Business Judgment Rules Shields Managing Member From Liability for Breach of Fiduciary Duty

On October 4, 2022, Justice Cohen of the New York County Commercial Division issued a decision in Greenman v. Miller, et al., 2022 NY Slip Op 33355(U) holding that summary judgment was appropriate on a breach of fiduciary duty claim where the defendant was the company’s managing member and was therefore protected under the business judgment rule, stating:

As an initial matter, Miller is the Entities' managing member and he has the exclusive authority to manage the Entities. "As a result, his decisions are subject to significant deference under the business judgment rule" (Barry v Clermont York Assoc. LLC, 50 Misc 3d 1203(A) [Sup Ct, NY County 2015], affd as mod, 144 AD3d 607 [1st Dept 2016]; Matter of Levandusky v One Fifth Ave. Apt. Corp., 75 NY2d 530, 537-38 [1990]), unless he engages in fraud or self-dealing (Wolf v Rand, 258 AD2d 401, 404 [1st Dept 1999]; see also Birnbaum v Birnbaum, 73 NY2d 461, 466 [ 1989]). Here, the business judgment rule precludes Jane's allegations relating to Miller's decision to cancel swap agreements to which the entity had been a party. Miller submits that this was justified because of future cost savings which exceeded the up-front penalty. While this may or may not have been a good decision, Jane does not allege Miller engaged in fraud or self-dealing as related to this claim. Thus, summary judgment in favor of Miller is granted on this claim.

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