In a relatively minor dispute over a Long Island golf course, the Chief Justice of the Delaware Supreme Court made a point of scolding outspoken Delaware Chancellor Leo Strine Jr. for making unnecessary “pronouncements.”
Writing for an en banc court, Chief Justice Myron Steele reminded Strine in Gatz Properties v. Auriga Capital that judges shouldn’t use their opinions “as a platform from which to propagate their individual world views on issues not presented.”
Steele wrote that it was “improvident and unnecessary” for Strine to address whether the majority owners of limited liability corporations owe a fiduciary duty to the minority when the LLC agreement doesn’t create that duty. In this case, Steele pointed out, Strine didn’t have to reach that issue because the LLC agreement expressly created such a duty.
Strine, who was elevated to the top seat on the Delaware Court of Chancery last year, is renown for his opinionated musings on disparate topics, whether expressed from the bench or in court opinions. (See, “Tell Us How You Really Feel, Leo,” The American Lawyer, March 2012.) During a fee award hearing in the high-profile Southern Peru case last year, for example, Strine asked: “What is it about lawyers getting money that’s ickier than investment bankers or other people in society?” He later awarded more than $300 million in fees to the plaintiffs lawyers.
In a footnote, the Chief Justice pointed to Strine’s controversial ruling in the Southern Peru case as another example of the judge propagating his own views. Although the state high court in August upheld Strine’s ruling–in which he awarded $2 billion in a derivative suit–Supreme Court Justice Carolyn Berger criticized Strine’s fee award in a concurring and dissenting opinion. Instead of applying Delaware law, she wrote, he had applied his “own world views on incentives, bankers compensation, and envy.”
Still, as in Southern Peru, the state high court ultimately upheld Strine’s ruling in the Gatz case. The court found that William Gatz, whose family controlled the operations of an LLC called Peconic Bay, had violated his fiduciary duties to the minority stakeholders by selling the company to himself at an unfair price while refusing to negotiate with an outside bidder. Peconic Bay was formed to develop a golf course on Gatz family property on Long Island.
In his ruling in this case, Strine had stated that the Delaware Limited Liability Company Act imposes default fiduciary duties on LLC managers unless the contract says otherwise. Striking down that portion of Strine’s ruling, Steele stated that the statute is ambiguous, and suggested that the legislature clarify if such a duty exists.
One reason Steele may have felt so strongly about this issue is that he wrote an article for the American Business Law Journal on this very topic in 2009. There, he presented the position that no fiduciary duty should exist if the contract doesn’t provide for it.
We reached out to Strine, who declined to comment.
The minority shareholders, led by Auriga Capital, were represented by John Reed of DLA Piper. Gatz was represented by Steven Caponi of Blank Rome. Both declined to comment.
