McConnell v. Hunt Sports Enterprises
132 Ohio App. 3d 657, 725 N.E.2d 1193 (1999).

Facts:

  • Several wealthy individuals, two of which were John McConnell and Lamar Hunt, formed Columbus Hockey Limited, LLC (CHL) for the purpose of bringing a hockey team to Columbus, Ohio.
  • Nationwide Insurance was going to the build the arena and lease it to CHL. After Hunt repeatedly and unilaterally rejected their offers, Nationwide went to McConnell, who stated that he and his allies would agree. Hunt again found the lease offer unacceptable.
  • McConnell and his people then formed COLHOC [Limited Partnership], were awarded the franchise, and sued to establish its legal right to the franchise without the inclusion of Hunt or CHL.

Note:
Section 3.3 of the CHL operating agreement provided:

  • Members May Compete. Members shall not in any way be prohibited from or restricted in engaging or owning an interest in any other business venture of any nature, including any venture which might be competitive with the business of the Company.”

History:
A directed verdict in favor of McConnell.

Issues:
(1) By forming and joining COLHOC, was there a breach of fiduciary duty?
(2) Can an operating agreement of an LLC limit or define the scope of the fiduciary duties imposed upon its members?
(3) Was there tortious interference with a prospective business relationship?

Holding:
(1) No.
(2) Yes.
(3) No.

Reasoning:

(1) By forming and joining COLHOC, was there a breach of fiduciary duty?

  • “An LLC, like a partnership, involves a fiduciary relationship. Normally, the presence of such a relationship would preclude direct competition between members of the company. However, here we have an operating agreement that by its very terms allows members to compete with the business of the company.”

(2) Can an operating agreement of an LLC limit or define the scope of the fiduciary duties imposed upon its members?

  • “We answer this question in the affirmative. In becoming members of CHL, appellant and appellees agreed to abide by the terms of the operating agreement, and such agreement specifically allowed competition with the company by its members. Therefore, there was no duty on the part of appellees to refrain from subjecting appellant to the injury complained of herein.”

(3) Was there tortious interference with a prospective business relationship?

  • “The evidence does not show that appellees induced or otherwise purposely caused Nationwide and the NHL not to enter into or continue a business relationship with appellant. It was only after appellant rejected the lease proposal on several occasions that McConnell stepped in. Appellant had yet another opportunity on June 9, 1997 to participate in the Nationwide arena lease and the NHL franchise. Appellant again found the lease proposal unacceptable.”
  • “In short, it was appellant’s actions that caused the termination of any relationship or potential relationship it had with Nationwide and the NHL.”

One more note: The court also found that Hunt was the one that breached the operating agreement, because he rejected Nationwide’s offers without discussing the matter with the rest of CHL. The agreement required approval from a specified number of members.