Sadler v. Players Recreation Group, LLC, et al., [Ms. 1210116, Aug. 26, 2022] __ So. 3d __ (Ala. 2022). The Court (Sellers, J.; Parker, C.J., and Bolin, Wise, and Stewart, JJ., concur) reverses the Jefferson Circuit Court’s judgment in a dispute among Players Recreation Group, LLC, an Alabama limited-liability company (“the LLC”) and three of its members. The LLC owned and operated the “Super Bowl” bowling alley. The LLC and two of its members alleged that the third member, Doyle Sadler, breached his duty of loyalty and his duty of care to the LLC because, “when the Super Bowl began incurring substantial debt, Sadler had refused to work there on a full-time basis and had also failed to make a contribution to the LLC for his share of that debt. During the trial, the counterclaimants also asserted for the first time that Sadler had breached the implied covenant of good faith and fair dealing.” Ms. *4. Following a bench trial, the circuit court entered judgment against Sadler on the counterclaims for $678,307.58, and set off $310,139.66 the LLC owed on the promissory note to a company owned by Sadler, leaving a balance of $368,167.92 to be paid by Sadler to the LLC.
The Court first notes “[o]ne of the more significant differences between the LLC Law [enacted in 2017] and its predecessor is that under the LLC Law an LLC agreement is not required to be written; rather it can be oral or implied.” Ms. *9. However, “[a]lthough an LLC agreement may be ‘written, oral or implied,’ § 10A-5A-1.02(l), Ala. Code 1975, to the extent that a member has duties, including fiduciary duties, to the LLC or to the other members, those duties may be ‘expanded or restricted or eliminated’ only by a written LLC agreement. § 10A-5A-1.08(b)(1).” Ms. *10.
The statutory duty of loyalty owed to the LLC by a member with management authority includes the following:
- “(1) To account to the limited liability company and to hold as trustee for it any property, profit, or benefit derived by that person in the conduct or winding up of the limited liability company’s activities and affairs or derived from a use by that person of the limited liability company’s property, including the appropriation of the limited liability company’s opportunity.
- “(2) To refrain from dealing with the limited liability company in the conduct or winding up of the limited liability company’s activities and affairs as or on behalf of a party having an interest adverse to the limited liability company.
- “(3) To refrain from competing with the limited liability company in the conduct of the limited liability company’s activities and affairs before the dissolution of the limited liability company.” § 10A-5A-4.08(b)(1)-(3).
Ms. **10-11.
In reversing, the Court holds “any alleged duties on the part of Sadler to work for the Super Bowl on a full-time basis or to contribute to the LLC’s debt would be duties that fall outside the provisions of § 10A-5A-4.08(b)(1)-(3), and, therefore, to be enforceable, they were required to be in writing… In summary, under the LLC Law, a written LLC agreement is the only means to define the business relations among the members of an LLC and the obligations of the members to the LLC in a way that varies from the provisions of the LLC Law itself.” Ms. **13-14.
Because the evidence established that Sadler agreed only to work part-time at the Super Bowl, “the counterclaimants cannot rely on the implied covenant of good faith and fair dealing to alter the terms of the original agreement between Sadler and the other members of the LLC. See Cobbs, Allen & Hall, Inc. v. EPIC Holdings, Inc., 335 So. 3d 1115, 1141 (Ala. 2021) (noting that the implied covenant of good faith and fair dealing ‘cannot be used to alter the plain meaning of a contract’).” Ms. *16.