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Court Of Chancery Applies LLC Contractual Fiduciary Duty

Posted In LLC Agreements

MHS Capital LLC v. Goggin, C.A. No. 2017-0449-SG (May 10, 2018)

Alternative entity agreements may eliminate common law fiduciary duties and often do, supplanting them with contractual fiduciary duties.  These frequently include an obligation to act “in good faith” or “in the best interests of the company,” broadly or in certain circumstances.  Thus, even with fiduciary duty exculpation clauses in LLC agreements, managers may still find themselves exposed to a member’s allegations that they failed to satisfy their standard of conduct, as this decision illustrates.  This decision also is interesting for its discussion of the potential impact of bankruptcy court sale orders on the Court of Chancery’s ability to enter equitable relief.