In a recent court case, the long standing tenet of managerial discretion, and its relation to the implied covenant of good faith and fair dealing, have once again come under scrutiny. The link to full case details elaborates on the crux of the matter.
Typically, managers of Limited Liability Companies (LLCs) have leveraged significant freedom and unrestricted “discretion” as laid out in the LLC’s operating agreement. However, every contract, including LLC operating agreements, are subject to the implied covenant of good faith and fair dealing. This is a principle put in place to ward off any arbitrariness or unreasonable actions that would frustrate the other party’s reasonably expected benefits from their agreement.
Authored by Patton Sullivan Brodehl LLP, the article gives insights into how the above principles intertwined in this fresh legal case. As legal professionals, it is of utmost importance to understand the nuances of how these doctrines could potentially affect business and legal decisions involving LLCs.
The current climate reflects an evolving interpretation of managerial discretion and provides a renewed opportunity for legal professionals to not only understand but to help shape the law around this key business law construct. We encourage numerous discussions and educated decisions surrounding this complex area of business law, given the significant implications these cases have on the legal landscape.