It is perhaps telling that the last uniform business entity act that addressed this issue retreated to the traditional, trust-inspired, fiduciary duty standard to govern relations among its members. In fact, the Revised Uniform Limited Liability Company Act (2006) pointedly did not limit the fiduciary duty owed by its members to each other or to the entity:
Until the promulgation of RUPA, it was almost axiomatic that: (i) fiduciary duties reflect judge-made law; and (ii) statutory formulations can express some of that law but do not exhaustively codify it. The original UPA was a prime example of this approach.
In an effort to respect freedom of contract, bolster predictability, and protect partnership agreements from second-guessing, the Conference decided that RUPA should fence or “cabin in” all fiduciary duties within a statutory formulation. That decision was followed without re-consideration in ULLCA and ULPA (2001).
This Act takes a different approach. After lengthy discussion in the drafting committee and on the floor of the 2006 Annual Meeting, the Conference decided that: (i) the “corral” created by RUPA does not fit in the very complex and variegated world of LLCs; and (ii) it is impracticable to cabin all LLC-related fiduciary duties within a statutory formulation.
As a result, this Act: (i) eschews “only” and “limited to” – the words RUPA used in an effort to exhaustively codify fiduciary duty; (ii) codifies the core of the fiduciary duty of loyalty; but (iii) does not purport to discern every possible category of overreaching. One important consequence is to allow courts to continue to use fiduciary duty concepts to police disclosure obligations in member-to-member and member-LLC transactions.
The about-face in the Revised Uniform Limited Liability Company Act is, of course, a remarkable development given that partnerships and limited liability companies are so similar in most other respects. One anticipates that this issue is not finally resolved and that it may be revisited in the partnership context.