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Laster has Strine's back

by David Marcus  |  Published December 3, 2012 at 4:19 PM
J. Travis Laster is siding with Delaware Chancellor Leo E. Strine, Jr., against Myron Steele, the chief justice of the state's Supreme Court, in an arcane dispute that may well have inspired the Supreme Court's stinging rebuke of Strine last month in Gatz Properties LLC v. Auriga Capital Corp.

The high court's five-page admonition to Strine to avoid commenting in decisions on legal issues not before him sparked several reporters to write critical articles about Strine's judicial demeanor. For example, on Nov. 9, Peter Lattman of the New York Times recounted several examples of Strine's "unique judicial stylings" in a case involving clothing designer Tory Burch and her former husband, Christopher Burch. Strine, according to Lattman's story, described the case as a "drunken WASP fest."

The Supreme Court issued the Auriga Capital Corp. opinion per curiam, or by the entire court rather than by an individual justice, but Steele is the judge on the court most interested in the point that inspired the rebuke, and a picayune point it is: whether the Delaware statute governing limited liability companies imposes fiduciary duties on LLC managers and controllers as a default rule. Steele argued in a 2009 article in the American Business Law Journal that the statute is silent on the issue and therefore does not impose such obligations. Strine didn't bother citing Steele's article in his 10-page discussion of the issue in Auriga where he reaches the opposite conclusion.

Laster in his Nov. 28 opinion in Feeley v. Nhaocg LLC also neglects to mention Steele's piece, titled "Freedom of Contract and Default Contractual Duties in the Delaware Limited Partnerships and Limited Liability Companies." Feeley raised the issue directly, and Laster confronts it head-on. He begins with Strine's ruling in Auriga. "The long line of Chancery precedents holding that default fiduciary duties apply to managers of an LLC are not binding on the Supreme Court," Laster admitted, but they do have precedential value for his own court.

Still, he continued, "Although the Delaware Supreme Court determined that the chancellor should not have reached the question of default fiduciary duties, his explanation of the rationale for imposing [them] remains persuasive, at least to me." Laster wrote that he gave Strine's view's on the issue "the same weight as a law review article, a form of authority the Delaware Supreme Court often cites." In the 47-page Feeley decision, Laster closely followed Strine's treatment of the issue in Auriga. Laster acknowledged at the end of the seven-page passage that the Supreme Court has the final word on the issue, which Gatz Properties LLC did not reach. "Until the Delaware Supreme Court speaks," Laster concluded, "the long line of Court of Chancery precedents and the Chancellor's dictum provide persuasive reasons to apply fiduciary duties by default to the manager of a Delaware LLC."

Tags: Christopher Burch | Delaware Chancellor | Feeley v. Nhaocg LLC | Freedom of Contract and Default Contractual Duties in the Delaware Limited Partnerships and Limited Liability Companies | Gatz Properties LLC v. Auriga Capital Corp. | J. Travis Laster | Jr. | Leo E. Strine | LLC | Myron Steele | Supreme Court | Tory Burch

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David Marcus

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