Guarantee Co. of N. Am. v. Gary’s Grading & Pipeline Co., 746 F. App’x 831, 834 (11th Cir. 2018).
The Eleventh Circuit Court of Appeals affirmed the district court’s decision that a co-manager had apparent authority to bind LLC to bond indemnification agreement under the Georgia Limited liability Company Act.
The co-manager of a Georgia limited liability company (the “LLC”) entered into a bond indemnification agreement (the “Agreement”) with a surety company (the “Surety”) on behalf of the LLC and its sister company. The co-manager negotiated and executed the Agreement without the knowledge or consent of the LLC’s other co-managers. Pursuant to the Agreement, the Surety would issue payment bonds and performance bonds to the sister corporation’s suppliers and subcontractors for various construction projects. The LLC agreed to post collateral and indemnify the Surety for any losses it incurred in connection with the bonds. Following the sister corporation’s failure to pay for services and materials provided in connection with the bonded construction contracts, suppliers and subcontractors sought and received payment from the Surety. The Surety filed an action against the LLC after it refused to reimburse the Surety in accordance with the Agreement. The LLC argued that the co-manager lacked authority to bind the LLC to the Agreement.
The Eleventh Circuit Court of Appeals affirmed the district court’s decision to grant summary judgment in favor of the Surety, concluding that the co-manager had apparent authority to bind the LLC under the Georgia Limited Liability Company Act (the “LLC Act”). The LLC’s operating agreement provided that “no one Manager may take any action permitted to be taken by the Managers without agreement of the other Manager or Managers, or unless other approval requirements of the Managers are expressly set forth elsewhere in this Operating Agreement or the [LLC Act].” The court held that the co-manager complied with the “other approval” requirements of § 14-11-301(b)(2) of the LLC Act. Pursuant to this section, a manager acts as an LLC’s agent if the manager is “apparently carrying on in the usual way of the business” of the LLC, unless (a) the manager lacks authority to take the action at issue and (b) the person dealing with the manager has knowledge of the manager’s lack of authority. Here, the co-manager appeared to have authority to execute the Agreement on behalf of the LLC and there was no evidence that the Surety knew the co-manager lacked such authority.
The court also refused to read a due diligence requirement into § 14-11-301(b)(2) of the LLC Act.