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Equal Members of a Two-member LLC Don’t Owe Each Other a Fiduciary Duty, Connecticut Court Holds

As Connecticut commercial litigation attorneys, ZNC’s litigation attorneys frequently advise their clients about how owners of a Connecticut business, whether a Connection corporation, limited liability company or partnership, must treat each other.

The courts discuss this question of how business owners must treat each other as a question of whether, and to what extent, the owners owe each other a “fiduciary duty.”   A fiduciary duty means that an owner has an obligation to consider and act in the interests of another, not just in the owner’s own interests.  Or as defined by the Connecticut Supreme Court, a fiduciary relationship is one where there is a “unique degree of trust and confidence” between the members where one has “superior knowledge, skill or expertise and is under a duty to represent the interests of the other”.

 

Recently, the Connecticut Supreme Court had the opportunity to decide whether this was true when the members of an LLC each owed equal shares in the business and were equally sophisticated business people.  In Romanowsky v. Mezheritskiy, Superior Court, judicial district of Hartford, Docket No. HHDCV166066442 (October 3, 2017), a Connecticut trial court limited fiduciary duties among partners in some circumstances.   In Romanowsky, both members of a real estate investment LLC were equally experienced in their area of business. Since neither had superior knowledge, skill, or expertise over the other, the court found that fiduciary duty did not arise in this circumstance.  In the absence of a fiduciary duty, they did not have to consider the other member’s interests and were free to act in their own best interest.  Note that this doesn’t mean one member could do anything that would harm another owner; even in the absence of a fiduciary duty, member of an LLC, a member cannot defraud or steal from their fellow member.

This case must be applied carefully, as the holding is highly dependent on the fact that both members were equally capable of taking care of themselves.  For example, let’s say one of the members of the LLC in Romanowsky had died and that member’s spouse, who was not experienced in business, was the other member of the LLC.  Since the original member has superior knowledge, skill and expertise in the LLC’s area of business, the original member would likely owe the spouse a fiduciary duty.

The Connecticut commercial litigation attorneys at ZNC regularly advise businesses and their owners about fiduciary duties to avoid disputes among owners, and represent them in litigation when a dispute cannot be avoided.   They advise and represent clients regarding breach of fiduciary duty, Connecticut Unfair Trade Practices Claims, Connecticut corporate shareholder disputes, corporate freeze-outs and all other cases between or among shareholders, partners or members of Connecticut limited liability companies.  . For more information, please call or email one of our Connecticut litigation attorneys  at (203) 333-9441 or info@znclaw.com.

 

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