Sutherland v. Sutherland, 2009 WL 750287 (Del. Ch., March 23, 2009).
Professor Larry Ribstein, a nationally recognized expert on LLCs, provides an analysis of this Chancery Court opinion which demonstrates how one can waive duties in the LLC format but such waivers are more limited in the corporate context.
Following is an excerpt from the good professor’s post.
The court refused to apply the provision [in the parties agreement] to treat interested directors as disinterested for purposes of immunizing interested transactions from Delaware’s entire fairness analysis. The court said (emphasis added):
The question * * * is whether such a far-reaching provision would be enforceable under Delaware law. It would not. If the meaning of the above provision were as the defendants suggest, it would effectively eviscerate the duty of loyalty for corporate directors as it is generally understood under Delaware law. While such a provision is permissible under the Delaware Limited Liability Company Act and the Delaware Revised Uniform Limited Partnership Act, where freedom of contract is the guiding and overriding principle, it is expressly forbidden by the DGCL. Section 102(b)(7) of the DGCL provides that a corporate charter may contain a provision eliminating or limiting personal liability of a director for money damages in a suit for breach of fiduciary duty, so long as such provision does not affect director liability for â€œany breach of the director’s duty of loyalty to the corporation or its stockholders….
In other words, if you want to completely opt out, you have to use an uncorporation. In corporations, freedom of contract is not, by negative implication, the "guiding and overriding principle."
This is not form over substance because there are meaningful differences between uncorporations and corporations. Here’s more on that.
Read the whole post, and links to Professor Ribstein’s related writings on the topic, here.
Six other Chancery Court decisions involving the same (or affilated) parties as in this case, are collected and summarized here.