Court Of Chancery Upholds Fiduciary Duty In An Alternative entity
Paige Capital Management LLC. v. Lerner Master Fund LLC, C.A. 5502-CS (August 8, 2011)
This is an important decision and a lot of fun to read to boot. The fun is in the all-too-human story it tells of personal ambition frustrated and what happens then.
There are 3 key points in its holding. First, those who control an LLC owe fiduciary duties to the members unless the LLC Agreement clearly cancels those duties. This may be contrary to the views of at least 1 Supreme Court Justice who favors requiring those duties be spelled out in the agreement.
Second, vesting in a manager the "sole discretion" to decide a matter only means she is the only one who gets to vote on it. It does not mean she can vote anyway she likes even if that is unfair. Here better drafting is needed.
Third, the Court will decide cases on their legal merits even if the winning party is a jerk. Of course, here there was a bit of a contest to see who could be the biggest jerk. Nonetheless, it is reassuring that the Court saw though all that to get to the real merits.