155 So. 3d 399
Fla. Dist. Ct. App.2014Background
- Magic Broadcasting, LLC (Magic) was formed to acquire/operate radio stations; DEI/DE2 (Durden entities) provided major financing and held largest equity; Michael Durden (Durden) controlled DE2/DEI interests and served on Magic’s board and as CEO.
- In 2008 DE2 refinanced Magic and required an amended operating agreement that all members approved; the agreement expanded board discretion and included broad waivers/standards for conflicts of interest.
- Appellants (McCoy and other Magic members) filed a derivative suit alleging breach of fiduciary duty and requesting an accounting, claiming the Durden-led board rejected McCoy’s $62M buyout proposal and favored inferior transactions (including an attempted sale to SoCal935 and an allegedly undervalued sale of Dothan stations).
- The operating agreement limited manager liability except for “willful misconduct” or knowing violations of law and contained a §5.6(c) clause saying duties are satisfied if a manager believes a conflicted transaction is not unfair or unreasonable.
- Trial court granted summary judgment for Durden, DE2, and DEI; the majority on appeal reversed, holding material factual disputes remained about willful misconduct and the duty of loyalty under the LLC Act and the operating agreement.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether appellees breached duty of loyalty under Fla. LLC Act/operating agreement | McCoy: Durden-controlled board put self-interest first, rejected superior $62M offer, approved inferior transactions, and harmed Magic — breaching loyalty and good-faith duties | Durden: Members approved the operating agreement; the agreement and LLC Act limit loyalty claims; board had broad discretion and could reasonably reject McCoy’s proposal | Reversed: material factual disputes remain whether appellees breached duty of loyalty and acted disloyally under the statute and modified operating agreement |
| Whether appellees committed “willful misconduct” (operative exception to liability waiver) | McCoy: Durden’s conduct (rejecting offer, selling assets at low prices, steering transactions) was intentional and designed to harm Magic — meets willful misconduct standard | Durden: McCoy’s allegations are conclusory; operating agreement grants broad discretion and §5.6(c) permits acting if manager believes terms aren’t unfair; DEI/DE2 not managers so inapplicable | Reversed: genuine issues of material fact exist as to whether willful misconduct occurred; summary judgment inappropriate |
| Whether lenders DEI/DE2 and Durden (individually) immune from personal liability | McCoy: Lender/affiliate actions through board and control give rise to fiduciary claims | Durden/DEs: DEI/DE2 are lenders (not managers) and cannot be liable under the operating agreement’s manager-based liability; Durden claims corporate/managerial protections | Majority: factual questions about breaches remain; trial court erred in resolving them on summary judgment; dissent would affirm immunity for DEI/DE2 and for Durden absent nonconclusory evidence of willful misconduct |
| Standard of review for summary judgment and allocation of factfinding | McCoy: Evidence, including McCoy affidavit, raises factual disputes that must be decided at trial | Durden: Evidence insufficient, largely conclusory, so summary judgment appropriate | Held: De novo review; resolving inferences for non-movant, court finds disputes of material fact and reverses summary judgment |
Key Cases Cited
- Quinn v. Phipps, 113 So. 419 (Fla. 1927) (broad statement of fiduciary/confidential relations).
- Meinhard v. Salmon, 164 N.E. 545 (N.Y. 1928) (classic articulation of strict fiduciary loyalty).
- Snead v. U.S. Trucking Corp., 380 So.2d 1075 (Fla. 1st DCA 1980) (directors’ duties tested by trustee standards; strict fidelity).
- Moore v. Morris, 475 So.2d 666 (Fla. 1985) (summary judgment inappropriate where factual disputes exist).
- Cox v. CSX Intermodal, Inc., 732 So.2d 1092 (Fla. 1st DCA 1999) (implied covenant of good faith limits contractual discretion).