Kahn v. Warburg Pincus, LLC: A Wake-Up Call for LLC Owners
On April 30, 2025, the Delaware Court of Chancery issued a decision in Kahn v. Warburg Pincus, LLC, C.A. No. 2024-0523-LWW (April 30, 2025). The case highlights how powerful LLC Agreements can be—and how majority members can use them to shape deals in their favor.
What Happened
The case involved a merger between two types of healthcare companies: An urgent care provider and a primary care provider. The urgent care company was mostly owned by a private equity firm, while a group of primary care physicians owned a minority share.
What the Court Decided
Here are the key takeaways from the court’s ruling:
1. Tag-Along Rights Are Real—but Can Be Changed
Tag-along rights let minority owners (like the doctors) join in on a sale if the majority owner (like the private equity firm) sells its stake. This helps protect smaller owners from being left behind with a new, unfamiliar buyer.
In this case, the LLC Agreement gave the minority members tag-along rights—but also allowed those rights to be changed if the affected group voted to approve it. That’s exactly what happened: the LLC Agreement was amended, and the tag-along rights were removed.
2. Fiduciary Duties Can Be Waived
Normally, business partners owe each other fiduciary duties, like acting in good faith and putting the group’s interests ahead of their own. But the LLC Agreement in this case said the private equity firm didn’t have to follow those duties. The court said that was okay—because the LLC Agreement clearly allowed it.
3. Disparate Consideration Is Allowed If the Rules Are Followed
In the merger, the majority member got all cash, while the minority members received a mix of cash and stock in the new company. This is called disparate consideration—when different owners get different types or amounts of payment in a deal. That court allowed this because the LLC Agreement called for it.
Why This Matters for LLC Owners
This case is a big reminder that LLC Agreements are powerful. They can override normal legal protections and give majority owners a lot of control. Here’s what every LLC member should keep in mind:
- Read the Fine Print: Your agreement might waive fiduciary duties or allow changes that benefit majority members.
- Stay Involved: Important changes can be made with a class vote. If you’re not paying attention, you could lose key rights.
- Understand the Role of Majority Members: They often structure deals to benefit themselves. Minority members need to make sure the LLC Agreement protects their interests from the start.
- Don’t Leave Legal Gaps: Courts will enforce what’s written—and ignore what isn’t. In Kahn, because the LLC Agreement was detailed and explicit, the court didn’t rely on legal doctrines that allowed it to divine the intent of the members.
In the end, Kahn shows that Delaware courts will enforce what’s written in an LLC Agreement—even if it feels unfair. If you’re part of an LLC, make sure your contract gives you the protection you need. Our team can help with any LLC related questions or disputes. Contact our office today at info@beresfordlaw.com or by phone at (425) 776-4100. to discuss your options.