Jury Decision Reversed When Instructions Were Inconsistent With the Operating Agreement

Jury Decision Reversed When Instructions
Were Inconsistent With the Operating Agreement

      In a recent decision from North Carolina, a jury decision with respect to breach of fiduciary duty in an LLC was reversed where the jury instructions were inconsistent with the operating agreement. Claudio v. Sellers, No. COA18-636, 2019 N.C. App. LEXIS 288 (N.C. Ct. App. March 26, 2019).

      This decision turned upon whether a particular member, Wilson, owed fiduciary duties to the other members of an LLC. North Carolina follows the rule that a majority shareholder in a corporation owes a fiduciary duty to the minority members in the corporation, and that rule has been carried over to the law of LLCs. Ergo, a majority member of an LLC owes fiduciary duty to the minority member. It was on that basis that this decision was rendered. However, the operating agreement defined a “majority (i.e., that threshold of the members required to act) as 67% of the members. While Wilson was more than a 50% member, be was not a 67% member. 

      In this instance, it was asked of the jury whether a fiduciary duty was owed and, had in turn been breached. Where, however, the jury was not advised that it took a 67% vote of the members to constitute a majority, the jury instruction was erroneous.  Whether Wilson owed a fiduciary duty should have been a jury question.