CorVascular Diagnostics, LLC, Respondent, vs.

This opinion will be unpublished and
may not be cited except as provided by
Minn. Stat. § 480A.08, subd. 3 (2016).

STATE OF MINNESOTA
IN COURT OF APPEALS
A16-2048

CorVascular Diagnostics, LLC,
Respondent,
vs.

Michael Talcott, et al.,
Appellants,

Viasonix, Ltd., et al.,
Defendants.

Filed August 28, 2017
Reversed and remanded
Connolly, Judge

Hennepin County District Court
File No. 27-CV-16-2380

Ryan D. Simafranca, Simafranca Law Office, Minnetrista, Minnesota; and

Timothy W. Fafinski, Corporate Counsel, P.A., Independence, Minnesota (for respondent)

Mark R. Bradford, Steven M. Sitek, Amie E. Penny Sayler, Bassford Remele, P.A.,
Minneapolis, Minnesota (for appellants)

Considered and decided by Ross, Presiding Judge; Connolly, Judge; and Toussaint,
Judge.*

* Retired judge of the Minnesota Court of Appeals, serving by appointment pursuant to
Minn. Const. art. VI, §10.
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U N P U B L I S H E D O P I N I O N
CONNOLLY, Judge
In this appeal from a district court order denying appellants’ motion for
advancement of attorney fees pursuant to Minn. Stat. § 322B.699 (2016), appellants argue
that the district court applied the wrong legal standard in determining that appellants had
not met their burden to establish such entitlement. Because the district court erred, we
reverse and remand.
FACTS
Spencer Lien and appellant Michael Talcott formed respondent CorVascular
Diagnostics, LLC, a healthcare technology supplier, in December 2013. At that time, Lien
held a 60% membership interest and Talcott held a 40% membership interest through
appellant CorVascular MI, LLC, of which Talcott is the sole member.1 Talcott, as the vice
president of sales, recruited independent sales representatives in 2014. Among them were
appellant William Beym er and defendant Carl Tisdal, who were each granted a 2.5%
membership interest, reducing Lien’s holdings to 55%.2
From 2014 into 2015, Talcott began requesting commissions on his sales, which
respondent could not pay due to insufficient funds. Talcott allegedly threatened to quit, to
work for a competitor, and to take certain sales representatives with him. Lien alleged, in
part, that appellants had taken steps to divert business from respondent to Talcott’s own

1 We refer to CorVascular MI, LLC and Talcott collectively as Talcott.
2 We refer to Talcott and Beyme r as appellants. Tisdal joined in the m otion for
advancement but does not appeal.
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future business, that they misled respondent’s customers with regard to respondent’s future,
and that they instructed sales representatives to refrain from selling new products. Lien
communicated these allegations to appellants through a letter from his attorney in August
2015. This letter identified numerous such breaches of the recipients’ fiduciary duties and
demanded that the recipients buy Lien’s membership share in settlement or risk a lawsuit.
Talcott left respondent on February 3, 2016, without agreeing to the settlement offer.
Two weeks later , respondent served Talcott with a complaint alleging numerous
breaches of fiduciary duty. In May, Talcott requested advancement of attorney fees from
respondent pursuant to Minn. Stat. § 322B.699 and did not receive a response within 60
days. Respondent amended its complaint to name additional defendants, including Beymer
and Tisdal, in July. In August, appellants moved the district court f or advancement of
attorney fees in light of respondent’s failure to timely respond to the request. Respondent
opposed the motion, arguing that the membe rship-control agreement signed by appellants
gave Lien discretion to indemnify and that appellants failed to “meet their burden of
establishing that they are entitled to advancement.” Respondent also filed an affidavit from
Lien, indicating his determination that appellants were not entitled to indemnification
pursuant to the discretion vested in him by the membership control agreement.
In October 2016, the district court denied the motion for advancement. The district
court did not rely on the membership-control agreement for its ruling, noting its uncertainty
whether the agreement conformed to statutory language allowing a company to deny or
impose conditions on advancement and indemnification. See Minn. Stat. § 322B.699,
subd. 4. Rather, the district court considered whether appellants had met the procedural
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and substantive requirements of t he statute governing advancement. See id. , subd. 3.
Despite noting that appellants had indisputably met the procedural requirements for
advancement, the district court found they had failed to meet the substantive requirements
and concluded that it could not independently determine eligibility for advancement.
Appellants filed a notice of appeal.3
D E C I S I O N
Appellants argue that the district court applied a standard requiring a party seeking
advancement to demonstrate that “he or she necessarily will be entitled to indemnification.”
They suggest that “the district court must assess only whether there are undisputed facts
that preclude indemnification.” This is a difficult case because the relevant statutory
provisions are not a model of clarity . Nevertheless, we agree with appellants that the
district court erred.
Whether the district court applied the correct legal standard in determining that
appellants had not met their burden to show eligibility for advancement involves statutory
interpretation and is therefore a question of law subject to de novo review. Asian Women
United of Minn. v. Leiendecker , 789 N.W.2d 688, 690 (Minn. App. 2010) . “When
interpreting a statute, we first look to see whether the statute’s language, on its face, is clear
or ambiguous.” Am. Family Ins. Grp. v. Schroedl, 616 N.W.2d 273, 277 (Minn. 2000). “If

3 Respondent did not file a notice of related appeal to challenge the district court’s
determination that the membership control agreement may not conform to the relevant
statute.
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the language of a statute is clear and unambiguous, we apply its plain meaning.”
Leiendecker, 789 N.W.2d at 691.
The relevant subdivision of the statute regarding indemnification in the context of
limited liability companies notes that such companies shall indemnify a person “made . . . a
party to a proceeding by reason of the former or present official capacity of t he person”
against judgments, penalties, and reasonable expenses incurred in connection with the
proceeding if he or she (1) has not already been indemnified by another source; (2) acted
in good faith; (3) received no improper benefit; an d (4) reasonably believed that he or she
acted in accordance with the best interests of the company. Minn. Stat. § 322B.699, subd.
2(a). Advancement of reasonable expenses including attorney fees in such circumstances
is required:
(1) upon receipt by the limited liabilit y company of
a written affirmation by the person of a good faith belief that
the criteria for indemnification set forth in subdivision 2 have
been satisfied and a written undertaking by the person to repay
all amounts so paid or reimbursed by the limited l iability
company, if it is ultimately determined that the criteria for
indemnification have not been satisfied; and
(2) after a determination that the facts then known to
those making the determination would not preclude
indemnification under this section.

Id., subd. 3 (emphasis added).
In Leiendecker, this court considered nearly identical statutes concerning nonprofit
organizations and held that, “unless otherwise specified in a corporation’s articles of
incorporation or bylaws, indemnification and advancement are mandatory when the
statutory requirements are met.” 789 N.W.2d at 692 (emphasis added). We concluded that
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this was true even in an action by an organization against the individual seeking
advancement. Id. at 693. Here, respondent similarly must advance appellants’ defense
costs if the statutory criteria are met.
The district court determined that “there is no dispute that [appe llants] met the
procedural criteria,” referring to the written affirmation and undertaking required by Minn.
Stat. § 322B.699, subd. 3(1). This conclusion is not challenged on appeal. But appellants
do challenge the district court’s analysis under Minn. Stat. § 322B.699, subd. 3(2), which
reads as follows:
However, there is a raging dispute regarding whether
[appellants] are entitled to indemnification: specifically, if they
acted in good faith, if they received no improper benefit, and,
when acting in their official capacity, if they reasonably
believed that their conduct was in the best interests of the
company. [Respondent] present[s] detailed affidavit testimony
to support [its] claim of bad faith; conversely, [appellants]
present detailed affidavit testimony attesting to their good
faith. And the allegations presented to support or challenge
advancing fees go to the very heart of the litigated issues in this
case which are still the subject of discovery.
. . . This court cannot reach an “indepe ndent
determination” of eligibility for an advance on this record. The
affidavit testimony creates fact issues that would require
credibility determinations to resolve. In the absence of any
way for this Court to assess credibility at this stage of the case,
the moving party has failed to meet its burden.

(Citation omitted).
Importantly, the statute does not require weighing of allegations or contested facts.
The statute uses the clear and unambiguous language of “facts then known.” See Minn.
Stat. § 322B.699, subd. 3(2) (emphasis added). Undetermined or disputed factual issues
are plainly not a part of “facts then known.” And neither party alleges that the statute is
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unclear or ambiguous in requiring consideration of known facts. The district court applied
the incorrect legal standard in attempting to consider disputed factual issues rather than
considering only known facts as required by the plain language of the statute.
Likewise, the statute clearly does not require a determination that those facts
necessarily qualify the requesting party for indemnification ; instead, it requires a
determination that those facts do not certainly disqualify the requesting party. See id.
(requiring that the known facts “would not preclude” ultimate i ndemnification). And the
supreme court has held that, even when a requesting party pleaded guilty to a violation of
federal law, it did not necessarily follow that the party had not acted in good faith for
purposes of indemnification. Augustine v. Arizant Inc., 751 N.W.2d 95, 100 (Minn. 2008).
Here, appellants have not admitted or been charged with criminal wrongdoing. And the
district court neither identifies known facts that would preclude appellants from receiving
relief nor asserts that such facts e xist; instead, it says that it cannot make an independent
determination based on the conflicting affidavit testimony . We disagree , because t he
purpose of the law is to advance expenses , including attorney fees , precisely in factual
situations like the one presented here.
While few facts may be known in lawsuits such as this, where bad faith is a central
issue in the surrounding litigation, the district court must still evaluate those few known
facts to determine whether any of them precludes indemnification. If the district court
determines that the party seeking advancement has satisfied the procedural requirements,
that the corporation did not prohibit or impose conditions on advancements or
indemnification, and that no known facts preclude indemnification, the district court must
8
order the corporation to advance fees accordingly , under both Leiendecker and the
indemnification statute.
The only known facts here, pursuant to the district court’s uncontested findings of
fact, describe the founding of the company and the existence of the allegations made in
respondent’s complaint. Respondent does not dispute that appellants held positions that
would enable them to seek advancement, and the membership control agreement does not
provide conditi ons limiting advancement in circumstances where respondent sues its
members or former members.4 Certainly, respondent’s allegations, if true, would call into
question the good faith of appellants’ actions. But at this stage of the proceedings, they are
no more than allegations and do not constitute known facts sufficient to preclude
indemnification. Moreover, if it turns out that appellants are not entitled to ultimate
indemnification, the statut e provides for reimbursement to respondent. See Minn. Stat.
§ 322B.699, subd. 3(1) (requiring a written promise to repay the LLC “if it is ultimately
determined that the criteria for indemnification have not been satisfied”).
In sum, the district court erroneously attempted to consider disputed facts that were
not known at the time of the motion when it concluded that it could not determine
appellants’ eligibility for advancement because of outstanding issues of fact. Based on the
caselaw and the uncontested facts in the district court’s order, there are no known facts that
preclude indemnification, and the district court erred by concluding otherwise. We reverse
the district court’s order denying advancement of expenses including attorney fees, and

4 Indeed, neither the bylaws nor the membership control agreement limits the right to
indemnification at all.
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remand for the sole purpose of determining the amount of expenses and fees to be
advanced. The lawsuit may proceed in the normal course following that determination.
Reversed and remanded.