Category: Fiduciary Duties

CHANGES IN FIDUCIARY PROVISIONS OF CALIFORNIA LLC ACT

By , January 13, 2017 6:30 pm

Under the link below is an excellent new post about recent changes in the fiduciary provisions of the California LLC Act.  The post will, of course, be of interest above all  to California LLC lawyers, but it will also be useful to non-California LLC lawyers about fiduciary issues critically important to LLC formations under all LLC acts.

Here’s the link:  http://www.lexology.com/library/detail.aspx?g=5b796059-e1b1-4f05-bf79-63cc92a89c5a&l=7T7RSDM

ARTICLE ON BUSINESS ORGANIZATION FIDUCIARY LAW

By , November 7, 2016 4:37 pm

Bill Callison is a leading expert on LLC law and tax.  Below is a link to an article he’s just published on U.S. business organization fiduciary law.   Fiduciary issues are, of course, central to formations of multi-member LLCs (and even to formations of single-member LLCs that will have non-member managers).  I haven’t read Bill’s article yet, but since he’s the author of it, I know it is excellent.

http://ssrn.com/abstract=2827771

LAW JOURNAL ARTICLE ABOUT LLCS AND FIDUCIARY DUTIES

By , October 26, 2016 7:33 pm

Below are the citation and the table of contents of a new law journal article about LLCs and fiduciary duties:

16 Nev. L.J. 1085
Nevada Law Journal
Summer 2016
Article
CONTRACTING OUT OF FIDUCIARY DUTIES IN LLCS: DELAWARE WILL LEAD, BUT WILL ANYONE FOLLOW?
Justin Pace
Copyright (c) 2016 Nevada Law Journal; H. Justin Pace

Table of Contents

Introduction 1086
I. Statutory Overview 1092
II. Case Law Analysis of the Delaware Approach 1095
A. Delaware Courts 1095
B. Case Law Tracking the Approach of Delaware Courts 1098
1. Georgia Case Law 1098
2. Kansas Case Law 1101
3. Louisiana Case Law 1102
4. Massachusetts Case Law 1103
5. Missouri Case Law 1104
6. North Carolina Case Law 1104
7. Nevada Case Law 1108
8. Texas Case Law 1109
C. Case Law Departing from the Approach of Delaware Courts 1109
1. New York Case Law 1110
2. California Case Law 1111
D. No Case Law Available 1112
E. Final Analysis 1113
III. Analysis of the Statutory Text 1114
A. Direct Approach 1114
B. Indirect Approach 1115
C. Direct Approach with No Mention of Elimination 1116
D. Direct Approach with Caveats 1118
E. Exculpatory Approach 1120
F. Final Analysis of the Statutory Text 1120
IV. Analysis of LP Case Law 1121
A. Delaware Case Law 1121
B. Maryland Case Law 1123
C. California Case Law 1124
D. Connecticut Case Law 1128
E. Massachusetts Case Law 1131
F. Final Analysis of LP Case Law 1133
V. Macro Implications 1133
A. Legislative Implications 1134
B. Judicial Implications 1135
VI. Micro Implications 1139
A. Litigation Consequences 139
B. Transaction Planning Considerations 1142
Conclusion 1143

 

 

 

HARMONIZED UNIFORM BUSINESS ORGANIZATIONS CODE

By , October 17, 2016 6:05 pm

The new law journal article cited and quoted below will be of particular interest to Idaho LLC lawyers, but also to lawyers in every state who are interested in LLC fiduciary law; in RULLCA; and in the Harmonized Uniform Business Organizations Code.

59-SEP Advocate (Idaho) 32
Advocate
September, 2016
FAMILIAR WATERS OR UNCHARTED TERRITORY? NAVIGATING THE REVISIONS TO THE DUTIES OF LLC MEMBERS AND MANAGERS UNDER THE HARMONIZED UNIFORM BUSINESS ORGANIZATIONS CODE
Kara M. Gleckler & David M. Gadd
Copyright © 2016 by The Idaho State Bar; Kara M. Gleckler, David M. Gadd

In May 2008, Idaho became the first state in the Union to adopt the Revised Uniform Limited Liability Company Act (RULLCA).1 A short seven years later, the state legislature adopted the Harmonized Uniform Business Organizations Code (the “New Act”),2 which went into effect on July 1, 2015. The stated purpose of the adoption of the New Act was to “harmonize Idaho’s unincorporated and incorporated entity statutes so they can be integrated into a single code of entity laws.”3 While the Legislature characterized the New Act as making only “technical revisions,”4 it does make some substantive, and potentially significant, revisions to the RULLCA. The corporate practitioner should become familiar with those important changes.

In this article, we identify and discuss the New Act’s provisions that address the duties owed by members and managers of a Limited Liability Company (LLC) to the LLC and its other members, including the fiduciary duty of loyalty, the contractual duty of good faith and fair dealing, and the duty of care. While the first two are largely unchanged by the New Act, the duty of care has undergone some noteworthy revisions. Savvy attorneys will familiarize themselves with these statutory, “default” duties and, when appropriate, craft an operating agreement that modifies them.

LLCS AS LIMITED PARTNERS OF LIMITED PARTNERSHIPS

By , February 23, 2016 4:41 pm

The post under the link below discusses a Delaware Supreme Court case holding that the general partner of a limited partnership owes fiduciary duties to the limited partners, but if one of the limited partners is an LLC, the general partner doesn’t owe fiduciary duties to the members of the LLC.  This is interesting to me, since it sometimes happens that LLCs are passive members of investment LLCs I form for my clients.

Here’s the link:  http://kentuckybusinessentitylaw.blogspot.com/2016/01/no-fiduciary-obligations-are-owed-by.html

NEW ARTICLE ON DELAWARE LAW CONCERNING THE IMPLIED COVENANT OF GOOD FAITH AND FAIR DEALING

By , January 26, 2016 2:20 pm

The implied contractual covenant of good faith and fair dealing (the “Implied Covenant”) is a looming but often unrecognized factor in any formation of a multi-member LLC.  The new Implied Covenant article by leading LLC scholar Dan Kleinberger under the attached link to Peter Mahler’s latest post to his Business Divorce blog will give you an excellent current overview of the Implied Covenant under Delaware law; and the principles of Delaware Implied Covenant law are likely to be influential in many other states.

Here’s the link:  http://www.nybusinessdivorce.com/2015/11/articles/delaware/unraveling-the-implied-covenant-of-good-faith-and-fair-dealing-guest-post-by-professor-daniel-kleinberger/

NEW POST BY PETER MAHLER ABOUT FIDUCIARY DUTIES OF MEMBERS OF MEMBER-MANAGED LLCS

By , January 7, 2016 9:55 pm

The post under the link below addresses the above duties, but its main lesson is this:  Multi-member LLCs that lack comprehensive operating agreements are begging for trouble.

Here’s the link:  http://www.nybusinessdivorce.com/2015/12/articles/llcs/can-llc-members-walk-away-from-fiduciary-duties/.

LAZARD CASE-THE IMPLIED COVENANT OF GOOD FAITH AND FAIR DEALING

By , April 30, 2015 2:08 pm

The implied contractual covenant of good faith and fair dealing is a central doctrine in drafting and construing LLC operating agreements.  However, the post under the link below discusses yet another Delaware Supreme Court case limiting the scope of the covenant—namely, the case of Lazard Technology Partners LLC, decided on April 23, 2015.  My belief is that these decisions are likely to persuasive in most or all non-Delaware courts.

Here’s the link:

http://www.delawarebusinesslitigation.com/2015/04/articles/case-summaries/breach-of-contract/supreme-court-confirms-limited-scope-of-the-fair-dealing-covenant/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+DelawareBusinessLitigationReport+%28Delaware+Business+Litigation+Report%29.

Below is a link to another blog post on the Delaware Supreme Court Lazard case on the implied contractual covenant of good faith and fair dealing.  The link contains a useful LLC operating agreement drafting tip.

Here’s the link:

http://www.delawarelitigation.com/2015/04/articles/delaware-supreme-court-updates/supreme-court-opines-on-earn-out-provision/

LAW JOURNAL NOTE ABOUT ARKANSAS LLC CASE RE IMPLIED COVENANT

By , March 2, 2015 11:02 pm

The implied contractual covenant of good faith and fair dealing is central in drafting operating agreements for multi-member LLCs under any LLC act.  Below is a cite to an insightful law student note about the covenant in the most recent issue of law review of the Law School of the University of Arkansas (Little Rock).  The note is relevant not only to Arkansas LLC lawyers but to LLC lawyers nationwide.

Here’s the cite:

Kathleen Lestage, “Contract Law – No Faith in Arkansas’s Approach to the Implied Contractual Covenant of Good Faith—Arkansas Research Medical Testing, LLC v. Osborne, 2011 Arkansas 158, 2011 WestLaw 1423993,” 36 U. Arkansas Little Rock L. Rev. 653 (Summer 2014).

COURT OF CHANCERY EXPLAINS DUTIES OWED TO INVESTORS

By , October 1, 2014 2:49 pm

The Delaware Limited Liability Company Act lets members provide in their operating agreements for the elimination of managers’ fiduciary duties.  This is often a very valuable provision to, among other things, encourage skilled managers to manage the LLC.  But lots of Delaware cases hold that the language providing for the elimination has to be crystal-clear.  Ross Holding and Management Company v. Advanced Realty Group LLC, C.A. 4133-VCN (September 4, 2014) is yet another such case.  You can read the opinion here.