FLORIDA’S LIMITED LIABILITY COMPANY ACT
This leads to a question that is perhaps of more interest to juris- prudes than to practitioners: what do we call a “legal” rule that is unenforceable? Is it still “law,” or is it something else—a “norm,” perhaps? There is a burgeoning literature on the role of “norms” and extra-legal sanctions in shaping behavior, and I do not propose to replicate here the discussion of a topic which is consuming whole is- sues of law reviews.88 It is enough to note that the duty of care and the obligation of good faith are, for all practical purposes, unenforce- able.89
Since I would cheerfully eliminate the duty of care and the overly amorphous obligation of good faith and fair dealing anyway, or at least keep them around only as default rules,90 I have no objection to this. In any event, if the firm’s organizers want to volunteer for li- ability, they are free to do so.91
Self Help: Voting and Leaving
The Approach of Partnership Law
Strong fiduciary duties are less important when self-help is easily available. In a partnership, the default rules provide that every partner has an equal voice and an equal right to participate in man- agement. More importantly, every partner has the power to walk out and take a fair share of the assets with her, either immediately (if the partnership is at will) or eventually (if the partnership is for a term or undertaking).92 If the partner has made (or will make) an
See, e.g., Symposium, Norms and Corporate Law, 149 U. PA. L. REV. 1607 (2001).
COHN & AMES, supra note 24, at 367.
Default rules do at least serve an information forcing function. Ian Ayres &
Robert Gertner, Filling Gaps in Incomplete Contracts: An Economic Theory of Default Rules, 99 YALE L.J. 87 (1989). On the other hand, contracting out increases transaction costs. I am not convinced that the duty of care confers any benefits that outweigh those costs, and I would be content to leave good faith to its appropriate role as an aid to the in- terpretation of contracts whose drafters left gaps which require filling.
91. Section 608.4227, Florida Statutes, provides that a member’s or manager’s duties and liabilities may be expanded by the articles of organization or operating agreement. Thus, a limited liability company may “opt out” of the statutory exculpation provisions in whole or in part. In contrast, the FBCA does not, on its face, allow the organizers of a cor- poration to opt out of the exculpatory provisions. According to COHN & AMES, supra note 24, at 104, this means that they may not do so. (I should note that my colleague John Lar- son does not agree with Mssrs. Cohn & Ames on this point, and I remain agnostic on the issue.)
A note of caution for those drafting operating agreements: Counsel accustomed to pre- paring limited partnership agreements routinely include provisions limiting liability for breach of the duty of care to “gross negligence.” If such a provision is unthinkingly inserted in an LLC operating agreement, it may well result in the assumption of liability, rather than protection against it.
92. Under RUPA’s default rules, the manner of departure makes a difference. Volun- tary departure from an at will partnership gives the dissociating partner the right to force the winding up and liquidation of the partnership. Involuntary departure, whether by death or judicial decree, gives the withdrawing partner or her estate the right to the fair