Mcgee v. Best

2002 WL 1343225 (2002)

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Nature of the Case

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Facts

In January of 1997, P, along with Frank, Best, and K. K. Wiseman, formed the Nashville, Tennessee advertising firm of McGee, Best, Frank & Wiseman. In May of 1997, the members of McGee, Best, Frank & Wiseman converted the firm into an LLC, and IEI joined as a member with David Ingram, acting as the representative of IEI and as an officer of the LLC. After the formation of the LLC, the ownership interests were as follows: P owned a 33 1/3% membership share; IEI owned a 33 1/3% membership share and Frank and Best each owned a 16 2/3% membership share. The LLC name was then changed to McGee, Best, Frank & Ingram, LLC (MBFI). An “Operating Agreement” was executed on April 22, 1997. In January 1988, P also signed an “Employment & Non-Solicitation Agreement.” The contract was an at will contract with a covenant not to compete. P alleges that Ds violated the Operating Agreement, and the Tennessee Limited Liability Act by purporting to terminate him without a meeting or the waiver of a meeting. P claims that Ds breached the agreement and their fiduciary duty to the LLC and the covenant of good faith and fair dealing by purporting to terminate his employment for “cause” when no cause existed and by attempting to acquire his membership interest, without having any right to do so. P also alleges in the complaint that Tri-Vision International LTD is a client of MBFI and is the exclusive licensee of the “v-chip.”, P claims that IEI is the primary distributor of the v-chip for Tri-Vision in the United States and that MBFI planned, produced and placed advertising for Tri-Vision in various markets throughout the United States. P claims that Tri- Vision is indebted to MBFI in the amount of approximately $553,000. IEI is indebted to Tri-Vision in the amount of $750,000 for the delivery of v-chip products that IEI will distribute. P contends that “IEI’s failure to pay that obligation has hampered Tri- Vision’s ability to pay the monies it owes to the LLC.” P claims that IEI has directed MBFI to reserve the entire Tri-Vision indebtedness of $553,000 as a bad debt on the firm’s financial statements and that P was not advised of this decision until after it was made. P contends that the acts of IEI and Ingram in artificially creating and then attempting to benefit from the LLC’s financial problem violates their fiduciary duties owed to P and to the LLC. On December 31, 1998, Best, Frank and IEI executed a document entitled “Action Taken on Written Consent of the Members of McGee, Best, Frank and Ingram LLC,” which provides in pertinent part that P was fired and that the remaining parties were to purchase his shares pursuant to the operating agreement. Ds filed a motion for partial judgment on the pleadings in that P cannot state (or has not stated) a claim upon which relief can be granted with respect to the following causes of action: breach of fiduciary duty, breach of covenant of good faith and fair dealing, civil conspiracy, unfair competition, fraud, and negligent misrepresentation. The trial court granted Ds' motion for partial judgment on the pleadings and dismissed P’s following causes of action: breach of fiduciary duty; civil conspiracy; unfair competition, fraud and misrepresentation. The Court found that An LLC is a creature of statute, and any duty which members owe must be set forth in the statute. The Tennessee LLC Act does not create a fiduciary duty between members of an LLC. Therefore, P’s cause of action based upon a fiduciary obligation owing to him individually does not state a cause of action recognized under the Tennessee LLC Act. Ds’ Motion for Partial Judgment on the Pleadings with respect to the remaining causes of action which were included in the Motion - namely the cause of action for breach of contract under Section 5.7 of the Operating Agreement and the cause of action for breach of the covenant of good faith and fair dealing - was denied. Eventually, the court dismissed the remaining causes of action as well. P appealed.