Leggett v. Hontz
123906
| Kan. Ct. App. | Apr 29, 2022Background:
- Regenna Leggett and Tim Hontz formed two LLCs for a salvage-yard business: You Pick It, LLC (operating business) and L & H, LLC (real estate). They held equal ownership interests though operating agreements were unsigned.
- Leggett contributed substantial cash (testified >$333,000) for land improvements, buildings, equipment, and inventory; Hontz contributed a tow truck (traded for equipment), some cars, a dealer's license, and industry connections/knowledge.
- Personal and business funds were commingled; neither party took a salary; records were incomplete.
- Relationship ended; Leggett petitioned to divide nonmarital assets and debts; Hontz counterclaimed for an accounting and dissolution. Bench trial held in Aug. 2020.
- District court dissolved the LLCs, awarded Leggett the companies' assets and liabilities, and ordered Leggett to pay Hontz $83,500 for his contributions.
- On appeal the court affirmed: equal ownership did not mandate equal asset division; the $83,500 award was supported by evidence; partnership law was not applicable or preserved.
Issues:
| Issue | Leggett's Argument | Hontz's Argument | Held |
|---|---|---|---|
| Whether equal ownership required equal division of LLC assets on dissolution | Equal ownership only governs profits/losses; asset division follows capital accounts and operating agreement/default LLC law | Equal ownership mandated equal distribution of assets | Ownership interests govern profits/losses; capital accounts govern asset distribution on dissolution; no equal-division requirement |
| Whether the district court undervalued Hontz’s contributions ($83,500) | Award lacks substantial evidentiary support | Contributions (truck, cars, dealer's license, connections/knowledge) justify larger share or half | Substantial evidence supports $83,500 valuation; award was reasonable given contributions and commingling of funds |
| Whether partnership law should govern distribution instead of LLC law | (raised on appeal) partnership law should apply | LLC law and the operating agreements (and statutes) govern | Argument not preserved below and incorrect; LLC operating agreements/statutory default rules apply |
Key Cases Cited
- State v. Dunn, 304 Kan. 773, 375 P.3d 332 (2016) (issue-preservation requirement for appellate claims)
- State v. Dukes, 290 Kan. 485, 231 P.3d 558 (2010) (exceptions to preservation rules)
- Investcorp v. Simpson Investment Co., 277 Kan. 445, 85 P.3d 1140 (2003) (operating agreement controls and statutes fill gaps as default)
- Iron Mound v. Nueterra Healthcare Management, 298 Kan. 412, 313 P.3d 808 (2013) (operating agreements interpreted as contracts; de novo review)