## Facts

- Arthur Salm and Neil Feldstein were the only members of World Wide Automotive, LLC, each owning 50%; Feldstein was the managing member.
- On June 2, 2003, Feldstein bought Salm’s membership interest via a redemption and settlement agreement providing $3,750,000 plus a five-year consulting arrangement totaling $1,350,000.
- On June 4, 2003, Feldstein sold the underlying automobile dealership to a third party for $16 million.
- Salm sued for breach of fiduciary duty and fraud, alleging Feldstein misrepresented the dealership’s value as $5–$6 million and failed to disclose a firm $16 million offer made before the buyout.
- Feldstein denied wrongdoing and relied on contractual disclaimers to argue Salm could not claim reliance or nondisclosure.
- The trial court granted Feldstein summary judgment and denied Salm’s cross-motion to compel discovery, dismissing the complaint.

## Issues

1. Whether a managing member and co-member of an LLC owes a fiduciary duty of full disclosure to the other member in connection with a buyout.
2. Whether contractual disclaimers in a buyout agreement bar fraud and fiduciary-duty claims where a fiduciary relationship exists.
3. Whether summary judgment should be denied as premature under CPLR 3212(f) where discovery may reveal facts essential to oppose the motion.

## Decision

- The Appellate Division reversed the judgment, with costs.
- It denied Feldstein’s summary-judgment motion as premature under CPLR 3212(f).
- It granted Salm’s cross-motion to compel discovery, reinstated the complaint, and vacated the prior order.

## Legal Principles

- A managing member and co-member in a closely held LLC owes the other member a fiduciary duty, including full disclosure of all material facts in transactions between them.
- Contractual disclaimers do not relieve a fiduciary of the obligation of full disclosure arising from the fiduciary relationship.
- Under CPLR 3212(f), summary judgment may be denied where the opposing party shows that facts essential to justify opposition may exist but cannot yet be stated without discovery; suspicious timing and surrounding circumstances can satisfy this standard.

## Conclusion

The court held that the managing member’s fiduciary duty to disclose material information could not be avoided through contractual disclaimers and that the rapid post-buyout sale supported denial of summary judgment as premature so discovery could proceed on the fraud and fiduciary-duty claims.


Salm v. Feldstein, 20 A.D.3d 469, 799 N.Y.S.2d 104 (App. Div. 2d Dep’t 2005)