An LLC is Not a Joint Venture

An LLC is Not a Joint Venture

      In a recent decision from the North Carolina Business Court, in addition to addressing the existence of fiduciary duties among the members of an LLC, the court rejected the notion that the rule of partnerships (joint ventures) should as well control the relationship between an LLC’s members. Strategic Management Decisions, LLC v. Sales Performance International, LLC, No. 17 CVS 3061, 2017 NCBC 68, 2017 WL 3425930 (N.C. Bus. Ct. August 7, 2017).

       The plaintiff, Strategic Management Decisions, LLC (“SMD”), was a member of Sales Talent Optimization, LLC (“STO”); defendant Sales Performance International, LLC (“Sales Performance”) was the other member in STO. SMD asserted that Sales Performance expropriated certain of its intellectual property as well as that of STO in order to set up a competing venture that usurped STO’s business opportunities and competed against it. Sales Performance was the majority member in STO.

      With respect to the claim for breach of fiduciary duty, Sales Performance defended on the basis that, under North Carolina law, no fiduciary relationship exists between the members of an LLC and that, even if it did, all fiduciary duties were waived and disclaimed in the LLC’s operating agreement. Ultimately, notwithstanding the fact that Sales Performance may have been a 60% member in the LLC, the company’s operating agreement:

Conclusively rebuts any presumption of majority control, to the extent one exists. Although Sales Performance owns 60% of STO, it has no meaningful ability to use that interest to exercise control over the company. The operating agreement instead vests “full, exclusive and complete authority to manage the affairs of the Company” in two managers. Plaintiff and Sales Performance each have “the power to designate” one manager, and any action of the managers must be unanimous.

On that basis, the claim for breach of fiduciary duty failed. The court as well addressed a secondary argument made by the plaintiff to the effect that STO was effectively a joint venture between the plaintiff and Sales Performance, and that joint venture status “gives rise to an independent fiduciary duty.” The court succinctly rejected that suggestion, writing:

Plaintiff and Sales Performance chose to organize their joint enterprise as an LLC, and is therefore subject to the laws governing LLCs.