May 8, 2009
AALS Call for Papers
The AALS Section on Agency, Partnerships. LLCs and Unincorporated Associations has issued a call for papers for the 2010 annual meeting of the AALS (2010 New Orleans) on the topic of "Vicarious, Individual and Limited Liability: Responsibility for Wrongful Conduct and Unincorporated Firms".
Tort raise claims both theoretical and practical questions when an individual tortfeasor is associated with an unincorporated firm. Should the firm's organizational status shield the individual from liability, comparable to a shield against contract claims? When does an individual's conduct constitute tortious conduct, especially when the individual works as part of a group?
And when, and to what extent, is the firm itself--or its owners--subject to liability? The circumstances under which any firm--(whether or not incorporated--should be subject to vicarious liability are highly contested, most recently in the Exxon Valdez latigation before the United States Supreme Court.
More generally, should the law differentiate between unincorporated and incorporated firms and their owners in resolving such questions?
Drafts, abstracts or outlines should be submitted no later than September 1, 2009 to the Section's Chair, Deborah De Mott, firstname.lastname@example.org,
postd by Gary Rosin
May 6, 2009
LLCs and Fiduciary Duties: A Glimmer of Hope for Delaware
I have criticized many Delaware opinions for dicta saying that there are no fiduciary duties in Delaware LLCs unless they are expressly contracted for (what I have called the "mere contractual entity" approach). The recent opinion in Bay Center Apartments Owner, LLC v. Emery Bay PKI, LLC,C.A. No. 3658-VCS (Del. Ch. Ct. April 20, 2009) (Mem. Op.) ("Bay Center"), gives me reason to hope that Delaware has not lost its way. In Bay Center,Vice Chancellor Strine denied a motion to dismiss, among other things, claims of breach of fiduciary duty. In discussing the fiduciary duty claim, Strine began by emphasizing the inherently fiduciary character of the relationship between an LLC's manager and the LLC and its members. Slip Op. at 17-18.
Another important aspect of the opinion is VC Strine's treatment of a purported waiver of fiduciary duties in section 6.2 of the LLC Agreement:
Section 6.2 Liability of Members. . . . Except for any duties imposed by this Agreement . . . each Member shall owe no duty of any kind towards the Company or the other Members in performing its duties and exercising its rights hereunder or otherwise.
Slip Op.at 19 (emphasis in original). Strine found that Section 6.2 conflicted with Section 6.1(b), which provided
Section 6.1 Relationship of Members. Each Member agrees that, to the fullest extent permitted by the Delaware Act and except as otherwise expressly provided in this Agreement or any other agreement to which the Member is a party: . . . (b) The Members shall have the same duties and obligations to each other that members of a limited liability company formed under the Delaware Act have to each other.
Slip Op. at 18-19 (emphasis in original). As a result, the LLC Agreement was ambiguous. Even though, to survive on a motion to dismiss, plaintiffs must offer only areasonable interpretation that supports their claim, VC Strine indicated that a reading of the LLC Agreement as allowing fiduciary duties under Section 6.1(b) was more reasonable than a reading that Section 6.2 controlled. Accord to VC Strine, the latter reading would make Section 6.1(b) meaningless. Slip Op.at 19-20. Last, VC Strine invoked traditional principles of interpretation of fiduciary waivers:
And, the interpretive scales also tip in favor of preserving fiduciary duties under the rule that the drafters of chartering documents must make their intent to eliminate fiduciary duties plain and unambiguous. As a result, the defendants’ interpretation of the fiduciary duty provisions of the LLC Agreement is not the most reasonable interpretation, let alone the only reasonable interpretation.
Slip Op. at 20 (footnote omitted) (emphasis added).
posted by Gary Rosin
Sole Member of LLC Is Not the "Owner" of LLC Property . 3519-3513 Realty, LLC v. Law (N.J. Superior App. 2009)
In 3519-3513 Realty, LLC v. Law, 967 A.2d 954 (N.J. Superior App. Div. 2009) (slip opinion), the Court rejected an attempt by the sole member of an LLC to evict a tenant of a unit in a building owned by the LLC. The statutory grounds for the attempted eviction was that the "owner" wanted to personally occupy the unit. The Court refused to treat the building as owned by the sole member:
Appellant argues that [the sole member]formed [the LLC] for the protection it afforded him individually in terms of potential liability. [He] had every right to decide to arrange his affairs in that manner. At the same time, he must accept the concomitant burdens that follow from the choice he made. Finally, appellant contends that adopting the trial court's construction unreasonably requires expenditure of money and time to transfer the property back to [the sole member's] name, individually, with the accompanying risk of incurring personal liability. While not unsympathetic to the dilemma posed, we are not free to relieve [him] of the consequences which flow from the considered choices he earlier made. posted by Gary Rosin
Appellant argues that [the sole member]formed [the LLC] for the protection it afforded him individually in terms of potential liability. [He] had every right to decide to arrange his affairs in that manner. At the same time, he must accept the concomitant burdens that follow from the choice he made.
Finally, appellant contends that adopting the trial court's construction unreasonably requires expenditure of money and time to transfer the property back to [the sole member's] name, individually, with the accompanying risk of incurring personal liability. While not unsympathetic to the dilemma posed, we are not free to relieve [him] of the consequences which flow from the considered choices he earlier made.
posted by Gary Rosin