Jenkins v. Trueman
- Vince Chhabria
- 3:19-cv-08350
- U.S. District Court · Northern District of California
- 3
In Jenkins v. Trueman, Judge Chhabria denied defendants’ attorney-fee motions, ruling the claims did not arise under the LLC agreement.
The defendants’ requests for attorney’s fees were denied; Jenkins was not required to pay fees under the operating agreement based on the claims discussed in the order.
What happened
In Jenkins v. Trueman, the defendants asked for attorney’s fees under Science Medical’s operating agreement, which allowed the winning party to recover fees for disputes arising under that agreement. Jenkins argued the provision did not apply, while the defendants argued that it covered her claims.
The court ruled that most of Jenkins’s claims, including all claims against Jeffrey William Trueman, concerned efforts to secure her investments but did not arise under the operating agreement. The court also ruled that Jenkins’s breach-of-fiduciary-duty claims against the Bullocks arose under Utah’s LLC statute, rather than the operating agreement, so those claims were not covered by the fee provision.
Judge Chhabria denied the defendants’ motions for attorney’s fees.
The detailed version
- Jenkins v. Trueman · No. 3:19-cv-08350
- Vince Chhabria
- Oct. 27, 2022
Background
Jenkins was a 10% owner of Science Medical, a limited liability company, and invested in it in 2015. The court held that, under Utah law, she was a member of the company and was bound by its operating agreement. The agreement provided that the prevailing party—the party that wins—could recover attorney’s fees in a breach or dispute “arising under” the operating agreement.
The defendants moved for attorney’s fees. Jenkins argued that the agreement’s fee provision did not apply because the agreement took effect in April 2013, while the Utah statutory provision concerning assent to an operating agreement became effective in January 2014. The court rejected that argument because the statute was effective when Jenkins first invested in 2015.
Analysis
The court concluded that most of Jenkins’s claims, including all claims against Trueman, concerned the defendants’ efforts to secure her investments in Science Medical. Although those claims might relate to the operating agreement, they did not arise under it. The defendants therefore could not recover fees based on those claims.
The court separately considered Jenkins’s breach-of-fiduciary-duty claims against the Bullocks. Utah law governed interpretation of the operating agreement. The court explained that a manager’s duties of care and loyalty are created and defined by Utah’s LLC statute, although an operating agreement may modify those duties within statutory limits. The agreement cannot eliminate either duty and may alter them only within specified limits.
The court determined that the statutory language showed that the duties of care and loyalty exist before, and independently of, the operating agreement. It also noted that treating fiduciary-duty claims as arising under the agreement could produce inconsistent results when an agreement is silent about one duty or both duties. The court therefore held, as a matter of Utah law, that the fiduciary-duty claims arose under the statute rather than the operating agreement and were not covered by the attorney-fee provision.
Disposition
The court denied the defendants’ motions for attorney’s fees. Judge Vince Chhabria signed the order on October 27, 2022.
Read the full 3-page opinion on CourtListener, the free public archive maintained by the Free Law Project.
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