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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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  1. YES I WENT THROUGH THIS BEFORE IN A DIFFERENT SITUATION WITH MY YOUNGEST SON PEOPLE NEED TO LEAVE US ALONE WITH DCS IF WE ARE NOT HURTING OR NEGLECT OUR CHILDREN WHY ARE THEY EVEN CALLED OUT AND THE PEOPLE MAKING FALSE REPORTS NEED TO GO TO JAIL AND HAVE A CLASS D FELONY ON THERE RECORD TO SEE HOW IT FEELS. I WENT THREW ALOT WHEN HE WAS TAKEN WHAT ELSE DOES THESE SCHOOL WANT ME TO SERVE 25 YEARS TO LIFE ON LIES THERE TELLING OR EVEN LE SAME THING LIED TO THE COUNTY PROSECUTOR JUST SO I WOULD GET ARRESTED AND GET TIME HE THOUGHT AND IT TURNED OUT I DID WHAT I HAD TO DO NOT PROUD OF WHAT HAPPEN AND SHOULD KNOW ABOUT SEEKING MEDICAL ATTENTION FOR MY CHILD I AM DISABLED AND SICK OF GETTING TREATED BADLY HOW WOULD THEY LIKE IT IF I CALLED APS ON THEM FOR A CHANGE THEN THEY CAN COME AND ARREST THEM RIGHT OUT OF THE SCHOOL. NOW WE ARE HOMELESS AND THE CHILDREN ARE STAYING WITH A RELATIVE AND GUARDIAN AND THE SCHOOL WON'T LET THEM GO TO SCHOOL THERE BUT WANT THEM TO GO TO SCHOOL WHERE BULLYING IS ALLOWED REAL SMART THINKING ON A SCHOOL STAFF.

  2. Family court judges never fail to surprise me with their irrational thinking. First of all any man who abuses his wife is not fit to be a parent. A man who can't control his anger should not be allowed around his child unsupervised period. Just because he's never been convicted of abusing his child doesn't mean he won't and maybe he hasn't but a man that has such poor judgement and control is not fit to parent without oversight - only a moron would think otherwise. Secondly, why should the mother have to pay? He's the one who made the poor decisions to abuse and he should be the one to pay the price - monetarily and otherwise. Yes it's sad that the little girl may be deprived of her father, but really what kind of father is he - the one that abuses her mother the one that can't even step up and do what's necessary on his own instead the abused mother is to pay for him???? What is this Judge thinking? Another example of how this world rewards bad behavior and punishes those who do right. Way to go Judge - NOT.

  3. Right on. Legalize it. We can take billions away from the drug cartels and help reduce violence in central America and more unwanted illegal immigration all in one fell swoop. cut taxes on the savings from needless incarcerations. On and stop eroding our fourth amendment freedom or whatever's left of it.

  4. "...a switch from crop production to hog production "does not constitute a significant change."??? REALLY?!?! Any judge that cannot see a significant difference between a plant and an animal needs to find another line of work.

  5. Why do so many lawyers get away with lying in court, Jamie Yoak?

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