Synectic Ventures I, LLC v. EVI Corp.

A managing member of a Limited Liability Company (LLC) may not enter into agreements in which there exists a personal conflict of interest unless the operating agreement explicitly allows him or her to enter into such agreements. If the managing member does enter into an agreement with a conflict of interest, there is a breach of the duty of loyalty and the LLC is not bound by the agreement as the managing member no longer had the authority to enter into it.

Synectic Ventures I, LLC (Synectic Ventures) appealed a Court of Appeals' decision of summary judgment that its managing member, Berkman, had authority under the operating agreement to enter into an agreement in which there was a conflict of interest. Berkman entered into an amendment to a loan agreement which allowed a corporation of which he was chairman of the board and treasurer to extend the loan agreement another year. The operating agreement of Synectic Ventures allowed "any member" to enter into agreements with companies in which they had an interest. The Supreme Court held this arrangement did not extend to Berkman as managing member of the LLC unless his duty of loyalty had specifically been waived in the operating agreement. Berkman's duty of loyalty had not been specifically waived in the agreement. This left a question of fact as to whether Berkman breached his duty of loyalty. If he had breached the duty of loyalty and the defendant corporation knew that he did not have authority to enter into the agreement, Synectic Ventures would not be bound by its terms. The Supreme Court held the Court of Appeals' summary judgment ruling was in error because ORS 63.140(2)(a) controlled and limited the manager's authority. Summary judgment was improper because there exist issues of material fact. Reversed and remanded.