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How to Determine Whether a Florida LLC Member Breached Fiduciary Duty in Making Distributions
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How to Determine Whether a Florida LLC Member Breached Fiduciary Duty in Making Distributions

April 16, 2014 Professional Services Industry Legal Blog

Reading Time: 7 minutes

There are many claims available to oppressed members of Florida Limited Liability Companies (“LLC’s”) whose business partners misappropriate assets through unlawful distributions. This article focuses on determining whether actions in making improper distributions by majority members or managers of Florida LLC’s constitute breaches of common law fiduciary duties owed to minority interest holders. Continue reading to learn how to determine whether a Florida LLC member caused a breach in fiduciary duty through unlawful distributions.

Elements of Breach of Fiduciary Duty

Florida courts recognize a tort cause of action for breach of fiduciary duty.  Action Nissan, Inc. v. Hyundai Motor Am., 617 F. Supp. 2d 1177, 1192 (M.D. Fla. 2008); Doe v. Evans, 814 So. 2d 370, 374 (Fla. 2002).  The elements of a claim for breach of fiduciary duty are: (1) the existence of a fiduciary duty; (2) breach of that duty; and (3) damage proximately caused by that breach.  Minotty v. Baudo, 42 So. 3d 824, 835-36 (Fla. 4th DCA 2010) (citing Gracey v. Eaker, 837 So. 2d 348, 353 (Fla. 2002)). More specifically, breach of a fiduciary duty is an intentional tort. La Costa Beach Club Resort Condo. Ass’n, Inc. v. Carioti, 37 So. 3d 303, 308 (Fla. 4th DCA 2010).

Does a Fiduciary Relationship Exist?

When evaluating whether the claim applies to an oppressed Florida LLC member, the first step is to determine whether a fiduciary relationship exists.  Corporate officers, controlling a corporation through ownership of a majority of its stock, have a fiduciary relationship with minority stockholders.  Snead v. United States Trucking Corp., 380 So. 2d 1075, 1078 (Fla. 1st DCA 1980), petition denied, 389 So. 2d 1116 (Fla. 1980); Tillis v. United Parts, 395 So. 2d 618, 619 (Fla. 5th DCA 1981); FDIC v. Stahl, 840 F. Supp. 124, 126 (S.D. Fla. 1993) (citing Farber v. Servan Land Co., Inc., 662 F.2d 371, 377 (5th Cir. 1981) (interpreting Florida law) (“Florida common law defines the relationship of a director and of an officer to the corporation and its stockholders as that of a fiduciary and requires a director to act with fidelity and the utmost good faith.”).  A cause of action for breach of fiduciary duty exists vis-à-vis majority shareholders that use their control of the corporation in their favor and to the disadvantage of minority shareholders. Tillis, 395 So. 2d at 619; Granicz v. Morse, 603 So. 2d 103, 104 (Fla. 2d DCA 1992); Hodges v. Buzzeo, 193 F. Supp. 2d 1279, 1288 (M.D. Fla. 2002).

Breach of Fiduciary Duty

Next, the oppressed member must outline what constitutes breach of that fiduciary duty.  In other words, what does the duty encompass in the context of controlling members and managers of an LLC?  A majority shareholder breaches his fiduciary duty by taking a personal benefit or advantage not also enjoyed by minority shareholdersCohen v. Hattaway, 595 So. 2d 105, 107 (Fla. 5th DCA 1992) (citing Seestedt v. Southern Laundry, Inc., 149 Fla. 402, 407 (1942) (“These fiduciary obligors cannot, either directly or indirectly, in their dealings on behalf of the fiduciary beneficiary with others, or in any other transaction in which they are under a duty to guard the interests of the fiduciary beneficiary, make any profit or acquire any other personal benefit or advantage, not also enjoyed by the fiduciary beneficiary, and if they do, they may be compelled to account to the beneficiary in an appropriate action.”). Additionally, “[i]f an LLC manager knowingly permitted the LLC to violate a contractual duty owed to one of the company’s members that would . . . constitute a breach of fiduciary duty.”  Metro Commc’n. Corp. BVI v. Advanced Mobilecomm Tech., Inc., 854 A.2d 121, 141 (Del. Ch.  2004).

Making Distributions

In the context of managing an LLC, allowing distributions that render the company insolvent is a breach of fiduciary duty.  Official Comm. of Unsecured Creditors of Toy King Distribs. v. Liberty Sav. Bank, FSB (In re Toy King Distribs.), 256 B.R. 1, 167 (Bankr. M.D. Fla. 2000). Further, employment of any “squeeze-out techniques” by majority shareholders may give rise to claims of oppression and breach of fiduciary duties. See Tillis v. United Parts, Inc., 395 So.2d 618, 619 (Fla. 5th DCA 1981).); Karnegis v. Lazzo, 243 So.2d 642, 643 (Fla. 3d DCA 1971).

Additionally, wrongfully retaining revenues and profits of the LLC also constitutes a breach of fiduciary duty.  Foster-Thompson, LLC v. Thompson, 2007 U.S. Dist. LEXIS 43206, 2007 WL 1725198, at *26 (M.D. Fla. June 14, 2007); Merovich v. Huzenman, 911 So.2d 125, 128 (Fla. 3d DCA 2005).  In Merovich, the court held that the members’ claim that the managers had wrongfully retained revenues and profits of the LLC was incorrectly dismissed because Fla. Stat. § 608.4225 might support a breach of fiduciary duty against the individual managers if appropriately pled. Id. at 128. Note this statute has now been replaced by Fla. Stat. § 605.04091.

Other courts have held that, in a breach of the duty of loyalty case, if one member misappropriates LLC funds, the others have a right to bring a direct claim. See Arifin v. Schude, No. 98-C-1591, 1999 U.S. Dist. LEXIS 7926, at *11-13 (N.D. Ill. May 12, 1999); Orsi v. Sunshine Art Studios, Inc., 874 F. Supp. 471, 475 (D. Mass. 1995); cf. Loyola Fed. Sav. Bank v. Fickling, 58 F.3d 603, 608 (11th Cir. 1995) (finding limited partner entitled to bring direct action for share of fee paid to general partner in breach of duty of loyalty case). Courts have also recognized that members of an LLC are directly injured by the misappropriation of funds, usurpation of business opportunities, or other willful misconduct by another member of the LLC. See generally Goldstein & Price, L.C. v. Tonkin & Mondl, L.C., 974 S.W.2d 543, 552 (Mo. Ct. App. 1998) (wrongful withdrawal of funds by manager of LLC would have immediate and direct effect on the injured member’s capital); Lawson v. Tax Lien Resources Group, LLC, 1998 U.S. Dist. LEXIS 21533, 1998 WL 957331 (N.D. Ill. Dec. 18, 1998) (allowing former LLC member  to directly sue her former co-members alleging that they had wrongfully withheld her share of profits and other compensation).

Finally, in matters of insolvency or improper wind down, a Manager cannot argue that she was unaware the distributions would render the LLC insolvent, thus violating Florida law.  “The duty of the directors of a company to act on an informed basis . . . forms the duty of care . . . .” Official Comm. of Unsecured Creditors of Toy King Distribs. v. Liberty Sav. Bank, FSB (In re Toy King Distribs.), 256 B.R. 1, 140 (Bankr. M.D. Fla. 2000) (citing Cede & Co. v. Technicolor, Inc., 634 A.2d 345, 367 (Del. 1993).  To satisfy their duty of care, the directors must “inform themselves, prior to making a business decision, of all material information reasonably available to them. Having become so informed, they must then act with requisite care in the discharge of their duties.” Id.

Calculating Damages

Under Florida law, a member of an LLC may bring a breach of fiduciary duty claim for money damages against another member or managing member for wrongfully retaining revenues and profits of the LLC.  Foster-Thompson, LLC v. Thompson, 2007 U.S. Dist. LEXIS 43206, 2007 WL 1725198, at *26 (M.D. Fla. June 14, 2007); Merovich, 911 So.2d at 128. For breach of fiduciary duty, agreements and common law precedent may alter the damages available under the facts of the particular case. However, oppressed minority members should seek the difference between fair value of the oppressed or expelled member’s stock and the lesser amount which defendant(s) were contractually required to pay him/her pursuant to the governing agreementPedro v. Pedro, 489 N.W.2d 798, 802 (Court of Appeals of Minnesota 1992). Because the fair value of the oppressed member’s shares in Pedro was greater than the value stipulated in the buyout agreement, the court held the proper measure of damages was the difference between the two values. Id.


While the parameters of the fiduciary relationship within an LLC may often be undefinable, the relationship itself is likely created when a majority member or manager exerts discretionary power over the interests of minority members. The relationship may arise expressly, through contracts and statutes, or may be implied under the specific circumstances of the parties’ relationship, which often requires a factually intensive inquiry. Once you determine a member is a fiduciary, you are then challenged with discerning what obligations he/she owes as a fiduciary and the consequences of his/her deviation from that duty.

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