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Sherwood Park Bus. Ctr., LLC v. Taggart

Court of Appeals of Oregon

November 26, 2014

SHERWOOD PARK BUSINESS CENTER, LLC, an Oregon limited liability company, Plaintiff-Respondent Cross-Appellant,
v.
BRAD TAGGART, an individual; and BT OF SHERWOOD, LLC, an Oregon limited liability company, Defendants-Appellants Cross-Respondents, and JOHN BERMAN, an individual, Defendant. BT OF SHERWOOD, LLC, an Oregon limited liability company, Counterclaim Plaintiff-Appellant Cross-Respondent, and JOHN HOFFARD OF SHERWOOD, LLC, an Oregon limited liability company, Counterclaim Plaintiff,
v.
TERRY W. EMMERT, an individual; KEITH JEHNKE, an individual; and SHERWOOD PARK BUSINESS CENTER, LLC, an Oregon limited liability company, Counterclaim Defendants-Respondents Cross-Appellants. TERRY W. EMMERT, et al., Counterclaim Plaintiffs,
v.
BT OF SHERWOOD, LLC; et al., Counterclaim Defendants

Argued and Submitted June 4, 2013.

Page 97

Washington County Circuit Court. C085540CV. Donald R. Letourneau, Judge.

John M. Berman argued the cause and filed the briefs for appellants-cross-respondents.

George W. Kelly argued the cause and filed the briefs for respondents-cross-appellants.

Before Ortega, Presiding Judge, and Hadlock, Judge, and Norby, Judge pro tempore.

OPINION

Page 98

[267 Or.App. 219] HADLOCK, J.

Brad Taggart and BT of Sherwood, LLC (BT) (collectively, " defendants" ) appeal a supplemental judgment awarding Sherwood Park Business Center, LLC (SPBC) attorney fees and costs against Taggart and costs against BT. They assert on appeal that Taggart's prior discharge in bankruptcy prevented the court from entering an award of fees or costs against him in this case and, furthermore, that no fees or costs should have been awarded to SPBC because SPBC did not file a statement for attorney fees as required by ORCP 68 C(4) and UTCR 5.080. SPBC, along with two of its members, Terry Emmert and Keith Jehnke (collectively, " plaintiffs" ), cross-appeal the supplemental judgment.[1]

The judgment resolving the claims underlying the trial court's attorney fee award was appealed separately. Sherwood Park Business Center, LLC v. Taggart, 261 Or.App. 609, 323 P.3d 551, rev den, 355 Or. 879, 333 P.3d 333 (2014). In that case, we affirmed the trial court's judgment, rejecting defendants' challenges to the trial court's resolution of the claims and counterclaims. Meanwhile, the court entered the supplemental judgment at issue in this case. We described the events that gave rise to this litigation in our earlier opinion. We repeat here those facts that are pertinent to our analysis.

I. BACKGROUND

" SPBC is a limited liability company that was formed in 1999 to develop a small office complex." Id. at 612. " After its formation in 1999, SPBC was initially managed by Taggart and had four original members--Taggart, Jehnke, John Hoffard, and Anthony Benthin. In 2003, Emmert purchased Benthin's interest and became a member of SPBC." Id. at 615 (footnote omitted).

" Late in 2004, Taggart began having financial difficulties and companies in which he was an owner or manager began to have cash flow problems. For at least one of those companies--Builder's, Inc.--Taggart diverted funds intended for payroll tax withholding to his own use. In early [267 Or.App. 220] 2005, that company was placed in bankruptcy and Taggart disappeared for a period of time. Also in 2005, Taggart was

Page 99

removed as SPBC's manager and replaced by Jehnke.
" In addition to diverting funds from Builder's, Inc., in late 2004 or early 2005, Taggart diverted approximately $30,000 from SPBC for his own purposes. SPBC initiated an arbitration proceeding; Taggart was represented by attorney [John] Berman during that proceeding. Ultimately, the arbitrator concluded that Taggart had converted funds from SPBC and breached his fiduciary duty to that company. A judgment was entered in favor of SPBC and against Taggart in 2008. Eventually, Berman paid that judgment.
" * * * * *
" In mid-2007, Berman advised Taggart to form an LLC and transfer his interest in SPBC to that LLC. Berman told Taggart that he could then freely sell his interest in the newly formed LLC to a third party without complying with restrictions imposed by the SPBC operating agreement on transfers of membership interests in SPBC. Berman assisted Taggart in forming BT (the new LLC) in July 2007. Taggart held 100 percent of the membership interests in that LLC and transferred his entire interest in SPBC to the LLC as its sole asset."

Id. at 615-16.

After Taggart had signed a document to transfer his interest in SPBC to BT, Berman e-mailed SPBC's attorney and informed him of the transfer; however, no " documentation of the transfer was provided to SPBC at that time." Id. at 617. " In late 2007, Berman took a security interest in Taggart's interest in BT to secure payment of his fees. Then, in December of that year, Berman agreed to purchase an interest in BT[.]" Id. Over several months, Berman paid a total of $200,000 and ultimately received Taggart's entire interest in BT. " Berman and Taggart kept Berman's purchase of Taggart's interest in B.T.A. secret until August 2008 and did not provide documentation of the transfer until the trial court ordered them to do so in the course of this litigation." Id.

Late in 2008, SPBC commenced this litigation. In its operative complaint, among other things, it sought [267 Or.App. 221] to have the trial court expel Taggart from SPBC, declare that Taggart's attempted transfer of his interest in SPBC to BT was invalid, declare that BT had no interest in SPBC, and unwind the transactions between Taggart and BT.[2] It also sought attorney fees under the SPBC Operating Agreement.[3] BT, for its part, brought counterclaims in which it, among other things, sought equitable relief and asserted that Emmert and Jehnke[4] owed it a fiduciary duty and had breached that obligation. BT also alleged that, although it was not a party to the SPBC Operating Agreement, and " [notwithstanding that SPBC cannot assert attorney fees against [BT], since [SPBC] has asserted that the Operating Agreement's attorney fee clause applies, [BT is] entitled to recover [its] attorney fees unilaterally as the prevailing part[y]." Taggart, in a separate pleading, likewise asserted that he was " entitled to recover his attorney fees herein pursuant to Section 13.6 of [SPBC's] Operating Agreement and pursuant to ORS 20.105." Emmert and Jehnke, having been brought into the case by BT, brought their own claims. Among other things, they brought claims for declaratory relief and " [c]onspiracy to interfere with prospective economic advantage and contract," and sought attorney fees against BT under the SPBC Operating Agreement. SPBC later filed a pleading in which it " incorporate[d] and join[ed] in counterclaim defendants Terry W. Emmert and Keith Jehnke's counterclaims."

Page 100

Before trial began, Taggart obtained a discharge of his debts in bankruptcy. The bankruptcy discharge, dated February 23, 2010, was filed with the trial court in March 2010. As discussed in our earlier opinion, Taggart filed a motion to dismiss the claims against him on the basis of the discharge.

[267 Or.App. 222] " At the beginning of the trial, the court addressed that motion. The court noted that it was 'not going to enter any money judgments against * * * Taggart, but I think there's some other claims that involve him that don't involve money.' Taggart asserted, however, that an 'attempt to unwind anything * * * would include [his] obligation to pay money back and that's * * * a financial impact on him. I think the Bankruptcy Code says that prepetition conduct cannot be relied upon to cause financial liability to [a discharged] person.' Plaintiffs stated that they did not seek any monetary relief against Taggart, and that dismissal was not appropriate because 'there is a nonmonetary claim for expulsion' and 'Taggart needs to remain in the case for purposes of the expulsion claim.' The court agreed:
" 'I will not grant the motion to dismiss Mr. Taggart. Although I have already said and the other side has agreed that it's not a money judgment against him, but I think there are some technical claims that make him still technically a proper person in the lawsuit.'"

Sherwood Park Business Center, LLC, 261 Or.App. at 617-18 (ellipses and second brackets in original).

The case was then tried to the court. At the end of trial, the court announced its factual findings and legal conclusions. In particular, the court held that Taggart was subject to expulsion under ORS 63.209 and that it was appropriate to terminate Taggart's membership in SPBC. Furthermore, " the court determined that Taggart had not successfully transferred his SPBC membership interest to BT before that interest terminated[.]" Id. at 619. With respect to BT's claim for breach of fiduciary duty against Emmert and Jehnke, the court " concluded that there was no breach of fiduciary duty for two independent reasons: (1) as a matter of law, neither Emmert nor Jehnke owed fiduciary obligations to BT, and (2) even if they did owe a fiduciary duty, they did not breach it." Id. at 620.

After the trial, the parties did not agree as to the form of judgment that should be entered and, as a result, the court held a hearing at which the parties made arguments regarding the terms they believed that the judgment should contain. Taggart was present at that hearing but was not represented by an attorney. After hearing argument from [267 Or.App. 223] the attorneys, the court asked Taggart whether he " wish[ed] to argue anything at this juncture about what we're doing today?" Taggart replied:

" MR. TAGGART: Only--the only thing I'd like to say, Your Honor, is that if--if the date is in 2008, then they do--I feel they owe interest on that date. If it's not, then I--I deserved the--the tax benefit from that period of time. They can't have their cake and eat it too, in my opinion, so--
" THE COURT: Very well.
" MR. TAGGART: Fair is fair. Regarding the bankruptcy, my bankruptcy was discharged before you made your decision. There have been considerable payments made on the taxes already. We don't know what's the totals of those right now. My feeling is that any money that comes out of this should go into either an escrow account or Mr. Berman's trust account until we determine exactly what that number is. They're hopefully not going to be receiving a hundred percent of the proceeds * * *."

Taggart did not make any other argument during the hearing.

Ultimately, the court entered a general judgment as follows:

" 1. [SPBC] is entitled to judgment in its favor and against defendants Brad Taggart and BT of Sherwood, ...

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