Auriga Capital Corp. v. Gatz Properties, LLC

Gatz Properties LLC (Gatz Properties) (defendant), Auriga Capital Corporation (Auriga) (plaintiff), and other investors (plaintiffs) formed a limited liability company called Peconic Bay, LLC (Peconic). Gatz Properties owned the majority interest in Peconic. Gatz Properties, through William Gatz, also managed Peconic. The Peconic Bay LLC Agreement (Agreement) provided that: (1) if the manager entered a self-dealing transaction, then the manager would have to prove the fairness of the transaction, and (2) the manager would be responsible for any bad faith actions and even grossly negligent actions. Peconic was formed to develop a golf course on property in Long Island. The idea was to make money subleasing the property to someone else to run the golf course. However, the company that originally subleased the Peconic property neglected the course. Although it eventually became clear that the company was not going to renew its sublease, Gatz did not take any steps to look for ways to protect the members’ investment in the Peconic property, like looking for a new sublessor or a buyer. Indeed, when a buyer came forward on his own, Gatz turned the buyer away. Gatz also provided misleading information to the minority members and made unfair offers to the minority members to buy the property himself. When this failed, Gatz put the Peconic property up for auction without marketing it. Not surprisingly, Gatz was the only bidder to show up, and Gatz bought the Peconic property for a nominal amount. Auriga and Peconic’s other minority members sued Gatz for damages, arguing that Gatz had breached his fiduciary duties to them.