Article courtesy of Jeff Dutson of King & Spalding
LLC member had no duty to work at the LLC full-time or to contribute to the LLC’s debt where there was no written LLC agreement to do so under Alabama law. Sadler v. Players Recreation Grp., LLC, 2022 WL 3700373 (Ala. 2022).
An Alabama limited-liability company (“LLC”) defaulted on a promissory note payable to a corporate lender. The corporate lender and its owner (“lender-owner”), who is also a member of the LLC, brought a breach-of-contract claim against the other active members of the LLC. The other active members of the LLC asserted counterclaims against the lender-owner, alleging that he had breached his duty of loyalty and his duty of care to the LLC. They argued that the lender-owner, as a member of the LLC, had failed to work at the LLC on a full-time basis and had failed to contribute to the LLC for his share of the debt. The LLC had no written LLC agreement.
The trial court entered judgment against the LLC on the breach-of-contract claim but also entered judgment against the lender-owner, finding that he had not only breached his duty of loyalty and duty of care to the LLC, but also the implied covenant of good faith and fair dealing owed to the LLC. The lender-owner appealed.
On appeal, the Alabama Supreme Court reversed the lower court’s judgment on the counterclaim, holding that the lender-owner had no duty to work at the LLC full-time or to contribute to his share of the debt. The court reasoned that because there was no written LLC agreement governing the lender-owner’s duties to the LLC, Alabama LLC Law (AL Code § 10A-5A (2014)) governs. Working at the LLC on a full-time basis and contributing to the LLC’s debt fall outside the duties required of LLC members by Alabama LLC Law. Further, because the lender-owner did not promise to work full-time or to make contributions to the debt, there was insufficient evidence to find a breach of implied covenant of good faith and fair dealing.
