Opinion ID: 1058372
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Heading: Standing and Fiduciary Duties

Text: In Gowin v. Granite Depot, LLC, 272 Va. 246, 254, 634 S.E.2d 714, 719 (2006), we stated that a limited liability company is an entity that, like a corporation, shields its members from personal liability based on actions of the entity. In Flippo v. CSC Associates III, L.L.C., 262 Va. 48, 56-57, 547 S.E.2d 216, 221 (2001), we stated that a manager of an L.L.C. is like a corporate director and analogized the fiduciary duties of managers in an L.L.C. to the fiduciary duties of corporate directors. In Mission Residential, LLC v. Triple Net Properties, LLC, 275 Va. 157, 161, 654 S.E.2d 888, 891 (2008), we stated: [l]ike a corporation, a limited liability company is a legal entity entirely separate and distinct from the shareholders or members who compose it. Code § 13.1-1024.1, titled General standards of conduct for a manager, which is part of Virginia's Limited Liability Company Act and Code § 13.1-690, titled General standards of conduct for director, found in Virginia's Stock Corporation Act have almost identical language. Code § 13.1-1024.1(A) reads: A manager shall discharge his or its duties as a manager in accordance with the manager's good faith business judgment of the best interests of the limited liability company. Code § 13.1-690 reads: A director shall discharge his duties as a director, including his duties as a member of a committee, in accordance with his good faith business judgment of the best interests of the corporation. Nothing in either of these code provisions imposes duties between members of an L.L.C., between members and managers of an L.L.C., between stockholders of a corporation, or between individual shareholders and officers and directors. By contrast, general partnership law in Virginia provides that a partner owes to the partnership and the other partners ... the duty of loyalty and the duty of care. Code § 50-73.102(A) (emphasis added). The trial court held that a claim for breach of fiduciary duty cannot be brought directly by one member of an L.L.C. against another member or manager, and thus Remora did not have standing to bring this cause of action directly against Orr. The trial court noted that if the General Assembly had wanted to impose such fiduciary duties it would have done so explicitly, as it did in the partnership statute. We agree with the trial court.
Remora contends that our decisions in Adelman v. Conotti Corp., 215 Va. 782, 213 S.E.2d 774 (1975) and Glass v. Glass, 228 Va. 39, 321 S.E.2d 69 (1984), by analogous application of corporate law, establish that managers of L.L.C.s owe its members fiduciary duties. However, Remora's reliance on these two cases is misplaced. As the United States District Court correctly observed in its interpretation of Adelman, the Virginia common law duty owed to the shareholders ... by its directors was not a fiduciary duty inuring to each shareholder in his individual dealings with [the corporation], but was rather a duty attaching only to dealings between the officers and directors of [the corporation] and the shareholders as a class. American General Ins. Co. v. Equitable General Corp., 493 F.Supp. 721, 741 (E.D.Va. 1980). Later in Glass we held that [c]orporate officers and directors have a fiduciary duty in their dealings with shareholders and must exercise good faith in such dealings. 228 Va. at 47, 321 S.E.2d at 74. However, the fiduciary duty referred to in Glass was to shareholders as a class and not individually. In Simmons v. Miller, 261 Va. 561, 544 S.E.2d 666 (2001), we held that corporate shareholders cannot bring individual, direct suits against officers or directors for breach of fiduciary duty, but instead shareholders must seek their remedy derivatively on behalf of the corporation. Id. at 576, 544 S.E.2d at 675. In Simmons we rejected a closely held corporation exception to the general rule requiring derivative suits and noted that requiring a derivative suit prevents multiplicity of lawsuits by shareholders. A recovery by the corporation protects all shareholders as well as creditors. Finally, ... consistent application of commercial rules promotes predictability. If shareholders and the corporation desire to vary commercial rules by contract, they are free to do so. Id. Our holdings in Adelman, Glass and Simmons do not support Remora's contention that we have previously approved direct causes of action by individual shareholders against directors and should likewise permit such actions by members of an L.L.C. against a manager. Additionally, Remora argues that we should adopt the rule established by the Delaware Supreme Court in Tooley, providing that determining whether a stockholder's claim is derivative or direct ... must turn solely on the following questions: (1) who suffered the alleged harm (the corporation or the suing stockholders, individually); and (2) who would receive benefit of any recovery or other remedy (the corporation or the stockholders, individually)? 845 A.2d at 1033. In determining the nature of the wrong and to whom the relief should go the Delaware Supreme Court held a direct action may be maintained by a stockholder if the claimed direct injury is independent of any alleged injury to the corporation and the stockholder demonstrates that the duty breached was owed to the stockholder and that he or she can prevail without showing an injury to the corporation. Id. at 1039. We need not decide whether to adopt the analysis employed by the Delaware Supreme Court in Tooley, but observe that even under such an approach, Remora would not prevail. In its pleadings, Remora seeks damages for misapplication of the proceeds from the sale of the Beaumeade property, challenges the manner of Orr's investment of the proceeds, and seeks punitive damages. All of these alleged injuries, if sustained, are injuries to O.A. Additionally, Remora's alleged injuries are not unique to it. While Orr is the manager, he is also a member. Based upon the allegations recited above, any injury sustained by Remora was also sustained by Orr.
O.A.'s operating agreement stated that Orr was the manager and listed numerous Rights, Powers and Duties of the Manager. However, O.A.'s operating agreement did not establish fiduciary duties between members or between a member and a manager. As we noted in the corporate context in Simmons, [i]f shareholders and the corporation desire to vary commercial rules by contract, they are free to do so. Simmons, 261 Va. at 576, 544 S.E.2d at 675. Such provisions can also be included in an L.L.C.'s operating agreement.