Fiduciary Duties of LLC Managers: Are They Subject to Prospective Waiver Under the New York LLC Statute?
26 Pages Posted: 2 Sep 2015 Last revised: 13 Jan 2016
Date Written: 2015
Abstract
Fiduciary duties are imposed upon managers of New York LLCs under both the express provisions of the statute and the common law supplementing the statute. Less clear is whether such fiduciary duties may be waived, prospectively, in an LLC operating agreement under New York law. In Pappas v. Tzolis, the New York Supreme Court; the Appellate Division, First Department; and, ultimately, the Court of Appeals, faced a case potentially raising this question and provided four somewhat different analyses of the range of possible issues presented (the Appellate Division included both a majority and dissent). Of most significance for purposes of this article, some have suggested that the Court of Appeals answered the question raised herein by holding that fiduciary duties of managers are indeed subject to contractual waiver under New York law. This article reaches a contrary conclusion, suggesting that the Court of Appeals never reached the issue, and further suggesting the likelihood of a contrary result in the event it may do so in the future.
Keywords: fiduciary duties, LLC Managers, Prospective Waiver, operating agreement, New York Limited Liability Company Law, New York LLC Act, Limited Liability Companies, Duty of Loyalty, NYBCL § 402(b), Pappas v. Tzolis, Smith v. Van Gorkom
Suggested Citation: Suggested Citation