Hubert “Bud” Kott v. Brian T. Miller and MK Developers L.C.

Summary

The Texas Court of Appeals, Third District, affirmed a trial court judgment declaring void a $350,000 promissory note executed by Hubert Kott in favor of MK Developers L.C. The court held that Kott lacked authority to unilaterally execute the note, that the note was not ratified, and that Kott failed to prove the self-dealing transaction was fair to the company under Texas Business Organizations Code section 101.255. The opinion addresses fiduciary duties, ratification, and the validity of transactions between a limited liability company and its member.

Holdings

1. Kott lacked authority to unilaterally execute the note because MK Developers’ specific regulation governing member advances required the members’ consent, and the evidence showed that Kott had neither Miller’s authority nor consent to sign Miller’s name.
2. Kott failed to establish ratification because Miller did not know all material facts of the transaction, including the note’s material terms, until after he sued to prevent enforcement.
3. Kott failed to prove that the $350,000 self-dealing promissory note was fair to MK Developers; therefore, the section 101.255(b)(2) safe harbor did not apply and the trial court properly declared the note void.

Questions Presented

1. Whether Kott had authority under MK Developers’ regulations to unilaterally execute a promissory note advancing funds to the company and sign Miller’s name without Miller’s consent.
2. Whether Miller or MK Developers ratified the $350,000 promissory note under the safe-harbor provisions of Texas Business Organizations Code section 101.255(b)(1).
3. Whether Kott established that the self-dealing transaction was fair to MK Developers under Texas Business Organizations Code section 101.255(b)(2).

Disposition

affirmed