Owners of closely held companies often assume that fiduciary duty is a safety net—that no matter what the operating agreement says, a court will step in if the majority treats them unfairly. This is simply not true. When a written agreement specifically covers the conduct the plaintiff is complaining about, the contract usually wins Capicotto v W. New York Med. Mgt., LLC, 2026 NY Slip Op 01647 (4th Dept Mar. 20, 2026).
This is a stark reminder to hire an experienced corporate attorney with both drafting and litigation experience.
This is a classic business divorce case. WNY Medical Management is a limited liability company that runs outpatient surgical centers in Western New York. It had five equal members, one of whom—Dr. Capicotto—sat on the company’s Board of Managers. By his account, he began noticing serious problems in 2022: self-dealing on the lease of the company’s premises, questionable payments to staff, and other members allegedly inflating the volume of surgical procedures to generate referrals to their own outside entities.
When he raised those concerns, the other members did something the operating agreement plainly let them do. Section 5.13 allowed removal of a manager by a two-thirds vote of the Board. They voted him out.
A procedurally proper removal with an allegedly improper motive
Capicotto’s lawsuit did not really dispute that the vote followed the rules. His theory was more pointed: he argued the other members removed him solely to entrench their own control and shut down his investigation into their misconduct, with no legitimate business purpose. Dressed that way, the removal looked less like routine governance and more like the majority using a contractual mechanism as a weapon against a minority owner.
It is an appealing argument, and New York law has long contained a strand that supports it. In a 1975 decision, the Court of Appeals recognized that formally authorized corporate action can still be challenged when it appears designed to shift control or extract value from minority owners rather than advance a real business purpose. Later cases extended that thinking to LLCs, holding that a member can breach fiduciary duties by exercising contractual rights in an unfair or inequitable manner.
But New York law contains a competing strand, and in this case it won.
The contract covered the exact subject of the complaint
The trial court dismissed the claim and the Fourth Department affirmed, leaning on a principle that goes back to the Court of Appeals’ 1987 decision in Clark-Fitzpatrick v. Long Island Railroad: a breach of fiduciary duty claim cannot stand where there is a formal written agreement covering the precise subject matter of the alleged duty. Because Section 5.13 expressly addressed how and when a manager could be removed, the court held that Capicotto’s removal could not be “deemed a breach of fiduciary duty.” The parties had already decided, in writing, that a two-thirds vote was all it took. The court declined to use fiduciary duty to rewrite that bargain.
Commentators describe this area of New York law as a seesaw, and that is a fair picture. Some courts still scrutinize technically authorized conduct for fiduciary abuse; others, like the Fourth Department here, enforce the operating agreement as written and dismiss the duplicative tort claim. Which way a given dispute tips can depend on how specifically the agreement addresses the challenged conduct. Here, the agreement was specific, and that specificity was decisive.
Practical Takeaways
Your best protection lives in the document. A general hope that a court will somehow save you is a bad position to be in. Here are some important thoughts to consider:
Negotiate your protections into the operating agreement. If you are a minority member, do not assume fiduciary duty will shield you from removal, dilution, or being frozen out. Bargain for what you actually need—removal only “for cause,” supermajority or unanimous consent for key actions, guaranteed board seats, information rights, or buyout provisions. Rights you do not write down are rights you may not have.
Understand that broad majority powers cut both ways. A clean, flexible governance provision that lets the majority act by a simple vote is efficient until you are the one on the wrong side of it. When you draft or sign an operating agreement, read every removal, amendment, and capital-call clause as if it will someday be used against you.
Do not rely on motive alone. Capicotto alleged a bad motive, which was not enough where the contract authorized the act. If you want a member’s reasons to matter, build that standard into the agreement. A “good faith” or “legitimate business purpose” requirement for removal creates a contractual question rather than a long-shot fiduciary duty argument.
A well-drafted operating agreement is the single most important document in a closely held business. Capicotto shows the flip side of that truth: the agreement will be enforced as written, including the parts you wish you had negotiated differently. The time to fix that is at the drafting table, not in an appellate brief.
David Seidman is the principal and founder of Seidman Law Group, LLC. He serves as outside general counsel for companies, which requires him to consider a diverse range of corporate, dispute resolution and avoidance, contract drafting and negotiation, real estate, and other issues. He can be reached at david@seidmanlawgroup.com or 312-399-7390.
This blog post is not legal advice. Please consult an experienced attorney to assist with your legal issues.
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