Nearly twenty years ago, the Appellate Division, First Department rocked the transactional world by throwing out a release and undoing a sale transaction between owners of a limited liability company based upon the unbending fiduciary duties the managing member of the LLC owed to the other (50%) member, in the decision in Blue Chip Emerald LLC v. Allied Partners Inc., 299 A.D.2d 278 (1st Dept. 2002). The decisional law has evolved quite a bit since that time, making it much more difficult to bring or establish such a claim, including for fraudulent inducement. A new decision of the First Department (Silver Point Capital Fund, L.P. v Riviera Resources, Inc., 2021 NY Slip Op 05312 (1st Dep’t Decided Oct 5, 2021)) underscores the sea change.
Evolving Law of Fiduciary Releases
I summarized the turnaround in the law in my October 27, 2011 article in the New York Law Journal “Grappling With Fiduciary Duties in Enforcing Contracts.”