, and Moultrie indicated in the letter that the purpose of the meeting was " to elect a managing agent/member for the next year by a majority vote of the members" and " to discuss any inaccuracies in the tax returns signed by Charles Wall for the company, and the manner of correcting any inaccuracies." Moultrie signed the letter as " Majority Member."

On December 1, 2011, Wall and Autauga Automotive (hereinafter referred to collectively as " the plaintiffs" ) filed a verified complaint in the Autauga Circuit Court seeking a temporary restraining order (" TRO" ) and a preliminary injunction " enjoining Moultrie, or anyone acting on his behalf, from holding the meeting of the members and taking the actions set forth" in the notice of the special meeting and " enjoining any additional actions by Moultrie to sell Autauga Automotive or its assets

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or to take any further actions that are detrimental to the best interest of Autauga Automotive, the dealership, or Wall." The complaint also asked the circuit court to issue a judgment declaring, among other things, that Wall owns a 90% interest in the " profits and losses of Autauga Automotive,[ and that] Wall is the 'majority in interest' Member of Autauga Automotive with the right to make decisions as such under the operating agreement." On December 2, 2011, the circuit court granted the plaintiffs' request for a TRO. On December 14, 2012, by ...

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