WISHINSKY v. CHOUFANI (2019)

Appellant, David Wishinsky, appeals the trial court's dismissal of his three count fifth amended complaint with prejudice alleging direct causes of action against Appellee, Rashid Choufani, for constructive fraud (count I), fraud (count II), and breach of contract (count III). We reverse the dismissal of count I because Appellant sufficiently alleged a direct cause of action for constructive fraud premised on the breach of statutory fiduciary duties. We affirm the dismissal of counts II and III without further discussion.

Appellant and Appellee were both members of E-Brands Restaurants, LLC (“E-Brands”), and Appellee was also the Chairman, CEO and Chief Manager. While Appellee was still the Chairman, CEO and Chief Manager of E-Brands, he formed another entity named La Dolbe, LLC (“La Dolbe”), for the purpose of owning and operating a restaurant. In count I of Appellant's fifth amended complaint, Appellant alleged that Appellee committed constructive fraud by breaching the fiduciary duties of loyalty, care, and good faith and fair dealing through the diversion of E-Brands's corporate assets to fund La Dolbe's business venture, in which Appellee had an interest, without giving Appellant an opportunity to vote as required by E-Brands's operating agreement. Appellant further alleged that this self-dealing and denial of his right to vote on various transactions with La Dolbe caused his investment in E-Brands to lose its value.

Appellee argues that dismissal of count I was proper because Appellant alleged an injury only to E-Brands, and therefore Appellant's sole remedy is a derivative action on behalf of E-Brands.

Generally, “an action may be brought directly only if (1) there is a direct harm to the shareholder or member such that the alleged injury does not flow subsequently from an initial harm to the company and (2) there is a special injury to the shareholder or member that is separate and distinct from those sustained by the other shareholders or members.” Dinuro Invs., LLC v. Camacho, 141 So. 3d 731, 739–40 (Fla. 3d DCA 2014) (citation omitted). While Appellant has not sufficiently alleged direct harm and a special injury, there is an exception to this rule. “A shareholder or member need not satisfy this two-prong test when there is a separate duty owed by the defendant(s) to the individual plaintiff under contractual or statutory mandates.” Id. at 740 (citation omitted).

Importantly, a manager owes the statutory duties of loyalty, care, and good faith and fair dealing to the members of an LLC. See §§ 608.4225(1)(a)-(c), 608.4226, 608.4228(1)(b)2, Fla. Stat. (2010).¹ Appellant's constructive fraud action sufficiently alleges the breach of these duties. See Hirchert Family Tr. v. Hirchert, 65 So. 3d 548, 552 (Fla. 5th DCA 2011) (“[A] breach of fiduciary duty is ‘constructive fraud.’ ”); accord White v. Consol. Planning, Inc., 166 N.C.App. 283, 603 S.E.2d 147, 156 (2004) (“To survive a motion to dismiss, a cause of action for constructive fraud must allege (1) a relationship of trust and confidence, (2) that the defendant took advantage of that position of trust in order to benefit himself, and (3) that plaintiff was, as a result, injured. ․ The primary difference between pleading a claim for constructive fraud and one for breach of fiduciary duty is the constructive fraud requirement that the defendant benefit himself.” (citations omitted)).

Therefore, based on the four corners of the fifth amended complaint, we conclude that count I sufficiently alleges a direct cause of action against Appellee pursuant to the special duty statutory exception. We therefore reverse and remand as to that claim, and otherwise affirm.

AFFIRMED in part; REVERSED in part; and REMANDED.

FOOTNOTES

1.   We observe that in 2013, the Legislature enacted the Florida Revised Limited Liability Company Act, creating Chapter 605 of the Florida Statutes, and providing for the future repeal of the Florida Limited Liability Company Act (which consists of sections 608.401–.705, Florida Statutes) on January 1, 2015. See Ch. 2013–180, §§ 1–2, 5, Laws of Fla.

PER CURIAM.

EISNAUGLE, GROSSHANS and SASSO, JJ., concur.