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1 Marx v. Morris, No. 2017AP146, unpublished certification 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, allencompassing 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 membermanaged 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 passthrough 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 beall 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 

20 

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 

21 

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 

22 

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 fiftysix 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 

23 

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 

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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, 
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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 identity 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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