In A&J Capital, Inc. v. Law Office of Krug, C.A. No. 2018-0240-JRS (Jan. 29, 2019), a displaced manager of an LLC requested the Court to declare he had been improperly removed. According to the LLC agreement and a management agreement, he could be removed only “for gross negligence, intentional misconduct, fraud or deceit….”
The LLC’s new manager argued that a manager who violated any of the standards of conduct could be removed regardless of whether there was an intent or harm. The Court rejected this argument and explained that harm or intention to harm was an indispensable element of such civil wrongs as intentional misconduct, fraud and deceit. It was “no easy task” to prove these wrongdoings. The court noted that, more to the point, contractually imposed standards of conduct were necessarily based on the presumption that the conduct must either be harmful or cause harm to justify removal.
BOTTOM LINE: When drafting a list of civil wrongs that justify removal, if you want one to be removed even when there was no harm or intent to harm, you must so provide.