Faulkner v. Kornman (In re The Heritage Organization, L.L.C.), Adv. Proc. No. 06-3377-BJH (Bankr. N.D. Tex. Dec. 12, 2008) involved a breathtakingly broad fiduciary waiver and exculpatory clause. Section 6.03(A) of the LLC’s Operating Agreement provided:
The Manager shall not be required to exercise any particular standard of care, nor shall he owe any fiduciary duties to the Company or the other Members. Such excluded duties include, by way of example, not limitation, any duty of care, duty of loyalty, duty of reasonableness, duty to exercise proper business judgment, duty to make business opportunities available to the company, and any other duty which is typically imposed upon corporate officers and directors, general partners or trustees. The Manager shall not be held personally liable for any harm to the Company or the other Members resulting from any acts or omissions attributed to him. Such acts or omissions may include, by way of example but not limitation, any act of negligence, gross negligence, recklessness, or intentional misconduct.
Slip Op., at 29.
In Mere Contractual Entities? UBEs and Fiduciary Waivers, I argued that waivers of fiduciary duties should be interpreted strictly. Section 6.03(A) leaves no doubt as to the scope of the fiduciary duties being waived. Given that the LLC was organized under Delaware law, id. at 27-28, such a broad waiver is clearly permitted under Section 18-1101(e) of the Delaware Limited Liability Company Act.
The problem is that the trustee in bankruptcy sued the officers of the Manager (also an LLC), claiming that they owed fiduciary duties, either as officers of the Manager, or of the LLC. But that’s another story.
Hat tip to Marc Ward.
posted by Gary Rosin