New Jersey Chancery Court Finds LLC Member Oppression and Breach of Fiduciary Duty Following Bench Trial

Stark & Stark, P.C. recently obtained a favorable result in the New Jersey Superior Court, Chancery Division in Fasulo v. Shaw, an LLC member oppression and fiduciary duty case arising from a dispute among members of a limited liability company. I represented the plaintiffs through discovery, motion practice, and a full bench trial.

Following a six-day bench trial, the Court found that the defendant, Thomas Shaw, oppressed his fellow LLC members and breached fiduciary duties owed to them and the company. Among other findings, the Court concluded that Mr. Shaw presented a forged operating agreement to a bank and improperly diverted a corporate opportunity belonging to the LLC. The Court ultimately exercised its broad equitable authority to award substantial relief, including monetary damages, a forced buyout, transfer of future business interests, and attorneys’ fees and costs.

This case reflects the type of complex shareholder, LLC member, and fiduciary duty litigation our firm handles on behalf of business owners throughout New Jersey.

Background of the Dispute

The case involved TCT Properties, LLC, a New Jersey limited liability company formed by Christopher Fasulo, Travis Fasulo, and Thomas Shaw. The company was formed to acquire and operate commercial real estate.

Over time, disputes arose concerning management of the company, company finances, and the handling of business opportunities. The plaintiffs alleged that Mr. Shaw improperly diverted company opportunities for his own benefit and engaged in conduct inconsistent with the fiduciary duties members of LLCs owe to one another under New Jersey law.

The matter ultimately proceeded to a bench trial before the Honorable James Bucci, J.S.C., in the Chancery Division, Camden County.

The Court Concluded the Operating Agreement Was Forged

One of the central issues at trial involved an operating agreement that Mr. Shaw claimed had been executed by all members of TCT Properties.

The plaintiffs disputed the authenticity of the signatures and alleged that the operating agreement had been forged.

After hearing testimony, reviewing documentary evidence and metadata, and considering expert handwriting testimony, the Court concluded that Mr. Shaw forged Christopher and Travis Fasulo’s signatures on the operating agreement and then presented the document to PNC Bank.

The Court found that Mr. Shaw repeatedly changed his testimony concerning how the operating agreement was allegedly executed. The Court also relied upon metadata evidence concerning when the document was printed and found that Mr. Shaw’s version of events was inconsistent with the timeline established during trial.

The Court further noted that the signatures appearing on the document were in different colored inks despite testimony that the signatures were allegedly executed using the same pen. The Court also credited the testimony of the plaintiffs and the handwriting expert offered during trial.

Following trial, the Court entered an Order declaring the operating agreement void and of no force or effect.

New Jersey Law Concerning LLC Member Oppression

New Jersey law provides protections to members of limited liability companies who are subjected to oppressive, fraudulent, or unlawful conduct by other members or managers.

Under N.J.S.A. 42:2C-48, courts may grant relief where controlling members frustrate the reasonable expectations of other members or engage in oppressive conduct.

The Court in Fasulo v. Shaw emphasized that LLC members owe fiduciary duties to one another under New Jersey law. Those duties include obligations of loyalty, honesty, and fair dealing, as well as duties not to improperly appropriate company opportunities for personal gain.

The Court also recognized that New Jersey’s Chancery Courts possess broad equitable authority to fashion remedies appropriate to the misconduct proven at trial.

The Court Found Mr. Shaw Improperly Diverted a Corporate Opportunity

The Court also found that Mr. Shaw improperly diverted a corporate opportunity belonging to TCT Properties.

The evidence at trial demonstrated that TCT Properties was expected to pursue a parking lot transaction involving another business and properties located in Bellmawr, New Jersey. According to the Court’s findings, Mr. Shaw transferred the opportunity from TCT Properties to his own entity, Alysco Properties, LLC, without the knowledge or consent of the other members.

The Court found that the plaintiffs relied upon representations that they would continue to share in the benefits of the transaction and contributed time, money, and effort toward the project. Applying New Jersey’s corporate opportunity doctrine, the Court concluded that Mr. Shaw breached fiduciary duties by diverting a business opportunity belonging to the LLC for his own benefit.   That constituted another basis for the Court’s conclusion that Mr. Shaw oppressed the Plaintiffs.

The Court’s Remedies

After finding oppression and breaches of fiduciary duty, the Court exercised its equitable powers to craft relief designed to remedy the misconduct and protect the plaintiffs’ interests.

Among other things, the Court:

• Declared the operating agreement void;
• Ordered a buyout of Mr. Shaw’s membership interest;
• Awarded damages to the plaintiffs;
• Transferred the Curaleaf-related business opportunity and future revenue stream to TCT Properties;
• Ordered the transfer of company property and records; and
• Dismissed the defendants’ counterclaims.

The Court emphasized that Chancery Courts possess broad discretion to tailor remedies in LLC oppression and fiduciary duty cases based upon the facts presented at trial.

Award of Attorneys’ Fees and Costs

The Court also exercised its discretionary authority under N.J.S.A. 42:2C-48(c) to award attorneys’ fees and costs to the plaintiffs.

Following post-trial briefing and oral argument, the Court awarded the plaintiffs $375,067.27 in attorneys’ fees and $1,115 in costs, for a total award of $376,182.27, together with pre- and post-judgment interest.

Key Takeaways

The decision in Fasulo v. Shaw highlights several important principles under New Jersey business litigation law:

• LLC members owe fiduciary duties to one another.
• Courts may grant relief where members engage in oppressive conduct.
• Improper diversion of company opportunities can result in substantial equitable remedies.
• New Jersey Chancery Courts possess broad authority to fashion remedies in business divorce and oppression cases; and
• Courts may award substantial attorneys’ fees and costs where oppressive conduct is proven.

The case also demonstrates the importance of credibility determinations during a bench trial. Here, the Court made detailed factual findings after hearing witness testimony, reviewing metadata evidence, and considering expert testimony concerning the authenticity of the operating agreement.

Business divorce and LLC oppression cases are often document-intensive and highly fact-sensitive matters that require careful trial preparation and presentation. Successfully litigating these disputes frequently involves the intersection of fiduciary duty law, equitable remedies, accounting issues, and credibility determinations before the Court