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lwpat, Attorney
Category: Business Law
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Experience:  Attorney with over 35 years of business experience.
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Duty of Loyalty I

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Duty of Loyalty Ally is a member and a manager of a manager-managed limited liability company called Movers & You, LLC, a moving company. The main business of Movers & You, LLC, is moving large corporations from old office space to new office space in other buildings. After Ally has been a member-manager of Movers & You, LLC, for several years, she decides to join her friend Lana and form another LLC, called Lana & Me, LLC. This new LLC provides moving services that move large corporations from old office space to new office space. Ally becomes a member-manager of Lana & Me, LLC, while retaining her member-manager position at Movers & You, LLC. Ally does not disclose her new position at Lana & Me, LLC, to the other members or managers of Movers & You, LLC. Several years later, the other members of Movers & You, LLC, discover Ally’s other ownership and management position at Lana & Me, LLC. Movers & You, LLC, sues Ally to recover damages for her working for Lana & Me, LLC. Is Ally liable? (answer must be one to 2 paragraphs in length)
Ally is liable. I will work up the paragraphs and get back to you.

Be sure to revise a put into your own words. My answers are just a guide.


It was said in Lappas v. Barker, 375 S.W.2d 248 (Ky.1964), that a fiduciary relationship exists when the parties are "`under a duty to act for or give advice for the benefit of another upon matters within the scope of the relation'. Restatement, Torts, Section 874. It exists where a special confidence is reposed in another who in equity and good conscience is bound to act in good faith and with due regard to the interests of the one reposing confidence." Id. at 251.


When persons enter into fiduciary relations each consents, as a matter of law, to have his conduct towards the other measured by the standards of the finer loyalties exacted by courts of equity. That is a sound rule and should not be whittled down by exceptions.

Id. 120 S.W.2d at 788.

Some examples of formal fiduciary relationships are: attorneys with their clients; partners with other partners, like in a limited partnership; agents with their principals; spouses, generally; agents in a power of attorney scenario with the principal; executors and trustees to devisees and beneficiaries; class representative in a class action suit to other class members; and employees to their employees during the employment period. Officers and directors of corporations have: the duty of loyalty; the duty to make full disclosure of personal interest in the business dealing of the corporation; and the duty not to usurp the opportunities of the corporation for personal gain.

Based on the same concepts of the previous question, Ally would be liable as she owed a duty of loyalty to Movers & You and they could seek to recover damages including lost profits directly attributable to Ally’s efforts at Lana & Me as well as the monies she collected for her work at Movers during the time she was working on Lana & Me.

Fiduciary Duties of Members

A fiduciary is one who acts legally on behalf and in the best interests of another. Members of a manager-managed LLC have no fiduciary duty to the company or to the other members solely by reason of being members, but they may agree to impose fiduciary duties on the members.

The members of a member-managed LLC owe fiduciary duties of loyalty and care to the company and its other members. Members in a member-managed LLC may restrict or even eliminate fiduciary duties as long as any such restriction or elimination is not unreasonable.

Fiduciary Duties of Managers

The managers of a manager-managed LLC, like members of a member-managed LLC, owe fiduciary duties of loyalty and care to the company and its other members.

Duty of Loyalty

The duty of loyalty includes the obligations to account to the company, to refrain from dealing with the company in a manner that is adverse to it and to refrain from competing with the company before the dissolution of the LLC.

Duty of Care

The duty of care is an obligation to act with the care that a person in a like position would reasonably exercise under similar circumstances and in a manner reasonably believed to be in the best interests of the company. Members and managers are not liable when they reasonably rely in good faith on the opinions and advice of competent professionals and other reliable sources.

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