Facts

In 1998, plaintiffs Paul Hutchinson and Jack Lair agreed to start a wine storage warehouse with defendants Jack Krystal and Russell Lugli. The four formed a limited liability company (later determined to be a partnership and not a limited liability company during the lawsuit). In July 2000, the partners were able to obtain the lease of a 185,000 square foot warehouse building but were unable to secure bank financing or outside investors to finance the venture, which was estimated to require $3 million in capital financing. Each partner made an original capital contribution of $80,000 into the venture, but could not agree on the terms of an operating agreement for the limited liability company. The disagreement among the partners regarding the operating agreement centered around whether the manager of the company could raise financing through capital calls and whether the manager should receive 10% of the net profits of the business as compensation.

By the end of 2001, Lugli and Krystal had each contributed an additional $155,000 to the business. The business, however, was unable to secure necessary alcohol beverage control licenses because Hutchinson already owned the same type of license in connection with his grocery store business. Hutchinson refused to relinquish his other license. In addition, Hutchinson and Lair refused to contribute any additional capital to the enterprise, unless Krystal and Lugli agreed to Hutchinson and Lair's terms for an operating agreement, which would preclude capital call or compensation to the manager. The parties were unable to start business operations. Rent for the warehouse building began in January 2001.

In May 2001, Hutchinson and Lair made an offer to purchase the venture from Krystal and Lugli, but either did not have the funds to complete the purchase or were not able to find other investors to supply the purchase price. In Aug. 2001, Lair assigned his interest to Hutchinson.

In September 2001, Krystal and Lugli offered to by out Hutchinson (who by that time also owned Lair's interest), but the parties were unable to agree on the terms of the buyout. Krystal and Lugli, who had more capital invested in the business, voted to dissolve the business and to make arrangements to resolve the ownership claims of all former partners.

In October 2001, Krystal and Lugli formed a new wine storage enterprise, and were able to open the wine storage facility in early 2002. Krystal and Lugli were not able to reach a resolution with Hutchinson regarding Hutchinson's ownership in the former enterprise.

Hutchinson and Lair filed suit for fraud and breach of fiduciary duty.

PLAINTIFFS' CONTENTIONS:
Hutchinson and Lair contended that Krystal and Lugli fraudulently dissolved the former business enterprise in order to start their own competing business in 2002.

DEFENDANTS' CONTENTIONS:
Krystal and Lugli asserted that Hutchinson and Lair's failure to contribute necessary capital, along with Hutchinson's refusal to relinquish his liquor license so that the wine storage facility could be licensed, made it impossible for the former enterprise to continue. Krystal and Lugli acknowledged that Hutchinson and Lair's interest in the former enterprise should be accounted for.

Settlement Discussions

Before trial, Hutchinson and Lair made a settlement demand in the amount of $7.5 million.

Damages

Hutchinson and Lair claimed at trial that they suffered damages and asked the jury for an award in the approximate amount of $9,000,000.

Result

The jury found in favor of the plaintiffs in the amount of $432,400. Hutchinson and Lair's post-trial motion on the question of accounting is pending before the court.