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S i LLC O i A Structuring LLC Operating Agreements Crafting Provisions on Fiduciary Duties, Indemnification and Exculpation to Minimize Business Disputes

T d ’ f l f

1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific

THURSDAY, JULY 25, 2013

Today’s faculty features:

Benyamin S. Ross, Gibson Dunn & Crutcher, Los Angeles

Melissa K. Stubenberg, Director, Richards Layton & Finger, Wilmington, Del.

Tammy L. Mercer, Young Conaway Stargatt & Taylor, Wilmington, Del.Tammy L. Mercer, Young Conaway Stargatt & Taylor, Wilmington, Del.

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Structuring LLC Operating AgreementsStructuring LLC Operating AgreementsCrafting Provisions on Fiduciary Duties, Indemnification and

Exculpation to Minimize Business Disputes

July 25, 2013

<Presentation Title/Client Name>

IntroductionIntroduction

– Statutory treatment of fiduciary duties (comparative analysis)– Statutory approaches to waiving or modifying fiduciary duties

(comparative analysis)

333 South Grand AvenueLos Angeles, California 90071

Presented by:Ben Ross

i Tel: 213 229 [email protected]

AssociateLos Angeles Office

6


Limited Liability Company DispersionLimited Liability Company Dispersion

Percentage of LLC’s Formed by State, 2004-2007

7%10%

DelawareFlorida

California

• Principal place of business.

• Large firms prefer Delaware5%

5%

4%

4%

CaliforniaTexasNew JerseyNew York

Other

Large firms prefer Delaware.

• Delaware Limited Liability Company Act di i l id4%

65%disproportionately guides statutes of other states.

Source: Rodney D. Chrisman, LLCS are the New King of the Hill: An Empirical Study of the Number of New

7

y , g f p y f fLLCs, Corporations, and LPs Formed in the United States Between 2004-2007 and How LLCs were Taxed for Tax Years 2002-2006, 15 Fordham J. Corp. & Fin. L. 459, 468-76 (2010).


Who Owes Fiduciary Duties?Who Owes Fiduciary Duties?Non-Managing Members Statutory Fiduciary Duties

(weighted by LLC formations 2004-2007)

29%7%10%

31%

13%

10%

31%

Delaware - No Provision

Florida - Members Owe Duties Even If Manager-Managed

New York - May Transact Business with LLCy

RULLCA - No Member Duties if Manager-Managed

ULLCA - Combination of New York & RULLCA

Other

8

Sources: Chrisman, LLCS are the New King of the Hill, 468-76.Ribstein and Keatinge on LLCs, 583-585.


Who Owes Fiduciary Duties? (Delaware vs California)Who Owes Fiduciary Duties? (Delaware vs. California)

Delaware California

Recent Amendments

Amendment to Section 18-1104 of the LLC Act to address default fiduciary duties, expected to become effective on August 1, 2013.

In a restatement, the California Revised Uniform Limited Liability Company Act (popularly known as RULLCA) will take effect on January 1, 2014.

D f lt “I id d f i hi h M b M d (17704 09)Default Fiduciary Duties

“In any case not provided for in this chapter, the rules of law and equity, including the rules of law and equity relating to fiduciary duties and the law of merchant shall govern.” (18-1104)

Member-Managed (17704.09)Members are subject to specifically defined duties of loyalty and care, and an obligation of good faith and fair dealing.

( )Manager-Managed (17704.09)Managers are subject to the defined duties of loyalty and care, and an obligation of good faith and fair dealing.Members are only subject to an obligation ofMembers are only subject to an obligation of good faith and fair dealing.

9


Who Owes Fiduciary Duties? (Delaware)Who Owes Fiduciary Duties? (Delaware)

• Controlling Members• In Kelly v. Blum, a controlling member initiated and completed a freeze-out merger, at the

expense of minority owners of the LLC; the court held that such controlling member in fact owed fiduciary duties absent a clear waiver (which was absent). 2010 WL 629850 (Del. Ch., February 24, 2010)

• Controlling Affiliates of Entity Managers of LLCs• USA Cafes and its progeny suggests there is a limited context in which fiduciary duties extend toUSA Cafes and its progeny suggests there is a limited context in which fiduciary duties extend to

the person who controls the general partner of a partnership or the manager of an LLC.

• Bay Ctr Apartments held that a complaint stated a breach of fiduciary duty claim against the owner of an entity that managed the LLC where the complaint alleged that the owner had used hi l ff l li bili d ) B C A O LLChis control to stave off personal liability under a guarantee). Bay Center Apartments Owner, LLC v. Emery Bay PKl, LLC, 2009 WL 1124451 (Del. Ch., April 20, 2009)

• Feeley, on the other hand, held that an individual who managed an entity controller could be held liable only for breaches of duty of loyalty, but not breaches of duty of care. Feeley v. NHAOCG,

10

y y y y, y y ,LLC, 62 A.3d 649, 670-71 (Del. Ch. 2013)


Duty of CareDuty of Care

• Delaware – silent.

Statutory Duty of Care(weighted by LLC formations 2004-2007)

• ULLCA – liable only for gross negligence, bad faith, recklessness or equivalent

Delaware - Generally Silent

ULLCA - Liable for Bad Faith, etc

RULLCA - Prudent Person

Otherconduct.

• RULLCA – prudent person in similar circumstances

26%

7%

similar circumstances.

• Applicable?28%

39%

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Waiver of Fiduciary DutiesWaiver of Fiduciary DutiesStatutory Limitations on Waiver of Fiduciary Duties

(weighted by LLC formations 2004-2007)Freedom of Contract• Most states permit the (near)

complete waiver and elimination of fiduciary duties.

Delaware - No Limitation on WaiverSilentNew York - Some LimitationsRULLCA - Manifestly Reasonable and Approved

8%

18%

Other

18%

41%

19%

14%

12



Waiver of Fiduciary Duties (Delaware vs California)Waiver of Fiduciary Duties (Delaware vs. California)

Delaware California

Elimination or Modification?

“A limited liability company agreement may provide for the limitation or elimination of any and all liabilities for breach of contract and breach of duties

Operating agreement: •“shall not… [except as set forth below] eliminate the duty of loyalty, the duty of care, or any other fiduciary duty.” (17701.10(c)(4))•But an operating agreement may

D t f L lt (17701 10( )(14))contract and breach of duties (including fiduciary duties)…” (18-1101(e))

Duty of Loyalty (17701.10(c)(14))• identify types or categories of activities that do not violate

the duty of loyalty, if not manifestly unreasonable.• specify member percentages to authorize actions that

otherwise would violate the duty of loyalty, after full disclosure to all members of all material factsdisclosure to all members of all material facts.

Duty of Care (17701.10(c)(15))• reasonably reduce the duty of care.

Manager-Managed (17701.10(e))Manager fiduciary duties may only be modified (not eliminated) in a written operating agreement with the informed consent of the members.

Member-Managed (17701.10(f))If a responsibility is expressly transferred from one member to

th th ti t t th b fit f th

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another, the operating agreement may, to the benefit of the transferring member, also eliminate or limit any fiduciary duty pertaining to the responsibility.


Waiver of the Implied Covenant of Good FaithWaiver of the Implied Covenant of Good Faith and Fair Dealing (Delaware vs. California)

D l C lif iDelaware California

Elimination or Modification?

“…a limited liability company agreement may not limit or eliminate liability for any act or omission that constitutes a bad faith

“An operating agreement shall not…eliminate the contractual obligation of good faith and fair dealing…” (17701.10(c)(5))

violation of the implied contractual covenant of good faith and fair dealing.” (18-1101(e))

14

Modifying Default Fiduciary DutiesMelissa K. StubenbergMelissa K. Stubenberg

Richards, Layton & Finger, P.A.Wilmington, DE302-651-7700

[email protected]@rlf.com

www.rlf.com

Modifying Fiduciary Duties

Why modify?

– Avoid uncertainty and inefficiency Existence of inherent conflicts with control personsp Allocation of opportunities

– Avoid divided loyalties– Requirements of third parties– Other effects Burden of proof shift Burden of proof shift

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Modifying Fiduciary Duties Zimmerman v. Crothall, et al., C.A. No. 6001-VCP (Del.

Ch. Jan. 31, 2013). The decision is the Court of Chancery’s post-trial opinion concerning challenges to aChancery s post trial opinion concerning challenges to a series of financing transactions, alleging, inter alia, breach of contract and breach of fiduciary duties by LLC directors and majority members.j y

As to the fiduciary duties claims, the claim against the majority members failed as the Court found that they were not acting in concert. Concerning the plaintiff’s l i f b h f fid i d ti d lclaim for breach of fiduciary duties under common law

and the operating agreement against the directors:– The operating agreement stated that the directors were

fiduciaries of the LLC and required them to act with subjectivefiduciaries of the LLC and required them to act with subjective good faith and with objective reasonableness.

– The operating agreement also set forth a standard for directors engaging in transactions with the LLC.

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Contractually-adopted requirement that such transactions be entirely fair.

17

Modifying Fiduciary Duties Zimmerman v. Crothall (cont’d) However, the Court focused upon the question of who

bears the burden of proof on the question of fairness of abears the burden of proof on the question of fairness of a transaction. The Court noted that in the case of a default fiduciary duty in the LLC context, the initial presumption would be that the defendant director would have thewould be that the defendant director would have the burden of proving entire fairness of the relevant transaction.– Such presumption was not applicable in the instant case,

b th fid i d ti t t l i tbecause the fiduciary duties were contractual in nature. – The drafting of the specific provision was important: The Court

compared the Auriga provision, which left the burden of proof upon the LLC manager to prove fairness, with that at issue in the p g p ,case. The Court found that, in contrast, the Zimmermanprovision established a right to engage in certain transactions so long as they were fair.

– Consequently the burden of proof fell on the plaintiff to prove a

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Consequently, the burden of proof fell on the plaintiff to prove a breach of the contractual requirement of fairness.

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Modifying Fiduciary Duties In Gatz Properties, LLC v. Auriga Capital Corp., 59 A.3d

1206 (Del. 2012), The Gatz LLC Agreement provided:

“Neither the Manager nor any other Member shall be entitled to cause the Company to … enter into any p y yadditional agreements with affiliates on terms and conditions which are less favorable to the Company than the terms and conditions of similar agreements which gcould then be entered into with arms-length third parties, without the consent of a majority of the non-affiliated Members (such majority to be deemed to be the holder of ( j y66-2/3% of all Interests which are not held by affiliates of the person or entity that would be a party to the proposed agreement).”ag ee e t)

19

Modifying Fiduciary Duties The LLC Agreement in Zimmerman provided:

– The Members, Directors, and officers and any of their respective Affili t h ll h th i ht t t t th i d l ith thAffiliates shall have the right to contract or otherwise deal with the Company or its Subsidiaries in connection therewith as the Board of Directors shall determine, provided that such payments or fees are comparable to the payments or fees that would be paid to unrelated third p p y pparties providing the same property, goods, or services to the Company or its Subsidiaries. No transaction between the Company or its Subsidiaries and one or more of its Members, Directors or officers . . . shall be void or voidable solely for this reason or solely because theshall be void or voidable solely for this reason, or solely because the Director or officer is present at or participates in the meeting of the Directors that authorizes the contract or transaction, or solely because his or their votes are counted for such purpose, if (a) the material facts ( )as to the transaction are disclosed or are known to the disinterested Directors and the contract or transaction is approved in good faith by the vote or written consent of the disinterested Directors; or (b) the transaction is fair to the Company or its Subsidiary as of the time it istransaction is fair to the Company or its Subsidiary as of the time it is authorized, approved or ratified by the Board of Directors or the Member.

20


Zimmerman v. Crothall (cont’d)

Other points of interest (drafting considerations): – The Court noted that some of the ambiguities in the– The Court noted that some of the ambiguities in the

operating agreement may have derived from importation of corporate principles that do not have the

i ifi i th LLC t tsame significance in the LLC context. Issued vs. authorized shares. 144 void or voidable language.g g

21


Norton, et al. v. K-Sea Transp. Ptrs. L.P., et al., --A.3d --, 2013 WL 2316550 (Del. May 28, 2013).A.3d , 2013 WL 2316550 (Del. May 28, 2013).

– Delaware Supreme Court considered a GP’s pobligations under an LPA in connection with a merger approval. Construing the LPA as a whole, the Court found that the LPA eliminated any duties thatfound that the LPA eliminated any duties that otherwise exist, and replaced them with a contractual fiduciary duty that the GP must reasonably believe that its action is in, or is not inconsistent with, the best interests of the partnership.

22

Modifying Fiduciary Duties Norton v. K-Sea (cont’d) The Court held that the LPA’s conflict of interest provision p

did not impose an affirmative obligation to establish that the merger was fair and reasonable, but created a safe harbor for approving interested transactionsharbor for approving interested transactions.– The Court also considered an LPA provision establishing a

conclusive presumption of good faith if the GP relied on a competent expert’s opinion holding that the GP had satisfied itscompetent expert s opinion, holding that the GP had satisfied its contractual duty to exercise its discretion in “good faith” as defined in the LPA. The conflicts committee of the GP’s board obtained an expert The conflicts committee of the GP s board obtained an expert

opinion that the consideration paid to limited partners was fair, which the Court found satisfied the LPA’s requirements.

23

Modifying Fiduciary Duties Brinckerhoff v. Enbridge Energy Co., Inc., -- A.3d --, 2013

WL 2321598 (Del. May 28, 2013).

The Delaware Supreme Court considered a conflict of interest provision in an LPA providing that conflicted p p gtransactions must be “fair and reasonable to the Partnership”, which standard is satisfied “as to any transaction the terms of which are no less favorable to the [P]artnership than those generally being provided to or from unrelated third parties.”

– The special committee obtained an opinion that the terms of the transaction at issue were consistent with arm’s length terms in all material respectsarm s-length terms in all material respects.

24

Considerations in Drafting

Context– Private Equity/Hedge FundPrivate Equity/Hedge Fund– Joint Venture– Public/MLP– Structured Finance

Effects of negotiation Entirety of agreement

– “limited partnership agreements that attempt to modify, rather than eliminate, fiduciary duties often create a Gordian knot of interrelated standards in different sections of the agreement.” (Norton, et al. v. g ( ,K-Sea Transp. Ptrs. L.P., et al., -- A.3d --, 2013 WL 2316550 (Del. May 28, 2013).)

2525


Gelfman v. Weeden Investors, L.P., 792 A.2d 977 (Del. Ch. 2001)977 (Del. Ch. 2001)– “Rather than sweeping away all default fiduciary duties

in one clear section of the [a]greement and replacing th d ti ith i t t t t l t d dthose duties with a consistent contractual standard . . . the drafters took a more (shall we say) textured approach. . . . These provisions have a head-spinning pp p p gquality upon first reading. After a close examination, the provisions can be parsed to have a somewhat odd but I think discernible meaning ”odd, but I think discernible, meaning . . .

26

Considerations in Drafting Bay Center Apartments provisions

– Relationship of Members. Each Member agrees that, to the fullest extent permitted by the Delaware Act and except as otherwise expressly provided in this Agreement or any other agreement to which the Member is a party: ... (b) The Members h ll h th d ti d bli ti t h th th tshall have the same duties and obligations to each other that

members of a limited liability company formed under the Delaware Act have to each other.Li bilit f M b E t f d ti i d b thi– Liability of Members. ... Except for any duties imposed by this Agreement ... each Member shall owe no duty of any kind towards the Company or the other Members in performing its duties and exercising its rights hereunder or otherwiseduties and exercising its rights hereunder or otherwise.

– Bay Center Apartments Owner, LLC v. Emery Bay PKI, LLC, 2009 WL 1124451 (Del. Ch. Apr. 20, 2009).

27

Considerations in Drafting Sample provisions - full waiver of duties

– Notwithstanding any other provision of this Agreement or any duty otherwise existing at law or in equity, no Manager shall, to the fullest extent permitted by law, owe any [duties] [implied duties] (including fiduciary[duties] [implied duties] (including fiduciary duties) to the Members or the Company; provided, however, that the Manager shall h th d t t t i d ith thhave the duty to act in accordance with the implied contractual covenant of good faith and fair dealingfair dealing

28

Considerations in Drafting Sample provisions - sole discretion (modifies

duty of loyalty)

– Notwithstanding any other provision of this Agreement or otherwise applicable provision of law or equityor otherwise applicable provision of law or equity, whenever in this Agreement the Manager is permitted or required to make a decision in its "sole and absolute discretion " or "discretion " the Manager shallabsolute discretion, or discretion, the Manager shall be entitled to consider only such interests and factors as it desires, including its own interests, and shall, to the fullest extent permitted by applicable law have nothe fullest extent permitted by applicable law, have no duty (including any fiduciary duty) or obligation to give any consideration to any interest of or factors affecting the Membersthe Members.

29

Considerations in Drafting Sample provisions - conflicts safe harbor

Unless otherwise expressly provided in this Agreement whenever a– Unless otherwise expressly provided in this Agreement, whenever a potential conflict of interest exists or arises between the General Partner or any of its Affiliates, on the one hand, and the Partnership or any Partner, on the other, any resolution or course of action by the General Partner or its Affiliates in respect of such conflict of interest shall bePartner or its Affiliates in respect of such conflict of interest shall be permitted and deemed approved by all Partners, and shall not constitute a breach of this Agreement, of any agreement contemplated herein, or of any duty stated or implied by law or equity, if the resolution or course of action in respect of such conflict of interest is (i) approved by Special A l (ii) d b th t f j it f th O t t diApproval, (ii) approved by the vote of a majority of the Outstanding Common Units (excluding Common Units owned by the General Partner and its Affiliates), (iii) on terms no less favorable to the Partnership than those generally being provided to or available from unrelated third parties or (iv) fair and reasonable to the Partnership taking into accountparties or (iv) fair and reasonable to the Partnership, taking into account the totality of the relationships between the parties involved (including other transactions that may be particularly favorable or advantageous to the Partnership).

30


Sample provisions - exculpation

– Notwithstanding anything to the contrary set forth in this Agreement, no Indemnitee shall be liable for monetary damages to the Company, the Members, or any other Persons who are p y ybound by this Agreement for losses sustained or liabilities incurred as a result of any act or omission of an Indemnitee unless there has been a final and non-appealable judgment entered by a court of competent jurisdiction determining that, in respect of the matter in question, the Indemnitee acted in bad faith or engaged in intentional fraud, willful misconduct or, in the

f i i l tt t d ith k l d th t thcase of a criminal matter, acted with knowledge that the Indemnitee’s conduct was criminal.

31


Sample provisions - “good faith”– The term "good faith" as used in this Agreement shallThe term good faith as used in this Agreement shall

have the meaning ascribed to such term under Delaware common law as applied to contracts [(as opposed to fiduciary duties)].opposed to fiduciary duties)].

or– The term "good faith" as used in this Agreement

bj ti d f ith h t imeans subjective good faith as such term is understood under Delaware law.

32

This presentation and the material contained herein are provided as general information and should not be construed as legal advice on any specific matter or as creating an attorney-client relationship. Before relying on general legal i f ti d idi l l ti t lt tiinformation or deciding on legal action, request a consultation or information from a Richards, Layton & Finger attorney on specific legal needs.

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LLC Operating Agreements:Fiduciary Duties In Context of LLCs

Tammy L. MercerYoung Conaway Stargatt & Taylor, LLP

(302) 571‐[email protected]

Copyright © 2012 Young Conaway Stargatt & Taylor, LLP All rights reserved.

Implied Contractual Covenant of Good Faith d F i D li

• Dunlap v State Farm Fire & Cas Co 878 A 2d 434

and Fair Dealing

• Dunlap v. State Farm Fire & Cas. Co., 878 A.2d 434, 442 (Del. 2005).

• The purpose of the Covenant is to enforce the reasonableThe purpose of the Covenant is to enforce the reasonable expectations of parties to a contract where situations arise that are not expressly contemplated and provided for in the language of the contract itselfof the contract itself.

• Note that the Covenant remains, when fiduciary duties are eliminated.


35


• In re Atlas Energy Res., LLC, 2010 WL 4273122, at *13 (Del.

and Fair Dealinggy , , , (

Ch. Oct. 28, 2010).

• The Courts have described the covenant as a “limited and extraordinary• The Courts have described the covenant as a “limited and extraordinary remedy that addresses only events that could not reasonably have been anticipated at the time the parties contracted," which is meant to "protect[] a party from arbitrary conduct that was objectively unanticipated by thea party from arbitrary conduct that was objectively unanticipated by the terms of the contract and that frustrates the fruits of the bargain that the asserting party reasonably expected.”


36


• The implied covenant of good faith and fair dealing involves a 'cautious

and Fair Dealing

enterprise,' inferring contractual terms to handle developments or contractual gaps that the asserting party pleads neither party anticipated." – Nemec v. Shrader, 991 A.2d 1120, 1125 (Del. 2010).

• The Courts have held that when parties have expressly agreed to contractual provisions addressing an issue, the covenant cannot be invoked to override such express provisions. – See Nemec, 991 A.2d at 1128 (citing Kuroda v. SPJS Holdings, L.L.C., 971

A.2d 872, 888 (Del.Ch.2009))(‘[T]he implied covenant cannot be invoked to override express provisions of a contract.’)


37


• Gerber v. Enterprise Prods. Hldgs., LLC, -- A.3d --, 2013 WL

and Fair Dealingp g , , ,

2477233 (Del. June 10, 2013).– Delaware Supreme Court held that a contractual presumption of good

faith did not preclude a claim for breach of implied covenant of good p p gfaith and fair dealing.

• LPA in Gerber provided:– “The General Partner may consult with [experts or] investmentThe General Partner may consult with . . . [experts or] investment

bankers . . ., and any act taken or omitted to be taken in reliance upon the opinion . . . of such Persons as to matters that the General Partner reasonably believes to be within such Person’s professional or expert

h ll b h b dcompetence shall be conclusively presumed to have been done or omitted in good faith and in accordance with such opinion.”

Copyright © 2012 Young Conaway Stargatt & Taylor, LLP All rights reserved.Copyright © 2013 Richards, Layton & Finger, P.A. All rights reserved.38

38


• Gerber v Enterprise (cont’d)

and Fair Dealing

Gerber v. Enterprise (cont d)• The Delaware Supreme Court held that:

– implied contractual covenant of good faith and fair dealing requires that the board act reasonably and in good faith in exercising its discretion in choosingboard act reasonably and in good faith in exercising its discretion in choosing to use the independent committee process.

– “good faith” as used in the LPA safe harbor that created a conclusive presumption does not apply to an implied covenant claim.

• The court adopted the Court of Chancery analysis from ASB Allegiance Real Estate Fund v. Scion Breckenridge Managing Member, LLC, 50 A.3d 434, 440-42 (Del. Ch. 2012), aff’d in part, rev’d in part on other grounds, -- A.3d --, 2013 WL 1914714 (Del. May 9, 2013).– Temporal focus of analysis in fiduciary duty vs. implied covenant.


39


• ASB Allegiance (cont’d)

and Fair Dealingg ( )

– Contractual Good Faith vs. Implied Covenant Good Faith• Fiduciary Duty –“[L]iablity depends on the parties relationship

when the alleged breach occurred not on the relationship as itwhen the alleged breach occurred, not on the relationship as it existed in the past.”

• Implied Covenant – “Looks to the past.” The Court asks, “what the parties would have agreed to themselves had they considered theparties would have agreed to themselves had they considered the issue in their original bargaining positions at the time of contracting.”


40


• Contractually Defining Good Faith

and Fair Dealingy g

• Policemen’s Annuity and Benefit Fund of Chicago, Illinois, et al. v. DV Realty Advisors LLC, 2012 WL 3548206 (Del. Ch. Aug. 16, 2012).

• The Court considered whether the implied covenant imposed a requirement that LPs’ decision to remove a partnership’s general partner be “objectively p p g p j yreasonable”.

• The Court held that, because the removal provision granted the LPs the discretion to remove the general partner and established a specific standard for exercise of their discretion, the implied covenant was not applicable.

• The Court addressed the definition of “good faith” in the LPs’ exercise of discretion standard.

– “Because the LPA provides that it ‘is made pursuant to and shall be governed by the laws of the State of Delaware’ the Court will presume that the parties intended to adopt Dela are's common la definition of good faith as applied to contracts ” Id at 33Delaware's common law definition of good faith as applied to contracts.” Id. at 33.

• The Court described the standard as predominately subjective, with objective boundaries when dealing with utterly unreasonable conduct.

• On appeal.


41

Drafting – Contra PreferendumDrafting Contra Preferendum

• Bank of NY Mellon v. Commerzbank Capital Funding Trust II, 2013 D l LEXIS 145 t *31 32 (D l M 19 2013) (J b J )Del. LEXIS 145, at *31-32 (Del. Mar. 19, 2013) (Jacobs, J.)– “[A] contract which creates rights in public securities investors [should] be

interpreted to give effect to those investors’ reasonable expectation[s]. The underlying rationale is that an issuer is ‘better able to clarify unclearunderlying rationale is that an issuer is better able to clarify unclear . . . contract terms in advance so as to avoid future disputes and therefore should bear the drafting burden that the contra preferendum principle would impose on it.’”

• Emerging Eur. Growth Fund, L.P. v. Figlus, 2013 Del. Ch. LEXIS 80, at *13-14 (Del. Ch. Mar. 28, 2013) (Parsons, V.C.)

“Where onl one part is responsible for drafting an agreement co rts ma– Where only one party is responsible for drafting an agreement, courts may interpret the agreement against the drafting party under the doctrine of contra preferendum.”


42

Other Drafting NotesOther Drafting Notes

• Members and Permitted Transfers

• WithdrawalWithdrawal

• Affiliates (USACafes)

• Intellectual Property


43

This presentation contains general information. It is being provided for general informational purposes and the user should not rely on information in this presentation as legal advice. The information provided herein is not intended to establish an attorney-client relationship. Young Conaway Stargatt & Taylor, LLP provides legal advice only to individuals or entities with which it has established an attorney-clientadvice only to individuals or entities with which it has established an attorney client relationship and such advice is based on the particular facts and circumstances of each matter.


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