## Facts

- Tate Begley loaned $75,000 to Caribou Coal Mining Processing, LLC, evidenced by a promissory note due June 1, 2005; no payments were made.
- Ben Spurlock agreed with Caribou’s organizer, Robert Griffin, to exchange a 25% interest in another entity for a 25% interest in Caribou Coal.
- Begley claimed Spurlock proposed (and Griffin orally agreed) that Begley would receive a 25% ownership interest in Caribou Coal to satisfy the unpaid debt; no writing or company action documented Begley’s admission as a member.
- On February 22, 2006, Spurlock and Begley signed and notarized a handwritten agreement stating Spurlock would pay $70,000 by May 1, 2006 “for 25 percent ownership” of Caribou Coal; it referenced the earlier promissory note, and Spurlock paid $5,000 up front.
- After contacting Griffin, Spurlock was told Begley held only the promissory note and had no ownership interest; Spurlock refused to pay the balance.
- Begley sued to enforce the February 22 agreement (and pursued recovery related to the note); Spurlock counterclaimed for return of the $5,000, asserting failure of consideration (and fraud theories).
- A jury found for Begley; the trial court denied Spurlock’s directed-verdict and JNOV motions; the Kentucky Court of Appeals affirmed.

## Issues

1. Whether Begley presented legally sufficient evidence that he held a valid 25% membership/ownership interest in Caribou Coal that he could transfer to Spurlock.
2. Whether the February 22, 2006 agreement failed for lack of consideration because Begley had no transferable ownership interest.
3. Whether Spurlock was entitled to JNOV and return of the $5,000 payment.

## Decision

- The Supreme Court of Kentucky reversed the Court of Appeals and the trial court judgment and remanded with directions to enter judgment for Spurlock.
- The court held Begley failed, as a matter of law, to prove he was ever admitted as a member/owner of the LLC.
- Because Begley lacked the 25% ownership interest described in the contract, the agreement suffered a failure of consideration.
- Spurlock was entitled to JNOV and recovery of his $5,000 payment.
- The court criticized the jury instructions for not requiring the proper legal criteria for LLC membership, allowing the jury to find ownership without the necessary statutory formalities.

## Legal Principles

- LLC membership/ownership is governed by statute and the operating agreement; admission as a member requires compliance with required formalities (commonly written consent or operating-agreement procedures), not merely oral assurances.
- A creditor’s economic right to repayment (e.g., holding a promissory note) does not, by itself, create LLC membership or a transferable ownership interest.
- A contract to sell a specific ownership interest lacks consideration where the seller does not own the interest purportedly conveyed; the buyer may rescind and recover amounts paid.
- When evidence is legally insufficient on an essential element (here, ownership/membership), a contrary jury verdict cannot stand and JNOV is appropriate.

## Conclusion

The Kentucky Supreme Court held that Begley did not prove he ever became a member of the LLC, so he could not convey “25% ownership” to Spurlock; the resulting failure of consideration required judgment for Spurlock and return of his down payment.


Spurlock v. Begley, 308 S.W.3d 657 (Ky. 2010)