There is a small tension in an important provision of the Florida LLC statute. It is harmless, but for the novice it could be confusing nonetheless. I identify the issue and clarify the small point, which is: Fla. Stat. § 605.0111(2), suggesting that fiduciary duties can be “eliminated” in the operating agreement, has no operative function.

A little background is needed. A major facet of LLC laws is that they provide great contractual flexibility in constructing the internal rules of governance. Some LLC statutes specifically state a policy “to give the maximum effect to the principle of freedom of contract and to the enforceability of limited liability company agreements.” 6 Del.C. § 18-1101(b). See Fla. Stat. § 605.0111(1) (same); Md.C. § 4A-102(A) (same); Nev.Rev.Stat. § 86.286(4)(B) (same). The uniform partnership statutes for both general and limited partnerships (UPA, RUPA, RULPA, ULPA 2001) do not provide an equivalent provision; nor does the Revised Uniform Limited Liability Company Act (RULLCA).

An important facet of contractual flexibility relates to fiduciary duties among members and managers. There are two distinct approaches to contracting for duty: (1) full contractability, or (2) partial contractability. In permissive jurisdictions like Delaware and Nevada, fiduciary duties “may be expanded or restricted or eliminated by provisions in the limited liability company agreement.” 6 Del.C. § 18-1101(c). See Nev.Rev.Stat. § 86.286(5) (“such duties may be expanded, restricted or eliminated by provisions in the operating agreement”). The approach of partial contractability jurisdictions is reflected in the RULLCA, which sets mandatory minimum standards. See RULLCA § 110(c)(4) (“An operating agreement may not . . . eliminate the duty of loyalty, the duty of care, or any other fiduciary duty” though certain aspects of fiduciary duty may be restricted or eliminated).

The ultimately harmless tension arises because the Florida statute invokes the language (or the spirit) of full contractability while following the RULLCA’s basic approach of partial contractability. Section 605.0111(2) provides that “the duties of the member, manager, or other person may be restricted, expanded, or eliminated, including in the determination of applicable duties and obligations, under this chapter, by the operating agreement, to the extent allowed by s. 605.0105.” The cosmetic gloss of this section seems to mirror the language of full contractability. But the plain language cross-reference to § 606.0105 quickly dispels the notion that Florida follows the Delaware/Nevada model of maximum permissiveness. Section 605.0105 basically follows the RULLCA approach: “An operating agreement may not . . . Eliminate the duty of loyalty or the duty of care” though certain “aspects of the duty of loyalty” may be eliminated if not manifestly unreasonable.

Bottom line—The policy of the Florida LLC statute is “to give the maximum effect to the principle of freedom of contract,” § 605.0111(1), but maximum does not mean complete. Drafters should understand that § 605.0111 does not enable full contractability. Section 605.0111(2) is a superfluous cross-reference. It has no statutory function other than to refer to issue of contractability to § 605.0105, which is the operative provision.

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Robert Rhee

Professor Rhee’s legal experience includes positions as a law clerk on the U.S. Court of Appeals for the Third Circuit, and a trial attorney in the Honors Program of the U.S. Department of Justice. He also has significant investment banking experience. He was a vice president in financial institutions investment banking at Fox-Pitt, Kelton (then a unit of Swiss Re) in New York, a real estate investment banker at Deutsche Banc Alex. Brown, and an M&A investment banker at UBS Warburg in London. He has worked on public and private M&A assignments, distressed restructurings, private equity funding, and debt and equity issuances. He is an active writer and scholar. His articles have been published in leading journals including New York University Law Review, Michigan Law Review, Northwestern University Law Review, Vanderbilt Law Review, Notre Dame Law Review, Emory Law Journal, William & Mary Law Review, and Florida Law Review.

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