Doctrine of Independent Legal Signifcance applies to Delaware LLCs

Steven D. Goldberg, Esq. Wilmington, DE
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Delaware attorneys who practice in the area of limited liability companies and limited partnerships had generally formed a conclusion that the corporate concept to independent legal significance also applied to limited liability companies and limited partnerships. The corporate concept enunciated in Warner Communications, Inc. v. Chris-Craft Industries, Inc., 583 A.2d 962 (Del.Ch. 1989) held that an action validly taken pursuant to one section the the DGCL are legally independent from actions that might have been taken under another section.

In September, 2007, Vice Chancellor Parsons decided the case of Twin Bridges Limited Partnership, et. al v. Draper, CA 2351-VCP, a case involving a challenged amendment to the LLC agreement followed by a merger being used to resolve a dispute between the majority and minority members. In foot note 47 he observed “Whether the doctrine of independent legal significance applies in the context of a limited partnership dispute is an open question in this State.” While the Vice Chancellor was correct that no Delaware court had previously decided the issue, Delaware alternative entity attorneys thought the issue was settled. The decision created substantial discussion within the bar.

Transactional attorneys embrace the doctrine as it provides independent avenues to reach the same result and does not preclude the use of one avenue solely on the bases that that the drafter did not use or comply with another avenue to the result. Litigators do not embrace the doctrine as it produces an escape hatch for a defendant in litigation.

The Delaware tradition is not to amend the law in response to a court decision until the decision is final. In the 2009 amendments to both the Delaware LLC Act and the Delaware Revised Uniform Limited Partnership Act the Delaware Legislature amended Section 1101  to add a new subsection (h) which reads “Action validly taken pursuant to one provision of this chapter shall not be deemed invalid solely because it is identical or similar in substance to an action that could have been taken pursuant to some other provision of this chapter but fails to satisfy one or more requirement prescribed by such other provision.”

The new section states what Delaware attorneys understood the doctrine to provide and now definitively applies the doctrine of independent legal significance to both limited liability companies and limited partnerships under Delaware law.

I have an active Delaware business practice as well as a practice in Delaware’s State and Federal courts. If you or your client have a business matter or a matter which you wish to litigate in Delaware or has a matter pending in Delaware, we would appreciate the opportunity to consult with you regarding our representation. Please remember that we do not accept representation without a written engagement letter.

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