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McConnell v. Hunt Sports Enters. - 132 Ohio App. 3d 657, 725 N.E.2d 1193 (1999)

Rule:

A fiduciary has been defined as a person having a duty, created by his or her undertaking, to act primarily for the benefit of another in matters connected with such undertaking. A claim of breach of fiduciary duty is basically a claim for negligence that involves a higher standard of care. In order to recover, one must show the existence of a duty on the part of the alleged wrongdoer not to subject such person to the injury complained of, a failure to observe such duty, and an injury proximately resulting therefrom. These principles support our conclusion that a contract may define the scope of fiduciary duties between parties to the contract.

Facts:

After breaking away from Columbus Hockey Limited (CHL), the original limited liability company (LLC), Plaintffs obtained a National Hockey League (NHL) franchise. They then filed a complaint seeking a declaratory judgment that LLC operating agreement permitted members to compete for NHL franchise as well as judicial dissolution of the LLC. Defendants, Hunt Sports Group, on behalf of CHL, filed a counterclaim alleged interference with prospective business relationships and breach of contract and fiduciary duty. After declaring that operating agreement unambiguously allowed competition, the trial court granted defendants' voluntary dismissal of counterclaim. The trial court later declared that plaintiffs had not violated any fiduciary duties or committed any tortious or wrongful acts, holding that defendants breached the operating agreement by unilaterally rejecting arena lease proposal and usurping control of the LLC. Further, the trial court awarded attorney fees to plaintiffs under Ohio Rev. Code Ann. § 2721.09, Ohio's Declaratory Judgments Act.

Issue:

May the operating agreement of a limited liability company, in essence, limit or define the scope of the fiduciary duties imposed upon its members?

Answer:

Yes

Conclusion:

The appellate court affirmed the judgment. The term "fiduciary relationship" has been defined as a relationship in which special confidence and trust is reposed in the integrity and fidelity of another, and there is a resulting position of superiority or influence acquired by virtue of this special trust. Here, the LLC was in a business relationship which, like a partnership, involves a fiduciary relationship. Normally, the presence of such a relationship would preclude direct competition between members of the company. However, the operating agreement, which by its very terms, allows members to compete with the business of the LLC. Hence, the question presented is whether  an operating agreement of a LLC may, in essence, limit or define the scope of the fiduciary duties imposed upon its members. The court answered the question in the affirmative. The injury complained of by defendants was, essentially, plaintiffs competing with the LLC in obtaining the NHL franchise. The operating agreement constitutes the undertaking of the parties herein. In becoming members of CHL, the parties had agreed to abide by the terms of the operating agreement, and such agreement specifically allowed competition with the company by its members. As such, the duties created pursuant to such undertaking did not include a duty not to compete. Therefore, there was no duty on the part of plaintiffs to refrain from subjecting defendants to the injury complained of.

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