In the recent decision Gatz Properties LLC v. Auriga Capital Corporation, the Delaware Supreme Court affirmed the Delaware Court of Chancery’s January 2012 decision in Auriga Capital Corporation v. Gatz Properties. In January of this year, the Court of Chancery held that a controlling member and manager of a limited liability company breached his fiduciary duties to the company’s minority members because the process by which he purchased the limited liability company from the minority members did not result in the payment of a fair price under the entire fairness standard of review. In affirming the decision, the Supreme Court stated that the question of whether the default standard under the Delaware Limited Liability Company Act is that a manager owes fiduciary duties to the members of a limited liability company remains unanswered and should not have been addressed by the lower court. Until this question is answered definitively, members of limited liability companies should clearly state in the limited liability company agreement whether and to what extent the company’s managers or controlling persons should have any fiduciary duties to the members.
Editor’s Note: Creighton Condon is senior partner at Shearman & Sterling LLP. This post is based on a Shearman & Sterling client publication. This post is part of the Delaware law series, which is cosponsored by the Forum and Corporation Service Company; links to other posts in the series are available here.