In Roemmich v. Eagle Eye Development, LLC, 2008 U.S. App. LEXIS 10239 (8th Cir. 2008), we have yet another case of a family business venture leading to family litigation. Leland and Jane Bertsch (husband and wife) formed Eagle Eye Development, LLC, on June 12, 1995, to construct and lease post office buildings to the U.S. Postal Service. They brought in Jane’s brother, Bruce Roemmich, to oversee construction and development of two such projects in Florida. Eventually, the deal matured (or devolved, depending on how you look at it) into Roemmich getting a 30 percent ownership interest in Eagle Eye and a salary of $400 per week. Leland Bertsch owned the other 70 percent. Jane Bertsch originally owned a 5 percent interest, but she signed it over to her brother early on—perhaps she sensed trouble coming.
Roemmich became Secretary, Treasurer, and Governor of Eagle Eye. Jon Wagner later replaced him as Secretary. The opinion doesn’t really identify Wagner’s relationship to the endeavor. He just kind of lurks throughout like that guy on your college campus who graduated a long time ago but never left… Anyway, financial difficulties plagued the Florida projects and Reommich decided to walk out during June 1996. Leland Bertsch hired someone else to complete the work. Not surprisingly, the relationship between Roemmich and the rest of the Eagle Eye team deteriorated to the tune of physical and verbal threats. When Leland called the next meeting of the LLC, he was the only member in attendance, but he got a lot done. He removed Roemmich as Governor and Treasurer and appointed his wife Governor. As Executive Vice President and 30 percent owner, Roemmich continued to receive financial statements. By November, he suspected fraud, tax violations, and criminal conduct. He did not, however, exercise his right to call a meeting or request detailed financial information.
In 2004, he brought suit against Eagle Eye, Leland, Jane, and that Wagner guy. Roemmich claimed their actions were unfairly prejudicial, breached fiduciary duty, and the duty to act in good faith owed to him as a member and minority shareholder. He also said he was denied his right to vote as a member and mom always liked Jane better. Defendants counterclaimed based on Roemmich’s untimely departure from Florida back in 1996.
The essence of Reommich’s claim was self-dealing. In April 1997, Eagle Eye received $152,247.35 from the Postal Service and turned around and paid it to Bertsch Construction as reimbursement for “expenses.” Bertsch Construction also got 3 percent of project costs for support services but the fee was never approved by Eagle Eye governors or members. Eagle Eye also granted Bertsch Construction a contract (with really nice profit margins) to do repair work on Eagle Eye properties in Florida after hurricanes hit. Oh what a tangled web we weave when our family corporation is paid by our family LLC… The LLC also paid Leland $400 per week for services for two years, and made payments on behalf of the Bertsch’s for non-LLC related expenses.
The problem, of course, is that Roemmich let his anger boil for too long. The district court applied North Dakota’s six-year statute of limitations for tort, contract, and statutory causes of action and barred claims accruing prior to April 13, 1998. Pretty much everything happened before April 13, 1998, and Roemmich had notice before then, too. Roemmich argued that the defendants’ acts were a continuing violation that continued into the last six years because the conduct, when cumulative, froze him out of the LLC. This argument failed because he didn’t need cumulative activity to have notice of his claims. He had enough information about significant and distinct actions to do something within the limitations period. He just didn’t do it.
He also argued that the six year period did not apply to this violation. He preferred the ten year statute of limitations for violations not provided for in the Code, and argued that North Dakota’s LLC Act did not specifically address the freezing out of LLC members. The Court didn’t buy the argument, and said the LLC statute covered freeze-outs quite sufficiently, thank you very much, and the six year period for statutory violations applied.
Roemmich made some arguments about events that took place after April 13, 1998, but he did not provide enough evidence to support the allegations or did not provide enough evidence as to when the events occurred. Roemmich was beaten not only because he slept on his rights, but because his case was not well presented.
The 8th Circuit also concurred with the district court’s findings that Roemmich had no reasonable expectation of employment by Eagle Eye, especially after he walked out on the Florida projects; that the Bertsch’s did not engage in improper self-dealing; and that Reommich never had a reasonable expectation that he would be a decision-maker for Eagle Eye, especially given his own “inequitable” conduct.
Adding insult to injury, the 8th Circuit made Roemmich pay for the Defendants’ reasonable expenses, including attorney fees, because of his arbitrary, vexatious, or bad faith conduct. The district court found that Roemmich made baseless accusations of fraud and illegality, and attempted to disrupt Eagle Eye’s business relationships, and the 8th Circuit did not find anything to the contrary. Seems Roemmich would have been better off sleeping on his rights for a little while longer.
Ms. Pontius is an associate at Dickinson, Mackaman, Tyler & Hagen, P.C. and a contributor to this blog.