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United States:
Leaving LLC members may continue to have fiduciary duties
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In Villareal v. Saenz sued two co-owners of a GmbH for behavior in connection with a business divorce. 5-20-CV-00571-OLG-RBF, 2021 US Dist. LEXIS 94183 (WD Tex. May 18, 2021). After the parties raised allegations against each other, they entered into a release agreement. The parties agreed that “Saenz will transfer all of its shares in ZroBlack LLC to Villarreal.” After being fired, Saenz refused to return certain property to the company. Villarreal sued for breach of duty of loyalty and other claims.
Saenz filed a dismissal motion and the magistrate’s magistrate recommended that the pre-release claims be dismissed, but recommended that the post-release claims be continued. Regarding the fiduciary duties of Saenz after conclusion of the release agreement, the court stated:
As previously mentioned, any claim based on Saenz’s conduct as CEO of ZroBlack prior to the parties making the release is precluded by the clear terms of the release. However, plaintiffs also argue that Saenz violated his fiduciary duties by maintaining domination and control of the ZroBlack domain and email server to the detriment of the company after the parties carried out the clearance. Citing the case law on partnerships, Saenz claims that his fiduciary duties to ZroBlack ceased as soon as he ceded his stake in the LLC to Villarreal. See Dkt. No. 41 at 21. But under Texas law “[a] A member of a limited liability company may not resign or be expelled from the company. ”Tex. Bus. Org.Code § 101.107. Furthermore, “a resigning member does not expire through the mere assignment of company shares.” Miller & Ragazzo, 13 Tex. Prac., Texas Methods of Practice § 59: 2 (3d ed. 2021) (cited id. § 101.111 (a)) At the same time, the company agreement designates a cedant as a “resigning member”. “without defining this term or discussing its implications. See Dkt. No. 33-3 on 9. Ultimately, Saenz did not address the interplay between Texas law on LLCs and the language in the company agreement. Accordingly, the court cannot legally determine that Saenz owed no fiduciary duties to ZroBlack after he had ceded his stake in the company to Villarreal.
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