We are discussing the Supreme Court's decision in Gatz v. Auriga Capital, CA 4390, Del. S. Ct., Nov. 7, 2012, where the Court took issue with the Chancery Court for the use of dicta to express views on the fiduciary obligations of managers of LLCs.
The decision is an example of the race to the bottom in action. The lower court in effect found that as a rule of construction LLC operating agreements would be presumed to impose traditional fiduciary duties on managers unless the agreement specifically said otherwise. In other words, in the face of silence, fiduciary obligations existed.
The views of the Chancery Court were pro-investor. The Supreme Court, however, struck down this pro-investor analysis, using an admonition against dicta to do so. Id. (the "court’s statutory pronouncements must be regarded as dictum without any precedential value."). Nor is this the first time this type of thing has happened. A recent example occurred when the Chancellor in Air Products interpreted staggered board provisions in a manner favorable to shareholders. The Supreme Court, however, reversed in a poorly reasoned decision.
Gatz is a reminder that when trial courts go too far in a pro-investor manner, the Supreme Court stands ready to reverse. It of course explains why shareholders and other investors are increasingly seeking reform at the federal level.