{"id":40,"date":"2009-10-05T22:52:32","date_gmt":"2009-10-06T05:52:32","guid":{"rendered":"http:\/\/fiduciarydutiesblog.com\/?p=40"},"modified":"2009-10-05T22:52:32","modified_gmt":"2009-10-06T05:52:32","slug":"mary-szto-historical-review-of-fiduciary-duties-in-an-llc-part-3","status":"publish","type":"post","link":"https:\/\/fresnolawyerblog.com\/?p=40","title":{"rendered":"Mary Szto – Historical Review of Fiduciary Duties in an LLC – Part 3"},"content":{"rendered":"

This is the third part of a review of Mary Szto\u2019s article, \u201cLimited Liability Company Morality: Fiduciary Duties in Historical Context,\u201d 23 Quinnipiac Law Review 61<\/em> (2004-2005).\u00a0 This week we get to the heart of the matter \u2013 the case law summary.<\/p>\n

The author starts by explaining that, \u201cIn the Anglo-American tradition, principals of a firm are fiduciaries expected to lay aside self-interests.\u00a0 A fiduciary\u2019s duties, include a duty of care and a duty of loyalty owed to the firm, other principals, and\/or other members of the firm.\u201d<\/p>\n

As the author surveys the case law involving fiduciary duties in a limited liability company context, she posits that courts \u201cdemonstrate a preference for corporate duty of care and a partnership duty of loyalty.\u201d<\/p>\n

Building on her history lessons she states that, \u201cCanonists may never have imagined that the corporate form would become the chief engine for business growth today.\u00a0 Nevertheless, in the 1800’s, business corporations came into prominence.\u00a0 Agency, partnership, and trust duties chiefly influenced them, and still do today . . . English and American commentators readily applied agency, trust and partnership law to corporate fiduciary law.\u00a0 Duties of care and loyalty were also addressed.\u201d<\/p>\n

Says Ms. Szto, \u201cThe duty of care cases focus on statutory or contractual corporate standards.\u00a0 Duty of loyalty cases show a slight preference for partnership standards.\u00a0 Also, enforcing contractual provisions, the courts still find equitable duties.\u00a0 Even when LLC members \u2018opt out\u2019 of loyalty duties, courts find equitable duties that cannot be eviscerated.\u00a0 This is in agreement with equity.\u00a0 Many courts, notably Delaware\u2019s and Ohio\u2019s recognize a transcendent selfless standard for LLC fiduciaries.\u201d<\/p>\n

As Ms. Szto reviews the case law, she concludes, \u201cIn duty of loyalty cases, courts enforce contractual waivers and standards for fiduciary duties.\u00a0 However, where there was self-serving behavior, they also found equitable duty breaches.\u00a0 This was the case even when LLC operating agreements modified or limited fiduciary duties.\u00a0 Of note is approach of Delaware, Ohio, New York, and Indiana.\u00a0 Duty of loyalty cases may concern usurpation of firm opportunities, the duty to disclose information, conflicts of interests, and the duty not to compete with the firm.\u201d<\/p>\n

Ms. Szto states, \u201cAlso, when a statutory duty existed, corporate standards were applied using the best interests of the LLC as a main factor.\u00a0 For example, a Maryland case found that all decisions by the LLC\u2019s board were protected from second guessing by the business rule, which insulated the board from claims unless it \u2018acted in bad fath.\u2019\u00a0 Another Maryland case noted that a majority interest holder owes a fiduciary duty to the LLC\u2019s minority interests holder, which standard is similar to that of closely-held corporations.<\/p>\n

The author states, \u201cIn sum recent LLC cases illustrate that in duty of care cases, corporate standards prevail.\u00a0 \u2018Best interests of the LLC\u2019 are a primary focus.\u00a0 In duty of loyalty cases, agency and partnership standards are favored.\u00a0 Also, courts (Delaware\u2019s chief among them), recognized equitable duties that are transcendent.\u00a0 Ohio\u2019s court stated that LLC members owe each other the \u2018up most trust and loyalty.\u2019\u201d<\/p>\n

The author concludes that, \u201cFiduciary duties are ingrained in Anglo-American jurisprudence in the business association.\u00a0 They reach back to the biblical tradition, Roman, and ecclesiastical law.\u00a0 They develop with fidei commissa, utilitas ecclesiae, the use, trusts, and agents.\u00a0 They constitute partnerships, limited partnerships, and corporations.\u201d<\/p>\n

\u201cTo the extent that LLC fiduciary duties are true to their equitable roots, the LLC will take its place among enduring business entities and are constituted by a transcendent business morality.\u00a0 There is promise of this in legislation that affirms equitable standards and in case law that promotes a corporate duty of care and partnership duty of loyalty that is selfless.\u00a0 This is the rich legacy of fiduciary duties.\u201d<\/p>\n

I give this article six stars out of ten.\u00a0 I would have appreciated more focus on the theories of LLCs and how these theories tie in to the particular fiduciary duties assigned by the courts, and less on the Anglo-Saxon religious roots.\u00a0 In the end, the title has more sizzle than the article.<\/p>\n","protected":false},"excerpt":{"rendered":"

This is the third part of a review of Mary Szto\u2019s article, \u201cLimited Liability Company Morality: Fiduciary Duties in Historical Context,\u201d 23 Quinnipiac Law Review 61 (2004-2005).\u00a0 This week we get to the heart of the matter \u2013 the case law summary. The author starts by explaining that, \u201cIn the Anglo-American tradition, principals of a […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[7],"tags":[],"class_list":["post-40","post","type-post","status-publish","format-standard","hentry","category-law-reviews"],"_links":{"self":[{"href":"https:\/\/fresnolawyerblog.com\/index.php?rest_route=\/wp\/v2\/posts\/40"}],"collection":[{"href":"https:\/\/fresnolawyerblog.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/fresnolawyerblog.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/fresnolawyerblog.com\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/fresnolawyerblog.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=40"}],"version-history":[{"count":0,"href":"https:\/\/fresnolawyerblog.com\/index.php?rest_route=\/wp\/v2\/posts\/40\/revisions"}],"wp:attachment":[{"href":"https:\/\/fresnolawyerblog.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=40"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/fresnolawyerblog.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=40"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/fresnolawyerblog.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=40"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}