Why wouldn’t a manager always owe a fiduciary duty to the members of an LLC?

Fiduciary duties, such as the duty of loyalty and the duty of care, have an ethical component because they require a person to act honestly and faithfully toward another. In states that have adopted the ULLCA, the managers of a manager-managed LLC owe fiduciary duties to the members and thus basically are required to behave ethically toward them. In other states, however, the LLC statutes may not include such a requirement. Consequently, even when a manager has acted unfairly and unethically toward members, the members may not be able to sue the manager for a breach of fiduciary duties.

In North Carolina and Virginia, for example, the LLC statutes do not explicitly create fiduciary duties for managers to members. Instead, the statutes require that a manager exercise good business judgment in the best interests of the company. Because the statutes are silent on the manager’s duty to members, in 2009 courts in those two states held that a manager member owed fiduciary duties only to the LLC and not to the other members. In contrast, in two other cases decided in 2009, courts in Idaho and Kentucky held that a manager-member owed fiduciary duties to the LLC’s other members and that the members could sue the manager for breaching fiduciary duties.