## Facts

- Four psychiatrists formed an Idaho professional LLC with equal ownership and an operating agreement requiring amendments by “consent of all but one” member.
- The agreement listed specific dissociation events and provided a formula to value a member’s interest upon dissociation.
- A member (Bushi) drew funds from the company’s business line of credit and treated it as a personal loan; he later repaid the funds after related litigation was filed and withdrawn.
- Other members viewed the credit-line draw as improper and, after Bushi began working for a competitor, voted to amend the operating agreement to add mandatory dissociation upon majority vote.
- After adopting the amendment, the other members voted to dissociate Bushi and tendered payment calculated under the agreement’s valuation formula; Bushi refused the tender.
- Bushi sued the LLC and the remaining members alleging, among other claims, breach of fiduciary duty and lack of authority to amend the agreement and expel him; the district court granted summary judgment to defendants and awarded attorney’s fees under Idaho Code § 12-120(3).
- Bushi appealed the merits and the attorney’s fee award.

## Issues

1. Whether the members validly amended the operating agreement to authorize mandatory dissociation by majority vote and then properly dissociated Bushi under the amended agreement and Idaho LLC law.
2. Whether facial compliance with the operating agreement and statute barred Bushi’s claims that the members breached fiduciary duties and the implied covenant of good faith and fair dealing in expelling him.
3. Whether attorney’s fees were properly awarded where the defendants obtained summary judgment but the appellate disposition was mixed.

## Decision

- The Idaho Supreme Court affirmed the ruling that the amendment procedure was satisfied and that the operating agreement could be amended to add a majority-vote dissociation mechanism consistent with Idaho law.
- The Court vacated summary judgment to the extent it rejected, as a matter of law, fiduciary-duty and good-faith claims based solely on contractual compliance.
- The Court remanded for further proceedings on fact-dependent questions concerning the members’ motives, good faith, and alleged self-interested use of the amendment and dissociation power.
- The Court vacated and remanded the attorney’s fee award for reconsideration in light of the mixed outcome.

## Legal Principles

- An LLC operating agreement may be amended to add or expand dissociation mechanisms if the amendment complies with the agreement’s amendment requirements and does not violate statute or public policy.
- Compliance with an operating agreement’s formal procedures does not automatically immunize LLC members from claims for breach of fiduciary duty or breach of the implied covenant of good faith and fair dealing.
- In closely held entities, the exercise of discretionary contractual powers affecting a member’s ownership interest may be subject to scrutiny for loyalty, good faith, and fair dealing; intent and purpose can create triable fact disputes.
- When an appellate court affirms in part and vacates in part, a fee award premised on complete success must be reconsidered under the applicable fee statute and the parties’ relative success.

## Conclusion

The court upheld the contractual and statutory validity of amending the operating agreement to permit majority-vote dissociation and using that mechanism to terminate membership, but held that the manner and motive for doing so could still support fiduciary-duty and good-faith claims requiring factual development; it therefore remanded those issues and required reconsideration of attorney’s fees.


Bushi v. Sage Health Care, PLLC, 146 Idaho 764, 203 P.3d 694 (Idaho 2009)