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. I have a degree at law, recent MS in regulatory studies. Licensed in KS, admitted b4 S& 7th circuit, but not to Indiana bar due to political correctness. Blacklisted, nearly unemployable due to hostile state action. Big Idea: Headwinds can overcome, esp for those not within the contours of the bell curve, the Lego Movie happiness set forth above. That said, even without the blacklisting for holding ideas unacceptable to the Glorious State, I think the idea presented above that a law degree open many vistas other than being a galley slave to elitist lawyers is pretty much laughable. (Did the law professors of Indiana pay for this to be published?)

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  4. I had a hospital and dcs caseworker falsify reports that my child was born with drugs in her system. I filed a complaint with the Indiana department of health....and they found that the hospital falsified drug screens in their investigation. Then I filed a complaint with human health services in Washington DC...dcs drug Testing is unregulated and is indicating false positives...they are currently being investigated by human health services. Then I located an attorney and signed contracts one month ago to sue dcs and Anderson community hospital. Once the suit is filed I am taking out a loan against the suit and paying a law firm to file a writ of mandamus challenging the courts jurisdiction to invoke chins case against me. I also forwarded evidence to a u.s. senator who contacted hhs to push an investigation faster. Once the lawsuit is filed local news stations will be running coverage on the situation. Easy day....people will be losing their jobs soon...and judge pancol...who has attempted to cover up what has happened will also be in trouble. The drug testing is a kids for cash and federal funding situation.

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