Daniel Marx, Fracsand, LLC, Michael Murray and R&R Management Funds, LLC, Plaintiffs-Respondents,
Richard L. Morris and R.L. Co., LLC, Defendants-Appellants.
ARGUMENT: November 7, 2018
CERTIFICATION FROM THE COURT OF APPEALS
from an order of the Circuit Court for Eau Claire County L.C.
No. 2015CV213 William M. Gabler, Sr. Judge. Affirmed and
the defendants-appellants, there were briefs filed by Eric J.
Magnuson and Robins Kaplan, LLP, Minneapolis, Minnesota, with
whom on the briefs were J. Drew Ryberg and Ryberg Law Firm,
Eau Claire, and Scott A. Johnson and Johnson & Johnson
Law, LLP, Minnetonka, Minnesota. There was an oral argument
by Eric J. Magnuson.
the plaintiffs-respondents, there was a brief filed by
Patrick G. Heaney, James A. Pelish, and Thrasher, Pelish
& Heaney, Ltd., Rice Lake. There was an oral argument by
Patrick G. Heaney.
PATIENCE DRAKE ROGGENSACK, C.J.
This appeal comes before us on certification from the court
of appeals pursuant to Wis.Stat. § (Rule) 809.61
(2015-16). Two members of a limited liability company
(LLC), Fracsand, LLC by Daniel Marx (Marx) and Management
Funds, LLC by Michael Murray (Murray), brought an action
against another member, Richard Morris (Morris) and his LLC,
R.L. Co., LLC, after North Star Sand, LLC (North Star) sold
valuable assets to a company owned by Morris. At the time of
the sale, Morris was a manager of North Star.
Marx and Murray alleged that Morris willfully failed to deal
fairly with them while having a material conflict of interest
in the transaction, in violation of Wis.Stat. §
183.0402(1). They also alleged a number of common-law claims
involving improper self-dealing. Marx and Murray brought all
their claims in their individual LLC and personal capacities
rather than in the name of North Star.
Morris moved for summary judgment. The circuit court denied
Morris's motion,  and the court of appeals certified the
appeal to this court to answer two questions:
1. Does a member of a limited liability company (LLC) have
standing to assert a claim against another member of the same
LLC based on an injury suffered primarily by the LLC, rather
than the individual member asserting the claim?
2. Does the Wisconsin Limited Liability Company Law,
Wis.Stat. ch. 183, preempt common law claims by one member of
an LLC against another member based on the second
member's alleged self-dealing?
Marx v. Morris, No. 2017AP146, unpublished
certification (Wis. Ct. App. Mar. 6, 2018).
We accepted certification of the appeal and now conclude the
following: first, the members of an LLC have standing to
assert individual claims against other members and managers
of the LLC based on harm to the members or harm to the LLC.
Corporate principles of derivative standing do not apply to
the distinct business form of an LLC.
Second, Marx and Murray's common law claims survive
because they have not been displaced at this point in the
litigation by particular provisions of North Star's
Operating Agreement or by Wis.Stat. ch. 183. Third, there are
genuine issues of material fact as to whether Morris violated
Wis.Stat. § 183.0402(1) by dealing unfairly with Marx
and Murray, and potentially with regard to the common law
claims. For these reasons, we affirm the decision of the
circuit court and remand for further proceedings consistent
with this opinion.
North Star is a limited liability company formed under
Wisconsin law in November 2011. The company's goal was to
own and mine land containing silica sand, a type of sand used
in tracking operations.
North Star's membership consisted of six limited
liability companies, which in turn were owned by six
individuals. Fracsand, LLC was owned by Marx; R&R
Management Funds, LLC owned by Murray; R.L. Co., LLC owned by
Morris; Hub Investments, LLC owned by Brian Johnson
(Johnson); Glorvigen Investment Group, LLC owned by Rick
Glorvigen (Glorvigen); and C&T Sand, LLC owned by R.
Thomas Toy (Toy) . Morris, an attorney, had previously
represented both Murray and Johnson. Glorvigen, an
accountant, had prepared Morris's personal taxes for at
least 20 years.
Morris assisted in drafting North Star's Operating
Agreement, and drafted two of the Amendments to the Operating
Agreement. According to Marx and Murray, Morris was North
Star's attorney. They allege that he was paid by North
Star for his legal work on behalf of the company, and some of
his equity in North Star was received in compensation for his
legal work. Morris disputes this. However, it is undisputed
that he was a manager of North Star in his capacity as a
North Star director.
North Star's Operating Agreement reflected an
understanding that the members would be free to pursue
outside business opportunities. Transacting business with
companies who had business relationships with North Star was
The individuals serving as Directors, as well as the Members
and their respective officers, board of directors, directors,
shareholders, partners, and affiliates, may engage
independently or with others in other business ventures of
every nature and description. Nothing in this Agreement shall
be deemed to prohibit any Director, or the Members or their
respective officers, board of directors, directors,
shareholders, partners, and affiliates, from dealing or
otherwise engaging in business with Persons transacting
business with the Company. Neither the Company, any Director,
or any Member shall have any right by virtue of this
Agreement, or the relationship created by this Agreement, in
or to such other ventures or activities, or to the income or
proceeds derived from such other ventures or activities, and
the pursuit of such ventures shall not be deemed wrongful or
The Operating Agreement also required that members have prior
notice of any vote that may occur during a meeting of
No matter shall be voted upon at a meeting of Members unless
at least 5 days' notice of the matter to be voted on is
given or such notice is waived by any Member who is entitled
to vote and who has not received notice. 
it required that prior notice be given of any matter to be
voted upon at a directors' meeting:
No matter shall be voted upon at a meeting of the Directors
unless at least 24 hours' notice of the matter to be
voted on is given or such notice is waived by any Director
not receiving it.
directors did not have the authority to: "Possess
Company property, or assign rights in specific Company
property, for other than a purpose of the
North Star eventually hired an engineering firm to help it
identify potential silica sand reserves, and entered into a
number of option agreements for the purchase of land in
Jackson County, Wisconsin. North Star also entered into a
lease for a property that could be used as a railhead to
transport silica sand from the Jackson County properties. The
members decided to create a separate entity to control the
purchase agreements for certain properties, called the Pine
Creek Reserves, that contained substantial silica sand
reserves. This entity became Westar Proppants, LLC (Westar),
a wholly owned subsidiary of North Star. North Star assigned
its Pine Creek purchase options to Westar on the same day
Westar was formed.
Many of Westar's purchase options were set to expire on
December 31, 2013. Concern was expressed that North Star and
Westar had too much land under option contracts. The members
began to discuss the possible cancellation of some of their
options. On December 31, 2013, the same day Westar's
purchase options were set to expire, the members of North
Star met by telephone to discuss Westar's future.
During this meeting, Morris informed the other members that
he and two other people, Gerald Green (Green) and Scott Wesch
(Wesch), had formed an entity called DSJ Holdings, LLC (DSJ)
. Morris also informed the group that he had an ownership
interest in DSJ. He stated that DSJ was interested in
purchasing Westar and was willing to pay $70, 000. At this
time, Glorvigen made a motion for North Star to keep Westar.
Marx seconded the motion, and it passed by vote of 4-2. Marx,
Murray, Glorvigen, and Toy all voted in favor of the motion
to keep Westar, while Morris and Johnson voted against it.
Immediately after the vote, Morris indicated that he may
withdraw from North Star. Marx and Murray allege that Morris
became "very aggressive" and told Toy that
"you're going to lose your million bucks."
After a brief discussion, Morris made a motion for North Star
to sell Westar to DSJ for $70, 000. Murray immediately
objected to Morris's motion, arguing that there had been
insufficient notice, that a vote had already occurred, and
that Morris was conflicted. Despite these objections, a
second vote occurred, and Morris's motion passed 4-2.
Morris, Johnson, Glorvigen, and Toy voted for North Star to
sell Westar to DSJ, while Marx and Murray voted against the
DSJ subsequently assigned Westar's membership units to
R.L. Co., LLC (Morris's LLC) and to Wesch. Morris and
Green then formed Hixton Trans-load Facility, LLC (Hixton
Trans-load) for the purpose of securing purchase agreements
for a new rail head site specifically for the Pine Creek
Reserves property. Westar, along with Hixton Trans-load, was
sold to Unimin Corporation in early 2015 for what has been
alleged to be a substantial sum.
In August 2014, North Star unanimously voted to sell its
remaining silica sand land assets to Badger Silica. The
members signed a "Member Distribution Receipt and
Acknowledgement" as part of this transaction, which
memorialized the amount each member would receive from the
transaction. The receipt also contained the following
As of the date hereof, none of the undersigned members have a
claim against North Star or against any of the other members
of the Company other than for the amount of the distribution
set forth on Exhibit A. or for their pro rata share
of any retained amounts.
later asked Marx and Murray to sign a different,
all-encompassing release, which they refused to do.
Marx and Murray alleged five causes of action against Morris
and his LLC: violation of Wis.Stat. § 183.0402, breach
of fiduciary duty, breach of fiduciary duty as corporate
counsel, unjust enrichment, and breach of implied covenant of
good faith and fair dealing. They also requested punitive
damages. Morris moved for summary judgment on all claims. He
argued, among other things, that Marx and Morris's claims
belonged only to North Star, and that Wis.Stat. ch. 183
supersedes and replaces any common law duties of LLC members.
The circuit court denied the motion for summary judgment. It
held that there were disputed issues of material fact on the
Wis.Stat. § 183.0402 claim, and decided to "wait
until the conclusion of the evidence to determine if there
are sufficient facts to enable a jury to make findings of
fact with respect to [Marx and Murray's other
The court of appeals certified the appeal to us.
Marx, No. 2017AP146, unpublished certification. We
accepted the certification, and now affirm the circuit
court's order denying the Defendants-Appellants'
motion for summary judgment.
Standard of Review
This case requires us to interpret an LLC's operating
agreement, interpret a statute, determine whether a party has
standing, and review a denial of summary judgment. An
LLC's operating agreement is a contract. See,
e.g., Gottsacker v. Monnier, 2005 WI 69,
¶22, 281 Wis.2d 361, 697 N.W.2d 436. "Contract
interpretation presents a question of law that we review
independently of previous decisions of the circuit court . .
. but benefitting from [its] discussions." Estate of
Kriefall v. Sizzler USA, 2012 WI 70, ¶14, 342
Wis.2d 29, 816 N.W.2d 853.
"Statutory interpretation and the application of a
statute to a given set of facts are questions of law that we
review independently, but benefiting from" the analysis
of the circuit court. Marder v. Bd. of Regents of Univ.
of Wis. Sys., 2005 WI 159, ¶19, 286 Wis.2d 252, 706
N.W.2d 110. Whether a party has standing is similarly a
question of law for our independent review. McConkey v.
Van Hollen, 2010 WI 57, ¶12, 326 Wis.2d 1, 783
N.W.2d 855. Finally, we review decisions on summary judgment
motions independently, applying the same methodology as the
circuit court while once again benefitting from its analysis.
Dufour v. Progressive Classic Ins. Co., 2016 WI 59,
¶12, 370 Wis.2d 313, 881 N.W.2d 678. "The standards
set forth in Wis.Stat. § 802.08 are our guides."
Overview of Limited Liability Companies
We begin with a brief overview of the history and general
principles of limited liability companies. An LLC is "an
unincorporated association of investors, members in
LLC parlance, whose personal liability for obligations of the
venture is limited to the amount the member has
invested." Joseph W. Boucher et al., LLCs and LLPs:
A Wisconsin Handbook § 1.4 (6th ed. 2018) . LLCs
combine desirable features of two other business forms,
partnerships and corporations.
Similar to a partnership, an LLC allows for "informality
and flexibility of organization and operation, internal
governance by contract, direct participation by members in
the business, and no taxation at the entity level."
Id. Similar to a corporation, however, an LLC grants
its investors limited liability such that a member "is
not personally liable for any debt, obligation or liability
of the limited liability company, except that a member or
manager may become personally liable by his or her acts or
conduct other than as a member." Wis.Stat. §
183.0304(1). Therefore, as with a shareholder in a
corporation, each LLC member's potential liability to
third parties is limited to the amount the member chose to
invest in the LLC.
The first LLC act was passed by Wyoming in 1977 upon a
request from an oil company. Larry E. Ribstein & Robert
R. Keatinge, Ribstein & Keatinge on Limited Liability
Companies § 1.2 (June 2018 ed., West 2018) . The
oil company wanted a business form that could offer it
limited liability without subjecting it to the "double
taxation" applicable to corporations. Id.
Florida similarly enacted its own LLC act in
1982. These acts did not immediately lead to a
surge in the creation of LLCs, nor did other states soon
enact their own LLC statutes, perhaps due to uncertainty
regarding how LLCs would be taxed. Id.
In 1988, however, the Internal Revenue Service issued Rev.
Rul. 88-76, 1988-2 C.B. 360, which made clear that properly
organized LLCs would be treated as partnerships for tax
purposes. See id. The Revenue Ruling examined the
tax treatment of a Wyoming LLC. According to the Revenue
Ruling, the LLC's tax treatment depended on whether it
possessed corporate characteristics such as "continuity
of life, centralization of management, limited liability, and
free transferability of interests." Rev. Rul. 88-76,
1988-2 C.B. 360. The IRS determined that because the LLC
"lack[ed] a preponderance" of the major corporate
characteristics, it would be classified as a partnership for
tax purposes. Id. This decision has been facilitated
by the "check-the-box" regulations, under which
even single member LLCs may now choose to be taxed as a
partnership. Treas. Reg. § 301.7701-3 (a) . After that
Revenue Ruling, all 50 states and the District of Columbia
enacted their own LLC statutes,  including Wisconsin in
In Wisconsin, one or more persons may form an LLC by filing
articles of organization (essentially a notice document) with
the Department of Financial Institutions. Wis.Stat. §
183.0201; LLCs and LLPs: A Wisconsin Handbook,
supra, at § 1.6. Members generally draft a
contract known as an operating agreement, which becomes the
LLC's principle governing document and its main source of
"law" regarding the company's ownership and
management. LLCs and LLPs: A Wisconsin Handbook,
supra, at §§ 1.6, 3.60; Wis.Stat. ch. 183.
Wisconsin's LLC statute reflects the importance of
flexibility and freedom of contract in organizing an LLC.
LLCs and LLPs: A Wisconsin Handbook, supra,
at §§1.6, 1.10. For this reason, many of the
provisions of ch. 183 furnish default rather than mandatory
rules. Id. at § 4.31. The default rules are
designed to structure LLCs in a way that average
businesspeople would view as reasonable; the members of an
LLC are free to alter these rules in their operating
agreement if they prefer a different arrangement.
Id. at §§1.6, 3.63. However, all the
default rules apply unless an operating agreement
unambiguously states otherwise: "if an operating
agreement is ambiguous as to whether the members intended to
override a particular statutory default term, the statutory
default term governs." Lenticular Europe, LLC v.
Cunnally, 2005 WI.App. 33, ¶18, 279 Wis.2d 385, 693
The members of an LLC make contributions to the LLC in
exchange for their interest in the company. LLCs and
LLPs: A Wisconsin Handbook, supra, at §
4.8. The value of each member's contribution determines
that member's percentage ownership interest. Under the
default rules, each member's economic rights are
proportional to his or her percentage of the members'
total contributions to the LLC. Wis.Stat. §
183.0503. A member whose contributions represent 40 percent
of the total contributions is therefore entitled to 40
percent of any distributions.
The relationship among members of an LLC in terms of
governance depends, to some extent, on whether the LLC is
member-managed or manager-managed. In a member-managed LLC,
the default rule is that voting rights regarding company
business are allocated according to each member's
percentage ownership interest, and a vote representing over
50 percent of the total value of contributions is required to
authorize an action. Wis.Stat. § 183.0404(1) (a) . A
member whose contributions represent 40 percent of the total
contributions would thus hold 40 percent of the voting power.
Generally, each member of a member-managed LLC is considered
an agent of the LLC, and each such member has apparent
authority to bind the LLC in the ordinary course of
business. Wis.Stat. § 183.0301 (1) (a) &
(b) . An LLC is considered member-managed unless its articles
of organization specifically designate it as manager-managed.
Wis.Stat. § 183.0401(1); LLCs and LLPs: A Wisconsin
Handbook, supra, at § 4.33.
If an LLC is manager-managed, each manager gets one vote on
matters relating to the LLC's business, with a majority
vote required to take an action. Wis.Stat. §
183.0404(1) (b) . Unlike a member-managed LLC, the members of
a manager-managed LLC are not agents of the LLC simply by
virtue of being members. Wis.Stat. § 183.0301(2) (a).
Members of a manager-managed LLC therefore do not have
apparent authority to bind the LLC in the ordinary course of
business simply by being members. See §
183.0301(2) (a) & (b) . Regardless of whether an LLC is
member-managed or manager-managed, however, there are certain
actions such as amending the operating agreement or issuing
an ownership interest that require the consent of all the
members. § 183.0404(2).
A member's ownership interest in the LLC is personal
property. Wis.Stat. § 183.0703. Wisconsin's LLC act
applies the entity theory of property rights, so a
member has no interest in any specific property of the LLC.
See LLCs and LLPs: A Wisconsin Handbook,
supra, at § 4.4. For example, if a member of an
LLC transfers real estate to the LLC in exchange for an
ownership interest in the LLC, that member no longer has any
ownership interest in the real estate. Instead, the LLC owns
the real estate, and the member owns personal property in the
form of an ownership interest in the LLC. Wis.Stat. §
183.0701(1); LLCs and LLPs: A Wisconsin Handbook,
supra, at § 4.4. As it is personal property, a
member's economic interest in an LLC is generally freely
transferable. In contrast to the corporate model, however,
the transfer of a member's economic interest does not
make the transferee a member of the LLC, nor does it give the
transferee any management or voting rights. J. William
Callison & Maureen A. Sullivan, Partnership Law and
Practice: General and Limited Partnerships, § 4.1
(2018-19 ed., West 2018); Wis.Stat. § 183.0704.
Unlike corporations, LLCs generally are not taxed at the
entity level. 26 U.S.C. § 701
(2016). "Instead, the LLC's gains,
losses, income, deductions, and credits will pass through to
the members and be allocated among the members in proportion
to their interests in the LLC." LLCs and LLPs: A
Wisconsin Handbook, supra, at § 5.33. Each
member's share of the LLC's gains, losses, income,
deductions, and credits will then appear on the member's
individual tax return as if the member had realized them
directly. Ribstein & Keatinge on LLCs,
supra, at § 17.2; 26 U.S.C. § 702(b). For
example, if a member owns a 30 percent interest in an LLC,
that member will realize 30 percent of the LLC's gains,
losses, income, deductions, and credits on the member's
individual tax return.
Although we could describe many interesting hypotheticals
about the financial choices that LLCs may elect, we choose
not to do so because such hypotheticals have absolutely no
relevance to the case before us. Biasing v. Zurich Am.
Ins. Co., 2014 WI 73, ¶73, 356 Wis.2d 63, 850
N.W.2d 138 (concluding that "[t]his court does not issue
advisory opinions based on non-existent facts."). As we
explained earlier, North Star is governed by its Operating
Agreement. That Agreement unambiguously elected that North
Star is to be treated as a partnership where all the losses
and gains of the LLC flow through to its individual members.
For example, Article 3.1(b)(3) of the Operating Agreement
states that its "foregoing provisions relating to the
maintenance of Capital Accounts are intended to comply with
Regulations § 1.704-1(b), and shall be interpreted and
applied in a manner consistent with such Regulations."
Regulations § 1.704-1(b) assures a partner's
distributive share is affected within that partner's
capital account. Stated otherwise, compliance with
Regulation § 1.704-1(b) was chosen for North Star so
that its income, gain, loss and deductions would pass through
to its individual members, just as they would if North Star
were a partnership. Therefore, as we explain more fully
below, an injury to North Star is not the same as an injury
to a corporation, and concluding that it is, demonstrates a
lack of understanding of basic principles that control North
Star, LLC. Accordingly, we analyze the issues presented with
principles that are relevant to the case now before us.
We first consider whether Marx and Murray have standing to
assert individual claims against Morris for injuries that are
alleged to have occurred here. In order to have standing to
sue, a party must have a personal stake in the outcome of the
controversy. City of Madison v. Town of Fitchburg,
112 Wis.2d 224, 228, 332 N.W.2d 782 (1983) . "Being
damaged, however, without more, does not automatically confer
standing." Krier v. Vilione, 2009 WI 45,
¶20, 317 Wis.2d 288, 766 N.W.2d 517. Instead,
"plaintiffs must show that they suffered or were
threatened with an injury to an interest that is legally
Wisconsin Stat. ch. 180, which governs corporations, sets
forth a detailed list of procedures and requirements for
corporate shareholders seeking to bring claims on behalf of
the corporation, i.e., as derivative actions. The provisions
of Wis.Stat. §§ 180.0740 through 180.0747 set out
details such as when a shareholder has standing to maintain a
derivative action, procedures the shareholder must follow,
and when a court must dismiss a derivative action.
See Wis.Stat. §§ 180.0741, 180.0742,
180.0744. These procedures evince a recognition of the long
history of derivative action principles in Wisconsin
corporate law. See, e.g., Cook v. Berlin Woolen
Mill Co., 43 Wis. 433, 447-48 (1877) .
In the corporate context, we have long held that individual
shareholders cannot directly sue a corporation's
directors or officers when the "primary injury"
resulting from the actor's wrong is to the corporation
itself. See, e.g., Rose v. Schantz, 56
Wis.2d 222, 229-30, 201 N.W.2d 593 (1972) . Instead, a
shareholder who wishes to seek redress for an injury
"primarily" to the corporation must bring a
derivative action on behalf of the corporation. See
id.; Notz v. Everett Smith Grp., Ltd., 2009 WI
30, ¶20, 316 Wis.2d 640, 764 N.W.2d 904.
Morris encourages us to read corporate principles of
derivative standing into ch. 183 and hold that Marx and
Murray's claims belong exclusively to North Star. We
decline to do so. An LLC is a "creature of
statute," Lenticular, 279 Wis.2d 385, ¶17;
therefore, the absence of statutory procedures that limit
actions against others for injuries to the LLC is
significant. Additionally, as we have explained earlier,
North Star, LLC is a distinct business form that differs
significantly from a corporation. Accordingly, we decline to
import corporate principles of derivative standing into ch.
183 to preempt claims by individual North Star members. This
conclusion is not driven by who "owns" the claim,
but rather, by Wis.Stat. § 183.0402 and the
partnership-like mode of operation North Star, LLC selected
in its Operating Agreement.
In contrast to the statutes that limit standing to bring
derivative actions in ch. 180, the only provision of ch. 183
relating to suits in the name of an LLC is Wis.Stat. §
183.1101. That section states in relevant part:
(1) Unless otherwise provided in an operating agreement, an
action on behalf of a limited liability company may be
brought in the name of the limited liability company by one
or more members of the limited liability company, whether or
not the management of the limited liability company is vested
in one or more managers, if the members are authorized to sue
by the affirmative vote as described in s. 183.0404(1)(a).
Wisconsin Stat. § 183.1101 does not require that claims
against LLC members be brought in the name of the LLC, nor
does it otherwise limit a member's ability to sue other
members or managers in their individual capacities. It merely
requires that if an action of any kind is to be brought
in the name of the LLC, against anyone, it
must be authorized by a majority vote of disinterested
members. Section 183.1101, which is silent on a member's
right to sue on his own behalf, does not abrogate the plain
language of Wis.Stat. § 183.0402(1)(a), which prohibits
the "willful failure to deal fairly with the limited
liability company or its members" by a member or
As we have explained, an LLC is a business form created by
statute. Other states have written standing rules that apply
to corporations into their LLC statutes, including who may
maintain an action for an injury to an LLC, demand
requirements, and the role of the court. See, e.g.,
Mich. Comp. Laws § 450.4510; Conn. Gen. Stat. §
34-271e. Wisconsin's legislature has not chosen to enact
such statutes. We will not judicially import ch. 180's
corporate derivative standing provisions into the LLC context
where the legislature has not done so.
Morris argues that Wis.Stat. § 183.0402(2) denies the
members of an LLC standing to assert individual claims under
§ 183.0402(1). Section 183.0402(2) states in relevant
Every member and manager shall account to the limited
liability company and hold as trustee for it any improper
personal profit derived by that member or manager without
the consent of a majority of the disinterested members or
managers, or other persons participating in the management
of the limited liability company, from any of the
(a) A transaction connected with the organization, conduct or
winding up of the limited liability company.
argues that because this section requires improper personal
profits to be held in trust for the LLC, but not for the
individual members, it modifies § 183.0402(1) by
clarifying that a § 183.0402 injury is to the LLC rather
than to individual members.
Morris's argument assumes that injuries to North Star,
LLC and injuries to individual members are mutually
exclusive. As discussed above, however, corporate principles
of standing do not apply to LLCs. Specifically, in the matter
before us, injuries to North Star and to its members are not
mutually exclusive because financial injury to North Star
flows through to its members just as an injury would if North
Star were a partnership rather than an LLC. Therefore, the
question is not whether the alleged injury is to the LLC or
to its individual members. Rather, the question is simply
whether the individual member bringing the action has
suffered an injury to a legally protected interest.
Furthermore, in addition to the lack of statutory support for
applying statutory corporate principles of derivative
standing to an LLC, in a corporation, gains and losses do not
flow through to the individual shareholders. Instead, the
corporation's income is first taxed at the entity level.
26 U.S.C. § 11. Shareholders do not claim a
corporation's gains and losses on their individual tax
returns. Ribstein and Keatinge on LLCs,
supra, at § 16.2. They pay taxes only on the
dividends, if any, they receive from the corporation, and are
not taxed on capital gains and losses unless and until they
choose to sell their corporate shares. William Meade
Fletcher, Fletcher Cyclopedia of the Law of
Corporations § 6972.50 (West 2018).
In contrast, North Star has elected to be taxed as a
partnership. This is the usual form of operation for
an LLC. See Rev. Rul. 88-76, 1988-2 C.B. 360; 26
U.S.C. § 701. When treated as a partnership, the
company's gains and losses flow through to individual
members and are realized directly by each member, each year,
on that member's individual tax return.See
id.; Gottsacker, 281 Wis.2d 361, ¶19.
North Star operates such that its gains and losses are
directly credited to or deducted from each member's
capital account, flowing through to each member's
individual tax return. This is a concept used in partnership
law that is not present in the corporate context. Each
member's interest in North Star, LLC is that member's
personal property, and includes the right to a share of the
profits and losses of the LLC. Wis.Stat. §§
183.0703, 183.0102(11); see also Gottsacker, 281
Wis.2d 361, ¶50 (Roggensack, J., concurring). For these
reasons, there is generally a much closer financial
connection between harm to an LLC and harm to its members
than between harm to a ...