294 P.3d 478
Or.2012Background
- Synectic Ventures I, II, and III loaned money to EVI Corp secured by substantially all of EVI's assets and possible equity conversion; Berkman, as managing member of the LLCs, also chaired and treasurer of EVI and held stock in EVI.
- The loan amendment extended maturity from Dec 31, 2004 to Dec 31, 2005; Berkman signed the amendment for EVI and, on behalf of the LLCs, approved it amid a conflict of interest.
- Berkman simultaneously had duties to the LLCs and to EVI, creating a conflict of interest that potentially affected loyalty and authority to amend the loan.
- Plaintiffs argued Berkman lacked authority to amend due to conflict; defendant argued Berkman had authority and that the operating agreements permitted or did not bar the amendment.
- The trial court granted summary judgment for defendant; Court of Appeals affirmed; Oregon Supreme Court reverses, finds genuine issues of material fact as to authority, conflict, and ratification.
- The Court remands for further proceedings to resolve these factual questions.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Berkman’s conflict deprived authority to amend the loan | Berkman lacked authority due to conflict | Berkman had authority; agreements allowed it | Genuine issue of material fact exists about authority due to conflict |
| Whether operating agreements specifically permit a conflicted manager | Section 3.2 does not specifically permit conflicts for the manager | Section 3.2 authorizes ordinary members; conflicts may be allowed | Operating agreements do not specifically authorize managing-member conflicts under ORS 63.155/63.130 |
| Whether plaintiffs ratified the unauthorized amendment by delay in objecting | Delay could indicate ratification | Silence could ratify; but facts uncertain | Question of ratification fact-dependent; not summary-judgment dispostive |
| Whether defendant knew Berkman lacked authority due to conflict | Defendant knew of Berkman’s conflict | Third-party reliance allowed; knowledge not proven | Issue for factfinder; not bound by amendment absent lack of authority and knowledge |
Key Cases Cited
- Fine v. Harney Co. National Bank, 181 Or 411, 182 P.2d 379 (Or. 1947) (conflict of interest breaches loyalty; agent cannot bind principal when acting for self)
- Lindland v. United Business Investments, 298 Or 318, 693 P.2d 20 (Or. 1984) (conflict of interest and duty of loyalty in agency)
- Michel v. ICN Pharmaceuticals, 274 Or 795, 549 P.2d 519 (Or. 1976) (ratification by silence generally questions of fact)
- Phillips v. Colfax Co., 195 Or 285, 243 P.2d 276 (Or. 1952) (ratification as a fact-bound inquiry)
- Portland v. American Surety Co., 79 Or 38, 153 P 786 (Or. 1916) (principal knowledge can bar enforcement against principal when agent acts with actual knowledge)