Case Title: Marx v. Morris

Citation: 

Docket Number: 2017AP000146

State: wisconsin

Court: Wisconsin Supreme Court

Date: 2019-04-02T00:00:00Z

Document:
2019 WI 34 
 
SUPREME COURT OF WISCONSIN 
 
 
 
 
 
CASE NO.: 
2017AP146 
COMPLETE TITLE: 
Daniel Marx, Fracsand, LLC, Michael Murray and 
R&R Management Funds, LLC, 
          Plaintiffs-Respondents, 
     v. 
Richard L. Morris and R.L. Co., LLC, 
          Defendants-Appellants. 
 
 
 
 
ON CERTIFICATION FROM THE COURT OF APPEALS 
 
 
 
OPINION FILED: 
April 2, 2019 
SUBMITTED ON BRIEFS: 
      
ORAL ARGUMENT: 
November 7, 2018 
 
 
SOURCE OF APPEAL: 
 
 
COURT: 
Circuit 
 
COUNTY: 
Eau Claire 
 
JUDGE: 
William M. Gabler, Sr. 
 
 
 
JUSTICES: 
 
 
CONCURRED: 
      
 
DISSENTED: 
KELLY, J. concurs and dissents, joined by 
ABRAHAMSON, J. and R.G. BRADLEY, J. (opinion 
filed). 
 
NOT PARTICIPATING:          
 
 
 
ATTORNEYS: 
 
 
For the defendants-appellants, there were briefs filed by 
Eric J. Magnuson and Robins Kaplan, LLP, Minneapolis, Minnesota, 
with whom on the briefs were J. Drew Ryberg and Ryberg Law Firm, 
Eau Claire, and Scott A. Johnson and Johnson & Johnson Law, LLP, 
Minnetonka, Minnesota. There was an oral argument by Eric J. 
Magnuson. 
 
For the plaintiffs-respondents, there was a brief filed by 
Patrick G. Heaney, James A. Pelish, and Thrasher, Pelish & 
Heaney, Ltd., Rice Lake. There was an oral argument by Patrick 
G. Heaney. 
 
 
 
2019 WI 34
NOTICE 
This opinion is subject to further 
editing and modification.  The final 
version will appear in the bound 
volume of the official reports.   
No.   2017AP146 
(L.C. No. 
2015CV213) 
STATE OF WISCONSIN  
 
 
   : 
IN SUPREME COURT 
 
 
Daniel Marx, Fracsand, LLC, Michael Murray  
and R&R  
 
Management Funds, LLC, 
 
          Plaintiffs-Respondents, 
 
     v. 
 
Richard L. Morris and R.L. Co., LLC, 
 
          Defendants-Appellants. 
 
FILED 
 
APR 2, 2019 
 
Sheila T. Reiff 
Clerk of Supreme Court 
 
 
 
 
APPEAL from an order of the Circuit Court for Eau Claire 
County.  Affirmed and cause remanded.   
 
¶1 
PATIENCE DRAKE ROGGENSACK, C.J.   This appeal comes 
before us on certification from the court of appeals1 pursuant to 
Wis. Stat. § (Rule) 809.61 (2015-16).2  Two members of a limited 
liability company (LLC), Fracsand, LLC by Daniel Marx (Marx) and 
                                                 
1 Marx v. Morris, No. 2017AP146, unpublished certification 
(Wis. Ct. App. Mar. 6, 2018). 
2 All subsequent references to the Wisconsin Statutes are to 
the 2015-16 version unless otherwise indicated. 
No. 
2017AP146   
 
2 
 
Management Funds, LLC by Michael Murray (Murray), brought an 
action against another member, Richard Morris (Morris) and his 
LLC, R.L. Co., LLC, after North Star Sand, LLC (North Star) sold 
valuable assets to a company owned by Morris.  At the time of 
the sale, Morris was a manager of North Star.   
¶2 
Marx and Murray alleged that Morris willfully failed 
to deal fairly with them while having a material conflict of 
interest in the transaction, in violation of Wis. Stat. 
§ 183.0402(1).  They also alleged a number of common-law claims 
involving improper self-dealing.  Marx and Murray brought all 
their claims in their individual LLC and personal capacities 
rather than in the name of North Star.   
¶3 
Morris moved for summary judgment.  The circuit court 
denied Morris's motion,3 and the court of appeals certified the 
appeal to this court to answer two questions: 
1.  Does a member of a limited liability company 
(LLC) have standing to assert a claim against another 
member of the same LLC based on an injury suffered 
primarily by the LLC, rather than the individual 
member asserting the claim? 
2.  Does the Wisconsin Limited Liability Company 
Law, Wis. Stat. ch. 183, preempt common law claims by 
one member of an LLC against another member based on 
the second member's alleged self-dealing? 
Marx v. Morris, No. 2017AP146, unpublished certification (Wis. 
Ct. App. Mar. 6, 2018). 
                                                 
3 The Honorable William M. Gabler, Sr. of Eau Claire County 
presided. 
No. 
2017AP146   
 
3 
 
¶4 
We accepted certification of the appeal and now 
conclude the following:  first, the members of an LLC have 
standing to assert individual claims against other members and 
managers of the LLC based on harm to the members or harm to the 
LLC.  Corporate principles of derivative standing do not apply 
to the distinct business form of an LLC.   
¶5 
Second, Marx and Murray's common law claims survive 
because they have not been displaced at this point in the 
litigation by particular provisions of North Star's Operating 
Agreement or by Wis. Stat. ch. 183.  Third, there are genuine 
issues of material fact as to whether Morris violated Wis. Stat. 
§ 183.0402(1) by dealing unfairly with Marx and Murray, and 
potentially with regard to the common law claims.  For these 
reasons, we affirm the decision of the circuit court and remand 
for further proceedings consistent with this opinion. 
I.  BACKGROUND 
¶6 
North Star is a limited liability company formed under 
Wisconsin law in November 2011.  The company's goal was to own 
and mine land containing silica sand, a type of sand used in 
fracking operations.     
¶7 
North Star's membership consisted of six limited 
liability 
companies, 
which 
in 
turn 
were 
owned 
by 
six 
individuals.  Fracsand, LLC was owned by Marx; R&R Management 
Funds, LLC owned by Murray; R.L. Co., LLC owned by Morris; Hub 
Investments, LLC owned by Brian Johnson (Johnson); Glorvigen 
No. 
2017AP146   
 
4 
 
Investment Group, LLC owned by Rick Glorvigen (Glorvigen); and 
C&T Sand, LLC owned by R. Thomas Toy (Toy).4  Morris, an 
attorney, had previously represented both Murray and Johnson.  
Glorvigen, an accountant, had prepared Morris's personal taxes 
for at least 20 years.     
¶8 
Morris assisted in drafting North Star's Operating 
Agreement, and drafted two of the Amendments to the Operating 
Agreement.  According to Marx and Murray, Morris was North 
Star's attorney.  They allege that he was paid by North Star for 
his legal work on behalf of the company, and some of his equity 
in North Star was received in compensation for his legal work.  
Morris disputes this.  However, it is undisputed that he was a 
manager of North Star in his capacity as a North Star director.5 
¶9 
North 
Star's 
Operating 
Agreement 
reflected 
an 
understanding that the members would be free to pursue outside 
business opportunities.  Transacting business with companies who 
had business relationships with North Star was permitted: 
The individuals serving as Directors, as well as the 
Members and their respective officers, board of 
directors, 
directors, 
shareholders, 
partners, 
and 
affiliates, may engage independently or with others in 
other 
business 
ventures 
of 
every 
nature 
and 
description.  Nothing in this Agreement shall be 
deemed to prohibit any Director, or the Members or 
                                                 
4 While the members of North Star are actually LLC's owned 
by the six individuals involved with North Star, the parties and 
the court of appeals referred to the six individuals by name for 
the sake of simplicity.  This opinion will do so as well. 
5 Operating Agmt., Sections 5.1, 5.2. 
No. 
2017AP146   
 
5 
 
their 
respective 
officers, 
board 
of 
directors, 
directors, shareholders, partners, and affiliates, 
from dealing or otherwise engaging in business with 
Persons 
transacting 
business 
with 
the 
Company.  
Neither the Company, any Director, or any Member shall 
have any right by virtue of this Agreement, or the 
relationship created by this Agreement, in or to such 
other ventures or activities, or to the income or 
proceeds 
derived 
from 
such 
other 
ventures 
or 
activities, and the pursuit of such ventures shall not 
be deemed wrongful or improper.[6]  
¶10 The Operating Agreement also required that members 
have prior notice of any vote that may occur during a meeting of 
members: 
No matter shall be voted upon at a meeting of Members 
unless at least 5 days' notice of the matter to be 
voted on is given or such notice is waived by any 
Member who is entitled to vote and who has not 
received notice.[7] 
Further, it required that prior notice be given of any matter to 
be voted upon at a directors' meeting: 
No matter shall be voted upon at a meeting of the 
Directors unless at least 24 hours' notice of the 
matter to be voted on is given or such notice is 
waived by any Director not receiving it.[8] 
However, directors did not have the authority to:  "Possess 
Company property, or assign rights in specific Company property, 
for other than a purpose of the Company."9 
                                                 
6 Operating Agmt., Section 5.8(b). 
7 Operating Agmt., Section 5.7 d. 
8 Operating Agmt., Section 5.3 d.  
9 Operating Agmt., Section 5.5 a. ii. 
No. 
2017AP146   
 
6 
 
¶11 North Star eventually hired an engineering firm to 
help it identify potential silica sand reserves, and entered 
into a number of option agreements for the purchase of land in 
Jackson County, Wisconsin.  North Star also entered into a lease 
for a property that could be used as a railhead to transport 
silica sand from the Jackson County properties.  The members 
decided to create a separate entity to control the purchase 
agreements for certain properties, called the Pine Creek 
Reserves, that contained substantial silica sand reserves.  This 
entity became Westar Proppants, LLC (Westar), a wholly owned 
subsidiary of North Star.  North Star assigned its Pine Creek 
purchase options to Westar on the same day Westar was formed.     
¶12 Many of Westar's purchase options were set to expire 
on December 31, 2013.  Concern was expressed that North Star and 
Westar had too much land under option contracts.  The members 
began to discuss the possible cancellation of some of their 
options.  On December 31, 2013, the same day Westar's purchase 
options were set to expire, the members of North Star met by 
telephone to discuss Westar's future.     
¶13 During this meeting, Morris informed the other members 
that he and two other people, Gerald Green (Green) and Scott 
Wesch (Wesch), had formed an entity called DSJ Holdings, LLC 
(DSJ).  Morris also informed the group that he had an ownership 
interest in DSJ.  He stated that DSJ was interested in 
purchasing Westar and was willing to pay $70,000.  At this time, 
Glorvigen made a motion for North Star to keep Westar.  Marx 
seconded the motion, and it passed by vote of 4-2.  Marx, 
No. 
2017AP146   
 
7 
 
Murray, Glorvigen, and Toy all voted in favor of the motion to 
keep Westar, while Morris and Johnson voted against it. 
¶14 Immediately after the vote, Morris indicated that he 
may withdraw from North Star.  Marx and Murray allege that 
Morris became "very aggressive" and told Toy that "you're going 
to lose your million bucks."  After a brief discussion, Morris 
made a motion for North Star to sell Westar to DSJ for $70,000.  
Murray immediately objected to Morris's motion, arguing that 
there had been insufficient notice, that a vote had already 
occurred, and that Morris was conflicted.  Despite these 
objections, a second vote occurred, and Morris's motion passed 
4-2.  Morris, Johnson, Glorvigen, and Toy voted for North Star 
to sell Westar to DSJ, while Marx and Murray voted against the 
sale.   
¶15 DSJ subsequently assigned Westar's membership units to 
R.L. Co., LLC (Morris's LLC) and to Wesch.  Morris and Green 
then formed Hixton Trans-load Facility, LLC (Hixton Trans-load) 
for the purpose of securing purchase agreements for a new rail 
head site specifically for the Pine Creek Reserves property.  
Westar, along with Hixton Trans-load, was sold to Unimin 
Corporation in early 2015 for what has been alleged to be a 
substantial sum.10 
¶16 In August 2014, North Star unanimously voted to sell 
its remaining silica sand land assets to Badger Silica.  The 
                                                 
10 The details of the Westar sale to Unimin are subject to a 
confidentiality order. 
No. 
2017AP146   
 
8 
 
members 
signed 
a 
"Member 
Distribution 
Receipt 
and 
Acknowledgement" as part of this transaction, which memorialized 
the amount each member would receive from the transaction.  The 
receipt also contained the following language:  
As of the date hereof, none of the undersigned members 
have a claim against North Star or against any of the 
other members of the Company other than for the amount 
of the distribution set forth on Exhibit A. or for 
their pro rata share of any retained amounts.   
Morris later asked Marx and Murray to sign a different, all-
encompassing release, which they refused to do. 
¶17 Marx and Murray alleged five causes of action against 
Morris and his LLC:  violation of Wis. Stat. § 183.0402, breach 
of fiduciary duty, breach of fiduciary duty as corporate 
counsel, unjust enrichment, and breach of implied covenant of 
good faith and fair dealing.  They also requested punitive 
damages.  Morris moved for summary judgment on all claims.  He 
argued, among other things, that Marx and Morris's claims 
belonged only to North Star, and that Wis. Stat. ch. 183 
supersedes and replaces any common law duties of LLC members.   
¶18 The circuit court denied the motion for summary 
judgment.  It held that there were disputed issues of material 
fact on the Wis. Stat. § 183.0402 claim, and decided to "wait 
until the conclusion of the evidence to determine if there are 
sufficient facts to enable a jury to make findings of fact with 
respect to [Marx and Murray's other claims]." 
¶19 The court of appeals certified the appeal to us.  
Marx, No. 2017AP146, unpublished certification.  We accepted the 
No. 
2017AP146   
 
9 
 
certification, and now affirm the circuit court's order denying 
the Defendants-Appellants' motion for summary judgment.  
II.  DISCUSSION 
A.  Standard of Review 
¶20 This case requires us to interpret an LLC's operating 
agreement, interpret a statute, determine whether a party has 
standing, and review a denial of summary judgment.  An LLC's 
operating agreement is a contract.  See, e.g., Gottsacker v. 
Monnier, 2005 WI 69, ¶22, 281 Wis. 2d 361, 697 N.W.2d 436.  
"Contract interpretation presents a question of law that we 
review independently of previous decisions of the circuit 
court . . . but benefitting from [its] discussions."  Estate of 
Kriefall v. Sizzler USA, 2012 WI 70, ¶14, 342 Wis. 2d 29, 816 
N.W.2d 853. 
¶21 "Statutory interpretation and the application of a 
statute to a given set of facts are questions of law that we 
review independently, but benefiting from" the analysis of the 
circuit court.  Marder v. Bd. of Regents of Univ. of Wis. Sys., 
2005 WI 159, ¶19, 286 Wis. 2d 252, 706 N.W.2d 110.  Whether a 
party has standing is similarly a question of law for our 
independent review.  McConkey v. Van Hollen, 2010 WI 57, ¶12, 
326 Wis. 2d 1, 783 N.W.2d 855.  Finally, we review decisions on 
summary judgment motions independently, applying the same 
methodology as the circuit court while once again benefitting 
from its analysis.  Dufour v. Progressive Classic Ins. Co., 2016 
WI 59, ¶12, 370 Wis. 2d 313, 881 N.W.2d 678.  "The standards set 
forth in Wis. Stat. § 802.08 are our guides."  Id.   
No. 
2017AP146   
 
10 
 
B.  Overview of Limited Liability Companies 
¶22 We begin with a brief overview of the history and 
general principles of limited liability companies.  An LLC is 
"an unincorporated association of investors, members in LLC 
parlance, whose personal liability for obligations of the 
venture is limited to the amount the member has invested." 
Joseph W. Boucher et al., LLCs and LLPs:  A Wisconsin Handbook 
§ 1.4 (6th ed. 2018).  LLCs combine desirable features of two 
other business forms, partnerships and corporations.   
¶23 Similar 
to 
a 
partnership, 
an 
LLC 
allows 
for 
"informality and flexibility of organization and operation, 
internal governance by contract, direct participation by members 
in the business, and no taxation at the entity level."  Id.  
Similar to a corporation, however, an LLC grants its investors 
limited liability such that a member "is not personally liable 
for any debt, obligation or liability of the limited liability 
company, except that a member or manager may become personally 
liable by his or her acts or conduct other than as a member."  
Wis. Stat. § 183.0304(1).  Therefore, as with a shareholder in a 
corporation, each LLC member's potential liability to third 
parties is limited to the amount the member chose to invest in 
the LLC. 
¶24 The first LLC act was passed by Wyoming in 197711 upon 
a request from an oil company.  Larry E. Ribstein & Robert R. 
                                                 
11 Wyo. Stat. Ann. § 17-15-101 to 136 (1977). 
No. 
2017AP146   
 
11 
 
Keatinge, Ribstein & Keatinge on Limited Liability Companies 
§ 1.2 (June 2018 ed., West 2018).  The oil company wanted a 
business form that could offer it limited liability without 
subjecting 
it 
to 
the 
"double 
taxation" 
applicable 
to 
corporations.12  Id.  Florida similarly enacted its own LLC act 
in 1982.13  These acts did not immediately lead to a surge in the 
creation of LLCs, nor did other states soon enact their own LLC 
statutes, perhaps due to uncertainty regarding how LLCs would be 
taxed.  Id. 
¶25 In 1988, however, the Internal Revenue Service issued 
Rev. Rul. 88-76, 1988-2 C.B. 360, which made clear that properly 
organized LLCs would be treated as partnerships for tax 
purposes.  See id.  The Revenue Ruling examined the tax 
treatment of a Wyoming LLC.  According to the Revenue Ruling, 
the LLC's tax treatment depended on whether it possessed 
corporate 
characteristics 
such 
as 
"continuity 
of 
life, 
centralization of management, limited liability, and free 
transferability of interests."  Rev. Rul. 88-76, 1988-2 C.B. 
360.  The IRS determined that because the LLC "lack[ed] a 
                                                 
12 Unless their form permits a subchapter S election, 
corporations, unlike most LLCs, are taxed at the entity level on 
their income.  When dividends are distributed to shareholders, 
the 
dividends 
are 
then 
also 
taxed 
on 
the 
shareholders' 
individual tax returns.  See 26 U.S.C. §§ 11, 61(a)(7); J. 
William Callison & Maureen A. Sullivan, Partnership Law and 
Practice:  General and Limited Partnerships, § 3.1 (2018-19 ed., 
West 2018). 
13 Florida Limited Liability Company Act, Fla. Stat. ch. 608 
(Supp. 1982). 
No. 
2017AP146   
 
12 
 
preponderance" of the major corporate characteristics, it would 
be classified as a partnership for tax purposes.  Id.  This 
decision 
has 
been 
facilitated 
by 
the 
"check-the-box" 
regulations, under which even single member LLCs may now choose 
to be taxed as a partnership.  Treas. Reg. § 301.7701-3(a).  
After that Revenue Ruling, all 50 states and the District of 
Columbia enacted their own LLC statutes,14 including Wisconsin in 
1994.15 
¶26 In Wisconsin, one or more persons may form an LLC by 
filing articles of organization (essentially a notice document) 
with the Department of Financial Institutions.  Wis. Stat. 
§ 183.0201; LLCs and LLPs:  A Wisconsin Handbook, supra, at 
§ 1.6.  Members generally draft a contract known as an operating 
agreement, which becomes the LLC's principle governing document 
and its main source of "law" regarding the company's ownership 
and management.  LLCs and LLPs:  A Wisconsin Handbook, supra, at 
§§ 1.6, 3.60; Wis. Stat. ch. 183.   
¶27 Wisconsin's LLC statute reflects the importance of 
flexibility and freedom of contract in organizing an LLC.  LLCs 
and LLPs:  A Wisconsin Handbook, supra, at §§ 1.6, 1.10.  For 
this reason, many of the provisions of ch. 183 furnish default 
rather than mandatory rules.  Id. at § 4.31.  The default rules 
                                                 
14 See Larry E. Ribstein & Robert R. Keatinge, Ribstein & 
Keatinge on Limited Liability Companies § 1.2 (June 2018 ed., 
West 2018) and accompanying footnotes for a compilation of state 
legislation permitting the formation of LLCs. 
15 Wis. Stat. ch. 183 (1993-94). 
No. 
2017AP146   
 
13 
 
are 
designed 
to 
structure 
LLCs 
in 
a 
way 
that 
average 
businesspeople would view as reasonable; the members of an LLC 
are free to alter these rules in their operating agreement if 
they prefer a different arrangement.  Id. at §§ 1.6, 3.63.  
However, all the default rules apply unless an operating 
agreement unambiguously states otherwise:  "if an operating 
agreement is ambiguous as to whether the members intended to 
override a particular statutory default term, the statutory 
default term governs."  Lenticular Europe, LLC v. Cunnally, 2005 
WI App 33, ¶18, 279 Wis. 2d 385, 693 N.W.2d 302.  
¶28 The members of an LLC make contributions to the LLC in 
exchange for their interest in the company.  LLCs and LLPs:  A 
Wisconsin Handbook, supra, at § 4.8.  The value of each member's 
contribution 
determines 
that 
member's 
percentage 
ownership 
interest.  Under the default rules, each member's economic 
rights are proportional to his or her percentage of the members' 
total contributions to the LLC.16  Wis. Stat. § 183.0503.  A 
member whose contributions represent 40 percent of the total 
contributions is therefore entitled to 40 percent of any 
distributions. 
¶29 The relationship among members of an LLC in terms of 
governance depends, to some extent, on whether the LLC is 
                                                 
16 Contributions may consist of cash, property or services 
rendered, or promissory notes or other written obligations to 
provide cash or property or to perform services.  The operating 
agreement generally determines the value of each member's 
contribution.  Wis. Stat. § 183.0501. 
No. 
2017AP146   
 
14 
 
member-managed or manager-managed.  In a member-managed LLC, the 
default rule is that voting rights regarding company business 
are allocated according to each member's percentage ownership 
interest, and a vote representing over 50 percent of the total 
value of contributions is required to authorize an action.  Wis. 
Stat. § 183.0404(1)(a).  A member whose contributions represent 
40 percent of the total contributions would thus hold 40 percent 
of the voting power.  Generally, each member of a member-managed 
LLC is considered an agent of the LLC, and each such member has 
apparent authority to bind the LLC in the ordinary course of 
business.17  Wis. Stat. § 183.0301(1)(a) & (b).  An LLC is 
considered member-managed unless its articles of organization 
specifically designate it as manager-managed.  Wis. Stat. 
§ 183.0401(1); LLCs and LLPs:  A Wisconsin Handbook, supra, at 
§ 4.33. 
¶30 If an LLC is manager-managed, each manager gets one 
vote on matters relating to the LLC's business, with a majority 
vote required to take an action.18  Wis. Stat. § 183.0404(1)(b).  
Unlike a member-managed LLC, the members of a manager-managed 
LLC are not agents of the LLC simply by virtue of being members.  
                                                 
17 Section 5.6 of the North Star Operating Agreement states 
that except when "powers are exclusively reserved to the 
Members . . . or as expressly provided in this Agreement, the 
Members shall not have the power . . . to bind or obligate the 
Company in any manner."   
18 North Star was manager-managed by its Directors, all of 
whom owned members.  Operating Agmt., Section 5.1, 5.2. 
No. 
2017AP146   
 
15 
 
Wis. Stat. § 183.0301(2)(a).  Members of a manager-managed LLC 
therefore do not have apparent authority to bind the LLC in the 
ordinary course of business simply by being members.  See 
§ 183.0301(2)(a) & (b).  Regardless of whether an LLC is member-
managed or manager-managed, however, there are certain actions 
such as amending the operating agreement or issuing an ownership 
interest 
that 
require 
the 
consent 
of 
all 
the 
members.  
§ 183.0404(2).    
¶31 A member's ownership interest in the LLC is personal 
property.  Wis. Stat. § 183.0703.  Wisconsin's LLC act applies 
the entity theory19 of property rights, so a member has no 
interest in any specific property of the LLC.  See LLCs and 
LLPs:  A Wisconsin Handbook, supra, at § 4.4.  For example, if a 
member of an LLC transfers real estate to the LLC in exchange 
for an ownership interest in the LLC, that member no longer has 
any ownership interest in the real estate.  Instead, the LLC 
owns the real estate, and the member owns personal property in 
the form of an ownership interest in the LLC.  Wis. Stat. 
§ 183.0701(1); LLCs and LLPs:  A Wisconsin Handbook, supra, at 
                                                 
19 The entity theory is often contrasted with the aggregate 
theory.  Under the entity theory, the LLC is a distinct legal 
person that is separate from its members, owns its property, and 
is liable on its obligations.  The members have an ownership 
interest only in the LLC itself.  Under the aggregate theory, in 
contrast, the LLC would be considered merely an aggregation of 
its individual members, and each member would own an undivided 
interest in the specific property and obligations of the LLC.  
See, e.g., Partnership Law and Practice, supra, at § 3.1; LLCs 
and LLPs:  A Wisconsin Handbook, supra, at § 5.31. 
No. 
2017AP146   
 
16 
 
§ 4.4.  As it is personal property, a member's economic interest 
in an LLC is generally freely transferable.  In contrast to the 
corporate model, however, the transfer of a member's economic 
interest does not make the transferee a member of the LLC, nor 
does it give the transferee any management or voting rights.  
J. William Callison & Maureen A. Sullivan, Partnership Law and 
Practice:  General and Limited Partnerships, § 4.1 (2018-19 ed., 
West 2018); Wis. Stat. § 183.0704.  
¶32 Unlike corporations, LLCs generally are not taxed at 
the entity level.20  26 U.S.C. § 701 (2016).21  "Instead, the 
LLC's gains, losses, income, deductions, and credits will pass 
through to the members and be allocated among the members in 
proportion to their interests in the LLC."  LLCs and LLPs:  A 
Wisconsin Handbook, supra, at § 5.33.  Each member's share of 
the LLC's gains, losses, income, deductions, and credits will 
then appear on the member's individual tax return as if the 
member had realized them directly.  Ribstein & Keatinge on LLCs, 
supra, at § 17.2; 26 U.S.C. § 702(b).  For example, if a member 
owns a 30 percent interest in an LLC, that member will realize 
30 percent of the LLC's gains, losses, income, deductions, and 
credits on the member's individual tax return.   
                                                 
20 While LLCs are generally treated as partnerships for tax 
purposes, they have the option of being taxed as a corporation 
if they so choose.  Treas. Reg. § 301.7701-3(b)(1)(ii).  
21 All subsequent references to the United States Code are 
to the 2016 version unless otherwise indicated. 
No. 
2017AP146   
 
17 
 
¶33 Although 
we 
could 
describe 
many 
interesting 
hypotheticals about the financial choices that LLCs may elect, 
we choose not to do so because such hypotheticals have 
absolutely no relevance to the case before us.  Blasing v. 
Zurich Am. Ins. Co., 2014 WI 73, ¶73, 356 Wis. 2d 63, 850 N.W.2d 
138 (concluding that "[t]his court does not issue advisory 
opinions based on non-existent facts.").  As we explained 
earlier, North Star is governed by its Operating Agreement.  
That Agreement unambiguously elected that North Star is to be 
treated as a partnership where all the losses and gains of the 
LLC flow through to its individual members.   
¶34 For example, Article 3.1(b)(3) of the Operating 
Agreement states that its "foregoing provisions relating to the 
maintenance of Capital Accounts are intended to comply with 
Regulations § 1.704-1(b), and shall be interpreted and applied 
in a manner consistent with such Regulations."  Regulations 
§ 1.704-1(b) assures a partner's distributive share is affected 
within that partner's capital account.22  Stated otherwise, 
compliance with Regulation § 1.704-1(b) was chosen for North 
Star so that its income, gain, loss and deductions would pass 
through to its individual members, just as they would if North 
Star were a partnership.  Therefore, as we explain more fully 
below, an injury to North Star is not the same as an injury to a 
corporation, and concluding that it is, demonstrates a lack of 
                                                 
22 Regulations § 1.704-1(b)'s full citation is 26 CFR 1.704-
1(b). 
No. 
2017AP146   
 
18 
 
understanding of basic principles that control North Star, LLC.  
Accordingly, we analyze the issues presented with principles 
that are relevant to the case now before us. 
C.  Standing 
¶35 We first consider whether Marx and Murray have 
standing to assert individual claims against Morris for injuries 
that are alleged to have occurred here.23  In order to have 
standing to sue, a party must have a personal stake in the 
outcome of the controversy.  City of Madison v. Town of 
Fitchburg, 112 Wis. 2d 224, 228, 332 N.W.2d 782 (1983).  "Being 
damaged, however, without more, does not automatically confer 
standing."  Krier v. Vilione, 2009 WI 45, ¶20, 317 Wis. 2d 288, 
766 N.W.2d 517.  Instead, "plaintiffs must show that they 
suffered or were threatened with an injury to an interest that 
is legally protectable."  Id.    
¶36 Wisconsin Stat. ch. 180, which governs corporations, 
sets forth a detailed list of procedures and requirements for 
corporate shareholders seeking to bring claims on behalf of the 
corporation, i.e., as derivative actions.  The provisions of 
                                                 
23 The court of appeals formulated the question as:  "[d]oes 
a member of a limited liability company (LLC) have standing to 
assert a claim against another member of the same LLC based on 
an injury suffered primarily by the LLC, rather than the 
individual member asserting the claim?"  Marx, No. 2017AP146, 
unpublished certification.  This formulation could be read to 
involve an assumption that an injury to the LLC and an injury to 
a member are mutually exclusive.  Due in part to the pass-
through nature of North Star, LLC, as more fully explained 
herein, we reject such an assumption. 
No. 
2017AP146   
 
19 
 
Wis. Stat. §§ 180.0740 through 180.0747 set out details such as 
when a shareholder has standing to maintain a derivative action, 
procedures the shareholder must follow, and when a court must 
dismiss a derivative action.  See Wis. Stat. §§ 180.0741, 
180.0742, 180.0744.  These procedures evince a recognition of 
the long history of derivative action principles in Wisconsin 
corporate law.  See, e.g., Cook v. Berlin Woolen Mill Co., 
43 Wis. 433, 447-48 (1877). 
¶37 In the corporate context, we have long held that 
individual shareholders cannot directly sue a corporation's 
directors or officers when the "primary injury" resulting from 
the actor's wrong is to the corporation itself.  See, e.g., Rose 
v. Schantz, 56 Wis. 2d 222, 229-30, 201 N.W.2d 593 (1972).  
Instead, a shareholder who wishes to seek redress for an injury 
"primarily" to the corporation must bring a derivative action on 
behalf of the corporation.  See id.; Notz v. Everett Smith Grp., 
Ltd., 2009 WI 30, ¶20, 316 Wis. 2d 640, 764 N.W.2d 904. 
¶38 Morris encourages us to read corporate principles of 
derivative standing into ch. 183 and hold that Marx and Murray's 
claims belong exclusively to North Star.  We decline to do so.  
An LLC is a "creature of statute," Lenticular, 279 Wis. 2d 385, 
¶17; therefore, the absence of statutory procedures that limit 
actions against others for injuries to the LLC is significant.  
Additionally, as we have explained earlier, North Star, LLC is a 
distinct business form that differs significantly from a 
corporation.  Accordingly, we decline to import corporate 
principles of derivative standing into ch. 183 to preempt claims 
No. 
2017AP146   
 
20 
 
by individual North Star members.  This conclusion is not driven 
by who "owns" the claim, but rather, by Wis. Stat. § 183.0402 
and the partnership-like mode of operation North Star, LLC 
selected in its Operating Agreement.  
¶39 In contrast to the statutes that limit standing to 
bring derivative actions in ch. 180, the only provision of 
ch. 183 relating to suits in the name of an LLC is Wis. Stat. 
§ 183.1101.  That section states in relevant part:  
(1)  Unless 
otherwise 
provided 
in 
an 
operating 
agreement, an action on behalf of a limited liability 
company may be brought in the name of the limited 
liability company by one or more members of the 
limited 
liability 
company, 
whether 
or 
not 
the 
management of the limited liability company is vested 
in one or more managers, if the members are authorized 
to sue by the affirmative vote as described in 
s. 183.0404(1)(a). 
¶40 Wisconsin Stat. § 183.1101 does not require that 
claims against LLC members be brought in the name of the LLC, 
nor does it otherwise limit a member's ability to sue other 
members or managers in their individual capacities.  It merely 
requires that if an action of any kind is to be brought in the 
name of the LLC, against anyone, it must be authorized by a 
majority vote of disinterested members.  Section 183.1101, which 
is silent on a member's right to sue on his own behalf, does not 
abrogate the plain language of Wis. Stat. § 183.0402(1)(a), 
which prohibits the "willful failure to deal fairly with the 
limited liability company or its members" by a member or 
manager.   
No. 
2017AP146   
 
21 
 
¶41 As we have explained, an LLC is a business form 
created by statute.  Other states have written standing rules 
that apply to corporations into their LLC statutes, including 
who may maintain an action for an injury to an LLC, demand 
requirements, and the role of the court.  See, e.g., Mich. Comp. 
Laws § 450.4510; Conn. Gen. Stat. § 34-271e.  Wisconsin's 
legislature has not chosen to enact such statutes.  We will not 
judicially 
import 
ch. 180's 
corporate 
derivative 
standing 
provisions into the LLC context where the legislature has not 
done so. 
¶42 Morris argues that Wis. Stat. § 183.0402(2) denies the 
members of an LLC standing to assert individual claims under 
§ 183.0402(1).  Section 183.0402(2) states in relevant part: 
Every member and manager shall account to the limited 
liability company and hold as trustee for it any 
improper personal profit derived by that member or 
manager without the consent of a majority of the 
disinterested members or managers, or other persons 
participating 
in 
the 
management 
of 
the 
limited 
liability company, from any of the following: 
(a)  A 
transaction 
connected 
with 
the 
organization, conduct or winding up of the limited 
liability company. 
Morris argues that because this section requires improper 
personal profits to be held in trust for the LLC, but not for 
the individual members, it modifies § 183.0402(1) by clarifying 
that a § 183.0402 injury is to the LLC rather than to individual 
members.   
¶43 Morris's argument assumes that injuries to North Star, 
LLC and injuries to individual members are mutually exclusive.  
No. 
2017AP146   
 
22 
 
As discussed above, however, corporate principles of standing do 
not apply to LLCs.  Specifically, in the matter before us, 
injuries to North Star and to its members are not mutually 
exclusive because financial injury to North Star flows through 
to its members just as an injury would if North Star were a 
partnership rather than an LLC.  Therefore, the question is not 
whether the alleged injury is to the LLC or to its individual 
members.  Rather, the question is simply whether the individual 
member bringing the action has suffered an injury to a legally 
protected interest. 
¶44 Furthermore, in addition to the lack of statutory 
support 
for 
applying 
statutory 
corporate 
principles 
of 
derivative standing to an LLC, in a corporation, gains and 
losses do not flow through to the individual shareholders.  
Instead, the corporation's income is first taxed at the entity 
level.  26 U.S.C. § 11.  Shareholders do not claim a 
corporation's gains and losses on their individual tax returns.  
Ribstein and Keatinge on LLCs, supra, at § 16.2.  They pay taxes 
only 
on 
the 
dividends, 
if 
any, 
they 
receive 
from 
the 
corporation, and are not taxed on capital gains and losses 
unless and until they choose to sell their corporate shares.24  
                                                 
24 While this is true of a "regular" corporation, or 
C corporation, William Meade Fletcher, Fletcher Cyclopedia of 
the Law of Corporations § 7025.50 (West 2018), we note that some 
eligible corporations can choose to be taxed as subchapter 
S corporations.  Id.  Corporations must meet certain criteria to 
be eligible for S corporation election, such as having fewer 
than 100 shareholders and having only one class of stock.  Id. 
at § 7026; 26 U.S.C. § 1361.   
No. 
2017AP146   
 
23 
 
William Meade Fletcher, Fletcher Cyclopedia of the Law of 
Corporations § 6972.50 (West 2018).   
¶45 In contrast, North Star has elected to be taxed as a 
partnership.25  This is the usual form of operation for an LLC.  
See Rev. Rul. 88-76, 1988-2 C.B. 360; 26 U.S.C. § 701.  When 
treated as a partnership, the company's gains and losses flow 
through to individual members and are realized directly by each 
member, each year, on that member's individual tax return.26  See 
id.; Gottsacker, 281 Wis. 2d 361, ¶19.  North Star operates such 
that its gains and losses are directly credited to or deducted 
from each member's capital account, flowing through to each 
member's individual tax return.27  This is a concept used in 
partnership law that is not present in the corporate context.  
Each member's interest in North Star, LLC is that member's 
personal property, and includes the right to a share of the 
profits and losses of the LLC.28  Wis. Stat. §§ 183.0703, 
                                                 
25 See e.g., Operating Agmt., §§ 3.1(b)(3), 3.1(d), 3.1(g), 
4.3, 4.4.  
26 Id. 
27 As a general principle, and specifically in the matter 
now before us, a member's capital account measures that member's 
equity in the LLC.  Each member's capital account is credited 
with his initial contribution and any subsequent contributions 
to the LLC.  It is then increased by the member's share of any 
income and gain and decreased by the member's share of losses, 
as well as any distributions to that member.  See, e.g., 
Ribstein and Keatinge on LLCs, supra, at § 17.10; 26 U.S.C. 
§ 701. 
28 See e.g., Operating Agmt., §§ 4.5, 4.6, 4.7. 
No. 
2017AP146   
 
24 
 
183.0102(11); 
see 
also 
Gottsacker, 
281 
Wis. 2d 
361, 
¶50 
(Roggensack, J., concurring).  For these reasons, there is 
generally a much closer financial connection between harm to an 
LLC and harm to its members than between harm to a corporation 
and harm to its shareholders.  North Star's Operating Agreement 
has chosen this usual form of operation.  Furthermore, no 
Wisconsin court has applied ch. 180's derivative standing rules 
in the context of a ch. 183 LLC, and in the absence of statutory 
support, we decline to do so. 
¶46 Here, Marx and Murray assert claims against Morris, 
who was a member and a manager of North Star.  They claim 
Morris, individually and through Fracsand, LLC, willfully failed 
to deal fairly with them in connection with a matter in which he 
had a material conflict of interest, contrary to his statutory 
duty as a member and manager under Wis. Stat. § 183.0402.  They 
allege that they, in their individual member capacities, have 
been injured as a result.  Therefore, they have alleged "an 
injury to an interest that is legally protectable."  See Krier, 
317 Wis. 2d 288, ¶20.  The potential that North Star also may 
have been injured does not affect Marx and Murray's standing.  
Accordingly, we conclude that Marx and Murray have standing to 
assert individual member claims against Morris, in his capacity 
as a member and as a manager of North Star, whether based on 
injury independent of or secondary to North Star. 
D.  Common Law Claims 
¶47 We next address whether Marx and Murray's common law 
claims are eliminated by the Wisconsin LLC Act.  As mentioned 
No. 
2017AP146   
 
25 
 
earlier, the second question certified by the court of appeals 
is:  "[d]oes the Wisconsin Limited Liability Company Law, Wis. 
Stat. ch. 183, preempt common law claims by one member of an LLC 
against another member based on the second member's alleged 
self-dealing?"  The answer to this question depends on the 
specific common law claims a member brings and the facts 
attendant to those claims.29  In this case, the claims asserted 
by Marx and Murray, breach of fiduciary duty, unjust enrichment 
and breach of the covenant of good faith and fair dealing, are 
not displaced by ch. 183 based on the record before us.  
¶48 Wisconsin Stat. § 183.1302(2) provides that "[u]nless 
displaced 
by 
particular 
provisions 
of 
this 
chapter, 
the 
principles of law and equity supplement this chapter."  Section 
183.1302(2) has not been interpreted previously.  "The purpose 
of statutory interpretation is to determine what the statute 
means so that it may be properly applied."  Westmas v. Creekside 
Tree Serv., Inc., 2018 WI 12, ¶18, 379 Wis. 2d 471, 907 N.W.2d 
68.   
¶49 We begin with the plain meaning of the words chosen by 
the legislature.  State ex rel. Kalal v. Circuit Court for Dane 
Cty., 2004 WI 58, ¶45, 271 Wis. 2d 633, 681 N.W.2d 110.  If they 
                                                 
29 The common law fiduciary obligation of a corporate 
majority shareholder to a corporate minority shareholder does 
not transfer to an LLC context because of the differing forms of 
business entities.  Wisconsin Stat. § 183.0402 also may bear on 
a claim of breach of fiduciary duty, depending on the nature of 
the allegations.  Gottsacker v. Monnier, 2005 WI 69, 281 Wis. 2d 
361, ¶45, 697 N.W. 436 (Roggensack, J. concurring).  
No. 
2017AP146   
 
26 
 
evidence a plain, clear statutory meaning without ambiguity, we 
generally go no further.  State v. Grunke, 2008 WI 82, ¶22, 311 
Wis. 2d 439, 752 N.W.2d 769.  However, if the statute is subject 
to more than one reasonable interpretation by well-informed 
people, it is ambiguous, and we may consult legislative history.  
Westmas, 379 Wis. 2d 471, ¶20.   
¶50 Here, Marx and Murray raise equitable claims against 
Morris as a member and as a manager:  breach of fiduciary duty, 
unjust enrichment and breach of the covenant of good faith and 
fair dealing.30  The only "particular provision" that has been 
raised by Morris is Wis. Stat. § 183.0402.  However, he does not 
develop an argument in regard to how each of these common law 
claims has been displaced.  Furthermore, from the record before 
us, we cannot determine the full scope of these claims.  That 
is, we cannot determine if they include only allegations that 
come within the ambit of § 183.0402 or something more.   
¶51 In addition, Wis. Stat. § 183.1302(2) comes from the 
Revised Uniform Partnership Act, Unif. P'ship Act § 104(a) 
(Unif. Law Comm'n 1994).  The drafters of the act described the 
provision as a "broad statement" that incorporates "not only the 
law of agency and estoppel and the law merchant mentioned in the 
UPA, but all of the other principles listed in UCC Section 1-
103:  the 
law 
relative 
to 
capacity 
to 
contract, 
fraud, 
                                                 
30 They allege that Marx breached his fiduciary duty as an 
attorney as well as in his capacity as member and manager of 
North Star. 
No. 
2017AP146   
 
27 
 
misrepresentation, duress, coercion, mistake, bankruptcy, and 
other common law validating or invalidating causes."  Id., § 104 
cmt.  
¶52 Other states that have included this provision in 
their LLC acts have interpreted it broadly as permitting common 
law claims and defenses that have not been specifically 
abrogated.  See, e.g., Bushi v. Sage Health Care, PLLC, 203 P.3d 
694, 699 (Idaho 2009) (interpreting the same provision as 
codified in Idaho's LLC statute and concluding that members of 
an LLC owe one another fiduciary duties); Pannell v. Shannon, 
425 S.W.3d 58, 82 n.22 (Ky. 2014) (interpreting the same 
provision as codified in Kentucky's LLC statute as permitting a 
common law laches defense).  Further, other states that have 
statutorily eliminated common law duties such as fiduciary 
duties in LLCs have done so clearly and explicitly.  See, e.g., 
Ohio Rev. Code Ann. § 1705.281 (West 2017) ("[t]he only 
fiduciary duties a member owes to a limited liability company 
and the other members are the duty of loyalty and the duty of 
care set forth in divisions (B) and (C) of this section."); see 
also 
Haw. 
Rev. 
Stat. 
§ 428-409 
(2017); 
Or. 
Rev. 
Stat. 
§ 63.155(1) (2017); Vt. Stat. Ann. tit. 11, § 4059(a) (2018); 
Wash. Rev. Code § 25.15.038 (2018).   
¶53 Furthermore, 
we 
could 
identify 
no 
provision 
of 
Wisconsin's LLC Act that specifically displaces all of the 
common law claims asserted by Marx and Murray.  The Act does not 
state or imply that Wis. Stat. § 183.0402 constitutes the 
entirety of an LLC member's or manager's obligations to other 
No. 
2017AP146   
 
28 
 
members and to the LLC.  Therefore, Marx and Murray's common law 
claims survive at this stage of the proceedings. 
E.  Summary Judgment 
¶54 Having determined that Marx and Murray have standing 
to assert individual claims against Morris and his LLC, and that 
Marx and Murray's common law claims are not preempted by the LLC 
Act, we next review whether Morris is entitled to summary 
judgment, which the circuit court denied.  Summary judgment is 
not appropriate unless "the pleadings, depositions, answers to 
interrogatories, and admissions on file, together with the 
affidavits, if any, show that there is no genuine issue as to 
any material fact and that the moving party is entitled to a 
judgment as a matter of law."  Dufour, 370 Wis. 2d 313, ¶12; 
Wis. Stat. § 802.08(2).   
¶55 In this case, there is a genuine issue of material 
fact as to whether Morris violated Wis. Stat. § 183.0402(1) by a 
willful failure to deal fairly with Marx, Murray and/or North 
Star in connection with a matter in which he had a material 
conflict of interest.  Marx and Murray's § 183.0402(1) claim is 
partly based on the Notice provision in North Star's Operating 
Agreement.  Section 5.7 of the Operating Agreement states: 
d.  Notice.  No matter shall be voted upon at a 
meeting of Members unless at least 5 days' notice of 
the matter to be voted on is given or such notice is 
waived by any Member who is entitled to vote and who 
has not received notice.  A Member shall be deemed to 
have waived notice of any matter acted upon at any 
meeting that the Member attends or in which the Member 
participates unless at the beginning of the meeting or 
promptly 
upon 
commencement 
of 
the 
Member's 
No. 
2017AP146   
 
29 
 
participation in the meeting the Member objects to the 
consideration of the matter because of lack of proper 
notice.  No prior notice shall be required for any 
action taken by written consent of the Members.   
¶56 Marx and Murray assert that at the December 31, 2013 
meeting,31 Morris forced members to vote on selling Westar to DSJ 
without providing the notice required by section 5.7(d) of the 
North Star Operating Agreement.  Among other things, they allege 
that Morris unfairly influenced the vote by failing to give the 
required notice and by falsely telling all the members of North 
Star that they would be able to become members of DSJ, and that 
his wrongful actions significantly increased his profit from the 
sale to Unimin to the detriment of Marx and Murray.  Marx and 
Murray have raised a genuine issue of material fact as to 
whether Morris willfully failed to deal fairly with them in 
violation of Wis. Stat. § 183.0402(1). 
¶57 With regard to the common law claims, the case has not 
been sufficiently developed for this court to determine whether 
there exist genuine disputes as to material facts for these 
claims.  In its order denying Morris's motion for summary 
judgment, the circuit court addressed only the Wis. Stat. 
§ 183.0402(1) claim, choosing to "wait until the conclusion of 
the evidence to determine if there are sufficient facts to 
enable a jury to make findings of fact with respect to [the 
                                                 
31 It is not entirely clear from the record whether this was 
actually a members' meeting, at which all six members would be 
entitled to vote, or a Directors' meeting, at which only the 
Directors (the members minus Marx) would be entitled to vote.   
No. 
2017AP146   
 
30 
 
common law claims]."  On remand, the circuit court will decide 
whether a genuine dispute exists as to any material facts 
regarding Marx and Murray's common law claims, with the 
clarification that § 183.0402 does not eliminate them at this 
time. 
¶58 Morris advances a number of arguments asserting that 
there is no genuine dispute as to any material fact.  He argues 
that the North Star Operating Agreement permits the self-dealing 
alleged by Marx and Murray, that Marx and Murray released their 
claims 
by 
signing 
a 
"Member 
Distribution 
Receipt 
and 
Acknowledgements" as part of the Badger Silica transaction, and 
that the majority of North Star's disinterested members approved 
the Westar sale.  For the reasons discussed below, Morris's 
arguments fail.   
1.  Business Opportunities Clause 
¶59 Morris asserts that as a matter of law, the "Business 
Opportunities" clause in North Star's Operating Agreement 
abrogates Marx and Murray's Wis. Stat. § 183.0402(1) claims 
against him.  The Operating Agreement states in relevant part: 
Section 5.8.  Wis. 2d Business Opportunities 
. . . . 
Nothing in this Agreement shall be deemed to prohibit 
any Director, or the Members or their respective 
officers, board of directors, directors, shareholders, 
partners, and affiliates, from dealing or otherwise 
engaging in business with Persons transacting business 
with the Company.  Neither the Company, any Director, 
or any Member shall have any right by virtue of this 
Agreement, 
or 
the 
relationship 
created 
by 
this 
Agreement, in or to such other ventures or activities, 
No. 
2017AP146   
 
31 
 
or to the income or proceeds derived from such other 
ventures or activities, and the pursuit of such 
ventures shall not be deemed wrongful or improper.  
¶60 Wisconsin Stat. § 183.0402, on the other hand, states 
that unless otherwise provided in the LLC's operating agreement: 
(1) No member or manager shall act or fail to act 
in a manner that constitutes any of the following: 
(a) A willful failure to deal fairly with the 
limited liability company or its members in connection 
with a matter in which the member or manager has a 
material conflict of interest. 
. . . . 
(c) A transaction from which the member or 
manager derived an improper personal profit. 
These are default statutory terms that can be altered by an 
operating agreement if an LLC's members so choose.  As mentioned 
earlier, however, the default statutory terms govern unless the 
operating agreement unambiguously states otherwise.  Lenticular, 
279 Wis. 2d 385, ¶18.   
¶61 North 
Star's 
Operating 
Agreement 
does 
not 
unambiguously supplant Wis. Stat. § 183.0402(1).  The "Business 
Opportunities" provision in the Operating Agreement merely 
allows North Star's members and managers to engage in business 
with persons transacting business with North Star.  It does not 
allow 
them 
to 
do 
so 
"unfairly" 
in 
contravention 
of 
§ 183.0402(1)(a).  Furthermore, Section 5.10(c) of the Operating 
Agreement expresses the members' expectation that other members 
or managers (Directors) of North Star will not willfully fail to 
deal fairly with the LLC in a matter in which the member or 
manager has a material conflict of interest, violate criminal 
No. 
2017AP146   
 
32 
 
law, derive improper personal benefits, or engage in willful 
misconduct.32 
¶62 The 
"Business 
Opportunities" 
clause 
is 
therefore 
entirely consistent with Wis. Stat. § 183.0402.  North Star's 
members are free to engage in business with persons transacting 
business with North Star, LLC, provided that they do so fairly.  
The claim in this case is that Morris did so unfairly.  We 
therefore conclude that the North Star Operating Agreement does 
not prevent Marx and Murray from asserting their claims against 
Morris. 
2.  Release 
¶63 Morris next asserts that as a matter of law, the 
"Member Distribution Receipt and Acknowledgements" signed by 
Marx and Murray after the Badger Silica transaction constitutes 
a release of all their claims against Morris.  "A release is to 
be treated as a contract."  Gielow v. Napiorkowski, 2003 WI App 
249, ¶14, 268 Wis. 2d 673, 673 N.W.2d 351.  "Releases should be 
construed to give effect to the intention of the parties."  
Brandner v. Allstate Ins. Co., 181 Wis. 2d 1058, 1078, 512 
N.W.2d 753 (1994).  However, "subjective intent is not the be-
all and end-all" of contract interpretation.  Tufail v. Midwest 
Hosp., LLC, 2013 WI 62, ¶25, 348 Wis. 2d 631, 833 N.W.2d 586.  
                                                 
32 Section 5.10(c) of the Operating Agreement tracks the 
duties of LLC members laid out in Wis. Stat. § 183.0402(1)(a)—
(d), and provides that North Star has no obligation to indemnify 
a member or manager for liability incurred by a member or 
manager as a result of a violation of these duties. 
No. 
2017AP146   
 
33 
 
Rather, 
we 
interpret 
the 
plain 
language 
of 
a 
contract 
"consistent with what a reasonable person would understand the 
words to mean under the circumstances."  Maryland Arms Ltd. 
P'ship v. Connell, 2010 WI 64, ¶22, 326 Wis. 2d 300, 786 N.W.2d 
15.   
¶64 Under the circumstances of this case, a reasonable 
person would understand the scope of the "Member Distribution 
Acknowledgement and Release" to be limited to the Badger Silica 
transaction.  The document memorializes the amount of money each 
member received as a result of the transaction, and accordingly 
is titled "Member Distribution Receipt and Acknowledgement" 
rather than "Release."  It does not state that any member 
releases or waives any identified claims against any other 
member, nor does it memorialize any consideration for such a 
release.  It was executed as part of the Badger Silica 
transaction in August 2014, a separate transaction that occurred 
months after the Westar/Pine Creek transaction, and makes no 
mention of Pine Creek or Westar.  We conclude that the scope of 
the "Member Distribution Acknowledgement and Release" is limited 
to the North Star/Badger Silica transaction. 
3.  Majority Vote of Disinterested Members 
¶65 Finally, Morris argues that he is entitled to judgment 
as a matter of law because a majority of disinterested North 
Star members voted to authorize the sale of Westar to DSJ.  He 
argues that Wis. Stat. § 183.0402(2) requires him to hold as 
trustee for the LLC only those improper personal profits derived 
without the consent of a majority of disinterested members, and 
No. 
2017AP146   
 
34 
 
that the Westar sale to DSJ was authorized by a majority of 
disinterested members.  
¶66 Morris's argument is unpersuasive.  As mentioned 
earlier, Wis. Stat. § 183.0402(2) does not limit the scope of 
Morris's 
duties 
to 
his 
fellow 
North 
Star 
members 
under 
§ 183.0402(1).  Section 183.0402(2) merely tells Morris what he 
must do if he derives an improper personal profit without the 
consent of a majority of disinterested members.  It does not 
state that a violation of § 183.0402(1)(a) is excused so long as 
a majority of disinterested members consent to the unfair 
treatment of another member.  Therefore, even if a majority of 
disinterested members were to have voted to approve the sale of 
Westar to DSJ, this would not affect Marx and Murray's 
§ 183.0402(1)(a) claim against Morris.  For the foregoing 
reasons, there are genuine issues of material fact regarding 
Marx and Murray's § 183.0402(1) claims against Morris.  We 
affirm the circuit court's denial of Morris's motion for summary 
judgment. 
III.  CONCLUSION 
¶67 We conclude the following.  First, the members of an 
LLC have standing to assert individual claims against other 
members and managers of the LLC based on harm to the members or 
harm to the LLC.  Corporate principles of derivative standing do 
not apply to the distinct business form of an LLC.   
¶68 Second, Marx and Murray's common law claims survive 
because they have not been displaced by particular provisions of 
ch. 183 or by North Star's Operating Agreement.  Third, there 
No. 
2017AP146   
 
35 
 
are genuine issues of material fact with regard to Marx and 
Murray's claim that Morris violated Wis. Stat. § 183.0402(1), 
and potentially with regard to the common law claims.  For these 
reasons, we affirm the order of the circuit court and remand for 
further proceedings not inconsistent with this opinion.   
By the Court.—Order of the circuit court is affirmed, and 
the cause is remanded. 
 
 
No.  2017AP146.dk 
 
1 
 
¶69 DANIEL KELLY, J.   (concurring in part, dissenting in 
part).  Our decision today is incompatible with the structure of 
limited liability companies and the laws that govern them.  
Because the court's opinion establishes the following six 
erroneous propositions, I cannot join it: 
1.  A non-member may sue an LLC's members based on the 
LLC's management decisions. 
2.  A non-member may sue another non-member based on 
an LLC's management decisions. 
3.  A member of an LLC may sue a non-member for the 
LLC's management decisions. 
4.  One LLC member may pursue a claim against another 
LLC member (or a member of the member) without regard 
to whether the plaintiff actually owns the claim. 
5.  Members of an LLC owe each other fiduciary duties. 
6.  An attorney owes fiduciary duties not just to the 
organization 
it 
represents, 
but 
also 
to 
the 
constituent members of that organization. 
I.  BUSINESS FORMS MATTER 
¶70 The first four errors share a common feature:  A 
failure to recognize that the distinction between an LLC and its 
members necessarily affects who may bring what types of actions 
against 
which 
defendants. 
The 
court's 
opinion 
properly 
identified the legal nature of North Star Sand, LLC ("North 
Star"), and accurately identified its membership (at least at 
one point), but it thereafter ignored the distinction between an 
LLC and its members in considering the rights and obligations of 
the parties to this action. 
No.  2017AP146.dk 
 
2 
 
A.  LLCs and Members are Legally Distinct From Each Other 
¶71 The distinction between LLCs and their members, of 
course, is why this case is here, so that's where I'll start.  
North Star is an LLC.  It has six members, each one of which is 
itself an LLC.  Majority op., ¶7.  Each of the six LLC members 
has a single member, and in each case that member is a natural 
person.  Two of the LLC members are plaintiffs in this case——
Fracsand, LLC ("Fracsand"), and R&R Management Funds, LLC 
("Management Funds"); one of the LLC members is a defendant——
R.L. Co., LLC ("R.L.").  There are also three individuals who 
are parties to this case, none of whom are members of North 
Star.  Daniel Marx (Fracsand's sole member) and Michael Murray 
(Management Funds' sole member) are both plaintiffs.  Richard 
Morris (R.L.'s sole member) is a defendant. 
¶72 The 
plaintiffs——all 
four 
of 
them——asserted 
five 
substantive causes of action in this case.1  That is to say, the 
plaintiffs are not just the North Star members.  The members' 
members are also plaintiffs.  And the plaintiffs sued not just a 
North Star member, but also that member's member.  In four of 
the five causes of action, Messrs. Marx and Murray claimed that 
one of North Star's members (R.L.) owed them legally enforceable 
duties by virtue of R.L.'s membership in North Star.  And in all 
                                                 
1 The plaintiffs alleged the following against Mr. Morris 
and R.L. Co., LLC in their amended complaint:  (1) violation of 
Wis. Stat. § 183.0402; (2) breach of fiduciary duties between 
LLC members; (3) breach of fiduciary duties as corporate 
counsel; (4) unjust enrichment; and (5) breach of implied 
covenant of good faith and fair dealing. 
No.  2017AP146.dk 
 
3 
 
five causes of action they claimed that North Star's member's 
member (Mr. Morris) owed them legally enforceable duties.  But 
neither Mr. Marx, nor Mr. Murray, nor Mr. Morris, are North Star 
members.  The court failed to account for this foundational 
fact, and that sent its analysis on an unrecoverable trajectory. 
¶73 The court's error started in the very first paragraph, 
in which it misapprehended the identity of the parties to this 
case: 
Two members of a limited liability company (LLC), 
Fracsand, LLC by Daniel Marx (Marx) and Management 
Funds, LLC by Michael Murray (Murray), brought an 
action against another member, Richard Morris (Morris) 
and his LLC, R.L. Co., LLC, after North Star Sand, LLC 
(North Star) sold valuable assets to a company owned 
by Morris. 
Id., ¶1.  No, Fracsand did not bring its claim "by Daniel Marx," 
nor did Management Funds bring its claim "by Michael Murray."  
Fracsand and Management Funds brought their claims under their 
own steam, because each one is a juridical entity with the 
ability to sue and be sued: 
(2)  Unless 
otherwise 
provided 
in 
an 
operating 
agreement, a limited liability company organized and 
existing under this chapter has the same powers as an 
individual to do all things necessary and convenient 
to carry out its business, including but not limited 
to all of the following: 
(a)  Sue and be sued, complain and defend in its name. 
Wis. Stat. § 183.0106(2)(a).  Nothing in the amended complaint 
suggests that Messrs. Marx and Murray are participating in this 
case simply as proxies for Fracsand and Management Funds.  To 
the contrary, Messrs. Marx and Murray asserted their own claims 
against the defendants.  The complaint explicitly states there 
No.  2017AP146.dk 
 
4 
 
are four plaintiffs, not two:  Mr. Marx, Fracsand, Mr. Murray, 
and Management Funds.  Nonetheless, the court reduced them by 
half, referring to Mr. Marx and Fracsand as "Marx," and Mr. 
Murray and Management Funds as "Murray" throughout the opinion 
as though there is no legal difference between an LLC and its 
members.  The court didn't fare much better with the defendants.  
It said the plaintiffs "brought an action against another 
member, Richard Morris (Morris) and his LLC, R.L. Co., LLC."  
Majority op., ¶1.  That would certainly be news to the 
plaintiffs (all four of them), because they all understand that 
R.L. is the North Star member, not Mr. Morris.  The apparent 
assumption behind the court's conflation of the LLCs involved in 
this case and their members is that our statutes make no 
distinction between them.  But that's simply not true.  In fact, 
the distinction between LLCs and their members is the very first 
thing for which we must account in deciding who may bring what 
types of claims against which defendants. 
¶74 The first step in analyzing this case is determining 
who owns the causes of action asserted in the amended complaint.  
As a juridical entity, an LLC can buy, hold, and convey property 
in its own name.  Wis. Stat. § 183.0701(3) ("Property may be 
acquired, held and conveyed in the name of a limited liability 
company.").  Causes of action are a type of property recognized 
by Wisconsin law.  Wis. Stat. § 990.01(27) (Personal property 
"includes . . . things in action[.]"); Logan v. Zimmerman Brush 
Co., 455 U.S. 422, 428 (1982) (citing Mullane v. Central Hanover 
Bank & Trust Co., 339 U.S. 306 (1950) ("[A] cause of action is a 
No.  2017AP146.dk 
 
5 
 
species of property protected by the Fourteenth Amendment's Due 
Process Clause.")).  Therefore, because LLCs have "the same 
powers as an individual to do all things necessary and 
convenient to carry out its business,"2 and because they can own 
property as well as sue and be sued, it necessarily follows that 
they can own a cause of action just like an individual. 
¶75 Ownership of a cause of action depends on the 
principle of "standing."  A person has standing, and therefore 
owns a cause of action, only if he has been injured (or 
threatened with injury):  "For standing to exist two things must 
be shown.  First, there must be some direct injury or a threat 
of direct injury.  Second, the injury must be to a legally 
protected interest."  Fox v. Wisconsin DHSS., 112 Wis. 2d 514, 
529, 334 N.W.2d 532 (1983); Liebovich v. Minnesota Ins. Co., 
2008 WI 75, ¶36, 310 Wis. 2d 751, 751 N.W.2d 764 ("[I]t is 
through 
the 
demonstration 
of 
injury 
that 
standing 
is 
conferred."); 
Krier 
v. 
Vilione, 
2009 
WI 45, 
¶20, 
317 
Wis. 2d 288, 766 N.W.2d 517 ("'Standing' is a concept that 
restricts access to judicial remedy to those who have suffered 
some injury because of something that someone else has either 
done or not done.") (quoted source omitted).  
¶76 We 
are 
not 
unfamiliar 
with 
the 
challenge 
of 
distinguishing between causes of action that belong to a 
business entity and those that belong to the entities' owners.  
We employ the "primary injury" rule to help us accurately 
                                                 
2 Wis. Stat. § 183.0106(2). 
No.  2017AP146.dk 
 
6 
 
determine ownership.  Although the rule has its genesis in the 
corporate context, it is not a product of Chapter 180.  It is, 
instead, a judicially-created analytical construct that exists 
for the express purpose of accounting for the fact that a 
corporation 
and 
its 
shareholders 
are 
legally 
distinct——a 
distinction that necessarily affects who or what owns a 
particular claim.  And because LLCs and members are legally 
distinct in the same way as corporations and their shareholders, 
we will inevitably face the same question when encountering a 
claim related in some way to the LLC or the business it 
conducts:  Does the claim belong to the LLC, or to its 
individual members?  Because both corporations and LLCs are 
juridical entities, and both are statutorily-enabled to own 
causes of action, and ownership of both types of business 
entities is distinct from the company itself, the answer must 
necessarily be the same in the LLC context as in the corporate 
context.  Consequently, the "primary injury" rule is as useful 
here as when we determine the ownership of claims related to 
corporations.    
¶77 The "primary injury" rule is simple and intuitive.  It 
begins with this inquiry: "Whose right is sought to be enforced 
by the [] cause of action?"  Rose v. Schantz, 56 Wis. 2d 222, 
229, 201 N.W.2d 593 (1972).  The cause of action belongs to the 
company's owner, as opposed to the company itself, if the injury 
is 
"'primarily . . . to 
an 
individual 
shareholder 
[or 
member] . . . .'"  Notz v. Everett Smith Grp., Ltd., 2009 WI 30, 
¶23, 316 Wis. 2d 640, 764 N.W.2d 904 (quoted source omitted).  
No.  2017AP146.dk 
 
7 
 
And the injury is primarily to the individual if it "'affects a 
shareholder's [or member's] rights in a manner distinct from the 
effect upon other shareholders [or members] . . . .'"  Id.  If 
the individual's injury is not distinct from the other owners, 
then the injury is to the company and the company owns the cause 
of action.3 
¶78 The court refuses to engage this analysis because it 
believes our statutes allow LLCs and their members to pursue 
causes of action without accounting for their ownership.  The 
court claims that "the only provision of ch. 183 relating to 
suits in the name of an LLC is Wis. Stat. § 183.1101," an 
unfortunately inaccurate statement——but more about that later.  
Majority op., ¶39.  It asserts that "§ 183.1101 does not require 
that claims against LLC members be brought in the name of the 
LLC," and that this provision "is silent on a member's right to 
sue on his own behalf . . . ."  Id., ¶40.  Based on these 
premises, the court said "[W]e will not judicially import 
ch. 180's corporate derivative standing provisions into the LLC 
context where the legislature has not done so."  Id., ¶41. 
¶79 There's no need to judicially import derivative 
standing principles into Chapter 183, because the legislature 
                                                 
3 This not to say, however, that one act could not 
simultaneously give rise to one type of injury that falls 
primarily on the company and another that falls primarily on the 
member.  See, e.g., Marshfield Clinic v. Doege, 269 Wis. 519, 
527, 69 N.W.2d 558 (1955) ("If wrongful acts are not only wrongs 
against a corporation, but also violations by the wrongdoer of a 
duty arising from contract and owing directly by him to the 
stockholders, then the stockholders may sue on their own 
behalf."). 
No.  2017AP146.dk 
 
8 
 
has, in fact, already done so.  The court's analysis is faulty 
because it didn't start at the beginning.  The first statutory 
provision to consult on this subject is not Wis. Stat. 
§ 183.1101 (which is where the court started), it is § 183.0305.  
Here we learn that one's status as a member of an LLC does not, 
by itself, provide the necessary authority to sue on behalf of 
the LLC: 
A member of a limited liability company is not a 
proper party to a proceeding by or against a limited 
liability company, solely by reason of being a member 
of the limited liability company, except if any of the 
following situations exists: 
(1)  The object of the proceeding is to enforce a 
member's right against or liability to the limited 
liability company. 
(2)  The action is brought by the member under s. 
183.1101. 
§ 183.0305.  In the first enumerated situation (which is not at 
issue here), one's status as a member is sufficient for the 
member to bring an action against the LLC, or for the LLC to 
bring an action against the member.  The only other circumstance 
in which membership in an LLC confers authority to sue 
(according to § 183.0305) is through compliance with § 183.1101.  
That provision says: 
Unless otherwise provided in an operating agreement, 
an action on behalf of a limited liability company may 
be brought in the name of the limited liability 
company by one or more members of the limited 
liability company, whether or not the management of 
the limited liability company is vested in one or more 
managers, if the members are authorized to sue by the 
affirmative vote as described in s. 183.0404 (1) (a), 
except that the vote of any member who has an interest 
in the outcome of the action that is adverse to the 
No.  2017AP146.dk 
 
9 
 
interest of the limited liability company shall be 
excluded. 
§ 183.1101(1).  Consequently, § 183.0305 stands as a bar against 
members suing on behalf of their LLC unless they satisfy the 
terms of § 183.1101. 
¶80 The primary reason the court's statutory analysis went 
where it did is because it never mentioned, much less analyzed, 
Wis. Stat. § 183.0305.  Its narrow focus on the terms of 
§ 183.1101, to the exclusion of all other statutory provisions, 
caused it to conclude that its provisions were optional, and 
that it "is silent on a member's right to sue on his own 
behalf . . . ."  Majority op., ¶40.  Yes, § 183.1101 is silent 
on that subject.  The problem is, § 183.0305 is not.  In fact, 
§ 183.1101 simply operates as an exception to the rule in 
§ 183.0305 that a member has no standing to sue on behalf of his 
LLC. 
B.  Of Taxation, Profits, and Derivative Actions 
¶81 The court rejected derivative standing, in part, 
because of what it sees as differential treatment of LLCs and 
corporations in matters of taxation and distribution of profits.  
So, for example, the court said:   
[I]n a corporation, gains and losses do not flow 
through to the individual shareholders. Instead, the 
corporation's income is first taxed at the entity 
level. . . . In contrast, North Star has elected to be 
taxed as a partnership.  This is the usual form of 
operation for an LLC. When treated as a partnership, 
the company's gains and losses flow through to 
individual members and are realized directly by each 
member, each year, on that member's individual tax 
return. 
Majority op., ¶¶44-45 (citations omitted).   
No.  2017AP146.dk 
 
10 
 
¶82 That's all true . . . except for when it's not.  An 
LLC may choose to be taxed at either the entity or member level.  
26 
CFR 
§ 301.7701-3. 
 
Similarly 
(and 
subject 
to 
some 
limitations), a corporation may also choose to be taxed either 
at the entity or shareholder level.  26 U.S.C. § 1361 
(describing the requirements by which a corporation can elect to 
be taxed similarly to a partnership).4  The default rules, of 
course, are different:  By default, a corporation is taxed at 
the entity level while an LLC is taxed at the individual level.  
They have to elect to be treated differently.  But the court 
never explained how this seemingly trivial distinction could 
affect the ownership of a cause of action. 
¶83 The court also found it significant that "[a] member's 
interest in [the LLC] is that member's personal property, and 
includes the right to a share of the profits and losses of the 
LLC."  Majority op., ¶45.  So?  The same could be said of a 
shareholder's interest in a corporation.  And, in fact, we have:  
"There is plenty of authority for the proposition that shares of 
stock in a corporation are personal property[.]"  Stone v. State 
Tax Comm'n, 197 Wis. 71, 73-74, 221 N.W. 376 (1928); Shepard v. 
State, 184 Wis. 88, 91, 197 N.W. 344 (1924) ("There is a 
fundamental difference between the capital of a corporation and 
its capital stock. The former belongs to the corporation; the 
latter, when issued, to the stockholders. The former may be 
either real or personal property; the latter, when issued, is 
                                                 
4 Even the court recognizes this. See Majority op., ¶31 
n.20.   
No.  2017AP146.dk 
 
11 
 
always personal property." (Emphasis added.)).  We have also 
said so with respect to the right to share in profits: "[A]cting 
shareholders have a right to dividends paid on a pro rata basis 
equivalent to their ownership of corporate stock."  Krier, 317 
Wis. 2d 288, ¶31, n.13.; see also Franzen v. Fred Rueping 
Leather Co., 255 Wis. 265, 273–74, 38 N.W.2d 517 (1949) ("It is 
well established that as soon as a dividend is lawfully and 
fully declared out of surplus profits the corporation becomes 
indebted from that moment to each stockholder for the amount of 
his share, and the stockholder may recover it in an action 
against the corporation."). 
¶84 These 
tax 
and 
profit-distribution 
issues 
are 
important, the court said, because they demonstrate "there is 
generally a much closer financial connection between harm to an 
LLC and harm to its members than between harm to a corporation 
and harm to its shareholders."  Majority op., ¶45.  And it 
concludes that failing to recognize this "demonstrates a lack of 
understanding of basic principles that control North Star, LLC."  
Id., ¶34.  But that is not true at all.  The tax treatment of 
both corporations and LLCs is largely a matter of choice, not a 
distinction based on the statutory chapter under which they were 
organized.  The minor differences related to profit distribution 
when LLCs and corporations choose the same tax treatment have 
precisely zero impact on the "financial connection between harm" 
to the company and its owners.  Contrary to the court's 
assertion, therefore, the manner in which a member experiences 
harm to his LLC is not cognizably different from the manner in 
No.  2017AP146.dk 
 
12 
 
which a shareholder experiences harm to his corporation, so long 
as they make the same tax election.  Any potential difference——
either with respect to a corporation or an LLC——is purely 
elective.  That is to say, the difference has nothing to do with 
what the statutes say about the structural and juridical form of 
an LLC, which is all that should interest us in determining 
whether it owns its own causes of action. 
¶85 To the extent the court suggests that North Star's tax 
election is relevant to the ownership of a cause of action, what 
will it say of LLCs that choose taxation at the entity level?  
Will it say we recognize an LLC's ownership of a cause of action 
when it chooses taxation at the entity level, but not when it 
chooses taxation at the member level?  Or will the court apply 
today's rule to LLCs taxed at the entity level simply because 
the question was first posed by an LLC taxed at the member 
level?  The court won't address these questions because it 
thinks they are irrelevant:  "Although we could describe many 
interesting hypotheticals about the financial choices that LLCs 
may elect, we choose not to do so because such hypotheticals 
have absolutely no relevance to the case before us."  Id., ¶33.  
Actually, they do.  The principles the court enunciates today 
will not control North Star alone; they will control all 
Wisconsin LLCs.  The court created its claim-ownership rule 
based on North Star's tax election, but its rule makes no 
allowance for LLCs that choose taxation at the entity level.  
The failure to account for that distinction reveals the logical 
error lying at the heart of the court's analysis:  If North Star 
No.  2017AP146.dk 
 
13 
 
does not own its cause of action because it chose taxation at 
the member level, but LLCs choosing taxation at the entity level 
don't own their causes of action either, then the tax election 
cannot really be the controlling factor, can it? 
¶86 It is apparent that these tax and profit-distribution 
matters are supposed to suggest that the distinction between an 
LLC and its members is so blurry that we should treat the 
ownership of a claim as indifferently belonging to the LLC or 
its members.  That, however, creates immediate, real-life 
problems.  If the distinction between the LLC and its members 
really is so permeable and amorphous, who owns the recovery if 
plaintiffs are successful?  The plaintiffs say they were injured 
because DSJ didn't give full value for its purchase of Westar.  
Presumably, the delta between fair value and the actual purchase 
price would be the measure of recovery.  But who gets it?  If we 
don't distinguish between claims belonging to LLCs and those 
belonging to their members, then as a matter of logic the 
plaintiffs would receive the whole recovery.  That is to say, 
just two of the six members would split amongst themselves 100% 
of the diminution of North Star's value.  That seems odd. 
¶87 It also seems odd that we would allow the plaintiffs 
to litigate the claims they asserted in this case without 
joining North Star as a party, or North Star's other members.  
What if North Star's management is interested in ratifying the 
transaction with DSJ?  And shouldn't it have a say in how the 
lawsuit proceeds?  Our statutes say they should.  That's why a 
No.  2017AP146.dk 
 
14 
 
member cannot bring a derivative action without a majority vote 
of disinterested members:   
[A]n action on behalf of a limited liability company 
may be brought in the name of the limited liability 
company by one or more members of the limited 
liability company . . . if the members are authorized 
to sue by the affirmative vote as described in s. 
183.0404 (1) (a), except that the vote of any member 
who has an interest in the outcome of the action that 
is adverse to the interest of the limited liability 
company shall be excluded. 
Wis. Stat. § 183.1101(1).  But by blurring the distinction 
between an LLC and its members as much as it has, the court has 
eliminated the LLC's ability to control litigation brought to 
remedy, ostensibly, injury to the LLC itself.  Under the court's 
new paradigm, a cause of action belongs to the first person to 
grab it, without regard to whether the primary injury fell on 
him as opposed to the LLC.  All without input from any other 
member or the LLC itself. 
¶88 Neither 
taxation 
nor 
profit-distribution 
issues 
distinguish LLCs from corporations in any sense relevant to this 
case.  Certainly not in a sense that would warrant line-blurring 
between LLCs and their members to the extent we can ignore 
traditional concepts of standing with respect to juridical 
entities and their owners.  I agree with the court's observation 
that the LLC structure allows for "informality and flexibility 
of organization and operation,"5 but what it has created here is 
not that.  It is the chaotic unruliness of the wild west. 
* 
                                                 
5 Majority op., ¶23. 
No.  2017AP146.dk 
 
15 
 
¶89 So, notwithstanding the court's assertions, Chapter 
183 does recognize a distinction between an LLC's and a member's 
ownership of a claim.  That's the whole point of controlling 
whether a member, qua member, may sue on behalf of his LLC.  
When a member may do so, we refer to that authority as 
"derivative standing."  Therefore, the court erred when it 
refused to inquire into who owns which claims out of a fear it 
would be judicially importing the derivative standing concept.  
The concept is already there, and not by our hand.   
II.  OWNERSHIP OF THE CLAIMS 
¶90 The failure to recognize that Chapter 183 necessarily 
incorporates the concept of derivative standing caused the court 
to assess the plaintiffs' claims without reference to which of 
them, if any, had authority to prosecute them.  And that led 
directly to the first four erroneous propositions listed at the 
beginning of this opinion.  If our analysis had begun with the 
proper starting point, it would have looked something like the 
following. 
A.  Violation of Wis. Stat. § 183.0402(1) 
¶91 Count I of the amended complaint claims that Mr. 
Morris and R.L. violated the obligations imposed on them by Wis. 
Stat. § 183.0402.  That statute says, in relevant part:   
Unless otherwise provided in an operating agreement: 
(1)  No member or manager shall act or fail to act in 
a manner that constitutes any of the following: 
(a)  A willful failure to deal fairly with the limited 
liability company or its members in connection with a 
matter in which the member or manager has a material 
conflict of interest. 
No.  2017AP146.dk 
 
16 
 
Id.  The plaintiffs say the violation occurred when R.L. and Mr. 
Morris influenced North Star to sell Westar Proppants, LLC 
("Westar")——a wholly-owned subsidiary of North Star——to DSJ 
Holdings, 
LLC 
("DSJ"), 
an 
entity 
owned 
by 
Mr. 
Morris.  
Specifically, they say Mr. Morris had a material conflict of 
interest in the sale of Westar to DSJ, and that the decision to 
sell was the consequence of a vote that was not preceded by the 
notice requirements of North Star's Operating Agreement. 
¶92 By its explicit terms, Wis. Stat. § 183.0402 describes 
a 
potential 
injury 
to 
the 
LLC 
or 
its 
members. 
 
That 
automatically disqualifies Messrs. Marx and Murray from bringing 
this claim, because they are not members of North Star.  So the 
only potentially eligible plaintiffs are Fracsand and Management 
Funds.  A proper analysis would next apply the primary injury 
rule to determine whether the claim belongs to North Star or, 
instead, the plaintiff LLCs. 
¶93 There are three potential violations described by 
Count I.  The first is diminution of North Star's value 
following its sale of Westar to someone who had a material 
conflict of interest in the transaction.  The plaintiffs say 
that, because of the conflict of interest, Northstar sold Westar 
for inadequate consideration.  If that is so, then Fracsand and 
Management 
Funds 
certainly 
suffered 
injury 
from 
that 
transaction, but not in a manner that affects their "rights in a 
manner distinct from the effect upon other" members' rights.  
Notz, 316 Wis. 2d 640, ¶23 (quoted source omitted).  Diminution 
of a company's value, and hence its value to the company's 
No.  2017AP146.dk 
 
17 
 
owner, describes a classic derivative injury:  "That such 
primary and direct injury to a corporation may have a subsequent 
impact on the value of the stockholders' shares is clear, but 
that is not enough to create a right to bring a direct, rather 
than derivative, action."  Rose, 56 Wis. 2d at 229. 
¶94 Further, our statutes treat any recovery upon such a 
claim in a way that unmistakably identifies this as a claim 
belonging to North Star.  If Fracsand and Management Funds were 
to succeed in their claim, Wis. Stat. § 183.0402 requires the 
defendant to "hold as trustee" for the "limited liability 
company . . . any improper personal profit derived by that 
member or manager . . . from any . . . transaction connected 
with the organization[.]"  § 183.0402(2)(a).  So the improper 
profits, if there are any, belong to North Star, not its 
members.  Therefore, when we ask "[w]hose right is sought to be 
enforced by the [] cause of action[,]" Rose, 56 Wis. 2d at 229, 
the answer must necessarily be North Star because the malefactor 
must 
hold 
the 
improper 
profit 
in 
trust 
for 
the 
LLC.  
Consequently, Fracsand and Management Funds must pursue North 
Star's claim in accordance with the procedures described in Wis. 
Stat. §§ 183.0305 and 183.1101, or not at all.  Because they did 
not, they may not seek recovery for this alleged injury. 
¶95 The second potential violation described by Count I is 
the failure to give proper notice prior to the vote to sell 
No.  2017AP146.dk 
 
18 
 
Westar to DSJ.6  We have recognized that improper management can 
injure an entity's owner in a way that confers standing to bring 
a direct action.  Rose, 56 Wis. 2d at 228–29 ("Thus, where some 
individual right of a stockholder is being impaired by the 
improper acts of a director, the stockholder can bring a direct 
suit [against the director] on his own behalf because it is his 
individual right that is being violated."); see also Ewer v. 
Lake 
Arrowhead 
Ass'n, 
Inc., 
2012 
WI APP 64, 
¶37, 
342 
Wis. 2d 194, 817 N.W.2d 465 ("If the plaintiffs' voting rights 
have been violated, the plaintiffs——not the corporation——have 
suffered a harm.") (internal citation omitted).  However, 
although this violation could support a direct cause of action, 
it does not necessarily follow that it supports the recovery 
Fracsand and Management Funds want.  The recoverable injury must 
be one suffered by these plaintiffs in some manner not 
experienced by all other members.  The complaint describes no 
such injury.  In fact, the complaint describes no injury at all 
consequent upon not receiving the pre-vote notice required by 
the North Star Operating Agreement.  The only deleterious 
consequence described in the complaint was the sale of Westar to 
DSJ.  However, as the analysis above demonstrates, the North 
Star members experienced that consequence all alike, and so that 
                                                 
6 The operating agreement provides:  "No matter shall be 
voted upon at a meeting of the Directors unless at least 24 
hours' notice of the matter to be voted on is given or such 
notice is waived by any Director not receiving it."  Here, the 
vote for the sale of Westar to DSJ occurred without the 
directors having proper notice. 
No.  2017AP146.dk 
 
19 
 
injury can give rise to a cause of action belonging only to 
North Star, not its members. 
¶96 The final possible violation described by Count I is 
Mr. Morris and R.L.'s refusal to allow the plaintiffs to join 
DSJ.  But the obligations described by Wis. Stat. § 183.0402 
obtain only between members and managers of the same LLC.  It 
has nothing to say about the conduct between members of 
different LLCs.  The decision on who to admit as a DSJ member 
belongs to DSJ, and the plaintiffs are complete strangers to 
that LLC.  Therefore, there is only one possible claim described 
in Count I that Fracsand and Management Funds could pursue as a 
direct action under § 183.0402:  The failure to receive the 
required pre-vote notice. However, the complaint does not 
disclose any injury from that violation recoverable by Fracsand 
and Management Funds.  That is not to say there cannot be any, 
but it might be just a peppercorn.  The recovery certainly 
cannot be based on the allegedly inadequate consideration 
received by North Star for the sale of Westar to DSJ.  That is 
an injury to North Star, not Fracsand and Management Funds, and 
so any cause of action to remedy that injury would necessarily 
belong to North Star. 
B.  Unjust Enrichment 
¶97 Count IV of the amended complaint alleges that R.L. 
and DSJ were unjustly enriched when North Star sold Westar to 
DSJ.  As above, we must ask "[w]hose right is sought to be 
enforced by the [] cause of action?"  Rose, 56 Wis. 2d at 229.  
If the enrichment was unjust, then it was an unjustness suffered 
No.  2017AP146.dk 
 
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in like kind by all of North Star's members.  Any recovery from 
the successful assertion of such a cause of action would 
necessarily go to North Star, not Fracsand or Management Funds.  
To do otherwise would unjustly enrich those two at the expense 
of all other North Star members.  So Fracsand and Management 
Funds must bring this action according to the terms of Wis. 
Stat. § 183.1101 or not at all.  They did not do so, and so they 
have no standing to pursue the claim. 
C.  Breach of Implied Covenant of Good Faith and Fair Dealing 
¶98 In Count V, plaintiffs say the North Star operating 
agreement implies, by operation of law, the covenant of good 
faith and fair dealing.  But once again, the injury they assert 
is the sale of Westar to DSJ for inadequate consideration.  This 
is no different from the injury asserted in the causes of action 
addressed above, so if it is a good claim, it belongs to North 
Star, not Fracsand or Management Funds. 
III.  BREACH OF FIDUCIARY DUTIES 
¶99 The court's fifth erroneous proposition (as listed at 
the beginning of this opinion) is that fiduciary duties obtain 
between members of an LLC.  They don't.  Nonetheless, that is 
the premise of the plaintiffs' claim in Count II of their 
complaint. 
¶100 As a preliminary matter, we can easily conclude that 
Messrs. Marx and Murray have no authority to pursue this claim.  
Neither one is a North Star member, and so it is not possible 
for intra-membership fiduciary duties (should there be any) to 
have anything to say about how non-members are treated.  
No.  2017AP146.dk 
 
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Similarly, we can eliminate Mr. Morris as a proper defendant 
with respect to this cause of action because he is not a member 
of North Star either.  If this cause of action exists, 
therefore, it can obtain only between Fracsand, Management 
Funds, and R.L. 
¶101  The court reached the conclusion that LLC members owe 
each other fiduciary duties in a distinctly sideways fashion.  
Instead 
of 
asking 
whether 
there 
is 
anything 
about 
the 
relationship between LLC members that would call a fiduciary 
duty into existence, it asked whether the creation of Chapter 
183 displaced pre-existing common-law claims.  It concluded it 
did not:  "In this case, the claim[] asserted by Marx and 
Murray, breach of fiduciary duty, . . . are not displaced by ch. 
183 based on the record before us."  Majority op., ¶47.  That's 
true, but tautological.  Consequently, it has no explanatory or 
instructive power at all. 
¶102 If Chapter 183 has any "displacing" power, it can only 
be because——at a minimum——there existed something capable of 
being displaced.  Here, that is not even conceptually possible.  
Chapter 183 cannot displace any pre-existing fiduciary duties 
between members of an LLC because, prior to adoption of that 
chapter, there was no such thing as an LLC member.  And because 
there was no such thing as an LLC member, it is necessarily true 
that no one was relating to anyone else as one LLC member 
relates to another.  Therefore, if LLC members relate to each 
other as fiduciaries, it can only be because one of two 
propositions is true.  The first is that Chapter 183, by its own 
No.  2017AP146.dk 
 
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terms, created fiduciary duties between members.  The second is 
that the very nature of the relationship between LLC members 
gives rise to fiduciary obligations.  In neither event is 
Chapter 
183 
capable 
of 
displacing 
anything 
because 
the 
legislature was writing on a blank slate.  We can rule out the 
first proposition easily enough——nothing in Chapter 183 refers 
to fiduciary duties between members.  So the only question 
before us was whether the nature of the relationship between LLC 
members 
necessarily 
implies 
the 
existence 
of 
fiduciary 
obligations. 
¶103 Common-law fiduciary duties arise out of the nature of 
the relationship between two or more parties.7  These duties 
mitigate the risk of self-dealing by the other members within 
the circle of fiduciary duties, and lower the monitoring costs 
of their conduct.  These principles extend back more than 3,000 
years.  Tamar Frankel, Fiduciary Duties 96-97 (2007).  We have 
recognized that "[a] fiduciary relationship arises from a formal 
commitment to act for the benefit of another . . . or from 
special circumstances from which the law will assume an 
obligation to act for another's benefit.  Merrill Lynch, Pierce, 
Fenner & Smith, Inc. v. Boeck, 127 Wis. 2d 127, 136, 377 
N.W.2d 605 (1985).  Typically, the law will assume such an 
                                                 
7 Unfortunately, Messrs. Marx and Murray's brief on the 
existence of this duty was not fully developed.  Out of fifty-
six pages they spent only two of them on this central question. 
The substance of their argument is:  Partners have fiduciary 
duties to each other, so LLC members also have fiduciary duties 
to each other. 
No.  2017AP146.dk 
 
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obligation where there is an "entrustment of power or property 
in connection with the fiduciary's services . . . ."  Tamar 
Frankel, Fiduciary Duties as Default Rules, 74 Or. L. Rev. 1209, 
1224 (1995).  In "determining whether a fiduciary relationship 
has arisen, courts consider a variety of factors, including 
whether there is dependence and inequality . . . or other 
conditions giving one side an advantage over the other."  See 
Hatleberg v. Norwest Bank Wisconsin, 2005 WI 109, ¶32, 283 
Wis. 2d 234, 700 N.W.2d 15  (emphasis added).   
¶104 These principles justify the imposition of fiduciary 
duties between, for example, members of a partnership.  A 
partner can incur liabilities on behalf of other partners 
because (1) any partner can bind the partnership and (2) every 
partner is liable for all of the partnership's obligations.  
Wis. Stat. § 178.0306(1).  Thus, in a partnership between "A" 
and "B," partner A depends on partner B to act in their combined 
best interest because if partner B chooses, he can incur 
liabilities for which partner A might ultimately be responsible.  
The relationship creates a "dependence" between the partners; 
the fiduciary duties between them ward against one partner 
taking advantage of the others. 
¶105 If the members of an LLC stood in a position of 
"dependence 
and 
inequality" 
amongst 
themselves, 
that 
relationship would call into existence fiduciary duties between 
them.  But LLC members do not relate to one another in the same 
way that partners do.  Instead, the nature of the relationship 
between LLC members is much closer to that obtaining between 
No.  2017AP146.dk 
 
24 
 
shareholders of a corporation.  An LLC member cannot bind 
another member of the LLC any more than a shareholder can bind 
fellow shareholders.  Wis. Stat. § 183.0301(1)(a) ("Each member 
is an agent of the limited liability company, but not of the 
other members or any of them, for the purpose of its 
business.").  A shareholder cannot bind a fellow shareholder 
because all corporate authority belongs to the corporation's 
board of directors.  Wis. Stat. §180.0801(2) ("All corporate 
powers shall be exercised by or under the authority of, and the 
business and affairs of the corporation managed under the 
direction of, its board of directors, subject to any limitation 
set forth in the articles of incorporation.").  And because an 
LLC is a liability-limiting business entity, the obligations to 
which a member may bind an LLC do not reach the other members:  
"The debts, obligations and liabilities of a limited liability 
company, whether arising in contract, tort or otherwise, shall 
be solely the debts, obligations and liabilities of the limited 
liability company."  § 183.0304(1) (emphasis added).  The same 
is 
true 
of 
corporations 
and 
their 
shareholders: 
"Unless 
otherwise 
provided 
in 
the 
articles 
of 
incorporation, 
a 
shareholder of a corporation is not personally liable for the 
acts or debts of the corporation[.]"  § 180.0622(2).  So while 
it is conceivable that an LLC member may owe a fiduciary duty to 
the LLC, there is nothing about membership in an LLC that can 
call fiduciary duties into existence between its members.  
Chapter 183 does not create those duties, and because there is a 
lack of "dependence and inequality," Hatleberg, 283 Wis. 2d 234, 
No.  2017AP146.dk 
 
25 
 
¶32, between LLC members, that relationship cannot make them 
fiduciaries. 
IV.  FIDUCIARY DUTIES AS CORPORATE COUNSEL 
¶106 The court's final erroneous proposition (as listed 
above) relates to the identify of an attorney's client.  In 
Count III of the amended complaint, the plaintiffs claim that 
Mr. Morris's service as North Star's counsel imposed on him 
fiduciary obligations to North Star's members.  Based on the 
same principles discussed above, Messrs. Marx and Murray may not 
pursue this claim because they are not members of North Star.  
But more fundamentally, there is no basis for this claim because 
an LLC's attorney has a fiduciary obligation to the LLC, not its 
members.  One of the most fundamental principles of the 
attorney-client relationship is that it creates a fiduciary 
relationship.  Law Examination of 1926, 191 Wis. 359, 362, 210 
N.W. 710 (1926) ("An attorney occupies a fiduciary relationship 
towards his client.").8  When an attorney does work for a 
corporation or an LLC, the attorney-client relationship is 
between the attorney and the organization, not its members:  "A 
lawyer employed or retained by an organization represents the 
organization acting through its duly authorized constituents."  
SCR 20:1.13(a) (emphasis added).  Mr. Morris, in his capacity as 
an attorney, owes a fiduciary duty to North Star, not Fracsand 
                                                 
8 "There is no field of human activity which requires a 
fuller realization with respect to a fiduciary relationship than 
that which exists between the lawyer and his client."  Law 
Examination of 1926, 191 Wis. 359, 362, 210 N.W. 710 (1926). 
 
No.  2017AP146.dk 
 
26 
 
or Management Funds.  Therefore, any breach of that duty injures 
North Star, which means the claim belongs to the LLC.  Neither 
Fracsand nor Management Funds may assert that claim unless they 
comply with Wis. Stat. § 183.1101.  
V.  CONCLUSION 
¶107 Messrs. Marx and Murray have no standing to pursue any 
of the claims contained in their amended complaint.  Fracsand 
and Management Funds, on the other hand, have a potential direct 
action against Mr. Morris (but not R.L.) based on the failure to 
provide the pre-vote notice required by North Star's Operating 
Agreement.9  But if they succeed on that claim, the recovery can 
only be the injury they suffered distinctly from that of all 
other North Star members.  That does not include any diminution 
in North Star's value because of the sale of Westar for 
allegedly insufficient consideration.  With respect to fiduciary 
duties, we should have concluded that there is no fiduciary 
relationship amongst LLC members, and that an attorney owes 
fiduciary duties only to the LLC, not its members. 
¶108 Because the court did not reach these conclusions, it 
affirmed the following six propositions, all of which are 
erroneous: 
                                                 
9 The court remands this case for further proceedings.  I 
concur with that conclusion, but only with respect to Management 
Funds and Fracsand's action against Mr. Morris (in his capacity 
as a North Star director) based on the failure to provide the 
required pre-vote notice.  I dissent with respect to everything 
else.   
No.  2017AP146.dk 
 
27 
 
1.  Messrs. Marx and Murray, who are not North Star 
members, may nonetheless sue North Star's members for 
North Star's management decisions. 
2.  Messrs. Marx and Murray (who are not North Star 
members) may sue Mr. Morris (who is also not a North 
Star 
member) 
based 
on 
North 
Star's 
management 
decisions. 
3.  Fracsand and Management Funds may sue Mr. Morris 
(who is not a North Star member), in his personal 
capacity, for North Star's management decisions. 
4.  The plaintiffs may sue North Star's members based 
on causes of action that belong to North Star, not the 
plaintiffs. 
5.  North Star's members owe each other fiduciary 
duties 
even 
though 
the 
membership 
relationship 
contains none of the particulars that call fiduciary 
obligations into existence in other contexts. 
6.  Mr. 
Morris 
(as 
North 
Star's 
attorney) 
owes 
fiduciary duties not only to North Star, but its 
members and its members' members. 
¶109 For these reasons, I concur in part and dissent in 
part. 
¶110 I am authorized to state that Justices SHIRLEY S. 
ABRAHAMSON and REBECCA GRASSL BRADLEY join this opinion. 
 
 
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