The Delaware Supreme Court affirmed the Chancery Court's decision that a limited liability company's controlling member-manager breached his contractual fiduciary duties when he refused to negotiate with a third party bidder. This refusal resulted in the company being sold to the controlling member-manager at an unfair price pursuant to a deficient auction process. The court based its decision solely upon the company's operating agreement. The operating agreement, in pertinent part, provided that the controlling member-manager was bound to act in accordance with a fiduciary duty standard of entire fairness. The court ruled that under this standard the transaction at issue should have been submitted for approval by a majority of the minority members. The court declined to consider whether fiduciary duties are imposed by default on managers or members of Delaware limited liability companies in situations where the operating agreement fails to address the issue.
Gatz Properties, LLC v. Auriga Capital Corp., No. 148, 2012 (Del. Sup. Ct., Nov. 7, 2012) (Per Curium)