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The Delaware Limited Liability Company (LLC) Act is silent on what fiduciary duties members of an LLC owe each other, leaving the matter to be developed by the common law. Del. Code Ann. tit. 6, § 18-1104. The LLC cases have generally, in the absence of provisions in the LLC agreement explicitly disclaiming the applicability of default principles of fiduciary duty, treated LLC members as owing each other the traditional fiduciary duties that directors owe a corporation. Moreover, when addressing an LLC case and lacking authority interpreting the LLC Act, courts often looks for help by analogy to the law of limited partnerships. In the limited partnership context, absent a contrary provision in the partnership agreement, the general partner of a Delaware limited partnership owes the traditional fiduciary duties of loyalty and care to the partnership and its partners.
Plaintiff limited liability company (LLC) sued defendants, an LLC and its owner, alleging breach of contract due to mismanagement of a failed condominium development project. Plaintiff sought to expand its remedies by bringing claims for breach of implied covenant of good faith and fair dealing, breach of fiduciary duty, common law fraud, and aiding and abetting. Defendants sought to dismiss those claims under Del. Ch. Ct. R. 12(b)(6).
Should the court grant the defendants’ motion to dismiss?
The court found that plaintiff had stated a claim for breach of the implied covenant of good faith and fair dealing against defendant because plaintiff alleged that defendant had an implied duty to exercise its authority to enforce performance of a development management agreement and a note in good faith, and that defendant failed to do so. Plaintiff also sufficiently pled that defendant breached its fiduciary duties; and, under In re USACafes, L.P. Litigation, the person who managed the joint venture for defendant, had a fiduciary duty not to use his control over plaintiff's assets to benefit himself at the joint venture's expense. Plaintiff sufficiently pled that the manager breached this duty by renegotiating a loan to his personal advantage at the expense of the joint venture. Plaintiff also alleged viable common law fraud claims against both defendant and the manager for failure to disclose the renegotiation of the loan when they had a duty to do so. Additionally, plaintiff sufficiently pled the elements of its various aiding and abetting claims. The court denied the motion.