Opinion
Docket No. CL16-5083
01-09-2018
RE: CG Riverview, LLC, et al. v. 139 Riverview, LLC, et al.
Barry Randolph Koch, Esquire
Thomas E. Snyder, Esquire
Gregory J. Montero, Esquire
Inman & Strickler, PLC
575 Lynnhaven Parkway, Suite 200
Virginia Beach, Virginia 23452 James R. Theuer, Esquire
James R. Theuer, PLLC
555 E. Main Street, Suite 1212
Norfolk, Virginia 23510 Gary A. Bryant, Esquire
Willcox & Savage, P.C.
440 Monticello Avenue, Suite 2200
Norfolk, Virginia 23510 Louis E. Dolan, Jr., Esquire
William E. Evans, Esquire
Nixon Peabody LLP
799 9th Street NW, Suite 500
Washington, DC 20001 Linda Wong, Esquire
Wong Fleming
821 Alexander Road, Suite 200
Princeton, New Jersey 08540 Barry Dorans, Esquire
Wolcott Rivers Gates
200 Bendix Road, Suite 300
Virginia Beach, Virginia 23452 Dear Counsel:
This case was last before the Court on December 18, 2017, for a hearing (the "Hearing") on the Plaintiffs Amended Motion for Court to Enter Temporary and Immediate Injunction Removing Edward A. McCullough as Manager of 139 Riverview Manager, LLC and 139 Riverview Developer, LLC (the "Motion"), Defendant McCullough's Motion For Rule to Show Cause, and Plaintiffs' oral motion to amend paragraph 49 of the Second Amended Complaint. During the Hearing, the Court granted the motion to amend the Second Amended Complaint. Additionally, counsel for McCullough removed his Motion to Rule for Show Cause. The Court took the Motion for Temporary and Immediate Injunction under advisement and rules as follows.
BACKGROUND
CG Riverview, LLC, et al. ("Plaintiffs") filed this suit against 139 Riverview, LLC et al. on May 9, 2016, with the Amended Complaint filed on January 3, 2017 and a Second Amended Complaint filed on May 1, 2017. Among other allegations, the Second Amended Complaint alleges gross negligence, willful misconduct, conversion, breach of fiduciary duty, and unjust enrichment by McCullough as Manager of 139 River Manager, LLC ("Riverview Manager") and 139 Riverview Developer, LLC ("Riverview Developer").
On May 31, 2017, Plaintiffs filed a motion for the Court to enter temporary and immediate injunction to remove McCullough as Manager based on McCullough's alleged gross negligence and willful misconduct. The Court held a hearing on the motion on September 25, 2017, during which the Court ordered that based on the arguments of counsel the matter would be removed from the docket.
On October 3, 2017, Plaintiffs filed an amended motion for temporary and immediate injunction which added a "Certificate of Removal" and an allegation that the operating agreements for Riverview Manager and Riverview Developer required McCullough to resign from his position as Manager on November 20, 2017 and anticipated that McCullough would refuse to resign. On December 4, 2017, Plaintiffs also filed a notice of intention to move the Court at the Hearing to permit an amendment to Paragraph 49 of the Second Amended Complaint, which proposed to assert that McCullough refused to resign as Manager despite a letter demand that he do so. The Court granted this Motion to Amend the Second Amended Complaint at the Hearing.
The Hearing on the Motion was limited by agreement of the parties to argument on the third paragraph of the Amended Motion for Temporary and Immediate Injunction referring to McCullough's alleged failure to resign on November 20, 2017. In addition, cross-claim Plaintiff, Symetra Life Insurance Company ("Symetra") filed a joinder in support of the Motion on December 15, 2017.
POSITION OF THE PARTIES
I. Plaintiffs' Position
Plaintiffs argue that according to the operating agreements for Riverview Manager and Riverview Developer, McCullough was required to resign as of November 20, 2017. (Br. in Supp. 1-2.) They further state that McCullough was sent a letter on November 20, 2017, notifying him that he was no longer the Manager and demanding he turn over all of the materials related to the management of the companies. (Id. at 2; Pls.' Ex. 9.) Because McCullough has ignored that letter despite the fact he was required to resign by the operating agreements, Plaintiffs request that the Court order McCullough to resign or order that, as a matter of law, McCullough is no longer Manager of Riverview Tenant or Riverview Manager and has no authority to act as such. (Br. in Supp. 3.)
In support of the Motion, Plaintiffs argue that although the operating agreements state that Pieter Reidy is to become Manager upon McCullough's resignation, it has no impact on whether McCullough is to resign from his position as Manager. (Id.) Thus, regardless of whether Pieter Reidy is able to fulfill his duties as Manager, McCullough is required to resign by the language of the operating agreements. (Id.) In further support, Plaintiffs assert that the operating agreements allow for the Manager to delegate his authority. (Id. at 3-4.) As such, despite Pieter Reidy's incarcerated status, he does not violate any laws or regulations by delegating the Manager's daily business tasks to his father. (Id. at 4-6.)
To support their assertion that injunction is the appropriate remedy, Plaintiffs first argue that they do not need to meet the traditional requirements for injunction because Section 13.1-1023(c) of the Virginia Code allows for injunctive relief to enforce operating agreements. (Id. at 8-9, 11-12.) Furthermore, Plaintiffs assert that even if the Court were to apply the traditional four-part test for injunctions, an injunction is still appropriate. (Id. at 9-11, 12-13.) Plaintiffs argue that they will succeed because the operating agreements are unambiguous on the fact that McCullough is required to resign. (Id. at 10.) They further state that the harm is irreparable because McCullough is essentially trespassing by acting as Manager and the companies would have a different manager making different decisions were McCullough to follow the operating agreements and resign. (Id. at 10, 12; Hearing Tr. ("Tr.") 53-54.) Plaintiffs allege that the balance of equities favors Plaintiffs because McCullough freely agreed to the operating agreements and has enjoyed the benefits of the agreements for five years. (Br. in Supp. at 10.) On the public interest inquiry, Plaintiffs assert that it is in the public interest to enforce valid contracts as they are written. (Id.)
II. McCullough's Position
McCullough asserts that a temporary injunction is inappropriate for three main reasons. First, he asserts that Pieter Reidy is incapable of performing his duties because he is currently incarcerated. (Br. in Opp'n 8-11.) On that point, McCullough argues that Pieter Reidy is the only person contemplated to take over the role as Manager and considering that he cannot take over the role, the companies would be without a Manager were McCullough to resign. (Id. at 9.) He further contends that in appointing Frank Reidy as co-manager, Pieter Reidy is not delegating his role, but rather, abdicating his role, which is not permitted by the operating agreements. (Tr. 22.)
McCullough asserts that Plaintiffs must show irreparable harm because McCullough's refusal to resign does not violate a statute. (Tr. 69.) As such, McCullough argues that Plaintiffs fail to show irreparable harm or an inadequate remedy at law because the status quo has persisted since the suit was filed. (Br. in Opp'n 11-12.) He notes that Plaintiffs failed to pursue any injunctive relief during a majority of the time since the suit was filed, and thus there is no reason a remedy cannot wait until the trial. (Id.) McCullough also argues that the availability of money damages is an adequate remedy at law and that defeats the injunctive relief sought. (Id. at 12.)
Lastly, McCullough has asserted that Plaintiffs seek relief not pled because the violation of the operating agreements was not alleged in the Second Amended Complaint. (Id. at 12-13.)
The Court notes that this argument was made in McCullough's brief before the Court ruled on the Motion to Amend at the Hearing. --------
III. Symetra's Position
Symetra first argues that there is no provision of the operating agreements that prohibits the manager from delegating any aspect of its authority. (Tr. 72.) Thus, "Pieter Reidy is perfectly entitled to delegate all the aspects of his authority to another individual, and Frank Reidy is a perfectly acceptable delegee." (Id.) Thus, the appropriate action requested by Symetra is to enforce the terms of the operating agreement which states that McCullough is to resign after five years. (Id.)
Symetra further argues that "the right to manage a business[] is a unique property right that cannot be satisfied or replaced with simple monetary damages. Much like ownership of real property, the right to run that business is a right that cannot be supplanted with a monetary award." (Id.) Thus, according to Symetra, the fact that "Reidy is not being allowed to manage the company as he sees fit" causes irreparable damage because the manager "determine[s] the course the company takes and how it acts, and that goes beyond monetary damages." (Id. at 73.)
ANALYSIS
I. Legal Standard
The Virginia Code states that circuit courts have jurisdiction to grant injunctions. Va. Code § 8.01-620 (2017). "[T]he granting of an injunction is an extraordinary remedy and rests on the sound judicial discretion to be exercised upon consideration of the nature and circumstances of a particular case." Levisa Coal Co. v. Consolidation Coal Co., 276 Va. 44, 60, 662 S.E.2d 44, 53 (2008). Although the Virginia Supreme Court has not yet articulated a standard for awarding temporary injunction, the United States Supreme Court has provided a four-part test in determining whether temporary injunction is appropriate. This test includes the following four inquiries: (1) Is the movant likely to prevail on the merits of the case?; (2) Will the movant suffer irreparable harm if not granted the preliminary injunction?; (3) Does the balance of the equities favor the movant?; and (4) Is granting the injunction in the public interest? Winter v. NRDC, Inc., 555 U.S. 7, 20 (2008). According to this test, a clear showing of an affirmative answer to all four inquiries must be established by the movant in order for a preliminary injunction to be granted. McEachin v. Boiling, 84 Va. Cir. 76, 77 (Richmond 2011) (citing The Real Truth About Obama, Inc. v. FEC, 575 F.3d 342, 346 (4th Cir. 2009), vacated in part on other grounds, 558 U.S. 310 (2010)). Virginia Courts have applied this four-part test in their state preliminary injunction analyses. See, e.g., CPM Va., L.L.C. v. MJM Golf, L.L.C., 94 Va. Cir. 404, 405-06 (Chesapeake 2016); McEachin v. Boiling, 84 Va. Cir. 76, 77 (Richmond 2011); Owens v. City Council, 75 Va. Cir. 91, 101-09 (Norfolk 2008).
II. Four-Factor Test
a. Likelihood of Success on the Merits
The operating agreements for Riverview Manager and Riverview Developer clearly state that McCullough's term as manager was to terminate on November 20, 2017. Specifically, using identical language, the two operating agreements state:
Notwithstanding the initial appointment/election of Andrew McCullough as Manager of the Company, Pieter Reidy shall assume the position and duties of Manager, and Andy McCullough shall resign said position and duties, upon the five (5) year anniversary of the date of issuance of the certificate of occupancy of the Project; it being understood that such change of Manager may be subject to the prior approval of the Lender and such change of Manager shall be conditioned upon CG Riverview (and/or Pieter Reidy) maintaining not less than its current Ownership Interest in the Company. (Pls.' Ex. 7, at 18; Pls.' Ex. 8, at 13-14 (emphasis added).)
The Court does not find McCullough's argument that Pieter Reidy's incarcerated status justifies McCullough's refusal to resign. The Court finds that the result of such a resignation does not alter the binding effect of the operating agreements' language. Additionally, although the Code of Federal Regulations does state that "an inmate is not permitted to engage actively in a business or profession," it further states that "[a]n inmate who was engaged in a business or profession prior to commitment is expected to assign authority for the operation of such business or profession to a person in the community." 28 C.F.R. 540.45 (2017). Furthermore, the operating agreements also provides for the Manager to "delegate any aspect of its authority, including management of the day to day business and operations of the Company, to one or more persons." (Pls.' Ex. 7, at 13; Pls.' Ex. 8, at 10.) Thus, federal regulations and the companies' operating agreements specifically allot for the authority to make decisions to be assigned to a party that is not currently incarcerated, as Pieter Reidy has done by appointing Frank Reidy as co-manager and delegating to him all the functions of the Manager.
In considering that the operating agreements specifically and unambiguously state that McCullough was to resign on November 20, 2017, and that federal law and the operating agreements allow for Pieter Reidy to delegate his authority to someone that is not currently incarcerated, the Court finds there is a likelihood that the Plaintiffs would succeed on the merits of this suit for removal.
b. Irreparable Harm
Even with a likelihood of success on the merits, the Court must consider whether the future harm is irreparable requiring preliminary injunction. See Winter v. NRDC, Inc., 555 U.S. 7, 20 (2008). The Supreme Court "has long said that '[t]o secure an injunction, a party must show irreparable harm and the lack of adequate remedy at law.'" Preferred Sys. Solutions, Inc. v. GP Consulting, LLC, 284 Va. 382, 401, 732 S.E.2d 676, 686 (2012) (quoting Black & White Cars, Inc. v. Groome Transp., Inc., 247 Va. 426, 431, 442 S.E.2d 391, 395 (1994)). Courts have generally held that the ability for monetary damages to make a plaintiff whole again is sufficient to deny a plaintiff injunction. See, e.g., Levisa Coal Co. v. Cosolidated Coal Co., 276 Va. 44, 62, 662 S.E.2d 44, 54 (2008) (holding that "[u]nless the plaintiff can demonstrate . . . that monetary damages would otherwise not make him whole, the court will deny the injunction because the legal remedy is sufficient"); Villalobos v. City of Norfolk, 62 Va. Cir. 158, 159 (Norfolk 2003) (denying plaintiff's motion for temporary injunction because "[a]ny potential injury that [the plaintiff] may suffer could be compensated by monetary damages").
In contrast, courts are more inclined to grant temporary injunction if the harm is of the unique type that monetary damages would be insufficient to make the plaintiff whole again. See, e.g., Roanoke Marble & Granite Co. v. Standard Gas & Oil Supply Co., 155 Va. 249, 154 S.E. 518 (1930) (holding that injunction was proper because allowing the defendant to remove a gas tank would destroy the land so as to cause irreparable harm); Owens v. City Council, 75 Va. Cir. 91, 102 (Norfolk 2008) (finding that a temporary injunction was proper to suspend the city's ability to issue a building permit because the construction of a church would result in damages after which "money cannot restore to [the plaintiff] or the neighborhood the full integrity of the district's previous historic character").
Considering the foregoing case law, the Court is tasked with the determining whether McCullough's refusal to resign as Manager creates a harm for which monetary damages can compensate. On this point, the Court finds cases of continuing trespass to be instructive. "[W]hen [an] injunction is sought to enforce a real property right a continuing trespass may be enjoined 'even though each individual act of trespass is in itself trivial, or the damage is trifling, nominal or insubstantial, and despite the fact that no single trespass causes irreparable injury.'" Levisa Coal, 276 Va. at 62, 662 S.E.2d at 54 (quoting Boerner v. McCallister, 197 Va. 169, 172, 89 S.E.2d 23, 25 (1955)). Accordingly, "[t]he injury is deemed irreparable and the owner protected in the enjoyment of his property whether such be sentimental or pecuniary." Id.
The fact that McCullough continues to act as the Manager despite his required resignation is analogous to a continuing trespass. He is making, and will continue to make, decisions that would otherwise be made by another Manager, which could affect the future course of the companies. This future harm is of such a nature that the company, its reputation, and its functions may be significantly altered by the decisions—a harm that would not be compensated or rectified by monetary damages. As such, as with a continuing trespass, the injury to Riverview Management and Riverview Developer would be irreparable without injunction.
c. Balance of Equities
In conjunction with the likelihood of success on the merits and irreparable harm, the Court must look to whether the balance of equities weighs in favor of the movant. See Winter v. NRDC, Inc., 555 U.S. 7, 20 (2008). The operating agreements that the Plaintiffs seek to enforce are the same operating agreements that McCullough agreed to and benefited from in his role as Manager over the past five years. He now refuses to follow the operating agreements' plain language. To allow McCullough to continue as Manager in violation of the operating agreements would provide him excessive benefits not contemplated by the agreements. Thus, the balance of equities weighs in favor of enforcing the operating agreements and removing McCullough from his position as Manager.
d. Public Interest
The last element of the temporary injunction test requires the Court to consider whether granting the injunction is in the public interest. See Winter v. NRDC, Inc., 555 U.S. 7, 20 (2008). Operating agreements are a foundational aspect of the functions of a limited liability company. For an agreement to fulfill its purpose, it must be followed by those in charge of the company's interests. If not followed, the agreement is rendered meaningless. Thus, the public interest in the use and operations of limited liability companies favors the enforcement of the terms of operating agreements, and thus favors the enforcement of McCullough's removal as delineated in the operating agreements of Riverview Developer and Riverview Management.
III. Statutory Authority
Even if the Court were to find that the traditional prerequisites outlined above were not met, arguendo, it is still empowered statutorily to enforce the operating agreements of limited liability companies. Section 13.1-1023(C) of the Virginia Code states that "[a] court of equity may enforce an operating agreement by injunction or by such other relief that the court in its discretion determines to be fair and appropriate in the circumstances." Va. Code § 13.1-1023(c) (2017). Furthermore, the Virginia Supreme Court has held that "[w]hen a statute empowers a court to grant injunctive relief, the party seeking an injunction is not required to establish the traditional prerequisites, i.e., irreparable harm and lack of adequate remedy at law, before the injunction can issue." Virginia Beach S.P.C.A., Inc. v. South Hampton Rds. Veterinary Ass'n, 229 Va. 349, 354, 329 S.E.2d 10, 13 (1985) (emphasis added).
As stated above, McCullough's refusal to resign is a clear violation of the operating agreements for Riverview Management and Riverview Developer. Based on the Virginia Code, this Court is empowered to enforce this provision by injunction requiring McCullough's resignation. See Va . Code § 13.1-1023(C). Furthermore, controlling precedent provides that the Court can do so by injunction even if the traditional prerequisites for injunction are not met.
CONCLUSION
For the reasons stated herein, the Court GRANTS Plaintiffs' motion for Temporary and Immediate Injunction, which upon order will remove McCullough from his position as Manager of 139 Riverview Manager, LLC and 139 Riverview Developer, LLC. The Court directs Mr. Koch, as counsel for Plaintiffs, to prepare and circulate an Order consistent with the ruling in this opinion and submit it to the Court for entry within seven (7) days.
Sincerely,
/s/
Michelle J. Atkins
Judge MJA/kml