Removal of Member From A Texas LLC

I answer questions on business law and estate planning topics over at my commercial web site and thought I would post some of those Q&As here to give them wider circulation.

"I read Sec 101.107 of TX LLC Act, however one of the members deserted (literally walked out one night and has not returned) the business almost a year ago, and actually has worked with competitors as an advisor... What applies here? Cathy."

Section 101.107 prevents the withdrawal or expulsion of a member in a Texas LLC. However, as explained in this prior post, I believe the Texas LLC Act allows the members to modify Section 101.107 through their operating agreement. I assume you wish to kick out the member now working for a competitor. If your operating agreement contains a mechanism for terminating or removing a member, then then it overrides § 101.107. As your question makes no mention of an operating agreement, I assume your LLC either does not have one or it is silent on removal of a member.

Question: what is the legal consequence of a member working for a competitor of the LLC absent any bar to such activity in the LLC operating agreement? I'm not sure because the Texas LLC Act does not spell out what if any duty of loyalty LLC members owe to each other. At least one Texas lawyer believes it is likely that members of a member-managed LLC owe a fiduciary duty of loyalty to the LLC and to the other members of the LLCs. I concur with that view. See also prior blog post on this topic. Thus, under this view, the member who went AWOL then consulted with the competition has violated this duty of loyalty to the other members. This may give rise to a cause of action for damages and/or injunctive relief. The best course of action would be to retain a local attorney for assistance in this matter. A claim against the departed LLC member for violation of the fiduciary duty of loyalty may bring him or her to the bargaining table to negotiate a withdrawal from the LLC (which is probably what you desire).