Recent Caselaw on Limited Liability Companies
I always impress upon my clients that an agreement among parties is helpful to meter out the contractual obligations. The upside to this is that there is language that the parties must follow. However, if you don’t know what the agreement states before signing, you could get yourself into trouble.
This was the situation in a recent case: Butts v. Arnold E. Freeman, et al. 96 Mass. App. Ct. 827 (2020). The parties formed a limited liability company (“LLC”). After some time, two LLC members decided to leave the LLC. After they left, Butts sued the two members on the grounds they breached their fiduciary duty by not telling Butts about a possible merger. The Court looked at the operating agreement and whether their actions were a breach of their fiduciary duty.
The Court stated that the fiduciary portion of the operating agreement was broad enough that defendants’ actions did not violate it. The Plaintiff argued that language wasn’t the parties’ intentions, and it was ‘boilerplate.’ Plaintiff, in his appellate brief, argued that the fiduciary language was “based on nothing more than boilerplate provisions in what often times will be old and form driven operating agreements not read in years if at all.”
The lower court and appeals court stated that the parties negotiated and signed the operating agreement. Both courts found the language was clear and set forth the parties’ duties. Just because one side didn’t read the operating agreement, doesn’t mean the Courts should deviate from the contracted language.
This is a good case for anyone looking to start a business with others. Before you sign the bylaws or the operating agreement, make sure you, or your attorney, understands everyone’s intentions. You can contract for just about anything in an agreement; however, once that agreement is signed, then it is, in the eyes of the law, the parties’ intentions. Always take the time to make sure the agreement is what you want for the business. I can assist you and your partners in making sure any corporate agreement protects all parties.