Opinion ID: 1058372
Heading Depth: 2
Heading Rank: 2

Heading: Analogous Corporate Law

Text: 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.