TD Ltd., L.L.C. v. Dudley
2014 Ohio 3996
Ohio Ct. App.2014Background
- TD Limited, LLC owned 21 residential rental properties; brothers Terry and Thomas Dudley were equal co-owners and litigated dissolution and sale of the company.
- A receiver previously appointed signed a $460,000 promissory note with Bath State Bank (BSB) on behalf of TD Limited; the receivership was later terminated but the note remained the company’s obligation.
- The Dudley brothers entered a May 3, 2011 settlement to sell the 21 properties at a private auction; on Aug. 11, 2011 Terry (and wife Katherine) won bids on 14 properties, Thomas on 7; closings and a public auction for unsold properties were required by set deadlines but never completed.
- TD Limited sued Terry and Katherine in Sept. 2012 alleging wrongful control of the 14 properties; multiple motions and court orders thereafter attempted to compel closings, which repeatedly failed to occur.
- BSB intervened and sought appointment of a receiver to liquidate the properties to satisfy its note; the trial court appointed a receiver for the limited purpose of marketing and conducting a public auction; Terry and Katherine appealed.
Issues
| Issue | Plaintiff's Argument (BSB / TD Limited) | Defendant's Argument (Terry & Katherine) | Held |
|---|---|---|---|
| Whether BSB proved by clear and convincing evidence entitlement to a receiver under R.C. 2735.01 | BSB argued it was a creditor with a probable interest in the property/proceeds and the history of noncompliance justified a receiver to protect its rights | Terry & Katherine argued BSB failed to meet the clear-and-convincing standard and appointment under §2735.01(A) was unsupported | Court affirmed appointment under R.C. 2735.01(F) (equitable "catch-all"); no abuse of discretion |
| Whether receiver could auction properties that were previously sold at a private auction and for which down payments were taken | BSB argued sale by receiver was needed to liquidate assets and satisfy the bank’s debt because parties would not close | Terry & Katherine argued public auction derogated the settlement agreement and violated bidders’ rights and expenditures of down payments | Court held receiver sale permissible given parties’ failure to close and equitable need to resolve creditor’s claim |
| Whether receiver’s public auction conflicted with and improperly superseded the settlement agreement | BSB argued the settlement and court orders had been ignored and equity permitted a receiver to enforce a sale | Terry & Katherine asserted the settlement controlled and the receiver unlawfully undermined agreed procedures | Court held equitable powers under §2735.01(F) justified appointment and sale despite the settlement impasse |
| Whether trial court erred by allowing sale to proceed after notice of appeal | Terry & Katherine argued appellate status barred further action | BSB (and court) noted appeal was from appointment order only and post-appointment actions were not before the appellate court | Court declined to review post-appointment conduct on appeal (appeal limited to the appointment decision) |
Key Cases Cited
- Sobh v. American Family Ins. Co., 755 F. Supp. 2d 852 (N.D. Ohio 2010) (LLC member lacks individual standing to assert company claims)
- Turner v. Andrew, 413 S.W.3d 272 (Ky. 2013) (member lacks standing to sue for business losses belonging to LLC)
- Wasko v. Farley, 947 A.2d 978 (Conn. App. 2008) (recognizing LLC distinct from members; company claims belong to LLC)
- State ex rel. McGinty v. Cleveland City School Dist. Bd. of Ed., 81 Ohio St.3d 283 (Ohio 1998) (standard of review for equitable powers exercised by trial courts)
- State ex rel. Petro v. Gold, 166 Ohio App.3d 371 (Ohio Ct. App. 2006) (factors to consider when appointing a receiver and exercising equitable discretion)
- State ex rel. Celebrezze v. Gibbs, 60 Ohio St.3d 69 (Ohio 1991) (receiver appointment lies within trial court's discretion)
- Park Natl. Bank v. Cattani, 187 Ohio App.3d 186 (Ohio Ct. App. 2010) (definition of abuse of discretion)
- Hoiles v. Watkins, 117 Ohio St. 165 (Ohio 1927) (receiver appointment described as extraordinary equitable power)
- Cunningham v. Ohio Police and Fire Pension Fund, 175 Ohio App.3d 566 (Ohio Ct. App. 2008) (order appointing receiver is a final, appealable order)