Kirksey v. Grohman

In July 2001, four sisters—Lorraine Kirksey (plaintiff), Lucille Ruby (plaintiff), Dorothy Grohmann (defendant), and Eileen Randell (defendant)—inherited equal ownership interests in 2,769 acres of land in South Dakota and 401 acres of land in Wyoming. At the time, the land was valued at $550,000. The sisters formed a limited-liability company (LLC) to hold the title. Each sister therefore held a 25 percent interest in the LLC. The sisters’ intent was to avoid estate taxes, keep the land in the family, and keep ownership with the sisters, as opposed to their spouses. To avoid estate taxes, the sisters utilized a special-use valuation, which resulted in the value of the land being reported as $215,000. To utilize this valuation, the land had to be used for agricultural purposes. Accordingly, the LLC entered into a lease with Grohmann, Kirksey, and Randell pursuant to which Grohmann, Kirksey, and Randell would use the land for grazing, as each of those three sisters owned livestock. The lease was entered into in October 2002, with an effective date of September 1, 2002. The lease had an initial term of five years, renewable automatically unless either party gave prior written notice. The annual rental rate was set at $14,263.20. The LLC was responsible for taxes and insurance on the property. Relations between the sisters later became strained. Kirksey claimed that Grohmann and Randell refused to share information with her regarding the livestock operation. Kirksey also claimed that Grohmann and Randell subleased part of the acreage without providing written notice to the LLC. Grohmann claimed that she did provide sufficient information regarding livestock operations and the sublease. In 2003 Kirksey sold her interest in the livestock operation to Grohmann and Randell, making Grohmann and Randell the only tenants under the lease agreement. Kirksey and Ruby then hired a real estate agent, who had the land appraised at more than $3.2 million. Kirksey and Ruby sought to terminate the lease, dissolve the LLC, and partition the land. During an LLC meeting on May 30, 2006, Kirksey and Ruby moved to terminate the lease. Grohmann and Randell opposed the motion, and the motion therefore failed, because all major actions of the LLC required a majority vote. Kirksey and Ruby then moved to dissolve the LLC, and that motion also failed. When the sisters became deadlocked, Kirksey and Ruby petitioned a South Dakota circuit court for an order dissolving the LLC, arguing that the relationship between the sisters made it impossible for the LLC to make any major decisions. The circuit court denied the petition, and Kirksey and Ruby appealed.