LLC's and Default Fiduciary Duties
While the majority of case law in Delaware suggests that a Delaware court will apply default fiduciary duties when a limited liability company agreement (an “LLC agreement”) is silent as to the existence and application of fiduciary duties, the Delaware Supreme Court has not yet weighed in and therefore this issue is not settled law.
Can an argument be made that default fiduciary duties violate the strong policy favoring freedom of contract established by Delaware’s legislature, and that Delaware courts should not apply default fiduciary duties even if the parties have not specifically provided for the elimination of fiduciary duties?
In an article for the American Business Law Journal, Chief Justice Steele contends that “default fiduciary duties violate the strong policy favoring freedom of contract established by Delaware’s legislature,” and “Delaware courts should not apply default fiduciary duties even if the parties have not specifically provided for the elimination of fiduciary duties.” See Myron T. Steele, Freedom of Contract and Default Contractual Duties in Delaware Limited Partnerships and Limited Liability Companies, 46 Am. Bus. L.J. 221, 223-224 (2009). He argues that courts “should not read any default fiduciary duties into an LLC agreement because the parties’ prescribed and proscribed conduct in their operating agreement contains the entire agreement that the parties intend and expect.” The Chief Justice also reasons that the court should “favor the contracting parties’ ex ante calculation of costs and benefits of fiduciary duties, and courts should not, on their own, endeavor to reassess that decision ex post.” In his article, Chief Justice Steele asserts that the Court of Chancery itself is split on the issue of default fiduciary duties, and points to two decisions by Chancellor Chandler which support not applying default fiduciary duties.
I wonder how likely it is that Chief Justice Steele could persuade his fellow Justices to support this theory?
