Business and commercial venture breakups are a bit like marital breakups… you hope that everything will proceed smoothly and amicably, but it often doesn’t. When you’re a member of an LLC who has decided to leave the company, you may often simply want to go your own way. Sometimes, though, the LLC won’t let that happen. When that happens to you, make sure you have the legal protection you need from a vigilant and experienced Atlanta commercial litigation attorney.
J.O. was one of those kinds of LLC members. Back in 2014, he was one of the members who formed a Conyers-based multi-level marketing LLC. In 2017, after experiencing concerns about his compensation as well as the company’s leadership, J.O. decided to leave the company. Around the same time, J.O. signed up as a customer of another multi-level marketing entity.
After J.O. left the company, the LLC sued him on the basis that he had breached the LLC’s operating agreement. According to the LLC’s complaint, J.O., who had been a vice president of sales, had breached his contractual obligations by working for a competing company.
Whenever someone sues you for a breach of contract or breach of an LLC operating agreement or breach of fiduciary duty or most any other “breach,” they have to have three major things in order to succeed and win a judgment against you.
Proof of a breach, of damages and of causation
First off, they have to have admissible evidence that shows that you did, in fact, engage in action or inaction that was contrary to your legal obligations and, therefore, constituted a breach.
However, simply proving that you breached isn’t enough though. The other side must also present proof of actual harm and proof that your breach was what caused that damage. Even if, for example, you breached the LLC operating agreement you signed, you cannot be held responsible for paying damages if there isn’t convincing proof that your misconduct caused the LLC to suffer some sort of losses, or if there isn’t evidence that establishes your misconduct was the “trigger” for that harm.
When it comes to claiming harm, not just any claim will do. If the basis underpinning the alleged damages were strictly speculative in nature, then that isn’t good enough to trigger a judgment, and you are not liable.
That requirement of certain, non-speculative harm is what won the day for J.O. The LLC, according to the appeals court, “failed to establish lost profits with reasonable certainty as is necessary to survive a motion for summary judgment.” Georgia law is clear that a business can hold you responsible for its lost profits based on your breach “only if the business has a proven track record of profitability” and only if the company established “lost profits with a reasonable degree of certainty.”
In Georgia, anticipated profits may or may not be a valid basis for a lost profits claim. If the business sufficiently proves “an actual track record of sales,” then those anticipated profits count. Otherwise, they are “too speculative and uncertain to be recoverable.”
In J.O.’s case, the LLC had two major problems. One, the proof it presented did not meet this requirement of a “proven track record” of profit. The LLC offered its tax records, but those never established that the company’s income actually increased during the relevant time period. In other words, the proof this LLC had to support its assertion of lost profits fell squarely within the boundaries of “speculative.”
Additionally, even if its lost profits evidence had been good enough, the LLC had a causation problem. The appeals court, in ruling for J.O., wrote that “there is no evidence in the record to connect the decrease in revenue” that the LLC suffered to J.O.’s departure. Both speculative evidence of damages and an absence of proof of causation are fatal flaws in a breach case.
Leaving a business you helped create can be a difficult decision. Don’t let those difficulties be compounded by a company trying to hold you responsible for losses you didn’t cause. Look to the knowledgeable commercial dispute attorneys at Poole Huffman, LLC to provide you with the clear advice and strong advocacy you need to succeed. Contact our attorneys online or by calling (404) 373-4008 to schedule your confidential consultation.