The New Hampshire Supreme Court has not yet expressly decided whether members of a limited liability company owe each other fiduciary duties where the operating agreement fails to expressly impose them. New Hampshire's Business Court, a trial level court, recently held that members do owe each other fiduciary duties in the context of a manager-managed limited liability company.
The facts of David J. Johnson v. Lakes Region Gaming, LLC are complex, but the dispute centers on the efforts to purchase a greyhound race track in Laconia, NH through a court-monitored bidding process. Several individuals formed a limited liability company to consummate the purchase of the track. There was some uncertainty as to which entity actually possessed the necessary "qualified bidder" approval from the court to bid on the track. Nevertheless, a purchase and sale agreement was signed and a deposit was paid to an escrow agent. During the due diligence period, the principals had a change of heart and engaged in efforts to sell the purchase rights (which would have required transferring the qualified bidder status), rather than close on the purchase. Several members of the limited liability company negotiated to sell the purchase rights, but they did not obtain approval from the other members for the sale. Believing they alone held the qualified bidder approval status, they kept the proceeds of the sale of the purchase rights to the exclusion of the other members of the limited liability company.
The members of the limited liability company sued, asserting several claims, one of which was for breach of fiduciary duty. According to the written opinion, the LLC's operating agreement did not expressly impose fiduciary obligations upon the members. The LLC statute, RSA 304-C, also does not expressly impose fiduciary obligations upon members. The Superior Court therefore looked to see if the common law imposed such obligations, and it concluded that members in a limited liability company owe fiduciary obligations to each other. In surveying decisions from courts across the country, the Business Court held that members in an LLC owe each other duties similar to those of partners.
While not a decision of the Supreme Court, and therefore not precedential in other matters in this State, the Business Court's ruling is important for members of an LLC. Fiduciaries owe each other duties of utmost good faith and honesty in all dealings. Fiduciaries must not only "protect the interests of the corporation…but also refrain from doing anything that would work injury to the corporation, or to deprive it of profit or advantage which his [or her] skill and ability might properly bring to it, or enable it to make in the reasonable and lawful exercise of its powers." All members in an LLC should keep an eye to see if the Supreme Court tackles this issue in the future.
A full copy of the Business Court's ruling can be found at http://www.courts.state.nh.us/superior/orders/bcdd/JohnstonvLakesRegionGaming.pdf
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