Background
William Mullally, Lewis Lester Sr., and Robert Colvin formed CU Capital Market Solutions, LLC (“CMS”) to provide consulting services to credit unions, including loan participation opportunities. Each member held approximately one-third of the company’s Class A Units. The CMS operating agreement contained restrictive covenants and was governed by Georgia law. This was the case’s second appearance before the Court of Appeals, after the court previously affirmed that the restrictive covenants were valid and enforceable against Mullally.
On remand, a jury found that Mullally breached the operating agreement, breached his fiduciary duty, and made negligent misrepresentations to his partners. The evidence showed that while still employed by CMS, Mullally solicited CMS customers for his own side businesses, used a CMS employee to prepare invoices for those businesses, and falsely represented to his partners that a “pipeline” of closed deals would soon bring revenue to CMS when in fact the funds were flowing to his competing ventures. The jury awarded $1,932,817.45 in damages. Mullally appealed the denial of his motions for directed verdict and JNOV.
The Court’s Holding
The Court of Appeals affirmed the verdict on all counts. On breach of contract, the court held that CMS’s expert forensic accountant, who conducted a regression analysis of revenue patterns before and after Mullally’s departure, along with testimony that CMS’s operating costs remained relatively constant, provided sufficient evidence of damages. Under Georgia’s “any evidence” standard for reviewing a JNOV denial, the proof was adequate.
On breach of fiduciary duty, the court rejected Mullally’s reliance on the operating agreement’s waiver provision. That clause disclaimed fiduciary duties for any “Member or Manager” but did not, by its plain terms, eliminate duties arising from Mullally’s role as director, officer, or employee of CMS. Regardless of the waiver’s scope, the jury could find that Mullally breached the contractual obligation of good faith and fair dealing by secretly competing with CMS using company resources.
On negligent misrepresentation, the court found that Mullally’s false assurances about incoming revenue, made while he was diverting deals to his own business, forced CMS to raise capital from other sources. This evidence sufficiently supported the verdict.
Key Takeaways
- Georgia LLC operating agreements that waive fiduciary duties for “Members” or “Managers” do not necessarily eliminate duties arising from a member’s role as an officer, director, or employee of the company.
- A forensic accountant’s regression analysis of revenue patterns can provide sufficient evidence to support a breach-of-contract damages award under Georgia’s “any evidence” standard.
- An LLC member who solicits company customers for competing ventures while still employed may face liability on contract, fiduciary, and negligent misrepresentation theories simultaneously.
Why It Matters
This decision provides important guidance on the limits of fiduciary duty waivers in Georgia LLC operating agreements. The court’s distinction between duties owed as a “Member or Manager” and duties arising from employment or officer roles means that practitioners drafting such waivers need to be precise about which capacities are covered. A blanket waiver referencing membership status may not shield conduct undertaken in an officer or employee capacity.
The nearly $2 million verdict also underscores the serious financial exposure facing LLC members who engage in self-dealing. For Atlanta commercial litigators, the case illustrates how breach of contract, fiduciary duty, and negligent misrepresentation claims can be layered to capture different aspects of the same disloyal conduct, and that juries may award substantial damages where the evidence shows systematic diversion of business opportunities.