Category: Fiduciary Duties

FIDUCIARY LIABILITY OF THIRD PARTIES TO AN LLC

Under the link below, the Pepper Hamilton law firm discusses a very recent decision of the Delaware Court of Chancery addressing the potential fiduciary liability of persons who are not parties to an LLC operating agreement (in this case, it was an investor) to the parties to the agreement.  Here’s the link:

https://www.pepperlaw.com/publications/delaware-chancery-court-sustains-breach-of-fiduciary-duty-claims-against-nonparty-to-llc-agreement-2020-05-26/

“SOLE AND ABSOLUTE DISCRETION”

Peter Mahler introduces his latest post in “New York Business Divorce” as follows:

“Is there such a thing as a contractually-infused, common-law fiduciary duty that can override an LLC manager’s “sole and absolute discretion”? Decide for yourself when you read this week’s New York Business Divorce.”

In many operating agreements of multi-member LLCs, the issue Peter addresses is major.

Here’s the link to his post:

https://www.nybusinessdivorce.com/2020/05/articles/llcs/when-an-llc-managers-sole-and-absolute-discretion-is-neither-sole-nor-absolute/

MEMBER DISCRETION VS. THE IMPLIED COVENANT

Under the link below is an excellent post about a recent decision of the Delaware Court of Chancery employing the implied contractual covenant of good faith and fair dealing to limit the discretion of one member of a Delaware LLC in taking actions affecting a co-member.

Here’s the link:

https://www.klgatesdelawaredocket.com/2019/07/court-of-chancery-finds-that-the-implied-contractual-covenant-of-good-faith-and-fair-dealing-requires-delaware-llc-to-exercise-discretion-in-good-faith/

LLC MEMBER SELF-DEALING

The following, in italics is a citation to a recent and significant article about LLC member self-dealing and about the non-exclusivity of the LLC statutory remedy for the self-dealing:

Volume 59, Issue 9
Nancy McKenna, Esq.
Corporation Forms Bulletin
Wisconsin Limited Liability Company Law Did Not Preempt Common Law Claims By One LLC Against Another Member Based on The Second Member’s Alleged Self-Dealing

Wisconsin Limited Liability Company (LLC) Act did not preempt common-law claims for breach of fiduciary duty, unjust enrichment, and breach of the covenant of good faith and fair dealing, brought by the LLC’s members against a manager based on the manager’s alleged self-dealing in connection with the LLC’s sale of valuable assets to a company owned by the manager; the LLC Act provided that it was supplemented by principles of law and equity, and while it provided a statutory cause of action for willful failure to deal fairly, it did not state or imply that such cause of action encompassed the entirety of a member’s or manager’s obligations to other members and to the LLC.

Fiduciary Duties

The Duty to Inform Shareholders
The post under the link below discusses a recent Delaware Court of Chancery case holding that shareholder votes are invalid if the board fails to provide the shareholders with adequate information.  The application of the decision to non-manager members of LLCs is obvious.

Here’s the link: https://www.klgatesdelawaredocket.com/2019/01/chancery-court-denies-dismissal-of-breach-of-fiduciary-duty-claims-after-concluding-that-stockholder-vote-was-not-informed/