Levitt V. Gilligan Village LLC

Material Facts Janet Levitt and Mark Levitt filed a lawsuit against Gilligan Village LLC, Lauren Bivins, Milton Burnside, Sondra Burnside, and Patricia Goldstein. Janet Levitt, Mark Levitt, Lauren Bivins, Milton Burnside, Sondra Burnside and Patricia Goldstein are members of Gilligan Village and are related by blood, marriage, or otherwise. Under the LLC operating agreement, Mark Levitt is the General Manger of Gilligan Village and replaced the original general manager Edward Bivins, who has passed away. As General Manger, Levitt attempted to sell a parcel of real estate and that is Gilligan’s asset. Due to this attempt, Lauren Bivins, Sondra Burnside, and Patricia Goldstein removed Levitt as General Manager and named Lauren Bivins as
his replacement. The cause for Levitt removal and Bivins taking over was to prevent the sale of the property and to guarantee Bivins Property, LLC (Bivins Properties), a separate company owned by Lauren Bivins would continue to receive a fee for managing the property.
Here are some important terms that are important to our situation. Fiduciary duty- A fiduciary duty is a legal duty to act solely in another party's interests. The people to whom they owe this duty to are referred to as principals. In their own as a fiduciary, they may not profit from the relationship with their principals unless they have express informed consent. They have a responsibility to avoid any conflicts of interest between themselves and their principals. Fiduciary duty is the strictest duty of care recognized by the US legal system (Fiduciary Duty, n.d.). Duty of Care-is the principle that fiduciaries must act in a prudent manner, as any other person would use in making a decision as an organizations fiduciary. As long as a fiduciary used informed and rational judgment along with good faith this meets, the duty of care standard. There must not be a conflict of interest and those making a charge of breach of this duty must prove it occurred (Duty of Care, n.d.). Duty of Loyalty- is the principle that officers and directors of a corporation when acting as a fiduciary must do so with an economic conflict of interest. If a fiduciary wants to take part in a transaction that would breach this duty, they must disclose the conflict and receive approval for the majority of disinterested directors or shareholders. A violation of the duty of loyalty often result in the courts may order the offending fiduciary to pay restitution, and may impose punitive damages to deter future violations (Duty of Loyalty, n.d.). Self-dealing- is an action taken by a corporate fiduciary done for that person's personal gain, rather than for the benefit of the corporation. Self-dealing is a violation of the duty of loyalty (Self-Dealing, n.d.). Corporate Opportunity- a doctrine that regulates the legal responsibility of directors and officers of a corporation to agree to opportunities for themselves without first disclosing the opportunity to the board of directors of the corporation and giving the board the opportunity to decline the opportunity on behalf of the corporation. This ties into the duty of loyalty and if violated the corporation is entitled to profits gained (Corporate Opportunity, n.d.).
Legal and Ethical Issues
• Was the removal of Mark Levitt legal?
• Did Levitt have the right to negotiate on behalf of the other partners of the LLC?
• Can Lauren Bivins take over management responsibility?
• Does Bivins have a conflict of interest?
Case Law Precedents A few cases examine and address the possible legal and ethical issues in our situation. The first case is Risk Management Services, LLC v. Moss. Risk Management and two of its members believed Moss was liable for damages for breach of fiduciary duty and unfair trade practices. The court concluded that Moss acted grossly negligently or intentionally in failing to exercise care as a manager, breached his duty of care as a manager, and breached his duty of loyalty. Risk Management was able to show Moss acted with reckless disregard for the LLC’s interests by failing to oversee a major contract and attempting to steal employees and business. In our situation, this does not appear to be the case, but if Gilligan could prove selling the parcel of land would not be in the best interest of the LLC they might have a case. In fact, it appears that Levitt was acting in the LLC’s best interest by attempting to sell the parcel. The details are a cloudy, so it is difficult to reach a conclusion and show corporate opportunity.
The next case is Moede v.
Pochter were an LLC member sued the other member for breaching their operating agreement. It involved the selling of a piece of land, not informing the managing members of the LLC, and sending an email to these members after agreeing to the deal. Because the member who sold the land was a lawyer, the court found his advancement of his own self-interest with disregard to that of a fellow non-manager member was unacceptable. In our situation, Levitt is making a claim the other members breached their operating agreement by removing him as manager and these facts are different from Moede v. Pochter. The similarity between the two cases is the selling, or in our case not selling, land that is in the best interest of one member, but not of all the members. Levitt wanted to sell the parcel without consulting his fellow members and at the same time, Bivins did not want the parcel to be sold because she would lose management fees. However, again there are some facts missing to show each definitively acted in their own self-interest and, therefore, be guilty of
self-dealing.
The final case is Levy v.
Guilford Village Walk, LLC. It has many similarities to the case between Levitt and Gilligan Village. The court concluded Levy and Guilford Village have a fiduciary relationship to each other and member should not participate in self-dealing. They further determined the rationale of not selling the property due to the current economy was flawed and their actions relate to self-dealing to benefit one member of the LLC. Proof existed that the member who would benefit from self-dealing reached out to Levy to avoid financial ruin. When she did not receive the answer she desired, they removed Levy as manager and the other members named the concerned member as a replacement. The court felt there was an issue of material fact remaining to be resolved relating to the defendants' motive for removing Levy and preventing the sale of the property. We can apply these principles directly applied to our case; it appears Bivins is self-dealing and had Levitt removed because she would lose management fees. This would be a breach of fiduciary duty and duty of care. Again, facts are missing in our cases and that makes it hard to know for sure this was the case
here.
Given the facts and utilizing case law, it appears Levitt has a strong case against Gilligan. Bivins actions led us to conclude the only reason she was against the sale of the land was her own interest and self-dealing is a breach of fiduciary duty.