A recent Delaware Court of Chancery ruling suggests drafters of LLC operating agreements may want to consider establishing a process by which managers of LLCs can be deemed to act in good faith and avoid application of the implied duty of good faith.

The Nevada Supreme Court ruled in Weddell v. H2O, Inc., 128 Nev. Adv. Op. #9, (Nev. March 1, 2012) that a judgment creditor is like an assignee of a membership interest. The creditor is entitled to only the share of the distributions the member would otherwise have received. The managerial interest of the debtor remains with the debtor.

We don’t often see a business judgment rule case emanate from the Iowa Supreme Court, so when one comes along, even in the context of a nonprofit condominium owners’ association, I am compelled to comment on it.

With good fortune this unpublished opinion by the Colorado Court of Appeals will be reversed on appeal. Until then, lawyers need to take notice of this case because it is indicative of the risk inherent in operating a single member LLC.

On January 27, 2012, the Delaware Chancery Court issued a 75-page opinion explaining how fiduciary duties are owed by a manager to an LLC’s members absent an expressed limitation or elimination in the operating agreement.