Appeals court hears dispute over whether Michael Fish holds preferred membership units in FRR Harmon LLC

An appellate panel heard oral argument in Michael Fish v. FRR Harmon LLC over whether Fish holds preferred membership units under the company's operating agreement and whether his claim is time-barred.

Appellant counsel Peter Talovich told the court that Fish at minimum owns a preferred economic interest and, in his view, owned preferred membership units that the trial court should have recognized. "This court should reverse," Talovich said, arguing Article 7 of the operating agreement allows a person to acquire preferred membership units without being a full member and that the company's records reflect issuance of approximately 1,200,000 preferred membership units to founder Fred Roberson. Talovich said preferred units entitle holders to a preferred allocation of profits and eventual repayment at $1 per unit and that the lack of distributions does not erase ownership.

Respondent counsel Aaron Orhan told the panel the trial court properly granted summary judgment. "The trial court properly dismissed on summary judgment because [Fish] is not a member and not entitled to being a preferred member of the company," Orhan said, arguing that gaps in the accounting, the failure to amend Schedule 1 as required by the operating agreement, and evidence that the company treated the preferred program as defunct support dismissal. Orhan also argued Fish's claim is barred by a six-year statute of limitations and by laches, given what he characterized as long, unexplained delay and reliance interests by other members.

Judges focused questions on three central issues: (1) how to interpret the operating agreement's provisions governing preferred units and transfers (including Article 7 and provisions discussed in Sections 13 and 16.12), (2) whether company recordkeeping and later amendments (including a 2019 amendment to Schedule 1 used to secure a bank loan) show the preferred program was never funded or was abandoned, and (3) whether Fish had inquiry notice (with questions about communications in 2006 and 2013) such that the statute of limitations or laches should bar his claim.

Talovich said the preferred units were issued on 08/08/1997 and that the operating agreement's definitions and Article 7 permit at least an economic interest separate from full membership. He acknowledged discovery produced many of the documents but argued a judgment recognizing future inspection rights and the ownership interest is appropriate. Orhan countered that the operating agreement must be read as a whole and that other sections restrict alienation and favor transfers only to specified persons (for example, lineal descendants), undermining Talovich's proposed interpretation.

Both sides also disputed the practical recordkeeping: counsel discussed a stock certificate marked with a "canceled" notation, Schedule 1 entries (or lack thereof), and accounting entries that, Orhan said, show the program was treated as defunct as early as the 2000s. Talovich replied that a notation or imperfect bookkeeping does not negate the issued units or prevent an owner's rights from surviving, drawing an analogy to ownership of publicly traded shares where failure to obtain past dividends does not erase stock ownership.

The appellant closed by urging reversal or, at minimum, remand for further proceedings; the respondent urged affirmance. The court concluded oral argument and said it would decide the case on the briefs.

The panel did not issue a decision from the bench; the outcome will be set out in the court's written disposition.