Wisconsin Supreme Court Concludes Wisconsin’s LLC Act Does Not Preempt Common Law Claims
Jeff Storch | 05.14.19
In April of 2019, the Wisconsin Supreme Court held that Chapter 183 of the Wisconsin Statutes, governing limited liability companies (the “Act”), did not abrogate common law duties for LLCs. In Marx v. Morris, on certification from the Wisconsin Court of Appeals from a denial of defendant’s summary judgment motion in the circuit court, the Court responded to the question, “Does [the Act] preempt common law claims by one member of an LLC against another member based on the second member’s alleged self-dealing?” In answering, the Court stated that the Act does not state or imply that Wis. Stat. § 183.0402 constitutes the entirety of an LLC member’s or manager’s obligations to other members and to the LLC and consequently held that the plaintiffs’ common law claims survived, at least at the current stage of the proceedings.The Court remanded to the circuit court for further proceedings.
While the Court’s decision provides the first definitive guidance on whether Wisconsin recognizes common law duties for LLC members and managers, the issue is far from resolved. First, due to the procedural status of the case, the nature of the plaintiffs’ common law claims was not fully explored. Next, the Court did not define the scope of the common law duties that apply to LLCs; it merely found that LLC common law claims are not preempted by the Act.A strong dissent claimed that there could not be any such claims to preempt because, prior to the adoption of the Act, there was no such thing as an LLC member. The dissent’s logic suggests yet another argument that, at most, the “common law” of LLCs can only date back to the relatively recent enactment of the Act.
For now, LLCs that want more certainty on what duties apply to their members and managers should document those duties in the LLC’s operating agreement. Members and managers may wish to review and amend their current operating agreements.
For a discussion of the Court’s holding in Marx v. Morris regarding members standing to assert individual claims against other members of the LLC as well as the LLC’s managers, see Wisconsin Supreme Court Clarifies LLC Member Standing to Sue For Harm to the LLC or its Members.
DISCLAIMER: The information provided is for general informational purposes only. This post is not updated to account for changes in the law and should not be considered tax or legal advice. This article is not intended to create an attorney-client relationship. You should consult with legal and/or financial advisors for legal and tax advice tailored to your specific circumstances.