Partners, controlling shareholders, and controlling LLC members have fiduciary duties to their other interest holders. The duties vary depending on agreements reached, but one of the classic duties is loyalty. A recent case illustrates how lawsuits might allege an action for breach of fiduciary duty.
After negotiating a deal to build a facility at O’Hare, two businessmen, plaintiffs Shlomo Danieli and James Richards, are suing their investor, Samuel Sax. They claim that he went behind their backs to negotiate deals that forced them out of the operation.
The Investor Seizes Control of the Operations
Danieli and Richards wanted an import distribution center for perishable goods at O’Hare in 2008. In 2012, they approached Sax to finance the operation by offering him 51% ownership. After the Chicago Department of Aviation gave approval in 2013, Sax convinced Danieli and Richards to give up 10%. In return, he would bring on another investor. The distribution center would be named the “Chicago Perishable Center.”
During the final organization of the entity, Sax named himself manager. Later, he demanded a new lease with a buildout repaying him for construction and guaranteeing his return. “Since 2014,” the complaint stated, “Sax has unilaterally engaged the city in new negotiations of the lease without consulting plaintiffs.” Additionally, he “has frozen plaintiffs out of the operations of CPC.” Danieli and Richards claim that Sax refused to obey the original business plan. They claim they “are not members of the Chicago Perishable Center.” They seek a declaratory judgment naming them members of CPC and declaring that Sax lacks the authority to execute agreements without their authorization. Additionally, they seek a complaint claiming breach of fiduciary duty.
More info on this case can be found here.
The Investor has Prior Legal Disputes
It appears Mr. Sax had other legal disputes with past companies. “A group of investors in a company …. has won its court battle to oust founder and one-time Chicago banker Samuel Sax. The tussle ended in December, when Shield Technologies Corp. and the investor group, Shield Acquisition Group LLC, finalized an agreement to settle a lawsuit filed by the company in late 2011.” Before that, his banking career “ended in 1989 with a misdemeanor conviction for misusing funds at another bank.”
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