LLC

The Delaware Supreme Court recently affirmed that, with respect to limited liability companies (LLCs), courts will not fill gaps with implied duties that parties chose not to include in the LLC’s operating agreement. In Khan et al. v. Warburg Pincus, LLC, the Court found that minority LLC members could not use the implied covenant of good faith and fair dealing to challenge the outcome where the LLC agreement expressly waived fiduciary duties, authorized self-interested conduct by the majority investor, and provided a specific amendment mechanism for differential consideration. The Court refused to import corporate-style fairness and disclosure obligations where parties had negotiated a detailed contractual governance scheme, reinforcing Delaware’s highly contractarian approach to LLCs.

Under Texas law, informal fiduciary relationships (which can theoretically arise from any personal or business relationship of special trust and confidence) are frequently claimed in litigation but almost never succeed. Two recent decisions illustrate the doctrine’s narrowing scope: in Pitts v. Rivas, the Texas Supreme Court rejected an informal fiduciary claim despite a decade-long personal friendship between an accountant and client, with a notable concurrence from Justice Huddle (joined by three justices) formally calling for the doctrine to be abandoned altogether. The Texas Business Court reached a similar conclusion in Tall v. Vanderhoef, dismissing an LLC minority member’s informal fiduciary claim because no special relationship of trust existed prior to and apart from the parties’ governing agreements. While the doctrine technically remains good law in Texas, courts continue to apply it with significant skepticism and practitioners should treat informal fiduciary claims as a high-risk, rarely successful avenue in business disputes

A Delaware Court of Chancery post-trial opinion in Holzbaur v. Trolley Square Hospitality, LLC serves as a cautionary tale about imprecise LLC agreement drafting. The plaintiff believed he was a “cash contributing member” with irremovable status, but contradictory language in the agreement led the court to rely on extrinsic evidence (including emails, pre-formation conversations, and drafting history) to find he was actually a “sweat equity” member subject to removal at will. The case underscores that the flexibility of the LLC form carries drafting responsibility: internal inconsistencies open the door to costly litigation and invasive discovery, and ambiguities will be resolved based on the parties’ actual intent, not favorable contract language.