NNN Capital Fund I v. Mikles CA4/3

FACTS

A. Factual Background In 2008, Cap Fund was formed to provide short-term financing to affiliated borrowers for real estate syndications. Cap Fund obtained membership through a private placement memorandum which provided Cap Fund would be professionally managed by NNN Realty Investors, LLC (NNNRI). By 2011, in the wake of a widespread recession, three of Cap Fund’s loans (the Notes), which were unsecured and short-term, were outstanding and nonperforming. In August 2011, Mikles was appointed president of NNNRI. After his appointment, several of Cap Fund’s members told him they wished to wrap up Cap Fund and its outstanding Notes. Mikles proposed that Sovereign Strategic Mortgage Fund, LLC (SSMF), which he controlled, would purchase the Notes. Cap Fund decided to sell the Notes to SSMF for a discount and obtain new notes from SSMF at 8 percent interest, each with a short maturity date and periodic interest payments. Disclosures regarding the Note sale were provided to Cap Fund’s members. The sale of two of the Notes was included in a proposed “Amendment No. 1 to the Limited Liability Company Agreement” that was presented to the members for approval and approved by 77 percent…