Court of Chancery Holds (Again) that Default Fiduciary Duties Apply to LLCs

In Ross Holding and Management Co. v. Advance Realty Group LLC,[1] the Delaware Court of Chancery has held again that traditional corporate fiduciary duties of care and loyalty apply to the members and managers of limited liability companies.  The Court wrote:

To determine what fiduciary duties are owed in the limited liability company context, the Court must review the company’s operating agreement. By default, the traditional fiduciary duties applicable to corporations apply to limited liability companies. Nonetheless, where such default rules have been clearly supplanted or modified, those contractual choices will be respected.[2]

In response to a party questioning whether default fiduciary duties could exist in the absence of clear language in the operating agreement, the Court chose to hammer the point home:

Defendants appear to question whether default fiduciary duties apply to a limited liability company if not imposed by its operating agreement. However, Feeley is clear that such duties have been held to apply by the Court, subject to a final determination by the Delaware Supreme Court.[3]

Once contentiously and hotly debated,[4] it seems that, barring unexpected action by the Delaware Supreme Court (whose new Chief Justice has long advocated for the imposition of such default duties), the issue of default LLC fiduciary duties is now more or less settled.

[1] Ross Holding and Management Co., et al. v. Advance Realty Group, LLC, et al., C.A. No. 4113-VCN, memo. op. (Del. Ch. Sept. 4, 2014).
[2] Ross, mem. op. at 31.
[3] Id. at n. 134.
[4] See, e.g., Lewis H. Lazarus and Justin C. Jowers, “Fiduciary Duties of Managers of LLCs: The Status of the Debate in Delaware,” Business Law Today (February 2012); Myron T. Steele, “Freedom of Contract and Default Contractual Duties in Delaware Limited Partnerships and Limited Liability Companies,” American Business Law Journal, 46: 221–242 (2009).