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Kozyrkov v. Aculocity, LLC

United States District Court, N.D. Illinois, Eastern Division

February 9, 2017

Vadim Kozyrkov, Plaintiff,
v.
Aculocity, LLC, Defendant.

          MEMORANDUM OPINION AND ORDER

          Hon. Thomas M. Durkin, United States District Judge

         On March 9, 2006, California resident Vadim Kozyrkov, non-party GVW Holdings, LLC (“GVW”), and Illinois-headquartered Aculocity, LLC (“Aculocity” or “the company”) executed a Limited Liability Company Agreement in connection with the Delaware filing of Aculocity's Certificate of Formation. The Agreement establishes Kozyrkov's role as an employee and Class A member of Aculocity, and sets forth his various rights and obligations in connection with that role, including his rights and obligations upon termination. A superseding contract signed by the same parties and Tech Trust U/A/D 4/10/10 (“Tech Trust”), the assignee of GVW's Class A and Class B Units, was executed on May 1, 2010. Kozyrkov was terminated from Aculocity on July 3, 2013, and was paid nothing by the company in connection with the mandatory sale of his membership interest. Kozyrkov brings this suit alleging that Aculocity failed to fulfill its purchase obligations under the Agreement. He also seeks an accounting and access to the company's books and records. Because the parties are diverse and the amount in controversy exceeds $75, 000, this Court has subject matter jurisdiction pursuant to 28 U.S.C. § 1332. See R. 34.

         Aculocity moves to dismiss the complaint under Rule 12(b)(6) for failure to state a claim. R. 19. For the reasons set forth below, that motion is denied in part and granted in part.

         Standard

         A Rule 12(b)(6) motion challenges the sufficiency of the complaint. See, e.g., Hallinan v. Fraternal Order of Police of Chi. Lodge No. 7, 570 F.3d 811, 820 (7th Cir. 2009). A complaint must provide “a short and plain statement of the claim showing that the pleader is entitled to relief, ” Fed.R.Civ.P. 8(a)(2), sufficient to provide defendant with “fair notice” of the claim and the basis for it. Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). This standard “demands more than an unadorned, the-defendant-unlawfully-harmed-me accusation.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). While “detailed factual allegations” are not required, “labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do.” Twombly, 550 U.S. at 555. The complaint must “contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.'” Iqbal, 556 U.S. at 678 (quoting Twombly, 550 U.S. at 570). “‘A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.'” Mann v. Vogel, 707 F.3d 872, 877 (7th Cir. 2013) (quoting Iqbal, 556 U.S. at 678). In applying this standard, the Court accepts all well-pleaded facts as true and draws all reasonable inferences in favor of the non-moving party.[1] Mann, 707 F.3d at 877.

         Background

         Kozyrkov was a founding member and original employee of Aculocity, a Delaware limited liability company incorporated on March 9, 2006. R. 1 ¶ 7. On the day the company's certificate of formation was filed, Kozyrkov signed the Limited Liability Company Agreement of Aculocity, LLC (2006 Agreement) with Aculocity's other founding member, GVW. Id. According to the 2006 Agreement, Kozyrkov was under no obligation to make a capital contribution-defined as “the amount of cash and the value of any property (other than cash) contributed to the [company].” (Art. I, clause (e)). Rather, in recognition of “services rendered, ” the 2006 Agreement granted him ownership of 10, 000 of the company's 40, 000 Class A units.[2] (Arts. 5.1, 5.2, Ex. A). According to Kozyrkov, in consideration of his 10% ownership interest and “what [he] understood would be an opportunity to build a company . . . in whose long-term profits and/or increased value he would share, ” he agreed to work for Aculocity at a salary not commensurate with his experience and level of expertise.[3]R. 27 ¶ 3A.

         As a Class A member, Kozyrkov was entitled to profit distributions “at such times and in such amounts as determined by the manager, ” subject to tax withholdings and setoffs for past-due obligations or advances on income tax payments. (Arts. 6.1-6.4). It is unclear from the complaint whether any such distributions were ever made, though it is alleged that to the extent they were, they were never paid out to Kozyrkov, but instead were “placed in [his] capital account.” R. 1 ¶ 9. In addition to these entitlements of membership, Kozyrkov was obligated to pay income taxes on the amount of Aculocity's profits and losses allocated to his capital account. (Arts. 6.4-6.7). He was prohibited from withdrawing any capital contributed to his account (Art. 5.7), except upon liquidation or dissolution (Arts. 10.2-10.4), or in Kozyrkov's case as an employee member, upon dissociation (Art. 9.1).

         The Agreement provided that in the event Kozyrkov dissociated, whether upon death, permanent disability, resignation, retirement, insolvency or termination with or without cause (Art. I(k)), the company and its remaining members had the right, but not the obligation, to purchase-and Kozyrkov had the obligation to sell-his membership units (Art. 9.1). The purchase price for the units was to be “the lower of [ ] the aggregate cash contributions to the [company] on account of such Units less all distributions made on account of such Units; and [ ] the Fair Market Value of such Units.”[4] (Art. 9.3(b)). In the event that the purchase price for Kozyrkov's units exceeded one-third of Aculocity's net income, the Agreement entitled the company to defer payment up to 36 months. (Art. 9.3(e)).

         On May 1, 2010, the parties entered into the First Amended and Restated Limited Liability Company Agreement of Aculocity, LLC (2010 Agreement), the primary purpose of which was to memorialize a transfer by GVW of its Class A and Class B units to third-party Tech Trust. R. 1 ¶ 10; (2010 Agreement, Recitals). Though differently numbered, the provisions of the 2010 Agreement corresponding with those set forth above were identical or substantially similar to those in the 2006 Agreement, with two notable exceptions.[5] First, unlike the 2006 Agreement, which stated that that Kozyrkov received his membership units without making any capital contribution, the 2010 Agreement recognized that “[e]ach of the Class A Members . . . have contributed property to the capital of Aculocity and have received [their] respective Units.”[6] (Art. 5.1). The Agreement did not specify what “property” Kozyrkov contributed, but he alleges that he “understood that the property thus referred to” was the amount of undistributed profits allocated to his capital account, less the income tax payments Aculocity paid on his behalf. R. 1 ¶ 14. Second, the 2010 Agreement created a new schedule for determining the purchase price of Kozyrkov's Units upon termination:

Purchase Price. The purchase price of the Dissociating Units shall equal the number of Units to be purchased multiplied by (i) if [Kozyrkov]'s employment terminates for a reason other than for Cause, the lesser of (A) the Fair Market Value of the Units as of the date the Dissociation Right is exercised; and (B) the amount of cash contributed by [Kozyrkov] to Aculocity for the Units; and (ii) if [Kozyrkov]'s employment is terminated for Cause, the lesser of fifty percent of (X) the Fair Market Value of the Units as of the date the Dissociation Right is exercised; and (Y) the amount of cash contributed by [Kozyrkov] to Aculocity for the Units.

         (Art. 8.7(b)).

         On July 3, 2013, Kozyrkov was terminated, triggering Aculocity's option to purchase his membership units. R. 1 ¶ 20(a). Aculocity exercised that option, but claimed that the purchase price for the units was $0, because Kozrykov contributed no cash to Aculocity to acquire his Class A units. Id. ¶ 20(b). Following his termination, Kozyrkov “repeatedly requested that Aculocity provide [him] . . . with complete and accurate accountings of the amounts of his cash contributions to Aculocity for the Units . . . and of the fair market value of the units.” Id. ¶ 25. The 2006 Agreement provided that “books of account shall be kept at the principal office of the LLC, and each Member and the accountants, attorneys, and other designated agents of each Member shall at all reasonable times have free access to and the right to inspect the same Agreement, ” (Art. 10.12), but the 2010 Agreement omitted this language from an otherwise identical provision, (Art. 9.12). Aculocity refused to provide Kozyrkov with access to the company's books and records. Id.

         Kozyrkov alleges that his termination constituted a breach of the 2010 Agreement in two ways. R. 1 ¶ 20. First, he alleges that Aculocity claimed falsely and in bad faith that the termination was for Cause, when in fact he had never engaged in any conduct prohibited by the Agreement. Second, he alleges that Aculocity breached the 2010 Agreement by refusing to consider the undistributed profits and undisbursed or reinvested distributions allocated to his capital account in determining the purchase price for his units. He also requests an accounting “of the amounts of his cash contributions to Aculocity for the Units and of the fair market value of the Units.” Id. ¶ 30.

         Discussion

         Under Delaware law, the role of a court in interpreting a contract is to give effect to the intention of the parties as expressed in the agreed terms. Life Plans, Inc. v. Sec. Life of Denver Ins. Co., 800 F.3d 343, 349 (7th Cir. 2015) (citing Norton v. K-Sea Transportation Partners L.P.,67 A.3d 354, 360 (Del. 2013)). “Delaware adheres to the ‘objective' theory of contracts, i.e. a contract's construction should be that which would be understood by an objective, reasonable third party.” Osborn ex rel. Osborn v. Kemp, 991 A.2d 1153, 1159-60 (Del. 2010) (citation omitted). Contracts are to be read as a whole, giving “each provision and term effect, so as not to render any part of the contract mere surplusage.” Id. (citation omitted). In other words, courts are not to interpret a contract in such a way ...


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