Dillon v. Novel Energy Solutions L.L.C.

Background

Daniel Dillon was a former employee and part-owner of Novel Energy Solutions L.L.C. His employment ended in September 2022, and Novel later attempted to purchase his ownership interest. Dillon claimed that the buyout violated Novel’s Operating Agreement and substantially undervalued his interest.

Dillon’s equity consisted of Common Units granted for employment services, not units issued in exchange for invested capital. The parties no longer disputed that Dillon held a 1.1% ownership interest. On December 30, 2022, Novel’s board of governors adopted a resolution memorializing a supermajority vote to force the sale of Dillon’s entire interest. Novel tendered Dillon a check for $34,531.55, representing its calculation of the book value of his 1.1% interest. Dillon rejected the payment.

Dillon asserted claims involving the ownership interest, including breach of contract, breach of the duty of good faith and fair dealing, declaratory judgment, breach of fiduciary duty, a buyout under the Operating Agreement, an alternative statutory buyout claim, specific performance, and another declaratory-judgment claim. He also asserted claims under the Family and Medical Leave Act and the Minnesota Human Rights Act. The parties’ summary-judgment motions did not address the latter two claims.

Summary-judgment standard

The court explained that summary judgment is appropriate when there is no genuine dispute about any material fact and the moving party is entitled to judgment as a matter of law. A material fact could affect the case’s outcome, and a genuine dispute exists when a reasonable jury could decide the fact for the nonmoving party.

Claims abandoned or not opposed

Dillon did not oppose the defendants’ arguments concerning Counts I, II, III, V, and VI and confirmed at the hearing that he had abandoned those claims. The court therefore granted the defendants’ summary-judgment motion as to those counts on that basis. The court did not describe those claims as dismissed in the order.

Contract interpretation and valuation method

The remaining principal issue was whether Novel’s buyout complied with the Operating Agreement. The court treated construction of the unambiguous agreement as a question of law and applied the contract’s plain and ordinary meaning.

The agreement identified multiple possible triggering events. One was a member’s separation from employment. Another was a supermajority vote forcing the sale of the member’s units. The agreement used different valuation procedures for those events. A separation from employment could lead to a valuation under Article VIII, including a potential challenge by the departing member using a licensed independent appraiser. A supermajority vote required a purchase price based on the company’s book value multiplied by the member’s percentage interest.

Dillon resigned on September 23, 2022. The court noted that it was unclear whether his resignation letter itself qualified as the required transfer notice because the letter did not mention a triggering event. Even assuming it did, the company’s purchase option connected to the resignation lasted 45 days, followed by a 30-day option for the remaining members. Those periods expired without a purchase under that valuation procedure.

The court then concluded that the December 30, 2022 supermajority vote was a second triggering event and that Novel satisfied the agreement’s voting requirements. Under the agreement, that vote controlled the valuation. Novel therefore properly used the company’s book value, calculated from the company’s books and records as of the preceding fiscal year’s end. The court rejected Dillon’s argument that the employment-separation event permanently controlled the valuation or that the agreement prohibited successive triggering events.

Because the agreement unambiguously provided that multiple triggering events could occur, that each purchase-option period was limited, that Novel had no duty to buy Dillon’s interest after his resignation, and that a supermajority vote triggered the book-value method, the court held that the buyout complied with the agreement. Dillon’s claims in Counts IV, IX, and X failed for the same reasons.

Disposition

The order expressly states:

- Plaintiff Daniel Dillon’s motions for partial summary judgment were DENIED. - Defendants Novel Energy Solutions L.L.C. and Clifton D. Kaehler’s motion for partial summary judgment was GRANTED.

The order did not resolve Dillon’s Family and Medical Leave Act or Minnesota Human Rights Act claims because defendants did not seek summary judgment on them. Judge Eric C. Tostrud signed the order on May 8, 2023.