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South Louisiana Ethanol L.L.C. v. CHS-SLE Land

Court of Appeal of Louisiana, Fourth Circuit

February 4, 2015

SOUTH LOUISIANA ETHANOL L.L.C.
v.
CHS-SLE LAND, AND CHS, INC

Page 84

APPEAL FROM 25TH JDC, PARISH OF PLAQUEMINES. NO. 58-782, DIVISION " A" . Honorable Kevin D. Conner, Judge.

AFFIRMED.

Miles P. Clements, Joseph N. Mole, Benjamin M. Castoriano, FRILOT L.L.C., New Orleans, LA, COUNSEL FOR PLAINTIFF/APPELLANT/SOUTH LOUISIANA ETHANOL, L.L.C.

Andrew R. Lee, Mark A. Mintz, Mia M. Grandpre, JONES WALKER LLP, New Orleans, LA, COUNSEL FOR DEFENDANT/APPELLEE/CHS, INC.

Court composed of Chief Judge James F. McKay, III, Judge Terri F. Love, Judge Edwin A. Lombard.

OPINION

Terri F. Love, Judge

Page 85

[2014-0127 La.App. 4 Cir. 1] CHS-SLE Land, LLC (" LLC" ) owns a riverfront parcel along the west bank of the Mississippi River, known as Tract E-2. South Louisiana Ethanol, LLC (" SLE" ) sued CHS, Inc. (" CHS" ) and the LLC, seeking dissolution of the LLC. The trial court granted CHS' claim for declaratory relief finding CHS acquired and holds lessee rights under a 99-year lease (" 1968 Lease" ) pertaining to the subject property, and granted SLE's claim for dissolution of the LLC. We find no error in the trial court's judgment as CHS acquired lessee rights to Tract E-2 by assignment and the LLC acquired the property subject to the 1968 Lease. We also find no error in the trial court's judgment which granted CHS' exceptions of no cause of action for partition and no right of action for partition. Finally, we find no error in the trial court's granting of judicial dissolution of the LLC as the evidence is sufficient to establish that it is not reasonably practicable to carry on the business of the LLC.

[2014-0127 La.App. 4 Cir. 2] FACTUAL AND PROCEDURAL BACKGROUND

CHS is a grains and food cooperative that owns and operates a grain elevator, ship dock, barge unloader, and barge fleet in Myrtle Grove, Plaquemines Parish, Louisiana.

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Their facility, located along the west bank of the Mississippi River and in operation since 1994, exports grains and other agricultural products aboard deep draft ocean vessels. The main barge fleeting area is along a tract of land known as Tract E-2, which CHS claims it leases under an August 1, 1968 lease with a 99-year term. CHS also fleets its barges from an adjacent tract of land formerly owned by Entergy Corp., f/k/a the Louisiana Power and Light Company (" LP& L Property" ). The lease on the LP& L Property had an indefinite term and was susceptible to termination on 90 days' notice.

In 2006, William Hurst (" Mr. Hurst" ), Kennett Stewart (" Mr. Stewart" ), and John Paul (" Mr. Paul" ) formed SLE to purchase property adjacent to CHS' Myrtle Grove facility. The SLE property included a partially completed ethanol plant that SLE hoped to bring into commercial production. To actualize SLE's plans, SLE needed a supply of grain feedstock and access to the riverfront to ship the ethanol the facility produced. In early 2007, SLE began negotiations with CHS to purchase grain for its ethanol plant, and also inquired about subleasing part of Tract E-2 for a riverfront dock. CHS agreed to sell grain to SLE; however, the parties could not reach an agreement on SLE's plan for a dock. CHS was reluctant to sublease Tract E-2 because it was concerned it would impede CHS' fleeting operations.

[2014-0127 La.App. 4 Cir. 3] When CHS learned SLE was in negotiations to purchase the LP& L Property and would be in a position to cancel CHS' lease on that property with only 90 days' notice, CHS worked out a compromise with SLE which is memorialized in the April 2007 " Mutual Fleeting Servitudes Agreement" (" MFSA" ). The MFSA provided for the two parties to share use of the Mississippi River frontage. Specifically, SLE or its affiliate would purchase the LP& L Property and would make available to CHS the long-term right to fleet CHS' barges along the property. In return, CHS would permit SLE use of a portion of Tract E-2 so that it could build a dock.

The parties also entered into a grain procurement agreement (" Procurement Agreement" ) where SLE would purchase from CHS grain feedstock for its ethanol plant. CHS alleges that the MFSA and the Procurement Agreement were directly linked in that if no feedstock was purchased, the MFSA would terminate and the parties' rights and positions would return to their original state prior to the agreement. Notably, the MFSA stated:

Whereas, CHS, as successor in interest to Mississippi Grain Elevator, Inc., leases the property [Tract E-2] pursuant to a lease dated as of August 1, 1968, which represents approximately one thousand thirty-five (1035) linear feet along the Mississippi River.

Around the same time that the MFSA was executed, SLE also began negotiations with CLL Limited Partnership, Ltd. (" CLL" ) to purchase Tract E-2. Pursuant to the 1968 Lease, however, CHS enjoys a right of first refusal on the property and advised CLL that it would match SLE's offer in an effort to protect its long-term use of Tract E-2 after the 1968 Lease expires. The testimony in the [2014-0127 La.App. 4 Cir. 4] record indicates that the parties wanted to avoid a bidding war, so CHS and SLE agreed to purchase Tract E-2 together.

In July 2007, CHS and SLE formed a limited liability company to buy and hold Tract E-2. The formation of the LLC was memorialized in a Letter Agreement drafted by attorney Francis J. Lobrano (" Mr. Lobrano" ) for his then client SLE, addressed to CHS Vice-President Gary

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Anderson (" Mr. Anderson" ). The Letter Agreement was signed by Mr. Stewart and Mr. Anderson as representatives for SLE and CHS. The parties agreed that the LLC would purchase Tract E-2 from CLL, and CHS and SLE would be its only members, each owning a 50% interest in the company. Additionally, the Letter Agreement recognized that Tract E-2 would be used by both CHS and SLE as contemplated in the MFSA. In particular, CHS and SLE would have the right to lease from the LLC portions of Tract E-2 as specified in the MFSA.

Mr. Stewart and Mr. Lobrano, witnesses for SLE, testified at trial that the Letter Agreement was never intended to serve as the LLC's operating agreement, and no formal operating agreement was ever executed. The trial court ruled that the LLC has no formal operating agreement and that the Letter Agreement is the only document evidencing the business purpose of the LLC.

In August of 2007, the LLC purchased Tract E-2 from CLL for $255,000.00. The Cash Sale states that Tract E-2 was purchased " subject to" and " tak[ing] cognizance of" the 1968 Lease amongst other encumbrances. Additionally, the Cash Sale provides that the property was purchased subject to " all reservations and [2014-0127 La.App. 4 Cir. 5] all servitudes, rights-of-way, alienations, encroachments and other matters, whether or not of record...."

Thereafter, SLE filed a permit application to build a dock on the upriver portion of Tract E-2. SLE's manager Mr. Stewart then formed a new company with his wife, TKS Ventures, LLC (" TKS" ), and in September 2007, TKS bought the LP& L Property as contemplated in the MFSA.

In October 2007, after CLL sold Tract E-2 to the LLC, CHS made attempts to pay CLL rent for the 2007-2008 period; however, CHS received a letter from CLL that it no longer owned the property. The evidence at trial indicates that after initially acquiring Tract E-2 the LLC did not set up a bank account to receive lease payments. Although CHS did not pay rent on Tract E-2 between 2007 and 2011, CHS offered testimony at trial that this was due to a " clerical oversight." In 2011, CHS, as a manager of the LLC, opened a bank account in the LLC's name and deposited into the account rent payments for the missing time period.

By 2008, financing fell through for SLE's ethanol plant, and SLE filed for bankruptcy in August 2009 which resulted in a plan of liquidation in April of 2011. During the bankruptcy proceedings, SLE sought the court's approval to sell its interest to a purchaser of SLE's choosing, which CHS opposed and the bankruptcy court denied. The bankruptcy court concluded that if an agreement could not be reached with regard to the transfer of SLE's interest in the LLC, SLE was ordered to institute legal proceedings to dissolve the LLC and " partition the real property [2014-0127 La.App. 4 Cir. 6] asset of [the LLC] to be divided in kind." The bankruptcy court noted that " [t]his litigation may or may not be successful," and in the event it was not,

...it is Debtor's intention to either assign its economic attributes and retain its membership in [the LLC], or SLE will remain in existence until is able to liquidate this asset, subject to the consent and approval of security interest holder, Whitney National Bank.

Claiming the MFSA terminated as a result of SLE's unsuccessful attempt to bring the ethanol plant to commerce, Mr. Stewart, through his company TKS, sold the LP& L Property in May 2011. In that same month, SLE filed a petition for dissolution of the LLC.

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In June 2011, SLE auctioned the ethanol plant site with the option to acquire the fruits of the LLC, if any, of any dissolution of the LLC. JAH, Enterprises, Inc., (" JAH" ) won the bid for SLE's assets including the fruits of the LLC's dissolution. Notably, in October 2011, JAH assigned its rights to Plaquemines Holdings, a company in which Mr. Stewart's company, TKS, acquired a 50% interest.

After SLE filed its petition for dissolution of the LLC, CHS filed a counterclaim asserting it was the assignee to the 1968 Lease and sought a declaratory judgment recognizing that:

(1) any transfer of any portion of [Tract E-2] is subject to the [1968] Lease; (2) that CHS has a right of first refusal that may be exercised before the transfer of any part of the property; (3) and for all other relief to which it is entitled in law and equity.

Thereafter, SLE attempted to evict CHS from Tract E-2 and call CHS into default for unpaid rent. A trial on the merits of CHS' motion for summary judgment seeking declaratory relief was held in May 2013. In July 2013, the trial court granted CHS' motion for partial summary judgment finding CHS is a valid lessee by assignment of the 1968 Lease. The trial court, however, granted SLE's [2014-0127 La.App. 4 Cir. 7] petition for dissolution of the LLC holding that it was not reasonably practicable to carry on the business of the LLC. CHS then filed a motion to amend the judgment and designate as a final judgment under La. C.C. P. art. 1915(B)(1), which the trial court granted. In a post-trial amendment to its petition, SLE requested that Tract E-2 be distributed to SLE and CHS in indivision and as co-owners. SLE also sought the LLC's immediate dissolution and judicial partition in kind of Tract E-2. In response, CHS filed exceptions of no cause of action and no right of action. The trial court found that SLE, as a member of the LLC, has no right to demand partition of Tract E-2 because SLE has no present ownership interest in the property. The trial court also found that SLE's request that Tract E-2 be partitioned and distributed in kind is prohibited by law. In particular, the trial court held that SLE's demands do not comply with the judicial guidelines for the winding up of the affairs of a limited liability company under La. R.S. 12:1336. This appeal follows.

VALIDITY OF THE LEASE

On appellate review, this Court reviews a trial court's granting of a motion for summary judgment using the de novo standard of review. Jones v. Buck Kreihs Marine Repair, LLC., 13-0083, p. 1 (LA.APP. 4 Cir. 8/21/13), 122 So.3d 1181, 1183, writ denied, 13-2260 (La. 12/2/13), 126 So.3d 1285. See also Hutchinson v. Knights of Columbus, Council No. 5747, 03-1533, p. 5 n.2 (La. 2/20/04), 866 So.2d 228, 232. Given we review a motion for summary judgment de novo, we use the same standard applied by the trial court in the determining the motion for summary judgment. Id. Additionally, the appellate court will " not give deference to the trial court's judgment or its reasons therefor...A trial court's reasoning for granting a summary judgment may be informative, but it is not determinative of [2014-0127 La.App. 4 Cir. 8] the issues to be resolve by this court." Id., 03-1533, p. 1-2, 122 So.2d at 1183; See also Cusimano v. Port Esplanade Condominium Ass'n, Inc., 10-0477, p. 4-5, (LA.APP. 4 Cir. 1/12/11), 55 So.3d 931, 935. If no genuine issue of material fact exists, then summary judgment is proper. La. C.C. P. art. 966(B)(2).

Here, SLE seeks review of the trial court's granting of CHS' motion for partial summary judgment finding that the 1968 Lease is valid and that CHS holds lessee

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rights by assignment of the lease. SLE contends that the LLC is not bound by the terms of the 1968 Lease because there is no written assignment of the lease to CHS. Additionally, SLE claims that even if there was an assignment of the 1968 Lease, CHS acted in a manner that is " contrary to and inconsistent with its purported status as a 99-year lessee of the property."

At the outset, we note that the 1968 Lease, by its terms, is valid on its face. Pursuant to La. Civ. Code Ann. art. 2668 , a valid lease requires an agreement wherein " one party, the lessor, binds himself to give to the other party, the lessee, the use and enjoyment of a thing for a term in exchange for a rent that the lessee binds himself to pay." The 1968 Lease is valid under its terms as the lessor agrees to permit the lessee's use and enjoyment ...


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