In Bushi v. Sage Healthcare PLLC, 203 P. 3rd 694 (Idaho 2009), the Idaho Supreme Court held that members of Idaho LLCs owe one another fiduciary duties. The court reached this conclusion even though the applicable Idaho LLC Act was silent on the issue (like Iowa, Idaho is transitioning from an original LLC statute to a new one, the latter providing that members do owe each other the fiduciary duties of care and loyalty).
These fiduciary duties can be breached even if the members act within the letter of the operating agreement. In Bushi, the majority of the members, all save Bushi himself, amended the operating agreement to allow a member to be dissociated by majority vote and then promptly removed Bushi by a similar vote. They contended that they had good reason to dissociate him because he was dating an employee and had used a company line of credit to pay personal expenses. Bushi argued that he was dissociated in order to advance their personal financial interests. Because taking an action that improperly advances their financial interests can be a breach of a fiduciary duty even if technically allowed by the operating agreement, the court concluded that a material factual issue remained that negated the entry of summary judgment.
The case also mentions a provision in the operating agreement that lawyers should consider inserting into their forms. The operating agreement stated that "no Member shall have any vested rights in the [operating agreement] which may be modified through an amendment to the [operating agreement]." This provision negated Bushi's assertion that he was denied the benefits of the original operating agreement. In its original form the operating agreement did not permit the members to essentially expel another member.
-Marc Ward
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