New York Court Addresses Action by Written Consent in LLC, Breach of Contract Versus Breach of Fiduciary Duty

New York Court Addresses Action by Written Consent in LLC, Breach of Contract Versus Breach of Fiduciary Duty

      In a quite short decision issued from New York, the court provided some useful guidance with respect to both member action by written consent and distinguishing claims for breach of fiduciary duty from claims for breach of contract. Schindler v. Rothfeld, 153 A.D.3d 436, 60 N.Y.S.3d 125, 2017 N.Y. Slip Op. 06145 (App. Div. 1^st August 15, 2017.

       This short decision does not fully recite the factual background, but clearly the interpersonal relationship among the members of the LLC and the manager had broken down. When the manager was removed from that position, he objected that the removal was invalid as it was done without a formal meeting of the members with prior notice. The court rejected the manager’s claim on the basis that the operating agreement provided that “any action that might be taken at a meeting could be taken by informal action where, as here, a majority of the members agreed to take it, and that notice of the decision to take an informal action was not required to waive the meeting requirement.”

      The court did allow to proceed a claim against one of the members that she failed to satisfy the obligation, undertaken in the operating agreement, to “devote her full-time services exclusively to the company,” indicating that these allegations “state a cause of action for breach of contract.” While that claim was allowed to proceed forward, the court rejected the claim that that same conduct constituted a breach of fiduciary duty as the fiduciary duty claims were “premised upon the allegations underlying part of the breach of contract counterclaims.”