Member’s Expectation of Loyalty More Important the Operating Agreement’s Permission of Competition

For over five years, Premier Homes and Properties (PHP) built, marketed, and sold residential homes in a development owned by Aftew Properties known as the Village at Motts Landing. Premier Homes and Properties had three members, Key Marco Consulting and Marketing, Alpat Properties, and Klos Construction. The LLC’s operating agreement permitted the member-managers to engage in business that directly competed with PHP. The agreement also included a clause for an amendment if the North Carolina Limited Liability Act (Act) was amended in the future. In 2014, the Act was amended to “permit parties to an operating agreement to waive a manager’s duty of loyalty.” After this amendment, Kay Marco joined with T. Ando Construction to create Premier Homes and Communities, LLC. Klos filed suit. The Court found that although the Act permitted the members to engage in activities that competed with PHP, that change did not preclude enforcement of a member’s obligation of loyalty to the LLC.