In re Sky Harbor Hotel Properties, LLC, 062519 AZSC, CV-19-0033-CQ
| Opinion Judge | BALES CHIEF JUSTICE |
| Party Name | In re: Sky Harbor Hotel Properties, LLC, Debtor. v. Patel Properties, LLC, Defendant. Sky Harbor Hotel Properties, LLC, Plaintiff, In re: Swift Air, LLC, Reorganized Debtor, MorrisAnderson & Associates, Ltd., Litigation Trustee for the Reorganized Debtor, Plaintiff, v. Redeye II, LLC, et al., Defendants. |
| Attorney | John R. Clemency (argued), Lindsi M. Weber, Maria F. Hubbard, Polsinelli PC, Phoenix, Attorneys for Sky Harbor Hotel Properties, LLC Paul M. Levine (argued), Paul M. Levine, P.C., Scottsdale, Attorneys for Patel Properties, LLC Dale C. Schian (argued), Scott R. Goldberg, Schian Walker, P.L.C., Ph... |
| Judge Panel | CHIEF JUSTICE BALES authored the opinion of the Court, in which VICE CHIEF JUSTICE BRUTINEL and JUSTICES TIMMER, BOLICK, GOULD, LOPEZ and PELANDER (Retired) joined. |
| Case Date | June 25, 2019 |
| Court | Arizona Supreme Court |
Certified Questions from the United States Bankruptcy Court for the District of Arizona Nos. 2:17-bk-08082-PS; 2:12-bk-14362-DPC
John R. Clemency (argued), Lindsi M. Weber, Maria F. Hubbard, Polsinelli PC, Phoenix, Attorneys for Sky Harbor Hotel Properties, LLC
Paul M. Levine (argued), Paul M. Levine, P.C., Scottsdale, Attorneys for Patel Properties, LLC
Dale C. Schian (argued), Scott R. Goldberg, Schian Walker, P.L.C., Phoenix; Kim. R. Maerowitz, The Maerowitz Law Firm, Scottsdale, Counsel for MorrisAnderson & Associates, Ltd. Litigation Trustee
Thomas J. Salerno, Alisa C. Lacey, Christopher C. Simpson, Anthony P. Cali (argued), Stinson Leonard Street LLP, Phoenix, Attorneys for Redeye II, LLC, et al.
CHIEF JUSTICE BALES authored the opinion of the Court, in which VICE CHIEF JUSTICE BRUTINEL and JUSTICES TIMMER, BOLICK, GOULD, LOPEZ and PELANDER (Retired) joined.
OPINION
BALES CHIEF JUSTICE
¶1 These consolidated cases involve alleged breaches of fiduciary duties. To address these claims, the United States Bankruptcy Court for the District of Arizona certified the following questions to this Court: 1. Does a manager of an Arizona limited liability company ("LLC") owe common law fiduciary duties to the company?
2. Does a member of an Arizona LLC owe common law fiduciary duties to the company? 3. Can an Arizona LLC's operating agreement lawfully limit or eliminate those fiduciary duties?
¶2 We answer the first question in the affirmative. We answer the second question in the affirmative, provided that the member is an agent of the LLC. We answer the third question in the affirmative but note that the operating agreement may not eliminate the implied contractual duty of good faith and fair dealing.
I.
A.
¶3 Arizona enacted its first limited liability company act ("LLC Act") in 1992. See 1992 Sess. Laws 395 (2d Reg. Sess.). The statutory scheme is codified at A.R.S. § 29-601 et seq. Last year, Arizona's legislature enacted a new Arizona Limited Liability Company Act ("ALLCA") to eventually replace the LLC Act. See 2018 Ariz. Sess. Laws 833 (2d Reg. Sess.) (to be codified at A.R.S. § 29-3101 et seq.). ALLCA will first apply only to LLCs formed on or after September 1, 2019, but will apply to all LLCs starting September 1, 2020. Id. Thus, to address the certified questions, we analyze only the LLC Act.
¶4 The LLC Act does not expressly impose any fiduciary duties on members or managers. See generally Scott DeWald, James Reynolds & Matthew Engle, Fiduciary Duties and Indemnification, Ariz. Att'y, Mar. 2019, at 18-19 (contrasting the LLC Act with ALLCA, which recognizes fiduciary duties). By statute, however, "the law of agency" applies to the entire LLC Act. See A.R.S. § 29-854(B). We thus apply common law agency principles to answer the certified questions.
¶5 Arizona case law has not addressed these issues directly. This Court has observed that "unlike both corporations and partnerships, LLC members do not owe each other fiduciary duties unless they are expressly included in the LLC operating agreement." Butler Law Firm, PLC v. Higgins, 243 Ariz. 456, 462 ¶ 23 (2018). As support for this proposition, Butler cited TM2008 Investments, Inc. v. Procon Capital Corp., 234 Ariz. 421, 424-25 ¶ 15 (App. 2014), which declined to "mechanically apply fiduciary duty principles from the law of closely-held corporations or partnerships to a limited liability company created under Arizona law." TM2008 Investments involved an action for breach of fiduciary duty filed by one member of an LLC against another, and the court of appeals found that the operating agreement itself established certain duties. Id. at 422 ¶ 1, 425-26 ¶¶ 16-17....
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