## Facts

- Two consolidated disputes involved allegations that LLC managers and/or members breached fiduciary duties owed to their LLCs.
- The governing statute was Arizona’s 1992 Limited Liability Company Act, which did not expressly state fiduciary duties for LLC members or managers.
- The United States Bankruptcy Court for the District of Arizona certified three questions of Arizona law to the Arizona Supreme Court concerning (1) fiduciary duties of managers, (2) fiduciary duties of members, and (3) whether operating agreements may limit or eliminate such duties.
- Arizona law provided that agency law applies to the LLC statute, requiring analysis of fiduciary duties through common-law agency principles.
- The Arizona Supreme Court addressed only the legal questions and did not decide whether any party actually breached a duty.

## Issues

1. Whether an Arizona LLC manager owes common-law fiduciary duties to the LLC under the 1992 LLC Act.
2. Whether an Arizona LLC member owes common-law fiduciary duties to the LLC under the 1992 LLC Act, and whether any duty depends on the member’s status as an agent.
3. Whether an LLC operating agreement may lawfully limit or eliminate fiduciary duties, and whether any duty remains nonwaivable.

## Decision

- The court answered the first certified question “yes”: an LLC manager owes common-law fiduciary duties to the LLC.
- The court answered the second certified question “yes,” but only if the member is an agent of the LLC.
- The court answered the third certified question “yes”: an operating agreement may limit or eliminate fiduciary duties.
- The court held that an operating agreement may not eliminate the implied contractual duty of good faith and fair dealing.
- The matter returned to the bankruptcy court to apply these answers to the pending claims.

## Legal Principles

- When agency law applies, an agent owes common-law fiduciary duties to the principal; in the LLC context, those duties may include loyalty and care.
- Under the 1992 Arizona LLC Act, an LLC manager is treated as an agent of the LLC for purposes of imposing common-law fiduciary duties.
- An LLC member does not owe fiduciary duties merely by being a member; duties arise only to the extent the member acts as an agent of the LLC.
- Arizona LLC operating agreements may contractually limit or eliminate common-law fiduciary duties owed by managers or agent-members.
- The implied covenant of good faith and fair dealing is a nonwaivable contractual obligation and cannot be eliminated by an operating agreement.

## Conclusion

The Arizona Supreme Court held that managers of Arizona LLCs governed by the 1992 LLC Act owe common-law fiduciary duties to the company, members owe such duties only when acting as the company’s agents, and operating agreements may restrict or remove fiduciary duties except for the nonwaivable implied duty of good faith and fair dealing.


Sky Harbor Hotel Props., LLC v. Patel Props., LLC (In re Sky Harbor Hotel Props., LLC), 246 Ariz. 531, 443 P.3d 21 (Ariz. 2019)