Court upholds ruling in dispute between former law partners

KANSAS CITY — An appeals court has affirmed a Buchanan County trial court judgment in favor of an attorney in a dispute with her former law partner concluding she held a valid ownership interest in the company and was not bound by an unsigned operating agreement that included an arbitration clause. 

In an opinion filed Jan. 20, the Missouri Court of Appeals for the Western District rejected all three points raised by Diane K. Hook and Grace & Wisdom LLC, who had appealed a judgment that found Hook breached fiduciary duties owed to Jennifer McKinley in connection with the ownership and management of the limited liability company formed to purchase and operate a St. Joseph office building. 

The court affirmed the trial court’s findings that the written operating agreement was invalid without McKinley’s signature, that the parties instead operated under an oral agreement granting McKinley a membership interest, and that arbitration could not be compelled.

The dispute arose from the formation and operation of Grace & Wisdom, which Hook and McKinley created in 2014 to purchase property in St. Joseph where their law firm was located. 

According to the record, the two attorneys agreed to share ownership equally and divided responsibilities, with McKinley managing the law firm’s operations and Hook handling matters related to the property-owning company. 

Hook filed articles of organization for the company, listing herself as organizer and registered agent, but the articles did not identify members.

Hook later drafted a written operating agreement naming herself as managing member and identifying both attorneys as members with equal ownership interests. 

The document, however, bore only Hook’s signature and was never presented to McKinley for execution. 

Despite this, both attorneys acted as members of the company for years, jointly participating in loan applications, signing personal guaranties, executing real estate documents and overseeing leasing arrangements for the property.

Tensions escalated in 2019 following disagreements over maintenance responsibilities, the court document states.

Hook asked McKinley to transfer her interest in the company in exchange for Hook assuming full responsibility for the property’s debts and upkeep, an offer McKinley declined. 

The trial court found that Hook nevertheless executed a resolution purporting to confirm a transfer of McKinley’s interest, despite the absence of any signed document effectuating such a transfer. 

The court further found that Hook later restricted McKinley’s access to company records and the property itself.

McKinley filed suit in July 2022 alleging breach of fiduciary duty and seeking declaratory and equitable relief. 

Hook and the company sought to compel arbitration based on a clause in the unsigned operating agreement, but the trial court denied that request after an evidentiary hearing. 

Following a bench trial in September 2024, the court ruled in McKinley’s favor on all counts, appointed a receiver and rejected a counterclaim brought by Hook and the company.

On appeal, Hook and Grace & Wisdom argued that McKinley lacked standing because she was not a member of the company, that the operating agreement was valid despite the lack of her signature and that arbitration should have been ordered. 

The appellate court disagreed on all points. It held that the operating agreement, by its own terms, required execution by the members to be effective and that McKinley never signed it. 

The court also found sufficient evidence of an oral operating agreement, noting the parties’ mutual intent, shared responsibilities, personal guaranties of company debt and years of conduct consistent with joint ownership.

Because the court determined McKinley was not bound by the written operating agreement, it concluded there was no enforceable arbitration agreement. 

The appellate panel deferred to the trial court’s credibility determinations and found substantial evidence supporting the conclusion that Hook breached fiduciary duties after holding herself out as managing member.

The judgment of the trial court was affirmed in full, leaving intact the findings in McKinley’s favor and the appointment of a receiver to oversee the company’s affairs.

Missouri Court of Appeals in the Western District case number: WD 87683