Three managers of two LLCs found themselves up a creek without operating agreements. They couldn’t agree on the ownership shares of one of them, and two of the managers thought the third had been extensively self-dealing. In Bronson v. Burnham, 2026 NCBC 45, the Business Court was left to sort out a failed pub, its million-dollar renovation, and a piano that couldn’t find a home.

The plaintiffs, John and Paul Bronson, advanced derivative claims for breach of fiduciary duty and constructive fraud, as well as individual claims for judicial dissolution, against defendant Kenneth Burnham. The claims centered on a series of alleged misappropriations, conflict-of-interest transactions, and undefined payments. Id. ¶¶ 13, 23.

An initial complication in such settings is that all three of the members of the entities – Lafayette Village Pub, LLC and Executive Suites at Lafayette Village, LLC – were, in absence of an operating agreement, deemed to be managers by statute. Id. ¶ 45.  Under the default provisions of § 57D-3-20(b), (c), the Bronsons and Burnham had equal rights to participate in entity management and could act on behalf of them “in the ordinary course of the LLC’s business.” But, it still are “management decisions approved by a majority of the managers [that] are controlling.”

In considering dueling summary judgment motions, the Business Court confirmed that Burnham – as a manager – owed a fiduciary duty to act in good faith on behalf of the pub. Id. ¶ 50 (citing Cranford v. Hintz, 2026 WL 1048847, at *8 (N.C. Super. Ct. April 15, 2026) (“managers generally owe fiduciary duties to the company as a whole under N.C.G.S § 57D-3-21”)). The Court examined 18 actions plaintiffs claimed violated Burnham’s fiduciary duty, and found claims sounding in self-dealing, misappropriation of property, and inadequate financial record-keeping sufficient for trial. 

While Judge Davis observed that the record was “not a model of clarity as to exactly what transpired in connection” with the challenged transactions, he found sufficient disputed facts to raise issues for trial, highlighted by a $600,000 rolling promissory note, unexplained monthly payments to Burnham from one of the entities, and more than $200,000 in undefined payments to a Burnham-related entity. Id. ¶¶ 57, 60, 62. The Court leaned on a lengthy passage from Burnham’s deposition testimony in support of its observations that he “did not refute the [plaintiffs’] assertions that (1) the loans were made without prior approval from the Pub’s other managers; and (2) the terms of the loans were determined by Burnham alone.” Id. ¶¶ 58-59.

In concert with a renovation budgeted to cap at $250,000 that cost $1 million, the plaintiffs also alleged that Burnham had misappropriated a piano, artwork, televisions, and furniture from the pub which shifted to his home or were otherwise disposed of without consultation. Id. ¶¶ 63, 65. Asked at deposition whether he paid the pub for the piano, Burnham said: “I can’t remember. It was a long time ago.” Id. ¶ 69. Judge Davis noted it was a matter whose resolution “depended upon [the] credibility of witnesses” as to the intended fate of items removed from the pub. Id. ¶ 70 (citing Clark v. B.H. Holland Co., 852 F. Supp. 1268, 1275 (E.D.N.C. 1994)).

Business Judgment Rule 

The Court also analyzed the “business judgment rule” connected to Burnham’s opposition to the claim of inadequate financial record-keeping. The rule “creates a powerful substantive presumption that a decision by a loyal and informed manager will not be overturned by a court unless it cannot be attributed to any rational business purpose.” Id. ¶ 79 (quoting Emrich Enters., LLC v. Hornwood, Inc., 2022 WL 561441, at *16 (N.C. Super. Ct. Feb 15, 2022)). 

However, while noting that “some of [plaintiffs’] many grievances against Burnham may be encompassed – on their face – by the business judgment rule, others are not.” Id. ¶ 82. Summary judgment for Burnham was improper, the Court held, because of the well-settled notion that the rule “does not apply to conflicted transactions or self-dealing.” Id. ¶ 84 (citing Vill. at Motts Landing Homeowners’ Ass’n v. Aftew Props., LLC, 2023 WL 5211061, *3 (N.C. Super. Ct Aug. 14, 2023)).

Worth Noting

  • For parties opposing application of the business judgment rule, the Court reminded that it has limitations. For instance, while a fiduciary may sometimes “negotiate in his own interest, it does not follow that he is entitled to the business judgment rule when doing so.” Id. ¶ 84 (quoting Emrich, 2022 WL 561441, at *19). Or, that fact disputes over whether directors “engaged in a rational [decision-making] process” or “unreasonably permitted the waste of [the company’s] corporate assets” can derail application of the rule at the summary judgment phase. Id. (quoting Lee v. McDowell, 2022 WL 1700014, at *32 (N.C. Super. Ct. May 26, 2022)).

Brad Risinger is a partner in the Raleigh office of Fox Rothschild LLP.