October 17, 2024

Tuli v. Specialty Surgical Center of Thousand Oaks (2024)

Plaintiff helped form a business structured as a limited liability company. The company distributed profits to its members, including plaintiff. Over time, plaintiff became inactive but continued to receive substantial profits. Tensions flared when plaintiff declined buyout offers from other members. Plaintiff later directed his attorney to send a threatening letter to various stakeholders, alleging illegal activities within the company and potential exposure to criminal liability. The company warned plaintiff he would be ejected without compensation if he did not cure his statements within 30 days. When plaintiff refused, the company ousted him, valuing his shares at zero.

Plaintiff sued for breach of fiduciary duty and other claims. The Court of Appeal held the business judgment rule insulated the company. The court found the conflict-of-interest exception to the business judgment rule inapplicable because the uncontested evidence showed the company’s decisionmakers had worked in the company’s best interests to oust plaintiff.

The court also concluded it was not “corporate bad faith” for the company’s decisionmakers to take action against their colleague’s attacks.  There is “no precedent for extending the concept of bad faith to a situation where a company decisionmaker, while working in the company’s best interests, privately disparaged a colleague.”