A recent letter opinion provides a practical description of the elements required to satisfactorily plead a breach of fiduciary duty claim, as well as a definition of situations where a fiduciary relationship may be found. In Beach to Bay Real Estate Center, LLC v. Beach to Bay Realtors, Inc., C.A. No. 10007-VCG (Del. Ch. July 10, 2017), the Court of Chancery also observed the non-controversial truism that minority members of LLCs generally do not owe fiduciary duties to the LLC or other members.
The court explained that in Delaware a fiduciary relationship may be found in:
“. . . a situation where one person reposed special trust in and reliance on a judgment of another or where a special duty exists on the part of one person to protect the interest of another.” See footnote 68.
Moreover, the court explained that there “must be an allegation of an agreement supplying such a duty or a special relationship creating such a duty.” The court observed that in its experience, “thieves and their victims rarely consider their relationship an equitable one on account of that status alone. Rather, there must be some repose of special trust . . . or reliance . . ..”
The court allowed, however, for the possibility that “in certain circumstances a minority member of an LLC, with access to confidential information, could stand in a fiduciary relationship to the entity or other members.” But, non-conclusory allegations in support of a relationship creating such a duty were found lacking in the complaint in this case.
As an aside, this decision also features quotes from William Faulkner and colorful language about procedural irregularities concerning this matter.