Retina Associates of Greater Philadelphia, Ltd. v. Retinovitreous Associates, Ltd.
176 A.3d 263
| Pa. Super. Ct. | 2017Background
- Retina Associates of Greater Philadelphia and two physicians (Belmont, Kleiner) were minority members of RDTA, an LLC whose members were retina specialists with contracts at Wills Eye Hospital.
- RDTA’s operating agreement made RDTA a manager-managed LLC but reserved certain major decisions (e.g., sale of substantially all assets, dissolution) to a member vote.
- Fifteen physicians (the Mid Atlantic Physicians), who collectively held a majority interest, signed a written consent approving sale of RDTA’s assets to Mid Atlantic Retina (their separate practice) and dissolution of RDTA; Retina alleges the sale price was substantially below fair market value.
- Retina sued alleging breach of fiduciary/quasi‑fiduciary duties and self-dealing by the Mid Atlantic Physicians that froze out minority members and deprived them of contractual benefits and goodwill.
- The trial court sustained preliminary objections and dismissed the breach‑of‑fiduciary‑duty claim against the individual physicians based on 15 Pa.C.S. § 8943(b)(2) (members who are not managers have no duties to other members solely by reason of being members); Retina appealed.
- The Superior Court reversed in part, holding § 8943(b)(2) is not an absolute bar: members who act other than solely in their capacity as passive members (e.g., engage in self-dealing or oppressive majority acts) may owe duties analogous to fiduciary or good‑faith obligations; the case was remanded for further proceedings.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether members of a manager‑managed LLC can owe duties to other members when not managers | Retina: Section 8943(b)(2) does not bar claims where majority members engaged in self‑dealing/oppression; courts should analogize to corporate/partnership doctrines | Mid Atlantic: § 8943(b)(2) clearly immunizes non‑manager members from duties to other members | Held: § 8943(b)(2) is ambiguous; "solely" limits the immunity — members who act other than solely as members (e.g., appropriate company property, engage in control transactions) can owe duties; dismissal improper |
| Whether majority vote to sell assets to entity controlled by majority (excluding minority) can constitute actionable self‑dealing/oppression | Retina: Majority’s sale to their own practice at undervalue is classic freeze‑out and actionable | Mid Atlantic: Individual physicians were only members (not controllers) and acted permissibly under operating agreement | Held: Allegations of aggregate majority control and sale to Mid Atlantic plausibly plead misconduct; factual issues preclude dismissal |
| Whether claims could be premised on defendants’ status as managers when complaint did not identify individual managers | Retina: Operating agreement (attached) shows manager‑managed structure; defendants know who served as managers; pleading suffices | Mid Atlantic: Complaint fails to plead that any defendant acted as a manager or breached manager duties — insufficient particulars | Held: Plaintiff need not plead legal theory; operating agreement on file and allegations suffice to put defendants on notice; not required to identify managers at pleading stage; recovery limited to alleged facts |
| Pleading sufficiency: whether Retina pleaded the material facts necessary to hold defendants liable | Retina: Complaint alleges signing of written consent, below‑market sale, self‑dealing, and resulting harm — material ultimate facts pleaded | Mid Atlantic: Allegations are conclusory; defendants are individual minority members only; lack of specificity defeats claim | Held: Allegations are sufficient at demurrer stage; factual disputes go to discovery/trial, not preliminary objections |
Key Cases Cited
- Khawaja v. RE/MAX Cent., 151 A.3d 626 (Pa. Super. 2016) (standard for ruling on preliminary objections)
- Lerner v. Lerner, 954 A.2d 1229 (Pa. Super. 2008) (pleading material facts and Rule 1019 principles)
- Price v. Brown, 680 A.2d 1149 (Pa. 1996) (demurrer: whether law says no recovery is possible)
- In re Trust of Taylor, 164 A.3d 1147 (Pa. 2017) (statutory construction principles)
- Hanaway v. Parkesburg Group, LP, 168 A.3d 146 (Pa. 2017) (limits on implying duties where statute governs organizational actors)
- Donahue v. Rodd Electrotype Co. of New England, Inc., 328 N.E.2d 505 (Mass. 1975) (controlling‑shareholder fiduciary duties in closely held corporations; freeze‑out doctrine)
- Ferber v. American Lamp Corp., 469 A.2d 1046 (Pa. 1983) (majority shareholders’ quasi‑fiduciary duty to minority)
- In re Jones & Laughlin Steel Corp., 412 A.2d 1099 (Pa. 1980) (freeze‑out as violation of duty owed by majority)
- Viener v. Jacobs, 834 A.2d 546 (Pa. Super. 2003) (oppression and duties among shareholders)
- Boland v. Daly, 318 A.2d 329 (Pa. 1974) (partners’ fiduciary duties)