The Business Divorce Law Report
Key Takeaways:
- Delaware lets LLC members contract away fiduciary duties almost entirely — 6 Del. C. § 18-1101(c) permits an LLC agreement to expand, restrict, or eliminate them — which makes the waiver provision the single most consequential clause in a Delaware operating agreement.
- The waiver power has a floor that cannot be drafted away: § 18-1101(e) preserves liability for bad-faith violation of the implied covenant of good faith and fair dealing.
- Where the agreement does not unambiguously waive them, default fiduciary duties of loyalty and care apply — a rule the legislature wrote into § 18-1104 in 2013 after the Delaware Supreme Court called the question unsettled, and one the Court of Chancery continues to enforce against managers who divert company funds.
- For a minority member facing Delaware’s near-impossible dissolution standard, the fiduciary claim — or the unwaivable implied covenant — is the substitute remedy. Whether it exists was decided at formation, when the waiver was drafted.
Delaware’s LLC statute gives an oppressed minority member no oppression remedy and a dissolution standard that fails on all but the most extreme facts. What fills the gap is fiduciary duty law — and in a Delaware LLC fiduciary duty waiver dispute, the first question is never what the manager did. It is what the agreement says, because Delaware treats the LLC as a creature of contract in which the members were free to eliminate the very duties the minority member now needs. This piece maps the doctrine from both directions: for the litigator inheriting an agreement already signed, and for the drafter deciding — usually without the client grasping the stakes — how much protection to negotiate away.
Table of Contents
- The Contract-First Framework
- Key Cases
- The Drafting-Stage Decision: Waiver Scope as Negotiated Leverage
- Valuation Treatment
- FAQs
- Related Resources
1. The Contract-First Framework
The dissolution route is covered in the multi-state framework this piece belongs to, and the summary is short: under 6 Del. C. § 18-802 and cases like Haley v. Talcott, In re Silver Leaf, and In re Arrow Investment Advisors, judicial dissolution requires deadlock, failed purpose, or futility — and a broad purpose clause defeats most petitions before they start. [LINK — Article 1: Mapping the Minority Member’s Remedy Gap by State] When dissolution fails, the minority member’s remaining theory is that those in control breached duties owed to the company or its members. Delaware answers that theory with three statutory provisions that must be read together.
Section 18-1101(c) permits the LLC agreement to expand, restrict, or eliminate fiduciary duties. This is the provision that separates Delaware from nearly every other body of business-entity law: the duty of loyalty itself — the prohibition on self-dealing, on usurping company opportunities, on competing with the company — can be drafted out of existence.
Section 18-1101(e) sets the unwaivable floor: an LLC agreement may not limit or eliminate liability for a bad-faith violation of the implied covenant of good faith and fair dealing. However complete the waiver, a manager who exercises contractual discretion in bad faith to gut the fruits of the members’ bargain remains exposed. The implied covenant is a gap-filler, not a fairness doctrine — it enforces the deal the parties actually made, not the deal a court thinks they should have made — but it is the one theory no drafter can eliminate.
Section 18-1104 supplies the default: the rules of law and equity, including fiduciary principles, govern where the agreement does not otherwise provide. The legislature added the express reference to fiduciary duties in 2013, effective August 1 of that year, to resolve an ambiguity the Delaware Supreme Court had pointedly declined to settle in the Gatz litigation. The rule since then has been clear: silence means duties. Waiver must be unambiguous, and — as Stone & Paper confirms — general references to duties that stop short of squarely eliminating them leave the defaults fully intact.
The framework’s logic runs opposite to New York’s. New York courts fashioned an equitable buyout remedy the statute never mentioned; Delaware courts refuse to supply protections the parties could have contracted for and didn’t. [LINK — Article 3: How New York Courts Order Forced Buyouts in LLC Dissolution Cases] The one Delaware counterweight is In re Carlisle Etcetera LLC, confirming under § 18-1104 that equity supplements the act where the statutory route is unavailable — a door left ajar, not an invitation.
2. Key Cases
Auriga Capital Corp. v. Gatz Properties, LLC, 40 A.3d 839 (Del. Ch. 2012). The manager of a golf-course LLC, wanting the property back for his family, rebuffed a credible third-party buyer, fed the minority members misleading information, and then bought the company himself at a sham auction with no other bidders. The Court of Chancery found breaches of both the agreement’s contractual entire-fairness provision and default fiduciary duties, awarding the minority their capital plus a 10% aggregate return, less the auction crumbs, and half their attorneys’ fees.
Gatz Properties, LLC v. Auriga Capital Corp., 59 A.3d 1206 (Del. 2012) (en banc). The Supreme Court affirmed — but solely on contractual grounds, holding that Section 15 of the LLC agreement functioned as the contractual equivalent of entire fairness, no magic words required. The court then went out of its way to call the Chancery court’s default-fiduciary-duty analysis improvident and unnecessary dictum, leaving the default-duties question formally open. The legislature answered within months, amending § 18-1104 in 2013 to confirm that default fiduciary duties exist.
Stone & Paper Investors, LLC v. Blanch, 2021 WL 3925739 (Del. Ch. July 30, 2021). The post-amendment rule applied. Two managers of a stone-paper venture spent the preferred member’s $3.5 million investment substantially on themselves. The agreement contained duty language but no unambiguous waiver, so the defaults governed: the court found breaches of fiduciary duty and of the LLC agreement, fraudulent concealment, and aiding-and-abetting liability reaching the managers’ affiliates. The teaching point for drafters and litigators alike: general duty language that does not squarely eliminate fiduciary duties leaves them fully enforceable.
In re Carlisle Etcetera LLC, 114 A.3d 592 (Del. Ch. 2015). Equity’s residual role: where statutory standing for dissolution was unavailable, the Court of Chancery held § 18-802 non-exclusive and retained equitable jurisdiction under § 18-1104. Even Delaware’s contractarian architecture has a chancery court underneath it.
3. The Drafting-Stage Decision: Waiver Scope as Negotiated Leverage
Litigators encounter the fiduciary waiver as an obstacle. It should be understood, first, as a deal term — one that allocates risk and value between the members as surely as the distribution waterfall does, and one that is routinely signed without being priced.
A fiduciary waiver is a transfer of protection from the minority to the manager. Full elimination of duties converts the minority member’s position from a protected equity stake into something closer to an unsecured bet on the manager’s good behavior, policed only by the express terms of the agreement and the implied covenant’s bad-faith floor. That transfer has a value. A minority investor asked to sign a full waiver is entitled to extract something for it — a tighter distribution covenant, consent rights over affiliate transactions, exit triggers, information rights with teeth. The waiver clause is leverage to be spent, not boilerplate to be initialed.
Scope is negotiable, and the middle positions are usually the right ones. Between full default duties and full elimination lies the terrain where most deals should land: duties retained but self-dealing permitted through a defined safe harbor; corporate-opportunity waivers limited to described business lines; exculpation from damages while preserving equitable remedies; entire-fairness review contracted for expressly rather than left to implication. Gatz itself shows the last of these operating — the members there never used the words “fiduciary duty,” yet their contract imposed the functional equivalent of entire fairness, and it held.
Precision is not optional, in either direction. The manager who wants duties eliminated must say so unambiguously; under Stone & Paper, gesturing at limitation while leaving general duty language in place preserves the defaults. And the drafter who has eliminated duties must then police the rest of the document, because stray provisions imposing good-faith or best-interests obligations can reintroduce through the back door what the waiver expelled through the front. The waiver provision is not a clause; it is a discipline that runs the length of the agreement.
The implied covenant should be treated as a design constraint. Since § 18-1101(e) makes bad-faith violation of the implied covenant unwaivable, the covenant attaches to every grant of discretion in the agreement. Discretion drafted broadly (“in the manager’s sole discretion”) invites an implied-covenant fight about what the parties would have agreed to; discretion drafted with express standards and procedures shrinks the gap the covenant exists to fill. Counterintuitively, the manager’s best protection against the one unwaivable theory is more contractual specificity, not less.
This is the section of the analysis that belongs at formation, and it is where transactional counsel and valuation-minded advisors earn their fee: the waiver’s scope determines not only who wins the eventual dispute, but what the minority interest is worth on the day it is purchased.
4. Valuation Treatment
The fiduciary route changes what recovery looks like. A successful dissolution produces an exit; a successful fiduciary claim produces a damages award — and in Delaware, that award can function as a court-constructed liquidity event. In Auriga, the remedy was precisely that: the minority members’ capital contributions plus a 10% aggregate return, less what the sham auction had paid them, with half their fees shifted for the manager’s bad faith. The court did not order a buyout; it priced one after the fact.
Two valuation consequences follow. First, the measure of fiduciary damages in these cases frequently reduces to a valuation dispute — what the company or the interest was worth at the moment of the disloyal transaction — fought through experts under an entire-fairness or damages framework rather than an appraisal statute. Second, the waiver’s scope feeds directly into interest value: an identical minority stake is worth materially less under an agreement that eliminates duties than under one that retains them, because the probability-weighted recovery from misconduct is part of what a rational buyer prices. Investors and their advisors who model that difference at formation negotiate better waivers; those who discover it in litigation inherit whichever waiver was signed.
5. FAQs
Can a Delaware LLC agreement really eliminate fiduciary duties?
Yes. Section 18-1101(c) permits the agreement to expand, restrict, or eliminate fiduciary duties, including the duty of loyalty. The only thing that cannot be eliminated is liability for a bad-faith violation of the implied covenant of good faith and fair dealing, preserved by § 18-1101(e).
What if the agreement says nothing about fiduciary duties?
Then the defaults apply. Under § 18-1104 as amended in 2013, traditional fiduciary duties of loyalty and care govern where the agreement does not otherwise provide, and Stone & Paper confirms that only an unambiguous waiver displaces them. Silence, or general duty language short of elimination, leaves managers fully exposed to fiduciary claims.
What is the implied covenant of good faith and fair dealing, and why does it matter here?
It is the unwaivable floor beneath every Delaware LLC agreement — a gap-filling doctrine that prevents a party from exercising contractual discretion in bad faith to deprive the other members of the fruits of their bargain. It does not import fairness review, but where an agreement has waived fiduciary duties, it is frequently the minority member’s only remaining theory, which is exactly why the statute makes it unwaivable.
Does a minority member of a Delaware LLC have any oppression remedy?
Not by statute. Delaware has no oppression provision, and its dissolution standard under § 18-802 is among the strictest in the country. The practical substitutes are fiduciary claims where duties survive the agreement, the implied covenant where they don’t, and equitable jurisdiction under Carlisle in the rare case where the statutory route is closed. Which of those exists in a given dispute was largely decided when the agreement was drafted.
6. Related Resources
- Dissolution or Oppression? Mapping the Minority Member’s Remedy Gap by State
- [LINK — Article 3] No Statutory Buyout, No Problem: How New York Courts Order Forced Buyouts in LLC Dissolution Cases
- When to Seek Judicial Dissolution of an LLC
If you draft or litigate Delaware-formed entity agreements — negotiating waiver scope at formation, or valuing what a fiduciary claim is worth when the dispute arrives — I work with transactional and litigation counsel as valuation counsel and a Certified Valuation Analyst on member disputes, fiduciary damages, and the economics of governance terms. Contact for co-counsel and valuation engagements.
Jay R. McDaniel, Esq., CVA, CEPA, is Chair of the Corporate & Business Law practice at Weiner Law Group, leader of its Business Divorce Practice, and founder of Closely Held Advisors.
Attorney Advertising. This article is for informational purposes only and does not constitute legal advice or create an attorney-client relationship. Prior results do not guarantee a similar outcome.