601 S.W.3d 453
Ark. Ct. App.2020Background
- Charles Cook died in 2017 owning 50% of Cook's Towing and Recovery, LLC, which he formed with grandson Jared Brooks under a written operating agreement.
- The operating agreement provided that on a member's death (or incompetency/bankruptcy) the deceased member's interest would immediately transfer to the surviving member and that no buyout would be required.
- Brooks opened Cook's estate and was initially appointed personal representative; later holographic wills were rejected and Brooks was removed as PR; Amy Willhite moved to treat Cook's LLC interest as an estate asset.
- The circuit court found it had jurisdiction, but held the automatic transfer provision was contractual and failed for lack of consideration, severed that provision, and declared Cook's 50% interest an estate asset (with Brooks having a right-of-first-refusal purchase right).
- Brooks and Charlotte Smith appealed; the Court of Appeals reversed, holding the operating agreement was unambiguous and supported by mutual promises (sufficient consideration), so Cook's interest passed to Brooks on death, and the probate court had jurisdiction.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the probate court had jurisdiction to determine ownership of decedent's LLC interest | Willhite: probate court has jurisdiction because issue affects administration/distribution of estate | Brooks: probate court lacks jurisdiction because LLC and Brooks are strangers to the estate; property-rights dispute | Court: probate court had jurisdiction; dispute concerns administration, settlement, and distribution of estate |
| Whether the operating agreement transferred Cook's LLC interest to Brooks on Cook's death (and whether there was consideration) | Brooks: operating agreement clearly and unambiguously provides automatic transfer on death and mutual promises in agreement supply consideration | Willhite/Estate: transfer provision is testamentary in effect and the contract lacked consideration at death (invalidating the automatic transfer) | Court: transfer provision unambiguous; mutual promises (capital contributions and mutual waiver of estate buyout) constitute consideration; Cook's interest passed to Brooks on death |
Key Cases Cited
- Smith v. Smith, 338 Ark. 526, 998 S.W.2d 745 (1999) (defines “stranger” to the estate for probate-jurisdiction purposes)
- Kraft v. Limestone Partners, LLC, 522 S.W.3d 150 (Ark. App. 2017) (contract construction rules; court decides questions of law de novo)
- Trakru v. Mathews, 434 S.W.3d 10 (Ark. App. 2014) (definition of consideration)
- Essential Accounting Sys., Inc. v. Dewberry, 428 S.W.3d 613 (Ark. App. 2013) (mutual promises can constitute consideration)