Iberia Surgical [LLC]

was formed, in August 1998, by a group of physicians practicing in Iberia Parish [Louisiana] for the purpose of establishing an ambulatory, outpatient surgery center. * * *

Dr. [Tynes] Mixon was one of the original organizers and became the managing partner.

In June 1999, Iberia Surgical, in a joint ownership venture with Iberia Medical Center, formed New Iberia Surgery Center, L.L.C., an outpatient surgical facility.

Not long after the formation of Iberia Surgical, Dr. Mixon became dissatisfi ed with the operation of the new facility and management practices of his fellow physicians. * * *

After months of discord, * * * on August 28, 2002, Dr. Mixon was terminated from Iberia Surgical by unanimous vote of the membership.

Pursuant to the Buy-Out provisions of the Operating Agreement, Dr.

Mixon was paid $71,356.85 * * * .

[Mixon fi led a suit against Iberia Surgical in a Louisiana state court, presenting evidence that the fair market value of his interest in the business was $483,100. The trial court issued a summary judgment in the defendant’s favor. Mixon appealed to a state intermediate appellate court.]

* * * *

* * * Article 3.2(g) of the Operating Agreement provides:

Termination Without Cause.

A Member may be Terminated Without Cause, by unanimous vote in writing of the remaining Members of the Company.

* * * Dr. Mixon asserts the exercise of this contractual right by Iberia Surgical to terminate his membership was an abuse of right and violates moral rules, good faith, and elementary fairness. He also contends there was an absence of a serious or legitimate motive for the exercise of the right and, therefore, he concludes it was done to cause harm.

* * * *

* * * The members of Iberia Surgical, including Dr. Mixon, negotiated a business agreement the purpose of which was to establish a profi table outpatient surgery center.

There is ample evidence in the record, including Dr. Mixon’s own testimony, to establish he objected to the way the facility was being managed * * * . His views were not well received and represented the minority opinion within the organization. * * * A decision was made to buy-out Dr. Mixon’s interest and sever fi nancial ties with him.

The Operating Agreement, which Dr.

Mixon negotiated and signed, gave Iberia Surgical the right to terminate one of its members without cause.

Dr. Mixon has provided no evidence to suggest the termination was done to cause him harm or for any other reason than a legitimate business reason. The provisions of the Operating Agreement are straightforward

* * * . There is no evidence to suggest the terms of the Operating Agreement violate moral rules, good faith, or elementary fairness.

* * * *

Dr. Mixon contends he was not adequately compensated for his interest in Iberia Surgical. The

* * * Operating Agreement * * *

provides:

* * * *

(c) Purchase Price and Terms.

The Purchase Price of a Former Member’s Interest * * * shall be determined as follows:

* * * *

(ii) The “Book Value” means the “fair market value” of a Membership Interest computed in accordance with generally accepted accounting principles, of the net equity of the Company as of the end of the last full taxable year immediately preceding the year in which the Event giving rise to the purchase and sale of the Membership Rights or Interest occurred. not synonymous with “Fair Market Value.” He contends the Operating Agreement requires his membership share should be computed according to the “Fair Market Value,” which he defi nes as the price a seller is willing to accept and a buyer is willing to pay on the open market.

We agree the terms “Book Value”

and “Fair Market Value” are not synonymous and have generally recognized meanings in accounting in valuation. * * * Under the terms of the Operating Agreement, the parties agreed to use the “book value” in determining the value of a member’s interest, not fair market value. The book value of a business has a well-defi ned meaning, is unambiguous, and is susceptible of only one construction. It is the value as shown by the books of the business, and no other value. Book value is calculated by measuring the assets of the business against its liabilities. Goodwill, actual value or value in the open market, is not considered in determining book value. [Emphasis added.]

* * * *

Based on the foregoing review of the record, we affirm the decision of the trial court granting summary judgment in favor of Iberia Surgical

Questions:-

1. What might Mixon and the other members of Iberia Surgical have done to avoid the litigation and its ultimate result in this case?

2. Does the outcome in this case illustrate the advantages or the disadvantages of the LLC form of business organization? Explain.