Valinote v. Ballis

In 1997, John Valinote (plaintiff) and Stephen Ballis (defendant) were the only two members of Omnibus Financial Group L.L.C. (Omnibus). In 2000, Omnibus was failing. Valinote decided to withdraw from Omnibus and asked Ballis for an exit plan. Ballis initiated the buy-sell clause of the Omnibus operating agreement (Agreement). Under the Agreement’s buy-sell clause, one investor would set a price on the membership interests. The other investor then decided whether to buy the investor’s interests or sell his own interest at that price. Ballis named a negative price for Valinote’s interest in Omnibus, essentially offering to let Valinote pay to give the failing Omnibus to Ballis and walk away. At the time, Omnibus owed Valinote exactly the same amount to repay a loan. By agreeing to write off the money Omnibus owed to Valinote, Valinote sold his interest to Ballis, and Ballis became the sole owner of Omnibus. Omnibus later defaulted on a bank debt, and the bank collected on personal guarantees that both Valinote and Ballis had made for the debt. Section 9 of the Agreement provided that: (1) members could only look to Omnibus for return of capital contributions and would have no recourse against other members, and (2) any costs associated with a guarantee would be allocated among all members according to the members’ ownership interest. Valinote sued Ballis, seeking to have Ballis indemnify or cover Valinote for his share of the guarantee. The district court held that Ballis did not have to indemnify Valinote. Valinote appealed.