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Court Of Chancery Resolves Good Faith Claim In LLC Context

Posted In LLC Agreements

Miller v. HCP & Company, C.A. 2017-0291-SG (February 1, 2018)

This decision resolves the tricky issue of when the provisions of an LLC agreement do not allow “gap filling” so as to permit a claim for violation of the covenant to act in good faith and fairly. Briefly, when the LLC agreement permits the governing body of an LLC to act in its “sole” discretion and otherwise has an effective limit on the exercise of that discretion [such as permitting deals only with outsiders] then there is no reason to limit the discretion by imposing a duty to act in good faith. Of course, that may also require a waiver of fiduciary duties in the LLC agreement.