A minority member (Kaplan) of a limited liability company, who was the LLC’s only source of funds and who controlled the LLC’s checkbook, did not have fiduciary duties to the LLC and its other members.
Judge Tennille held:
Being an investor in a company does not create a fiduciary relationship. . . . Kaplan, as a minority shareholder, had no fiduciary duty to the other shareholders even though he was the sole financial contributor to O.K. Like an investor in a corporation, Kaplan’s position as the holder of the purse strings did not create a fiduciary duty. At all pertinent times, Kaplan was a minority shareholder without dominance or control over either O.K. or any of the other shareholders and therefore without a fiduciary duty.
The LLC members also contended that Kaplan had not followed the procedures set forth in the LLC’s Operating Agreement in making his loans. The Court ruled, however, that these claims were barred by ratification and estoppel. It held "Defendants are estopped from objecting to the loans by their continued acceptance of reimbursement and salary made possible by the loans, as well as their inaction when O.K. creditors were paid with the loaned money." (Op. at 8).
Summary judgment was granted on Defendant’s claim of negligent misrepresentation, because the Court found that Defendants, as majority shareholders of the LLC, could have investigated any questions of the validity of the representations made by Kaplan. As members of the majority, the Defendants had "the opportunity to question and determine for themselves whether any documentation provided was inaccurate." (Op. at 14).
Last, the Court granted summary judgment on Defendant’s unfair and deceptive practices claim. The Court held that "the dispute here arises from an internal dispute over the direction of O.K. by its shareholders. Commerce is not affected by the parties’ inability to work together as an LLC." (Op. at 14).