Monday, December 2, 2019

Agreeing to Disagree

Agreeing to Disagree

      Recently, Professor Jonathan Fershee, Dean of Creighton Law, published an essay in which he suggested that especially strict standards should be applied with respect to significant modifications and waivers of the default duty of loyalty. Specifically, he argues that  in the context of an operating agreement that may be amended by less than all of the members, the duty of loyalty should be subject to modification or amendment only if the right to make that modification is expressly reserved in the operating agreement.

      I published a short dissent to that position on a variety of grounds including ultimate unworkability, principles of freedom of contract and a reluctance to create a hierarchy in which a waiver of duty of loyalty is of greater importance than other contractual provisions that could have an equal or more significant impact upon minority members. HERE IS A LINK to that dissent, it containing as well a link to Dean Fershee’s initial post on the Business Law Prof Blog.

Yesterday, and again on the Business Law Prof Blog, Dean Fershee posted Dissent Duly Noted: LLCs, Private Ordering, and Ample Notice, wherein he (kindly) noted my rejoinder to his piece. HERE IS A LINK to that posting. I agree that we may have to agree to disagree, but ultimately, I am not sure how far apart we are. On the one hand, clearly, he would elevate concerns with respect to the waiver of the duty of loyalty, where I would not. I am not aware, however, that we are in disagreement with respect to my critique of the practical limitations of his proposed solution. And while I believe implied by both of our arguments, we are in agreement that any modification or waiver of the default standard of loyalty needs to be clear and obvious.

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