Five Star Concrete, L.L.C. v. Klink, Inc.

Klink, Inc. (plaintiff) and four other ready-mix-concrete suppliers formed Five Star Concrete, L.L.C. (Five Star) (defendant) to supply concrete for large construction projects. Klink contributed 12.5 percent of the capital initially contributed in exchange for 12.5 ownership “units.” The operating agreement defined units as interests in the company representing capital contributions. Each unit gave members one vote and one share in income, gains, losses, deductions, and credits. The agreement provided Five Star could buy out dissociating members’ interests at fair market value and provided a valuation method using accountants. Klink withdrew, and the remaining members decided to buy out Klink’s interest and continue the business. Meeting minutes showed the members calculated the fair market value of Klink’s “units” by subtracting liabilities on the balance sheet from assets and multiplying by 12.5 percent, resulting in $61,947 paid to Klink under a buy-sell agreement. When Five Star’s fiscal year ended two months later, Five Star allocated $31,889 of income to Klink solely for tax purposes without distributing any money. Klink sued claiming entitlement to a $31,889 distribution. Five Star’s operating agreement did not address the timing or amount of distributions, but Five Star had made distributions without ever tying them to income allocations. Both sides requested summary judgment, disputing whether the buy-sell agreement divested Klink of its entire economic interest in Five Star. The trial court granted summary judgment to Klink, finding he was entitled to $31,889. Five Star appealed.