               United States Court of Appeals
                         For the Eighth Circuit
                     ___________________________

                             No. 14-1028
                     ___________________________

                           Lincoln Provision, Inc.

                     lllllllllllllllllllll Plaintiff - Appellee

                                        v.

                                  Aron Puretz

                   lllllllllllllllllllll Defendant - Appellant

                                   PMP, LLC

                          lllllllllllllllllllll Defendant

               Hastings Acquisition, LLC, nominal defendant

                   lllllllllllllllllllll Defendant - Appellant
                                   ____________

                 Appeal from United States District Court
                   for the District of Nebraska - Omaha
                              ____________

                         Submitted: October 6, 2014
                           Filed: January 5, 2015
                              ____________

Before RILEY, Chief Judge, WOLLMAN and BYE, Circuit Judges.
                             ____________

WOLLMAN, Circuit Judge.
       Aron Puretz and Hastings Acquisition, LLC (Hastings), appeal from the district
court’s1 order awarding Lincoln Provision, Inc. (Lincoln), $880,000 plus interest as
fair value for Lincoln’s ownership interest in Hastings. We reverse and remand.

       In March 2010, Lincoln, an Illinois meat-packing company seeking to cut
production costs, and Puretz, a New York real-estate investor, formed Hastings as
an Illinois member-managed limited liability company (LLC) for the purpose of
bidding on two Nebraska cattle-processing plants that were being sold at a
bankruptcy auction. Lincoln and Puretz agreed that Puretz would contribute 70% of
the acquisition and start-up capital required for their joint venture and that Lincoln
would contribute 30%. To account for the disproportionate capital contributions,
Lincoln agreed to manage the plants and to provide roughly 40,000 head of cattle per
year to be processed at the plants.

       Later in March 2010, Hastings filed standard form Illinois Articles of
Organization, Article 7 of which requires an LLC to state whether it is to be managed
by its members or by a manager. The Hastings Articles state, “The Limited Liability
Company has management vested in the member(s),” and then list Lincoln and Puretz
as the company’s two members. The Illinois standard form Articles did not require
Hastings to disclose other details about the company’s financing or operations.
Lincoln and Puretz intended to set out these details in the company’s operating
agreement once they had agreed on the various terms.

      To bid on the cattle-processing plants in the upcoming bankruptcy auction,
Hastings was required to make an initial earnest-money deposit of $250,000 to an
escrow account. Puretz contributed $150,000 and Lincoln contributed $100,000 to



      1
       The parties agreed to submit the case to a magistrate judge under 28 U.S.C.
§ 636(c); hereafter, we refer to the magistrate judge as the district court.

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the total amount. Hastings thereafter submitted a successful bid of $3,900,000 for the
two plants.

       Meanwhile, negotiations between Lincoln and Puretz regarding the future
operation and ongoing financing of Hastings began to deteriorate, and the members
were unable to settle on terms for the company’s operating agreement. Although
Lincoln, Puretz, and their respective attorneys exchanged numerous emails and draft
operating agreements, they could not agree on several major issues, including the
members’ respective shares of profits and losses, authority for day-to-day
management decisions, and the procedures for calculating the value of the members’
respective ownership interests in the company. The members met on June 21, 2010,
in a final attempt to resolve their differences. Notes prepared to summarize the
discussions at this meeting describe the issues upon which the members apparently
agreed, including that the members’ capital contributions would be repaid in full
before the company’s profits and losses were divided equally between the members.

       After several delays, Hastings finally closed on the purchase of the plants on
June 30, 2010. Because of the members’ inability to resolve their disagreements
about the financing and operations of the company, Lincoln refused to contribute its
agreed-upon 30% of the purchase price for the plants. Puretz was therefore required
to pay the entire $3,900,000 purchase price, except for the $100,000 from Lincoln’s
contribution to the escrow account that was credited to the purchase price.

       On July 2, 2010, Lincoln’s attorney sent a letter to Puretz’s attorney stating that
Lincoln was dissociating from Hastings. Under the Illinois Limited Liability
Company Act (the Act), 805 Ill. Comp. Stat. §§ 180/1-1 to 180/60-1, if a member of
an LLC dissociates and the LLC does not dissolve, the LLC is required to purchase
the dissociating member’s distributional interest under the terms agreed to by the
LLC’s members. Ill. Comp. Stat. § 180/35-60(a). If the LLC does not purchase that
interest as required, the dissociating member may file suit against the LLC, and a

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court then determines the fair value of the dissociating member’s distributional
interest in the LLC. Id. § 180/35-60(d)-(e). As noted above, Lincoln and Puretz had
never executed an operating agreement that described the method for calculating the
value of a member’s ownership interest in Hastings. Therefore, invoking federal
diversity jurisdiction, Lincoln filed this lawsuit against Hastings seeking a
determination of the fair value of its interest in the company.2

       The district court held a four-day bench trial. Lincoln argued that the fair value
of its distributional interest in Hastings was “half the value of Hastings,” while
Hastings argued that the fair value of Lincoln’s distributional interest was
“$100,000—the amount [Lincoln] contributed to the acquisition of the [p]lants.” The
district court found that “[Lincoln] and Puretz each h[e]ld a 50% interest in
Hastings,” that Lincoln dissociated from Hastings on July 2, 2010, and that the value
of Hastings on the dissociation date was $3,900,000—the amount paid for the plants
in the bankruptcy auction. The district court also found that, because the plants were
never operational and Lincoln never provided management services or cattle for
processing, Lincoln’s only contribution to Hastings was the $100,000 it contributed
to the escrow account. In reaching this conclusion, the district court rejected
Lincoln’s assertions that its identification of the business opportunity, guidance in the
bidding process, development of a business plan, and general “sweat equity” had
“substantial value” for which it should receive credit.

      Based on these findings, the district court first acknowledged that awarding
Lincoln its requested relief—50% of the $3,900,000 total value of Hastings—when
Lincoln failed to contribute the capital, management services, and cattle it agreed to
contribute “would result in an inequitable windfall” to Lincoln. Nevertheless, the

      2
      Lincoln also sued Puretz individually, but those claims were dismissed, and
Lincoln does not challenge that decision on appeal. PMP, LLC, also named as a
defendant, is actually named PKMP Co., LLC, a Nebraska LLC formed by Puretz that
was never served and was not involved in the lawsuit.

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district court ultimately concluded that the fair value of Lincoln’s distributional
interest in Hastings was 50% of the $3,900,000 value of the company ($1,950,000),
less the 30% of the $3,900,000 purchase price that Lincoln failed to contribute at
closing ($1,170,000), plus a return of the $100,000 Lincoln contributed to the escrow
account. The district court therefore entered an order awarding Lincoln $880,000
plus interest from the July 2, 2010, date of Lincoln’s dissociation.

       Hastings filed a motion to correct the judgment and findings of fact,
contending, among other things, that the district court had failed to give effect to the
members’ understanding that capital would be returned in proportion to the members’
respective contributions before profits and losses were divided equally. The district
court denied the motion, concluding that the “evidence d[id] not support a finding
that the parties agreed that capital contributions would be returned in the proportion
of the parties’ respective contributions before distribution of profits” and that its
“valuation of [Lincoln’s] distributional interest was proper and consistent with the
Act and the evidence presented.” Hastings now appeals, arguing that the district
court erred in determining the fair value of Lincoln’s distributional interest, in
refusing to consider Hastings’s state-law defenses, and in calculating the date of
Lincoln’s dissociation from Hastings.

        “[W]e review the district court’s fact finding for clear error, and we review
legal conclusions and mixed questions of law and fact de novo.” Eckert v. Titan Tire
Corp., 514 F.3d 801, 804 (8th Cir. 2008). “[W]e will overturn a factual finding only
if it is not supported by substantial evidence in the record, if it is based on an
erroneous view of the law, or if we are left with the definite and firm conviction that
an error was made.” Richardson v. Sugg, 448 F.3d 1046, 1052 (8th Cir. 2006).
Hastings contends that determination of the fair value of Lincoln’s distributional
interest is a mixed question of law and fact subject to de novo review, and Lincoln
contends that the determination is a finding of fact subject to review for clear error.
We need not decide which standard applies, because even if reviewed under the more

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rigorous clear-error standard, the district court’s determination of the fair value of
Lincoln’s distributional interest in Hastings was mistaken.3

       Under the Act, once a dissociating member files suit seeking a judicial
determination of the fair value of his distributional interest, the court must calculate
the fair value of the interest after taking into account all “relevant evidence,”
including, for example, the value of the LLC as a going concern and any agreement
between the members fixing the price or specifying a formula for calculating the price
of a distributional interest in the LLC. See 805 Ill. Comp. Stat. § 180/35-65(a). An
LLC’s operating agreement “govern[s] relations among the members,” but “[t]o the
extent the operating agreement does not otherwise provide, [the] Act governs” those
relations. Id. § 180/15-5. In addition, “principles of law and equity supplement [the]
Act.” Id. § 180/1-43.

       According to the district court, because the “evidence show[ed] that [Lincoln]
had a 50% interest in Hastings,” Lincoln was entitled to 50% of the value of Hastings
after an adjustment for Lincoln’s 30% capital-contribution shortfall and its $100,000
contribution to escrow. Hastings argues that contrary to this determination, the
evidence supported a conclusion that the members agreed to a proportional return of
capital prior to any distribution of profits and losses, even though they never finalized
an operating agreement. We agree. The evidence at trial clearly established that the
members contemplated a proportional return of capital actually contributed and that
any “50% interest” Lincoln had was limited to distributions of profits and losses after
the proportional return of capital contributions. Of course, because Lincoln refused



      3
       Because we agree with Hastings that the district court erred in calculating the
value of Lincoln’s distributional interest in the company and because we grant
Hastings’s request for relief in the form of a remand with “instruction[s] to value
[Lincoln’s] distributional interest at $100,000,” we need not consider Hastings’s other
arguments on appeal.

                                          -6-
to make its initial 30% contribution to capital, Puretz actually contributed 100% of
the capital to Hastings, less Lincoln’s $100,000 payment to the escrow account.

       Jim Stevens, Jr., Lincoln’s president, confirmed that the members “agreed to
all” the terms described in the notes from the June 2010 meeting, including that “cash
put in to funding the operation will be paid back prior to the 50-50 profit split.” One
of Lincoln’s key employees, who was also present at the June 2010 meeting,
confirmed that this was the members’ understanding, testifying, “[M]oney was
coming in 70/30, then that was going to be paid out that same way until they got their
investment back . . . . So [Puretz] got [his] 70 percent back before it was 50/50 split.”4
In an email to Lincoln’s attorney after the June 2010 meeting, Hastings’s attorney
sought confirmation that the members agreed that profits and losses would be divided
“after return of the funds” contributed to capital. In response, Lincoln’s attorney
confirmed that understanding, stating that the agreement was that “[i]nvested capital,
without interest, was to be returned 70/30 as invested.” The proposed operating
agreement drafted by Lincoln’s own attorney stated that if the company was
dissolved, “any capital invested in cash and not previously returned . . . to acquire the
assets shall be refunded in the same proportions of [70/30], respectively invested,”
and that only “[a]fter all capital has been returned in the amount originally invested”
would funds from operations or upon liquidation “be paid on a 50/50 basis.” Indeed,
in Lincoln’s July 2, 2010, dissociation letter, Lincoln’s attorney demands “the value
of [Lincoln’s] equity” in Hastings and states that “the equity Lincoln is owed . . . . is


      4
        The testimony at trial often referred to the members’ original understanding
that there would be a 70/30 proportional return of capital contributions prior to an
equal division of profits and losses. This return of capital would have been
appropriate had Lincoln made its initial 30% contribution to capital as originally
contemplated by the members. Instead, because Lincoln ultimately refused to make
its 30% contribution and Puretz was required to contribute 100% of the capital to
Hastings, Lincoln is not entitled to a distribution of 30% of Hastings’s capital.


                                           -7-
half the value of the company less the debt, after return of capital to both investors.”
This evidence establishes that the members understood that their respective capital
contributions would be returned in the amount actually contributed before profits and
losses were divided equally. Perhaps most importantly, Lincoln presented no
evidence indicating that Puretz agreed to contribute 70% of the capital to Hastings
in exchange for the right to receive only 50% of the capital in repayment of his
investment. The evidence does not support such a conclusion.

       Lincoln argues that the district court correctly relied on Article 7 of the
Hastings Articles of Organization as the best evidence that each member had a “50%
interest in Hastings” for all purposes—including for purposes of calculating the fair
value of a member’s distributional interest. We disagree. The Articles merely
establish that Hastings was to be formed as a member-managed LLC and that
management was to be vested in its two members, Lincoln and Puretz. The Articles
cannot be read to establish the members’ economic interests in the company. Lincoln
also argues that it contributed the business plan upon which the joint venture was
based and that this plan, along with its “sweat equity” and other non-monetary
contributions, were valuable assets entitling Lincoln to 50% of the value of Hastings.
Again, we disagree. The district court did not clearly err in assigning no value to the
business plan, to Lincoln’s “sweat equity,” or to its unperformed promises of
management services and cattle for processing—particularly given that Hastings was
never operational. The district court properly found that Lincoln’s only contribution
to Hastings was the $100,000 deposited in the escrow account.

       Considering the evidence outlined above—as well as the absence of any
evidence to the contrary—we conclude that the district court clearly erred in finding
that “the evidence [did] not support” a determination that the parties agreed to a
proportional return of capital contributions. The evidence presented at trial
established that Lincoln and Puretz contemplated that any capital they contributed to
Hastings would be returned to them in proportion to their respective contributions

                                          -8-
before any profits or losses generated by the company’s operations were divided
equally. Because Lincoln did not make its agreed-upon 30% contribution to capital,
it was not entitled to a 30% distribution. The evidence presented at trial also
established that Lincoln’s only contribution to Hastings was its $100,000 deposit in
the escrow account. Thus, the district court’s valuation determination was not
supported by substantial evidence, and we are “left with the definite and firm
conviction that an error was made.” Richardson, 448 F.3d at 1052. We therefore
reverse the judgment of the district court awarding Lincoln $880,000 plus interest,
and we remand with instructions to enter an order awarding Lincoln $100,000 plus
interest from the July 2, 2010, date of Lincoln’s dissociation from Hastings.

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