Corporations – LLCs — fiduciary duties

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U.S. District Court

Civil

Corporations – LLCs — fiduciary duties

Common law fiduciary duties apply to LLCs.

“[T]here is growing consensus that common law fiduciary duties should apply to the operations of LLCs. See, e.g., Credentials Plus, LLC v. Calderone, 230 F. Supp. 2d 890, 899 (N.D. Ind. 2002) (‘Indiana LLCs, being similar to Indiana partnerships and corporations impose a common law fiduciary duty on their officers and members in the absence of contrary provisions in LLC operating agreements. ); Purcell v. S. Hills Invs., LLC, 847 N.E.2d 991, 997 (Ind. Ct. App. 2006) (‘In line with the district court’s opinion in Credentials Plus, we now hold that common law fiduciary duties, similar to the ones imposed on partnerships and closely-held corporations, are applicable to Indiana LLCs.’); Patmon v. Hobbs, 280 S.W.3d 589, 594 (Ky. Ct. App. 2009) (stating ‘this Court finds that Kentucky limited liability companies, being similar to Kentucky partnerships and corporations, impose a common-law fiduciary duty on their officers and members in the absence of contrary provisions in the limited liability company operating agreement.’); Gottlieb v. Kest, 141 Cal. App. 4th 110, 152 (Cal. App. 2d Dist.2006); People v. Pacific Landmark, LLC, 129 Cal.App.4th 1203, 1211–1216 (Cal. Page 16 of 19 App. 2d Dist. 2005); Maxemus Entertainment, LLC v. Josey, 35 Conn.L.Rptr. 454, p.*3 & fn. 4 (Super.Ct. 2003)(applying Rest.2d Judgments, § 59(3)(a) to limited liability companies); Bushi v. Sage Health Care, PLLC, 203 P.3d 694, 699 (2009); Sandra K. Miller, What Fiduciary Duties Should Apply to the LLC Manager After More Than a Decade of Experimentation?, 32 Iowa J. Corp. L. 565, 611-612 (taking issue with Justice Roggensack’s Gottsacker concurrence). But seeWAKA, LLC v. Humphrey, 2007 Va. Cir. LEXIS 96, at *9–*10 (May 2, 2007).”

“Logic dictates the same. Fiduciary duties exist to protect people who are affected by the actions of those who control businesses. See Id., 2004 WI 39 ¶¶ 33–39, 270 Wis. 2d 378–380, 677 N.W.2d 309–310. Therefore, it would not make any sense if the expectation for a business to act fairly were to be different simply due to the business owners’ choice of form – an LLC, in this case. If that were so, every dishonest owner could simply elect to operate its business as an LLC and claim that no fiduciary duties applied to its actions.”

10-CV-263 Executive Center III, LLC, v. Meieran

E.D.Wis., Stadtmueller, J.