On May 1, 2018, a Wyoming Supreme Court case addressed the duty of care of a member of a limited liability company, and the test to be used to determine whether a business opportunity was improperly obtained by one of its fiduciaries.
The Court found that a member of a LLC has the duty of care to act as a person under similar circumstances and in a manner the member reasonably believes to be in the best interests or a least not opposed to the best interests of the company.
In the case 2018 WY 45, April term, S-17-0127, the Court stated: We also conclude that there were questions of fact about whether Dr. Stevens breached his duty of loyalty by competing with ACC. Wyo. Stat. Ann. § 17-29-409(b)(iii) prohibits the manager of a LLC from “competing with the company in the conduct of the company’s activities before the dissolution of the company.” The district court expressly found that Dr. Stevens had breached this duty “by using his own, separate entity to conduct the same business that ACC conducts and provided those services to an existing client of ACC.”
The Court went on, in one of the dissents, to articulate and agree with the majority’s use of the test we established in Acorn v. Moncecchi, 2016 WY 124, ¶ 49, 386 P.3d 739, 754 (Wyo. 2016). This test requires a business or trust claiming its fiduciary improperly obtained a business opportunity (here, a limited liability company opportunity) to show it had: 1. an actual or expected interest in an asset or property; and 2. the financial ability to acquire the asset or property. The majority states that “[a]fter reviewing the record, we conclude that there are material questions of fact about both prongs of this test.” I disagree. With respect to the first prong – having an actual interest in business with the Eye Center – the undisputed evidence showed ACC had a long-term, ongoing, and profitable arrangement with the Eye Center. It is beyond question that it had an actual interest in that business relationship. The majority notes there was no written contract, and members of ACC did not know what the terms of the arrangement with the Eye Center were. Those facts are not material to the issue of whether ACC had an actual interest in its business with the Eye Center, primarily because notwithstanding those facts ACC actually had a significant business relationship with the Eye Center. With respect to the second prong – having the financial ability to acquire (or, in this situation, keep) the asset – the undisputed evidence indicated that if it chose to do so, ACC could have continued to provide services to the Eye Center. The majority notes that one ACC manager questioned whether the Eye Center business would be as profitable as before if ACC had to hire someone to replace Ms. Rivers to work at the Eye Center. This fact goes to the damages, if any, suffered by ACC and not to the question of whether ACC had the ability to follow through with the Eye Center. I do not believe there were issues of material fact as to whether Dr. Stevens, as a fiduciary of ACC, violated these portions of § 17-29-409.