Thomas v. Bozick

³³⁵ WOODWARD, J. On December 31, 2010, James R. Thomas, appellant, retired as the managing member of the architectural firm George, Miles & Buhr, LLC (“GMB”), and of GMB Plaza, LLC (“GMB Plaza”), the latter a limited liability company created for the sole purpose of owning the building in which GMB operates (“the Property”). Upon appellant’s retirement, the GMB Plaza Operating Agreement (“Operating Agreement”) required appellant to offer to sell his interest in GMB Plaza to GMB Plaza. The remaining members of GMB Plaza were appellees, Peter A. Bozick, Jr., Judith A. Schwartz, individually and as Trustee of the Judith A. Schwartz Revocable Trust, James H. Willey, Jr., and Charles M. O’Donnell. GMB Plaza declined to purchase appellant’s interest after appellees determined that the method for fixing the purchase price for appellant’s interest set forth in the Operating Agreement no longer reflected the fair market value of the Property.

Appellees also decided to reduce the rent GMB paid for use of the Property, because a September 2010 appraisal showed that the current rental rate was 60% higher than prevailing market rates. After obtaining new appraisals of the Property in June 2011, appellees decided to sell the Property. After selling the Property, GMB Plaza sent appellant a distribution check reflecting his portion of the proceeds from the sale based on his 48% interest in GMB Plaza. On December 20, 2011, appellant filed a complaint in the Circuit Court for Wicomico County, claiming that appellees breached the Operating Agreement by selling the Property, reducing the rent, and failing to include appellant in meetings and decisions regarding the Property’s sale.

Appellees moved for summary judgment, which the circuit court granted on March 14, 2013. Appellant appealed, presenting three issues for our review, which we have condensed into one question: 1 Did the circuit ³³⁶ court err in granting appellees’ motion for summary judgment? For the reasons set forth below, we answer that question in the negative and affirm the judgment of the circuit court. BACKGROUND Appellant was a member of the architectural firm GMB from 1969 until December 31, 2010 when he retired.

GMB has an office located in the Property at 206 West Main Street in Salisbury, Maryland. During appellant’s tenure with GMB, the Property was owned by GMB Plaza, a limited liability company that was governed by the Operating Agreement. Prior to appellant’s retirement on December 31, 2010, appellant and appellees comprised GMB Plaza’s members. Near the end of 2009, appellant announced his plan to retire.

At that time, appellant was the managing member of both GMB and GMB Plaza. In preparation for appellant’s retirement, on November 1, 2010, GMB Plaza elected Bozick to become the new managing member of GMB Plaza. On December 31, 2010, appellant retired from GMB. Pursuant to the Operating Agreement of GMB Plaza, appellant’s ³³⁷ retirement from GMB triggered his involuntary withdrawal from GMB Plaza, and an automatic offer to sell his interest in GMB Plaza to GMB Plaza. 2 GMB Plaza had the option to purchase appellant’s interest within sixty days of January 1, 2011.

The purchase price of the option was to be determined based upon a formula set forth in the Operating Agreement. As of January 1, 2011, the total value of the Property based on the Operating Agreement’s formula was $1,221,671.00. At a meeting on February 16, 2011 appellees unanimously decided that the $1,221,671.00 value as determined by the Operating Agreement was no longer representative of the fair market value of the Property. The decision was based on two appraisals completed by The Trice Group, a certified real estate appraisal company, in September 2010 while appellant was still the managing member of GMB Plaza.

The Trice Group used two approaches—the sales approach and the income approach—to value the Property. Using the sales approach, The Trice Group valued the Property at $875,000.00; under the income approach, the Property was valued at $760,000.00. As a result of The Trice Group’s appraisals, GMB Plaza declined to exercise its right to purchase appellant’s interest in GMB Plaza. Appellant was notified of the decision the following day.

The September 2010 income approach appraisal also revealed that the rent GMB had been paying to GMB Plaza for use of the Property was approximately 60% higher than prevailing market rates. Consequently, Bozick, on behalf of GMB, submitted a formal request to GMB Plaza to reduce the rent retroactive to January 1, 2011. On or about February 16, 2011, the members of GMB Plaza unanimously approved the request for a reduction in rent retroactive to January 1, 2011. In an effort to determine the true value of GMB Plaza, appellees commissioned a second set of appraisals from The ³³⁸ Trice Group.

The resulting appraisals, dated June 9, 2011 and June 30, 2011, respectively, valued the Property at $830,000.00 using the sales approach, and $700,000.00 using the income approach. On July 13, 2011, appellees sent appellant a letter with the results of the June 2011 appraisals. The letter offered to purchase appellant’s interest based on a property value of $760,000.00, ie. slightly less than the average of the sales approach and income approach values. Appellant rejected the offer in an email dated August 10, 2011.

On October 20, 2011, the members of GMB Plaza unanimously voted to dissolve GMB Plaza and sell the Property to a newly formed entity, GMB Properties, for $765,000.00, the average of the June 2011 sales approach and income approach values. GMB Properties was to be composed of appellees plus an additional member of GMB who did not have an interest in GMB Plaza, with each member owning 20% of the interest in GMB Properties. On October 28, 2011, GMB Plaza notified appellant of its decision to sell the Property to GMB Properties for $765,000.00. Appellant also was informed that settlement of the sale was anticipated to take place between December 1, 2011 and December 15, 2011.

Settlement on the sale of the Property to GMB Properties took place on December 14, 2011. Appellant was informed of GMB Plaza’s sale of the Property to GMB Properties on December 20, 2011 via a Liquidation and Dissolution Notice. The Notice included a distribution check for $270,394.60, which appellant later deposited. On December 20, 2011, the same day appellant received the Liquidation and Dissolution Notice, appellant filed a complaint in the circuit court against appellees. 3 ³³⁹ In his amended complaint, filed on August 10, 2012, appellant alleged that appellees breached the Operating Agreement. 4 The breach of contract claim rested on four allegations: (1) that appellees wrongfully failed to give appellant notice of, and to allow appellant to participate in, GMB Plaza meetings after January 1, 2011; (2) that appellees wrongfully changed the method of determining fair market value for the purchase of the Property; (3) that appellees breached their fiduciary duties by lowering the purchase price of the Property and buying it back themselves at the lower price; and (4) that appellees intentionally and artificially decreased the rent in order to also decrease the payout to appellant.

On December 21, 2012, appellees filed a Motion for Summary Judgment and Memorandum of Law in Support Thereof. On January 8, 2013, appellant filed a response to appellees’ motion for summary judgment. The circuit court held a hearing on the motion on March 14, 2013. The court orally ruled in favor of appellees at the hearing, and entered its written Opinion and Order granting the motion for summary judgment on March 18, 2013.

The Opinion stated that on appellant’s retirement, he disassociated himself with GMB Plaza and thus lost all membership rights in the company. Because appellant did not retain his membership rights, the court concluded that appellant was not entitled to notice of GMB Plaza meetings and that appellees could determine the ³⁴⁰ fair market value of the Property without appellant’s consent. The court also decided that there was no genuine dispute as to the fair market value or the fair rental value of the Property. The court thus concluded that appellees were entitled to judgment as a matter of law.

Appellant timely filed this appeal of the circuit court’s decision. Additional facts will be set forth below as necessary. STANDARD OF REVIEW “A trial court’s grant of a summary judgment motion is proper if there is no genuine dispute as to any material fact and ... the party in whose favor judgment is entered is entitled to judgment as a matter of law. Maryland courts hold that a material fact is a fact the resolution of which will somehow affect the outcome of the case.

Once the moving party provides the trial court with a prima facie basis in support of the motion for summary judgment, the non-moving party is obliged to produce sufficient facts admissible in evidence, if it can, demonstrating that a genuine dispute as to a material fact or facts exists. These tendered facts should be given under oath, based on the personal knowledge of an affiant. Bald, unsupported statements or conclusions of law are insufficient. If no genuine dispute of material fact is found to exist, a court then considers whether the movant is entitled to judgment as a matter of law.

On appellate review of the grant of summary judgment, we review the trial court’s conclusions of law de novo. As we consider the trial court’s conclusions of law, we construe the facts properly before the court, and any reasonable inferences that may be drawn from them, in the light most favorable to the non-moving party.” Dolan v. McQuaide, 215 Md.App. 24, 31 , 79 A.3d 394 (2013) (alteration in original) (internal citations and quotation marks omitted) (quoting Dual Inc. v. Lockheed Martin Corp., 383 Md. 151, 162 , 857 A.2d 1095 (2004)). ³⁴¹ DISCUSSION I. Appellant’s Continued Membership in GMB Plaza Appellant argues that his membership rights in GMB Plaza did not dissolve on December 31, 2010 when he retired. According to appellant, because appellees, through GMB Plaza, did not exercise the option to purchase appellant’s interest in GMB Plaza, appellant retained all of his membership rights in GMB Plaza after the sixty-day purchase period expired. In addition, appellant contends that the plain language of the Operating Agreement and relevant sections of the Corporations and Associations Article of the Maryland Code require that appellant retain his right to vote and participate in the management of GMB Plaza as a result of the failure to purchase appellant’s interest in GMB Plaza.

Appellees counter that appellant was not a member of GMB Plaza after his retirement on December 31, 2010, and thus did not retain any membership rights. 5 According to ³⁴² appellees, they did not owe appellant any legal or contractual duty to include him in or notify him of management decisions, because under the language of the Operating Agreement and the Corporations and Associations Article of the Maryland Code, appellant’s membership in GMB Plaza ceased upon his retirement and his status became one of an assignee of an economic interest. Appellees also argue that it would be illogical for appellant’s non-economic rights in GMB Plaza to be lost on retirement and then reinstated at the end of the sixty-day option to purchase period if the option was not exercised. When a member of GMB Plaza ceases to be an employee of GMB, such as when that member retires, Section I of the Operating Agreement defines the end of employment with GMB as an “involuntary withdrawal” of the member from GMB Plaza. Section 6.3 of the Operating Agreement makes clear that such withdrawal is involuntary, because “[n]o Member [of GMB Plaza] shall have the right or power to voluntari ³⁴³ ly withdraw from the Company.” Appellant’s retirement from GMB thus caused him to involuntarily withdraw as a member from GMB Plaza.

A member’s involuntary withdrawal triggers Section 6.5 of the Operating Agreement—“Option to Purchase in Event of Involuntary Withdrawal Other than Death.” Section 6.5 reads: In the event of an Involuntary Withdrawal of a Member for any reason other than the Member’s death, the withdrawn member shall be deemed to have offered to sell to the Company all of the Membership Rights owned of record and beneficially by the withdrawn Member (the “Withdrawal Interest”) at and for the Purchase Price determined in accordance with Section 6.6 and on the Payment Terms set forth in Section 6.7. The Withdrawal Offer shall [ ] remain open for a period of sixty (60) days following the date of the Involuntary Withdrawal. At any time during this period, the company may accept the Withdrawal Offer by notifying the withdrawn Member of its acceptance. The withdrawn Member shall not be deemed a Member or manager for the purpose of the vote on whether the Company will accept the Withdrawal Offer.

If the Company accepts the Withdrawal Offer, the notice of acceptance shall fix a closing date for the purchase which shall not be not [sic] earlier than ten (10) days or later than one hundred eighty (180) days after the expiration of the Withdrawal Period. (Emphasis added). Because the Operating Agreement is silent on what happened in the instant case, namely GMB Plaza elected not to exercise the option to purchase, we turn to the Maryland Limited Liability Company Act to fill in the gap. Under Maryland Code (1975, 2007 Repl.Vol., 2013 Cum.Supp.), § 4A-606(2) of the Corporations and Associations Article (“C.A.”), a person ceases to be a member of a limited liability company, such as GMB Plaza, when that person is removed as a member in accordance with the company’s operating agree ³⁴⁴ ment.

When a person is removed, the company may, but is not required to purchase that person’s membership interest. C.A. § 4A-606.1(a). Pursuant to C.A. § 4A-606.1(b), [i]f a person ceases to be a member of a limited liability company under § 4A-606 of this subtitle and the limited liability company elects not to completely liquidate the person’s membership interest under § 4A-606.1(a) of this subtitle, that person will be deemed to be an assignee of the unredeemed economic interest under §§ 4A-603 and 4A-604 of this subtitle. (Emphasis added).

An assignee is not a member of the limited liability company, and may not exercise any of the rights of a member. C.A. § 4A-603(b)(2). An assignee may become a member only if (1) the terms of the operating agreement provide a method for that person to become a member, (2) the current members unanimously consent to the assignee becoming a member, or (3) there are no remaining members of the limited liability company when the assignee obtains the economic interest. C.A. § 4A-604(a).

Combining the Operating Agreement and C.A. § 4A-606, we conclude that appellant’s retirement from GMB caused him to cease being a member of GMB Plaza. His retirement gave GMB Plaza the option to purchase appellant’s membership interest in accordance with the Operating Agreement and C.A. § 4A-606.1(a). When GMB Plaza declined to exercise its purchase option, however, appellant became an assignee of the unredeemed economic interest pursuant to C.A. § 4A-606.1(b). As an assignee, appellant was divested of his membership status in GMB Plaza, unless (1) the Operating Agreement contained a method for assignees to become members, (2) the members of GMB Plaza unanimously voted to make appellant a member again, or (3) no members of GMB Plaza remained.

See C.A. §§ 4A-603(b)(2), 4A-604(a). Because none of these conditions occurred, appellant was only an assignee of his unredeemed economic interest and not a ³⁴⁵ member of GMB Plaza after his retirement on December 31, 2010. Appellant contends, however, that, because Section 6.5 of the Operating Agreement required that he offer to sell his “Membership Rights” to GMB Plaza upon his retirement, and “Membership Rights” under Section I of the Operating Agreement expressly included the “right to participate in the management of and vote on matters coming before [GMB Plaza],” he necessarily had to own and retain those voting and participation rights at the time of the offer and could not have been divested those rights. In our view, for appellant to have retained his membership rights, appellant was required to be a member of GMB Plaza. 6 C.A. § 4A-101(m) defines a member of an LLC as “a person who has been admitted as a member of a limited liability company under [C.A.] § 4A-601 ... and who has not ceased to be a member.” (Emphasis added).

Under the Operating Agreement, appellant involuntarily withdrew as a member of GMB Plaza when he “cease[d] to be an employee of [GMB].” When he withdrew as a member of GMB Plaza because of his retirement from GMB, appellant “ceased to be a member” of GMB Plaza and thus lost his membership rights, including the right to participate in the management of and to vote on company matters. The only membership interest appellant retained after his retirement and involuntary withdrawal was his economic interest, which GMB Plaza had the option to purchase. See C.A. §§ 4A-603 (b)(2), 4A-606.1(b). Moreover, section 6.5 required appellant to sell “all of the Membership Rights owned of record and beneficially by the withdrawn Member ... at and for the Purchase Price determined in accordance with Section 6.6____” (Emphasis added).

Section 6.6, entitled “Purchase Price” provides, in relevant part, that [u]nless otherwise agreed by the parties to the transaction, the price to be paid for the purchase and sale of a ³⁴⁶ Member’s Interest, in part or in whole, (“Purchase Price”) shall be equal to the product obtained by multiplying (a) the Percentage Interest and Membership Rights owned by the Transferor by (b) the “Fair market Value of [GMB Plaza’s] Assets” as determined in accordance with Section 6.6.2. (Emphasis added). Therefore, when Sections 6.5 and 6.6 are read together, it is clear that the “Membership Rights owned of record and beneficially by the withdrawn Member” refer only to appellant’s “Interest” in GMB Plaza, which is defined in Section I as his “share of the Profits and Losses of, and the right to receive distributions from, [GMB Plaza].” 7 Appellant also argues that C.A. § 4A-606.1, which outlines the basic procedures for purchasing or not purchasing a former LLC member’s economic interest, does not apply when an operating agreement sets forth different procedures than the statute, because the statute is simply a “default provision.” Appellant contends that, because the Operating Agreement “does not mandate that a member divest or abandon his membership rights upon retirement,” appellant continued to own all of his membership rights when GMB Plaza declined to purchase his interest in GMB Plaza. Appellees counter: This is illogical and defies both C.A. § 4A-604 and the Operating Agreement.

The Operating Agreement does not contain any provision providing for a withdrawn member to leap back into membership status after the 60-day purchase option period expires. If this were the intended result, then there would not be an automatic and involuntary withdrawal upon a member’s ceased employ ³⁴⁷ ment at GMB. Rather, there would be some sort of 60-day option window in which the company could elect to buy the retired member’s interest and the retired member would continue to be a member until his interest was purchased. No provision allows the withdrawn member to become a member again after the 60-day option period expires.

(Emphasis added). We agree with appellees. C.A. § 4A-606.1 reads in full: (a) Liquidation of interest.—Unless otherwise agreed, if a person ceases to be a member of a limited liability company under § 4A-606 of this subtitle, and the limited liability company is not dissolved as a result, then, within a reasonable time after the person ceased to be a member, the limited liability company may elect to pay the person or the person’s successor in interest, in complete liquidation of the person’s membership interest, the fair value of the person’s economic interest in the limited liability company as of the date the person ceased to be a member, based upon the person’s right to share in distributions from the limited liability company. (b) Assignation of interest.—If a person ceases to be a member of a limited liability company under § 4A-606 of this subtitle and the limited liability company elects not to completely liquidate the person’s membership interest under § 4A-606.1(a) of this subtitle, that person will be deemed to be an assignee of the unredeemed economic interest under §§ 4A-603 and 4A-604 of this subtitle.

(Emphasis added). First, contrary to appellant’s assertion, the Operating Agreement supersedes only C.A. § 4A-606.1(a)—the provision which applies when the LLC elects to purchase the withdrawn member’s economic interest. The plain language of the statute provides that the Operating Agreement does not supersede C.A. § 4A-606.1(b)—the provision that applies when the LLC declines to purchase the withdrawn member’s economic interest. ³⁴⁸ Second, even if the Operating Agreement could supersede the provisions of C.A. § 4A-606.1(b), the Operating Agreement has no provision that allows for appellant to rejoin GMB Plaza instead of remaining an assignee of an economic interest at the expiration of the sixty-day option to purchase. Without a provision in the