Patmon v. Hobbs

280 S.W.3d 589 (2009)

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Patmon v. Hobbs

Kentucky Court of Appeals
280 S.W.3d 589 (2009)

Facts

American Leasing and Management, LLC (American Leasing) was a limited-liability company (LLC) in the business of build-to-suit lease projects. The business involved buying land and constructing a building on the land in accordance with the specifications of a client willing to become a long-term tenant of the building after construction. In early 2004, American Leasing was negotiating with O’Reilly Auto Parts (O’Reilly) for three projects. Subsequently, in February 2004, Lanier Hobbs (defendant) entered into an executive-partnership agreement with Richard Pearson, the then-managing member of American Leasing. Per the agreement, Hobbs owned 51 percent of the company, Pearson retained 44 percent ownership, and another member owned the remaining 5 percent. In March 2004, Hobbs formed another company, American Development and Leasing, LLC (American Development), of which Hobbs was the sole member. Around that time, Hobbs learned that American Leasing was experiencing financial difficulties. Hobbs then instructed O’Reilly to change the proposed landlord for the projects from American Leasing to American Development, which O’Reilly did based on a second agreement signed by Hobbs and Pearson recognizing Hobbs as the managing member of American Leasing. Thereafter, Hobbs used American Leasing’s resources to pay for American Development’s and his own expenses. Hobbs eventually found a way to profit off the three projects with O’Reilly to the exclusion of American Leasing. Accordingly, Ann Patmon (plaintiff), who purchased Pearson’s membership interest in May 2004, sued Hobbs individually and on behalf of American Leasing for damages and argued that Hobbs breached his fiduciary duties to the company. The trial court awarded Patmon damages for the resources Hobbs used to pay American Development’s and his own expenses but denied Patmon damages for the value of the three build-to-suit leases on the ground that American Leasing would have been unable to perform the contracts given its financial difficulties. Patmon appealed.

Rule of Law

Issue

Holding and Reasoning (Clayton, J.)

Concurrence (Combs, C.J.)

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