Andrew Nemeth Prop. v. Panzica

234 N.E.3d 183

ANDREW NEMETH PROPERTIES, LLC, and Andrew J. Nemeth, Appellants-Plaintiffs

v.William A. PANZICA, Thomas C. Panzica, Philip E. Panzica, & NP3, LLC, Appellees-Defendants

Court of Appeals Case No. 23A-PL-1383

Court of Appeals of Indiana.

Filed April 17, 2024

Rehearing Denied June 6, 2024

Appeal from the Marshall Circuit Court, The Honorable Curtis D. Palmer, Judge, Trial Court Cause No. 50C01-2202-PL-2

Attorneys for Appellant: Carol Nemeth Joven, Ronald J. Waicukauski, Williams Law Group, LLC, Indianapolis, Indiana

Attorneys for Appellee: John D. LaDue, Jonathan S. Lawson, SouthBank Legal LLC, South Bend, Indiana

Weissmann, Judge.

[1] Andrew Nemeth and three brothers—William, Thomas, and Phillip Panzica (the Panzica Brothers)—allegedly agreed to form a limited liability company (LLC) for the purpose of developing and leasing out a piece of commercial real estate. Nemeth filed articles of organization for the company, dubbed NP3, LLC after himself and the three Panzica Brothers. But nearly six months later, the Panzica Brothers seemingly sought to exclude Nemeth from the project by executing a backdated operating agreement for NP3 that listed the Panzica Brothers’ separately owned company, Panzica Investments, LLC, as NP3’s sole member. Nemeth therefore sued NP3 and the Panzica Brothers (collectively, Defendants) for breach of oral contract and unjust enrichment.

[2] The trial court entered summary judgment in favor of Defendants on Nemeth’s breach of contract claim, essentially concluding a written operating agreement is required to establish LLC membership. Nemeth’s unjust enrichment claim was then tried to the bench, despite his request for a jury trial, and the court entered judgment in Defendants’ favor. On appeal, Nemeth argues that an LLC’s initial membership can be established by oral contract and that there exist genuine issues of material fact as to whether Nemeth and the Panzica Brothers orally agreed to form NP3 as equal members. Nemeth also argues that he was entitled to a jury trial on his unjust enrichment claim. We agree on all counts and therefore reverse.

Facts

[3] Nemeth is a real estate consultant, broker, and developer in South Bend, Indiana.¹ The Panzica Brothers are principals in a South Bend architecture and construction corporation. They are also the sole members of Panzica Investments, LLC, a South Bend real estate holding company. Between 2012 and 2016, Nemeth and the Panzica Brothers were involved in a real estate development project initiated by NELLO Corporation, a fabricator of steel cellphone towers and utility poles. That project lies at the heart of this litigation.

[4] In 2012, Nemeth began working with NELLO to relocate its manufacturing operations to South Bend (the Nello Project). Among other things, Nemeth helped NELLO obtain approximately $13 million in economic incentives for the project. He also agreed to purchase a piece of South Bend real estate on which NELLO could construct a new manufacturing facility. NELLO initially planned to finance the construction portion of the project and to purchase the developed land from Nemeth upon the facility’s completion. But in July 2014, after Nemeth had entered into a purchase agreement for the land, NELLO asked Nemeth if he would finance the construction, own the facility, and lease it to NELLO instead.

[5] Nemeth was amenable to the leasing arrangement and soon invited the Panzica Brothers to partner with him on the Nello project. According to Nemeth, he and the Panzica Brothers orally agreed to form and be equal members of a new LLC, which would build, own, and lease to NELLO the manufacturing facility. The four members’ capital contributions to the new LLC would be their respective services on the Nello Project, and they would "split" everything "equally," including distributions. App. Vol. IV, pp. 153-54, 180.²

[6] In August 2014, Nemeth emailed the Panzica Brothers a proposed name for the new company, "NP3, LLC," derived from the names "Nemeth" and "Panzica" (there being three of the latter). Id. at 180. A month later, Nemeth officially formed NP3, LLC by filing articles of organization with the Indiana Secretary of State. These articles did not identify NP3’s membership but indicated that the company would be managed by its "Members." App. Vol. III, p. 25.

[7] In October 2014, NELLO entered into a 15-year lease with NP3 for the forthcoming manufacturing facility. William Panzica signed the lease on NP3’s behalf, and his signature block identified him as a "Member" of the company. Id. at 185. The lease also contained a Real Estate Broker’s Disclosure, which provided: "It is hereby disclosed and accepted that Landlord [NP3] includes among its members licensed Indiana Real Estate Brokers including Thomas C. Panzica, William A. Panzica[,] and Andrew J. Nemeth." Id. at 184.

[8] To expedite financing for the Nello Project, Nemeth and the Panzica Brothers decided that Panzica Investments would purchase the land for which Nemeth already had a purchase agreement and then transfer the land to NP3. In an October 2014 email to a title company representative involved in the land purchase, William Panzica advised that "NP3, LLC (Nemeth and the 3 Panzica Brothers)" would ultimately be buying the land. App. Vol. IV, p. 226.

[9] In November 2014, Nemeth assigned his purchase agreement for the land to Panzica Investments. But according to Defendants, Nemeth had for months concealed the fact that the purchase agreement entitled him to a $256,000 broker’s fee. When the Panzica Brothers allegedly learned about the fee in December 2014, they believed it was too late to withdraw from the Nello Project without subjecting themselves to certain liabilities. Therefore, Panzica Investments proceeded to close on the land two weeks later and eventually transferred the land to NP3, as intended.

[10] At some point, the Panzica Brothers decided to proceed with the Nello Project without Nemeth. And on or after February 20, 2015, William Panzica prepared a written operating agreement for NP3 that identified Panzica Investments as NP3’s sole "initial member." Id. at 133. The agreement was backdated to January 1, 2015, and it listed a retroactive effective date of September 12, 2014—the day NP3 was organized. William executed the agreement on behalf of Panzica Investments, and all three Panzica Brothers signed it as NP3’s managers.

[11] Fast forward to 2020. Nemeth filed a complaint against Defendants, seeking a declaratory judgment that he was a member of NP3 and asserting claims for breach of oral contract and unjust enrichment, among other things.³ Defendants moved for summary judgment on Nemeth’s declaratory judgment and breach of contract claims, designating the written operating agreement that identified Panzica Investments as NP3’s sole member. The trial court granted Defendants’ motion, finding: "There is no written operating agreement naming [Nemeth] as a member and there is no written consent from all of the members of [NP3] for him to become a member as is required by [Indiana Code §] 23-18-6-1(a)(1)." App. Vol. II, p. 23.⁴

[12] The case then proceeded to trial on Nemeth’s unjust enrichment claim. Though Nemeth timely requested a jury trial on this claim, the trial court sua sponte ordered a bench trial. At that trial, Defendants denied being unjustly enriched and also argued that Nemeth’s alleged concealment of his broker’s commission barred any recovery under the doctrine of unclean hands. The trial court ultimately entered judgment in Defendants’ favor, concluding Nemeth failed to prove his unjust enrichment claim and, alternatively, that Defendants successfully proved Nemeth had unclean hands.

Discussion and Decision

[13] Nemeth appeals the trial court's summary judgment on his breach of contract claim as well as the court’s bench trial judgment on his unjust enrichment claim. We find reversible error in both.

I. Breach of Contract Claim

[1] [14] Our analysis begins with the trial court’s entry of summary judgment in favor of Defendants on Nemeth’s breach of contract claim. "We review a summary judgment ruling de novo, applying the same standard as the trial court." Arnett v. Estate of Beavins, 184 N.E.3d 679, 687 (Ind. Ct. App. 2022). Summary judgment is appropriate only if "the designated evidentiary matter shows that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Ind. Trial Rule 56(C). In conducting our review, "[w]e construe all factual inferences in the nonmoving party’s favor, and all doubts as to the existence of a material issue against the moving party." Fax v. Barker, 170 N.E.3d 662, 665-66 (Ind. Ct. App. 2021).

[15] Nemeth argues that summary judgment on his breach of contract claim was inappropriate because: (1) a pre-formation oral contract may establish an LLC’s initial membership under Indiana’s Business Flexibility Act; and (2) the evidence designated on summary judgment established a genuine issue of material fact as to whether Nemeth and the Panzica Brothers orally agreed to form NP3 as equal members. We agree as to both issues.

A. A Pre-formation Oral Contract May Establish a Limited Liability Company’s Initial Membership

[16] Codified as Article 18 of Title 23 of the Indiana Code, the Business Flexibility Act controls the creation, operation, and dissolution of LLCs in Indiana. Brant v. Krilich, 835 N.E.2d 582, 592 (Ind. Ct. App. 2005). The Act's stated policy is "to give the maximum effect to the principle of freedom of contract and to the enforceability of operating agreements of limited liability companies." Ind. Code § 23-18-4-13. Case law applying its provisions is sparse, but the Act reveals the following principles regarding LLC formation.

[17] First, nothing more than the filing of articles of organization is required to form an LLC. Ind. Code § 23-18-2-4(a) ("At least one (1) person may form a limited liability company by causing...