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COA Holds That LLC Manager Had No Authority To Institute Lawsuit By LLC

By Sean E. Andrussier

Today in Crouse v. Mineo the Court of Appeals (COA) dealt with a dispute between members of a two-lawyer firm, Mineo & Crouse, PLLC. The main issues before the COA concerned standing.

Crouse, a 50% owner and member-manager of the firm, brought this suit in his own behalf and in the name of the LLC against Mineo, the other member-manager, alleging that Mineo misappropriated funds belonging to the firm or Crouse. Apparently a big part of their dispute concerned Mineo's failure to split contingency-fee proceeds from two big cases. The trial court dismissed the complaint on the ground that plaintiffs lacked standing.

A primary issue on appeal was whether Crouse, in his capacity as a member-manager of the LLC, had the authority to cause the LLC to institute the lawsuit. Crouse argued that a member-manager of an LLC has the inherent authority to authorize lawsuits to protect the LLC's interests. Mineo countered that the filing of the action was a managerial decision, requiring approval of a majority of the managers pursuant to G.S. 57C-3-20(b), which says "each manager shall have equal rights and authority to participate in the management of the [LLC], and management decisions shall require the approval, consent, agreement, or ratification of a majority of the managers." (Another provision of the Act says that "[a]n act of a manger that is not apparently for carrying on the usual course of the business of the [LLC] does not bind the [LLC] unless authorized in fact or ratified by the [LLC]." G.S. 57C-3-23.) The COA held that "the filing of an action by one manager of an LLC against a co-manager to recover purported assets of the LLC allegedly misappropriated by that co-manager is a management decision" requiring approval or ratify of a majority of managers. Because Mineo didn't authorize or ratify the lawsuit, Crouse lacked authority to cause the firm to institute the suit.

But the COA then held that Crouse had standing to bring a derivative action on behalf of the firm, and that he could bring an individual claim for quantum meruit based on the work he did on two big contingency-fee cases.

Full post as published by North Carolina Appellate Blog on March 18, 2008 (boomark / email).