2018 IL App (1st) 162882
Ill. App. Ct.2018Background
- 800 South Wells Commercial LLC (plaintiff) was a manager-managed LLC formed to acquire a leasehold interest in commercial space and an indoor parking garage; Nicholas Gouletas was the sole managing member per the Operating Agreement.
- The Operating Agreement vested “sole and exclusive” management authority in the manager and authorized the manager to appoint officers; a Certificate appointed John Cadden as vice president pursuant to that provision and directed him to close the leasehold deal (excluding the marina).
- WRT purchased the first mortgage and proposed foreclosing on the commercial space/garage; a proposed option (Px1) referenced an option to the “borrower (or another group)” to buy the indoor parking spaces, but Px1 was unsigned and non-specific.
- WRT ultimately granted a written option to RCC (later assigned to River City Parking); plaintiff did not contest the foreclosure; DJV (holder of plaintiff’s second mortgage) later removed Gouletas as manager.
- Plaintiff sued Cadden for breach of fiduciary duty, alleging Cadden diverted the parking-garage option and improperly excluded the marina; Cadden moved for summary judgment, arguing he owed no fiduciary duties under the LLC Act and, alternatively, did not breach any duty.
- The trial court granted Cadden summary judgment; the appellate court affirmed, holding (1) under the Illinois Limited Liability Company Act and plaintiff’s Operating Agreement/Cetificate, Cadden—an officer who was not a manager or member—owed no fiduciary duties, and (2) even if he did, the record did not show a breach.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Cadden owed fiduciary duties to the LLC | Cadden’s title as vice president and his operational role meant he owed fiduciary duties or at least raised a factual dispute about managerial control | LLC Act + Operating Agreement limited managerial authority to the sole manager (Gouletas); Cadden was neither manager nor member, and his authority was limited by the Certificate | Cadden did not owe fiduciary duties; summary judgment affirmed |
| Whether Cadden breached any fiduciary duty (assuming one existed) | Cadden diverted the parking-garage option to RCC and stripped plaintiff of the marina without compensation, causing plaintiff’s harm | The parking option was never plaintiff’s firm opportunity (Px1 unsigned, non-specific), plaintiff was contractually prohibited from engaging in new business while indebted, and the marina was excluded by unanimous direction of manager/members; no nondisclosure or personal benefit shown | No breach proven as a matter of law; summary judgment affirmed |
Key Cases Cited
- Katris v. Carroll, 362 Ill. App. 3d 1140 (Ill. App. Ct. 2005) (interpreting the LLC Act: in a manager-managed LLC fiduciary duties reside with managers, not nonmanager members/officers)
- Puleo v. Topel, 368 Ill. App. 3d 63 (Ill. App. Ct. 2006) (look to LLC Act to determine fiduciary duties in LLCs)
- Pielet v. Pielet, 2012 IL 112064 (Ill. 2012) (standards for cross-motions for summary judgment and de novo review)
- Morris v. Margulis, 197 Ill. 2d 28 (Ill. 2001) (summary judgment standards)
- Tully v. McLean, 409 Ill. App. 3d 659 (Ill. App. Ct. 2011) (fiduciary relationship may arise from dominance/control in member-managed LLCs; distinguishable on facts)
- Neade v. Portes, 193 Ill. 2d 433 (Ill. 2000) (elements of breach of fiduciary duty claim)
- Goldberg v. Michael, 328 Ill. App. 3d 593 (Ill. App. Ct. 2002) (corporate fiduciary must disclose and not usurp business opportunities)
- Anest v. Audino, 332 Ill. App. 3d 468 (Ill. App. Ct. 2002) (definition of business opportunity incident to company’s prospects)