Nevada Supreme Court Reviews LLC Claims

This article by Neal A. Klegerman of Emmel & Klegerman PC, Las Vegas, NV is presented courtesy of Nevada Business Law Journal (nevadabusinesslawjournal.com)

©  Neal A. Klegerman

In an unpublished order (not regarded as precedent), JB Carter Props. II, LLC v. Gashtili, 2015 Nev. Unpub. LEXIS 935 (Nev.  July 24, 2015), the Nevada Supreme Court reviewed what was apparently a dispute among members of a Nevada LLC. The Court initially describes the matter as involving a partnership and partners but it appears to be an LLC which was at issue.

One of the members sued another member who counterclaimed.  The District Court found against both the claims and the counterclaims and ordered the LLC dissolved.

The District Court had ruled against the plaintiff on its contract claims and its claim that a withdrawal of funds by the other member was a breach of fiduciary duty. The Nevada Supreme Court affirmed.

As to the contract claim, the Nevada Supreme Court concluded that the District Court did not abuse its discretion in light of the conflicting evidence as to whether an operating agreement signed by all of the parties existed.  Each of the members testified that they had signed an operating agreement but none indicated that it was the versions provided by plaintiff.

As to the breach of fiduciary duty claim, the Nevada Supreme Court found that there was substantial evidence supporting the District Court’s finding.  The District Court had found that the withdrawal of funds was covered by NRS 86.291(1) which provides that: “Except as otherwise provided in this section or in the articles of organization or operating agreement, management of a limited-liability company is vested in its members in proportion to their contribution to its capital…”  There was also testimony that the funds were withdrawn for legitimate LLC expenses.

An obvious lesson of this case, as other cases, is for the parties to document the existence of the constituent documents, in this case the operating agreement, at the inception of their enterprise.

As to the claims, within certain limitations, NRS 86.286 (not at issue in the order in this case) allows the operating agreement to expand, restrict, or eliminate duties of a member or manager or to limit or eliminate liabilities for breach of contract or breach of duties.  Of course, to accomplish any of the foregoing and have it be effective in litigation, the actual operating agreement must be authenticated.