In R & R Capital, LLC v. Buck & Doe Run Valley Farms, LLC, 2008 WL 3846318 (Del.Ch., Aug. 19, 2008), read opinion here, the Delaware Chancery Court provides a detailed and expansive public policy analysis as well as extensive legal reasoning and statutory interpretation to explain why the Delaware LLC Act allows members to waive their right to seek dissolution of an LLC, as otherwise provided for in the LLC Act.
This opinion could well become a landmark decision if only because it, in some ways, provides a convenient exegesis of all one needs to know about the theoretical underpinnings that define the contours for the contractual flexibility regarding what terms will be allowed as part of an Operating Agreement for an LLC. In other words, if one is drafting an Operating Agreement and wants to have confidence about what terms will likely be enforced by the Delaware Courts, this opinion is "must reading".
The Court goes to great lengths, however, to emphasize that members will not be helpless if rights are waived to the fullest extent allowable under the Act. For example, the LLC Act does NOT allow the waiver of the "implied duty of good faith and fair dealing". The Court describes the important legal parameters and basis for this non-waivable duty, and suggests that the petitioner in this case would likely have been able to obtain relief based on that non-waivable duty–but did not avail itself of that claim.
The Court provides copious citations to key cases on the topic as well as the writings of scholars in the field. For example, the Court cites to several articles and a treatise by the country’s foremost LLC expert, Prof. Larry Ribstein, about whom the Court writes:
"… Professor Larry Ribstein, whose scholarship on limited liability companies has been frequently cited by both this Court and the Supreme Court, emphasizes that it is the rigor with which Delaware courts apply the contractual language of LLC Agreements that makes limited liability companies successful. FN44 Indeed, ‘Delaware is a freedom of contract state, with a policy of enforcing the voluntary agreements of sophisticated parties in commerce.’ FN45" (italics mine).
UPDATE: Prof. Ribstein’s analysis of the case can be found here.
UPDATE II: Here is the The Wall Street Journal’s "law page" that picked up my post.
UPDATE III: Prof. Gary Rosin analyzes the case here.