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CJS Investors, LLC v. Berke

United States District Court, M.D. Florida, Orlando Division

June 22, 2018




         This matter comes before the Court without a hearing on the Motion to Dismiss (Doc. 19) filed by the Defendants, Matt Berke (henceforth, “Berke”) and SSLS-Factoring, LLC (“SSLS”), and the response in opposition (Doc. 24) filed by the Plaintiffs, CJS Investors, LLC (“CJS”) and Cary J. Siegel (“Siegel”).

         I. Background

         The instant case involves a falling-out among the owners of a Florida limited liability company: HBC Strategies, LLC (“HBC”). According to the allegations of the Complaint (Doc. 2), which are accepted in pertinent part as true for purposes of resolving the instant motion, Siegel is the sole owner of CJS. (Complaint at 2). In October 2014, CJS established HBC by filing articles of organization with the Florida Department of State. (Complaint at 2). Siegel has been president of HBC, a facilities maintenance company, since its inception. (Complaint at 2, 5). On the same day it filed the articles of organization, CJS executed an operating agreement (henceforth, the “Operating Agreement”), which, among other things, sets forth that HBC is to be managed by a board of managers. (Complaint at 6). At the outset, CJS was the sole member of HBC, owning all 1, 000 of HBC's membership units, as well as being its sole manager. (Complaint at 6). In the succeeding months, Walter Crossley invested in HBC and received 100 membership units. (Complaint at 8).

         In late 2014 and the first half of 2015, a Georgia limited liability company, Red Wizard Group, LLC (“Red Wizard”), made a number of loans totaling several hundred thousand dollars to HBC pursuant to a promissory note (the “Note”). (Complaint at 8-9). On August 6, 2015, HBC entered into a loan modification agreement (henceforth, the “LMA”) with Defendant SSLS, to which Red Wizard had transferred all of its interest in the Note.[1] (Complaint at 9). The LMA altered several terms of the Note, such as the interest rate to be paid by HBC and the deadline for paying off the loan, and authorized HBC to borrow up to another $575, 000. (Complaint at 9). The LMA also provided that HBC “shall grant” 460 membership units to SSLS and 50 to Defendant Berke. (Doc. 2-3 at 10). Thus, as of the date of the LMA, SSLS owned 46 percent of HBC, Crossley owned 10 percent, and Berke 5 percent. (Complaint at 10). The Complaint also lists Siegel as owning the remaining 39 percent of HBC as of that date, via CJS. (Complaint at 10). As part of this arrangement, Berke was named CFO of HBC. (Complaint at 10-11).

         The LMA included two provisions under which portions of SSLS's 460 membership units could be shifted to Siegel. First, the LMA provided that if HBC paid off the loan on time and with no “events of default, ” SSLS would transfer 20 of its membership units to Siegel. (Complaint at 11). The second potential equity shift involved National Landscape Management, another company controlled by Van de Grift (who controlled Red Wizard and SSLS). (Complaint at 12). SSLS agreed that if HBC or Siegel helped land a maintenance contract for National Landscape Management with one of HBC's customers, SSLS would transfer 50 of its membership units to Siegel. (Complaint at 12). As with the 20-unit shift, this 50-unit shift was made contingent upon HBC paying off the loan on time and without any events of default. (Complaint at 11-12).

         The parties agree that HBC paid off the loan in August 2017, before it was due. They also agree that prior to that payoff, HBC and Siegel helped National Landscape Management obtain a maintenance contract with one of HBC's customers. However, they disagree as to whether any events of default occurred before the loan was paid. As a result, they also disagree as to whether Siegel is entitled to the 2 percent and 5 percent equity shifts from SSLS.

         In addition, the parties agreed to have HBC buy out Crossley's 10 percent interest in October 2017, but they disagree as to what happened (or should have happened) to those 100 shares. The Plaintiffs allege that the parties agreed to distribute Crossley's 10 percent interest to each owner in proportion to the interest each already owned. (Complaint at 14). The Defendants argue that those 100 membership units are simply being held by HBC.

         Thus, the Plaintiffs allege in the Complaint that, as a result of the equity shifts from SSLS to Siegel and the distribution of Crossley's interest, they now own the majority share of HBC:







         Toward the end of 2017, the parties' disagreement over their respective ownership shares came to a head. SSLS and Berke refused to sign an amended Operating Agreement that would have reflected that the Plaintiffs, between them, owned 51.1 percent of HBC. (Complaint at 14-15). In addition, Berke made year-end ownership distributions to himself and to SSLS that the Plaintiffs allege were unjustified. (Complaint at 15). Eventually, Siegel purported to terminate Berke and cut off his access to the company's books, while Berke and SSLS purported to vote themselves onto CBC's board of managers and fire Siegel.

         On February 16, 2018, CJS and Siegel filed the instant suit in state court in Orange County, Florida. The suit was removed to this Court on March 12, 2018.

         II. Legal Standard

         Federal Rule of Civil Procedure 8(a)(2) requires “a short and plain statement of the claim showing that the pleader is entitled to relief” so as to give the defendant fair notice of what the claim is and the grounds upon which it rests, Conley v. Gibson, 355 U.S. 41, 47, 78 S.Ct. 99, 103, 2 L.Ed.2d 80 (1957), overruled on other grounds, Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). A Rule 12(b)(6) motion to dismiss for failure to state a claim merely tests the sufficiency of the complaint; it does not decide the merits of the case. Milburn v. United States, 734 F.2d 762, 765 (11th Cir.1984). In ruling on a motion to dismiss, the Court must accept the factual allegations as true and construe the complaint in the light most favorable to the plaintiff. SEC v. ESM Group, Inc., 835 ...

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