CONSIDERED ON BRIEFS ON MAY 28, 2019
FROM THE CIRCUIT COURT OF THE FOURTH JUDICIAL CIRCUIT
LAWRENCE COUNTY, SOUTH DAKOTA THE HONORABLE MICHELLE K. COMER
MICHAEL W. STRAIN of Strain Morman Law Firm Sturgis, South
Dakota Attorneys for plaintiffs and appellees.
A. WILDE Spearfish, South Dakota Attorney for defendants and
Two members of a limited liability company known as Dragpipe
Saloon, LLC (Dragpipe) requested judicial dissolution
ancillary to their efforts to sell their membership
interests. Following a court trial, the circuit court ordered
dissolution and the sale of Dragpipe's assets. The
remaining members appeal, arguing the circuit court erred
when it concluded that it was not reasonably practicable for
Dragpipe to continue under the provisions of its operating
agreement and that Dragpipe's economic purpose was
unreasonably frustrated. We reverse.
Raymond Meyers, Penney Weast, Troy Dysart, and Richard
Heinrich formed Dragpipe in 2003. Each member contributed
$10, 000 and received a 25% membership interest and voting
rights. Dragpipe's operating agreement states that its
is to engage in all lawful activities, including, but not
limited to, owning, purchasing, taking, leasing, or otherwise
holding or acquiring real property and any interest or right
in real property and any improvements thereon, and to hold,
own, operate, control, maintain, manage and develop such
property and interests in any manner that may be necessary,
useful or advantageous . . . [to the] company.
The operating agreement also provides that Dragpipe may be
dissolved and its affairs wound up with the unanimous vote of
the members or by a decree of judicial dissolution pursuant
to South Dakota's enactment of the Uniform Limited
Liability Company Act. See SDCL ch. 47-34A.
Individual members may also voluntarily resign their
membership under the provisions of the operating agreement
and obtain the "fair market value of [the member's]
Ownership Interest, adjusted for profits and losses to the
date of resignation." In the event of a resignation, the
fair market value would be determined by a unanimous vote of
the members or, failing that, by an independent appraiser.
The members purchased 74 acres of land off Highway 79
northeast of Sturgis for approximately $135, 000 and built a
bar that is open only during the Sturgis Motorcycle Rally
(Rally), which runs for approximately ten days every year in
August. Of the 74 acres purchased, 18 acres were used to
operate the bar, and the remaining land was leased to a
farmer. Dragpipe obtained a malt beverage license and opened
for business during the 2004 Rally, selling beer, soft
drinks, water, and t-shirts. The company also hosted food
vendors and provided live entertainment.
In January 2005, Penney Weast sold her membership interest to
Patrick Kerwin. Dragpipe later expanded by opening a
campground on the property in 2009. Camping was free until
2013, when the company began to charge camping fees in an
effort to improve revenue. Dragpipe had its first profitable
year in 2015 and posted modest profits in 2016 and 2017.
Each member has invested approximately $80, 000 in the
company. The members also provide labor during the Rally
without compensation-typically working over 12 hours each
day. The members have not received income distributions.
However, Dragpipe's net income from 2015 to 2017 did
allow it to pay the mortgage expense previously contributed
pro rata by the members. The profits also allowed Dragpipe to
reimburse the members for their out-of-pocket expenses.
Following the 2015 Rally, Dysart and Heinrich (Appellees)
advised Kerwin and Meyers (Appellants) that they wanted to
sell their membership interests in Dragpipe. The Appellants
expressed no objection, and the Appellees initially appeared
to have found buyers for their combined one-half interest.
However, one of the prospective buyers rescinded his offer,
leaving the remaining purchaser to purchase one-quarter