Carmen A. Dulhanty, on her own behalf and on behalf of those similarly situated, Appellant, Fintegra Holdings, LLC, an Indiana limited liability company, Plaintiff,

This opinion will be unpublished and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
A17-0172

Carmen A. Dulhanty,
on her own behalf and on behalf of those similarly situated,
Appellant,
Fintegra Holdings, LLC, an Indiana limited liability company,
Plaintiff,

vs.

Daniel Conner, et al.,
Respondents,
Doreen Lea Weber, et al.,
Respondents,
Frank Charles “Chet” Taylor, III,
Respondent,
Fintegra Holdings, LLC, an Indiana limited liability company,
Defendant.

Filed August 28, 2017
Affirmed
Reyes, Judge

Hennepin County District Court
File No. 27-CV-15-14487

Edward P. Sheu, Best & Flanagan, L.L.P., Minneapolis, Minnesota (for appellant)

Matthew D. Forsgren, Sybil L. Dunlop, Anna M. Tobin, Greene Espel, P.L.L.P.,
Minneapolis, Minnesota (for respondents Daniel Conner, et al.)

Vincent D. Louwagie, Cory D. Olson, Christopher J. Haugen, Anthony Ostlund Baer &
Louwagie, P.A., Minneapolis, Minnesota (for respondents Doreen Lea Weber, et al.)

F. Chet Taylor, Taylor Law Office, P.L.C., Minneapolis, Minnesota (for respondent Frank
Charles “Chet” Taylor III)

2
Considered and decided by Reyes, Presiding Judge; Bjorkman, Judge; and Hooten,
Judge.
U N P U B L I S H E D O P I N I O N
REYES, Judge
Appellant challenges the summary -judgment dismissal of her claims against
respondents arising out of the alleged sale of all assets belonging to Fintegra LLC, asserting
that the district court erred by applying the business -judgment rule to conclude that
appellant’s claims failed as a matter of law. We affirm.
FACTS
Minnesota-based limited-liability company Fintegra, LLC (Fintegra) operated as a
Financial Industry Regulatory Authority (FINRA) registered broker-dealer. Fintegra is a
wholly owned subsidiary of Fi ntegra Holdings, LLC (Holdings ), an Indiana limited -
liability company with approximately 44 members (Holdings’ members) .1 Appellant
Carmen Dulhanty is a Holdings member. Respondents Daniel Conner, Douglas Schmitz,
Kenneth Walter, and Stephen Caurro (collectively, the directors) served on both Fintegra’s
and Holdings’ identically constituted boards of directors. Respondents Doreen Lea Weber,
Jeffrey Allen Schuh, and Frank Charles “Chet” Taylor III (collectively , the Fintegra
managers) are former managers responsible for the day -to-day management of Fintegra .
The Fintegra managers did not have any role in Holdings.

1 Holdings’ members invested $4.89 million in Holdings.
3
The majority of Fintegra’s business involved purchasing and selling securities on
its own account before selling the securities to customers through registered representatives
employed by Fintegra. These registered representatives acted as agents for customers ,
assisting them in executing the securities transactions. Holdings’ only asset was Fintegra,
which derived its value from its relationships with approximately 23 financial institutions
and approximately 127 registered re presentatives and revenues, known as gross -dealer
concessions (GDC), associated with their work with customers.
In 2013, a group of Fintegra customers filed claims against Fintegra regarding a
failed investment and sought rescission of the investment. Fi ntegra manager Taylor
expressed concern about the potential “devastating ” and “catastrophic” consequences of
an adverse outcome to the other Fintegra managers and then to the directors. On June 12,
2015, Fintegra received an adverse arbitration award of $1,560,626.24 in damages, fees,
and costs from FINRA and suspended its securities business because it incurred a “net -
capital violation.” The directors then hired a law firm to advise them on the best course of
action for Fintegra’s creditors and investors . In late June and early July 2015, following
the law firm’s advice, the directors negotiated selling Fintegra’s assets to another brokerage
firm, Securities America (SA), in a private sale outside of bankruptcy . The directors
instructed the Fintegra managers to assist in the sale.
The proposed sale between Fintegra and SA included an asset-purchase agreement
(APA), a referral agreement (RA), and a transition assistance agreement (TAA). The APA
included the sale of Fintegra’s assets, including property, rights in customer accounts, and
goodwill associated with customer accounts, but did not transfer registered representatives.
4
The APA would become effective only upon approval of Holdings’ members.2
Furthermore, the APA contained a “no -shop” clause, p rohibiting Fintegra, Holdings, or
their representatives from negotiating with other entities until August 31, 2015. The RA
required SA to pay Fintegra a referral fee for each Fintegr a registered representative who
joined SA. The T AA required SA to pay Fi ntegra employees to stay and help transition
the business to SA in the event the APA was fully executed. On June 30, 2015, the directors
voted unanimously to execute the APA. The record contains no evidence that the directors
or the Fintegra managers ever received any payment from SA under the APA or TAA.
On July 3, 2015, director Conner signed the APA. On July 7, 2015, the directors
forwarded the APA to Holdings’ members for approval. By the end of July 2015, it became
clear to the parties that Holdings’ members were not going to approve the APA . The
directors proposed that SA terminate the APA but SA refused, citing the “no-shop” clause.
During this time, the Fintegra managers communicated with SA and Fintegra’s
registered representatives to enc ourage the registered representatives to move their
accounts from Fintegra to SA. Furthermore, Fintegra consented to the transfer of its
institutional banks’ customer accounts to SA. By the end of August 2015, SA had acquired
53 Fintegra registered repre sentatives, representing over $11 million in GDC , and 23
banks, constituting over $6 million in GDC. Fintegra filed for bankruptcy on September
16, 2015.

2 Article III, s ection 3.1(d) of the APA states , “[Fintegra’s ] sole member shall have
approved the Agreement as required by its governing documents and the Minnesota
Limited Liability Company Act.”
5
On August 15, 2015, Dulhanty commenced this double -derivative action 3 on
Holdings’ behalf. In an amended complaint, Dulhanty alleged six claims against the
directors: (1) breach of fiduciary duties (two counts) ; (2) breach of fiduciary duty against
director Conner; (3) gross negligence; (4) tortious interference with economic advantage;
and (5) corporate waste. Dulhanty also maintained claims against the Fintegra managers:
(1) breach of fiduciary duties ; (2) breach of fiduciary duty against manager Weber;
(3) aiding and abetting breach of fiduciary duties; (4) tortious interference with prospective
advantage; and (5) corporate waste.
On June 15, 2016, the directors and the Fintegra managers moved for summary
judgment on all claims under Minnesota Rules of Civil Procedure 23.09 and 56 .4 On
December 2, 2016, the district c ourt granted the directors’ and the Fintegra managers ’
motions for summary judgment, determining that Dulhanty’s claims were barred under the
business-judgment rule. This appeal follows.
D E C I S I O N
On appeal from summary judgment, we review de novo whether there are any
genuine issues of material fact and whether the district court ’s application of law was
erroneous. Ruiz v. 1st Fid. Loan Servicing , LLC, 829 N.W.2d 53, 56 (Minn. 2013) . We
view the evidence in the light most favorable to the nonmoving party. STAR Ctrs., Inc. v.

3 A double -derivative suit is a lawsuit by a parent corporation , usually initiated by a
shareholder of the parent cor poration, to enforce a cause of action of a related subsidiary
corporation. See Blasband v. Rales, 971 F.2d 1034, 1044 (3d Cir.1992).
4 The case was fully brief ed and argued before the district court. The district court,
however, did not record oral arguments, so no transcript of the oral arguments is available.
6
Faegre & Benson, L .L.P., 644 N.W.2d 72, 76 -77 (Minn. 2002). Summary judgment is
inappropriate when the nonmoving party has presented sufficient evidence to permit
reasonable persons to draw different conclusions. Schroeder v. St. Louis C ounty, 708
N.W.2d 497, 507 (Minn. 2006).
I. The district court did not err i n applying the business -judgment rule to the
directors in their capacity as Holdings’ directors.
Dulhanty argues that the business -judgment rule does not apply to the directors
acting under their authority as Holdings’ directors because they made a n onbusiness
decision by violating Holdings’ operating agreement and Indiana law. We disagree.
Holdings is an Indiana limited liability c ompany governed by the Indiana business
flexibility act. See Ind. Code Ann. § 23 -18-1-1 ( LexisNexis 2010 ); see also Potter v.
Pohlad, 560 N.W.2d 389, 391 (Minn. App. 1997) (companies and their management are
governed by their state of incorporation). Holdings’ operating agreement is “binding upon
all the members.” See Ind. Code Ann. § 23 -18-1-16 ( LexisNexis 2010 ) (“ Operating
agreement means any written or oral agreement of the members as to the affairs of a limited
liability company and the conduct of its business that is binding upon all the members.”) ;
see also Ind. Code Ann. § 23-18-4-4(a)(1) (LexisNexis 2010).
Indiana law permits a limited liability company’s operating agreement to contain a
standard of liability, so long as the language does so clearly. See Ind. Code Ann. § 23-18-
4-2(a) (LexisNexis 2010). Holdings’ operating agreement contains a standard of lia bility
that mirrors the Indiana code, stating that “[a] Director is not liable for any action taken as
a Director, or any failure to take any action, unless the Director has breached or failed to
7
perform the Director’s duties and the breach or failure to p erform constitutes willful
misconduct or recklessness.” See Ind. Code Ann. § 23 -1-35-1(e) (LexisNexis 2010).
Because Holdings’ operating agreement sets the same standard as Indiana law governing
corporations, the district court did not err in applying the standard under section 23-1-35-
1(e) and caselaw interpreting that standard in this matter.
“Indiana has statuto rily implemented a strongly pro management version of the
business judgment rule . . . includ[ing] a presumption that in making a business de cision,
the directors of a corporation acted on an informed basis, in good faith and in the honest
belief that the action taken was in the best interests of the company.” G&N Aircraft, Inc.
v. Boehm, 743 N.E.2d 227, 238 (Ind. 2001) (quotation omitted). In order for the directors
to be liable, they (1) must have breached or failed to perform a duty and (2) the breach or
failure must have constituted willful misconduct or recklessness. See G&N Aircraft, 743
N.E.2d at 238 (quotation omitted). Here, the district court determined that Dulhanty failed
to present any evidence that would satisfy these two elements and, as such, her claim is
barred by the business-judgment rule.
Article V, s ection 5.1(b)(1) , of Holdings’ operating agreement grants Holdings’
members, like Dulhanty, the right to approve by a super majority a disposition of all or
substantially all of Holdings’ assets. Additionally, article VI, section 6.1(d) of Holdings’
operating agreement provides that the directors could “[n]egotiate or empo wer others to
negotiate: (i) merger of [Holdings] with another entity or (ii) a sale of [Holdings] or
substantially all of the assets of [Holdings].” The operating agreement also provided that,
in performing their duties , the directors could rely on the i nformation and opinions of
8
“[a]ny attorney . . . as to matters which [the directors] reasonably believe[d] to be within
such person’s professional or expert competence.”
We first note that, even assuming assets were transferred to SA, the assets belonged
to Fintegra, not Holdings . Fintegra is a subsidiary of Holdings, the parent company. In
the parent-subsidiary context, “[a] corporate parent which owns the shares of a subsidiary
does not, for that reason alone, own or have legal title to the assets of the subsidiary.” Dole
Food Co. v. Patrickson , 538 U.S. 468, 475, 123 S. Ct. 1655, 1660 (2003). The s ame
principles apply to limited -liability companies. See Pazmino v. Bose McKinney & Evans
LLP, 989 N.E.2d 784, 786 (Ind. Ct. App. 2013) (recognizing limited-liability companies
as distinct legal entities). Here, Holdings has a membership interest in Fintegra but does
not own or have legal title to Fintegra’s assets. As a matter of law, any putative transfer of
assets would have been of Fintegra’s assets, not Holdings’. Therefore, Dulhanty has not
demonstrated that the directors transferred any of Holdings’ assets in violation of Holdings’
operating agreement.
The directors negotiated an asset sale of Fintegra with SA, conduct in which they
were authorized to engage. Notably, the APA could not be fully executed until Holdings
received member approval under its operating agreement, which required a supermajority
vote. Additionally, neither the RA nor the TAA contained any provisions to transfer
Holdings’ assets. And, throughout this process, the record shows that the directors acted
on the advice of counsel. Even viewing these facts in favor of Dulhanty , she cannot
demonstrate a breach of a duty owed to Holdings or any reckless or willful misconduct by
the directors. Accordingly, the business -judgment rule shields the directors’ actions in
9
their capacity as Holdings’ directors, and the district court did not err in granting summary
judgment in favor of the directors. See TP Orthodontics, Inc. v. Kesling, 15 N.E.3d 985,
990 (Ind. 2014) (noting that under Indiana law, director liability is limited to reckless or
willful misconduct).
II. The district court did not err in applying Minnesota’s business-judgment rule
to the directors and the Fintegra managers with regard to their respective roles
within Fintegra.
Dulhanty argues that the business -judgment rule does not apply to the directors or
the Fintegra managers because they made nonbusiness decisions in their respective
capacities as directors and mangers of Fintegra in violation of Minnesota law. We disagree.
Under Minnesota law, the business -judgment rule provides that “disinterested
directors [making] an informed busine ss decision, in good faith, wi thout an abuse of
discretion . . . will not be liable for corporate losses resulting” from that decision. Janssen
v. Best & Flanagan , 662 N.W.2d 876, 882 (Minn. 2003). The decision to apply the
business-judgment rule is a question of law, which this court reviews de novo. See Blohm
v. Kelly, 765 N.W.2d 147, 153 (Minn. App. 2009).
The M innesota Limited Liability Company Act requires a majority vote of
interested members before a board of directors can dispose of all or subst antially all of a
company’s assets. Min n. Stat. § 322B.77, subd. 2(a) (2016). This statutory requirement
cannot be waived and applies unless an LLC has been dissolved. Minn. Stat. § 322B.813,
subd. 4 (2016); see also Minn. Stat. § 322B.70, subd. 3(2016).
Here, the Fintegra directors were required to obtain “the affirmative vote of the
owners of a majority of the voting power of the interests entitled to vote” before disposing
10
of all or substantially all of Fintegra’s assets. Minn. Stat. § 322B.77, subd. 2(a). Holdings,
as the sole owner of Fintegra , holds a majority of the voting power . Under Holdings’
operating agreement, the directors could act on behalf of Holdings “by the affirmative vote
of a majority of [Holdings’] Directors.” That happened he re. A super majority vote of
Holdings’ members is not required unless the action would dispose of Holdings’ assets,
which, as already stated, is not the case here. The record establishes that a majority of
Holdings’ directors exercised Holdings’ voting po wer to permit Fintegra to enter into the
APA, RA, and TAA. Therefore, even assuming a transfer of assets occurred, the directors’
actions were not in violation of Minn. Stat. § 322B.77, subd. 2(a).
Dulhanty relies on Aiple v. Twin City Barge & Towing Co., 274 Minn. 38, 44 -46,
143 N.W.2d 374, 378-79 (1966), to support her argument that the directors’ actions did not
constitute a business decision. But in Aiple, the supreme court concluded that the directors
of a parent corporation were enjoined from using a subsidiary to avoid a statutory
shareholder voting requirement because it was done to circumvent the voting requirements
needed to amend the articles of incorporation. 274 Minn. At 41-43, 45-46, 143 N.W.2d at
376-77, 379. Unlike in Aiple, here, the directors’ actions did not circumvent the procedures
required under the applicable law and were not done for that purpose. To the contrary, the
directors and the Fintegra managers made an informed business decision based on the
advice of counsel to follow the procedures in both Fintegra’s and Holdings’ operating
agreements as well as the applicable statute.
With respect to the Fintegra managers, Dulhanty does not point to any evidence
demonstrating bad faith or actions that the Fintegra managers knew to be outside of their
11
authority as delegated to them by the directors. The record demonstrates that the Fintegra
managers, at the direction of the directors, communicated to the registered representatives,
such as by sending emails encouraging regist ered representatives to apply and transfer to
SA. As such, the business-judgment rule protects the decisions made by the directors and
the Fintegra managers, and the district court did not err in so determining.
III. The directors sufficiently pleaded the business-judgment rule in their motion
for summary judgment.
Dulhanty argues that the district court erred in granting the directors summary
judgment on the basis of the business-judgment rule because they did not adequately argue
this issue to the district court. We are not persuaded.
Minnesota law specifies that summary judgment is appropriate when “the pleadings,
depositions, answers to interrogatories, and admissions on file, together with the affidavits,
if any, show that there is no genuine is sue as to any material fact and that either party is
entitled to a judgment as a matter of law.” Minn. R. Civ. P. 56.03. Here, the directors filed
their motion for su mmary judgment pursuant to Minn. R. Civ. P. 23.09 and 56.03. The
directors incorporated the Fintegra managers’ arguments with respect to the applicability
of the business-judgment rule in a footnote in their motion. Accordingly, Dulhanty was on
notice of all of the opposing parties’ bases for summary judgment, knew that the district
court would consider it as a basis for summary judgment, and made essentially the same
arguments to the district as she does now with respect to why the business -judgment rule
should not apply in this matter. Therefore, it was not error for the district court to consider
the business-judgment rule in granting summary judgment for the directors. Cf. Doe v.
12
Brainerd Int’l. Raceway, Inc. , 514 N.W.2d 811 , 822 (Minn. App. 1994) (holding it was
error for district court to grant summary judgment on grounds not raised by moving party
when opposing party had no notice district court would consider summary judgment on
that basis), rev’d on other grounds, 533 N.W.2d 617 (Minn. 1995).
Affirmed.