Effectively Assessing Fiduciary Duties
Business owners may be surprised to find that it is always not so easy to determine the full scope of fiduciary duties owed by those who manage or run the day-to-day operations of a business, vis-a-vis the owners. The case law continues to develop in this area, and the type of entity selected may bring about different interpretations of how the law is to apply in this area. While Florida courts have often looked to Delaware for guidance, see First Am. Bank and Trust v. Frogel, 726 F.Supp. 1292, 1298 (S.D.Fla. 1989), the fact remains that Florida business statutes are quite unique, with the LLP having one source body of law, the LLC another source body of law, and the limited partnerships and LLLP still another source body of law. Florida Revised Uniform Limited Partnership Act of 2005, effective January 1, 2006 (Chapter 620, Part I, Sections 620.1101 through 620.2205); Florida Limited Liability Company Act (Chapter 608 of the Florida Statutes); Florida Revised Uniform Partnership Act of 1995 (Chapter 620, Part II, Sections 620.81001 through 620.9902). Now see Chapter 605 (New Revised Florida Limited Liability Company Act)(effective January 1, 2015). Practitioners must be sure to carefully monitor developments both here in Florida, as well as in other states, like Delaware as the law continues to evolve.
The Florida statutes on business entities consistently focus on two primary duties: the duty of care and the duty of loyalty, and recent amendments to the law, suggest that these are exclusive in nature, limiting fiduciary duties to these, as the only fiduciary duties owed to the entity and the other owners. F.S. ? 620.8404 (RUPA); F.S. ? 620.1408 (RE-FRULPA); F.S. ? 608.4225 (Florida LLC Act)(each manager and managing member shall owe a duty of loyalty and a duty of care to the LLC and all of the members of the LLC). With the 2005 enactment of RE-FRULPA, non-exclusivity language appearing in the business statutes (includes, without limitation?) was removed, and as noted by commentators, Cohn and Ames, it remains to be seen whether the exclusivity notion will result in a limitation upon a courts ability to rule upon inequitable conduct that does not precisely fit into one of the listed categories?). Cohn & Ames, Florida Business Laws Annotated. Notably, all of the statutes speak of a requirement that those holding fiduciary duties must discharge their duties consistent with the obligation of good faith and fair dealing, and that any duty or obligation is not violated merely because the conduct furthers such persons own interest. F.S. ? 608.4225(1)(c)(LLC Act); F.S. ?620.1408(4)-(5)(RE-FRULPA); F.S. ? 620.8404(4)-(5)(RUPA). In addition, practitioners must be mindful of the non-waivable? provisions contained in the various business statutes, whereby partnership or operating agreements may not eliminate or unreasonably reduce these duties or attempt to eliminate the obligation of good faith and fair dealing, but may contain provisions which set forth specific type or categories of activities or the right to authorize or ratify conduct (after full disclosure) or prescribe standards, but only if these are not manifestly unreasonable.? F.S. ? 620.1110(2)(RE-FRULPA); F.S. ? 608.423(2)(Florida LLC Act); F.S. ? 620.8103(2)(RUPA); now cf. F.S. Section 605.0105(3)(setting forth 17 new, nonwaivable provisions).
Presumably, a duty of disclosure necessarily derives out of these, and is not an independent duty? and therefore, fiduciaries in management positions in these closely-held entities may be held liable by making materially false statements, by omitting material facts, or by making a partial disclosure that is materially misleading. See, e.g., Marie Raymond Revocable Trust v. Mat Five LLC, 2008 Del.Ch. LEXIS 77, at *12-13 (Del.Ch. 2008)(plaintiffs properly request preliminary injunction, after being presented with tender offer exchange memorandum, and request to release all potential claims against a hedge fund and its managers, based on what they claim was materially misleading statements and omissions of fact, and therefore, mandating that a decision be made without being fully informed).
In Florida, blanket, advance waivers of duties are thought to be invalid. See Tufts, "Evaluating LLC Operating Agreements Containing "Carte Blanche Authority and Right to Rely Provisions Purporting to Release Third Parties from Any Duty to Inquire," Tax Section Bulletin, Vol. XXIX, No. 2 (Fall 2013), at 20 (see also, fn. 73).
If you are an owner and have questions about fiduciary duties, inclusive of a duty of disclosure, please contact us.