## Facts

- FuturePoint Administrative Services, LLC was a closely held, member-managed LLC formed to administer third-party medical claims.
- The operating agreement created a management committee and permitted expulsion of a member “with or without cause” by majority vote, with a mandatory buyout of expelled members’ units at $150 per unit.
- By mid-2001, FuturePoint had substantial cash on hand (about $60,000–$63,000), and discussions occurred about valuing units above $150, including at $250 per unit.
- On September 14, 2001, majority members holding 53% of the units voted to expel multiple minority members and repurchased their units at $150 per unit.
- On October 11, 2001, the remaining members sold 499 units (49.9% interest) to an outside investor for $250 per unit.
- Plaintiffs alleged the expulsions were part of a plan to force minority members out at the contractual price and then resell units at a profit; defendants asserted the expulsions were motivated by concern that plaintiffs intended an excessive cash distribution that could threaten operations.
- Plaintiffs sued majority members for breach of fiduciary duty and breach of the duty of good faith and fair dealing; the trial court granted defendants summary judgment.

## Issues

1. Whether majority members of a closely held, member-managed LLC owe minority members fiduciary duties of good faith and fair dealing.
2. Whether contractual authority to expel members “with or without cause” and repurchase units at a fixed price bars fiduciary-duty and good-faith claims as a matter of law.
3. Whether disputed evidence regarding motive and purpose created genuine issues of material fact that precluded summary judgment.

## Decision

- The Tennessee Court of Appeals held that members of a closely held, member-managed LLC owe one another fiduciary duties comparable to those recognized among partners and among shareholders in closely held corporations.
- The court ruled that the operating agreement’s expulsion and buyout provisions did not, by themselves, eliminate the requirement that majority members act in good faith and deal fairly with minority members.
- The court vacated the summary judgment for defendants and remanded because material factual disputes existed concerning defendants’ purpose, good faith, and alleged self-dealing in the expulsions and subsequent resale.

## Legal Principles

- In a closely held, member-managed LLC, majority members owe minority members fiduciary duties of fair dealing and good faith.
- A broadly worded operating-agreement power (including expulsion “with or without cause”) must be exercised consistently with fiduciary duties and the implied obligation of good faith and fair dealing.
- Summary judgment is improper where intent, motive, and the fairness or purpose of majority action are genuinely disputed and supported by competing evidence.

## Conclusion

The court recognized fiduciary duties among members of a closely held, member-managed LLC and held that contractual expulsion rights do not immunize majority members from claims based on alleged bad faith or self-interested conduct; because disputed facts existed about why the minority members were expelled and how the transaction was used, summary judgment was vacated and the case was remanded for trial.


Anderson v. Wilder, No. E2003-00460-COA-R3-CV, 2003 WL 22768666 (Tenn. Ct. App. Nov. 21, 2003)