Torres v. Montano

PATRICIO TORRES, individually and derivatively on behalf of MONTANO/TORRES, LLC, Plaintiff-Appellant, v. ISIDRO E. MONTANO and EVELYN N. MONTANO, Defendants-Appellees.

NO. 30,207

COURT OF APPEALS OF THE STATE OF NEW MEXICO

Dated: February 20, 2012

This memorandum opinion was not selected for publication in the New Mexico Reports. Please see Rule 12-405 NMRA for restrictions on the citation of unpublished memorandum opinions. Please also note that this electronic memorandum opinion may contain computer-generated errors or other deviations from the official paper version filed by the Court of Appeals and does not include the filing date.

APPEAL FROM THE DISTRICT COURT OF VALENCIA COUNTY

Camille Martinez Olguin, District Judge

Kelley Law Offices

Cody K. Kelley

Charlotte L. Itoh

Albuquerque, NM

for Appellant

James Lawrence Sanchez Trial Lawyer, P.C.

James Lawrence Sanchez

Belen, NM

for Appellees

MEMORANDUM OPINION

CASTILLO, Chief Judge.

This suit involves a dispute over a family carwash business in Los Lunas, New Mexico. We must decide whether the majority owners properly dismissed their former son-in-law from the limited liability company in which they were the remaining members. We agree with the district court that the actions of the majority owners were not in breach of their fiduciary responsibilities and that there was no basis for the imposition of equitable remedies. While we acknowledge that sixteen months passed between trial and judgment, there is no basis to overturn the verdict on this ground. Accordingly, we affirm.

BACKGROUND

The following is a summary of the evidence presented during the bench trial of this case. In January 2003, Patricio Torres (Torres) and his wife, Cynthia Torres (Cynthia), formed a limited liability company, Montaño/Torres, LLC (Company), with Cynthia's parents, Isidro and Evelyn Montaño (the Montaños) for the purpose of opening a carwash in Los Lunas. Each family member held a 25 percent interest in the Company and agreed to contribute services toward its operation, though the specific type of services and number of hours to be worked were not specified at first. Patricio and Cynthia downloaded a standard business form from the Internet to guidethe functioning of the business. Cynthia tailored it to fit the Company, and all four members signed the documents, including the operating agreement (Operating Agreement). Each member contributed $25,000 in start-up capital. The Company secured a bank loan, backed by the Montaños' credit, with each member responsible for one-quarter of that liability. At the time of Torres's severance from the Company, the loan balance was $440,000. When the business first opened, the Montaños combined to work in the carwash 100 hours per week, maintaining the carwash and taking care of the bookkeeping. Torres, who had a full-time job outside the business, averaged about 24 hours of work per month, usually coming in after work on Mondays, Wednesdays, Fridays, and working every other weekend. He also was on call around the clock, via cell phone, in case a machine malfunctioned. Nonetheless, the Montaños urged Torres to improve his work habits and put in more hours in order to balance the workload among members.

Patricio and Cynthia split up shortly after the business was launched and divorced in August 2003. After the divorce, the Montaños sided at first with Torres over their daughter and, at his request, would give him between $1,000 and $2,000 per month on a quarterly basis, totaling $18,336 in 2004 and $20,394 in 2005. The Montaños claim that the money did not come from the proceeds of the carwash but rather from their personal funds, even though the money would sometimes betransferred in envelopes marked "distribution" or "distrib." Torres said he considered them distributions, but he never reported them as income. Torres also made capital contributions of between $6,000 and $6,500 during that time, as did the Montaños.

In October 2004, Cynthia transferred her 25 percent interest in the Company to the Montaños, giving them a 75 percent share of the business—or a super-majority stake—and leaving Torres with the remaining 25 percent share of the Company. Around June 2006, the parties began negotiating a buyout of Torres's 25 percent share by the Montaños. At one point, the parties agreed that the Montaños would pay Torres $150,000 for his share, but the deal fell through when Torres balked at providing a receipt to the Montaños for the first $100,000 that was to be paid in cash. As negotiations broke down, the Montaños grew frustrated with the discrepancy in work hours and sought to codify the work responsibilities of the Company members. Using their majority voting power per the original Operating Agreement, the Montaños added an amendment specifying that each member was required to work at the carwash 100 hours per month between the hours of 8:00 a.m. and 8:00 p.m. and that each member was required to fill out daily time sheets; the amendment also provided a detailed list of tasks to be performed by all members on a regular basis. A member could be expelled with 30 days' notice for failure to perform the required work hours. The Montaños notified Torres of the amendment by letter on September11, 2006. In the ensuing weeks, Torres refused to document his hours and failed to work the required hours. The Montaños sent Torres weekly accountings of his hours worked and detailing the shortages. They then voted on October 11, 2006, to remove Torres as a member of the Company.

Before that removal, Torres, on September 11, 2006, filed this action for dissolution of the Company and an accounting; breach of duty of good faith and fair dealing; and breach of fiduciary duty. Torres also sought the appointment of a receiver for the Company. He later amended his complaint based on prima facie tort and equitable relief for unjust enrichment. The Montaños counter-claimed alleging malicious abuse of process.

The district court held the trial on April 8 and 9, 2008, and it issued findings of fact and conclusions of law on July 30, 2009, and a final judgment on December 17, 2009. The district court found that the Montaños acted reasonably in amending the Operating Agreement and in removing Torres as a member of the Company, and the court refused to consider an equitable remedy. The court denied the Montaños' counterclaim. The Montaños do not appeal. Torres appeals and argues that the district court erred in finding that the Montaños acted reasonably and in rejecting his equitable relief. He also claims that the district court abused its discretion in taking almost 16 months between the end of the trial and the time it issued its findings of factand conclusions of law.

DISCUSSION

The Montaños Breached No Fiduciary Duty in Amending the Agreement and in Voting to Remove Torres

Torres characterizes himself as an oppressed minority member of the Company and accuses the Montaños of abusing their super-majority power and squeezing him out of the business in violation of their duty of good faith and fair dealing under contract law.

"We review district court determinations for substantial evidence." Garcia v. Garcia, 2010-NMCA-014, ¶ 17, 147 N.M. 652, 227 P.3d 621, cert. quashed, 2010-NMCERT-007, 148 N.M. 611, 241 P.3d 612. "It is not this [C]ourt's task to reweigh evidence. If substantial evidence supports a [district] court's conclusion it will not be disturbed on appeal." Landavazo v. Sanchez, 111 N.M. 137, 138, 802 P.2d 1283, 1284 (1990). Substantial evidence is defined as "such relevant evidence that a reasonable mind would find adequate to support a conclusion. Evidence is substantial even if it barely tips the scales in favor of the party bearing the burden of proof." Id. (citations omitted). We review de novo the district court's application of the law to the facts at hand in reaching its legal conclusions. Ponder v. State Farm Mut. Auto.Ins. Co., 2000-NMSC-033, ¶ 7, 129 N.M. 698, 12 P.3d 960.

Torres concedes that the Montaños abided by the letter of the Operating Agreement. He also admits that he was not coerced into signing the agreement and that he was bound by its terms. Section 7.4 of the Operating Agreement provided for removal of a member by a super-majority vote if the member failed to substantially perform service to the Company as required and, upon removal, members were to receive their capital accounts. The Operating Agreement also allowed for amendments to be made in writing by a super majority.

The district court found that the amendment was made appropriately. The Montaños abided by the terms of the Operating Agreement by amending it to set out in detail the responsibilities of all members of the Company. After amending the Operating Agreement, the Montaños then followed the letter of it. They alerted Torres of the new requirements, gave him 30 days' notice of his possible removal, and then communicated to him in writing each week warning him of his failure to abide by the new service requirements. When he failed to fill out time sheets or in any other way show that he worked 100 hours in a month, they used their super-majority voting bloc to remove him. This was an Operating Agreement that Torres was familiar with, even though he admitted that he did not read it before signing it. Torres helped choose the format of the Operating Agreement from templates found on the Internet and wasreminded by the other members of the Company that service was required of each of them in order to keep the business functioning. "Each party to a contract has a duty to read and familiarize himself with its contents . . . , and if the contract is plain and unequivocal in its terms, each is ordinarily bound thereby." Smith v. Price's Creameries, Div. of Creamland Dairies, Inc., 98 N.M. 541, 545, 650 P.2d 825, 829 (1982). The district court concluded that the Montaños' actions in amending the Operating Agreement and removing Torres were not a breach of fiduciary duty owed...