Rock Ivy Holding, LLC v. RC Properties, LLC
464 S.W.3d 623
Tenn. Ct. App.2014Background
- Rock Creek Development, LLC (Rock Creek) is a 3-member LLC owning 530 acres East Side Tract and 154 acres West Side Tract, with RC Properties, Rock Ivy, and Linked as members and guarantors on SunTrust notes totaling about $7 million.
- SunTrust extended the notes’ maturity multiple times; after a capital call Rock Ivy failed to contribute its share, prompting a sale of Rock Creek’s assets to pay down debt.
- FUM, LLC acquired the notes from SunTrust in December 2008; Rock Ivy sought to enjoin related sales but ultimately, the East Side Tract sale to Vanguard proceeded with proceeds held in court.
- Vanguard’s offer followed TVA’s competing bid; RC Properties and Linked supported the Vanguard deal while Rock Ivy objected; the sale closed and proceeds were distributed through the registry.
- Rock Ivy filed a derivative suit asserting conflicts of interest and fiduciary breaches by Sohr (Rock Creek President) and Ingram, along with other Rock Creek members and related entities.
- After an eight-day bench trial, the court dismissed Rock Ivy’s claims and later awarded various fees, with the court ultimately holding that FUM may recover default interest and related fees on the notes on remand.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the Rock Ivy conflicts-of-interest sale was fair | Rock Ivy contends entire fairness should govern due to conflicts between Sohr/Ingram and Rock Creek. | Trial court applied entire fairness and found the sale fair under fair dealing and fair price. | Transaction fair; entire fairness upheld. |
| Duty of officers and fiduciary duties in a member-managed LLC | Sohr/Church breached duties of loyalty and care under Operating Agreement and TN law. | Officers’ authority is limited; Rock Creek is member-managed so duties were not violated. | No breach found; duties not violated. |
| Civil conspiracy claim viability | Defendants conspired via FUM to effect an unlawful advantage. | No unlawful means proven; no conspiracy established. | Conspiracy claim dismissed. |
| Attorneys’ fees under derivative action statute | Linked/Ingram/Sohr seek fees under § 48-249-804; threshold for ‘without reasonable cause’ contested. | Court should analyze reasonable cause and award discretion to deny or grant fees. | Fees awarded to Linked; Ingram denied; issues remanded as to some awards. |
| Default interest and fees on notes | FUM entitled to default interest and related fees as holder of the notes. | Veil-piercing arguments and inequitable result against Rock Creek should bar recovery. | FUM entitled to default interest and related fees; remanded for calculation. |
Key Cases Cited
- Weinberger v. UOP, Inc., 457 A.2d 701 (Del. 1983) (entire fairness includes fair dealing and fair price; disclosure duties)
- Bomarko, Inc. v. Int’l Telecharge, Inc., 794 A.2d 111 (Del. Ch. 1999) (entire fairness standard; burden on defendant)
- Reis v. Hazelett Strip-Casting Corp., 28 A.3d 442 (Del. Ch. 2011) (fair price inquiry within entire fairness framework)
- Bayberry Assocs. v. Jones, No. 87-261-11, 1988 WL 137181 (Del. Ct. App. 1988) ( Delaware corporate governance considerations in comparisons)
- Brady v. Calcote, 2005 WL 65535 (Tenn. Ct. App. 2005) (derivative-fees framework; abuse of discretion standard of review)