Tuesday, April 9, 2013
There has been a back and forth between the Chancery Court and the Delaware Supreme Court about whether there are default fiduciary duties for LLCs. The Chancery Court takes the position that there are default fiduciary duties, though you may contract around them. The Supreme Court on the other hand take a more extreme, contractualist position. The Chief Justice's position is that there are no default duties because the LLC form is a creature of contract. If parties to an LLC have not contracted for fiduciary duties, then the Supreme Court will not enforce them upon the parties.
It was over this topic that Chief Justice Steele recently called out Chancellor Strine for straying from the question before the court and moving out of his lane. The judicial dust up got some attention at the recent Tulane gathering.
Now, it looks like the Delaware legislature will be stepping in to resolve this little dust up and guess who is going to win? That's right, sanity prevails. There are going to be default fiduciary duties for LLCs. According to Pepper Hamilton:
On March 20, 2013, legislation proposing to amend the Delaware Limited Liability Company Act, 6 Del. C. §§ 18-101, et. seq. (DLLCA) was submitted to the Corporation Law Section of the Delaware State Bar Association. If the proposed legislation is enacted, the amendments, in addition to implementing certain technical changes, would confirm that LLC managers owe fiduciary duties where the LLC agreement is silent.
Expect to see this legislation enacted by the end of the summer. Advantage Strine.