Part 4: Fiduciary Breach

The final argument that HRS proffered in an attempt to get the preliminary injunction overturned was that ORT’s claim that McChesney had breached his fiduciary duty lacked merit, and thus could not support a preliminary injunction.

This analysis turned on a pair of questions, both springing from ORT’s 2010 reorganization. First, there was the question of whether or not ORT was a member-managed or manager-managed LLC at the time of the alleged breach, because while the members of a member-managed LLC must act in good faith and deal fairly with their company, members of a manager-managed LLC only owe such duties if they are the manager of the corporation. As it appeared as though McChesney was not the manager of the LLC, whether he had an obligation to act in good faith would depend on what type of LLC ORT was at the moment of the alleged breach.

Given the facts of the case, it was not yet clear whether ORT was manager or member-managed at the time of the alleged breach. The court, however, ruled that it was ultimately immaterial: because it was still a question to be resolved, the circuit court properly used its discretion to preserve the status quo by a preliminary injunction while this question of corporate form was untangled.

HRS and McChesney next argued that McChesney was not a member of ORT at the time of the alleged breach, and therefore could not have committed a breach of fiduciary duty, as such duty was no longer owed.

Once again, there was a dispute over those facts. McChesney claimed that the other members of ORT had forced him out of the company, and that he no longer held any shares. ORT’s records, though not entirely clear on McChesney’s status themselves, nonetheless indicated that McChesney was still a member during the time of the alleged breach. The court ruled that what facts they did have indicated the presence of fair question that would have to be resolved through the litigation, and that was enough to justify a preliminary injunction.

Finally, McChesney argued that even if he had owed a fiduciary duty to ORT, he had not breached that duty. The court was unreceptive to such reasoning, noting briefly that given what McChesney was accused of doing -- intentionally attempting to scuttle the land deal because he did not care for it personally -- raised enough of a question to allow the court to issue a preliminary injunction.

Because ORT had raised a number of questions that were, on their face, sufficient to create some likelihood of success on the merits of these claims, the appellate court upheld the circuit court’s granting of a preliminary injunction to prevent HRS from foreclosing on the 8-acre parcel of land.