Brief Fact Summary. Plaintiff corporation, VGS, Inc., brought this action to validate its merger with Virtual Geosatellite LLC (“LLC”) after two of the three managers of the LLC, without notifying the third majority shareholder, voted for the merger.
Synopsis of Rule of Law. Minority shareholders owe the majority shareholders a duty of loyalty to inform them in advance of any plans for a merger or the structure of a merger.
Case law governing corporate derivative suits is equally applicable to suits on behalf of an LLC.View Full Point of Law
Issue. The issue is whether a clandestine vote between Sahagan and Quinn to merge LLC into VGS without notifying the controlling shareholder renders the merger invalid.
Held. The court held that the merger is invalid. Although Plaintiff is correct that there was only a requirement of the majority of LLC managers to vote for the merger, Sahagan and Quinn violated their fiduciary duty to Castiel by not informing him of the vote. A minority interest has a duty of loyalty to the majority interest, even if it means that the majority interest will thwart the vote by removing Quinn. The fact that Castiel may have been a poor performer does not exempt the other members of their duty to inform him in advance of the meeting.
Discussion. The court treats the majority shareholder’s incompetence as a separate issue from the minority shareholder’s duty of loyalty regarding board meeting notifications.