United States District Court, N.D. Indiana, Fort Wayne Division
Appeal
from the United States Bankruptcy Court Northern District of
Indiana Hammond Division Case No. 17-23131 Hon. James R.
Ahler
OPINION AND ORDER
HOLLY
A. BRADY JUDGE
This
matter comes as an appeal from the United States Bankruptcy
Court for the Northern District of Indiana's Order
Dismissing Case (ECF No. 4 at 365) entered on July 26, 2018
(the “Order”). Appellant Catalyst Lifestyles
Sport Resort, LLC (“Catalyst”) filed its
Appellant's Brief (ECF No. 8) on October 16, 2018.
Appellees Josh Sherrard (“Sherrard”) and Todd
Thomae (“Thomae”) filed their Appellee's
[sic] Brief (ECF No. 9) on November 16, 2018. Appellee City
of Portage Department of Redevelopment
(“Portage”) filed its Brief of Appellee (ECF No.
11) on November 16, 2018.
The
issue before the Court is whether Catalyst's operating
agreement required the approval of 75% of the membership
interests before bankruptcy could be filed on behalf of the
LLC. For the reasons set forth below, the Order will be
affirmed.
FACTUAL
BACKGROUND
Catalyst
is an Indiana limited liability company formed on May 5,
2015. Catalyst is a member-managed LLC, and at all relevant
times had three managers: Tony Czapla (“Czapla”),
Thomae, and Sherrard. The managers were also the members of
the LLC. Czalpa held fifty percent of the membership
interests, with Thomae and Sherrard holding the remaining
fifty percent. As part of the formation of the LLC, the
members executed the Operating Agreement of Catalyst
Lifestyles Sport Resort, LLC (ECF No. 10-4 at 6-37) on May
12, 2015 (the “Operating Agreement”).
Several
provisions of the Operating Agreement have become the focus
of this appeal.
Those
provisions are:
5.1 Management. The business and affairs of the Company shall
be managed by its Managers. The Managers shall direct, manage
and control the business of the Company. Except for
situations in which the approval of the Members is expressly
required by this Operating Agreement or by non-waivable
provisions of the Act[1], the Managers shall have full and complete
authority, power and discretion to manage and control the
business, affairs and properties of the Company, to make all
decisions regarding those matters and to perform any and all
other acts or activities customary or incident to the
management of the Company's business. At any time when
there is more than one Manager, any one Manager may take any
action permitted to be taken by the Managers, unless the
approval of more than one of the Mangers is expressly
required pursuant to this Operating Agreement or the Act.
* * *
5.3 Certain Powers of Managers. Without limiting the
generality of Section 5.01[2], the Managers shall have power and
authority, on behalf of the Company:
* * *
(f) Upon the affirmative vote of the members holding at least
75% of all Percentage Interests[3], to sell or otherwise dispose of
all or substantially all of the assets of the Company as part
of a single transaction or plan as long as such disposition
is not in violation of or a cause of a default under any
other agreement to which the Company may be bound;
* * *
(h) To employ accountants, legal counsel, managing agents or
other experts to perform services for the Company; (i) To
enter into any and all other agreements on behalf of the
Company, in such forms as the Managers may approve;
* * *
6.4 Approval of Sale of All Assets. The Members shall have
the right, by the affirmative vote of the members holding at
least 75% of all Percentage Interests, to approve the sale,
exchange or other disposition of all, or substantially all,
of the Company's assets which is to occur as part of a
single transaction or plan.
(Operating Agreement at 5, 6, 9; ECF No. 10-4 at 13, 14, 17).
The Operating Agreement was drafted by Attorney Ben Hughes
(“Hughes”) as part of a “LLC kit, ”
which included checking name availability, filing, and other
services. It is unclear what, if any, involvement Czalpa,
Thomae, and Sherrard had in the drafting of the Operating
Agreement. Czalpa testified that he only had a “brief
conversation” with Hughes in which Czalpa shared his
address and the proper spelling of his last name. (ECF No. 4
at 305). There is no evidence from Thomae or Sherrard
regarding their interactions with Hughes.
Catalyst
was not a successful business. This appears to be due, at
least in part, to conflict between and among Czalpa, Thomae,
and Sherrard. This conflict would eventually result in a
flurry of court filings. On April 20, 2017, Czalpa filed a
Petition for Emergency Injunction to Enforce Operating
Agreement Under Indiana Code § 23-18-4-7 (the
“Injunction Petition”) in the Porter Circuit
Court. The main issue in the Injunction Petition was
Czalpa's allegation that he was improperly removed from
Catalyst's bank accounts. On August 31, 2017, Thomae
filed a Petition for Judicial Dissolution of Limited
Liability Company and Appointment of a Receiver (the
“Dissolution Petition”) in the same Porter
Circuit Court action. The Dissolution Petition alleged,
generally, that Catalyst was insolvent and could no longer
operate because Czalpa refused to work with Catalyst's
other managers.
On
October 25, 2017, Czalpa executed “Certified
Resolutions” for Catalyst “in accordance with the
authority granted each member to bind the entity as granted
in Article 5.1 of the Operating Agreement.” (ECF No. 4
at 151). The Certified Resolutions appointed T. Clifford
Fleming (“Fleming”) as Chief Restructuring
Officer of Catalyst. Fleming's sole purpose in his new
role was to file Chapter 11 bankruptcy on behalf of Catalyst.
Catalyst's Voluntary ...