The Delaware Court of Chancery’s recent opinion in Cygnus Opportunity Fund LLC et al. v. Washington Prime Group LLC et al. presents a veritable grab bag of potential blog posts, from a suggestion that an officer of an Limited Liability Company could be contractually bound by an LLC Agreement he never signed to the interesting interplay (and potential conflict) between an officer’s duty of obedience to the LLC’s board and the officer’s duty of disclosure to investors. The focus here — and we believe chief among the thorny issues addressed in Cygnus — is the Court of Chancery’s decision to sustain a claim for breach of the implied covenant of good faith and fair dealing with respect to an issue that the LLC Agreement expressly addressed. What makes it even more fascinating is the tone of the Opinion: Vice Chancellor Laster evidently came to an early conclusion that, taking the allegations as true for purposes of a pleading motion, there was some inherent unfairness in the Defendants’ conduct that needed to be set right. Left unclear is the impact of this decision, assuming it is not disturbed on appeal, on Delaware’s long-standing deference to parties’ agreements and, in particular, limitations of duties, in the LLC context. In any event, the Opinion should serve as a cautionary tale for companies considering converting to an LLC form through a non-consensual bankruptcy process.

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