Coventry Real Estate Advisors v. Developers Diversified Realty Corp..

• Decision Date: 17 May 2011
• Citation: 923 N.Y.S.2d 476,2011 N.Y. Slip Op. 04097,84 A.D.3d 583
• Parties: COVENTRY REAL ESTATE ADVISORS, L.L.C., et al., Plaintiffs–Appellants,v.DEVELOPERS DIVERSIFIED REALTY CORPORATION, et al., Defendants–Respondents.
• Court: New York Supreme Court — Appellate Division

84 A.D.3d 583
923 N.Y.S.2d 476
2011 N.Y. Slip Op. 04097

COVENTRY REAL ESTATE ADVISORS, L.L.C., et al., Plaintiffs–Appellants,
v.
DEVELOPERS DIVERSIFIED REALTY CORPORATION, et al., Defendants–Respondents.

Supreme Court, Appellate Division, First Department, New York.

May 17, 2011.

[923 N.Y.S.2d 477]

Gallagher, Harnett & Lagalante LLP, New York (Brian K. Gallagher of counsel), for appellants.Jones Day, Chicago, IL (Brian J. Murray, of the Illinois Bar, admitted pro hac vice, of counsel), for respondents.MAZZARELLI, J.P., SWEENY, ACOSTA, RENWICK, DeGRASSE, JJ.

[84 A.D.3d 584] Order, Supreme Court, New York County (Shirley Werner Kornreich, J.), entered June 25, 2010 (the June 2010 order), which, insofar as appealed from as limited by the briefs, granted defendants' motion to dismiss plaintiffs' fifth cause of action for breach of fiduciary duty, unanimously affirmed, with costs. Order, same court and Justice, entered December 9, 2010, which granted plaintiffs' motion for reargument of the June 2010 order and, upon reargument, adhered to its prior decision, unanimously affirmed, with costs.

Pursuant to a co-investment agreement, the parties entered into a series of substantially similar limited liability company agreements (the LLC Agreements). Each of the LLC Agreements designated plaintiff Coventry Real Estate Fund II, L.L.C. (Coventry), as the sole managing member. The LLC Agreements, in turn, provided for, but did not mandate, delegation of most day-to-day management to defendant Developers Diversified Realty Corporation (DDR).

Under Delaware law (which the parties agree applies here), absent a provision to the contrary in the governing LLC agreement, an LLC's “managers and controlling members owe the traditional fiduciary duties that directors and controlling shareholders in a corporation would (including the traditional duties of loyalty and care)” ( South Canaan Cellular Invs., LLC v. Lackawaxen Telecom, Inc. [In re South Canaan Cellular Invs., LLC], 2010 WL 3306907, *7, 2010 U.S. Dist. LEXIS 85420, *21–22 [E.D. Pa. 2010] [applying Delaware law]; see Kuroda v. SPJS Holdings, L.L.C., 2010 WL 925853, *7 n. 28, 2010 Del. Ch. LEXIS 57, *25–26 n. 28 [Del. Ch. 2010] ). Plaintiffs' contrary contentions notwithstanding, under Delaware law, fiduciary duties are imposed “ only on managers and those designated as controlling members of an LLC,” and not on non-managing minority members, such as DDR ( South Canaan, 2010 WL 3306907, *7, 2010 U.S. Dist. LEXIS 85420, *22; see Kuroda, 2010...