Business Associations, Pages 994–999

Anderson v. Wilder

Court of Appeals of Tennessee, 2003

Facts:

The parties were in an LLC which allowed the majority shareholders to expel members without cause for $150 per ownership unit. Defendants, owning 53% of the LLC, exercised this option and expelled the plaintiffs. Shortly afterwards, they sold the plaintiffs' units to a third party for $250 per share.

Procedural History:

Trial court granted defendants summary judgment.

Issue:

Did defendants breach a fiduciary duty to plaintiffs?

Rule:

A majority shareholder of an LLC owes a fiduciary duty to the minority of "utmost good faith and loyalty."

Note:

This is not the rule in Virgina, where members do not owe duties to each other, even when a majority.

Reasoning:

Defendant's claimed cause for expelling plaintiffs in good faith is disputed as false by plaintiffs and thus creates a genuine issue of material fact. Expelling them without such a reason just to force them to sell their shares cheaply would be a breach of their fiduciary duty.

Holding:

Yes, defendants breached their fiduciary duty to plaintiffs if they expelled them without a reason. Summary judgment vacated and remanded.


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