Chancery Analyzes Fiduciary Duties of LLC Members and Managers in Merger Context
Kelly v. Blum, No. 4516-VCP (Del. Ch., Feb. 24, 2010), read opinion here. This 49-page opinion of the Delaware Court of Chancery deserves more extensive treatment–that I hope to provide soon, but for the time being, I will highlight a few bullet points regarding issues of law addressed by the Court that warrant closer reading for most lawyers who make their living in the fields of business litigation.
- Confirmation of prior Delaware decisions that in the absence of an LLC Agreement provision to the contrary, both members and managers of an LLC owe traditional fiduciary duties of loyalty and care to each other and the entity. See footnote 69.
- The Court found "substantial compliance" with a notice provision in the agreement to be sufficient. See pages 22 and 23.
- The two exceptions to the requirement of being a member or shareholder before pursuing a derivative action.
- Analysis of whether a claim is direct or derivative.
- Elements of a defamation claim.
UPDATE: Professory Larry Ribstein provides an insightful analysis of the case here (which may obviate the need for me to provide a fuller synopsis myself this weekend.) His commentary is especially helpful on the issue of the prerequisites to waiving fiduciary duties. The good professor also discusses in a separate post here, in connection with this case and a recent NY case, whether the Delaware courts would allow, by agreement, the law of another state to apply to a Delaware LLC, contrary to the Internal Affairs Doctrine.