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Corporate Opportunity Doctrine Waiver Does Not By Itself Also Constitute a Waiver of Default Fiduciary Duties under an LLC Agreement

77 Charters, Inc. v. Gould, C.A. No. 2019-0127-JRS (Del. Ch. May 18, 2020)

The Court of Chancery held that a waiver of the corporate opportunity doctrine did not by itself constitute a waiver of default fiduciary duties under an LLC agreement. 

Plaintiff 77 Charters, Inc. held non-preferred ownership interests in a joint venture. Defendant Jonathan Gould indirectly held similar non-preferred interests and managed the joint venture’s managing member. Subsequently, Gould indirectly purchased an owner’s preferred interests, and revised the joint venture’s waterfall repayment structure to provide a guaranteed, higher rate of return for preferred interests, at the expense of the residual, non-preferred interests, and reduced the standard of care for the Gould managing member. After 77 Charters filed a books and records demand and settled a related action, Gould sold the joint venture at a price that returned no funds to 77 Charters as a residual owner of non-preferred interests. 77 Charters filed contract and tort claims, and defendants moved to dismiss.

The Court determined that, under USACafes and its progeny, Gould was a second-tier controller of the joint venture and the underlying LLC agreement imposed default fiduciary duties on Gould’s entity in its capacity as managing-member.  The Court ruled that because 77 Charters had waived the corporate opportunity doctrine in the LLC agreement, Gould and his entities were not required to share investment opportunities with 77 Charters.  Accordingly, the Court concluded that Gould and his entity were not prohibited from acquiring the preferred interests in the joint venture.  On the other hand, the Court found that 77 Charters had sufficiently alleged a duty of loyalty claim that, after the preferred acquisition, Gould had used his control to amend the LLC agreement to favor the preferred interests’ economic value at the expense of 77 Charters’ non-preferred interests. 



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