Key Takeaways

  • A waiver of fiduciary duties in a Delaware corporation, also known as a corporate opportunity waiver, allows fiduciaries to pursue outside opportunities without first offering them to the corporation.
  • Section 122(17) of the Delaware General Corporation Law (DGCL) enables corporations to include these waivers in their certificate of incorporation.
  • Delaware courts generally uphold corporate waivers if clearly drafted, but courts limit their scope and scrutinize ambiguous or overly broad provisions.
  • LLCs are treated differently—Delaware law requires clear contractual language to waive fiduciary duties, and disputes continue over how far courts should go in implying duties when agreements are silent.
  • Recent cases emphasize tailoring waivers carefully, balancing flexibility with accountability, and ensuring transparency with stockholders.

A waiver of fiduciary duties Delaware corporation is better known as a corporate opportunity waiver. It allows corporate fiduciaries to invest in new opportunities without first offering them to the company. All the company has to do is include Section 122(17) of the Delaware General Corporation Law in its certificate of incorporation. This ruling was decided in 2000 and goes against the traditional regulations surrounding corporations.

What Are Corporate Opportunities?

Delaware courts have used many factors in the past to determine what qualifies as a corporate opportunity. Some of these factors include:

  • If the corporation has enough capital to take advantage of the opportunity.
  • Whether the opportunity is in the same line of business the corporation operates in.
  • Whether the fiduciary would have a conflict of interest if they took the opportunity.

Legal Basis for Corporate Opportunity Waivers

Delaware corporate law historically restricted directors and officers from diverting opportunities that could benefit the corporation. However, Section 122(17) of the DGCL, adopted in 2000, explicitly allows corporations to renounce interest in specific business opportunities. This statutory provision gave rise to the modern waiver of fiduciary duties Delaware corporation practice.

To be enforceable, the waiver must be expressly stated in the certificate of incorporation or, in some cases, a board-approved resolution. Courts reviewing these waivers look for:

  • Clarity of language – vague or generic waivers may be struck down.
  • Board and stockholder approval – ensuring alignment with fiduciary principles.
  • Fairness in context – courts assess whether the waiver unfairly disadvantages minority shareholders.

Are LLCs Exempt From Fiduciary Duties?

Of course, this rule only applies to corporations. If you manage a limited liability company (LLC), a waiver of fiduciary duties is not legally permissible because of a ruling by the Delaware Court of Chancery in the case Auriga Capital Corporation v. Gatz Properties LLC. This case challenged whether a Delaware LLC was obligated to provide fiduciary duties to the members of the company, and the court decided that the LLC was liable for fiduciary duties.

Differences Between Corporations and LLCs

The enforceability of fiduciary duty waivers differs significantly between corporations and LLCs. While corporations rely on Section 122(17), LLCs operate under the Delaware LLC Act, which emphasizes freedom of contract. Fiduciary duties in LLCs may be:

  • Explicitly waived or modified in the LLC agreement, provided the language is clear.
  • Implied by courts when agreements are silent, as highlighted in Auriga Capital Corp. v. Gatz Properties LLC.

The Delaware Supreme Court has acknowledged tension between contract principles and traditional fiduciary duties. Some justices argue courts should not imply duties absent explicit agreement, while others maintain default fiduciary standards should protect investors.

More on Auriga Capital Corporation v. Gatz Properties LLC

This case involved an unsuccessful golf course opportunity. The LLC had leased land for the golf course from a family friend. To pay for it, they got funding from outside investors and gave them a minority piece of the company.

American Golf Corporation then leased the land from the LLC. In the lease, they included a clause that would allow them to terminate the lease early if they wished. Ultimately, they took advantage of this option at the beginning of 2010, as they weren't making money.

This wasn't good news for the LLC, which was sold at auction to recoup funds and then purchased by the LLC's manager for a low price. This meant none of the investors saw a return of their investment.

Naturally, the investors found this practice shady, so they filed a lawsuit against the LLC manager, claiming he intentionally mismanaged the company. Their main argument was that the manager had refused another offer for the LLC from a third party that could have given the investors back all their money. The investors alleged the manager breached his fiduciary duties.

The Court's Decision

The manager tried to defend himself by saying there was no explicit language defining whether the LLC owed fiduciary duties to the members of the company. Additionally, he argued that both the Delaware Limited Liability Company Act and the Delaware General Corporation Law do not mention that traditional fiduciary care duties automatically apply to the manager of an LLC.

After reviewing the case, the court quickly decided that these duties are absolute and that the manager was in the wrong.

Recent Case Developments in Delaware

Delaware courts continue to refine how waivers are interpreted. For example, the Court of Chancery has upheld waivers where the drafting made clear that certain opportunities were outside the corporation’s reach. In Manti Holdings, LLC v. Authentix Acquisition Co., the court emphasized that sophisticated stockholders may contractually limit fiduciary protections if done knowingly and voluntarily.

Similarly, more recent cases stress that advance waivers must be narrowly tailored. Courts remain wary of blanket provisions that appear to absolve directors from all duty of loyalty obligations, particularly where disclosure to minority stockholders was limited.

A Possible Appeal

While most in the legal field weren't surprised at the case's outcome, there was some disagreement about the result. For example, Myron Steele, the Chief Justice of the Supreme Court of Delaware, noted that, in his opinion, “[c]ourts should not imply traditional fiduciary duties when LLC agreements are silent.”

His reasoning came from the fact that LLCs aren't based on common law and are instead based on contracts. In Delaware's LLC Act, it states in section 18-1101(b) that LLCs have freedom of contract, meaning an LLC has some protection through the covenant of good faith and fair dealing.

Therefore, he believed that "courts should assume the parties did not want [fiduciary duties] to apply at all." If several other justices agree with his view, then the Delaware Supreme Court can overturn the ruling on this case and set a precedent that makes fiduciary duties optional for an LLC.

Practical Drafting Tips for Waivers

When drafting a waiver of fiduciary duties Delaware corporation, companies should:

  • Use precise language – specify the scope of opportunities being waived.
  • Disclose conflicts openly – ensure stockholders understand the impact.
  • Avoid overbreadth – courts scrutinize waivers that attempt to eliminate fiduciary accountability entirely.
  • Tailor to business needs – focus on industries, transactions, or relationships relevant to the corporation’s operations.

These steps increase enforceability and reduce litigation risks.

How to Prepare Your LLC for an Appeal

If you're in the process of creating or currently operate an LLC, there are a few things you might want to consider if this case ends up being appealed. Try to use clear and unambiguous language when talking about fiduciary duties in your operating agreement.

Frequently Asked Questions

  1. What is a waiver of fiduciary duties in a Delaware corporation?
    It is a corporate opportunity waiver under DGCL §122(17) that allows directors and officers to pursue outside opportunities without first offering them to the corporation.
  2. Are fiduciary duty waivers always enforceable in Delaware?
    No. Delaware courts enforce them only when clearly drafted, properly approved, and not overly broad or misleading to stockholders.
  3. How do fiduciary duty waivers for LLCs differ from corporations?
    LLCs rely on freedom of contract. Duties can be waived in the operating agreement, but courts may imply duties if agreements are silent.
  4. Can a Delaware corporation waive all fiduciary duties?
    Generally no. Courts are reluctant to uphold blanket waivers that eliminate accountability. Waivers must be tailored to specific opportunities.
  5. What should companies consider when drafting waivers?
    They should use precise language, ensure disclosure, avoid overbreadth, and tailor the waiver to business needs to enhance enforceability.

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