987 F.3d 1124
D.C. Cir.2021Background
- John Xereas owned the RIOT ACT trademark and partnered in 2010 with Geoffrey Dawson and Marjorie Heiss to form Riot Act DC, LLC to open a comedy club; each held an equal membership stake and were managing members.
- No written license transfer for the RIOT ACT mark was executed; parties disputed whether Xereas licensed or contributed the mark to the LLC. The operating agreement vested management in the managing members and allowed salaries to be set in their discretion.
- Relations soured after opening; Defendants removed Xereas from day-to-day management and voted to remove him as a managing member in March 2012 while he retained a minority membership interest.
- Xereas sued asserting Lanham Act and multiple D.C. law claims including breach of fiduciary duty and breach of the operating agreement; the district court dismissed the fiduciary claim on a Fed. R. Civ. P. 12(b)(6) motion but allowed other claims to proceed to a 2018 jury trial.
- The jury found for Xereas on a breach of the operating agreement claim and awarded damages (later adjusted); the district court denied several post-trial motions and fee requests. On appeal the D.C. Circuit reversed the dismissal of the fiduciary duty claim and affirmed other district court rulings.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Xereas sufficiently pleaded that fellow members/managers owed fiduciary duties | Membership and co-management in a member-managed LLC give rise to duties of loyalty and care under D.C. common law and D.C. Code § 29-804.09 | Parties’ commercial agreement is ordinary contractual relationship; mere contract does not create fiduciary duties | Reversed dismissal: pleadings suffice to allege fiduciary duties and claim must proceed on remand |
| Whether district court evidentiary rulings at trial require reversal | Several exclusions and expert limitations prejudiced Xereas and warrant vacatur | Trial court acted within discretion; any errors were not shown to be prejudicial | Affirmed: no reversible abuse of discretion shown; remand may revisit evidentiary rulings in light of live fiduciary claim |
| Whether defendants were entitled to judgment as a matter of law on breach of contract (JMOL) | Insufficient evidence of damages and salary entitlement because salary was discretionary under the operating agreement | Evidence supported a jury inference that a $72,000 salary was promised and that removal caused lost compensation | Affirmed denial of JMOL: evidence was not so one-sided that reasonable jury could not find for Xereas |
| Whether defendants are entitled to Lanham Act attorney’s fees as prevailing parties | Having won on Lanham Act claims, fees are warranted because case was exceptional and litigated unreasonably | The case was not exceptional; district court did not abuse discretion in denying fees | Affirmed: district court’s denial of fee petition was within its broad discretion |
Key Cases Cited
- Calomiris v. Calomiris, 3 A.3d 1186 (D.C. 2010) (permitted LLC-member breach-of-fiduciary-duty claim arising from operating agreement to survive pleading stage)
- Plank v. Cherneski, 231 A.3d 436 (Md. 2020) (managing members of an LLC owe common-law fiduciary duties to the LLC and other members)
- Bolton v. Crowley, Hoge & Fein, P.C., 110 A.3d 575 (D.C. 2015) (definition and inquiry into fiduciary relationships under D.C. law)
- Firestone v. Firestone, 76 F.3d 1205 (D.C. Cir. 1996) (fiduciary relationship is fact-intensive and requires searching inquiry)
- Vicki Bagley Realty, Inc. v. Laufer, 482 A.2d 359 (D.C. 1984) (elements of breach of fiduciary duty)
- Tsintolas Realty Co. v. Mendez, 984 A.2d 181 (D.C. 2009) (elements required to prove breach of contract under D.C. law)
- Octane Fitness, LLC v. ICON Health & Fitness, Inc., 572 U.S. 545 (2014) (standard for finding an "exceptional" case for fee awards)
- Highmark Inc. v. Allcare Health Mgmt. Sys., Inc., 572 U.S. 559 (2014) (district-court discretion in fee determinations)
- Sprint/United Mgmt. Co. v. Mendelsohn, 552 U.S. 379 (2008) (deference to trial court on evidentiary rulings)
- Muldrow ex rel. Estate of Muldrow v. Re–Direct, Inc., 493 F.3d 160 (D.C. Cir. 2007) (prejudice requirement for reversal of evidentiary errors)
- Foxtrap, Inc. v. Foxtrap, Inc., 671 F.2d 636 (D.C. Cir. 1982) (framework for trademark damages evidence)