Hannah v. Mullins Family Funeral Home, LLC (US District Court, W. Virginia, Feb. 2021)
Background:
In 2017, Hannah “agreed” with Mullins to invest $80,000 in the Mullins Family Funeral Home LLC in exchange for 30% ownership of the Funeral Home and 30% of “all dividends and/or other distributions from the business.” Hannah would be a “silent partner” and Mullins would be the funeral director with a salary. Mullins formed the Funeral Home LLC and Hannah deposited $80,000 into the Funeral Home’s accounts, with little written documentation of the agreement. The relationship soured over time. Hannah pressed for an LLC Operating Agreement and more oversight. Hannah demanded to inspect books and found Mullins was paying many personal expenses out of the Funeral Home.
Evidence:
Records showed that the Funeral Home filed tax returns in 2018 and 2019 listing it as a sole proprietorship/single member LLC. Hannah produced checks from 2017 to 2019 signed by Mullins stating they were for “Investment payment” and Quarterly stockholders distribution.” But there was no evidence of a written LLC Operating Agreement, nor any written evidence of any written consent for Hannah to become a Member of the LLC.
Court Ruling:
The Court, in determining whether Hannah was an LLC Member for a procedural ruling in the case, pointed to the lack of written evidence of Mullins consenting to Hannah as an LLC Member. Thus, at best the Court found that Hannah might be an economic interest holder, stating that Hannah appears to have assumed the role of a passive investor in the Funeral Home rather than a Member entitled to any management of governance of the LLC. Consequently, Hannah was left without any important powers or rights as a Member of the LLC, thus diminishing Hannah’s ability to challenge the malfeasance of Mullins.
Brooktree Village HOA v. Brooktree Village, LLC, (Colorado Ct. Appeals, Nov. 2020)
Background:
A homeowner’s association HOA that governed condominium townhomes and common areas sued a developer and builder primarily for construction defects in common areas, such as improper site grading and drainage which caused water intrusion into buildings, and deterioration of pavements. The defendant developer and builder had acquired the development out of a prior developer’s bankruptcy. A prior unrelated developer had sold most of the townhomes and had constructed most of the common areas. Nonetheless, the HOA sued the second developer and builder for all amounts of all construction defects regardless of their only partial involvement in constructing and selling them.
Evidence:
Facts showed that the HOA had not acquired the common areas from the defendant and the developer defendant never even owned the common areas. Further, only a minority of the townhome owners, 23 of the 52, had bought their townhomes from the builder defendant.
Court Ruling:
The Court noted that all HOA members had ownership rights in the common areas, and therefore a defect in the common areas affected all owners, regardless of whether they purchased from the defendants or not. The Court held that if it only awarded damages for a fraction of 23/52 of the repair cost of defects, then the HOA direct purchasers that relied on the implied warranties of the defendant/seller would not be made whole and would not cover all the cost of repairs. Therefore, through their purchase of the townhomes that came with a share of the common areas, the HOA and homeowners could sue the defendants for ALL damages. Judgement for HOA for $1.8M, the entire cost of repairing all defects for all owners.
By: Sean Rieger
