No Breach of Fiduciary Duty or of Good Faith and Fair Dealing in (Apparently) Zeroing Out Another Member

No Breach of Fiduciary Duty or of Good Faith and Fair Dealing in (Apparently) Zeroing Out Another Member

      In a recent decision from New York, while at best sparse on the underlying facts, does affirm a determination that the exercise of an express power set forth in an operating agreement will not give rise to a claim of breach of fiduciary duty or the implied contractual covenant of good faith and fair dealing. Seeking Valhalla Trust v. Deane, --- N.Y.S.3d ----, 182 A.D.3d 457, 2020 WL 1812730 (App. Div. 1^st April 9, 2020).

       Again, the available facts are sparse; this entire opinion runs to only two pages. Still, it would appear that the Seeking Valhalla Trust was a member in an otherwise unnamed LLC. Deane, apparently the LLC’s manager, exercised an express right under the operating agreement to adjust the sharing ratios amongst the members, even down to zero, at any time. It appears that this was done, and the Seeking Valhalla Trust brought suit alleging that Deane, in making these adjustments, violated either or both of fiduciary duty or the implied contractual covenant of good faith and fair dealing.

       In dismissing the claim for the alleged violation of the obligation of good faith and fair dealing (the court would as well summarily dismiss the claim for breach of fiduciary duty), the opinion recites:

Nevertheless, the complaint was properly dismissed for failure to state a cause of action. As the court found, Deane did not breach the operating agreement or the covenant of good faith and fair dealing by exercising her express sole discretion to reallocate sharing ratios, even down to zero, at any time. The language of the provision is unambiguous. Considered otherwise, Deane merely exercised the very power given her by the operating agreement. 2020 WL 1812730, *1 (citations omitted).