Did I breach my fiduciary duty or contract in the LLC real estate project?

Full question:

I am the managing member of an LLC that was formed to develop a real estate project with the land owner. After 5 years of seeking the approval from planning, because of the project size, we finally received the go ahead to move forward. I contacted the owner and his son told me that his father was away at a health resort losing weight. After the third contact the son told me that his father was in Federal Prison for stealing $12 million from a patent scam and that they had to pay back $ 4 million and in order to do that they had to borrow $ 4 million on the land site and by doing so, they were not able to deposit the land into the LLC free and clear. He was supposed to also sign and gaurantee the loan and no lender would finance this loan under the situation. The remaining members have brought suit against them for our lost development costs, time, and lost income from the future business. Because of the loan they can not deliver the site and we are suing under the breach of contract. They are also counter suing under breach of contract as well as my fiduciary duty to act on their best interest. Because of his second case of fraud with his same co-conspirators my attorney advised me not to have contact with them and to only work with the attorneys. My question is do you think that I broke my fiduciary duty to them or that I breached the contract to move this project forward?

• Category: Fiduciary Duty
• Date: 04/07/2025
• State: California

Answer:

As a managing member of an LLC, you owe the members duties of care, loyalty, and disclosure. Each party must act in the best interest of the LLC and avoid conflicts of interest. Whether you breached your fiduciary duty is subjective and depends on the facts involved. Courts will consider if you personally benefited at the LLC's expense or failed to disclose detrimental information. Key factors include whether funds were misused or if you knew about financial risks that weren't disclosed.

To determine if there was a breach of contract, the court will examine the contract terms. A breach occurs when a party fails to perform their contractual duties, leading to economic harm. Remedies for breach of contract aim to restore the injured party to their position before the breach and can include money damages, restitution, rescission, reformation, and specific performance. The extent of damages depends on the type of breach.

For specific legal advice, consult with your attorney, who can evaluate your situation and relevant documents. Note that under California law, fiduciary duties include those outlined in Cal. Corp Code § 17153 and § 16404.