Gatz Properties, Llv. V Auriga Capital Corp.

59 A.3d 1206 (2012)

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Nature of the Case

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Facts

Peconic Bay LLC intended to act as a passive operator by subleasing the golf course for operation by a large golf management corporation. A sublease to that effect was entered in 1998. The golf management corporation was purchased early in the term of the sublease by owners that sought to consolidate its operations. The management corporation took shortcuts, let maintenance slip, and evidenced a disinterest in the property. By as early as 2004, it was clear to the manager that the golf management corporation would not renew its lease. This did not make the manager (D) of the Peconic Bay LLC upset. The LLC and its investors had invested heavily in the property. If the manager (D) and his family could get rid of the investors in the LLC, they would have an improved property, which they had reason to believe could be more valuable as a residential community. The manager (D) failed to take any steps at all to find a new strategic option for the LLC that would protect the LLC's investors. When a credible buyer for the LLC came forward on its own and expressed a serious interest, D failed to provide that buyer with the due diligence that a motivated seller would typically provide to a possible buyer. Even worse, the manager did all it could to discourage a good bid, frustrating and misleading the interested buyer. D and his family wanted to be rid of the minority investors, whom they had come to regard as troublesome bothers. D eventually conducted a sham auction to sell the LLC. The auctioneer knew that no one other than D was going to bid and D then won with a bid of $50,000 in excess of the LLC's debt, on which D was already a guarantor. Only $22,777 of the bid went to the minority investors. The auctioneer received a fee of $80,000, which was greater than the cash component of the winning bid. Despite claiming that the LLC could not run a golf course profitably and pay off the mortgage on the property, D has run the course himself since the auction and is paying the debt. A group of minority investors (P) have sued for damages. P got the verdict and D appealed.