Christopher J. Davis, Appellant,
Winning Streak Sports, LLC, Appellee.
1. In an appeal from the district court's ruling on a summary judgment motion, an appellate court considers the motion de novo and applies the same standards by which district courts consider summary judgment motions.
2. The interpretation of a statute is a question of law over which an appellate court has unlimited review. In interpreting a statute, the intent of the legislature governs if that intent can be discovered. In attempting to discover the legislature's intent, courts examine the language of the statute, giving common words their common and ordinary meanings. When the language of a statute is plain and unambiguous, courts do not speculate as to the legislative intent behind it and do not read into the statute something that is not there. Nevertheless, courts can correct clerical or inadvertent errors in terminology if the intent of the legislature is plain and unmistakable.
3. In considering a claim for indemnity for attorney fees asserted by a member of a limited liability company pursuant to K.S.A. 17-7670(b), the statute states in clear and unambiguous terms that a member is entitled to indemnity "to the extent that a member . . . has been successful on the merits or otherwise."
4. When the member of a limited liability company succeeds, at least in part, in litigation contemplated by K.S.A. 17-7670(b), the member is entitled to indemnity from the limited liability company for attorney fees "to the extent that" the member was successful in the litigation.
5. Unlike K.S.A. 17-7670(a), which permits but does not require a limited liability company's operating agreement to provide indemnity for its members, indemnity under K.S.A. 17-7670(b) is mandatory. But the amount of fees for which the member is entitled to indemnity rests within the sound discretion of the district court. In making its determination of the amount of fees for which a limited liability company must indemnify its member, the district court must consider not only the extent to which the member succeeded, but also the factors set forth in Rule 1.5(a) (2012 Kan. Ct. R. Annot. 492) of the Kansas Rules of Professional Conduct which are used in deciding the reasonableness of an attorney fee request.
6. Under K.S.A. 17-7670(a) a limited liability company is permitted, but not obligated, to indemnify a member against "any and all" claims. This is without regard to the merits of the claim or the rightness of the member's position. On the other hand, under K.S.A. 17-7670(b) a limited liability company is required to provide indemnity "to the extent that" the member has been successful. The fact that indemnity is required when the member is successful, in spite of the lack of an indemnity provision in an operating agreement, does not undermine the limited liability company's discretionary power to provide indemnity to a member with regard to all claims, regardless of their merit.
7. A statute is presumed constitutional, and all doubts must be resolved in favor of its validity. If there is any reasonable way to construe a statute as constitutionally valid, the court has the duty to do so.
8. In drafting K.S.A. 17-7670(b), the legislature made a clerical error in referring to a "director" of a limited liability company. There is no such position in a limited liability company in Kansas. But considering the statute in its entirety, including subsection (a) which permits indemnity by agreement of limited liability company members for any and all claims, it is clear that the legislature intended in K.S.A. 17-7670(b) to require indemnity for limited liability company members to the extent that they have been successful in any suit or proceeding contemplated by the statute.
9. When a limited liability company's member is successful in litigation that benefits both the limited liability company and the member personally, the fact that the member receives a personal benefit does not negate the member's right to indemnity under K.S.A. 17-7670(b).
10. When a plaintiff is successful in an action to determine that the plaintiff is a member of a limited liability company, the plaintiff obtains a personal benefit, but the limited liability company also benefits from a proper determination of who its members are.
Appeal from Johnson District Court; Kevin P. Moriarty, judge.
Lance Y. Kinzer, of Schlagel Kinzer, LLC, of Olathe, for appellant.
Matthew T. Geiger, of Gaddy Geiger & Brown PC, of Kansas City, Missouri, for appellee.
Before McAnany, P.J., Buser and Standridge, JJ.
This is the parties' second visit to our court following proceedings in the district court. Their dispute centered on the formation of a business called Winning Streak Sports, LLC (WSS), which apparently took over and continued a business operated by Christopher J. Davis and Winning Streak, Inc. (WSI).
In 2006, WSI and Davis sued U.S. Hardwood Distributors, Inc. (Hardwood), Lauren Larson, and WSS for various claims, including breach of fiduciary duties. Davis also sought a declaratory judgment that he owned a 49% membership interest in WSS. The defendants denied that Davis had any membership interest in WSS and counterclaimed for damages for Davis' claimed overstatement of the net value of assets he sold to the new venture. They also asked the court to declare that Davis had no membership interest in WSS. The fiduciary duty claims were tried to a jury, and the question of Davis' membership in WSS was reserved for the court.
The jury returned its verdict finding that (1) Davis had been a member of WSS, (2) Davis never withdrew from membership in WSS, (3) Larson and Hardwood breached fiduciary duties they owed to Davis, and (4) Davis suffered $600, 000 in damages from the acts of Larson. The jury awarded no punitive damages. On WSS's counterclaim for breach of contract, the jury awarded damages against Davis in the amount of $74, 788.39. The jury awarded an equal amount against Davis and in favor of WSS, Hardwood, and Larson for negligent misrepresentation.
Following the jury trial, the district court took up the competing declaratory judgment claims and determined that Davis had a 0.96% membership interest in WSS.
Hardwood and Larson appealed the $600, 000 jury verdict, and Davis cross-appealed the declaratory judgment ruling. Hardwood and Larson argued that the district court erred in instructing the jury on Davis' breach of fiduciary duty claims. They argued that there was no evidence to support Davis' breach of fiduciary duty claims because any such claims belonged to WSS and not Davis individually. Hardwood and Larson did not object to the court's instructions, possibly because they did not concede that Davis had any membership interest in WSS, which would have given him standing to pursue the fiduciary duty claims on behalf of the limited liability company (LLC). On appeal, we rejected this claim of error because evidence at trial supported all the elements necessary to support a favorable verdict for Davis.
On Davis' cross-appeal of the district court's declaratory judgment, we found that viewing the evidence in the light favoring the prevailing parties and leaving to the district court matters regarding the credibility of the witnesses, there was substantial evidence to support the district court's finding that Davis' membership interest in WSS was only 0.96%. Our Supreme Court denied further review. See Winning Streak, Inc. v. Winning ...