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Braddock v. Zaycon Foods LLC

United States District Court, W.D. Washington, Seattle

August 21, 2019

RICHARD BRADDOCK, Plaintiff,
v.
ZAYCON FOODS, LLC; FRANK R. MARESCA, JANE DOE MARESCA, and the marital community composed thereof; MICHAEL GIUNTA, JANE DOE GIUNTA, and the marital community composed thereof; and MIKE CONRAD, JANE DOE CONRAD, and the marital community composed thereof, Defendants.

          ORDER

          THOMAS S. ZILLY UNITED STATES DISTRICT JUDGE

         THIS MATTER comes before the Court on the deferred portions of the motion for partial summary judgment brought by defendants Frank Maresca, Michael Giunta, and Mike Conrad (collectively, “Individual Defendants”), docket no. 119, and the motion for partial summary judgment brought by plaintiff Richard Braddock, docket no. 124. Having reviewed all papers filed in support of, and in opposition to, the cross-motions, including the supplemental briefs filed at the Court's direction, see Minute Order (docket no. 155), and having considered the oral arguments of counsel presented at the hearing conducted on July 31, 2019, the Court enters the following order.

         In his Amended Complaint, docket no. 76, plaintiff asserted nine claims. In their motion for partial summary judgment, Individual Defendants moved to dismiss all nine of plaintiff's claims, but they did not seek summary judgment on their counterclaims. Plaintiff, however, in his motion for partial summary judgment, sought to dismiss Individual Defendants' first counterclaim for declaratory judgment. By Minute Order entered April 19, 2019, docket no. 155, the Court partially denied Individual Defendants' motion for partial summary judgment, ruling that the motion did not seek dismissal on the merits of plaintiff's first (federal securities fraud) and second (state securities fraud) claims, which had been realleged as part of plaintiff's Amended Complaint, and that genuine disputes of material fact precluded summary judgment as to plaintiff's third (common law fraud), fourth (negligent misrepresentation), and fifth (breach of fiduciary duty) claims. Plaintiff's seventh (aiding and abetting breach of fiduciary duty) claim, which was pleaded against only defendant Adam Kremin, was dismissed with prejudice pursuant to a stipulation of the parties after having reached a settlement. See Stip. & Order (docket no. 159). In its prior Minute Order, the Court deferred ruling on Individual Defendants' motion with respect to plaintiff's sixth (breach of contract), eighth (declaratory judgment), and ninth (injunctive relief) claims, as well as on plaintiff's motion concerning Individual Defendants' first counterclaim for declaratory judgment, and those matters are the subject of this Order.

         Background

          Plaintiff Richard Braddock was, for some period of time, a member, a co-manager, and the Chief Executive Officer (“CEO”) of defendant Zaycon Foods, LLC (“Zaycon”), a now defunct Washington limited liability company (“LLC”) that provided food products directly from the farm to the consumer, bypassing “the normal maze of wholesalers, distributors and other intermediaries.” Am. Compl. at ¶¶ 3, 37 (docket no. 76); Bradley Decl. at ¶¶ 3-5 & Exs. A & B (docket no. 132) (indicating that Zaycon ceased operations and dissolved in 2018). The crux of plaintiff's breach of contract claim is that he was improperly removed as Zaycon's co-manager and CEO. Plaintiff seeks a declaratory judgment that his termination was not effected by the requisite 80% of Zaycon's Class A units, see Am. Compl. at ¶ 331 (docket no. 76), and he seeks injunctive relief reinstating him as Zaycon's co-manager and CEO, see id. at ¶ 339. Contrary to plaintiff's argument, and for the reasons stated in this Order, the Court CONCLUDES as follows:

(1) Members holding at least 80% of Zaycon's Class A units consented to plaintiff's removal as co-manager, and plaintiff's replacement as co-manager by defendant Michael Giunta was accomplished in accordance with Zaycon's Operating Agreement;
(2) Giunta and the other co-manager, defendant Frank Maresca, provided plaintiff with requisite 30 days prior written notice and terminated plaintiff as Zaycon's CEO in the manner set forth in the Employment Agreement between plaintiff and Zaycon; and
(3) Plaintiff's claim that his discharge as co-manager and CEO of Zaycon constituted a breach of the Operating Agreement and/or Employment Agreement lacks merit.

         A. Removal of Manager

          The Operating Agreement for Zaycon, as amended prior to plaintiff's termination as co-manager, provided in relevant part:

The Company shall be managed by two Managers. A Manager shall serve until his or her death, disability, resignation or removal by Members holding at least eighty percent (80%) of the Class A Units.

         Operating Agreement at § 4.1, Ex. A to Tift Decl. (docket no. 125-1 at 28); see also Ex. O to Elsden Decl. (docket no. 120-1 at 127); Exs. 11 & 17 to Braddock Decl. (docket nos. 140-11 & 140-17). The parties do not disagree about how the language of § 4.1 should be interpreted or about the 80% threshold needed to discharge a manager. Instead, their dispute involves the provisions of the Operating Agreement relating to transfers of membership interests and the consequences of violating such provisions.

         B. Transfers

         The Operating Agreement outlines three ways in which membership interests may be transferred: (i) transfers approved by the manager and a majority of the members of the same class of membership; (ii) transfers qualifying as “Permitted Transfers” under Section 8.2 of the Operating Agreement; or (iii) transfers to new members pursuant to Section 2.2 of the Operating Agreement. See Operating Agreement § 8.1, Ex. A to Tift Decl. (docket no. 125-1 at 10-11); Ex. F to Elsden Decl. (docket no. 120-1 at 74-75). At issue in this matter are four (4) transfers, each of which occurred before plaintiff became one of Zaycon's co-managers, namely (i) from Zaycon Food Holdings, Transport and Acquisition Corporation (“Z Holdings”) to Saverio Solimeo; (ii) from Z Holdings to Luigi and Giovanna Solimeo; (iii) from Frank Maresca to The Saratoga Trust; and (iv) from Michael Giunta to The Michael John Trust. Each transfer involved less than all of the Class A (voting eligible) units held by the transferor, and Z Holdings, Maresca, and Giunta remained members of Zaycon until after plaintiff was terminated.

         The parties agree that none of these transfers fall within the first category of approved transfers because none of them were subject to a vote of the membership. In addition, Individual Defendants concede that none of the transfers at issue qualify as “Permitted Transfers, ” which include (i) transfers between existing members of the same class, and (ii) transfers to a revocable trust of which the transferring member is a trustee or co-trustee. See id. at § 8.2 (docket no. 125-1 at 11). Although two of the four transfers at issue were to a trust, in each instance, the transferee trust was not revocable and the transferring member was not a trustee. See Exs. 32 & 33 to Braddock Decl. (docket nos. 140-32 & 140-33) (regarding The Michael John Trust); Exs. 35 & 36 to Braddock Decl. (docket nos. 140-35 & 140-36) (regarding The Saratoga Trust).

         Individual Defendants contend, however, that each of the transfers at issue was valid under § 2.2 of the Operating Agreement, which reads in relevant part:

The Members expressly authorize the Manager to issue additional Units, and to admit future Members to the Company on such terms and conditions as the Manager deems appropriate, to include issuing Class A and Class B Units, subject to the other conditions set forth herein.

         Operating Agreement at § 2.2 (docket no. 125-1 at 4). According to Individual Defendants, defendant Mike Conrad, who was the sole manager of Zaycon at the time of the transfers in late 2014 and early 2015, had authority to admit new members without a vote of the existing members, and his approval of the transfers at issue was sufficient. See Conrad Decl. at ¶¶ 7-10 (docket no. 122).

         Plaintiff argues that Individual Defendants are misconstruing § 2.2 and that, because the transfers at issue violated the Operating Agreement, neither the transferors (all of whom retained some Class A units and remained Zaycon members after the transfers) nor the transferees had any right to vote the transferred units. Plaintiff relies on the following section of the Operating Agreement:

Upon any Transfer of a Membership Interest in violation of this Article 8, the transferee shall have no right to vote or participate in the management of the business, property and affairs of the Company or to exercise any rights of a Member. Such transferee shall only be entitled to become an Assignee and thereafter shall only receive the share of one or more of the Company's Net Profits, Net Losses and distributions of the Company's assets to which the transferor of such Economic Interest (defined below) would otherwise be entitled.

         Operating Agreement at § 8.4 (docket no. 125-1 at 11). Plaintiff takes the position that the voting rights associated with the Zaycon units purportedly transferred to Saverio Solimeo, Luigi and Giovanna Solimeo, The Saratoga Trust, and the Michael John Trust simply vanished, and in his motion for partial summary judgment, he asks the Court ...


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