# Appendix — Children's Fund v. Springfield Holding Co. > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386017_1171%3A2 ## Record - **Collection:** Supreme Court brief - **Document type:** Appendix - **Published:** January 1, 2010 - **Citation:** 559 U.S. 1032 ## Text Supreme Court, U.S. FILED oe No. 09__99=-506 OCT 7 - 2009 OFFICE OF THE CLERK In The Supreme Court of the Anited States The Childrens Fund et al., Petitioners, Vv. Springfield Holding Co. Ltd. LLC et al, Respondents. On Petition for a Writ of Certiorari to the United States Court of Appeals for the Tenth Circutt APPENDICES ROBERT L. STONE Counsel of Record CHICAGO UNIVERSITY SCHOOL 5635 S. UNIVERSITY AVE. CHICAGO, IL 60637 (773) 684-9231 ROBERT REDA JENNIFER MAJEWSKI REDA & ASSOCS. 8 SOUTH MICHIGAN AVE. CHICAGO, ILLINOIS 60603 September 17, 2009 Attorneys for Petitioner C. TABLE OF CONTENTS The opinion and judgment sought to be reviewed: the “unpublished” “ORDER AND JUDGMENT” of 6/8/09 by the Court OF RGRGGIE i.e sc ns os eee 1 The District Court’s “FINDINGS OF FACT AND CONCLUSIONS OF LAW” Oe ce ev cc be eee ee ee 31 The District Court’s “JUDGMENT,” SORE. See 17 The “ORDER’ of 7/15/09, denying peeereme 2... 2k. «se ss peer eae 81 The Petitioners’ “JOINT OPENING BRIEF” of 11/26/08, showing that the UPA questions raised in this Petition were properly raised below ............ 83 The Petitioner's PETITION FOR REHEARING EN BANC of 7/9/09, showing that the Constitutional questions raised in this Petition were properly raised below ...... oenne 180 Case: 08-6210 Document: 01018079018 Date Filed: 06/08/2009 UNITED STATES COURT OF APPEALS TENTH CIRCUIT — SPRINGFIELD HOLDING COMPANY LTD LLC, Plaintiff — Appellee, and MARK W. REINITZ; ROGER L. KINNARD; DAVID H. KINNARD, Plaintiffs-Counter- Defendants-Appellees, No. 08-6210 (D.C. No. 07-CV-00250-R) (W.D. Okla.) Vv. ROBERT STONE, M.D.; THE CHILDREN’S FUND, an Illinois limited liability company; ROBERT L. STONE, a/k/a Robert L. Stone the IT; CYNTHIA A. STONE, Defendants- Counter-Claimants -Appellants. ORDER AND JUDGMENT’ Before KELLY, LUCERO, and HARTZ, Circuit Judges. ‘This order and judgment is not binding precedent. except under the doctrines of law of the case, res judicata, and collateral estoppel. It may be cited. however, for it s persuasive value consistent with Fed.R.App.P. 32.1 and 10 Cir. R. 32.1. Defendants-Counter-Claimants-Appellants— Robert L. Stone, Cea, A. Stone, Robert Stone.,,. M.D., ana The Children’s Fund (referred to collec- tively as the Stones)—appeal the district court’s judgment in favor of the _ Plaintiffs-Counter- Defendants-Appellecs, David Kinnard, Roger Kin- nard, Mark Reinitz, and Plaintiff-Appellee Spring- field Holding Co. (referred 66 cobleetively as the Kinnards, given that the principal actors are David and ieee Kinnard). The primary issue on appeal is whether the district court erred in concluding that the Stones no longer maintain an ownership interest in a set of business entities in which they had previously held a minority interest. We exercise jurisdiction pursuant to 28 U.S.C. § 1291, and affirm the district court’s judgment. Background The present case arises from a complicated series of business transactions between the Stones and the Kinnard brothers, David and Roger, that turned sour. Because the district court set forth the confused tangle of transactions with as much clarity as is practicable, see Kinnard v. Stone, No. CIV-07- 250-R, 2008 WL 4000445, at *1-5 (W.D. Okla. Aug. 25, 2008), we will not oanieias recount the facts of the case here. A relatively cursory overview of the | facts will suffice. Together, Robert L. Stone and the Kinnard brothers had formed a number of limited liability companies, partnerships, and other entities to manage their joint business ventures in rental real estate. These entities functioned under an “aggregator,” the Oklahoma Investment Group (“OIG”). This “aggregator,” which had veils no assets, was used to run the day-to-day operations of the various entities and receive and disburse money for each entity. OIG utilized a single bank account for the entities, although separate books and records were kept for each one. David Kinnard was the most active member of the investors, and he acted as the managing partner of OIG. Robert L. Stone was not an active participant in OJQG’s internal affairs, as he eventually moved to Chicago. The problems that led to this litigation find their root in the agreement between David Kinnard and Robert L. Stone that the Stones would receive a monthly allowance or distribution of $17,000. These monthly payments continued from 1996 through 2005, though they apparently ceased for a period during 1999 for reasons that are disputed by the parties. The Stones contend that the payments were withheld as leverage in a dispute between the Stones and Kinnards over the distribution of proceeds from a lawsuit (which the parties refer to as the “Beatrice litigation”) against a third party not involved in this litigation. The Stones further claim that the Kinnards still owe them the arrearage that arose in 1999. On the other hand, the Kinnards maintain that the payments were merely advances on the Stones’ distributive share of income from the various entities.! The problems between the parties subsequently deepened when Robert L. Stone began to seek loans from the Kinnards. Mr. Stone sought a loan from the Kinnards in 2003, and David Kinnard agreed to grant him the requested money in exchange for an “assignment” of Stone’s interest in one of the entities owned by the investors, Cinnamon ‘At the end of the year, to the extent that advances exceeded distributive net income, the excess was treated as an account receivable (a loan to the recipient). Apit. App. 774-75, 1048-49. Creek L.L.C. The nature of this exchange is also disputed; the Stones contend that it was a loan, while the Kinnards argue that it was a transfer of the Stones’ ownership share with an accompanying right to repurchase. This was a critical transaction, because it set the precedent for the subsequent financial dealings between the Stones and the Kinnards. In any event, the Stones eventually reestablished their ownership interest in Cinnamon Creek by paying David Kinnard $130,000. The transactions between the Stones and Kinnards then began to multiply. In 2004, Stone once ae used his Cinnamon Creek interest to secure money from David Kinnard. Later in that year, in separate transactions, the Stones assigned to the Kinnards their interest in other entities, including Peppertree Partners, Inc., Peppertree Partners, Ltd., Windrock Associates, Summer Pointe, and the Springfield Entities in exchange for cash. The Stones also apparently executed two promissory notes in relation to other disputed debts, and David Kinnard assumed those obhgations as part of the transactions between the Stones and Kinnards. The Kinnards then evidently informed the Stones that no further money would be forthcoming, as they had concluded that the Stones had transferred all of their ownership interests in the various entities to the Kinnards. The Kinnards initiated this litigation by bringing an action for declaratory judgment, seeking a declaration that the Stones no longer maintained an interest in any of the entities. The Stones counterclaimed, seeking a full accounting for each of the entities and a declaratory judgment that they did in fact still have an ownership interest in each of the entities. Accordingly, the central question posed by these competing claims was whether the aforementioned transactions were loans or whether they were actually transfers of the Stones’ ownership interest. Additional issues were also implicated, in that the Stones challenged the adequacy of the consideration the Kinnards paid for the Stones’ ownership interest and contended that they were due a full accounting. Ultimately, the district court concluded that the Stones had sold all of their inter- ests to David Kinnard for adequate consideration, and that they had received an adequate accounting. Kinnard, 2008 WL 4000445 at *7-10. The Stones now appeal the district court's judgment, raising several alleged errors on the part of the district court. Discussion We rewiew the district court's findings of fact for clear error. Fed. R. Civ. P. 52(a)(6); La Resolana Architects, PA _v. Reno, Inc., 555 F.3d 1171, 1177 (10 Cir. 2009). “[A] finding is ‘clearly erroneous’ when although there is evidence to support it, the reviewing court on the entire evidence is left with the definite and firm conviction that a mistake has been committed.” Anderson vy. City of Bessemer City, 470 U.S. 564, 573 (1985) (citation omitted). If the district court’s findings are plausible, we will not reverse. Id. at 573-74. Our review of questions of law, on the other. hand, is de novo. La Resolana Architects, 555 F.3d at 1177. We review mixed questions of law and fact under either the clearly erroneous standard or the de novo. standard, depending on whether the inquiry is_ primarily factual or legal. Hollern v. Wachovia Secs., Inc., 458 k.3d 1169, 1175 n.4 (10th Cir. 2006). 10 I. Sale of the Stones’ Interests in the Business Entities The Stones’ first argument is that the district court erred by concluding that there was a valid con- tract for the sale of their ownership interest because, they con-tend, there was no meeting of the minds. The Stones correctly point out that as a matter of law there must be a meeting of the minds in order to form a contract.2 Beck v. Reynolds, 903 P.2d 317, 319 (Okla. 1995). However, we review the question of whether there was actually a meeting of the minds for clear error, as it is a factual inquiry. See Homestead Golf Club, Inc. v. Pride Stables, 224 F.3d 1195, 1200 n.5 (Oth Cir. 2000). Here, we cannot conclude that the district court clearly erred, given the factual record before us. The parties presented Both parties agree that Oklahoma law governs in this case 11 conflicting evidence, which the district court resolved in favor of the Kinnards. The most important piece of evidence sup- porting the district court’s conclusion is the hand- ling of the initial transaction relating to Cinnamon Creek. In 2003, Robert L. Stone sought a loan from David Kinnard, and in so doing proposed a document entitled “Assignment of Partnership Interest as Collateral for Note” offering his interest in Cinnamon Creek as collateral for a loan. ApleeSupp. App. 3. However, David Kinnard rejected this offer and the proposed document because he wanted outright ownership rather than a collateral interest. Having had his proposed loan arrangement rejected, Mr. Stone ultimately signed a document that he referred to as an “unconditional transfer of [his] partnership interest” in Cinnamon Creek. Aplee. Supp. App. 4. The instrument provided that Robert 12 L. Stone: hereby sells, assigns, transfers and conveys all of his membership interests and other ownership interest of any kind in Cinnamon Creek, L.L.C., an Oklahoma limited lability company (the “Company”), and all rights appurtenant thereto, including but not hmited to the right to receive distributions, profits or income of any kind from the Company. Aplt. Supp. App. 6. The attorney who drafted the document called it “an Assignment of Membership Interest” in an e-mail to the principal parties, referred to the “$100,000 sale price,” and informed Mr. Stone that they were pre-paring an agreement ‘choad he could “repurchase his membership interest.” Aplee.Supp.App. 5. Further, the evidence suggests that Mr. Stone was aware of the difference between the two documents when he inquired why the transaction was described “as a sale-redemption and not as a loan.” Apll.Supp.App. ia 7. When Mr. Stone eventually repurchased his interest, David Kinnard advised him in writing that “[t]here is no loan. There is only an opportunity to buy back shares. Please read these docs carefully.” Aplee. Supp. App. 8. This sequence of events strongly suggests that the Stones attempted to secure a loan, but failed to do so; rather, they ultimately entered into a_e sale and_ buy-back agreement—and they apparently did so knowingly. This is of significance, given that the parties then proceeded to use the same unconditional transfer document in all the subsequent transactions.1 >There is further evidence of the Stones’ knowledge of the nature of the transaction into which they had entered. When Cynthia Stone assigned her interest in Summer Pointe using an identical unconditional transfer document, an OIG employee informed her that the assignment documented a sale, not security for a loan. * The parties agree that identical documents were used for all the relevant transactions. Hlowever, they disagree as to whether the first transaction was a loan or a4 sale. Given our standard of review. we have no basis to reverse the district courts eminently reasonable conclusion that it was a sale. =) ce In lhght of the documentary evidence and testimony, stinie’ evidence supports the district court’s finding/conclusion that the Stones knew they were selling their interests rather than merely utilizing their interests as security. To be sure, the Stones point to evidence which, if credited, might support their position. For instance, the Stones testi- fied that they had “no idea” they were selling their interests, produced e-mails wherein the transactions were referred to as loans, and elicited testimony from the Kinnards that the Stones frequently referred to the transactions as “loans” in their communications. Further, they point to testimony to the effect that payments were “reclassified” as purchases after the fact. This testimony, they suggest, shows that there was no sale for an agreed- Accordingly, we cannot rely on this first transaction to show that the remainder were loans, as the Stones would have us do. i upon purchase price, even though the district court concluded there was a sale and found the amount of each purchase price based on testimony and exhibits entered into evidence. See Kinnard, 2008, WL 40004145, at *2-3. “But pointing to conflicting evidence inconsis- tent with the district court’s finding is insufficient, standing alone, to establish clear error... .” Penncro Assocs., Inc. v. Sprint Spectrum, L.P., 499 F.3d 1151, 1161 (10th Cir. 2007). ‘This is necessarily so, given that “every trial is replete with conflicting evidence, and in a bench trial, it is the district court[{] which enjoys the benefit of live testimony[,] . . . has the opportunity firsthand to weigh credibility and evi- dence, [and] has the task of sorting through and making sense of the parties’ competing narratives.” Watson v. United States, 485 F.3d 1100, 1108 (10th Cir. 2007). The district court has the discretion to 16 credit some individuals’ testimony above that of others and weigh the competing evidence, as long as its conclusion is plausible. Anderson, 470 U.S. at 573-74. That is the very nature of the function of the district court in a bench trial, and we may not second-guess the district court's determinations absent clear error. Here, the district court had strong corroborating evidence suggesting that the. hundreds of thousands of dollars received by the Stones were advances on distributions, rather than guaranteed payments, and that the Stones knowingly sold their interests to obtain cash. We find no clear error. Il. Adequacy of the Consideration Provided The Stones next challenge the adequacy of the consideration they received for the sale of their ownership interests. In particular, they argue that L? the district court erred by finding that David Kinnard paid valid consideration for the Stones’ interests. ‘(According to the Stones, neither the ecivauees of the promissory notes executed by Robert L. Stone nor the funds borrowed by David Kinnard from the Spring-field Entities can serve as consideration. The Stones’ challenge raises a mixed question of law and fact. A. The Promissory Notes There are two promissory notes at issue. The first was a $500,000 note executed on March 11, 2005, by Robert L. Stone to Bernice Kinnard, the mother of the Kinnard brothers. The record shows that the Stones had borrowed money from Mrs. Kinnard in the 1990s, and this promissory note memoriahized the debt. The second promissory note was executed on March 16, 2005, by Robert L. Stone to Roger and David Kinnard for $250,000. This note 18 apparently stemmed from the dispute between the Stones and Kinnards over the proceeds from the Beatrice litigation. The Stones contend that the district court erred as a matter of law in finding these notes to be valid consideration because they were not “accepted,” because they were not a detri- ment to David Kinnard, because they were executed after the final assignment of the Stones’ interests, and because they were of un-certain value. None of these contentions, which actually involve a primarily factual inquiry, have merit. First, the district court found as a matter of fact that David Kinnard “was assuming the debt, making him hable for payment to his mother” on the first promissory note, Kinnard, 2008 WL 4000445, at *3, and there is testimony sufficient to uphold the district court’s conclusion on this point. Further, there 1s no evidence that the Kinnard brothers 19 somehow rejected the second promissory note relating to the Beatrice litigation. Accordingly, the Stones’ argument that the promissory notes were not “accepted” misses the mark. Second, the first promissory note was a detriment to David Kinnard, because he was assuming the debt that Robert L. Stone admitted he owed to David Kinnard’s mother. Accordingly, the Stones’ argument is misguided insofar as they argue that David Kinnard merely attempted to forgive a note that was not his. Furthermore, the evidence supports the finding that the Kinnards forgave the second promissory note and can no longer enforce it against the Stones. This also constitutes a detriment and, hence, consider- ation. Finally, it is of little consequence here that. the notes were executed subsequent to the final assignment of the Stones’ interest; this fact does not render their value sufficiently uncertain such that 20 there was no detriment to the Kinnards or benefit to Robert L. Stone. Rather, while the notes were technically executed after the final assignment of the Stones’ interest, it appears that these notes simply memorialized pre-existing debts which the Kinnards forgave or assumed as part of the assignments. This is sufficient under Oklahoma law. See Okla. Stat. tit. 15 § 106. See generally Taylor v. Taylor, 389 P.2d 622, 627-28 (Okla. 1964) (stating that a disputed claim is good consideration, even if that claim later is demonstrated to be unfounded). Accordingly, the district court properly treated the promissory notes as good consideration.° ‘In any event, we note that the undisputed testimony of the Plaintiffs expert witness was that the consideration for the purchases would have been reasonable even without including the discharge of the Stones obligation under the promissory notes. Aplt. App. 1136-40. aa B. Use of Funds Borrowed from the Springfield Entities The Stones make two primary arguments relating to the payments that David Kinnard made to Robert L. Stone. First, they argue that the pay- ments cannot serve as consideration because they were merely payments under a prior obligation (namely, the alleged arrearage in payments on the $17,000 monthly distribution). Second, they argue that the payments are null and void because they actually came from Springfield in violation of the requirement that a partner only borrow from the entity with the written consent of the other partners. The first argument is plainly without merit. It is a factual question whether the Kinnards’ periodic failure to pay the $17,000 monthly distribution cre- ated a “pnior obligation” such that later payments would essentially constitute a satisfaction of the pre- existing debt. The district court concluded that the monthly payments were not guaranteed payments, but rather were advances on the Stones’ distributive share. Kinnard, 2008 WL 4000445, at *6. This con- clusion was not clearly erroneous, given that it is amply supported by testimony from David Kinnard, the accountant for the entities involved, the Kinnards’ expert witness, and the Stones’ tax returns. The district court had the discretion to credit this testimony over that. of the Stones, and we have no basis for finding clear error. See Penncro Assocs., 499 F.3d at 1161. The second argument proffered by the Stones also fails. The Stones contend that David Kinnard took the funds from Springfield in violation of the Springfield operating agreement, and that, ergo, the payments were void and of no effect. Hlowever, this argument depends on the related issue of whether — a je > “RY v PS Be @y By 23 the Stones had waived their right to enforce the pertinent provision in the Springfield operating agreement. The district court concluded that the Stones had waived their rights by previously borrowing from Springfield without the written consent of the Kinnard brothers. Kinnard, 2008 WL 4000445, at *7. Under Oklahoma law, in order to waive a right, “there must be an actual intention to relinquish a known right, either expressly, or by such conduct as warrants an inference of such relinquishment.” Atlas Life Ins. Co. v. Schrimsher, 66 P.2d 945, 948 (Okla. 1937); see Whitmire v. Zolbe, 403 P.2d 445, 448-49 (Okla. 1965). The district court correctly concluded that this standard had been satisfied, given that the Stones had taken a loan from Springfield without the other owners’ written consent on prior occasions. Moreover, the 24 arrangement whereby the Stones consistently took advances of their distributive share of income from Springfield—thereby creating an account receivable or debt in favor of OIG and Springfield—also supports the district court’s finding of waiver. Thus, the Stones intentionally bypassed the written consent provision by taking the loan in contra- vention of the provision. Accordingly, their waiver was knowing and demonstrated by explicit conduct, as is required by Oklahoma law. Atlas Life Ins. Co., 66 P.2d at 948. The Stones cannot now use the provision that they bypassed against their erst-while partners. The Stones’ arguments before this court that they did not waive the provision in the operating agreement miss the key point raised by the district court.6 The Stones waived their rights “We do not need to reach the Stones’ argument that the Kinnards breached their fiduciary duties, as it was not properly under the operating agreement not because David Kinnard had taken a loan from Springfield without written consent (which is how the Stones frame the argument); rather, they waived their rights’ by taking a loan from Springfield themselves without written consent. Accordingly, the issue is_ not whether the Stones’ failure to object to another party's breach constitutes waiver; instead, the issue is whether the Stones’ own violation of the agreement operates as a waiver. As noted above, we conclude that it does. Furthermore, we recognize that the Stones argue to this court that they “took that loan from the Kinnard Brothers individually, not from Springfield,” Aplt. Br. 39, but there 1s sufficient factual support for the district court’s raised in the district court. The Stones attempted to amend their counterclaim to add an additional claim for breach of fiduciary duty, but the district court rejected their motion as untimely 26 conclusion that they did take the loan from Springfield that we cannot say this factual finding was clear error. As noted above, the most significant evidence supporting the district court’s conclusion is that Mr. Stone —— testified that he had taken a loan from Springfield without written consent, and had signed a promissory note payable to Springfield. Accordingly, we find no error. Having concluded that the Stones waived their right to enforce the pertinent provision in the Springfield operating agreement, we must also conclude that the funds David Kinnard provided to the Stones constituted valid consideration. The district court's conclusion that the Stones “received reasonable consideration for their interests in the subject entities,” Kinnard, 2008 WL 4000445, at *8, is) not clearly erroncous’ given the underlying evidence which supports It. 27 II. Unclean Hands The Stones also contend that the district court erred by granting an equitable remedy to.a party who it found to have “unclean hands.” The unclean hands doctrine means, in general, that equity will not aid a party whose conduct has been “unlawful, unconscionable, or inequitable.” Houston Oilers, Inc. v. Neely, 361 F.2d 36, 42 (10th Cir. 1966). However, “the doctrine . . . should [not] be applied in every case where the conduct of a party may be considered un-conscionable or inequitable.” Id. Here, we have no reason to conclude that the district court abused its discretion by not applying this doctrine. Id. (‘The maxim admits of the free exercise of judicial discretion in the furtherance of justice.”); see Haynes Trane Serv. Agency, Inc. v. Am. Standard, Inc., 562 F.3d 1047, 1058 (10th Cir. 2009) (reviewing application of unclean hands doctrine for abuse of 28 discretion). In particular, we note that this argument was apparently not raised before the district court. It is based primarily on the Stones’ argument that the Kinnards breached their fiduciary duty—a claim not properly presented below. Further, the Stones overstate the district court’s finding regarding unclean hands. While the district court found that both parties had unclean hands regarding the Springfield operating agreement’s prohibition on loans without written consent, Kinnard, 2008 WL 4000445, at *7, it did not so find regarding the broader fiduciary claims now advanced by the Stones. Accordingly, we find that the district court did not abuse its discretion. IV. Right to an Accounting Finally, the Stones argue that the district court erred by denying them the right to a full accounting. According to the Stones, a fair trial was 29 impossible with an incomplete accounting, and this inadequacy’ demonstrates that the district court erred by failing to grant them their requested relief. However, this misconstrues the issue. The district court actually held that the Stones had as a factual matter received a “full accounting of the entities, utilizing accepted principles of forensic accounting,” not that they were not entitled to such an accounting. Kinnard, 2008 WL 4000445, at *10. We cannot say that this factual finding was clearly | erroneous. An expert accountant testified that he was able to perform an accounting for all the entities involved given the tax returns and other information available to him, and that expert provided a full report with documentation. This evidence gave the district court a sufficient basis to conclude that an adequate accounting had been provided. Kinnard, 30 2008 WL 4000445, at *6 n.17. We find no clear error. The district court’s judgment is AFFIRMED. The motion to supplement the record is DENIED. Entered for the Court [s} Paul J. Kelly, Jr. Paul J. Kelly, Jr. Circuit Judge 31 Case 5:07-cv-00250-R Document 114 Filed 08/25/208 IN THE UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF OKLAHOMA DAVID H. KINNARD et al., ) . ) Plaintiffs, ) Vv. ) CIV-07-250-R ) ROBERT L. STONE; ) CYNTHIA A. STONE; and ) ROBERT L. STONE, M.D., ) ) ) Defendants. FINDINGS OF FACT AND CONCLUSIONS OF LAW The Court conducted a non-jury trial of this matter from June 17, 2008 until June 20, 2008. Following the conclusion of the trial, the parties submitted pro-posed findings of fact and conclusions of law. Having considered the evidence presented, the Court makes the following findings and conclusions. The Court notes at the outset the general lack of credibility of all the parties to this action. The facts as found by the Court represent the Court’s interpretation of the likely facts as separated from the obvious fiction presented by many of the witnesses. Additionally, the record keeping of both Plaintiffs and Defendants was severely deficient and renders it a near impossibility for even the experts to discern the actual history of transactions between the parties. The fault, however, lies with all parties. Any party who concludes that the Court clearly favored the opposing side would be incorrect. This is a tale of apparently intelligent people who have little business sense or common sense. The parties dealings began many years ago, when Plaintiff Roger Kinnard and Defendant Robert L. Stone became friends while attending the Univer- sity of Chicago. Robert L. Stone and Cynthia Stone 33 are now husband and wife; however, Cynthia Stone was formerly married to Roger Kinnard. During the 1980's, Roger Kinnard, his brother, David Kinnard, and Robert L. Stone, initiated a number of business ventures for purposes of buying and running apart- ment buildings in Oklahoma. The ventures were known collectively, and managed loosely, as the Oklahoma Investment Group. The Oklahoma Investment Group functioned as a common man- agement structure, or aggregator, for a number of entities, including: Cinnamon Creek, LLC, incor- porated in 1999;3 Peppertree Partners, Ltd.,4 formed in 1992; Windrock Associates, an Oklahoma general * Robert L. Stone, David Kinnard and Roger Kinnard each owned one-third of Cinnamon Creek, LLC. ‘David Kinnard. Roger Kinnard, Robert L. Stone, and a fourth person each owned 24.75% of the partnership. The re- maining one percent was owned by the general partner, Pepper-tree Partners. Inc, a corporation with four shareholders, the limited partners 34 partnership formed in 1989,5 Summer Pointe Partners, Ltd., founded in 1991;6 and Springfield Vil- lage Apartments, Ltd., an Oklahoma limited liability company, incorporated in 1990.7 These entities did not maintain separate bank accounts. Rather, a single account in the name of Oklahoma Investment Group, which had virtually no assets, was used for both receiving monies and making payments. Within this single account, separate balance sheets were maintained for each entity. Fach entity filed its own -°David Kinnard, Roger Kinnard, and Robert L. Stone were equal partners, each owning one-third of the Windrock Associates. "Summer Pointe Partners’ general partner was Sum- mer Pointe Partners, Inc., owned by Cynthia Stone, Roger Kin- nard, Margaret McLaughlin and Samuel Brown. The limited partners were David Kinnard, Roger Kinnard, Sam Brown, Margaret McLaughlin, and Cynthia Stone. ‘David Kinnard. Roger Kinnard, and Robert L. Stone. were equal members of Springfield Holding Company, LLC, which owns ninety-nine percent of Springfield Village Apart- ments, Ltd.. The remaining one percent 1s owned by Springfield Apartments, Incorporated, which had three shareholders, Roger Kinnard, David Kinnard and Robert L. Stone tax returns. Mark Reinitz served as manager of Oklahoma Investment Group, which was run by David Kinnard. During the relevant time period Roger Kinnard was living in Boston and Robert L. Stone and Cynthia Stone were living in Chicago. Mark Reinitz and David Kinnard were living in Oklahoma, although David Kinnard spent consi- derable time out of the country. Problems began with regard to the entities when Robert L. Stone and Cynthia Stone relocated to Chicago in 1996. David Kinnard agreed that for a period of five years, Robert L. Stone would receive monthly “allowance payments.”8 These payments * Actually the payments were to be made by Oklahoma Invest- ment Group, which had no assets, but was the only entity with a bank account. Apparently the draws were debited against Stone's distributive share of the various entities. and any excess created an account receivable in favor of Springfield Village. Cunously there was no testimony regarding the accounting methodology employed with regard to the payments. Additionally, it is unclear what the Stone's believed was their obligation vis-a-vis the Internal Revenue Service with regard to the payments, although it was made clear to Mr. 36 were designed to assist the relocation of Robert L. Stone and his family from Oklahoma to Chicago. The payments were not treated as “guaranteed payments” for tax purposes, but rather as advances on distributive share, and thus did not appear on the various Schedule K-1s produced by the entities. From 1996 through 1998, and again from March 2000 through early 2005, monthly payments were made by Oklahoma Investment Group on behalf of the partnership entities to the Stones. No payments were made during 1999, and apparently Robert L. Stone did not object to the absence of payments. The rationale for the failure to make payments in 1999 is of course hotly contested. David Kinnard testified that no payments were made because Robert L. Stone was not requesting money, apparently having Stone by the Oklahoma Investment Group accountant that the payments were not being deducted as cxpenses by the entuitic: 39 made a considerable amount of money in a “side deal,” that be-comes a part of the tangled web presented in this action. According to Robert L. Stone, the failure to make payments was an effort to extract a settlement with regard to this “side deal,” a situation that the parties referred to as “the Beatrice Dispute.” Upon relocating to Chicago in 1996, Robert L. Stone sought to acquire a refrigerated warehouse located downtown from Beatrice Associates, a Florida general partnership Springfield Village loaned Robert L. Stone and Cynthia’ Stone $305,000.00, which they in turn used to purchase the warehouse. Robert L. Stone thereafter instituted htigation against the tenant, Americold Corporation, for dam-age to the leasehold The underlying litigation was settled in 1998 for 3.6 million dollars Robert L. Stone repaid the Springfield loan. 38 including interest. For reasons still unclear, Robert L. Stone had agreed to “a kicker” that is, that once the Beatrice litigation was settled, he would pay Roger Kinnard and David Kinnard ten percent of the net settlement proceeds. A dispute arose regarding the definition of net settlement proceeds, specifically how the litigation costs were to be measured. Defendant contends the monthly allowance funds were withheld in 1999 and early 2000 an effort to extort a settlement of this Beatrice dispute.® From March 2000 until 2003, the monthly payments continued via Oklahoma Investment Group. In early 2003, Robert L. Stone took control of Redux Office Furniture Company in Chicago, which refurbished office furniture. Robert L. Stone sought funding for Redux from Roger Kinnard Roger °No resolution of this issue was achieved prior to the assignments that form the basis of the instant dispute Kinnard asked David Kinnard about the possibility of investing. David Kinnard refused to invest in the company, but offered to accept an assignment of Robert L. Stone’s interest in Cinnamon Creek, LLC in exchange for giving Robert L. Stone $100,000. The assignment as executed by Robert L. Stone stated that he “hereby sclls, assigns, transfers and conveys to Assignee all of his membership and other ownership interest of any kind in Cinnamon Creek L.L.C., an Oklahoma hmited liability company (the “Company’), and all mghts appurtenant thereto, including but not lmuited to the right to receive distributions, profits or income of any_ kind.” Although not commemorated in writing, the loan included a buy-back provision, permitting Robert L Stone to repurchase his interest in Cinnamon Creek LLC within six months, with an interest rate of 36%. The funds transferred by David Kinnard 40 were borrowed from Springfield Village, and the amount was reflected by an increase in David Kin- nard’s account a account.!® Robert L. Stone tendered $130,000.00 to David Kinnard, and Robert L. Stone’s ownership interest in Cinnamon Creek, LLC was restored on October 1, 2009. No further problems arose during 2003 between the partners. In late February 2004, Robert L. Stone ap- proached David Kinnard, seeking to borrow addi- tional money. On March 3, 2004, Robert L. Stone executed an Assignment of Membership Interest identical to that executed in 2003, assigning his membership interest in Cinnamon Creek to David Kinnard. Although not stated in the assignment, the OTe parties utilized the term “account receivable” to indicate both money owed to a partner or member or money owed to an entity by a partner or member. Although tradi- tionally money owed would be considered an account payable, as to the debtor, the entities’ accounting reflected any debt owed by a partner or member as a negative account receivable, not an account payable of the partner or member. 41 amount agreed upon was $45,000.00. The $45,000 was wired to the bank account of the Children’s Fund, at the direction of Robert L. Stone, on March 5, 2004. This value was determined by calculating the capitalized value of Robert L. Stone’s interest in Cinnamon Creek, LLC.!! Although not stated in the assignment, Robert L. Stone had the right to restore his interest by tendering payment to David eee of the $45, 000, plus interest, the amount of which escalated depending on when the principal was repaid. The buy-back option terminated six months after the assignment, and it was noted in a March 2, 2004 e-mail to Robert L. Stone that “fajf more than 1 The capitalized value of Robert L. Stone’s interest was calculated by dividing Cinnamon Creck. LLC’s net operating income by a capitalization rate of 10.5%. The cost of debt servicing, i.e. the mortgage, was deducted from this value to determine the net capitalized value of Cinnamon Creek, LLC. The value of Robert L. Stone’s interest in Cinnamon Creek, LLC was his pro rata share of the net capitalized value of the entire property. 42 six months have passed without complete payment, David shall retain permanently the Cinnamon share herein discussed.” To finance the purchase David Kinnard utilized funds borrowed from Springfield Village, which increased his accounts receivable. !2 Robert L. Stone did not repay the $45,000.00 to David Kinnard. Robert L. Stone apparently conceded in early 2005 that he no longer owned an interest in Cinnamon Creek, LLC, as reflected in the financial statement prepared by Sergey Galant, the Oklahoma Investment Group accountant. Robert L. Stone made suggestions regarding entries on the '?This same structure was utilized for all of the assign- ments at issue herein. According to Sergey Galant, the borrowing is reported as debt of partners to the company. As a result David Kimnard’s accounts’ receivable increased. Plaintiffs expert testified that in valuing Robert L. Stone’s interest in the entities that he included David Kinnard’s debt as an asset of the entitics, to which Robert L. Stone was entitled to his proportional share. David Payne also testified that the capital accounts of the partners were in balance. 43 statement, but did not question the absence of any ownership interest in Cinnamon Creek, LLC. In June 2004, Robert L. Stone requested addi- tional funds. Via e-mail from Mark Reinitz, it was noted that in exchange for the assignment of his _ interest in Peppertree Partners, Ltd. and Peppertree Partners, Inc., David Kinnard would pay Robert L. Stone $10,200.00. Combined with other payments previously sent to Robert L. Stone and mortgage payments not received from him for certain Oklahoma Investment Group properties, the total amount of compensation was $43,000.00.'3 On June 10, 2004, Robert L. Stone executed an assignment of his interest in the Peppertree entities. Again, although not contained in the assignment, the 131n a June 9. 2004 e-mail, from Mark Reinitz to Robert L. Stone and others, Mark Reinitz noted “[wJe will wire $10.2K to Rob, which with other payments sent to Rob and not received from him comes to a total of $43hK paid for Rob’s whole Pepper- Otree ownership share. 44 transaction permitted Robert L. Stone to repurchase his shares within six months, with incremental increases in the amount due.!4 Robert L. Stone did not repay any money to David Kinnard. As with the Cinnamon Creek, LLC purchase, the money used by David Kinnard to purchase Robert L. Stone’s shares was borrowed from Springfield Village and resulted in an increase in David Knnard’s -accounts receivable. In August 2004, Robert L. Stone requested additional money for purposes of funding his Chicago venture. On August 13, 2004, Robert L. Stone exe- cuted an assignment of his interest in Windrock Associates to David Kinnard. In exchange for his assignment, Robert L. Stone received $145,000.00, The June 9. 2004. e-mail indicated that “fijf more than six months have passed without complete payment by Rob, David Kinnard shal] retain permanently the Peppertree share here-in discussed.” 45 the capitalized value of his ownership interest, spread over a period of months. Again, although not part of the documentation, Robert L. Stone had the opportunity to repay the sais within six months and to reclaim his ownership interest. Robert L. Stone did not exercise his rights. In December 2004, Robert L. Stone again requested money from Roger Kinnard. Roger Kinnard contacted his brother, via Mark Reinitz, and David Kinnard agreed to “loan” Robert L. Stone $45,000.00.'!5 “Rob says that for this $5K and some previous wire advances, he will assign his share of Summer Pointe to Dave, with the usual 6 month buy-back option.” Plaintiffs Ex. 71. Oklahoma Investment Group transferred $5,000.00 to Robert L. Stone on January 25, 2004. Combined with transfers on December 2, 10, and 30, 2004, the "In actuality the transaction called for David Kinnard to loan Robert L. Stone $5,000, and for David Kinnard to cover $40,000 of Robert L. Stone’s prior advances. 46 total consideration was $45,000.00. The assignment was made by Robert L. Stone effective March 1, 2005. Robert L. Stone did not repay the amount. to David Kinnard. Additionally, on March 1, 2005, Robert L. Stone executed an assignment of his membership and stock ownership in the Springfield Entities, Springfield Holding Company and ices, field Apartments, Inc., to David Kinnard. The same assignment form was utilized and again there was an unwritten six month buy-back provision. In exchange for the assignment, Robert L. Stone received $81,000 in cash, and David Kinnard agreed to cover $360,689.37 of accounts receivable owed by Robert L. Stone to Springfield, and the forgiveness of two promissory notes. One promissory note, related to the Beatrice dispute, was allegedly executed in an attempt to finally resolve the issue of the ten percent due and owing to David and Roger Kinnard. This 47 note required that it be fully paid by September 15, 2005, six months after its execution, in order for Sakert L. Stone to regain his shares in the Springfield entities. The second note was designed to address a debt by Robert L. Stone to Bernice Kinnard, Roger and David’s mother. !6 According to David Kinnard, in exchange for Robert L. Stone’s interest in the Springfield entities, no one would attempt to collect this debt. Additionally, according to Mark Reinitz, David Kinnard was assuming the debt, making him hable for payment to his mother. 16phe earliest evidence of this transaction is an e-mail from December 2004. whereby Robert L. Stone indicated that he would agree that whatever amount he owed Mrs. Kinnard, together with a loan for $20,000 that he was requesting, would be secured by his interest in Springfeld Village. Defendants’ Ex. 153. Thereafter, on December 30, 2004, Robert L. Stone submitted a proposed agreement to utilize his interest in Springfield Village as secunty for subsequent money borrowed from Oklahoma Investment Group, money owed to Bernice Kinnard and any award from the arbitration of the Beatrice Dispute. Defendants’ Ex. 154. In January it was noted in an e-mail to Robert L. Stone from Mark Reinitz that “[oJther previous wire advances plus the Beatmce money owed (about $250K) and approximately 500K still owed to Mrs. Kinnard will all go against Rob’s share of Springfield. as he has indicated in earlier emails.” Plaintuffs Ex. 71. 48 The cash portion of the transaction was wired to the account of The Children’s Fund, at Robert L. Stone’s request. Robert L. Stone did not repay any of the amount to David Kinnard. In April 2005, Cynthia Stone owned a 5.5% interest in the Summer Pointe entities. Robert L. Stone spoke with Mark Reinitz about the possibility of Cynthia Stone assigning her interests to David Kin-nard. On April 7, 2005, Ted Teske advised Cynthia Stone and Robert L. Stone via telephone that the assignment she was being asked to execute was not a loan or security for a loan; it was a sale and an assignment of Cynthia Stone’s entire interest in the Summer Pointe Entities. The call from Ted Teske was in response to a request by Robert L. Stone that he explain to Cynthia that the assign- ment was in fact merely security for a loan. Robert L. Stone seemed _ surprised by Mr. Teske’s 49 interpretation of the assignment. Mr. Teske further explained that Robert L. Stone has _ previously assigned his entire interest in the entities, and that the buyback period had expired for certain of those properties. Thereafter, Ted Teske sent an email to Cynthia Stone with an attached assignment. Per the e-mail, the purchase price was to be $42,000.00. On April 8, 2005, Cynthia Stone insdieea and delivered an Assignment of Membership Interest of all of her membership and stock ownership in Sum- mer Pointe Partners, an Oklahoma limited partner- ship, and Summer Pointe Partners, Inc. to David Kinnard. On April 8, 2005, Oklahoma Investment Group wired $7,000.00 to the account of Robert Stone at Lakeshore Bank. On April 11, 2005, the balance of $35,000.00 was wire transferred to the same account. The wire transfer notation indicated it was the final payment for the assignment of interest in Summer Pointe from Cynthia Stone to David Kinnard. Neither Cynthia Stone nor Robert L. Stone ever paid any money to David Kinnard to redeem their ownership interest. In May 2005, Roger Kinnard informed the Defendants that no additional money would be forthcoming from the Oklahoma Investment Group account, because Defendants no longer maintained an ownership interest. As noted above, at some point in time Robert LL. Stone borrowed money from Bernice Kinnard. This debt was apparently never repaid, the amount owed 1s disputed, and Mark Reinitz testified that as part of the compensation paid to Robert L. Stone for his interest in Springfield Village, David Kinnard assumed the debt. As with many of the transactions involved in this action, the original debt apparently was not commemorated in writing. Although Robert 5] L. Stone disputes the existence of the debt, there is a promissory note signed by Robert L. Stone indicating a debt to Bernice Kinnard totaling $500,000.00. De- fendants’ Ex. 400. In February 2004, Robert L. Stone sent an e-mail to Roger Kinnard acknowledg- ing a debt, but noting the disputed amount. Defen- dants’ Ex. 123. On December 10, 2004, Robert L. Stone acknowledged the debt as well. Defendants’ Ex. 153. On January 25, 2005, Mark Reinitz estimated to Robert L. Stone that he owed approximately $500,000 to Mrs. Kinnard. Defen- dants’ Ex. 165. Robert L. Stone acknowledged, and did not dispute this estimate, in an e-mail to David Kinnard, Roger Kinnard and Mark Reinitz. Plaintiffs Ex. 70. This debt was transferred to David Kinnard by virtue of the March 2005 transaction regarding Springfield Village. As a result of the parties’ inability to agree on whether the Stones own anv iterest in any of the entities, Plaintiffs filed this action. David Kinnard seeks a declaratory judgment that the assignments set forth above were valid and legally binding such that none of the defendants have any right, title or interest in any of the entities. Plaintiff David Kinnard requests an order restraining Defendants from ever claiming, for any purpose, an ownership interest or financial interest in any of the entities. Defendants filed counter-claims seeking a _ full accounting for each of the entities and a declaratory judgment that they have ownership rights in the entities. Because the assignments are the foundation of the action, the Court will first consider the legality and effect of the Stone’s various assignments. Robert L. Stone contends that certain of the assignments were prohibited by the terms of the partnership agreements or the operating agreements of the particular entity. According to the Cinnamon Creek, LLC oper ating agreement, any assignment of a membcr's interest required the consent of cach member, via written and dated instrument. Additionally, it re quired that each member file the necessary docu- ments for a transferee to become a substitute mem- ber and that the company receive an opinion of counsel that the transfer would not materially adversely affect the company's classification for tax purposes. The Court notes that in 2003, without considering any of these issues, Robert L. Stone assigned his interest in Cinnamon Creek, LLC to David Kinnard. Additionally, when the money was repaid in late 2003, Robert L. Stone’s interest was restored, an assignment in and of itself. When 54 Robert L. Stone assigned his interest a second time in 2004, again without concern for the provisions of the Cinnamon Creek, ILLC operating agreement, the Court concludes that he waived the requirements. Additionally, Robert L. Stone clearly agreed to the assignment of his interest by virtue of his signature on the assignment. Additionally, the e-mail mes- sages between Mark Reinitz, David Kinnard and Roger Kinnard are sufficient to fulfill the written consent requirement. Obviously David Kinnard consented, and Roger Kinnard’s consent is found within these e-mails. Furthermore, because David Kinnard was already a member, there was no issue regarding substitution of a member, and Mark Lovelace of Phillips McFall had previously con- sulted with Plaintiffs on the 2003 sale of Cinnamon Creek, LLC. Accordingly, the Court concludes that provision in the Cinnamon Creek, I.LC operating he agreement were waived by Robert L. Stone, and alternatively, that the conditions were fulfilled.!7 The partnership agreement for Peppertree Partner, Ltd., permits the transfer of a partner's interest with the approval of the general partner. The hmited partner seeking to transfer his interest must request permission in writing and pay a non- refund-able fee of four hundred dollars, and counsel must be consulted regarding the effect of such transfer on the partnership.!® Clearly the condition ‘’The Cinnamon Creek, LLC Operating Agreement provides, in part: No failure by any party to insist upon the strict performance of any covenant, duty, agreement or condition of this Agreement or to exercise any right or remedy consequent upon a breach thereof shall constitute waiver of any such breach or any other covenant, duty, agreement or condition. Defendant Robert L. Stone cannot rely on this provision when his actions were the actions taken in violation of the terms of the Operating Agreement related to transfer of interest. ‘The partnership agreement provides: The lhmited part-ner seeking to transfer his interest must first apply in writing to both the general partners at their addresses on the books of the Partnership and pay a non-refundable fee of four hundred dollars ($40000) to the resident agent of this Partnership in this state at the address listed above. to cover 56 of consent was met, because David Kinnard, on behalf of the corporate general partner, gave his consent. Additionally, Mark Lovelace was consulted regarding the proposed transfer, and apparently concluded that the transfer to David Kinnard would not impact Peppertree’s status. Accordingly, Defen- dants’ contention that Plaintiffs failed to comply with these requirements is without merit. the costs and expenses of preparing, executing, and filing a certificate of Amendment with the office of the Secretary of state of Oklahoma; (b) Upon receiving such notice, the general partners shall present copies of said notice to counsel for the Partnership; (c) If in the opinion of such counsel, the proposed transfer of such partnership interest may be effected without registration thereof under the Act, as then in force, or any similar statute then in force. and applicable state securities law, the general partners shall promptly there after so notify the holder of such partnership interest. Then the general partners shall decide in writing whether. in their sole discretion, they will permit said transfer. A unanimous vote is required to approve the transfer and to admit the transferee to the Partnership as a new lmited partner. Approval must also be in accordance with the terms of the notice delivered by the transferor to the general partners, in accordance with this certificate, and upon such further terms and conditions as shall be required by counsel for the Partnership in order to assure comphance with the Act. and applicable securties laws.’ Defendants Ex. 302. = With regard to Summer Pointe Partners, a lhmited partnership, Defendants allege that its bylaws provide that a transfer of shares to any present share-holder is valid only upon unanimous approval of all other living shareholders. The bylaws, however, were not introduced into evidence ‘at trial, and the certificate of limited partnership contains no such requirement. Furthermore, Mark Reinitz testified that with regard to the transfer of Robert L. Stone’s interest in Summer Pointe, that he questioned the other partners, Roger Kinnard, David Kinnard, Samuel Brown, and Margaret McLaughlin, and none had any objection to the _ transfer. Accordingly, this provision if it exists did not preclude the transfer of Defendants’ interests in Summer Pointe. Defendants alternatively seek to avoid the effect of the assignments by arguing, with regard to 58 each particular assignment, that they received no odaaaion for the transfer of their interests. Additionally, vides argue that because the fund transfers came from the Oklahoma Investment Group account, that they did not receive consider- ation from David Kinnard, the purported purchaser of their interests. Additionally, Defendants contend that as a result of the guaranteed monthly allowance, and Oklahoma Investment Group’s failure to consistently send the requisite payments, that Oklahoma Investment was indebted to the Stones, and that any alleged advances, should have been set off by the debt owed to them. The Court disagrees. Robert L. Stone contends that the promise of a monthly allowance created an account payable, in his favor, for any month the promised amount was not received. Plaintiff's expert, one of the few 59 credible witnesses in the case, testified that he had completed a full accounting of the entities, utilizing accepted methods of forensic accounting. 19» He testified that payments made to partners.or to members of a lhmited lability corporation can take one of three forms: (1) guaranteed payments, generally a salary to a partner for work expended, which are deducted by the entity as an expense; (2) distributions of operating income, that is a partner's pro rata share of net operating income less the debt service; and (3) loans. Loans are essentially any moneys paid to a partner or member in excess of his '’Defendants contend that no “full accounting” was completed. because Mr. Payne did not have access to the general ledgers from the inception of the entities. Mr. Payne testified that it is not unusual that business entities do not retain al] of their general ledgers. He testified that by virtue of the tax re-turns for the entities that he was able to determine historically what distributions had been made to the members and the partners. There is no evidence that the entities tax returns did not accurately state the payments made to the partners as distributions. 60 or her distributive share. At no time were the monthly payments to Robert L. Stone treated as guaranteed payments, deducted as an expense by the entities and reported to the Internal Revenue Service as guaranteed payments made to him. The Court concludes that the “monthly allowance” had the potential to create debt from Robert L. Stone to the Oklahoma Investment Group member entities, to the extent the amounts exceeded his distributive share. However, the failure to make one or more payments did not create debt in favor of Robert L. Stone against Oklahoma Investment Group or any entity or individual. Any money paid monthly, or otherwise, to Robert L. Stone was either a distribution or a loan. Distributions in excess of his distributive share created a liability in favor of the entities.29 ©The Court is unable to accept the testimony of Defen- 61 Mr. Payne testified that the capital accounts of each partner were essentially in balance, that is, that the distributions of capital to David Kinnard, Roger Kinnard, and Robert L. Stone, were proportionate to their ownership interests. The partners loan accounts, however, were not in ba- lance. Roger Kinnard had the largest accounts dants’ expert. because it is based on a faulty premise: that the monthly allowance was a guaranteed payment and that the failure by Oklahoma Investment Group to make a monthly payment resulted in a liability on its part and an asset on the part of Robert L. Stone. Such was not the case. As indicated in an e-mail dated March 22, 2002, from Jeremy White, then- Oklahoma Investment Group accountant, to Robert L. Stone, the payments to Robert L. Stone were distributions "instead of compensation" because "the payments to you are your share of net income from the partnerships you own. It is_ not compensation that we are paying to you since the partnerships do not get to count it as an expense.” Defendants’ Ex. 16. The accountant refused to consider the payments as guaranteed payments and the K-Is issued by the entities rarely reported distributions to their partners or Members. As a result, Robert L. Stone should have realized that the hundreds of thousands of dollars that he was receiving annually would have to be balanced against his distributive share. Indeed, in early 2005, when preparing his financial statement in conjunction with Sergey Gallant, Robert L. Stone did not question the fact that his account receivable, that is his debt to Oklahoma Investment. Group. was nearly one million dollars. Defendants Ex. 174, lo dad 177. 62 receivable, followed by Robert L. Stone and then David Kinnard. As noted above, David Kinnard’s accounts receivable grew substantially in 2004 and 2005, as he leveraged his interest in order to acquire Robert L. Stone’s share. Defendants contend that this was improper for a multitude of reasons, including the fact that the money was all on the books of Springfield Village, and its operating agreement prohibited loans to the members.?! The Springfield Village Operating Agreement provides in Article 4, Section 4.3, that “[t]he Com- pany shall not make any loans to any member or any affiliate of any member without the written consent of all members holding as least three fourths (3/4) of “1The accounting methodology for the entities involved transferring all accounts receivable to the books of Springfield Village. Plaintiff's expert testified that Springfield Village is by far the most profitable of the entities, and that it was in the best financial position to advance moneys, and thus the transfer of the debt was not impermissible or unusual. 63 the outstanding Units of the Company.” Defendants’ Ex.329. Defendants contend that Plaintiffs did not have the required written consent. The Court con- cludes that by his consent Robert L. Stone waived this requirement. In Atlas Life Ins. Co. v. Schrimsher, 179 Okl. 643, 66 P.2d 945 (948) (1937), the Oklahoma Supreme Court said: Although the definitions of waiver are myriad and conflicting, it may be said with certainty that in order to con- stitute a waiver, there must be an actual intention vo relinquish a known right, either expressly, or by such conduct as warrants an inference of such relinquish- ment ... The most rudimentary essential of a waiver is that the waiving party shall in some manner publish his intention to relinquish his rights, either by words or conduct. As stated in 67Corpus Juris, 294, ‘waiver' ‘is a doctrine, resting upon an equitable principle, which courts of law will recognize, that a person with full knowledge of the facts shall not be per- mitted to act in a manner inconsistent with his former position or conduct to the injury of another.’ 64 In 1997, Robert L. Stone and Cynthia Stone borrowed $305,000.00 from Springfield Village Apartments, Ltd, an Oklahoma limited liability company, to procure the Beatrice Warehouse. Plain- tiffs Ex. 361. There is no evidence of written con- sent by David Kinnard and Roger Kinnard to the loan for that transaction. Additionally, On June 3, 2004, and June 14, 2004, Defendant Robert L. Stone requested advances on his partnership distributions, which would likely include money from the Spring- field Village apartment. The Court finds that Robert . L. Stone, David Kinnard and Roger Kinnard acted with equally unclean hands, thereby waiving the written permission requirement with regard to loans from Springfield Village. As such, Robert L. Stone cannot complain at this juncture that the borrowing of money from Springfield Village Apartments, Ltd. 65 by any of the partners was improper under the terms of the operating agreement. Defendants further contend that they received no consideration and additionally that even if they received consideration, it did not come from David Kinnard, and thus their interests were not trans- ferred to him. The Court need not reiterate the litany of payments made to Robert L. Stone during 2004 and 2005. With regard to each of the entities, there is evidence of adequate consideration having been exchanged. David Payne testified that Robert L. Stone and Cynthia Stone received reasonable consideration for their interests in the subject entities. The funds sent to Robert L. Stone from the Oklahoma Investment Group account for the transfer of his interest in each entity created a debt to Springfield Village payable by David Kainnard The Court accepts Mr. Payne's testimony. 66 If Mr. Kinnard paid Mr. Stone direct, Mr. Kinnard, being a controlling member, would have the ability after he paid Mr. Stone direct to advance money back to himself or withdraw money from the partnership and be in the same economic position that he is as if he could pay direct and then withdraw or he could just with- draw the funds out of the partnership through Oklahoma Investment Group and pay it and then burden his interest and both Mr. Stone and Mr. Kinnard would be in the same economic positions regardless of the form of the transaction. Tr.Vol. II, p. 474. Mr. Payne further testified that Robert L. Stone re- ceived cash from the entities in excess of his distributive share and, with regard to the sale of his interest in Springfield Village, that David Kinnard assumed responsibility for Robert L. Stone's accounts receivable. Additionally, Robert L. Stone received consideration by David Kinnard’s assump- tion of the obligation on the Beatrice Kinnard note. Additionally, Robert L. Stone does not dispute the existence of a “kicker” on the Beatrice deal, nor does 67 he dispute that he did not fulfill his obligation, and that his obligation to David Kinneard and Roger Kin- nard has been extinguished by virtue of the Springfield Village assignment. The Court concludes that considered both singly and collectively, Robert L. Stone and Cynthia Stone received reasonable consideration for their interests, and thus are not entitled to rescission or other remedy on this basis. Finally, the issue remains whether the assign- ments were sales or loans. Although the Plaintiffs at various times used both terms to describe the ar- rangements, and although Robert L. Stone testified that he believes he merely utilized his interests as collateral for loans with unlimited time for repay- ment, the Court concludes that the assignments were sales with the right to redeem, which right was not exercised within the time prescribed nor in fact, ever. The 2003 Cinnamon Creek, LLC assignment is 68 instructive in this case, and should have been a har- binger to Robert: L. Stone of how subsequent trans- actions would be treated. Robert L. Stone knew as early as March of 20038, that David Kinnard and Roger Kinnard were hesitant to loan him money. Defendants’ Ex. 4. Mark Lovelace, counsel for Oklahoma Investment Group, sent an e-mail on March 26, 2003, to Mark Reinitz outlining the possibility of a sale versus a loan. That e-mail was forwarded by Mark Reinitz to Robert L. Stone on March 27, 2003, at 10:27 a.m. At 2:10 p.m. on that same day, Robert L. Stone, in apparent recognition that his desire for a loan would not come to fruition, sent a form for the unconditional transfer of partnership interest to Mark Reinitz. That same date, an e-mail from Mark Lovelace to all of the major players indicated that Robert L. Stone should sign and have the agreement notarized, so that 69 “funding of the agreed $100,000 sale price can occur tomorrow.” Defendants’ Ex. 48. Mark Lovelace noted, “I understand that we are also preparing an Option Agreement for Robert to be able to repur- chase his membership interest.” Defendants’ Ex. 48. Later, Robert L. Stone asked Mark Reinitz why it was important to describe the transaction as a “sale-redemption” and not as'a loan. Defendants’ Ex. 84. Thus, Robert L. Stone was aware that the Plain-tiffs believed he had sold his interest, not merely utilized his interest as security. David Kinnard further informed Robert L. Stone that “[t]here is no loan. There is only an opportunity to buy back shares. Please read these docs carefully.” Defendants’ Ex. 86. Despite this clear and unequi- vocal statement, Robert L. Stone later inquired of Jeremy White, “[w]hat is the amount necessary to pay off my non-loan from Oklahoma Investment 710 Group, and when is it due?’ Defendants’ Ex. 87. Robert L. Stone later referenced his “loan-like ar- rangement.” Defendants’ Ex. 89. Despite this his- tory and Plaintiffs obvious intentions, Robert L. Stone subsequently utilized the same unconditional transfer on Cinnamon Creek, LLC, Windrock Associates, Peppertree, Summer Pointe, and Springfield Village. Robert L. Stone did not dispute the absence of Cinnamon Creek, LLC and Pepper- tree Partners as assets in his personal financial statement prepared by Sergey Galant in early 2005.22, With regard to the each of entities Robert L. -?The Court finds it curious that Windrock Associates remained on the list of assets owned by Robert L. Stone in De- cember 2004, despite its earlier transfer. However, it appears that the lender on the property, for whom the financial state- ment was being prepared, had not yet okayed the transaction. Thus it appears that Robert L. Stone’s: interest, although pre- viously transferred, was not excluded from his list of assets perhaps in an effort to avoid violating terms of the mortgage established by the lender. Defendants’ Ex. 172. 71 Stone was unable or failed to exercise his option to re-purchase his shares. Additionally, Cynthia Stone was fully aware that the assignment was a sale and not security for a loan. Despite this knowledge, she executed the assignment and accepted a transfer of funds. Accordingly, the Court concludes that upon the expiration of the six-month option to repurchase, David Kinnard became the owner of the Defendant Robert L. Stone’s and Cynthia Stone’s interest in the subject entities. Defendants are not entitled to claim any interest 1n the properties. Dr. Stone’s Loan Additionally, there is an issue’ between Springfield Holding Company and Dr. Robert L. Stone, Sr. The parties are unable to agree on the amount of the loan or whether it was repaid. As a result, Plaintiff Springfield Holding Company seeks a declaratory judgment against Dr. Stone that it ie’: owes nothing on a loan he made to the company in the early 1990's, having repaid in full all principal and accrued interest and an injunction barring Dr. Stone from claiming any amount due from Spring- field, David Kinnard or Roger L. Kinnard. Dr. Robert L. Stone seeks to recover on a theory of breach of contract, asserting that David Kinnard and Roger Kinnard are indebted to him on the $450,000.00, loan of which only $160,000.00 has been repaid. In 1992, the notes payable ledger of Springfield Village Apartments, the predecessor in _ interest’ of Springfield Holding Company, Ltd., indicated a debt to Dr. Stone totaling $164,269. 80. In June 1993, Dr. Stone received a $10,000.00 payment toward the re | From 2000-2004, Robert L. Stone’s distribution account was credited with $771.35 per month in interest. On September 19, 2005, Robert L. Stone was informed that the outstanding debt to i Dr. Stone would be repaid before December 2005. In fact, $163,526.20 was paid to Dr. Stone's bank account during that time. Despite Defendants’ testimony, there is no other evidence of a $450,000.00 debt from any Springfield entity to Dr. Stone. The memorandum of agreement presented as Defendants’ Exhibit 1 does not support the proposi- tion that a $450,000.00 promissory note was ever made. Accordingly, no money is due and owing to Dr. Stone by any Plaintiff in this action or by any of the Oklahoma Investment Group entities by virtue of this agreement.2* Accordingly, Dr. Stone is not entitled to judgment against the Plaintiffs in this action. °3The Court finds that Mr. Reda had the authority of the trustee from the bankruptcy court in the Northern District of Illinois to represent Dr. Stone in this action. 74 CONCLUSION In accordance with the above findings, the Court concludes as follows: (1) As of March 5, 2004, Robert L. Stone owned no interest in Cinnamon Creek; (2) As of June 10, 2004, Robert L. Stone owned no interest in Peppertree Partners: (3) As of November 16, 2004, Robert L. Stone owned no interest in Windrock Associates; (4) As of April 7, 2005, Robert L. Stone owned no interest in Springfield Village Apartments; (5) As of March 1, 2005 Robert L. Stone owned no interest in Summer Pointe; (6) As of April 11, 2005, Cynthia Stone owned no interest in Summer Pointe; (7) The Stones received reasonable considera- tion for their interests in the above-listed entities, as agreed upon by the parties; (8) David Kinnard, the purchaser, provided reasonable consideration for the Stones’ various interests; (9) All of the parties ignored the requirement of Springfield Village that written consent of a majority of the members be obtained before loans sould be made, thus this requirement was waived; (10) Robert L. Stone, during his time as an owner of the various Oklahoma Investment Group entities, received money in excess of his distributive share of the income of the entities; (11) Although David Kinnard promised to pay Robert L. Stone a minimum amount monthly, the failure to pay amounts in 1999 and 2000 did not create a debt from Oklahoma Investment Group or any of its entities; these amounts, to the extent they exceeded the Stone’s distributive shares, were advances, creating accounts receivable in favor of the 76 entities, as consolidated in favor of Springfield Village; (12) David Payne performed a full accounting of the entities, utilizing accepted principles of forensic accounting, his results are not undermined by the absence of general ledgers for the period prior to 2000, and thus Defendants are not entitled to a further accounting; (13) Any debt by David Kinnard, Roger Kin- nard or Springfield Holding to Dr. Robert L. Stone has been fully repaid. For the reasons set forth herein, judgment shall be entered in favor of the Plaintiffs and against Defendants. IT IS SO ORDERED this 25m day of August 2008. {s] DavidL. Russell DAVID L. RUSSELL UNITED STATES DISTRICT JUDGE 4 Case 5:07-cv-00250-R Document 115 Filed 08/25/208 IN THE UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF OKLAHOMA DAVID H. KINNARD et al., Plaintiffs, Vv. CIV-07-250-R ROBERT L. STONE; CYNTHIA A. STONE; and ) ) ) ) ) ) ) ROBERT L. STONE, M.D., ) ) ) Defendants. JUDGMENT In accordance with the Court’s findings of Fact and Conclusions of Law, entered this same date, the Court hereby enters the following judgment in favor of the Plaintiffs and against Defendants. (1) As of March 5. 2004, Robert L. Stone owned no interest in Cinnamon Creek; (2) As of June 10, 2004, Robert L. Stone owned no interest in Peppertree Partners; 78 (3) As of November 16, 2004, Robert L. Stone owned no interest in Windrock Associates; (4) As of April 7, 2005, Robert L. Stone owned no interest in Springfield Village Apartments; (5) As of March 1, 2005 Robert L. Stone owned no interest in Summer Pointe Partners; (6) As of April 11, 2005, Cynthia Stone owned no interest in Summer Pointe Partners.: (7) The Stones received reasonable considera- tion for their interests in the above-listed entities, as agreed upon by the parties; (8) David Kinnard, the purchaser, provided reasonable consideration for the Stones’ various interests: (9) All of the parties ignored the requirement of Springfield Village that written consent of a majority of the members be obtained before loans could be made, thus this requirement was waived; 79 (10) Robert L. Stone, during his time as an owner of the various Oklahoma Investment Group entities, received money in excess of his distributive share of the income of the entities; (11) Although David Kinnard promised to pay Robert L. Stone . minimum amount monthly, the failure to pay amounts in 1999 and 2000 did not create a debt from Oklahoma Investment Group or any of its entities; these amounts, to the extent they exceeded the Stone’s distributive shares, were ad- vances, creating accounts receivable in favor of the entities, as consolidated in favor of Springfield Village; (12) David Payne performed a full accounting of the entities, utilhzing accepted principles of forensic accounting, his results are not undermined by the absence of general ledgers for the period prior $3 () to 2000, and thus Defendants are not entitled to a full accounting; (13) Any debt by David Kinnard, Roger Kin- nard or Springfield Holding to Dr. Robert L. Stone has been fully repaid. SNTERED this 25th day of August 2008. [s] David L. Russell DAVID L. RUSSELL UNITED STATES DISTRICT COURT 81 Case: 08-6210 Document: 01018100618 Date Filed: 07/15/2009 UNITED STATES COURT OF APPEALS FOR THE TENTH CIRCUIT SPRINGFIELD HOLDING COMPANY LTD LLC, Plaintiff - Appellee, and MARK W. REINITZ, et al., Plaintiff-Counter-Defendants - Appellees, Vv. No. 08-6210 ROBERT STONE, M.D., et al., Defendant-Counter-Claimants - Appellants. ORDER Before KELLY, LUCERO, and HARTZ, Circuit Judges. Appellants Robert L. Stone and Cynthia A. Stone’s petition for rehearing is denied. The petition for rehearing en banc was transmitted to all of the judges of the court who are in regular active service. As no member of the panel and no judge in regular active service on the court requested that the court be polled, that petition is also denied. Entered for the Court, [s] Elhzabeth A. Shumaker ELISABETH A. SHUMAKER, Clerk 83 Case: 08-6210 Document: 09615437 Date Filed: 11/26/2008 UNITED STATES COURT OF APPEALS FOR THE TENTH CIRCUIT. Robert L. Stone et al., Appellants, Case No. 08-6210 Vv. David H. Kinnard et al., Appellees. ee _ 4 ae fe Ae _ Aa fe ee On Appeal from: United States District Court for the Western District of Oklahoma The Honorable Judge Russell CIV-07-250-R APPELLANTS’ JOINT OPENING BRIEF Respectfully submitted, Andrew E. Lester, OBA #5388 R. Scott Thompson, OBA #17712 LESTER, LOVING & DAVIES, 1701 South Kelly Avenue 84 Edmond, Oklahoma 73013-3623 (405) 844-9900 Robert S. Reda Jennifer Majewski REDA & DES JARDINS, LTD. 8 South Michigan Avenue Chicago, Illinois 60603 (312) 236-9318 Oral Argument is requested. Scanned PDF attachments are included with digital] submission via e-mail. November 26, 2008 85 TABLE OF CONTENTS ME PARAL TIQOPOCICS .. 1 eee 89 Prior or Related Appeals..................... 91 Statement of Jurisdiction .................... 91 Statement ofthe Issues..................... 92 Statement ofthe Case.................... . .. 93 Statement ofthe Facts ..................... 100 A. Origin of the Dispute .............. 100 B. The Dispute .......... oo, 111 C. Testimony at Trial ................ 119 Summary of the Argument................. 123 Arguments and Authorities ................. 130 1. The District Court Erred, As a Mixed Question of Law and of Fact, in Con- cluding that the Assignments Drafted by David Kinnard Could have been Part of a Valid Agreement, because there was no Meeting of the Minds ... 130 A. The Standard of Review of the District Court’s Findings of Fact is “Clearly Erroneous.” ...... 130 86 B. The Assignments Cannot be Part of Valid Agreements of Any Kind, because there Could have been No Meeting of the Minds. ......... 131 2. The District Court Erred, as Matter of Law, in Concluding that David Kinnard Paid Valid Consideration for the Stones’ Pee GS se eb a aas toete eee 145 A. The Standard of Review of the District Court’s Conclusions of Law is “De Novo” Review. .... 145 B. Forgiveness of neither Mrs. Kinnard’s Note nor the Beatrice Note can Serve as Consideration.............. 146 C. Funds Borrowed by David Kinnard from Springfield, in Violation of its Operating Agreement Cannot Serve as Valid Consideration. ........ 149 3. The District Court Erred, as a Matter of Law, in Concluding that Minority Members or Partners may Uninten- tionally Waive their Rights under their Operating Agreements or under the Oklahoma Uniform Partnership | A amma a anor er se tera ae 164 A. The Standard of Review of the District Court’s Conclusions 87 of Law is “De Novo” Review. ... 154 B. Under an Operating Agreement, Waiver Must be Explicit. ...... 155 C. Under the Uniform Partnership Act, Waiver of the Managing Partner’s Fiduciary Duty is Not a ye ee ae 160 4. The District Court Erred, as a Matter of Law, in Granting an Equitable Remedy to a Party that it Found to have Come to Court with oP 169 A. The Standard of Review of the District Court's Conclusions of Law is “De Novo” Review. ... 169 B. The Kinnard Brothers are Not Entitled to Any Rehef, be- cause they Come to Court with LJmcieem TIANGS. .. 1... 2 wees 169 5. The District Court Erred, as a Matter Of Law, in Holding that Minority Partners do Not Have a Right to an POCO. i ec tw we ee ees 172 A. The Standard of Review of the District Court’s Conclusions of Law is “De Novo” Review. ... 172 88 B. The Stones are Entitled to a Formal Accounting. .......... 173 ERI oe oe a De eae eae ee eee 176 Statement of Counsel as to Oral Arcvnsinas ae 177 Certificate of Compliance .................. 177 Certificate of Digital Submission ............ 178 Certificate of Service 89 TABLE OF AUTHORITIES CASES Atlas Life Inc. Co. v. Schrimsher, 1937 OK 117, 179 Okla. 643, 66 P.2d 944 Nel ee ary ad 2a ao ace a 6 «9 159 Barton v. Audietis, 25 Conn.App.92, 592 A.2d I Stott ere ee aa ae cgay ace ae a . 173 Beaver v. Clingman, 363 F.3d 1048, 1053 (10 Cir. 2004)...... 130, 146, 155, 169, 172 Beck v. Reynolds, 903 P.2d 317, 319 (Okla. ee re ay ig wa eae aKa 132 City of Tulsa v. Tyson Foods, Inc., 258 F.Supp.2d 3263, 1311 (N.D.Okia. 2008)..........- 171 Helitzer v. Helitzer, 761 F.2d 582, 589 Ce an oe ees es sw 140 Jennison v. Brerer, 601 F.Supp. 1167 a i ESR aS a 167 Kinwood Capital Group LLC v. Northlake Dev. LLC (In Re Northlake Dev. LLC), 2007 Bankr. Lexis 4403 (Bankr. S.D. Miss. ois ) ae area ere ee 151-52 Konover Development Corp. vu. Zeller, 228 Conn. 206, 635 A.2d 798 (1994) Lurch v. U.S., 719 F.2d 333 (10th Cir. 1983)... . 144 90 Meinhard v. Salmon, 249 N.Y. 458, 464, BG Dect, OU cg ec ks vc te eee wa we 166 Naimie v. Cytozyme Laboratories, Inc., 174 F.3d 1104 (10th Cir. 1999)............. 131 Navair, Inc., v. LFR Americas, Inc., 519 F.2d 1131, 1139 (10th Cir. 2008) ........... 143 NCAS Realty Management Corp. v. The Nat'l Corp. for Housing Partnerships, 143 Pate oe COG GRE. BE) ce ec cc tcc ee 164-66 O’Neal v. Harper, 75 P.2d 879, 882 (Okla. eg ce a eR ed 131 Overhoff v. Scarp, Inc., 12 Misc.3d 350, 362, 812 N.W.S.2d 809 (N.Y. Sup. 2005) .. 151-52 Peskin v. Deutsch, 134 Ill.App.3d 48, 479 mR i ee 163 Summum v. Duchesne City, 482 F.3d 1263, pee 2h: 2 ae 1 7 5 148 Updike v. Wolf & Co., 175 Tll.App.3d 408, 529 N.E. 2d 993 (1988) Williams v. Tritt, 262 Ga. 173, 415 S.E.2d a a a ee ee 167 91 STATUTES AND RULES 28 U.S.C. §§ 1291, 1332, 13867, and 2107........ 92 BO AEs RD 6 ov neo ree bee eee 132 Pea. 5. Am. GERM Ee) s s5.s + ¥ oe 2 oe eee 92 Oklahoma Uniform Partnership Act, 54 Okl.St. De Bk OE MOG. AIOE 6s sc cee ae ease ee 160 Oklahoma Revised Uniform Partnership Act, §54-1-101 et seq. (2007) ............... 160 REFERENCES Black’s Law Dictionary, 5th Ed. ............. 139 PRIOR OR RELATED APPEALS None. STATEMENT OF JURISDICTION The United States District Court for the Wes- tern District of Oklahoma had jurisdiction over thie matter pursuant to 28 U.S.C. §§ 1332 and 1367. The District Court conducted a non-jury trial. After the trial, the District Court entered a final judgment in favor of David Kinnard, Roger Kinnard, et al. (here- 92 after “the Kinnard Brothers”), the Plaintiffs/Coun- ter-Defendants below, which addressed all claims by and against all parties. (Attachment 1) The Stones timely filed their Notice of Appeal, in accordance with 28 U.S:C. § 2107 and Fed.R.App. 4(a)(1)(A), on September 23, 2008. (Aplt.App. at 1485-1488) The appellate court’s jurisdiction in the case at bar davies from 28 U.S.C. § 1291. STATEMENT OF THE ISSUES 1. THE DISTRICT COURT ERRED, AS A MIXED QUESTION OF LAW AND OF FACT, IN CONCLUDING THAT THE ASSIGNMENTS DRAFTED BY DAVID KINNARD COULD HAVE BEEN PART OF A VALID AGREEMENT, BECAUSE THERE WAS NO MEETING OF THE MINDS. 2. THE DISTRICT COURT ERRED, AS A MATTER OF LAW, IN CONCLUDING THAT DAVID KINNARD PAID VALID CONSIDERATION FOR THE STONES’ PROPERTY. 3. THE DISTRICT COURT ERRED, AS A MATTER OF LAW, IN CONCLUDING THAT MINORITY MEMBERS OR PARTNERS MAY UNINTENTIONALLY WAIVE THEIR RIGHTS 93 UNDER THEIR OPERATING AGREEMENTS AND UNDER THE OKLAHOMA UNIFORM PARTNER- SHIP ACT. 4. THE DISTRICT COURT ERRED, AS A MATTER OF LAW, IN GRANTING AN EQUITABLE REMEDY TO A PARTY THAT IT FOUND TO HAVE COME TO COURT WITH UNCLEAN HANDS. 5. THE DISTRICT COURT ERRED, AS A MATTER OF LAW, IN HOLDING THAT MINORITY PARTNERS DO NOT HAVE A RIGHT TO AN ACCOUNTING. STATEMENT OF THE CASE On March 31, 2006, the Stones sued David Kinnard and Roger Kinnard (hereafter, “the Kinnard Brothers”), who are multi-millionaire investors with interests in Chicago, New York, and Russia, in Bankruptcy Court in Chicago, in Adversary Proceeding 06 A 00897, The Children’s Fund v. Da. vid Kinnard et al. (N. D. Iil.), alleging breach of contract and asking for an accounting. ‘Therein the Stones alleged that the Kinnard Brothers are 2/3 G4 majority partners, and the Stones are 1/3 minority partners, in Oklahoma Investment Group (hereafter “OIG”"), a real-estate partnership which controls about 550 rental units in Norman and Oklahoma City, in which the Stone family invested the life savings of three generations. The Stones alleged that in 2004 the Kinnard Brothers promised a $200,000 loan to the Stones if the Stones would guaranty the loan by assigning to David Kinnard a security interest in the Stone’s shares in_ the properties controlled by the OIG partnership, that the Kinnard Brothers alone drafted the loan docu- ments, that the Stones came to the “closing” with the documents signed at the request of the Kinnard Brothers, that the Kinnard Brothers promised to come with a $200,000 check, and that at the closing the Kinnard Brothers took the signed documents and disbursed only a small part of the loan. Then 95 they declared that the loan documents were “sales.” The Kinnard Brothers then changed the title to the Stones’ property without their written consent. The Stones in their complaint alleged fraud. The Kinnard Brothers answered by denying all of the Stones’ allegations. On January 10, 2007, Case 06 A 00897 was dismissed for want of subject-matter jurisdiction in Chicago because real estate is a “local” matter under 28 U.S.C.S. § 1332, and most of the real estate controlled by OIG is in Oklahoma. On February 28, 2007, the Kinnard Brothers, together with Springfield Apartments, one of the subsidianes of the OIG partnership, and Mark Reinitz, one of the employees of the OIG partnership, filed the underlying case CIV-07-250-R in the United States Distmect Court for the Western District of Oklahoma, asking for a_ declaratory judgment that the Stones have no interest in their 96 property. ( Aplt. App. at 323-334) On April 2, 2007, the Stones Counterclaimed, asking for an accounting and for a Declaratory Judgment determining owner- ship rights over their property. (Aplt.App. at 335- 344) Before trial, on December 4, 2007, the Stones filed a Motion to Compel, alleging that David Kin- nard, the only Managing Partner (ApIt.App. at 462), was not producing many of the partnership docu- ments (which only he controls). (Aplt.App. at 177- 319) On January 30, 2008, the District Court denied the Stones’ motion as to “all appraisals of the Stones’ property, any corporate or partnership authori- zations or resolutions for any notes or mortgages for the Partnership, all general ledgers, all journals of original entry, all check registers and bank statements, all general journal entries’ and adjustments for the Partnership, and all tax returns 97 filed by the Kinnard Brothers.” (Aplt.App. at 345- 353) On February 1, 2008, (four and ’% months before the trial) the Stones filed a timely motion to Amend their Counterclaim, alleging new evidence of large-scale embezzlement by the Kinnard Brothers that came to hght during discovery. (Aplt.App. at 354-371) On February 25, 2008, the District Court denied that motion also. (Aplt.App. at 372-374) Then on April 18, 2008, the Stones for the second time filed a motion to compel discovery: a Motion to Compel Access to Books and Records (Aplt.App. at 375-387), attaching an affidavit from their expert witness saying that he did not have sufficient information to testify adequately at trial and that he belheved that the Defendants were withholding evidence. (Apit. App. at 383-385) On April 24, 2008, the District Court denied that motion also. (Aplt.App. at 388-389) 98 At trial, June 17 through 20, 2008, each side offered into evidence the corporate documents, spreadsheets showing the history of payments from OIG to the Stones (Aplt.App. at 415-416), the Monthly Distribution Agreement between the parties (Aplt. App. at 91), transmission verifications from OIG’s bank (Aplt.App. at 92-93, 135-37, 140, 143-46, 148-51, 155; 157, 170, and 172), contested assignments (Aplt. App. at 131, 142, 147, 153, 161- 62, and 171), and voluminous e-mail and paper correspondence between the parties and among the Kinnard Brothers. Each side in addition presented the testimony of an accountant as an expert witness. Both experts shared information with one another. There was substantial agreement between the expert witnesses on the fact that OIG sent monthly payments to the Stones from 2000 until after the loan documents 39 were signed in April, 2005 (Aplt.App. at 415). However, both experts lacked adequate information to testify as to what payments were made before 2000, because the District Court had denied the Stones’ motions to compel discovery. (Aplt.App. at 345-53, 388-89) Therefore, there was no way they could determine what the total payments were and therefore whether they met OIG’s total obligation under the Monthly Distribution Agreement, much less consideration paid on top of that. On August 25, 2008, the District Court entered final judgment in favor of the Plaintiffs on both counts of the oe and against the - Defendants on all counts of the Counterclaim. Attachment 1. .100 STATEMENT OF THE FACTS A. Origin of the Dispute This case has its origins in a friendship and partnership between Roger Kinnard and Robert L. Stone, beginning when they were university students eaten: about 1975. (Apit.App. at 551, 1216-1218) From 1980 to 2004, they formed several successful joint business ventures and developed a high level of mutual trust. (Aplt.App. at 1217, 1223- 24, and 1387) One of those successful joint business ventures was Oklahoma Investment Group (“OIG”), which they formed in 1989, by both oral and written agreement, to purchase, manage, and sell apartment complexes and office buildings in Norman and Okla- homa City. (Aplt.App. at 1217-1220) OIG was founded as a 50-50 equal general partnership using Roger Kinnard’s contacts and about $50,000 101 provided by Roger Kinnard, together with about $750,000 in funds provided by the Stone family. (ApIt.App. at 1218) The Stones put their hfe savings into OIG. (Aplt. App. at 1285) The apartment complexes included Summer Pointe Apartments, Peppertree Condominiums, Springfield Apartments, Cinnamon Creek Apartments, and Windrock Apartments in Norman (hereafter, “the OIG Pro- perties”), which together include about 550 rental units. Each complex is owned by the OIG partners through a_ separate subsidiary partnership or corporation, each of which has its own partnership agreement or operating agreement. (Summer Pointe, Aplt.App. 17-50; Peppertree, Aplt. App. at 51-68; Springfield, Aplt.App. at 69-89; Cinnamon Creek, Aplt.App. at 102-123; Windrock, Aplt.App. at 124- 129) The two friends worked as managers of OIG and later hired Roger Kinnard’s brother, David 102 Kinnard, as a full-time manager. (ApIt.App. at 1217, 1222) Since OIG began as a startup that could not afford to pay a manager's salary, and because of Stone’s trust of Roger Kinnard, the shares were changed so that David Kinnard was paid with a one- third share of the partnership, giving the Roger Kinnard 1/3 and the Stone family 1/3 of the OIG partnership and its subsidiaries. (Aplt.App. at 1222) In November of 1989, the partners entered into an agreement entitled “Articles of Agreement for the Purchase, Management, and Sale of Real Estate.” (Aplt.App. at 1290) The three general partners share equally in the ownership cf, and distributions from, the various OIG Properties. (Aplit.App. at 1219, ~~ 1218-20) In late 1995, the Stones and the Kinnard Brothers orally agreed to amend their respective duties and obligations in the OIG partnership to 103 allow the Stones to move to the City of Chicago to pursuc the acquisition of Beatrice Associates, another joint venture with the Kinnard Brothers. (Aplt.App. at 1222, 1225-31) The essence of the amended agreement was the Stones, on the one hand, agreed to become non-managing partners, to iiow David Kinnard to become the sole managing and operating partner of the OIG partnership and its subsidiaries (Aplt. App. at 462, 685), and to allow the Kinnard Brothers to purchase Stone’s interest in the Physicians and Surgeons Building, another property controlled and owned by the OIG partners, for a below-market price. (Aplt.App. at 1226-1228) The Kinnard Brothers, on the other hand, agreed, beginning on January 1, 1996, to cause the OIG partnership to pay to the Stones a guarantied monthly distribution, starting at $17,000.00 dollars and increasing by 3% each year thereafter, instead of 104 the prior 1/3 of profits, “for at least five years.” (ApIlt.App. at 554, 1202, 1226-27) On May 16, 1997, David Kinnard restated that agreement in writing (hereafter, the “Monthly Distribution Agreement,” Aplt.App. at 91). (Aplt.App. at 567,619, 670, and 680-81) The Monthly Distribution Agreement provided for renegotiation at five-year intervals upon the agreement of both parties, provided that capital accounts will be maintained as normal, and did not allow the two Kinnard Brothers to refinance any of the OIG Properties without the Stones’ consent nor to diminish the Stones’ 1/3 equity therein. (Aplt.App. at 1161, 1193-95, 1202, 1225-26, 1288, 1303, 1349- 50, 1357, and 1362) The OIG partnership then made monthly payments to the Stones at the rate specified in the Monthly Distribution Agreement most months through April of 2005, though they failed to make 105 the required payments in 1999 and at other times. (Aplt.App. at 1233) In 1996, the Stones moved to Chicago. That same year, David Kinnard moved to Russia, where he spends most of each year on business ventures, managing the OIG partnership by telephone and e- mail with occasional visits to Oklahoma (Aplt.App. at 1225, 1248), while keeping the books and records of the OIG partnership, including the subsidiaries and the related properties, including receipts and disbursements. (Aplt.App. at 966) Since that time, at the request of Roger Kinnard, the Stones have communicated with the OIG partnership almost exclusively through Roger Kinnard. (Aplt.App. at 855-56, 956, 1233-34, and 1334) Also in 1996, the Stones borrowed from the Kinnard_ Brothers individually $305,000 for use in the joint venture in Chicago, (Aplt.App. at 633-34, 1115) In 1998, the 106 Stones repaid that loan in full to the Kinnard Brothers individually, plus interest, for a total of $366,956.32. (Aplt.App. at 633-34, 1115) In 1999, the Kinnard Brothers caused the OIG partnership to fall behind in its’ monthly distributions to Stone by approximately $200,000. (Apit.App. at 638). As a result, Stone demanded both an accounting and that the OIG partnership pay him the arrears. (Aplt.App. at 1201-02) Although the Kinnard Brothers resumed payments in 2000, this OIG arrearage persisted and has not been resolved. By December 31, 2002, the OIG partnership was still making payments under the Monthly Distribution Agreemeni but had fallen behind in the amount of $408,684. (Aplt.App. at 415) In spite of repeated requests by the Stones to Roger Kinnard, the Kinnard Brothers did not provide even a partial 107 accounting until compelled to do so during the discovery phase of the underlying case. (Aplt.App. at 1237) Roger Kinnard always told the Stones that David Kinnard was too busy in Russia and Mark Reinitz (an employee of OIG) was not able to do accounting, but they were sien on it. (Aplt.App. at 1237). To date they still have provided no accounting of the time period before the year 2000 (Aplt.App. at 1066, 1133, and 1165) which represents ap-proximatecly 2/3 of the period of the OIG partnership and includes much of the amount in ar- rears under the Monthly Distribution Agreement. (Aplt.App. at 91, 415). Around the beginning of 2003, Robert Stone requested of Roger Kinnard that the OIG partnership come current in its arrearage, but Roger Kinnard told Stone that OIG could not yet do so. (ApIit. App. at 1240) In fact, the OIG partnership at 108 that time had ample resources to pay its arrearage. David Kinnard testified at trial that the two Kinnard Brothers had borrowed approximately $2 million dollars from Springfield. (Aplt.App. at 967, 977, 986, and 1240) Because the Kinnard Brothers refused to cause the OIG partnership to come current on its payments, the Stones, in February of 2003, sought to borrow $100,000 from David Kinnard individually for another business venture and to secure that loan on the Stones equity share in the OIG Properties. (ApIt.App. at 1239) David Kinnard agreed to the loan and required that the Stones guaranty the loan by transferring to David Kinnard a security interest in Cinnamon Creek, one of the properties owned jointly by the three partners. (Aplt.App. at 131) David Kinnard, through Roger Kinnard, promised that, if the Stones signed, the Kinnard Brothers 109 would provide another document stating the terms of the loan, including the interest rate and the term of repayment, and would make the loan. (ApIt.App. at 1242-44, 1366) On March 27, 2003, the Stones assigned to David Kinnard a security interest in Cinnamon Creek. (Aplt.App. at 1119, 1241-42) In return, the Kinnard Brothers never provided the second document stating the terms, but on March 28, 2003, they did provide the $100,000 loan as consideration, and the Stones repaid the loan with $30,000 interest (Aplt.App. at 623, 1244) on Septem- ber 26, 2003. (Aplt.App. at 622, 1119, and 1339) Documentation was casual and “seat of the pants.” (Aplt.App. at 1030) This was a constant problem and frustration for the Stones dealing with the Kinnard Brothers. The Stones requested better paperwork, but the Kinnard Brothers controlled the OIG partnership's income, accounts, and paperwork and L10O refused to provide the requested paperwork. (ApIlt. App. at 1277-79, 1284, 13038, 1359, and 1367-68) Because the 2003 loan was a loan and not a sale (Apit.App. at 1211) plus re-conveyance, there was no re-conveyance. (Ap]t.App. at 623) During the discovery phase of the case at bar, Defendants learned for the first time that the $100,000 for the 2003 loan to the Stones came not from David Kinnard but from the Springfield subsidiary (Aplt.App. at 532-538, 856, 1084, 1108, 1112, 1114, 1119, 1239, and 1244), which, contrary to what Roger Kinnard told the Stones at the time, actually had aé_=surplus. (Koger Kuinnard had. “borrowed” $1.8 million from OI1G/Springfield. Aplt.App. at 1079, 1391) Springfield 1s owned 1/3 by the Stones. (ApIt.App. at 89, 601) So David Kinnard took for himself the $30,000 interest on the loan to the Stones for doing nothing more than Jending the iS Stones money that was 1/3 theirs already and that was already owed to them. And, by his own admissions, he did so without the consent of 15% of the partners in Springfield as required by the Springfield Operating Agreement. (Aplt.App. at 75, 485-86, 725-26, and 976) B. The Dispute As of January 1, 2004, the Kinnard Brothers had caused OIG to fall into arrears and become indebted to the Stones, pursuant to the Monthly Distribution Agreement, in the amount of $468,320.00. (ApIt.App. at 415) In February of 2004, the Stones, instead of suing a friend, sought to: borrow $200,000 from David Kinnard indivalaalis to make up some of the deficit and to expand the new business venture in Chicago. (Aplt.App. at 1193, 1365) In return for the Stones’ refraining from suing, David Kinnard, through Roger Kinnard, agreed to Lie the loan, and to come current on the monthly distributions--- if the Stones again would guaranty the loan with assignments of the Stones’ shares in the OIG Properties, using the same _loan- securitization document which the Kinnard Brothers had used for the 2003 loan (ApIit.App. at 1247-48, 1261) The form was provided by the QIG’s eae, outside counsel, Phillips McFall McCaffrey McVay & Murrah P.C., to their clients for use with loans with interest rates in excess of that permitted by the Oklahoma Usury Statute. (Aplt. App. at 597, 623, 1284, and 1302) The Stones agreed. On March 1, 2004, the Kinnard Brothers sent the first of the new assignments for the Stones’ shares in Cinnamon Creek (the same property used for the 2003 loan). (Aplt.App. at 131, 142) On March 3, 2004, the Stones executed this guaranty and sent fe it back to the Kinnard Brothers. As in 2003, the Kinnard Brothers said that they would send the terms of the loan (including interest, repayment schedule, and provisions in case of default) later, and that was not a problem because everything was understood among friends. (Aplt.App. at 1240-41) On March 5, 2004, the Kinnard Brothers sent a $45,000 advance on the promised $200,000 loan. (Tr. Aplt.App. at 1248, 1257-59, and 1266) The Kinnard Brothers then said that they would pay out the balance of the promised loan and reduce the amount they were in arrears under the Monthly Distribution Agreement, and provide the documents with the missing terms---as soon as they were able to do so and after the Stones signed the remaining four assignments. (ApIit.App. at 1274, 1284) The Stones signed the remaining assignments promptly as they were prepared and sent to the them by the Kinnard 114 Brothers, from June 10, 2004, through April 8, 2005. Meanwhile, the OIG partnership was making the monthly payments under the Monthly Distribution Agreement and even reducing its arrearage, to $274,000 by March of 2004, by paying slightly more each month than was due under the Monthly Distri- bution Agreement. (Aplt.App. at 415) Finally, on March 1, 2005, David Kinnard sent to Robert Stone the last and most important of his assignment documents (including Springfield; the largest of the OIG Properties) for him to sign, with the following cover letter: From: David Kinnard To: Robert Stone Date: March 1, 2005 “Rob, Just talked to mark and ted. we’ll send you 20K today if you sign the 4 docs they mentioned to me. we'll send the remaining next week pending review of guaranties etc in the loan docs by lovelace. Dave.” [sic] [emphasis added] (ApIt.App. at 159) 115 Robert Stone signed and returned all of his remaining “guaranties” and “loan docs” the same day, but the Kinnard Brothers still did not send the loan proceeds. On March 10, 2005, Roger Kinnard told the Stones that David Kinnard would fund the loan if Robert Stone would sign the “Promissory Note” (Aplt.App. at 163-64) to Bernice Kinnard, the Kinnard Brothers’ mother (hereafter “Mrs. Kin- nard”), which provided that Robert Stone would arbitrate an alleged debt to Mrs. Kinnard and then pay the amount determined by the arbitrators. On March 11, 2005, Robert Stone signed and returned the proposed Note. The Kinnard Brothers still did not make the promised loan. (ApIt.App. at 415,1207, 1262, and 1288) On or about March 15, Roger Kinnard told the Stones that Mrs. Kinnard had rejected the proposed Note and had demanded immediate payment instead, which the Stones 116 refused (Aplt.App. at 164, 460), because they believed that they owed nothing to Mrs. Kinnard and that this would come out in arbitration. On or about March 16, 2005, Roger Kinnard sent to the Stones another proposed Note (“the Beatrice Note,” Aplt.App. at 168-69), this one in favor of Roger Kinnard and David Kinnard, agreeing to arbitrate a dispute about Beatrice Associates, another ieleuiauiins between the Stones and the Kinnard Brothers in Chicago, and to pay the amount decided by the arbitrator. Again, Robert Stone signed and returned the proposed Beatrice Note the same day. On or about March 30, Roger Kinnard informed the Stones that David Kinnard had refused to sign the “Beatrice Note,” at demanding immediate payment instead, which the Stones again refused. (Aplt.App. at 169, 460) On April 11, 2005, Roger Kinnard caused the OIG partnership to send the 117 Stones $35,000 of the promised $200,000 loan. (Aplt.App. at 170) The Kinnard Brothers sent no more payments. The Kinnard Brothers never provided most of the promised $200,000 loan (Aplt.App. at 415, 1207, 1262, and 1288) and never came current in the monthly distribution payments due under the Mon- thly Distribution Agreement. Instead, on April 11, 2005, the Kinnard Brothers claimed that the “guaranties” and “loan docs” that they had induced the Stones to sign were actually “sales.” (Aplt.App. at 1288) They then cut off permanently the monthly distributions to the Stones from the OIG partnership, unilaterally changed the title of all of the OIG properties to remove the Stones’ name without the Stones’ consent, and gave the Stones’ 1/3 share of the OIG partnership and the OIG properties to David Kinnard. (Aplt.App. at 1197, 1280) The 118 Stones then in a timely manner protested strongly to Roger Kinnard and demanded reinstatement of their stolen shares. (See, for example, Letter from Cynthia A. Stone to Roger Kinnard, ApIlt.App. at 173-176.) Throughout this time period, there were numerous communications to the Stones from Roger Kinnard and his employees discussing the loan and agreeing that it was a loan. (Aplt.App. at 658-59, 665-66, 671-72, 679, 701, 1193-94, 1242-47, 1255, 1257-58, 1262-1266, 1273, 1280-84, 1286, and 1321) Roger Kinnard agreed that amounts paid by OIG to the Stones that year were to be considered distri- butions if OIG turned out to be in arrears after the promised accounting ine provided, and loans if the promised accounting showed that OIG was not in arrears. (Ap]t.App. at 166) They never provided an accounting. There was never any discussion by Roger Kinnard or David Kinnard with the Stones of i193 a sale until after the last of the loan documénts was signed and the trap was sprung. (Aplt. App. at 1211, 1285) C. Testimony at Trial At trial, David Kinnard testified that he had paid $1,500,000, in cash and forgiveness of debts, over a period of 4 years, from May 17, 2001, through April 11, 2005, (Aplt.App. at 472) to the Stones to purchase their shares, and that the Stones had sold their shares to him by signing the six assignments, although he did not deny the authenticity of his e- mail cover letter at the time describing them as “guaranties’ and “loan docs.” (Aplt.App. at 159) David Kinnard testified further that he had never spoken with the Stones directly about the purchase of their shares but had negotiated the entire transaction exclusively through his employees, Mark Reinitz and Ted Teske. (Aplt.App. at 494) One of the 120 employees admitted under cross examination that the employees worked together to deccive the Stones on Apri! 8, 2005, while negotiating the assignments. (ApIlt.App. at 759-762) The employees testified that the Stones had signed the assignments; that the assignments do not contain a price term; that the price term was filled in later by David Kinnard because the Stones’ agree- ment to sell their shares was oral; and that there is no written record of it; and that they told the Stones the assignments were for sales. Furthermore, the employees testified that they had caused the OIG partnership to send regular monthly payments to the Stones from 1996 to 2005; and one employee actually testified that David Kinnard, after the assignments were signed, retroactively “reclassified” payments in the OIG books to appear as purchase payments. (Aplt.App. at 777) L2] Mr. and Mrs. Stone, on the other hand, testified that they had made no agreement to sell; that their shares were never for sale; that the promised loan was negotiated exclusively between the Stones and their friend, Roger Kinnard, who had asked the Stones to deal with him alone (Aplt.App. at 667, 1235-36, 1246, and 1316); that Roger Kinnard had induced the Stones to sign the assignments that were sent to them by David Kinnard by telling them that they were “guaranties” and “loan docs” for the promised $200,000 loan (Aplt.App. at 1239) that was never fully funded (ApIit.App. at 141); that David Kinnard had confirmed in writing in his e-mail “cover letter” for the assignments that they were “guaranties” and “loan docs” ( Aplt.App. at 159); that the monthly payments mentioned by the employees as payments for sales were for something entirely different 122 (distributions of the Stones’ share of profit from OIG under the Monthly Distribution Agreement, Aplt.App. at 91); that David Kinnard, the only beneficiary of the assignments, had paid nothing to any of the Stones for anything; and that, from 2001 through 2005, the Stones had been paid nothing more than the monthly distributions of profit that they were due anyway under the OIG partnership agreement, under the organizational documents of the subsidiaries, and under the Monthly Distribution Agreement, and in fact had been paid less. (Aplt.App. at 91) The Stones admitted that the employees on two occasions (out of dozens in which they used the word “loan”’) had used the word “sale” in e-mail messages to the Stones. When they did that, Robert Stone immediately called Roger Kinnard and questioned him. Roger Kinnard told Robert Stone that those employees were “crazy” and pio} h 123 did not know what they were talking about, so please ignore them. (Aplt.App. at 1235-386) The Stones did so, as they negotiated the loan solely with Roger, with his employees acting as his secretaries. Throughout, the Stones testified that the only transaction they negotiated was the proposed loan and that they negotiated it exclusively through Roger Kinnard, David's older brother and their friend of 30 years. (ApIt.App. at 494, 1248, and 1348) The Stones never agreed to a sale of any kind. In rebuttal, Roger Kinnard refrained entirely from testifying---although he was present in the courtroom throughout the trial. SUMMARY OF THE ARGUMENT 1. The District Court erred in holding that Assignments were part of valid agreements because there was no meeting of the minds. The parties did not even agree as to the nature of the transaction; 124 the Stones believed the assignments were securi- tization of loans while David Kinnard testified that he believed they were an outright conveyance pursuant to a sale. Even if the parties had agreed to the “same thing,” a loan or a sale, there still was no meeting of the minds as to the remainder of the essential terms. The party secking to enforce a contract has the burden of showing a meeting of the minds as to all essential terms of the contract. Assuming arguendo, the assignments were part of a sale, there still must be a price term; but there was not. Without an agreement of the parties as to the essential nature of the transaction and the essential terms thereto, any potential agreement fails. 2. The District Court erred in holding that David Kinnard paid valid consideration for the assignments. David Kinnard claims as consideration both the forgiveness of two notes and funds borrowed ee from Springfield. Neither note may serve as consideration for the assignments. One note 1s a debt to a third-party (that was rejected by that third party), and the other is a debt to David and Roger Kinnard jointly (that was not accepted by them). David Kinnard cannot forgive debts which are not owed to him. Moreover, adequate consideration requires the receipt of a present benefit, but the notes were not even drafted until after the “loan docs” were executed. Additionally, at the time of the assignments, the notes’ values were uncertain as they were to be ascertained months later through arbitration and therefore could not serve as conbidiovation. Additionally, the cash payments purportedly made to the Stones also cannot serve as consideration because David Kinnard testified that he acquired the funds by taking a loan from the 126 Springfield subsidiary in violation of its Operating Agreement. To obtain a loan from Springfield he would have needed unanimous written consent from the other members (including Robert Stone), which he admits he did not have. As a matter of law; actions taken by an LLC member in contravention of the LLC Operating Agreement are null, void and of no effect, and all subsequent transactions must be unwound. 3. The District Court erred in concluding that the Stones waived their rights under Springfield's Operating Agreement and under the Oklahoma Uniform Partnership Act when they purportedly failed to object to David Kinnard’s making a personal loan to himself in violation of an express provision of that Operating Agreement. The District Court held that the Stones previously in 1998 failed to object when David Kinnard similarly violated 127 Springfield’s Operating Agreement. Aside from the fact that Mr. Stone didn’t know about David Kinnard’s violations, any purported failure to object is irrelevant, because under the Springfield’s ‘Cdernting Agreement, “[nJo failure by any party to insist upon the strict performance of any covenant, duty, agreement or condition of this Agreement or to exercise any right or remedy consequent upon a breach thereof shall constitute waiver of any such breach or any other covenant, duty, agreement or condition.” See Section 13.4 of Springfield’s Opera- ting Agreement. (Ap]t.App. at 88). Likewise, the Oklahoma Uniform Partnership Act imposes a fiduciary duty on all partners, and this duty may not be waived under’ any circumstance. This duty includes: (1) the right to an accounting, including “full and frank” disclosure, (2) the right to be treated as the beneficiary of a 128 fiduciary trust, with the managing partner as the trustee, (3) the right, in case of a dispute between a managing partner and a non-managing partner, to enjoy the advantage that the managing partner has the burden of proof. 4. The District Court erred in granting an equitable remedy to a party whom it has found to have come to court with unclean hands. David Kinnard refused to provide an accounting, took secret “loans” to himself and his brother, defrauded his non-managing partners, violated his fiduciary obligations, and failed to show that he acted reasonably. In the face of these violations, David Kinnard came to a court of equity with unclean hands, asking that it give him the spoils of his misconduct by way of a declaratory judgment. The District Court erred in doing so. 129 5. Under the Uniform Partnership Act, and under the operating agreements, all (especially non- managing) partners and members’ have. an unqualified right to an accounting at any time; the District Court erred in denying the Stones’ request for an independent accounting, which would have further illuminated the extent of David Kinnard’s misconduct. 130 ARGUMENTS AND AUTHORITIES 1. THE DISTRICT COURT ERRED, AS A MIXED QUESTION OF LAW AND OF FACT, IN CONCLUDING THAT THE ASSIGNMENTS DRAFTED BY DAVID KINNARD COULD HAVE BEEN PART OF A VALID AGREEMENT, BECAUSE THERE WAS NO MEETING OF THE MINDS. A. The Standard of Review is “clearly erroneous.” A district court’s conclusions of law are re- viewed by a court of appeals “de novo.” In “de novo’ review, “no form of appellate deference is acceptable.” Beaver v. Clingman, 363 F.3d 1048, 1053 (10th Cir. 2004). On the other hand, “Findings of fact . . . must not be set aside unless clearly erroneous, and the reviewing court must give due regard to the trial court’s opportunity to judge the witnesses’ credibility.” Fed.R.Civ. P. 52(a)(6). Mixed questions of law and fact may be reviewed under either the “de novo” or the “clearly erroneous” 131 standard. The choice between these two standards will be determined by “whether the mixed question involves primarily a factual inquiry of the consideration of legal principles.” Naimie v. Cytozyme Laboratories, Inc., 174 F.3d 1104 (10thCir.’ 1999) (existence of contract). As a matter of law, there must be a meeting of the minds for there to be a contract of any kind. O'Neal v. Harper, 75 P.2d 879, 882 (Okla. 1937). But whether there was a meeting of minds is a question of fact. Since this inquiry is primarily factual, the standard of review is “clearly erroneous.” B. The Assignments Cannot be Part of Valid Agree- ments of Any Kind because there Could have been No Meeting of the Minds. The Plaintiffs argued that the bare fact that the assignments contain the words “assignment” and 132 “sale” and were signed means that the Kinnards and the Stones had a “meeting of the minds” and that a “sale” was consummated. But this is far from the truth. There was no meeting of minds. The parties did not even agree as to the essential nature of the transaction. “In order to have a valid contract there must be mutual consent, or a meeting of the minds . .., [t]he consent of the parties must be mutual, and consent is not mutual unless the parties all agree upon the same thing in the same [sense]. Because the parties did not agree upon the same thing in the same sense, there was no mutual consent, and thus no contract.” Beck v. Reynolds, 903 P.2d 317, 319 (Okla. 1995). (Internal citations omitted). See also, 15 Okl. St. § 66 (“Consent is not mutual unless the parties all agree upon the same thing in the same sense’). £32 The “sale” was a complete shock to the Stones, perpetrated by fraud on the part of the Kinnards. When the Kinnard Brothers announced a unilateral “sale,” the Stones in a timely manner protested strongly to Roger Kinnard and demanded rein- statement of their shares. (For example, see Letter from Cynthia A. Stone to Roger Kinnard, Aplt.App. at 173-76.) Only at the trial, three years after the taking, did the Stones learn how much David Kinnard claimed he supposedly had paid them for their shares. At his deposition before the trial, he himself had no idea how much he supposedly had paid. During the trial, David Kinnard produced, for the first time, the number $1,500,000. However to this day it is not at all clear how that number was calculated. What is the contemporary evidence that the Stones were surprised”? First, both Roger Kinnard 134 (Aplt.App. at 658, 667, and 701) and then David Kinnard (Aplt.App. at 159) said, dozens of times, both orally and in writing, that the assignments were the first half of loan-guaranty documents, and that the second halves would follow soon. (Aplt.App. at159, 1366-68) Neither Roger Kinnard nor David Kannard ever referred to “sale’ documents in any correspondence with the Stones---until after the assignments were signed and the trap was sprung. The following message is from David Kinnard himself, the Managing Partner (Aplt.App. at 162 and so-called “purchaser” of the assignments, in his “cover letter” to the most important assignments. (Note: the “20K” refers to monthly distributions which OIG was making during and after the signing process.) From: David Kinnard To: Robert Stone Date: March 1, 2005 135 “Rob, Just talked to mark and ted. we'll send you 20K today if you sign the 4 docs they mentioned to me. we'll send the remaining next week pending review of guaranties etc in the loan docs by lovelace. Dave.” [sic] (Aplt.App. at 159) (emphasis added) The Kinnard Brothers do not deny that they never produced the “remaining” second halves. Then, here is Roger Kinnard, the one who negotiated the fraud with the Stones: Date: September 14, 2004 From: Roger Kinnard To: Mark Reinitz, Robert Stone, and David Kinnard “Mark, Rob would like a loan. Dave has agreed to lend Rob $21,000 and this needs to be sent tout suite.” (emphasis added) (ApIt.App. at 154, 702-03) Date: July 14, 2004 From: Roger Kinnard To: David Kinnard, Mark Reinitz, Ted Teske “Now, if the $45,000 that was borrowed four months ago is secured by SP, then I recommend that we allow Rob to buy back SP and do a new agreement for the 45,000 plus interest and that be added to the 5,000 plus interest on the 35,000 — 8.9 and rolled 136 into a new loan.” (emphasis added) (ApIt.App. at 664-66) In fact, contemporary communications between Roger Kinnard and his employees shows in writing that Roger Kinnard was attempting to deceive the Stones: Date: April 16, 2003 From: Mark Reinitz To: Roger and Dave Kinnard “By calling it a loan in our email to Rob, you have given Rob a weapon to use against us in at least 2 ways: (1) ifa loan, we would have to return the CC “security” to Rob upon his payment of your ... specified amount, so that the Lovelace partnership transfer agreement would be voided, another bad [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386017_1171%3A2. Public record. Not legal advice.