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Court rules on LLC matter of first impression

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The Indiana Court of Appeals had to decide for the first time whether a company owes a continuing fiduciary duty to a former shareholder or member to accurately report the company's fiscal results to the IRS for a year in which the former member held stock or was still a member of the limited liability company.

In Mike A. Abdalla, et al. v. Raed I. and Hani I. Qadorh-Zadin, No. 49A04-0812-CV-707, the appellate court noted LLCs weren't available in Indiana until 1993, so there is little caselaw regarding them and even less caselaw concerning fiduciary duties in the LLC context.

The Qadorh-Zadins sold in August 2006 their membership interest in various LLCs and their shares in Q Realty, which they owned with the Abdallas. In 2007, the Qadorh-Zadins received their Schedule K-1s and wanted the companies' former accountant to review them because they believed there were discrepancies. The Qadorh-Zidans also requested to see the companies' books for the year in question. The Abdallas refused, which led to the Qadorh-Zidans filing a complaint alleging breach of fiduciary duty, negligence, and request for declaratory relief to inspect the books.

The trial court denied the Abdallas' motion for summary judgment and certified the case for interlocutory appeal.

The Abdallas claimed because the Qadorh-Zadins were no longer members or stockholders of the companies, they can't be allowed to see the books and they owe no fiduciary duty to the Qadohr-Zadins.

The Court of Appeals found Thompson v. Central Ohio Cellular, Inc. f.k.a. Cellwave, Inc., et al., 639 N.E.2d 462 (Ohio Ct. App. 1994), to be instructive. The Ohio court ruled Cellwave owed a fiduciary duty to Thompson for the time when Thompson was still a stockholder in the company.

In the instant case, the appellate court ruled that because the tax incurring actions happened during the existence of the fiduciary relationship, a fiduciary duty is owed regardless as to when the tax returns were actually completed, wrote Judge Patricia Riley.

"To hold otherwise would give the Abdallas the freedom to allocate tax burdens to the Zidans and retain tax benefits for themselves without allowing the Zidans any recourse to verify or rectify this allocation," she wrote.

The Court of Appeals agreed with the Abdallas that when the Qadorh-Zidans asked to review the companies' records, they were no longer members or shareholders; however, the Qadorh-Zidans wanted financial information covering only the period when they were still members or shareholders.

"Although the Zidans' request might inconvenience the Abdallas, this inspection is to the greater benefit of the companies and all parties. Accordingly, we conclude that the Zidans should be allowed limited access to the records, as this request covers a time while the Zidans had an interest in the companies," she wrote.

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  2. Should be beat this rap, I would not recommend lion hunting in Zimbabwe to celebrate.

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  5. All these sites putting up all the crap they do making Brent Look like A Monster like he's not a good person . First off th fight actually started not because of Brent but because of one of his friends then when the fight popped off his friend ran like a coward which left Brent to fend for himself .It IS NOT a crime to defend yourself 3 of them and 1 of him . just so happened he was a better fighter. I'm Brent s wife so I know him personally and up close . He's a very caring kind loving man . He's not abusive in any way . He is a loving father and really shouldn't be where he is not for self defense . Now because of one of his stupid friends trying to show off and turning out to be nothing but a coward and leaving Brent to be jumped by 3 men not only is Brent suffering but Me his wife , his kids abd step kidshis mom and brother his family is left to live without him abd suffering in more ways then one . that man was and still is my smile ....he's the one real thing I've ever had in my life .....f@#@ You Lafayette court system . Learn to do your jobs right he maybe should have gotten that year for misdemeanor battery but that s it . not one person can stand to me and tell me if u we're in a fight facing 3 men and u just by yourself u wouldn't fight back that you wouldn't do everything u could to walk away to ur family ur kids That's what Brent is guilty of trying to defend himself against 3 men he wanted to go home tohisfamily worse then they did he just happened to be a better fighter and he got the best of th others . what would you do ? Stand there lay there and be stomped and beaten or would u give it everything u got and fight back ? I'd of done the same only I'm so smallid of probably shot or stabbed or picked up something to use as a weapon . if it was me or them I'd do everything I could to make sure I was going to live that I would make it hone to see my kids and husband . I Love You Brent Anthony Forever & Always .....Soul 1 baby

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