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McCabe v. Rainey

Court of Appeals of Georgia, Fifth Division

October 27, 2017

McCABE et al.
v.
RAINEY et al.

          MCFADDEN, P. J., BRANCH and BETHEL, JJ.

          Branch, Judge.

         This appeal arises from a dispute between the two owners of a set of car wash limited liability companies (LLCs). Facing a suit by a bank for funds owed, the owners settled their own disputes in a written agreement under which defendant Rhett Rainey would become the manager of the enterprise and attempt to obtain refinancing to pay off the bank loan. Rainey later obtained a loan from his family, paid off the bank loan, and sold the car wash LLC, as he was authorized to do under the settlement agreement. Plaintiffs Patrick McCabe and his wife Dara then brought this action for breach of the settlement agreement, breach of fiduciary duty, and other claims. On appeal from the trial court's grant of summary judgment to Rainey, the McCabes assert inter alia that the grant was in error because genuine questions of material fact remain as to Rainey's liability. We reverse in part and remand for further proceedings.

To prevail at summary judgment under OCGA § 9-11-56, the moving party must demonstrate that there is no genuine issue of material fact and that the undisputed facts, viewed in the light most favorable to the nonmoving party, warrant judgment as a matter of law. OCGA § 9-11-56 (c). A defendant may do this by showing the court that the documents, affidavits, depositions and other evidence in the record reveal that there is no evidence sufficient to create a jury issue on at least one essential element of plaintiff's case.

Lau's Corp. v. Haskins, 261 Ga. 491 (405 S.E.2d 474) (1991) (emphasis omitted).

         Thus viewed in favor of the McCabes, the record shows that in August 2004, the McCabes and Rainey filed articles of incorporation for Carnett's Lanier Express Real Co., LLC ("the Carnett's LLC") with the Georgia Secretary of State. Both the Carnett's LLC and its operating company LLC were owned entirely by a third LLC, Car Wash Partners, of which the McCabes owned 60% and Rainey's limited partnership, RK Rainey Real Estate LLLP, owned 40%. The three LLCs did business in Gainesville as "Carnett's Car Wash."

         In February 2005, Patrick McCabe and the Car Wash Partners LLC entered into an operating agreement as to the Carnett's LLC. The operating agreement designated McCabe as the "initial Manager" and the Car Wash Partners LLC as the 100% owning "Member" of the Carnett's LLC and provided that "[t]he Members and Managers shall perform their duties in good faith, in a manner they reasonably believe to be in the best interests of the [Carnett's] LLC, and with such care as an ordinarily prudent person in a like position would use under similar circumstances." The operating agreement also provided that "[n]o Member or Manager shall be liable to the LLC or to any other Member" for any business losses unless those losses "shall have been the result of fraud, deceit, gross negligence, willful misconduct, or a wrongful taking by the Member or Manager, " and that a party granted discretionary powers "shall be entitled to consider only such interests and factors as it desires, including its own interests, and shall have no duty or obligation to give any consideration to any interest of or factors affecting the LLC or any other person."

         In October 2012, Nicolet National Bank ("the Bank") sued the Carnett's LLC (as well as Patrick McCabe and Rainey, who had personally guaranteed the loan) to recover on an outstanding loan of $1.9 million secured by the car wash assets. The Carnett's LLC answered and apparently filed a cross-claim against McCabe and Rainey personally, alleging that both men had violated the operating agreement.[1]Faced with the prospect of a judgment in favor of the Bank, the McCabes, Rainey, his entities, and the three LLCs entered into a settlement agreement in July 2013 under which Patrick McCabe resigned as manager of the LLCs, replaced by Rainey, but with McCabe agreeing to provide "reasonable assistance . . . without compensation" for up to 5 hours a month. The McCabes also transferred 10% of their membership interest in Car Wash Partners to Rainey "or" his LLLP, making the McCabes and Rainey equal co-owners in that LLC.

         Under the settlement agreement, the McCabes would "not be required to guarantee the new loan financing the existing" Nicolet loan, but were required to "cooperate in providing any requested information to obtain the loan" and "in executing loan documents, releases and dismissals . . . in a timely manner in order to obtain appropriate financing[.]" For his part, and in addition to becoming the "Manager" of the two LLCs, Rainey promised to make efforts on the LLCs' behalf including "personally guarantee[ing any] new loan, " "refinanc[ing] the existing [Nicolet] loan, " or "obtain[ing] any new financing he deems appropriate on terms acceptable to him as Manager, " although if Rainey self-financed, he "shall not charge the company higher than market rate." Further, if any "new loan" went into default, Rainey could, "if [he] deemed [it] appropriate, " and "in his sole discretion, " sell the assets of the LLCs. The agreement also provided that Rainey "will not hire his wife to work" at the car wash and that he could enter into an operating contract with a franchisor, Cactus, "on terms he deems advisable in his sole discretion, and [without] any further signatures of [the McCabes]." At the same time as they executed the settlement agreement, the parties also executed amendments to the operating agreements of the three LLCs providing that "[t]o the extent that any of the provisions" of the amendments or the settlement agreement "conflict with the provisions" of the earlier versions of the operating agreements, the amendments, as incorporated into the settlement agreement, "shall govern and control."

         In August 2013, the Bank entered into a settlement with McCabe, Rainey, and the Carnett's LLC under which those defendants would obtain new financing secured by the car wash and pay $1.8 million to the Bank. The defendants to the Bank suit also consented to a judgment of more than $2 million against them in the event that the $1.8 million payment was not timely made to the Bank. In September 2013, the McCabes authorized Rainey to borrow from his family on terms he deemed appropriate, "in his sole discretion and in accordance with his fiduciary duties to the [Carnett's LLC]." On September 10, Rainey executed two notes in exchange for his family's loans in the amounts of $1, 833, 784.28 and $55, 013.53. On September 18, having received a payoff of its loan from Rainey, the Bank voluntarily dismissed its action against the car wash with prejudice, and with the agreement of all the parties, including Rainey and McCabe.

         Between the closing of the Rainey family loans in September 2013 and early 2015, the Carnett's LLC continued to have financial problems.[2] Although the settlement agreement had barred Rainey from hiring his wife, she was working at the car wash by February 2014 and arranging to have checks issued to her son rather than herself in an effort to prevent the McCabes from learning of her duties. In July 2015, counsel for the Rainey family notified the McCabes that the car wash had defaulted on the new loan and reminded them that under the settlement agreement, Rainey had discretion to sell the company's assets to parties which could include the McCabes themselves.

         On November 25, 2015, the McCabes sued Rainey for breach of the settlement agreement; for breach of fiduciary duty (derivatively, on behalf of the Carnett's and Car Wash Partners LLCs); for an injunction to prevent "an entity controlled by" Rainey from proceeding with a foreclosure sale of the property, allegedly scheduled for December 1, 2015; and for declaratory relief.[3] On the day this complaint was filed, the trial court granted a temporary restraining order to prevent the foreclosure sale.

         On January 5, 2016, after filing an answer and counterclaims to the McCabes' complaint, Rainey's counsel notified the McCabes that he had found a buyer for the car wash, that he expected the McCabes' cooperation in concluding the sale, and that their failure to cooperate would be a breach of the settlement agreement that could result in the closing of the business and "a significant counterclaim against the McCabes."

         In fact, the Carnett's LLC had entered into a written agreement on October 14, 2015 to sell the car wash's land, fixtures, and equipment to J. Ralph McClelland, IV for $1.9 million. On February 19, 2016, Rainey and McClelland executed amendments to this purchase-and-sale agreement.[4] In those amendments and an accompanying affidavit of title, Rainey represented that he was the "owner" and the "sole Member" of the Carnett's LLC and that there were no suits pending against it. In an agreement signed only by Rainey on behalf of the company, the assets of the Carnett's LLC were sold to IV Properties a few days later for $1.9 million. Soon after, the company paid off $1.87 million of the $1.943 million owed under the Rainey family notes. The proceeds from the sale were less than the amount owed on the first note, however, such that no sum was left over to satisfy the second note or to distribute to the McCabes or Rainey.

         On May 24, 2016, and after the case had been transferred to the judge who had heard the case brought by the Bank, Rainey moved for summary judgment. On June 15, Rainey moved to compel responses to his interrogatories and requests for production of documents and for attorney fees. On June 16, the McCabes moved to add IV Properties as a defendant and the Carnett's LLC as a plaintiff. A hearing on these motions was set for July 18.

         On July 12, 2016, [5] Rainey filed a supplemental brief in which he noted the overlap between the claims in the original and amended complaints and asserted that the legal arguments in his motion for summary judgment "apply equally to the claims asserted in [the McCabes'] Amended Complaint." Three days later, on July 15, the McCabes noticed the deposition of Rainey and his entities and moved for a continuance of the hearing on the parties' motions for "at least 15 days" to permit them "to obtain affidavits and take depositions essential" to opposing Rainey's motion for summary judgment. On July 18, the McCabes filed their amended complaint, which included allegations of improprieties concerning the sale of the car wash to IV Properties. The amended complaint retained claims for breach of the settlement agreement, breach of fiduciary duty (on behalf of the Carnett's LLC), and declaratory and injunctive relief, but added direct claims for breach of fiduciary duty and fraud, and also sought punitive damages, judicial dissolution of the LLCs, a setting aside of the sale ...


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