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Champion Signs LLC v. Dee Sign Co.

United States District Court, S.D. California

June 20, 2014

CHAMPION SIGNS LLC, Plaintiff,
v.
DEE SIGN CO.; BRADEN R. HUENEFELD, Defendants. DEE SIGN CO., an Ohio corporation; and BRADEN R. HUENEFELD, an individual, Counterclaimants,
v.
CHAMPION SIGNS, a California limited liability company, Counterdefendant.

ORDER GRANTING IN PART MOTION FOR SUMMARY JUDGMENT [Docket No. 30]

ROGER T. BENITEZ, District Judge.

Before this Court is a Motion for Summary Judgment filed by Defendant Braden R. Huenefeld. (Docket No. 30). For the reasons stated below, the Motion is GRANTED IN PART and DENIED IN PART.

BACKGROUND

This matter concerns business entities engaged in the real estate sign business. Prior to 2008, Plaintiff Champion Signs LLC (Champion) was a real estate sign manufacturing business which sold real estate signs in California. (Johnson Decl. ¶ 3). Ronald Johnson is the Treasurer for the Managing Member of Champion. ( Id. ¶ 1). Johnson acted on Champion's behalf in regards to matters relevant to this litigation. ( See id. ) Dee Sign Co. (Dee Sign) is an Ohio-based corporation which has sold real estate signs since the 1960s. (Huenefeld Decl. ¶ 2). The president of Dee Sign at all relevant times has been Defendant Braden R. Huenefeld. ( Id. ) Huenefeld is also the sole member of Hotel Burnet, Ltd. (Hotel Burnet), an Ohio limited liability company. ( Id. ¶ 3). Hotel Burnet was founded in 2002 to own the property on Allen Road (Allen Road Property) where Dee Sign is located. ( Id. ) The Allen Road Property includes a 127, 000 square foot building with administrative offices and specialized real estate sign manufacturing facilities. ( Id. ).

I. Forming a New Company

In 2008, Champion and Dee Signs agreed to form a company called Pac West Signs, LLC. (Johnson Decl. ¶3). By the summer of 2009, the real estate sign business was experiencing difficulties. (Huenefeld Decl. ¶4). The real estate sign business is dependent on the real estate market, which was severely impacted by economic problems. ( Id. ) In 2009, the parties decided to form a new company, Dee Sign USA, LLC (the Company) that would operate on a national level. (Johnson Decl. ¶ 4; Huenefeld Decl. ¶ 5). The Operating Agreement is dated November 16, 2009. (Huenefeld Decl. ¶ 5, Ex. A).

When negotiations to form the Company began to take place, Dee Sign was leasing the Allen Road Property from Hotel Burnet pursuant to a June 20, 2006 agreement (the "First Amendment"). ( Id. ¶6, Ex. B). The First Amendment provided for base rent of $727, 200.00 ($5.73 per square foot) for the period of July 1, 2009 to June 30, 2010. ( Id. ) It provided for base rent of $756, 000.00 ($5.95 per square foot) from July 1, 2010 to June 30, 2011. ( Id. ). Champion and Dee Sign agreed that they would negotiate a new lease between Dee Sign and Hotel Burnet for a lower rent. (Huenefeld Decl. ¶7; see also Johnson Decl. ¶ 6).

Johnson hired a real estate appraiser to advise on the rent. On August 31, 2009, the appraiser told Johnson that the "estimated lease rate value" was $4.87 per square foot. (Johnson Depo., Ex. 22). Johnson testified at his deposition that Huenefeld wanted an agreement in the "low fives" and they "split the difference and kind of went from there." (Johnson Depo. at 50:6-9). Johnson stated that he felt that it was "pretty close to market." ( Id. at 50:16-17) Johnson drafted a Second Amendment to the lease between Dee Sign and Hotel Burnet, using "their template." ( Id. at 51:25-52:1). The Second Amendment provided for base rent of $626, 335.46 ($4.93 per square foot) for November 1, 2009 to October 31, 2010; $645, 125.52 ($5.07 per square foot) from November 1, 2010 to October 31, 2011; and $664, 479.29 ($5.23 per square foot) from November 1, 2011 to October 31, 2012. (Huenefeld Decl. ¶ 8, Ex. C). The Second Amendment also contained a renewal provision which allowed the Company to extend the Amendment for an additional three years. If renewed, the base rent was set at the "then current market rate as mutually agreed by the parties, " but stated that the base rent would not be less than the base rent for the period immediately proceeding the renewal term. ( Id. )

Following resolution of the lease terms, Champion executed an assignment directing the Company to assume the Allen Road Property lease. (Huenefeld Decl. ¶9, Ex. D). Dee Sign assigned the Second Amendment to the Company and Hotel Burnet consented to the assignment. (Huenefeld Decl. ¶ 10). The Company then began to pay the agreed rent to Hotel Burnet. ( Id. )

The Operating Agreement for the Company provides that Dee Signs holds a 51% interest, and Champion owns a 49% interest. (Huenefeld Decl., Ex. A § 3.2). Dee Sign is the "Lead Manager" of the LLC and has control of day-to-day operational management. ( Id. § 7.1(b)). The Operating Agreement states that Dee Sign designates Huenefeld as its "Authorized Representative." ( Id. )

II. Disagreement Over Rent for the Allen Road Property

The Company faced continuing economic challenges, and different parties proposed different solutions. Johnson proposed that Huenefeld agree to lower the rent for the Allen Road Property. (Huenefeld Decl. ¶ 11; Johnson Decl. ¶ 8). Champion asserts that the Company was paying a substantially above-market rent for most of the three-year lease term. (Opp'n at 5; Hawkins Decl., Ex. I at 7, Ex. J at 48, 67, 79)).

The Company had also assumed a separate lease in California from Dee Sign. (Johnson Decl. ¶7). The Company attempted to negotiate with the landlord because it did not need the space and the rent was high. (Huenefeld Depo. at 41:9-43:1; Kolks Depo. at 31:5-32:4; Johnson Decl. ¶7). Johnson handled the negotiations, and was able to get out of the lease and move into a new, smaller space. (Johnson Decl. ¶7; Huenefeld Depo. at 41:9-43:1; Kolks Depo. at 31:5-32:4).

Champion asserts that it similarly asked Huenefeld to renegotiate the lease rates for the Allen Road Property. (Opp'n at 6; Johnson Decl. ¶¶ 8-10). It asserts that the Company was paying substantially more than the market rate, and that the Company was only using about 60% of the leased space. (Opp'n at 6; Johnson Decl. ¶ 8; Hawkins Decl., Ex. I at 7, Ex. J at 48, 67, 79). Huenefeld is accused of having "refused to enter into any meaningful discussions." (Johnson Decl. ¶¶8-9). Champion raised the issue again in August 2012, prior to the expiration of the lease. ( Id. ¶9).

The option for the renewal provision was not exercised. (Huenefeld Decl. ¶12). Champion asserts that Huenefeld did nothing to fix a lower rental price, and that the company continued to pay above-market rates. (Johnson Decl. ¶ 10). Since January 1, 2013, Huenefeld has leased the property to the Company on a month-to-month basis at a rate of $4.50 per square foot. (Huenefeld Decl. ¶ 12).

Champion also asserts in its Opposition that Hotel Burnet has improperly failed to refund overpayments for property taxes. (Opp'n at 8; Johnson Decl. ¶ 11).

III. Capital Call

By November 2012, Huenefeld expressed a desire to raise needed money through capital contributions from the members. ( See Huenefeld Decl. ¶¶ 13-14). The Operating Agreement provides that the manager can make a call for each member to make an additional capital contribution to the Company.[1] (Huenefeld Decl., Ex. A § 4.2(a)). If a "capital call" is made, and a member does not contribute, a member who does contribute has the option to either advance a loan to the Company, or buy out the membership interest of the non-paying member. ( Id. § 4.2(b)).

On November 27, 2012, Dee Sign formally proposed a Capital Call Notice for $150, 000.00. (Huenefeld Decl. ¶ 14; Johnson Decl. ¶ 12). Dee Sign was responsible for 51% of the contribution ($76, 500.00), and Champion was responsible for 49% ($73, 500.00). (Huenefeld Decl. ¶ 14).

Although the Company had capital calls in the past, this was the first formal, non-verbal capital call. (Kolks Depo. at 53:1-20, 80:12-24; Johnson Decl. ¶ 12; Hawkins Decl., Ex.G). Champion asserts that this began "intensive discussions" about the capital call and the Company's overall budget. (Johnson Decl. ¶ 12). One of the issues discussed was the rental payment for the Allen Road Property. ( Id. )

The due date for the capital call was extended from December 14, 2012 to December 21, 2012. (Huenefeld Decl. ¶14; Johnson Decl. ¶ 12). The parties met and communicated repeatedly between December 14 and December 21 to discuss the budgetary issues and Allen Road Property lease. ( See Huenefeld Decl ¶ 15; Johnson Decl. ¶ 12). Johnson asserts that Huenefeld did not "raise or discuss" the possibility of a buy-out under the Operating Agreement. (Johnson Decl. ¶ 12). Johnson asserts that this led him to believe that the parties would continue to negotiate past the December 21, 2012 deadline. ( Id. ) Johnson states that the parties did not discuss the capital call, and focused on the budget and the Allen Road Property lease. ( Id. )

Huenefeld sent Johnson an email on December 21 reminding him that the capital call due date was that day. (Huenefeld Decl. ¶ 15, Ex. E; Johnson Decl. ¶ 14). Johnson states that by the time he received the email, it would have been impossible to wire the funds by the close of business. (Johnson Decl. ¶ 14). The email was time-stamped 1:11 p.m. (Huenefeld Decl., Ex. E). Huenefeld asserts that he never represented to anyone that the due date would be extended further. (Huenefeld Decl. ¶ 16). Huenefeld declares that he was never asked to consider an additional extension. ( Id. )

Champion sent Huenefeld a letter dated December 21, 2012 concerning the capital call. ( Id. ¶ 16, Ex. F). In the letter, Johnson states that Champion "hereby votes NO to the request to make an additional Capital Call." ( Id., Ex. F). The letter states that Champion believes that a capital call is not in the best interests of the Company or its members. ( Id. ) It states that Champion believes a "cost cutting approach" is better, including reductions in lease payments. ( Id. ) It notes Dee Sign's lack of interest in this solution, and states that it is "increasingly clear that the parties will not agree on the lease payments independently." ( Id. ) It also points out that capital calls are among the last dollars distributed from the Company. ( Id. ) Champion did not make a payment by December 21, 2012. (Huenefeld Decl. ¶ 16).

Dee Sign sent Champion a Buy-Out Notice on December 26, 2012. ( Id. ¶ 17, Johnson Decl. ¶ 13). After receipt of the notice, Champion attempted to tender the capital contribution. (Huenefeld Decl. ¶ 17; Johnson Decl. ¶ 13). Dee Signs and Huenefeld did not agree to rescind the buy-out offer. (Johnson Decl. ¶ 13). Huenefeld declares that the tender offer was rejected because the deadline had passed and the buy-out procedure was underway. (Huenefeld Decl. ¶ 17). Champion asserts that the Company and Huenefeld accepted the money and used it until November 2013. (Opp'n at 9 (citing Johnson Decl. ¶ 13; Kolks Depo. at 58:10-14, 59:8-11, 69:14-23; Shipley Depo. at 18:25-20:7, 41:22-42:18, 43:7-10)). Champion has not cooperated with efforts to determine the appropriate purchase price for its interest. (Huenefeld Decl. ¶ 17).

Dee Sign asserts that it paid its 51% on December 10, 2012.[2] (Mot. at 7; Hunefeld Decl. ¶ 14).

IV. The Litigation

The instant action was filed on January 24, 2013. (Docket No. 1). A First Amended Complaint (FAC) was filed on September 16, 2013. (Docket No. 24). Champion seeks a declaratory judgment against Dee Sign with regard to whether Dee Sign has a right to exercise the buy-out procedure. Champion also asserted four claims against Huenefeld for breach of fiduciary duty, conversion, fraudulent misrepresentation, and negligent misrepresentation. It also seeks injunctive relief against all defendants. Dee Sign and Huenefeld counterclaimed, seeking declaratory judgment and asserting contractual claims. (Docket No. 6). On December 30, 2013, Huenefeld filed the instant Motion for Summary Judgment, asking this Court to grant ...


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