Damning Dictum: The Default Duty Debate in Delaware

Journal of Corporation Law, Vol. 39, No. 1, pp. 35-70, Fall 2013

36 Pages Posted: 22 Feb 2013 Last revised: 18 Feb 2014

Mohsen Manesh

University of Oregon School of Law

Date Written: August 1, 2013

Abstract

Bizarrely, in 2013, even the most sophisticated business lawyer could not answer a seemingly simple question: whether, in the absence of an express agreement to the contrary, the manager of a Delaware limited liability company (LLC) owes traditional fiduciary duties to its members as a default matter? This was not always the case. For years, this question was settled — settled at least in the Delaware Court of Chancery. But in November 2012, the Delaware Supreme Court cast doubt on a long line of chancery court precedent in Gatz Properties v. Auriga Capital. Given the broad freedom of contract available under LLC law, it may be that default duties do not much matter. And, in any case, the uncertainty created by Gatz has now been resolved by recent legislation. Consequently, the lasting impact of Gatz is not on the substantive legal question. Rather, the lasting impact of Gatz is on Delaware law’s reputation for certainty as well as the use of dictum, an established Delaware judicial practice that has been vital to the state’s success in attracting corporate, and now LLC, charters. 

Keywords: LLCs, limited liability companies, fiduciary duties, default duties, Delaware, LPs, limited partnerships, dicta, dictum

Suggested Citation

Manesh, Mohsen, Damning Dictum: The Default Duty Debate in Delaware (August 1, 2013). Journal of Corporation Law, Vol. 39, No. 1, pp. 35-70, Fall 2013 . Available at SSRN: https://ssrn.com/abstract=2222136 or http://dx.doi.org/10.2139/ssrn.2222136

Mohsen Manesh (Contact Author)

University of Oregon School of Law ( email )

70 NW Couch Street
Portland, OR OR 97209
United States
5034123749 (Phone)

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