Tuesday, May 19, 2015

On Further Reflection, “No”

On Further Reflection, “No”


            At the UKCLE/KBA Section of Business Law Business Associations Institute I mentioned that the General Assembly had just passed an amendment to the Kentucky LLC Act providing by statute for derivative actions in LLCs (2015 Ky. Acts, ch. 34, § 50).  Jim Seiffert, also on the panel on fiduciary duties, asked whether the operating agreement could limit or eliminate the ability of a member to bring a derivative action?  I think I told him I don’t think so, but I can’t swear that was my response.


            That said, on further reflection, and after considering the decision of the Delaware Supreme Court in In re Carlisle Etcetera, LLC, C.A. No. 10280-VCL, 2015 WL 1947027 (April 30, 2015), I’ve come to the view that the operating agreement cannot modify the capacity of a member to initiate on the LLC’s behalf a derivative action.


            Still, that leaves open the question as to whether an “all disputes” arbitration clause would under the Federal or Kentucky Arbitration Act require the court to refer the derivative action to arbitration. 

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