## Facts

- Peconic Bay, LLC was formed to hold a long-term lease and develop a golf course on Long Island property owned by the Gatz family.
- The Peconic Bay LLC agreement named Gatz Properties, LLC as manager; William A. Gatz controlled the manager and the majority membership interests.
- Section 15 of the LLC agreement barred the manager and members from causing the company to enter affiliate transactions on terms less favorable than comparable arm’s-length transactions.
- After problems with the golf course subtenant and the prospect of nonrenewal, the manager took limited steps to protect the company’s value, including limited efforts to obtain alternative operators or buyers.
- A third party (RDC Golf Group) expressed interest in acquiring the lease or transacting with the company, but the manager refused to negotiate.
- The manager caused the company’s assets to be sold to an affiliate he controlled through an auction process found to be flawed and effectively lacking meaningful competition.
- The Court of Chancery found bad faith and willful misrepresentations, concluded the sale price was unfair to the minority members, and awarded damages and attorneys’ fees.

## Issues

1. Whether the manager breached duties imposed by the LLC agreement, including Section 15, by engineering a conflicted sale to himself after refusing to negotiate with an arm’s-length bidder and obtaining an unfair price.
2. Whether, and to what extent, managers of a Delaware LLC owe default fiduciary duties (care and loyalty) when the LLC agreement is silent.

## Decision

- The Delaware Supreme Court (en banc) affirmed the Court of Chancery’s judgment.
- The court held that the LLC agreement contractually adopted an entire-fairness-type standard for conflicted transactions between the LLC and its manager.
- The court held the manager breached that contracted-for duty by refusing to negotiate with a third-party bidder and by causing a self-interested sale at an unfair price through a flawed auction process.
- The court affirmed damages solely on contractual grounds and affirmed the attorneys’ fees award.
- The court agreed the manager was not entitled to exculpation or indemnification under the agreement because he acted in bad faith and made willful misrepresentations.
- The court disapproved the lower court’s extended discussion of default LLC fiduciary duties as unnecessary to the decision and left that broader question unresolved.

## Legal Principles

- Delaware LLC agreements are interpreted as contracts; courts enforce negotiated governance terms according to ordinary contract interpretation.
- An LLC agreement may impose fiduciary-like standards of conduct and review (including an entire-fairness-type obligation) for affiliate or conflicted transactions without using specific “fiduciary duty” terminology.
- Under an agreement imposing an entire-fairness-type obligation, a conflicted manager must establish the fairness of the transaction, including fair dealing and fair price as specified by the contract’s operative standard.
- Contractual exculpation or indemnification provisions do not protect a manager who acts in bad faith or engages in willful misrepresentations when the agreement contains carve-outs for such conduct.
- Appellate affirmance may be limited to dispositive contractual grounds, and nonessential lower-court analysis on unsettled doctrinal questions may be treated as nonbinding dictum.

## Conclusion

The court affirmed liability and remedies because the LLC agreement itself imposed an entire-fairness-type constraint on affiliate dealings, which the manager violated by engineering a self-interested sale through an unfair process at an unfair price, while expressly declining to resolve the separate question of default fiduciary duties in Delaware LLCs.


Gatz Props., LLC v. Auriga Cap. Corp., 59 A.3d 1206 (Del. 2012)