Delaware Law v. New York Law on LLCs

Posted on February 16, 2009 by Francis Pileggi

Professor Larry Ribstein, one of the nation’s leading scholars on LLCs, writes here about a recent NY decision that recognizes the right of an LLC member to an accounting–despite no such right being found in NY’s LLC statute. The good professor explains why this decision (that relies on another NY decision that also recognized another right not found in the LLC statute), might be a reason why practitioners would prefer Delaware law when it comes to LLCs.

  • Thomason

    The Chancellor, as do many jurists, nearly takes a pass on assessing the specifics of the alleged conflict. That’s OK since the RPC are self-enforced by attorneys. Two points for thought are the time-based aspects on which the motion was denied, and whether the NY or DE RPC & comments govern.
    The Chancellor determines that Dow is a former client, based on a earlier-presented “final” billing. This put the question under RPC 1.9 rather than 1.8, and specifically, changes the standard from whether the representation might be “materially limited” per 1.8(a)(2), to the risk that earlier-acquired information might be used. Also, the ruling was the Dow’s defense focused on changed market conditions from 12/08,when the agreement was made, to the time the deal was broken off. Comment [3] to 1.9 notes that info “acquired in a prior representation may have been rendered obsolete by the passage of time,” but that this is but one factor in determining if the two representations are “substantially related.” In the Chancellor’s ruling, the time factor was apparently dispositive. Last, comment [3] differs in the DE and NY versions. The NY comment adds an objective test, i.e., that “under the circumstances a reasonable lawyer would conclude that there is a substantial risk” that earlier-acquired info would become material. The DE version just says “if there is otherwise a substantial risk.” Grammarians can debate whether “otherwise” is inclusive or not of a “reasonable” lawyer’s views, once it is decided if the DE or the NY rules apply.