Amendments to the Delaware Limited Liability Company Act (the LLC Act) confirming that managing members and managers of Delaware limited liability companies owe default fiduciary duties took effect in August. These amendments came on the heels of several court decisions examining whether a managing member or a manager of a Delaware limited liability company owes default fiduciary duties to the company’s members, absent clear contractual provisions defining applicable fiduciary standards or adequately eliminating these duties.

Prior to the amendments, according to the Delaware Supreme Court, the LLC Act did not expressly address whether the fiduciary duties of loyalty and care imposed on corporate directors applied to managing members or managers of Delaware limited liability companies. Two recent Delaware Court of Chancery decisions, Auriga Capital Corporation v. Gatz Properties, LLC¹ (Auriga) and Feeley v. NHAOGC, LLC², reviewed the applicable historical case law and the LLC Act and found that default fiduciary duties applied to managing members and managers of limited liability companies. As discussed in the last edition of the GT M&A Report, in the appellate decision in the Auriga case, however, the Delaware Supreme Court refused to express any view on whether default fiduciary duties applied.³ The Supreme Court made clear, however, that it viewed it as an open issue about which reasonable minds could differ and urged the “organs of the Bar” and the Delaware General Assembly to resolve the statutory ambiguity.⁴

The changes to the LLC Act enacted in August responded to the Supreme Court’s call for greater statutory clarity by amending Section 18‐1104 of the LLC Act to insert the underlined text below:

“In any case not provided for 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.”

The commentary accompanying the amendments confirmed that “in some circumstances fiduciary duties not explicitly provided for in the limited liability company agreement apply. For example, 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 such duties.”

Managing members of Delaware limited liability companies have the same default fiduciary duties. Nevertheless, Section 18‐1101(c) of the LLC Act still provides that fiduciary duties may be expanded, restricted or eliminated by provisions in the limited liability company agreement; provided, that the limited liability company agreement may not eliminate the implied contractual covenant of good faith and fair dealing. Through careful drafting of a limited liability company agreement, parties are still free to define their own fiduciary relationships or eliminate fiduciary duties altogether, subject to the foregoing.

^{1 Auriga Capital Corporation v. Gatz Properties, LLC, Del. Ch., C.A. 4390‐CS, Strine, C. (January 27, 2012).}

^{2Feeley v. NHAOGC, LLC, Del. Ch., C.A. 7304‐VCL, Laster, V.C. (November 28, 2012).}

^{3 Gatz Properties, LLC v. Auriga Capital Corporation, Del. Supr., No. 148, 2012, Steele, C.J. (November 7, 2012), at 26.}

^{4 Id., at 27}