It may have once been thought that officers constituted as being fiduciaries in a manager-managed LLC setting. Who or what are fiduciaries? Fiduciaries are individuals in whom another has placed the utmost trust and confidence to manage and protect property or money. The relationship wherein one person has an obligation to act for another’s benefit. Typically, it has been those members who operated the business that owed fiduciary duties of loyalty and reasonable care to non-managing LLC owners. They normally uphold legal positions of trust with one or more parties and take care of money or assets for another person. Now, a managing member of an LLC is an individual who holds an ownership interest in the company, participates in its day-to-day management and has authority to contract on behalf of the company. So are managing members fiduciaries? Since most states have codified the fiduciary duties owed by officers and directors, a recent First District Court has affirmed a trial court finding that this is NOT the case.
In the case of 800 South Wells Commercial LLC v. Cadden, 2018 IL App (1st) 162882 (May 9, 2018) Cook Co., 3rd Div, (FITZGERALD SMITH), the courts looked at these issues in greater depth and length and gave more definitive answers in terms of scopes and duties of member-managed LLCs. It looked at a situation that involved a manager-managed Illinois LLC which was formed to obtain a leasehold interest in River City Complex’s commercial space and parking garage and the manager and member appointed Cadden to be the LLC’s vice president. Within four years, the LLC defaulted on both its mortgages. The LLC claimed that fiduciary duties were owed only because he held the title of vice president. The Court was quick to grant summary judgment which went further to say that there was no evidentiary basis to demonstrate that any fiduciary duty was owed to the LLC. Consequently, there was no breach. Continue reading