Consider the following hypothetical: The operating agreement of an LLC vests management authority in its two members. In practice, and by informal mutual consent, only one of the members actively manages the LLC’s business and financial affairs. (Not an altogether unusual arrangement, by the way.) When things go awry between the two members, and the active member accuses the inactive member of engaging in misconduct violating fiduciary duties owed to the LLC and to the active member, can the inactive member disclaim those fiduciary duties on the ground he owes no such duty as a de facto non-managing member?
A disclaimer of the sort was raised and rejected in a ruling earlier this month by Manhattan Commercial Division Justice Barry Ostrager in Marcus v Antell, 2018 NY Slip Op 32527(U) [Sup Ct NY County Oct. 5, 2018], where the court relied on a strict application of New York’s LLC Law § 401 (b) (ii) providing that any member of a member-managed LLC “shall have and be subject to all of the duties and liabilities of a manager provided in this chapter.”
It’s not quite as simple as it sounds. Continue Reading Does an Inactive Member of a Member-Managed LLC Owe Fiduciary Duties?