No Recovery to LLC Member Who Failed to Read Amended Documents

No Recovery to LLC Member Who Failed to Read Amended Documents

      In a recent decision from New York, a decision against a member of an LLC who signed, without reading it, an amended operating agreement that stripped him of control of the LLC was denied recovery on the grounds of either fraud or breach of fiduciary duty. Stortini v. Pollis, 2016 N.Y. Slip Op. 02984, 2016 WL 1576389 (N.Y. App. Div. 2 April 20, 2016).

      Stortini and Pollis were the equal members in a series of LLCs involved in real estate development. In connection with the refinancing of certain company properties, Stortini went to Pollis’ office to sign documents. Those documents included in operating agreement and the first amendment thereto. Stortini was told, by a Pollis employee, that the documents are “common, basic documents in order for the financing to proceed.” Upon learning that the documents he had signed had stripped him of a voice in company management, Stortini brought suit against Pollis alleging fraud, breach of fiduciary duty, and seeking an accounting. The trial court dismissed the complaint, and this appeal followed.

      Affirming the dismissal of the claim for fraud, the court recited the elements of that claim, including the requirement of “justifiable reliance upon the misrepresentation.” As a pleading failure, the plaintiff's allegations did “not contain any allegations setting forth any material misrepresentations the defendants made to the plaintiff.” Of greater importance, however, was the fact that:

The plaintiff’s averment that he did not read the documents before signing them prevents him from establishing justifiable reliance, an essential element of fraud.

       As to the allegation of breach of fiduciary duty, and accepting for purposes of this argument that fiduciary duties are owed amongst the members of an LLC, it was noted that there exists an obligation to plead breach of fiduciary duty with particularity. From there, this court was able to affirm the determination of the trial court that the complaint had failed to allege factual details and circumstances to support a breach of fiduciary duty. On that basis, it’s dismissal was affirmed.

      The dismissal of the count for an accounting of the LLC was affirmed on the basis of the absence of the demonstration of fiduciary duty.