Gottsacker v. Monnier

697 N.W.2d 436 (2005)

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Nature of the Case

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Facts

D formed New Jersey LLC as a vehicle to own investment real estate. The company purchased a 40,000-square-foot warehouse located at 2005 New Jersey Avenue in Sheboygan, Wisconsin. It had a single tenant on a year-to-year lease. The cost paid was $510,000, with the financing arranged for and guaranteed by D. Brothers Paul and Gregory Gottsacker became members of New Jersey LLC in January 1999. D owned a 50% interest in the capital, profits, and losses of Company and was to have 50% of the voting rights of Company. Paul Gottsacker and Gregory Gottsacker, collectively, shall own a 50% interest in the capital, profits, and losses of Company and shall have 50% of the voting rights of Company. The LLC later purchased additional property in Sheboygan on Wilson Avenue. It was sold with a 50/25/25 split. The LLC still owned the original warehouse. In May 2000, Paul and Gregory had a falling-out, allegedly due to Gregory's (P)lack of contribution to the enterprise. On June 7, 2001, D executed a warranty deed transferring the warehouse property owned by New Jersey LLC to a new limited liability company called 2005 New Jersey LLC for $510,000, the same amount as the original purchase price. The new limited liability company consisted of two members: Monnier with a 60% ownership interest and Paul with a 40% ownership interest. Neither one had discussed the transfer with P before it occurred. D sent a check to P for $22,000, which purportedly represented his 25% interest in the warehouse property previously owned by New Jersey LLC. P did not cash the check. P sued Ds for an illegal transaction, and the trial court ruled for P. Because the transfer served no legitimate business purpose, and because Ds both profited from it, the circuit court determined that Ds were precluded by the conflict of interest rules under Wis. Stat. Ch. 183 from voting to authorize the transfer. In the alternative, it concluded that Paul did not have authority to act without the assent of P because the two brothers held a 'collective' interest in the ownership. The court ordered the transfer of the property back to New Jersey LLC. The court of appeals affirmed the decision of the circuit court on different grounds; A member with a material conflict of interest can vote to transfer property but is required to do so fairly. It held the transfer of property was unfair in two respects. First, the conveyance was not an 'arm's length transaction' because it did not occur on the open market. Second, the sale made it impracticable for New Jersey LLC to carry on with its intended business (i.e., to hold the commercial property as a long-term investment). This appeal resulted.