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The Tennessee Business Court Clarifies Fiduciary Duties of LLC Members

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.

William R. O'Bryan, Jr.

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