DELAWARE STATUTE AMENDED TO PROVIDE CLARITY REGARDING THE EXISTENCE OF DEFAULT FIDUCIARY DUTIES FOR DELAWARE LLC MANAGERS

As we have previously discussed (click here to see prior discussion), the Delaware Supreme Court, in 2012, suggested 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 owed by LLC managers.  Gatz Properties, LLC v. Auriga Capital Corp. et. al., 59 A.3d 1206, 1219 (Del. 2012). The Delaware Supreme Court spoke and the “organs of the Bar” listed.  In 2013, the “organs of the Bar” proposed an amendment to the Delaware General Assembly to resolve the ambiguity.  The General Assembly adopted, clarifying that Delaware LLC managers owe default fiduciary duties.

In passing House Bill No. 126, Section 8, the Delaware General Assembly amended § 18-1104, Title 6 of the Delaware Code to read:
In any case not provided in this chapter, the rules of law and equity, including the rules of law and equity relating to fiduciary duties and the law merchant, shall govern.
(Text of amendment underlined).  This seemingly repetitive amendment makes clear fiduciary duties exist even where an LLC agreement does not explicitly provide for them.  As the synopsis to the proposed bill explained, “a manager of a manager-managed limited liability company would ordinarily have fiduciary duties even in the absence of a provision in the limited liability company agreement establishing duties.”  The synopsis, however, goes on to make clear that “Section 18-1101(c) continues to provide that such duties may be expanded, restricted or eliminated by the limited liability company agreement.”

What exactly does this mean?  In short, it means that if an LLC wants to eliminate fiduciary duties for its manager, it must do so explicitly.  In many situations this will not impact an LLC manager’s obligations, but where an LLC agreement is silent, LLC managers must recognize that they will likely be found to owe fiduciary duties.

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