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Alpha Alpha LLC v. Land Strategies LLC

United States District Court, D. New Mexico

July 1, 2019

ALPHA ALPHA, LLC, a New Mexico limited liability company, on behalf of itself and derivatively on behalf of Avalon Jubilee, LLC, Plaintiff,
LAND STRATEGIES, LLC, a Nevada limited liability company, RONALD R. COBB, and PETER GHISHAN, Defendants, and RONALD R. COBB, Third-Party Plaintiff,
AVALON JUBILEE, LLC, a New Mexico limited liability company, Third-Party Defendant.


         This matter comes before the Court on Third-Party Plaintiff Ronald R. Cobb's (Cobb) Motion for Partial Summary Judgment, filed October 31, 2018. (Doc. 23). Cobb seeks summary judgment on his claim for advancement of costs from Third-Party Defendant Avalon Jubilee, LLC (Avalon). Avalon filed its response and a supporting Declaration of James Nicholas Blea on December 20, 2018. (Docs. 43 and 42). Cobb filed his reply on January 7, 2019. (Doc. 46). Having reviewed the briefing, the record, and the applicable law, the Court grants Third-Party Plaintiff Ronald R. Cobb's Motion for Partial Summary Judgment on advancement of costs, and orders Cobb to submit a statement of costs-to-date within ten (10) calendar days of the date of entry of this Memorandum Opinion and Order. Avalon will then have five (5) calendar days to contest, in writing, any costs-to-date with which it takes issue. The Court will issue a written order on Cobb's costs-to-date. For future costs, Cobb will submit monthly billing statements to Avalon. Should Avalon dispute any claimed costs, it will submit a written explanation for its dispute to Cobb within ten (10) calendar days of receipt of Cobb's monthly billing statement. The parties shall meet and confer to resolve any such disputes, but either party may bring unresolved issues to this Court by motion no later than forty-five (45) calendar days after Avalon's receipt of the statement at issue. Finally, Avalon will pay the undisputed portion of Cobb's future costs, as indicated on the monthly billing statement, within fifteen (15) calendar days of receipt of Cobb's monthly billing statement.

         I. Background and Procedural History

         Alpha Alpha, LLC (Alpha Alpha) filed suit in New Mexico state court on November 17, 2017, alleging, among other things, that Cobb and the other Defendants mishandled and misappropriated money from Avalon. Alpha Alpha was and is Avalon's majority member. Land Strategies, LLC, owned 50/50 by Cobb and Peter Ghishan, was also a member of Avalon. Cobb was Avalon's first Manager, vested with near plenary authority to conduct Avalon's affairs. Avalon's Members voted to remove Cobb as Manager “for cause” on April 27, 2018. (Doc. 43) at Fact R; (Doc. 46) at 7.

         Alpha Alpha, on behalf of Avalon, claims that Cobb acted beyond his authority and abused his position to bilk Avalon out of more than $600, 000.00 by paying Land Strategies an unauthorized $10, 000.00 per month “management fee, ” among other misdeeds. At this stage, Alpha Alpha's allegations are exactly that-allegations.

         Avalon adopted the Operating Agreement of Avalon Jubilee, LLC (Operating Agreement) on May 16, 2012. (Doc. 23) at Fact 1; (Doc. 43) at Fact 1. The Operating Agreement specifically addresses the “Rights and Duties of Managers.” (Doc. 23-1) at 5. To wit,

5.01 Management. The business and affairs of the Company shall be managed by its designated Manager. The initial Managers of the Company shall be Ronald R. Cobb. The Manager shall direct, manage and control the business of the Company to the best of his ability. Except for situations in which the approval of the Members is expressly required by this Operating Agreement or by non-waivable provisions of applicable law, the Manager shall have full and complete authority, power and discretion to manage and control the business, affairs and properties of the Company, to make all decisions regarding those matters and to perform any and all other acts or activities customary or incident to the management of the Company's business. At any time that there is more than one Manager, each Manager shall have the right and authority to act independently.

(Doc. 23-1) at 5; (Doc. 10) at 24. The Operating Agreement further addresses advancement to the Manager:

5.08 Indemnity of the Manager, Employees and Other Agents. To the maximum extent permitted under the [New Mexico Limited Liability Company] Act, the Company shall indemnify the Manager and make advances for expenses. The Company shall indemnify its employees and other agents who are not Managers to the fullest extent permitted by law, provided that the indemnification in any given situation is approved by Members owning a Majority Interest or arises from actions of the Manager in carrying out his duty to manage the Company assets, develop the assets and create income for the Company.

(Doc. 23-1) at 7; (Doc. 10) at 26.

         Cobb now moves for partial summary judgment against Avalon on his claim for advancement of costs. (Doc. 23).

         II. Standard of Review

         Summary judgment is appropriate if there is no genuine dispute as to a material fact and the movant is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(a). “When applying this standard, [the Court] view[s] the evidence and draw[s] reasonable inferences therefrom in the light most favorable to the nonmoving party.” Scull v. New Mexico, 236 F.3d 588, 595 (10th Cir. 2000) (internal quotation marks omitted). The movant bears the initial burden of showing the absence of a genuine issue of material fact, then the burden shifts to the non-movant to provide evidence of a genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 325 (1986); Bacchus Indus., Inc. v. Arvin Indus., Inc., 939 F.2d 887, 891 (10th Cir. 1991). A fact is “material” if, under the governing law, it could influence the outcome of the lawsuit, and “genuine” if a reasonable jury could return a verdict for the non-movant. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986); Hardy v. S.F. Phosphates Ltd. Co., 185 F.3d 1076, 1079 (10th Cir. 1999); Kaul v. Stephan, 83 F.3d 1208, 1212 (10th Cir. 1996) (citation omitted). A party cannot avoid summary judgment simply by resting upon the mere allegations or denials of his pleadings. Bacchus Indus., Inc., 939 F.2d at 891.

         III. Discussion

         Cobb's claim for advancement of costs presents a straightforward question of statutory and contract interpretation arising out of an unusual situation. Cobb argues that § 5.08 of the Operating Agreement is unambiguous and applies in this case. Avalon counters that Cobb was not named as a party “on account of being the manager, ” so § 5.08 does not apply; the Operating Agreement does not authorize advancement of costs for former managers; “the intent” of § 5.08 “precludes advancement of costs” for Cobb under the circumstances; and Cobb breached the Operating Agreement. (Doc. 43).

         A federal court sitting in diversity, as in this case, must apply the substantive law of the state in which it sits. Boyd Rosene & Assocs., Inc. v. Kansas Mun. Gas Agency, 123 F.3d 1351, 1352 (10th Cir. 1997). The New Mexico Limited Liability Company Act (NMLLCA), NMSA 1978 §§ 53-19-1 et seq., governs limited liability companies in New Mexico. “It is the policy of the [NMLLCA] to give maximum effect to the principle of freedom of contract and to the enforceability of operating agreements of limited liability companies.” § 53-19-65(A) NMSA 1993. With respect to advancement of expenses, the NMLLCA states:

an operating agreement may provide for indemnification of a . . . manager for judgments, settlements, penalties, fines or expenses incurred in a proceeding to which a person is a party because he is or was a . . . manager and for advancement of expenses, including ...

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