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Why RULLCA Cabins The Duty Of Loyalty

I always enjoy hearing from readers of this blog, although I must admit that I enjoy it more when they are not pointing out an error.  Last Friday, I noted that Professor Douglas K. Moll was questioning why California's Revised Uniform Limited Liability Company Act cabined the duty of loyalty.  I had no ready answer but that very day a reader wrote to point out the following discussion in Understanding Fiduciary Duties in Business Entities, a new publication of the Continuing Education of the Bar (aka CEB).  With permission, these are copied below:

3.11            2.  NCCUSL's Model LLC Act

                In 1994, NCCUSL proposed the first version of its Uniform Limited Liability Company Act (Model LLC Act) for adoption by the states. The Model LLC Act was revised further in 1996, again in 2006, and most recently in 2013. The most recent version is available at http://www.uniformlaws.org/shared/docs/limited%20liability%20company/ullca_final_2014.pdf. NCCUSL's Model LLC Act sought to promote uniformity among the states, nearly all of which had LLC enabling acts that varied considerably from one another in form and substance.

                As it relates to fiduciary duties, the Model LLC Act reflected a compromise between a statutory philosophy that parties should be able to freely define their own relationships (a view known as "contractarian") and the view that the statute should establish certain minimum standards for the partnership relationship (a view sometimes known as "fiduciarian"). See §2.43.

NOTE:  The original version of NCCUSL's Model LLC Act "cabined" its enumeration of fiduciary duties; in other words, it provided that the duties specified in the Model LLC Act constituted an exclusive list of all fiduciary duties owed by members or managers. In 2006, however, NCCUSL "un-cabined" the fiduciary duty provisions; the Model LLC Act now does not purport to set forth an exhaustive list of fiduciary duties. See NCCUSL, Uniform Limited Liability Company Act (2006) (Last Amended 2013), Prefatory Note, at 3. available at http://www.uniformlaws.org/shared/docs/limited%20liability%20company/ullca_final_2014.pdf.

* * * * *

3.13            2.  Revised Uniform Limited Liability Company Act (RULLCA)

                California enacted a modified form of NCCUSL's Model LLC Act, the California Revised Uniform Limited Liability Company Act (RULLCA) (Corp C §§17701.01–17713.13), in 2012, effective January 1, 2014. Importantly, the version of NCCUSL's Model LLC Act from which RULLCA was largely derived was the 2006 version, which is no longer available on NCCUSL's website. NCCUSL's Model LLC Act has been subject to some significant revisions since 2006. See http://www.uniformlaws.org/shared/docs/limited%20liability%20company/ullca_final_2014.pdf.

                Most, but not all, of the provisions of RULLCA are "default" rules that apply only if the members have not agreed otherwise in a written operating agreement. See §3.27. Thus, if the operating agreement adopts rules for an LLC's operation that are different from the RULLCA default rules, the terms of the operating agreement will, in most (but not all) instances, override the RULLCA default rules. See Corp C §17701.10(a).

This background is helpful, but it doesn't explain why California cabined fiduciary duties when NCCUSL had "un-cabined" them in its 2006 version. 

For those readers not familiar with the CEB, it is a self-supporting program of the University of California that is cosponsored by the State Bar of California.  Focused on California law, the CEB publishes a wide variety of books, periodicals and other educational materials for lawyers.

 

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