1. Why does the court state that the language in the Operating Agreement actually recognizes the “continued existence” of the fiduciary duties?

2. Should NHA have agreed to the structure of the Oculus entity? How could it have been more proactive during the structuring of the entity? 

Feeley was the managing member of AK-Feel, LLC (AK-Feel) and formed a new entity with several investors who were orga-nized as a separate entity called NHAOCG, LLC (NHA). After a series of business discussions among the parties, the principals of the two LLCs formed a new entity, called Oculus, for the purpose of finding and developing real estate parcels and profiting from their sale. AK-Feel and NHA each held a 50 percent member interest in Oculus, but AK-Feel served as the managing member. Since Feeley served as the managing member of AK-Feel, he also controlled the activities of Oculus. Approximately one year later, the parties’ relationship soured. NHA accused Feeley of gross negligence in the handling of several real estate deals. In one case, NHA alleged that Feeley’s incompetence resulted in a significant loss in an aborted real estate transaction. Dissatisfied with Feeley, the principals of NHA decided to end their business relation-ship with Feeley and attempted to take over Oculus. Feeley and AK-Feel filed suit in which they sought to block NHA’s attempt and establish their continuing control. NHA filed a counter suit for, among other things, breach of fiduciary duty and sought damages that it suffered as a result of Feeley’s gross negligence. The parties resolved the control issue, but NHA did not drop its counter suit. Feeley and AK-Feel filed a Motion to Dismiss NHA’s counter-suit, arguing that any fiduciary duty was limited or eliminated through the Operating Agreement.

On the claim of breach of fiduciary duty, the Chancery Court of Delaware ruled in favor of NHA and denied AK-Feel’s motion to dismiss. The court ruled that the Operating Agreement did not unambiguously limit any fiduciary duties of the managing member. The court pointed to a section of the Operating Agreement that specifically recognizes certain fiduciary duties. While some of NHA’s claims were dis-missed, the breach of fiduciary duty claim survived the Motion to Dismiss.

“Drafters of an LLC agreement must make their intent to eliminate fiduciary duties plain and unambiguous  .  .  . The plain language of this portion of [the Operating Agreement] eliminates monetary liability unless, among other things, the act or omission is attributed to gross negligence [or] willful misconduct or fraud. . . .’ [This] [s]ection  .  .  .  does not limit or eliminate fiduciary duties . . . Rather than eliminating fiduciary duties, the [Operating Agreement’s] language recognizes their continuing existence  .  .  . If [the Operating Agreement] had eliminated fiduciary duties, as AK-Feel argues, then it would be counter-intuitive for the same provision to recognize exceptions [for] gross negligence and willful misconduct and to authorize the managing member to obtain insurance against actual or alleged breaches of fiduciary duty and require Oculus to pay the premiums.”