Tuesday, November 25, 2008
McConnell v. Hunt Sports Enterprises, though a Business Associations case, has a strong contractual element to it. The question at hand is, to what extent can the members of an LLC contract around their fiduciary duties in the LLC agreement. The answer is, quite a bit, actually. Lamar Hunt and John McConnell formed an LLC called Columbus Hockey Limited in order to draw an NHL franchise to the city of Columbus, Ohio. Seems improbably, no? Nationwide Insurance didn't think so. That's why the Columbus Blue Jackets play their hockey in Nationwide Arena (pictured). Nationwide approached Hunt with an offer to build an arena and then lease it to the LLC. Hunt, purportedly acting on behalf of the LLC, turned down Nationwide's offer. McConnell later learned of the offer and decided to take it up on his own, acting with new partners and directly competing with the LLC.
Seems like a clear breach of fiduciary duty on McConnell's part, but the LLC agreement had some boilerplate language that permitted the parties to compete with one another. The court concluded that Hunt did not have authority to turn down Nationwide's offer and that McConnell breached no duty to Hunt or the LLC when he took up that offer on his own. Parties to an LLC agreement can contract around standard duties of loyalty, so long as they do not eliminate the duty entirely.
McConnell v. Hunt Sports Enterprises
McConnell, who always competes,
Was fed up with Hunt's rank deceits.
Hockey's new franchise
Is McConnell's new gran' prize
And Hunt haunts the nose bleed seats.