DEFAULT FIDUCIARY DUTIES OF DELAWARE LLC MANAGERS: IS CHANGE COMING?

In apparent response to a string of Delaware court decisions indicating uncertainty as to whether managers of Delaware limited liability companies owe default fiduciary duties, the Corporation Law Section of the Delaware State Bar Association has proposed an amendment to Section 18-1104 of the Delaware Limited Liability Company Act (the “Act”) that would provide that “the rules of law and equity relating to fiduciary duties” govern managers of Delaware limited liability companies.  Specifically, this action seems to be a direct response to a suggestion by the Supreme Court in Gatz Properties , LLC v. Auriga Capital Corp. et al. that “reasonable minds could differ” as to whether the Act imposes default fiduciary duties on LLC managers and that “the ‘organs of the Bar’ . . . may be well advised to consider urging the General Assembly to resolve any statutory ambiguity” that exists regarding default fiduciary duties.  59 A.3d 1206, 1219 (Del. 2012).

While this amendment would not prevent parties from expanding, restricting or eliminating these fiduciary duties by agreement in accord with Section 18-1101(c) of the Act, it could provide resolution of the disagreement between Delaware courts with regard to the existence of default fiduciary duties for managers of Delaware limited liability companies and provide clarity as to the obligations of LLC managers going forward.  It will be noteworthy to follow the progress of this proposed amendment as its passage or failure may go a long way in defining the duties owed by managers of Delaware LLCs going forward.

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