ARTICLE
22 April 2016

The Tennessee Business Court Clarifies Fiduciary Duties Of LLC Members

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Butler Snow LLP

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Butler Snow LLP is a full-service law firm with more than 360 attorneys and advisors collaborating across a network of 27 offices in the United States, Europe and Asia. Butler Snow attorneys serve clients across more than 70 areas of law, representing clients from Fortune 500 companies to emerging start-ups
In a recent opinion, decided 12/22/15, the Tennessee Business Court clarified the circumstances under which members of a Tennessee limited liability company owe fiduciary duties to one another.
United States Corporate/Commercial Law

In a recent opinion, decided 12/22/15, the Tennessee Business Court clarified the circumstances under which members of a Tennessee limited liability company owe fiduciary duties to one another. In Ewing v. Miller, Case No. 15-1064-BC, the Court refused to dismiss the complaint by a member of a LLC holding a minority interest in the company for an alleged breach of fiduciary duty against other members, who, individually, did not own a majority of the ownership interests of the LLC, but who, allegedly and in concert, composed a "control group" of the LLC.

Generally, members of a member-managed LLC owe fiduciary duties to the company, not individual members. The Court noted the exception that a "majority LLC shareholder" owes a fiduciary duty to a "minority LLC shareholder." Citing Tennessee case law, the Court determined that the complicated circumstance of oppression of a minority LLC member is actionable for breach of fiduciary duty; whereas breach of uncomplicated contractual duties by a LLC member against the other is not actionable as a breach of fiduciary duty."

But what if there are no majority shareholders in the LLC – if all members own the same percentage? The Business Court, looking to law from outside Tennessee and applying to corporations, and rather than precedent applying only to LLCs, found that a breach of fiduciary duty claim may be stated by a member against a "control group" of members.

In Ewing, the complaint was found to have sufficiently pled a breach of fiduciary duty claim against a specifically pled "control group" of members; accordingly the motion to dismiss this claim was denied.

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