In TravelCenters of America, LLC. v. Brog, the Delaware Chancery Court, on April 4, 2008, issued a ruling from the bench, available here (HT Prof. Davidoff), after a short trial, that a notice of intent to nominate new members of the board of managers of the LLC did not comply with a provision of the LLC agreement, and was in violation of several U.S. securities laws applicable to proxy contests.
On April 3, 2008, the Court also issued a pre-trial letter decision here, that allowed Professor Randall Thomas to provide expert testimony at trial on the issues of materiality and U.S. securities laws, but the good professor was prohibited from opining on matters of Delaware law (as prior decisions by Chancellor Chandler have made clear.) Here is a prior summary of a decision of about a week ago in the same case by the Chancery Court involving a books and records counterclaim.
Professor Steven Davidoff here, (who also writes on The New York Times DealBook blog), and Professor Larry Ribstein here, have today already provided thoughtful commentary on the case. Professor Ribstein cites to articles he has written on the topic of LLCs not being subject to the same corporate governance structure as corporations–including materials he presented at an symposium at which the author of the instant Chancery Court decision was also participating.
Here is a money quote from the letter decision of April 3:
Delaware does not impose a legal requirement on LLCs to draft their bylaws to be consistent with some abstract notion of “good corporate governance.” On the contrary, limited liability companies are creatures of contract, “designed to afford the maximum amount of freedom of contract, private ordering and flexibility to the parties involved.”
I predict that this decision will be cited often to distinguish between the governance of an LLC compared to a corporation. However, curiously, in the opinion of about 10 days ago in this case that was summarized here, involving a demand for books and records, the court said that it might refer by analogy to the corporate statute to analyze such a demand. Of course, a demand for books and records is a type of issue does not directly impact corporate governance and is perhaps simply a practical approach to deciding a books and records demand in the LLC context.
Having recently returned from a two-day seminar on corporate governance, and cognizant of the many trees that have been killed over the last few decades alone in connection with publishing bookshelves full of treatises and articles and opinions written about corporate governance (and now the terabytes of space on computers taken up by writings about corporate governance), it is notable and worth repeating the truism that in the LLC context, all those high-falutin’ corporate governance ruminations and ideals can be "contracted away".