2014 NMCA 078
N.M. Ct. App.2014Background
- BUKE, an LLC car dealership formed in 2005, had members with ownership percentages (Eastburg and Urlacher each 32.5%, Branch 20%, Karger 15%); Randall Eastburg was BUKE’s manager and also operated several Cross Country dealerships.
- BUKE acquired a GM franchise (Tucumcari Dealership) giving it a GM badge (credentials for closed GM auctions) and a GMAC credit line (floor plan) for purchasing inventory.
- Eastburg used BUKE’s GM badge and credit line to purchase vehicles for BUKE, the Lovington dealership (in which several BUKE members held interests), and the Cross Country LLCs; BUKE staff and the Cross Country bank were aware, and the use was publicly discussed and posted on BUKE’s website.
- BUKE’s Operating Agreement gave the manager exclusive management authority but prohibited the manager from possessing or assigning company assets for non-company purposes without the consent of a majority of the members. The Agreement did not specify the form of consent.
- BUKE sued Cross Country LLCs, Cross Country members, and BUKE’s accountant (Perner) alleging unauthorized use of assets, unjust enrichment, conversion, and accountant malpractice; summary judgment was granted for defendants on consent/authorization and on the malpractice claim for lack of expert testimony; BUKE’s motion to extend expert-disclosure deadlines was denied.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Eastburg’s use of BUKE’s GM badge and credit line required member consent and, if so, whether he had it | Eastburg used BUKE assets for Cross Country without requisite consent and concealed material facts, so use was unauthorized | Operating Agreement controls and, on the undisputed record, a majority of members (Eastburg, Urlacher, Karger) consented (consent can be inferred from conduct, publicity, and acquiescence) | Court: Operating Agreement governs; reasonable inference from undisputed facts is that a majority consented; summary judgment for Cross Country defendants affirmed |
| Whether statutory default in §53-19-16(D)(2)(a) (affirmative vote of majority of disinterested managers/members) overrides the Operating Agreement | BUKE: the statutory disinterested‑manager/member voting rule should apply to manager’s "use" of assets | Defendants: Act allows operating agreements to provide otherwise; parties adopted a majority-member consent standard in the Agreement | Court: Act gives deference to operating agreements; the Agreement’s majority-member consent controls; no conflict requiring application of statutory default |
| Unjust enrichment claim against Cross Country members based on profits from allegedly unauthorized use | BUKE: Members were unjustly enriched because Eastburg’s use was unauthorized | Defendants: Distributions were lawful and required by statute; no wrongful acts by members shown; corporate shield and lack of veil‑piercing | Court: Because majority consented, use was authorized; unjust enrichment claim fails; summary judgment affirmed |
| Whether BUKE’s accountant‑malpractice claim can survive without expert testimony (conflict of interest theory) | BUKE: Perner’s divided loyalties and failures to disclose were obvious conflicts falling within lay understanding; no expert needed | Defendants: Expert testimony is required to establish standard of care, breach, and causation for accountant malpractice | Court: Applies standard used in other professional‑malpractice contexts — expert testimony is required unless the breach is within common knowledge; here the issues are technical (RFS, ‘‘out of trust,’’ accounting duties), so expert required and none was offered; summary judgment for Accountants affirmed |
Key Cases Cited
- Elf Atochem N. Am., Inc. v. Jaffari, 727 A.2d 286 (Del. Super. Ct. 1999) (contract/LLC statute deference to operating agreement)
- NAMA Holdings, LLC v. World Mkt. Ctr. Venture, LLC, 948 A.2d 411 (Del. Ch. 2007) (operating agreement can modify statutory default rights)
- Meyer v. Dygert, 156 F. Supp. 2d 1081 (D. Minn. 2001) (conflict‑of‑interest malpractice claims typically require expert evidence)
- Brown‑Wilbert, Inc. v. Copeland Buhl & Co., 732 N.W.2d 209 (Minn. 2007) (accountant malpractice requires expert proof of standard of care, breach, and causation)