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Perkins Delaware, LLC v. MF Cornhusker Member, LLC

United States District Court, D. Nebraska

May 6, 2018

PERKINS DELAWARE, LLC, a Delaware limited liability company; Plaintiff,
v.
MF CORNHUSKER MEMBER, LLC, a Delaware limited liability company; and MFP CORNHUSKER PROPERTIES LLC, a Delaware limited liability company; Defendants.

          MEMORANDUM AND ORDER

          Cheryl R. Zwart United States Magistrate Judge

         This matter is before the court on Plaintiff Perkins Delaware, LLC's Motion to Compel Arbitration. (Filing No. 32). For the reasons stated below, Plaintiff's motion is denied.

         BACKGROUND

         In August of 2013, Plaintiff Perkins Delaware, LLC (“Perkins Member”) and Defendant MF Cornhusker Member, LLC (“PF Member”) formed Defendant MFP Cornhusker Properties, LLC (“MFP Cornhusker”) for the purpose of operating commercial retail properties in Nebraska and South Dakota.[1] (Filing No. 1 at CM/ECF p. 13). In October of 2013, Perkins Member and PF Member executed an Operating Agreement (the “Agreement”) for MFP Cornhusker. Under the terms of the Agreement, Perkins Member is the manager and PF Member is the agent.

         Under Section 4.1 of the Agreement, as manager, Perkins Member was to manage all the affairs of MFP Cornhusker and to “make all decisions . . . except where PF Member's approval is required under this Agreement.” (Filing No. 1 at CM/ECF pp. 13-14). “Major Decisions” were one such area in which Perkins Member needed the approval of PF Member to proceed. (Id. at CM/ECF pp. 14, 38-40). Section 4.1(b) of the Agreement outlines and defines what type of actions constitute Major Decisions. (Id. at CM/ECF pp. 38-40).

         Section 4.1(d) contains an arbitration provision which could be utilized for disputes concerning Major Decisions:

If Perkins Member and PF Member are unable to agree on the resolution of any Major Decision, either Member, by notice to the other Member, may require the resolution of the Major Decision to be made by an independent arbitrator specified in that notice. If either Member objects to the independent arbitrator designated therein within three (3) Business Days after it receives such notice and PF Member and Perkins Member fail to agree on an independent arbitrator, then either may request that the Omaha, Nebraska office of the American Arbitration Association (the “AAA”) designate an independent arbitrator, in which case the selection of the arbitrator by the AAA shall be binding on the parties. The determination of the selected arbitrator shall be final and binding on all parties. . . . The decision of the arbitrator must be the resolution of the Major Decision proposed by either PF Member or by Perkins Member, and shall be rendered within thirty (30) days after the arbitrator's selection.

(Id. pp. 40-41). Section 4.5 of the Agreement outlines the terms under which PF Member could seek to remove Perkins Member as the Manager to MFP Cornhusker. (Id. at CM/ECF p. 43-44)

         In October of 2013, MFP Cornhusker obtained a loan which was secured by a lien in all of its properties. (Id. at CM/ECF p. 15). In March of 2017, Perkins Member approached PF Member with a prospect for refinancing part of the loan. PF Member did not agree to the refinancing opportunity and refused to provide consent unless certain conditions were met. (Filing No. 37 at CM/ECF p. 4). At the end of March 2017, Perkins Member took unilateral action and refinanced the loan (the “refinancing event).

         In mid-April of 2017, PF Member sought to enact the Removal Provision of the Agreement and remove Perkins Member as manager of MFP Cornhusker due to the refinancing event. And in August of 2017, Perkins Member removed PF Member as Manager of MFP Cornhusker.

         Perkins Member filed its complaint on August 15, 2017 and PF Member removed the Complaint to this court on September 13, 2017. (Filing No. 1). In the complaint, Perkins Member alleges it was wrongfully removed as Manager of MPF Cornhusker. It primarily claims the refinancing event was not a Major Decision as defined in the Agreement and therefore removing it as Manager was improper. (Id. at CM/ECF p. 18). It alternatively argues that PF Member approved the refinancing event, or the event was not a material breach of the Agreement. (Id.).

         As relief, Perkins Member seeks a declaratory judgment determining the rights, status, and legal relations of Perkins Member and PF Member and to determine the terms of the Agreement as they relate to PF Member's allegation of a removal event. (Id. at CM/ECF p. 19). Specifically, Perkins Member requests that this court enter a declaratory judgment finding as follows:

(a) The Refinancing event is not a Removal Event under the Operating Agreement, either because it was not a Major Decision defined in Section 4.1 of the Operating Agreement, PF Member approved the refinancing event, or the refinancing event was not a material breach of the Operating Agreement by Perkins Member;
(b) The portion of Section 4.5 of the Operating Agreement providing that upon a Removal Event PF Member may cause the forfeiture of a portion of Perkins Member's Residual ...

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