LLC members have two options for managing the firm. It can be either be a 'member-managed LLC' or a 'manager managed LLC'.
In the former all the members take part in management affairs and majority vote is considered for decisions.
In the latter, the members appoint a group of persons to administer the firm.
DM is a ' member - managed LLC'.
Although LLC agreements cannot completely eliminate the requirement of fiduciary duties, they can expand or constrict the default definition.
In this case, both parties agreed to a broadened definition of the fiduciary duty of loyalty, which would allow competition between the LLC and other business ventures of it members. Thus, the court will probably find that the fiduciary duty was not breached.
In a member-managed limited liability company (LLC), all of the members participate in management, and decisions are made by majority vote. The managers of an LLC-whether member- or manager-managed-owe fiduciary duties to the company and its members. These duties include the duty of loyalty and the duty of care. An LLC's operating agreement can include provisions governing decision-making procedures. For example, the agreement can set forth procedures for choosing or removing members or managers.
Here, Blue-water is member-managed. Under the applicable state law, every member of a member-managed LLC is entitled to participate in managing the business. The Blue-water operating agreements provide for a "super majority" vote to remove and buy out of a member-if the "member has either committed a felony or under any other circumstances that would jeopardize the company status" as a contractor. Without giving a reason, however, three of the four members of Blue-water "fired" the fourth member.
Under these facts and principles, S, M, and F breached their fiduciary duties, the Blue-water operating agreements, and the state LLC statute. The Blue-water members breached their fiduciary duties by their treatment of W. The defendants also breached the Blue-water operating agreements. A super-majority ouster was allowed only when the member to be ousted had committed a felony or had jeopardized the company status as an approved contractor-the defendants' ouster notice alleged neither. And by attempting to ouster W, the defendants violated Mississippi's LLC statute, which provides that every member of a member-managed LLC is entitled to participate in managing the business. As a member of both Blue-water LLCs, W was entitled to participate in the management of both, and he could not be "fired."
In the actual case on which this problem is based, the court issued a judgment in W's favour with a damages award of nearly $350,000. A state intermediate appellate court reversed the judgment, but the Mississippi Supreme Court reversed the appellate court's ruling and affirmed the trial court's judgment, based in part on the reasoning stated above.