Morgan v Meyers

Two lawyers were the only members, with equal shares, of their law firm, a professional limited liability company. They never signed a written operating agreement, but they later signed several written agreements about how to share income and expenses. After their relationship broke down, one member sued the other, claiming the other had taken business opportunities from him, and the firm was later dissolved by an agreed court order. The Court of Appeals affirmed the dismissal of the contract, promissory estoppel, and interference claims, mainly because there was no evidence of a clear, definite agreement not to take each other’s referral sources. It also affirmed the dismissal of the fiduciary duty claim: a manager’s duties generally run to the company, not to the other member; the evidence did not show a breach, because the business stayed inside the firm; and in any event there was no evidence the plaintiff first made the written demand that MCL 450.4510 requires before a member sues on the company’s behalf. Finally, the court upheld splitting shared wind-up costs, such as rent, copying costs not tied to a client file, and the malpractice “tail” insurance policy, 50/50, because the members’ written agreements and long practice were to split shared expenses equally.

As the court put it: “Plaintiff does not cite any case law that excuses a member from the litigation prerequisites of MCL 450.4510 when, as here, two equal members manage the company.” (Slip op at 9.)

Why it matters for business owners

If you own a 50/50 company, put a written operating agreement in place that covers competition between owners and how costs are split if the business ends. If you believe your co-owner has harmed the company, talk to a lawyer about the statute’s written-demand steps before you file suit.

View on the Michigan courts website

Related article: Resolving Deadlocks in 50/50 Michigan LLCs: Dissolution vs. Judicial Buyouts