breach of fiduciary duty

January 31, 2017

Misappropriation Claim Not Sufficient for Appointment of LLC Receiver

A claim that one of the members has misappropriated assets of a limited liability company and ousted the other member from management is a “quintessential breach” of the fiduciary duties that may exist in a closely held business. It is not, however, grounds for the appointment of a receiver.

This decision of the New Supreme Court in Chen v. Dai, Index Co. 653601/2015 (New York County January 18, 2017) holds that the fact that a claim arises from the existence of a contract – in this case an operating agreement – it may also involve duties independent of the contract. The court finds in a decision on a motion dismiss that pleading that the plaintiff was a co-member of two New York limited liability companies is sufficient to state a cause of action.

LLC Member Misappropriation is Breach of Fiduciary Duty

October 27, 2016

LLC Member Enjoined from Competition

by Jay R. McDaniel, Esq.

An LLC member breached his fiduciary duty by competing with his own company, a trial court in New York City holds in issuing an injunction against one of the principals of a successful company that makes automated parking systems.

The case involves the company that makes Parkmatic parking systems, mechanical stickers and carousels for parking cars in limited spaces. The complaint in Zacharias v. Wassef alleges that the defendant Max Wassef responded to complaints of misconduct by his partner Zacharias by forming a new company to siphon off business using the Parkmatic name.

Limited Liability Company Member Claims Unfair Competition by Manager

October 25, 2016

Court Appoints Receiver to Protect Partnership Assets

by Jay R. McDaniel, Esq.

Court Appoints Receiver to Protect Partnership Assets Courts loathe the appointment of receivers. First, it is often the death knell to any viable business. The appointment of a receiver is commonly good cause to default on virtually any well-drawn contract, and it send anyone otherwise interested in doing business running for cover.

However, when the dysfunction of the partnership puts the assets of the partnership at risk, a Court can and should appoint a receiver, holds the Appellate Court of Illinois in Schultz v. Halpin, 2016 IL App (3d) 160210-U (Ill. App., 2016).

Partnership Assets Must Be Protected in Dispute Says Court

March 13, 2012

Lease Renewals Save Otherwise Time-Barred Breach of Fiduciary Duty Claims in a Partnership

by Jay R. McDaniel, Esq.

The New Jersey Appellate Division affirmed a trial court decision holding that lease renewals would revive stale claims in a partnership dispute. In Munoz v. Perla, et al., A-5922-08T3, the Munoz brought claims, among others, for breach of fiduciary duty for his partners’ failure to charge fair market rates in connection with the lease of the partnership’s property. Despite that the rents were calculated and leases drawn up in 1994, the partnerships acts of renewing the leases in 2003 were found to be separate acts that revived the otherwise time-barred claims.

Formation of the Partnership

Munoz was one of three partners in a real estate venture called The Heritage Partnership. The three partners for started their business relationship in 1983 as principals of a professional engineering firm. Munoz was an inactive partner of Heritage and was not involved in the partnership’s day-to-day operations. The purpose in forming Heritage was to “maintain, operate, manage, sell and/or lease” a commercial building. Each partner contributed capital to the venture and held a one-third ownership interest. The parties’ partnership agreement provided that their rights and obligations were governed by the Uniform Partnership Act, N.J.S.A. 42:1A-1 to -56.

September 30, 2010

Owners of Parent Corporations Should Have Remedies Against Officers of Subsidiary Businesses

by Jay R. McDaniel, Esq.

Businesses often create additional new businesses, whether as joint ventures or subsidiaries. The flexibility and favorable tax treatment given to the limited liability company have made it fairly common that an LLC has other business entities as its owners. For the individual owner, however, this situation can present problems. The requirement that the members act at the company level often means less individual control and less ability to address acts of wrongdoing in the subsidiary or joint venture.

The individual owner’s recourse is the double derivative action, a complicated device in which the individual owner. asserts the rights of the parent to assert a claim as an owner of the subsidiary. It’s confusing, but the principle is generally well accepted.

An Example