Argued and Submitted July 9, 2014.
Josephine County Circuit Court. 07CV0860CM. Timothy C. Gerking, Judge.
Michael J. Mayerle argued the cause for appellants. With him on the briefs was Hornecker, Cowling, Hassen & Heysell, L.L.P.
Jay W. Beattie argued the cause for respondent. With him on the brief was Lindsay Hart, LLP.
Before Armstrong, Presiding Judge, and Egan, Judge, and De Muniz, Senior Judge.
[270 Or.App. 129] DE MUNIZ, S. J.
Plaintiffs appeal from a judgment for defendant in which the trial court concluded that the term " member," as used in an LLC Operating Agreement (agreement), was not ambiguous and means only an active or current member of the LLC, not a former member. We agree with the trial court that the term " member" in the agreement is not ambiguous, and conclude that the trial court did not err in granting judgment for defendant. Accordingly, we affirm.
In August 2000, a group of Grants Pass physicians formed Grants Pass Imaging & Diagnostic Center, LLC (GPIDC). The intent of the organization was to provide diagnostic testing services to patients in Josephine and Jackson County, Oregon. Three planning meetings were held to develop a GPIDC operating agreement. During the GPIDC planning meetings, at least two of which defendant attended, the potential members of GPIDC discussed whether a restrictive covenant should be included within the operating agreement to protect member investments by restricting competition by former members in Jackson and Josephine Counties (the only counties in which GPIDC operated). The potential members discussed various forms of post-withdrawal noncompete provisions, which included durations from two to ten years.
GPIDC retained a law firm to draft the agreement, which became effective on January 1, 2001. Paragraph 1.8 of the agreement, containing the restrictive covenant, however, had been copied from an operating agreement originally drafted for another company, and provided only that," [e]ach member shall * * * refrain from competing with the Company within Douglas County, Oregon, without the consent of all the members after full disclosure of all material facts." GPIDC members noticed that error and corrected it in early 2004 by executing the First Amendment to the agreement, replacing " Douglas County" with " Josephine County and Jackson County." The members made no other modifications to paragraph 1.8. That provision of the agreement now states:
" 1.8 Other Business of Members. Each member shall (i) account to the Company and hold for the Company [270 Or.App. 130] any property, profit or benefit derived by the member in the conduct and winding up of the Company's business or derived from a use by the member of any Company property, including appropriation of a Company opportunity; and (ii) refrain from competing with the Company within Josephine County and Jackson County, Oregon, without the consent of all members after full disclosure of all material facts. Each member hereby acknowledges and agrees that a member's ownership of or other participation in the conduct of any business shall not be considered to be in competition with the Company if the business is not conducted within Josephine and Jackson County, Oregon."
In 2004 or 2005, defendant began constructing a sleep laboratory. After GPIDC verified defendant's construction of, and intent to operate the laboratory, GPIDC informed defendant that its operation would violate the agreement. Defendant then withdrew from GPIDC and began to operate the sleep laboratory. For a short period of time after defendant withdrew from GPIDC, GPIDC referred patients to defendant, because he was the only doctor in the area that could interpret certain sleep studies.
Eventually, plaintiffs filed an action against defendant alleging claims for (1) breach of fiduciary duty, (2) breach of contract, and (3) breach of the implied covenant of good faith and fair dealing. All plaintiffs' claims were based on defendant's construction and operation of a sleep laboratory in Josephine County, allegedly in violation of the agreement.
A Josephine County circuit court judge was originally assigned GPIDC's civil action.
In November 2009, defendant moved for summary judgment on his counterclaim for a declaratory judgment, arguing that the noncompete provision did not apply to him because he was a former member when he operated the laboratory. In a letter opinion, the court denied defendant's motion for summary judgment, stating " [c]learly this provision applies to former members." Following that ruling, GPIDC moved for partial summary judgment, seeking an order from the court that the noncompete provision was unambiguous and applied to both current and former members. The court granted that motion, relying for the most part on extrinsic evidence related to the original formation of the agreement.
[270 Or.App. 131] Subsequently, defendant's counsel informed the court that defendant would call another Josephine County circuit court judge as a witness in the action. That led to the recusal of all Josephine County judges. A Jackson County circuit court judge was then assigned to the case.
Following that assignment, defendant moved for reconsideration of his summary judgment motion. The court granted defendant's summary judgment motion, concluding that the noncompete provision in the agreement did not apply to defendant because defendant was a former member. The court reasoned that the term " member" in the agreement was unambiguous, included only current or active members of GPIDC, and that ...