Where the Operating Agreement permitted the elimination of the duty of care and further provided that it would be automatically amended to eliminate any other duties as permitted by an amendment to North Carolina’s Limited Liability Act (“LLC Act”), the 2014 amendment of the LLC Act eliminated Defendant’s fiduciary duty of loyalty to the company.  Emrich Enters. LLC v. Hornwood, Inc., 2023 NCBC 86 (J. Robinson). Notwithstanding the jury’s finding that Defendant’s business actions had been self-interested manner and caused injury to the company, Defendant was nonetheless entitled to judgment as a matter of law because Defendant owed the Company no fiduciary duties based upon the Operating Agreement’s plain language.

Plaintiff and Defendant are the only members of Triangle Automotive Components, LLC (“Company”).  In 2006, the parties entered into an Operating Agreement that, in Section 3.4, specifically waived any fiduciary duty of care that a member as a manager might otherwise owe to the Company.  Section 3.4 also provided that, “If the LLC Act is amended to authorize further eliminations of or limitations on the liability of Members as Managers, the liability of Members…shall be eliminated or limited to the fullest extent permitted by the Act so Amended.”  (Opinion, ¶9).  In 2014, the LLC Act was amended and made a manager’s duty of loyalty “subject to the operating agreement.”  (Opinion, ¶29).  In 2017, Defendant began discussions with and ultimately conducted business with a foreign entity to the exclusion (and detriment) of the Company.  Plaintiff brought derivative claims against Defendant, contending its actions with the foreign entity breached fiduciary duties Defendant owed to the Company.  The jury found that Defendant had indeed engaged in self-interested transactions that were not fair and were harmful to the Company and awarded damages.  Defendant filed a motion for jnov, contending that the 2014 amendment to the LLC Act had eliminated any fiduciary duties.

The Business Court agreed.  Recognizing that the 2014 amendment to the LLC Act permitted parties to an Operating Agreement to eliminate even the duty of loyalty, the Business Court found that the Operating Agreement’s from Section 3.4 was tantamount to an “automatic amendment” and elimination of that duty. (Opinion, ¶29-30).  As such, even though the jury found that Defendant had engaged in self-interested transactions which ordinarily would have satisfied a breach of the duty of loyalty, because the 2014 amendment (in combination with the Operating Agreement) eliminated any fiduciary duty Defendant might have otherwise owed to the Company, Defendant was entitled to jnov on Plaintiff’s derivative breach of fiduciary duty claim.

Based upon this decision, an LLC should examine its Operating Agreement to determine if the fiduciary duties its managers ordinarily owe have been eliminated by the 2014 amendment to the LLC Act.