Manager Of LLC Did Not Breach The LLC Operating Agreement
In The business law and business litigation case of Vendetti v. Mc David, PICS Case No. 15-1884 (C.P. Philadelphia July 9th, 2015) the Honorable Gary S. Glazer ruled that the managing member of an LLC did not breach the operating agreement for failure to provide dividends or records where the express terms did not require the LLC to provide them to the members. Summary judgment for defendants granted.
Defendants 2100 Fairmont Avenue LLC and its managing member, Jack McDavid, motioned for summary judgment in the derivative action, breach of operating agreement and breach of fiduciary action brought by plaintiff Angela Vendetti, a member of the LLC. The LLC was formed by plaintiff and McDavid and others to own and operate certain property; the property was to be leased by the LLC to plaintiff and another member to operate a coffee shop, Mugshots. The LLC began to suffer financial troubles, so McDavid, the managing member, called upon the members to make additional cash contributions pursuant to the operating agreement. Mugshots eventually moved out of the property, and the LLC obtained a new tenant. Ultimately, relations between plaintiff and McDavid soured, leading to this action.
Defendants moved for summary judgment on all of the plaintiff’s claims. The court first ruled that plaintiff’s “accounting” claim in its amended complaint was simply a rebranded version of its derivative action based on fraud on the part of McDavid which the court had previously dismissed for failure to state a prima facie case. Because plaintiff had made no significant changes to the averments in the claim in rebranding it as a claim for an accounting, the court dismissed the claim again.
The court further ruled that summary judgment was proper on plaintiff’s claim for breach of the operating agreement. In her claim, plaintiff alleged that McDavid breached the operating agreement by failing to issue dividends or provide copies of LLC records to the members. However, the court ruled that, because the operating agreement explicitly provided that the managing member had authority to determine when to distribute dividends and provided that information regarding the LLC, as opposed to records, was required to be provided to members, McDavid was not in breach of the agreement for failing to provide plaintiff with dividends or copies of LLC records. The court additionally held that the failure to obtain a new tenant paying a monthly rent of at least $10,000 as discussed by McDavid was not a breach of the operating agreement, since the authority to lease LLC property was in the sole discretion of the managing member, and the mere discussion of a new tenant did not create a new obligation under the operating agreement.
The court further ruled that the plaintiff failed to establish her claim for breach of fiduciary duty. The court noted that the LLC operating agreement limited the liability of members to one another except for fraud, deceit, gross negligence or willful misconduct, but found that plaintiff’s claim relied solely on its own averments and failed to make reference to any legal argument or factual exhibit.
Finally, the court ruled that plaintiff was not entitled to relief on her claim for a reorganization of the LLC under a receiver. The court held that the LLC operating agreement provided a mechanism for the removal of McDavid, and, since plaintiff had failed to attempt to utilize that provision of the operating agreement, in conjunction with plaintiff’s failure to provide sufficient evidence there was no basis for relief on plaintiff’s claim.
Reference: digest of Recent Opinion, Pennsylvania Law Weekly, 38 PLW 1213 (December 29, 2015)
Filed Under: LLC, Fraud, Breach of Operating Agreement, Breach of Fiduciary Duty
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