GEORGE WASSERMAN & JANICE WASSERMAN GOLDSTEN FAMILY LLC. v. Kay
14 A.3d 1193
Md. Ct. Spec. App.2011Background
- Appellants Wasserman family entities and Gill Trust are partners/members in seven investment vehicles (two LLCs and five general partnerships) managed by Mr. Kay or Kay-affiliated entities; Mr. Kay allegedly diverted reserve funds and investor distributions to Kay Investment for Madoff investments, causing losses through 2008.
- Appellants originally alleged all claims were derivative, argued futility of demand, and sought damages on behalf of the investment vehicles and for themselves individually.
- Circuit Court held all claims were derivative; dismissed with prejudice for failure to make demand and for lack of direct injury; later, amended complaint sought to reframe some claims as individual losses.
- Court granted in part and denied in part requests to strike/amend; reversed the dismissal with prejudice and allowed amended complaint consistent with the opinion.
- The issues focus on whether appellants may pursue direct claims against Mr. Kay and derivative claims on behalf of partnerships and LLCs, and which counts survive the pleading stage.
- Court’s ultimate disposition: affirmed reversal of dismissal for direct claims, denied or limited derivative claims, and granted leave to amend consistent with the opinion.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Direct vs. derivative claims against Kay | Wasserman argues direct claims exist because Kay owed duties directly to appellants | Kay argues all claims are derivative against the investment vehicles | Direct claims against Kay stated; not barred as purely derivative |
| Derivative claims by partnerships | Minority partners may sue to enforce partnership rights despite 9A-405(j) | General partners cannot bring derivative suits; unanimity required | Derivative claims against Kay not permitted; relief limited to direct claims; unanimity rules apply to disinterested partners; no need for partnership-wide derivative suit |
| Derivative claims by LLCs (4A-801) | Discretion to pursue derivative actions should extend to LLCs; not likely to succeed equates to futility | Not allowed without proper demand; futility standards align with corporate law | Not stateable as derivative claims; not likely to succeed under 4A-801; denied derivative relief |
| Direct claims against Kay Management (management contracts) | Appellants may sue Kay Management directly for mismanagement | Kay Management claims only the investment vehicles can sue on contracts | Counts against Kay Management for direct action not allowed; entities, not appellants, may sue on those contracts |
| Punitive damages availability | Punitive damages may be appropriate for conscious wrongdoing; some counts involve intentional misconduct | Punitive damages not available for contract or negligence claims | Punitive damages not available; insufficient showing of actual malice |
Key Cases Cited
- Shenker v. Laureate Education, Inc., 411 Md. 317 (Md. 2009) (direct duties to shareholders in cash-out contexts; limits to derivative framing)
- Werbowsky v. Collomb, 362 Md. 581 (Md. 2001) (directors’ fiduciary duties largely to corporation; derivative action framework)
- Kann v. Kann, 344 Md. 689 (Md. 1997) (no universal fiduciary-duty tort; must identify specific duty and remedy; Kann governs remedies when asserting fiduciary breaches)