Royal Essex, LLC v. Azteca Real Estate Partners, LLC
Nevada Supreme Court, 21 August 2025

Introduction

Royal Essex, LLC (“Essex”) was conceived in 2007 to purchase and develop land in the Inspirada community of Henderson, Nevada. Its Operating Agreement (“OA”) created several classes of units, giving Series A Preferred (“SAP”) investors a priority return, while Class A Common (“CAC”) units—held by the “working partners”—were subordinated. When the Great Recession derailed the project, Essex defaulted. A decade later, George Holman (manager of Essex) joined forces with the “Royal” entities (Royal Essex, Royal Union Properties, et al.) to wrest value from the still-unforeclosed land by pushing Essex through Chapter 11 and rewriting the OA in Royal’s favour.

Royal sued Azteca Real Estate Partners, a 15 % CAC member that had been left uninformed of the plan. Azteca counter-sued, alleging breaches of fiduciary duty and contractual rights. After a bench trial, Judge Mark R. Denton voided Royal’s transactions and awarded Azteca every dollar Royal might glean from the bankruptcy estate. The Nevada Supreme Court has now affirmed, setting two important precedents:

1. Revocation of an LLC’s charter does not, by itself, dissolve the entity or strip its membership rights unless the operating agreement says so.
2. Where managers or insiders breach fiduciary duties, Nevada courts may order disgorgement of ill-gotten profits even when a plaintiff’s own damages are difficult to quantify.

Summary of the Judgment

• The Court upheld findings that Royal, together with Holman and bankruptcy trustee Coppa-Knudson, secretly amended Essex’s OA to divert 80 % of proceeds to a newly minted “Class B Preferred” unit wholly owned by Royal, effectively zeroing out other CAC members.
• The Court rejected Royal’s three appellate arguments:
  1. Azteca’s 2009 charter revocation neither dissolved the company nor made it an “Affected Unit Holder.”
  2. Azteca was entitled to damages even though, but for the wrongful amendment, SAP members were first in line—because most SAP members had already agreed voluntarily to cap their return, creating a pool for CAC distributions.
  3. The damages award—all amounts Royal may later receive—was not unduly speculative; it was a proper equitable disgorgement.
• Accordingly, the district court’s declaration that Royal has no interest in Essex, and Azteca is entitled to any money Royal would have taken, stands.

Analysis

1. Precedents and Authorities Cited

• Wells Fargo Bank v. Radecki, 134 Nev. 619 (2018) – standard of review after bench trial (de novo for legal conclusions; clear-error for facts).
• Hi-Tech Aggregate v. Paulestone, 140 Nev. Adv. Op. 59 (2024) – substantial-evidence review of factual findings.
• Frantz v. Johnson, 116 Nev. 455 (2000) – burden of proof on damages.
• Fireman’s Fund v. Shawcross, 84 Nev. 446 (1968) – uncertainty of measure vs. uncertainty of existence of damages.
• Further South, LLC v. Royal Essex, LLC, 2023 WL 8009062 (Nev.) – distinguished; different CAC member, different conduct.
• Restatement (Second) of Contracts § 352 and Restatement (Third) of Restitution § 51 – authority for disgorgement when fiduciary breaches frustrate damage proof.
• Mkt. St. Associates v. Frey, 941 F.2d 588 (7th Cir. 1991) – party cannot profit from its own breach.
• Alcantara v. Wal-Mart, 130 Nev. 252 (2014) – claim/issue preclusion elements; Azteca not bound by Further South.

Collectively, these authorities guided the Court’s twin holdings: (a) charter revocation is not synonymous with dissolution, and (b) equity mandates disgorgement when fiduciary misconduct muddies damage calculations.

2. Legal Reasoning

1. Effect of Charter Revocation
   • Nevada’s LLC Act (NRS 86.491, 86.5467, 86.580) distinguishes “default” or “revocation” from dissolution.
   • The Essex OA treated “dissolution, liquidation, or bankruptcy” as default events but was silent on charter revocation.
   • Because the OA did not list charter revocation, the Court refused to read forfeiture of rights into the agreement.
   • Policy: LLCs often fall out of good standing for mundane reasons; automatic loss of property rights would be draconian and chill investment.
2. Breach of Fiduciary Duty & Aiding-and-Abetting
   • Holman (original manager), Coppa-Knudson (bankruptcy trustee turned manager), Hesser & Weeks (Royal representatives turned managers) owed statutory and contractual duties of loyalty and good faith.
   • By withholding information, manufacturing the December 24 amendment, and conditioning the Holman-trusts sale on stripping other CAC rights, they violated those duties.
   • Royal, as purchaser/beneficiary, knowingly encouraged those breaches – a textbook case of aiding and abetting.
3. Equitable Disgorgement over Lost-Profit Damages
   • Traditional lost-profit analysis failed because Royal’s wrongdoing made Azteca’s potential upside unknowable.
   • Under Restatement §§ 51 & 352, uncertainty caused by the wrongdoer shifts the risk of imprecision to that wrongdoer.
   • The judgment therefore targets Royal’s gain rather than Azteca’s loss, preventing unjust enrichment and deterring fiduciary opportunism.

3. Impact on Nevada Business Law

• LLC Governance: Managers can no longer claim that an LLC member in “revoked” status lacks standing or voting rights absent explicit OA language.
• Drafting Operating Agreements: Parties wishing to penalize lapsed good-standing must say so expressly; silence will be construed in favour of continuing membership rights.
• Remedies for Fiduciary Breach: Nevada courts have now endorsed disgorgement as an available, and potentially sweeping, remedy without requiring precise proof of plaintiff damages.
• Bankruptcy Work-Outs: Insiders who engineer re-organizations must disclose material information to all holders; hidden amendments risk forfeiting any benefit they hoped to capture.
• Preclusion Doctrine: The decision clarifies that non-parties to related litigation cannot be bound by earlier fact-specific rulings, preserving individualized equitable remedies.

Complex Concepts Simplified

Charter Revocation

Administrative penalty by the Nevada Secretary of State for failing to file annual lists or pay fees. The entity loses authority to “transact business” until it cures the default but is not automatically dissolved.

Affected Unit Holder

An OA-defined status triggered by specified events (e.g., dissolution, bankruptcy) that strips the member of voting/transfer rights and forces a buy-out. Here, revocation did not trigger the status.

Fiduciary Duty

The obligation of loyalty, care, and good faith owed by managers to the LLC and its members—breach occurs when managers self-deal or conceal material facts.

Disgorgement

An equitable remedy requiring the wrongdoer to surrender profits obtained through misconduct, regardless of the victim’s measurable loss.

Issue / Claim Preclusion (Res Judicata & Collateral Estoppel)

Rules preventing re-litigation of matters already adjudicated; apply only where the party to be bound was a party (or in privity) with the earlier action and the same claim/issue was decided.

Conclusion

Royal Essex v. Azteca Real Estate Partners cements two key principles in Nevada jurisprudence: first, administrative charter revocation does not extinguish LLC membership rights unless the operating agreement unequivocally says so; second, when fiduciaries seize an opportunity through concealment and breach, Nevada courts will compel disgorgement of their gains, even if the victim’s damages cannot be calculated with certainty. These holdings fortify minority-member protections, incentivize transparent governance, and arm courts with flexible equitable tools to police managerial overreach. Operating agreement drafters, corporate counsel, and restructuring professionals must heed the decision’s warnings: procedural shortcuts and secret amendments may yield nothing but forfeiture of anticipated profits and potential personal liability.