Listen to this article
A Business Court judge has denied a request for an award of counsel fees under a flimited liability company’s operating agreement.
“The request for attorney fees … arises from the defendants’ reading of the Pooh Corners Cottage, LLC.’s operating agreement which governs the relationships of the LLC and its members,” Judge Curt A. Benson noted.
“The defendants misread the operating agreement. The agreement does not entitle them to attorney fees,” the judge found.
“The section of the operating agreement applicable here, as anticipated by the Allen Park Retirees [Ass’n, Inc. v. City of Allen Park, 347 Mich. App. 1, 11, 13N.W.3d865, 871 (2023)] case, is both inartfully worded and clumsily arranged. It, however, fairly admits but one interpretation,” Benson stated.
“Section 14.11 requires that ‘any and all claims, controversies, disputes or actions’ arising out of the operating agreement be resolved exclusively by binding arbitration. The section contains a narrow exception allowing a party to ‘seek and obtain injunctive relief, specific performance or other equitable relief’ in court. Section 14.1 1.1, titled ‘Injunctive Relief,’ elaborates on that exception and provides for fee-shifting in actions ‘pursuant to this section,’” he pointed out.
“This case originated as an action by a member who sought an injunction against the LLC and its manager to prevent alleged violations of the operating agreement. The defendants responded with a counterclaim seeking money damages for [the member’s] alleged breach of the same agreement. Following trial, the court ruled that [an individual defendant] breached the terms of the operating agreement but denied [the member’s] request for injunctive relief. The court entered judgment in favor of the defendants on their damages claim. The defendants now seek attorney fees as the prevailing party,” the judge added.
“The defendants are not entitled to recover its attorney fees. The plain text of section 14.11.1 limits fee-shifting to expenses incurred ‘pursuant to this section’ — that is, in connection with an action for injunctive or other equitable relief brought under the limited court-access carveout in section 14.11. By contrast, the operating agreement channels all claims for damages to arbitration and contains no general provision authorizing attorney fees for prevailing parties in damages disputes,” Benson wrote.
“Although the defendants’ counterclaim was properly asserted in this proceeding once [the member] filed her claim for an injunction, the counterclaim itself sought legal, not equitable, relief. The defendants’ recovery was therefore not obtained ‘pursuant to section 14.11.1,’ but rather on a damages theory that falls outside the scope of that subsection. The Court may not expand the fee-shifting language beyond its stated terms,” he concluded.
The four-page decision is Brown v. Pooh Corners Cottage, LLC; MiLW No. 10-109983.
