522 S.W.3d 150
Ark. Ct. App.2017Background
- Limestone Partners, LLC formed in 2004; members included Mike Coats and appellant Mike Kraft. Operating agreement granted Coats and Kraft guaranteed annual payments and employee benefits while "participating in management."
- Section 6.11 promised Kraft guaranteed annual payments (and benefits) that "shall not be changed except upon unanimous consent of all of the Members."
- Kraft received guaranteed payments until October 1, 2012, when other members informed him he was "terminated" from Limestone and payments stopped; he refused buyout/termination documents and sued for breach of contract.
- Limestone moved for summary judgment, arguing 6.11’s protections apply only while a member is "participating in management," and that section 9.2 authorized termination of a member’s employment/remove his payments; Kraft argued 9.2 is only a buyout clause and he was never an employee (his payments were "guaranteed payments," not salary).
- The trial court granted Limestone’s summary judgment; the court of appeals reversed and remanded, holding the plain language of section 6.11 is mandatory and unambiguous that guaranteed payments cannot be changed without unanimous consent.
Issues
| Issue | Kraft's Argument | Limestone's Argument | Held |
|---|---|---|---|
| Whether guaranteed payments in §6.11 can be ceased without unanimous member consent | §6.11 is mandatory: payments "shall not be changed except upon unanimous consent" — no exceptions | A member can be removed from management (per §§6.1, 9.2), ending eligibility for payments | Court: §6.11 plain language prohibits changing guaranteed payments absent unanimous consent; reversal of summary judgment for Limestone |
| Whether §9.2 permits termination of a member’s management rights and thus ends §6.11 protections | §9.2 is a buyout/disposition clause; does not authorize removal from management or end guaranteed payments | §9.2 contemplates termination/resignation of employment and supports removing a managing participant | Court: §9.2 addresses disposition/buyout, not removal from management; it does not negate §6.11 unanimous-consent requirement |
| Whether §§6.1 or other provisions allow majority to remove a non-managing member participating in management | No: §6.1 permits replacing the Managing Member only and does not authorize changing guaranteed payments | Yes: majority replacement power for managing member implies similar control over other managing participants | Court: §6.1 pertains to replacing the Managing Member only and does not authorize altering §6.11’s unanimous-consent protection |
| Whether factual dispute (employee vs. member/partner status) precludes summary judgment | Kraft attested he was not an employee; payments treated as guaranteed payments (no payroll withholdings) | Limestone contended the agreement treats managing members as employees for payroll/benefits purposes | Court majority: decided as matter of law based on contract language; concurring judge would remand for fact finding on employment status |
Key Cases Cited
- Abraham v. Beck, 456 S.W.3d 744 (Ark. 2015) (standard of review on cross-motions for summary judgment and resolving legal issues de novo)
- Shamburger v. Shamburger, 481 S.W.3d 448 (Ark. App. 2016) (when contract is unambiguous, its construction is a question of law)
- Spann v. Lovett & Co., 389 S.W.3d 77 (Ark. App. 2012) (plain and ordinary meaning governs contract interpretation)
- Asbury Auto. Used Car Ctr., L.L.C. v. Brosh, 220 S.W.3d 637 (Ark. 2005) (contract clauses must be read together and harmonized if possible)
- Crittenden Cty. v. Davis, 430 S.W.3d 172 (Ark. App. 2013) (court will not rewrite contracts or insert terms not agreed upon)
- Clark v. Progressive Ins. Co., 984 S.W.2d 54 (Ark. App. 1998) (conflicting affidavits/depositions may preclude summary judgment when credibility matters)