Delaware Chancery Court Clarifies that Default Fiduciary Duties Apply to LLC Managers

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In 2004, the Delaware General Assembly amended both the Delaware Revised Limited Uniform Partnership Act (“DRULPA”) and the Delaware Limited Liability Company Act (the “LLC Act”) to permit the wholesale elimination of fiduciary duties in an LLC Agreement. Specifically, the LLC Act was amended to permit full contractual exculpation for breaches of fiduciary and contractual duties, except for the implied contractual covenant of good faith and fair dealing. Chancellor Strine’s recent decision in Auriga Capital Corp. v. Gatz Properties, LLC clarifies, however, that unless the LLC Agreement explicitly restricts or eliminates fiduciary duties, an LLC’s managers are constrained by the same fiduciary principles that apply to corporate fiduciaries. See No. C.A. 4390-CS, 2012 WL 361677 (Del. Ch. Jan. 27, 2012).

In many ways, the facts and holding in Auriga are beside the point. The decision is noteworthy for Chancellor Strine’s comprehensive explanation why traditional fiduciary principles apply to LLC managers or members by default. Nonetheless, we begin by providing a brief summary of the facts and holding, and then discuss Chancellor Strine’s analysis of LLC default fiduciary duty standards.

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Published In: Business Organization Updates, Business Torts Updates, Civil Remedies Updates, General Business Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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