Anthony Novak, Respondent,

This opinion is nonprecedential except as provided by
Minn. R. Civ. App. P. 136.01, subd. 1(c).

STATE OF MINNESOTA
IN COURT OF APPEALS
A22-1164

Anthony Novak,
Respondent,

vs.

Lorie Miller, et al.,
Appellants.

Filed April 10, 2023
Affirmed
Connolly, Judge

Hennepin County District Court
File No. 27-CV-20-10935

Brenda M. Sauro, Adina R. Bergstrom, Sauro & Bergstrom, PLLC, Oakdale, Minnesota
(for respondent)

Erik F. Hansen, Elizabeth M. Cadem, Kirk A. Tisher, Burns & Hansen, P.A., Minneapolis,
Minnesota (for appellants)

Considered and decided by Larkin, Presiding Judge; Connolly, Judge; and Slieter,
Judge.
NONPRECEDENTIAL OPINION
CONNOLLY, Judge
This case arises out of a dispute between the two sole members of a limited liability
corporation (“LLC”). Appellants challenge the district court’s order granting summary
judgment in favor of respondent, arguing that respondent did not have standing and that
the district court erred when entering damages against appellants. We affirm.
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FACTS
In 2010, respondent Anthony Novak met appellant Lorie Miller, and she represented
that if he invested in her real-estate venture, he could expect a return of $3,000 to $4,000 a
month in about seven years. In December 2010, Miller and Novak formed Camelot Estates,
LLC (“Camelot”) to rent residential properties. They each owned 50% of Camelot; Novak
initially invested $170,000, and Miller invested $100 and promised to invest her time and
management in Camelot.
From 2010 to 2013, Novak made more investments in Camelot and by 2013, had
invested more than $500,000. Throughout the same time period, Camelot purchased three
properties. At the time of filing the underlying action, Novak had not received any rental
income from Camelot.
In May 2017, Camelot obtained a loan of $260,000 (“Camelot loan ”) to purchase
further investment properties. The Camelot loan proceeds were deposited into the Camelot
bank account. The loan was secured by a mortgage on one of Camelot’s properties, and
both parties executed personal guarantees for the full loan amount. The requirements of
the personal guarantees were that Camelot, Miller, and Novak provide tax returns and
personal financial statements each year. Miller did not provide the required documents,
and the lender threatened foreclosure.
From 2010 to 2017, Miller managed the tax returns for Camelot and the
corresponding K-1s. But Novak did not receive a K-1 or tax return for Camelot from 2018
to 2020. He averred that Miller maintained all of the business records and refused to
provide him with a copy so that he could have the tax returns prepared.
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In May 2020, Novak gained access to Camelot’s bank statements and learned that
Miller had been withdrawing and transferring the Camelot loan proceeds to herself and
respondent Tranquil Holdings, LLC (“Tranquil”), an LLC owned and managed by Miller.
Miller used the Camelot account to pay for personal expenses including but not limited to:
personal travel to places such as Hawaii and California for herself, friends, and family;
medical expenses including IVF and plastic surgery; clothing; groceries; liquor; hair
appointments; lash extensions; her boyfriend’s expenses; utilities and taxes on properties
not owned by Camelot ; and a criminal defense attorney. Miller continued to withdraw
from the Camelot account after Novak started the underlying lawsuit. In addition, Miller
failed to issue certificates of rent paid to tenants.
On August 27, 2020, Novak sued Miller and Tranquil, alleging that Miller
misappropriated funds that belonged to Camelot. Camelot was not a party to the action.
Novak demanded the appointment of a receiver and an accounting and asserted claims of
civil theft, breach of contract, conversion, breach of fiduciary duty, and unjust enrichment.
He also sought dissolution and winding up of Camelot. Miller and Tranquil denied the
allegations and asserted counterclaims.
In February 2021, Novak moved for a temporary injunction and to compel
discovery. In March 2021, the district court granted Novak’s motion for a temporary
injunction and ordered Miller and Tranquil to provide responses to Novak’s discovery
requests. On April 6, 2021, Tranquil and Miller’s counsel withdrew. On April 8, 2021,
the district court ordered Miller and Tranquil to pay, within five days of the order, Novak’s
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attorney fees and costs associated with Novak’s successful motion to compel discovery.
Miller and Tranquil did not comply with the district court’s order.
On April 26, 2021, Novak moved for sanctions and for default judgment on his
conversion, civil theft, and unjust enrichment claims. Novak requested that the district
court dismiss Tranquil and Miller’s counterclaims, enter judgment against them, and order
the winding up and dissolution of Camelot. New counsel filed a notice of appearance on
behalf of Tranquil and Miller on May 7, 2021. In response to Novak’s motion for default
judgment, Miller and Tranquil argued that default judgment was not appropriate because
it was an extreme sanction.
On July 30, 2021, Miller and Tranquil’s new counsel withdrew. On August 2 7,
2021, the district court dismissed Miller and Tranquil’s counterclaims and granted Novak’s
motion for default judgment as to the conversion, civil-theft, and unjust-enrichment claims
because of Miller and Tranquil’s noncompliance with district court orders and
misappropriation of Camelot assets. The district court reserved its finding on damages
pending a hearing and ordered the sale of Camelot’s assets and the dissolution and winding
up of Camelot.
On August 18, 2021, Novak moved for summary judgment on the remaining claims
for breach of contract, breach of LLC documents, and breach of fid uciary duties against
Miller. Tranquil and Miller did not respond to this motion. On December 14, 2021, the
district court dismissed count 3, breach of contract, for lack of standing and granted
Novak’s motion for summary judgment as to the remaining claims. The district court
determined that Miller and Tranquil’s “failure to file any response to the instant motions
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for summary judgment, combined with their wholesale failure to abide by the rules and
orders of [the district] court, fully justif[ied] an award of summary judgment.” The district
court ordered an accounting of Camelot to determine damages.
The parties appeared for a hearing on damages on February 18, 2022. Novak
requested $678,609 total theft damages from Miller. Miller’s counsel argued that Novak’s
damage calculation was made up of justifiable business expenses. On June 22, 2022, the
district court entered judgment against Miller for $594,590.94 and against Tranquil for
$19,876.
This appeal follows.
DECISION
This court reviews the district court’s “grant of summary judgment de novo to
determine whether there are genuine issues of material fact and whether the district court
erred in its application of the law.” Montemayor v. Sebright Prods., Inc., 898 N.W.2d 623,
628 (Minn. 2017) (quotation omitted); see also Minn. R. Civ. P. 56.01. “We view the
evidence in the light most favorable to the party against whom summary judgment was
granted.” STAR Ctrs., Inc. v. Faegre & Benson, L.L.P., 644 N.W.2d 72, 76-77 (Minn.
2002) (citations omitted).
I. Tranquil and Miller waived any objections to the pleadings, and Novak’s
complaint, by fair and reasonable inference, states a claim upon which relief
could be granted to Novak as an LLC member.

Miller and Tranquil contend that the district court should have dismissed Novak’s
claims for breach of the LLC documents, breach of fiduciary duties, conversion, civil theft,
and unjust enrichment for lack of standing because Novak alleged a derivative cause of
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action without naming Camelot as a party. 1 “[W]hen shareholders are injured only
indirectly, the action is derivative; when shareholders show an injury that is not shared with
the corporation, the action is direct.” In re Medtronic, Inc. S’holder Litig., 900 N.W.2d
401, 409 (Minn. 2017). Generally, “an individual shareholder may not assert a cause of
action that belongs to the corporation.” Nw. Racquet Swim & Health Clubs, Inc. v. Deloitte
& Touche, 535 N.W.2d 612, 617 (Minn. 1995). A shareholder may “sue in a representative
capacity for the benefit of the corporation, and not for damages to him individually.”
Wessin v. Archives Corp., 592 N.W.2d 460, 464 (Minn. 1999) (quotation omitted).
Similarly, a member of an LLC generally may not maintain derivative claims on behalf of
the LLC. See Minn. Stat. § 322C.0902 (2022). But a member of an LLC “may maintain
a derivative action to enforce a right of [the LLC] if” the member makes a demand on the
other members and they do not bring the claim with a reasonable time, or if the demand
would be futile. Id. Here, Novak made no demand, but he had standing to assert derivative
claims on behalf of the LLC if the demand would have been futile.
Novak contends that Miller and Tranquil waived their argument challenging the
summary-judgment order by not raising it to the district court. A member asserting
derivative claims must “allege with particularity the efforts, if any, made by the plaintiff to
obtain the desired action from the [LLC] and the reasons for the plaintiff’s failure to obtain

1 Miller and Tranquil characterize standing as an issue of subject-matter jurisdiction, but
the concepts are distinct. Subject matter jurisdiction “concerns the court’s ability to
consider a question”; in contrast, standing “concerns a party’s right to bring a particular
action.” Cochrane v. Tudor Oaks Condo. Project, 529 N.W.2d 429, 433 (Minn. App.
1995), rev. denied (Minn. May 31, 1995).
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the action or for not making the effort.” Minn. R. Civ. P. 23.09. Miller and Tranquil did
not move to dismiss the complaint on the basis that Novak failed to plead futility with
particularity. This court generally will only review issues “presented and considered by
the [district] court in deciding the matter before it.” Thiele v. Stich, 425 N.W.2d 580, 582
(Minn. 1988) (quotation omitted). “Objections which go merely to the form of the pleading
are waived and cannot be urged for the first time in the appellate court. They must be
properly raised in the court below.” Winter v. Farmers Educ. & Co-op. Union of Am., 107
N.W.2d 226, 232 (Minn. 1961). But, when there is a complete failure to state a claim upon
which relief is granted, this court regards it “as a fundamental one which may be raised for
the first time in the appellate court.” Id. at 232. “If by fair and reasonable inference a
cause of action can be spelled out of the matters pleaded, a construction which will sustain
the pleadings is favored.” Id.
In Winter, the defendant argued for the first time on appeal that the plaintiff failed
to allege that it had made a demand on the defendant. Id. at 230-31. The court noted that
if an objection had been made to the district court, a motion to dismiss would have likely
been granted. Id. at 232. The court held that the complaint was sufficient to state a
derivative cause of action because, considering the record as a whole, the plaintiff alleged
that the matter was brought to the board of director’s attention and the entire record
demonstrated that the case had been tried as if the demand pleading requirement had been
met. Id.
Here, even though the complaint did not name Camelot as a party and Novak did
not allege with particularity that demand would have been futile, a derivative “cause of
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action can be spelled out of the matters pleaded.” Id. at 232. While Camelot is not a named
party, the complaint describes Camelot as a party. The complaint also specifically alleges
that Miller’s conduct caused Camelot harm and damages: “As a direct and proximate result
of Miller’s wrongful conduct, Novak and Camelot are suffering immediate and irreparable
injury, harm, and damage” and “[a] s a result of [Miller and Tranquil’s] theft, Novak and
Camelot have been damaged in the amount of at least $50,000.” We conclude that the
parties tried the case as if this pleading requirement had been met. For example, in Novak’s
motion for summary judgment he stated, “there is no doubt and no factual dispute that
Miller has wholly failed in her obligations to Camelot.”
Moreover, while the complaint does not specifically allege the demands made upon
Miller, we conclude that there are sufficient allegations to demonstrate that demand would
have been futile. See Minn. Stat. § 322C.0902. Novak alleged that he requested financial
information, tax records, copies of the books, and a special meeting to discuss Camelot’s
finances and the deadlock between the two parties. And Novak alleged that Miller did not
respond to any of the requests and did not appear at the special meeting. Indeed “demand
should be made on the shareholders . . . unless the majority of their number is interested,”
and Miller owned 50% of Camelot. Winter, 107 N.W.2d at 233; see also In re
UnitedHealth Grp. Inc. S’holder Derivative Litig., 754 N.W.2d 544, 550 n.5 (Minn. 2008)
(stating “[t]he demand requirement may be excused, however, when the board suffers from
a conflict of interest regarding the subject matter of the derivative suit”).
It is quite apparent from the record that the parties litigated this case as if the
conditions for a derivative claim had been met, and we therefore conclude that Miller and
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Tranquil waived their objection to the form of the pleading s. See Winter, 107 N.W.2d at
232.
II. The district court did not err when entering damages against Tranquil and
Miller.

This court will not disturb a damage award unless the “failure to do so would be
shocking or would result in plain injustice.” Dunn v. Nat’l Beverage Corp., 745 N.W.2d
549, 555 (Minn. 2008) (quotation omitted). “We generally review a damage award for an
abuse of discretion.” Smallwood v. Dep’t of Hum. Servs., 966 N.W.2d 257, 267 (Minn.
App. 2021), rev. denied (Minn. Nov. 16, 2021). And “[w]e review a district court’s
application of the law de novo.” Harlow v. State, Dep’t of Hum. Servs., 883 N.W.2d 561,
568 (Minn. 2016).
a. Tranquil’s Damages
Tranquil contends that the district court erred by entering a judgment of damages
against it because, at the hearing on damages, Novak’s counsel stated that the claim against
Tranquil had been paid in full. Novak contends that the judgment was satisfied.
An appeal should be dismissed as moot “when intervening events render a decision
on the merits unnecessary or an award of effective relief impossible.” Wayzata Nissan,
LLC v. Nissan N. Am., Inc., 875 N.W.2d 279, 283 (Minn. 2016). An appeal is not moot if
a party could be afforded effective relief. Hous. & Redev. Auth. ex rel. City of Richfield v.
Walser Auto Sales, Inc., 641 N.W.2d 885, 888 (Minn. 2002).
“Once a satisfaction of judgment is filed with the district court, that judgment ceases
to have any existence.” Herubin v. Finn, 603 N.W.2d 133, 137 (Minn. App. 1999)
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(quotation omitted). The district court lacks the authority to vacate a satisfied judgment.
Dorso Trailer Sales, Inc. v. Am. Body & Trailer, Inc., 482 N.W.2d 771, 773 (Minn. 1992);
see Lyon Fin. Servs., Inc. v. Waddill, 607 N.W.2d 453, 454 (Minn. App. 2000) (satisfaction
of a judgment precludes district court review of the judgment).
Here, Novak filed partial satisfactions of judgment against Tranquil on August 19
and November 10, 2022, and a full satisfaction of judgment on November 28, 2022. This
court cannot afford Tranquil effective relief because once Novak satisfied the judgment
against it, the judgment ceased to exist, and this appeal is moot. See Herubin, 603 N.W.2d
at 137.
b. Miller’s Damages
Miller argues that the district court erred by not adjusting the damages amount for
Miller’s 50% share of Camelot. As a threshold matter, Novak contends that Miller waived
this argument because she “made no cogent argument against the imposition of any
monetary judgment against [her].” A party may not raise a new issue on appeal, “[n]or
may a party obtain review by raising the same general issue litigated below but under a
different theory.” Thiele, 425 N.W.2d at 582.
At the hearing on damages, Miller’s counsel argued that Novak’s damage
calculation were justifiable business expenses. Miller offered an expert affidavit which
averred that “based upon the amount of capital contributed by . . . Miller to Camelot . . .
during the time period examined, and the resulting amounts due to her upon liquidation of
Camelot . . ., that . . . Miller did not receive any funds to which she would have not
otherwise been entitled.” The expert affidavit was based on the following documents “in
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conjunction with input and discussions with . . . Miller as to the conduct of the business
and the transactions”: lease and eviction documents for Camelot’s properties, Camelot’s
bank statements, “Credit Card Billings used for Camelot Estate property renovations,”
“Day Labor Payments,” summaries of utility and property tax payments, and partnership
contribution repayments in part on his conversations with Miller. It is not clear what the
expert relied on in concluding that Miller made capital contributions to Camelot, and Miller
did not produce the bank statements, credit card statements, listing of day labor payments,
and Novak’s contribution repayment documents. The district court determined that the
expert affidavit was “too late to be considered,” and, even if it was not late, that it “wholly
lack[ed] evidentiary value.”
Miller raises a different theory on appeal. She no longer argues that her
expenditures were legitimate business expenses but instead contends that her total damages
should be offset by her share of Camelot. Because Miller never raised the argument that
any damages calculation reached by the district court must be adjusted for her share, she
did not raise it properly and it is forfeited. See Thiele, 425 N.W.2d at 582.
However, even if she did not forfeit this argument, the district court did not err.
Miller contends that the district court ignored “the law and its own holding that, because
Miller owned half of Camelot, she was entitled to a one-half offset in any damages
calculation.” Miller is not disputing the damage amount, instead she contends that the
district court’s distribution of the damages in winding up was erroneous. “We review the
district court’s application of the law de novo.” Harlow, 883 N.W.2d at 568.
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When a member applies for and the district court orders dissolution of the company
on the grounds that a member has acted in an illegal manner that is harmful to the applicant,
the district court “may order a remedy other than dissolution.” Minn. Stat. § 322C.0701,
subd. 2 (2022). This may be ordered “in any case where that remedy would be appropriate
under all the facts and circumstances of the case.” Id.
Here, the district court determined that Miller stole $494,590.94 and imposed a civil
penalty of $100,000. The district court entered a judgment in favor of Novak against Miller
for the entire amount stolen for the civil penalty. Minnesota law permits the district court
to order a remedy other than dissolution for the illegal acts of another member. See i d.
Moreover, it is common sense that a party should not be able to offset the amount they
converted by claiming an equal share of an LLC when it is dissolved. Thus, the district
court did not err by awarding Novak damages for the entirety of the amount Miller
converted from Camelot.
Affirmed.