Reymond Meadaa v. K.A.P. Enterprises, L.L.C
756 F.3d 875
5th Cir.2014Background
- Dr. Arun and Versha Karsan formed K.A.P. Enterprises, LLC (K.A.P.) to purchase and renovate the Louisiana Hotel & Convention Center; K.A.P. borrowed $6.7M and needed an additional $2.75M for renovations.
- The Karsans solicited medical colleagues (the investors) at a November 22, 2006 presentation offering $125,000 "share units" that were represented as equity participation in the hotel; investors paid $3.5M for 28 units.
- Shortly after the presentation, the Karsans formed SaiNath, LLC, into which investors’ funds were deposited and which paid "rent" to K.A.P.; title to the hotel was never transferred to SaiNath and the Karsans remained SaiNath’s sole record members/managers.
- Investors sued (breach of contract and securities claims among others); district court granted partial summary judgment ordering return of $3.5M, later clarified and reissued liability findings as to SaiNath, K.A.P., and the Karsans.
- On appeal, the Fifth Circuit reviewed jurisdictional issues relating to Rule 54(b) certification and considered: (1) admissibility of an expert affidavit the defendants proffered; (2) whether there was a failure of consideration permitting dissolution and refund; and (3) whether liability properly attached to each defendant.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Admissibility of Oestriecher affidavit under Fed. R. Civ. P. 56(c)(4) | Affidavit based on CPA’s review of financial records establishes personal knowledge and supports defendants’ position | CPA’s conclusory statements lack demonstrated personal knowledge; records alone don’t show personal knowledge for asserted facts | Court did not abuse discretion in striking the affidavit for failure to show personal knowledge |
| Failure of consideration for equity sale | Investors contracted for equity in an entity that would own and operate the hotel; because SaiNath never obtained title, plaintiffs did not receive the thing sold and are entitled to dissolution/return of funds | Transfer of ownership was perfected on agreement under La. Civ. Code art. 2456; plaintiffs received equivalent economic benefits without record title transfer | Court affirmed: failure of consideration as a matter of law; investors entitled to return of $3.5M |
| SaiNath and K.A.P. liability for return of funds | SaiNath received investors’ funds and failed to deliver ownership; K.A.P. was unjustly enriched when funds were used to improve K.A.P. property and pay K.A.P.’s loan | Defendants contend alternative remedies or that plaintiffs waived some claims; K.A.P. argues no direct agreement with investors | Court affirmed SaiNath liable for failure of consideration; affirmed K.A.P. liable for unjust enrichment because it received and used funds without investors’ consent |
| Individual liability of the Karsans | Plaintiffs sought to hold Karsans personally liable (veil-piercing or other theories) | Karsans argued limited liability and challenged the district court’s basis for piercing; new Louisiana authority may affect analysis | Reversed as to individual Karsans: remanded for district court to apply Louisiana Supreme Court’s Ogea v. Merritt analysis and reconsider individual liability |
Key Cases Cited
- Martin v. Halliburton, 618 F.3d 476 (5th Cir.) (discussing Rule 54(b) and appellate jurisdiction)
- Stephenson v. Calpine Conifers II, Ltd., 652 F.2d 808 (9th Cir.) (permitted review of post-Rule 54(b) denials of Rule 59 motions)
- United States v. $92,203.00 in U.S. Currency, 537 F.3d 504 (5th Cir.) (affidavit must show basis for personal knowledge)
- EEOC v. Agro Distrib., LLC, 555 F.3d 462 (5th Cir.) (summary judgment standards on appeal)
- Anderson v. City of Bessemer City, N.C., 470 U.S. 564 (U.S. Supreme Court) (standard for reviewing factual findings for clear error)
- Ogea v. Merritt, 130 So. 3d 888 (La.) (authoritative Louisiana Supreme Court analysis of limited liability/veil-piercing for LLC members)