Del. SC says judge used opinion as a platform

By Nathan Bass | Nov 13, 2012


DOVER, Del. (Legal Newsline) - The Delaware Supreme Court affirmed the decision of Chief Judge of the Delaware Court of Chancery, Leo E. Strine, Jr., in a contractual dispute case but issued a strident criticism of the Judge's use of the opinion "as a platform from which to propagate (his) individual world views on issues not presented."

The case, Auriga Capital Corporation et al. v. Gatz Properties, LLC and William Gatz, involved a dispute between the controlling member-manager and minority investors of Peconic Bay, LLC, which held a long-term lease on property developed into a golf course in Long Island, New York.

Auriga alleged that after the golf course operator, American Golf, failed to make a profit for several years, Gatz began to manipulate the business conditions in order to place himself in a superior position to the minority investors of the LLC.

Strine found for Auriga and the other minority investors and Gatz appealed to the Delaware Supreme Court.

The Delaware Supreme Court agreed with Strine on all the substantial issues, including damages, affirming Strine's decision by finding that Gatz Properties and William Gatz "violated that contracted-for fiduciary duty by refusing to negotiate with a third-party bidder and then, by causing the company to be sold to himself at an unfair price in a flawed auction that the manager himself (Gatz) engineered."

The five justices of the Court heard the appeal en banc and the Court issued its opinion per curiam - no single justice claiming authorship. After addressing the matters on appeal, the Court found it necessary to address "one issue the trial court should not have reached or decided."

Strine had chosen to comment at length on his opinion that the Delaware Limited Liability Act imposes "default" fiduciary duties upon controllers and managers unless the parties to the LLC agreement specifically agree, in their contract, that those duties do not apply.

"Where, as here, the dispute over whether fiduciary standards apply could be decided solely by reference to the LLC Agreement, it was improvident and unnecessary for the trial court to reach out and decide, sua sponte, the default fiduciary duty issue as a matter of statutory construction," the Court wrote.

"First, the PeconicBay, LLC Agreement explicitly and specifically addressed the "fiduciary duty issue" in Section 15, which controls this dispute. Second, no litigant asked the Court of Chancery or this Court to decide the default fiduciary duty issue as a matter of statutory law. In these circumstances we decline to express any view regarding whether default fiduciary duties apply as a matter of statutory construction. The Court of Chancery likewise should have so refrained.

"A judge's duty is to resolve the issues that the parties present in a clear and concise manner. To the extent Delaware judges wish to stray beyond those issues and, without making any definitive pronouncements, ruminate on what the proper direction of Delaware law should be, there are appropriate platforms, such as law review articles, the classroom, continuing legal education presentations, and keynote speeches."

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