Proven Results · Real Estate & Business Litigation · Jury verdict and judgment, no settlement
LLC Investor Fraud and Fiduciary Duty Case: $7.7 Million Jury Verdict and Judgment After Trial
Summary: Fernald & Zaffos tried a California LLC investor fraud and fiduciary duty case to a jury in Los Angeles County Superior Court. The jury returned verdicts for our clients, an investing company and its principal, on their false promise (fraudulent inducement) claims and on the company’s breach of contract claims, and awarded compensatory damages of $6,100,000 to the investing company and $1,600,000 to its principal. The court then decided the claims brought on behalf of the LLC, awarded the LLC $1,712,984.87, and entered a judgment on September 5, 2023. The case did not settle. The judgment holds the LLC’s day-to-day manager and the member company he controlled jointly and severally liable and provides for interest at the 10% legal rate. No appeal was filed, the defendants’ cross-complaint did not result in any recovery for them, and as of October 2026 no part of the judgment has been collected.
Results notice. Prior results do not guarantee, warrant, or predict the outcome of any future case. Each result depends on its own facts and the law that applies. The dollar amounts on this page are amounts awarded in the judgment, not amounts collected.
Case at a glance
Case type
LLC investor fraud, breach of contract and manager fiduciary duty, with claims brought on behalf of the LLC (derivative claims)
Court
California Superior Court, Los Angeles County
Our clients
An investing company that was a member of the LLC, and its principal, who was also one of the LLC’s managers. The company also sued on behalf of the LLC.
Opposing parties
The LLC’s day-to-day manager and the member company he controlled
Claims decided by the jury
False promise (fraudulent inducement); breach of contract
Claims decided by the court
Conversion, fraudulent concealment and breach of fiduciary duty, brought on behalf of the LLC; judicial dissociation of the manager’s member company (Corporations Code section 17706.02(e))
Timeline
Complaint filed September 2017. Jury trial March 22 to April 3, 2023. Judgment entered September 5, 2023.
Outcome
Jury verdicts for our clients totaling $7,700,000 in compensatory damages, plus $1,712,984.87 awarded to the LLC by the court. No settlement. No appeal was filed. The defendants’ cross-complaint did not result in any recovery for them. The amounts are awarded, not collected.
Counsel
A Fernald & Zaffos attorney served as lead trial counsel. The firm took over the case from prior counsel before trial.
The result
Compensatory damages awarded in the judgment entered September 5, 2023
The investing company: $6,100,000.00
Direct claims: false promise and breach of contract. Decided by the jury, April 3, 2023.
The investing company’s principal: $1,600,000.00
Direct claim: false promise. Decided by the jury, April 3, 2023.
The LLC: $1,712,984.87
Claims brought on behalf of the LLC: conversion, fraudulent concealment, breach of fiduciary duty. Decided by the court, July 25, 2023.
Total compensatory damages awarded in the judgment, including the LLC’s award: $9,412,984.87
About these figures. These are gross amounts of compensatory damages awarded by the jury and the court in the judgment, which was not appealed. The two awards to our clients total $7,700,000. The award to the LLC was made to the company, not to our clients. This was not a contingent-fee matter, so no attorney fees or litigation expenses were withheld from any recovery. The amounts are awarded amounts, not amounts received: as of October 2026, no part of the judgment has been collected. The judgment provides for interest at the 10% legal rate, and attorneys’ fees and costs were left for later motions and are not included in these amounts.
Background and what was alleged
The facts in this section are our clients’ contentions, as stated in the court filings, except where the page says what the jury or the court decided.
The LLC was formed to buy two adjoining parcels of land in California and build 12 homes. It had four members, each with one manager. The member company that supplied the day-to-day manager was the only member based in California, and the other three managers lived overseas. They left day-to-day management of the project to him.
Our clients alleged that:
- Before they invested, the manager promised that their money would be used only for the project and that they would receive an annual profit distribution of 20% of their invested funds before the defendants received any profit.
- The manager caused the LLC to take a secured loan without the other members’ knowledge or consent and sent most of the loan proceeds to companies he owned or controlled.
- The plaintiffs’ forensic accountant identified additional payments from the LLC’s bank accounts that he opined were unauthorized.
- After the other members demanded the LLC’s books and records and were refused, they sought and obtained court orders protecting those records.
How the case reached judgment
- September 2017: The complaint was filed, and the court issued a temporary restraining order barring the defendants from altering or destroying the LLC’s books and records. A preliminary injunction followed in October 2017, and a second preliminary injunction in July 2019 restricted the manager from acting for the LLC.
- March 2022: The court allowed an amended complaint adding a claim to judicially dissociate the manager’s member company from the LLC.
- November 14, 2022: The court granted summary adjudication for our client on the dissociation claim (see below).
- March 22 to April 3, 2023: Jury trial. Four claims went to the jury: false promise (fraudulent inducement) by both plaintiffs against both defendants, breach of contract against both defendants, and breach of the implied covenant of good faith and fair dealing against the member company. The jury returned verdicts for our clients on April 3, 2023, on the false promise and breach of contract claims, awarded compensatory damages of $6,100,000 to the investing company and $1,600,000 to its principal, and found both defendants 100% responsible for those damages. The judgment’s summary of the verdict does not list a separate finding on the implied covenant claim.
- July 25, 2023: The court decided the claims brought on behalf of the LLC (conversion, fraudulent concealment and breach of fiduciary duty) and awarded compensatory damages of $1,712,984.87 to the LLC against both defendants, jointly and severally.
- September 5, 2023: The court entered judgment. It provides for interest at the 10% legal rate, and the amounts of attorneys’ fees and costs were left for later motions.
- After judgment: No appeal was filed. The defendants had also filed a cross-complaint, which did not result in any recovery for them.
The court’s November 2022 ruling on manager self-dealing
Before trial, the court granted summary adjudication on the claim to dissociate the manager’s member company from the LLC. The ruling addressed points that are useful to any LLC member:
- Undisputed facts. The member company did not dispute that its principal was one of the LLC’s four managers with full authority to act for it, or that he owned or controlled the entities that received the transfers. He did not dispute the transfers themselves.
- Fiduciary duty and self-dealing. The court explained that a manager owes the LLC and its members the same fiduciary duties a partner owes a partnership. When a manager deals with himself, he bears the burden of showing good faith and fairness. The court found no evidence the transactions were disclosed to or approved by the other members.
- The operating agreement did not excuse it. The operating agreement allowed transactions with a manager or member only on fair terms and did not relieve managers of fiduciary duties.
- Repayment did not change the result. The court held that even if some of the money was later paid back, the transfers were still wrongful because they diverted funds for the manager’s benefit with no apparent benefit to the LLC.
- Responsibility of the member company. The manager’s conduct was attributed to the member company he controlled, because he was the manager it appointed and an entity acts through its agents.
What this case shows
- Members can enforce information rights. California LLC members have statutory and contractual rights to inspect company records, and courts can enforce them with injunctions.
- Managers owe fiduciary duties. In this case, the court applied partnership-style fiduciary duties to an LLC manager and placed the burden of showing fairness on the manager.
- A member company can answer for the manager it appoints. The court attributed the manager’s conduct to the member company in this case.
- Derivative claims seek recovery for the company. When misconduct harms the LLC itself, a member can sue on the LLC’s behalf, as our client did here.
Frequently asked questions
Did the case settle or go to trial?
It went to trial and did not settle. A Los Angeles County jury heard the case from March 22 to April 3, 2023, and returned its verdicts on April 3, 2023. The court entered a final judgment on September 5, 2023, and no appeal was filed.
How long did the case take?
Just under six years. The complaint was filed in September 2017, and the judgment was entered in September 2023.
What claims did the jury decide?
The jury returned verdicts for the investing company and its principal on their false promise (fraudulent inducement) claims against the manager and his member company. It also returned a verdict for the investing company on its breach of contract claims against both defendants. The judgment’s summary of the verdict does not list a separate finding on the implied covenant claim.
What did the judgment award?
The judgment awards $6,100,000 to the investing company and $1,600,000 to its principal in compensatory damages, and $1,712,984.87 to the LLC. It holds the manager and his member company jointly and severally liable and provides for interest at the 10% legal rate. These are gross awards, not a contingent-fee recovery, so no attorney fees or litigation expenses were withheld. As of October 2026 no part of the judgment has been collected, and attorneys’ fees and costs were left for later motions.
What is a derivative claim, and why did the LLC receive an award?
A derivative claim is brought by a member on behalf of the company when the company itself was harmed. Our client sued on behalf of the LLC for conversion, fraudulent concealment and breach of fiduciary duty. The court decided those claims after the jury trial and awarded damages to the LLC on July 25, 2023.
Did repaying the money excuse the manager’s conduct?
Not in this case. In its November 14, 2022 ruling, the court held that even if some of the money was later paid back, the transfers were still wrongful because they diverted funds for the manager’s benefit with no apparent benefit to the LLC.
Can an LLC member be held responsible for what its appointed manager does?
In this case, yes. The court ruled that the manager’s actions could be attributed to the member company he controlled, because he was the manager it appointed and an entity acts through its agents.
Does this result guarantee the same outcome in another case?
No. Prior results do not guarantee, warrant, or predict the outcome of any future case. Every case depends on its own facts, evidence and the law that applies, and you should speak with an attorney about your own situation.
About the legal team
Fernald & Zaffos represents investors, LLC members and businesses in real estate fraud, fiduciary duty and business disputes in California courts. A Fernald & Zaffos attorney served as lead trial counsel in this case.
More real estate results
Real estate fraud · Verdict
$2.2M
Compensatory and punitive damages for an investor in a real estate fraud case
California superior court
Read the case study
Purchase option dispute · Settlement
Client bought the home
Lis pendens upheld against a motion to expunge; client closed on a $2.8 million purchase
Los Angeles home with a purchase option
Prior results do not guarantee a similar outcome.
Related
Practice page
Misrepresenting a property’s condition or value, falsified documents, diverted funds and investment fraud.
Guide
What sellers must disclose and how long you have.
Attorney advertising. Case results depend on the facts and legal issues of each case. Prior results do not guarantee, warrant, or predict the outcome of any future case. Names of the parties have been omitted. Because this page gives dates and amounts from a public court judgment, the matter can be located in court records. The background section describes our clients’ contentions except where the page states what the jury or the court decided. Dollar amounts are amounts awarded in the judgment, not amounts collected. This page summarizes the judgment as entered and is general information, not legal advice.
This advertisement is the responsibility of Brandon C. Fernald, Fernald & Zaffos, 15910 Ventura Blvd, Suite 1702, Encino, CA 91436.