FLORIDA STATE UNIVERSITY LAW REVIEW
and managing members may have a mandatory duty to refrain from gross negligence and a mandatory obligation of good faith and fair dealing, but they cannot be sued for money damages for breach of those duties.87
have been known, to the manager or managing member, and known to the man- ager or managing member, or so obvious that it should have been known, to be so great as to make it highly probable that harm would follow from such action or failure to act. (3) A manager or managing member is deemed not to have derived an im- proper personal benefit from any transaction if the transaction and the nature of any personal benefit derived by the manager or managing member are not pro- hibited by state or federal law or the articles of organization or operating agree- ment and, without further limitation, the transaction and the nature of any per- sonal benefit derived by a manager or managing member are disclosed or known to the members, and the transaction was authorized, approved, or ratified by the vote of a majority-in-interest of the members other than the managing member, or the transaction was fair and reasonable to the limited liability company at the time it was authorized by the manager or managing member, notwithstanding that a manager or managing member received a personal benefit. (4) The circumstances set forth in subsection (3) are not exclusive and do not preclude the existence of other circumstances under which a manager will be deemed not to have derived an improper benefit. The previous (largely unused) LLC statute, which had adopted the corporate model for managers’ duties, also adopted the corporate exculpation provisions. The revised statute kept the exculpatory provisions while changing the duties to the partnership model. In ad- dition to exculpation, the statute permits LLCs to indemnify managers or managing mem- bers against expenses or liability under circumstances which parallel the exculpatory pro- visions. Managers and managing members may not be indemnified if they are “adjudicated” to have acted in (more or less knowing) violation of criminal law, to have de- rived an improper personal benefit, to have authorized an unlawful distribution, or to have engaged in willful misconduct or acted with conscious disregard for the best interests of the company. FLA. STAT. § 608.4229. However, they may be indemnified for amounts paid in settlement of a derivative action, although this obviously creates a circularity (manager writes check to company to settle lawsuit, company writes check to manager as indemnifi- cation). That section also permits the company to indemnify officers, employees, and agents who are not covered by the exculpatory provision.
Although the statutory default rule is permissive indemnification, the articles of organi- zation or the operating agreement can presumably make it mandatory. In either case, plaintiff members of the company are likely to find themselves financing the litigation ex- penses of their opponents, at least to the extent of the plaintiffs’ interest in the LLC’s prof- its.
87. There is a very real question whether partners could adopt such exculpatory pro- visions in a partnership agreement. Under RUPA and FRUPA, the partnership or individ- ual partners may sue partners who breach their duties or obligations. R.U.P.A. § 405 (1996) (amended 1997); FLA. STAT. § 608.8405 (2001). According to RUPA’s Official Com- ments, the partners may limit or contract out of their statutory remedies, but may not “eliminate entirely the remedies for breach of those duties that are mandatory under § 103(b).” Official Comments to R.U.P.A. § 405. The Official Comments to section 103 in turn state that restrictions on limiting the rights and remedies for breach of duty are “implicitly” included in the list of non-waivable duties.
Thus, the commentary is vague as to the extent of the partners’ power to modify reme- dies. HILLMAN ET AL., supra note 25, at 218. Can partners include an enforceable provision eliminating money damages for breach of the duty of care or the obligation of good faith? At the very least, the question is litigable, although the existence of exculpation-by-statute in the FBCA and FLLCA may buttress an argument that such an agreement is not con- trary to public policy or “manifestly unreasonable.”