I read Berman v. Tierra Real Estate Group, LLC (515 P.3d 1004) (2022) and was surprised when I read the following: “As Washington’s act was substantially modeled on the ULLCA, we may look to the ULLCA to assist in our interpretation. Dragt v. Dragt/DeTray, LLC., 139 Wash. App. 560, 575, 161 P.3d 473 (2007)*. I serve on Washington’s Partnership Law Committee (the “Committee”), since approximately 2009. Over a period of years, the Committee drafted a complete replacement of Washington’s LLC Act, which went into effect in 2016. The Committee looked at the Uniform Law Committee’s Revised Uniform Limited Liability Company Act and decided early on that it was unworkable in Washington. (See “Washington’s New LLC Act” prepared by Douglas L. Batey and Brian J. Todd, 2016).
While it is true that the “old Act” was substantially modeled on the ULLCA, the “new Act” was not. There are many differences between the new Act and the Uniform LLC Act, which was last updated by the Uniform Law Commission in 2013. I will refer to RCW 25.15 as “the Act”, and the Act drafted by the ULC as “RULLCA”. This is the first in a series of posts identifying some of the differences between the Act and RULLCA.
Although many differences are rather inconsequential, there are several conceptual differences that are important to point out. In this post, I will point out two, and continue with other differences later in the series.
First, RCW 25.15.018 of the Act and Section 105 of RULLCA are largely similar, except RULLCA does not allow the operating agreement to alter or eliminate the fiduciary duties of loyalty and care in toto. RULLCA allows the operating agreement, if not manifestly unreasonable (whatever that means), to alter or eliminate each individual aspect of the duty of loyalty stated in Section 409(b) and (i). The operating agreement may also alter the duty of care, but does not authorize conduct involving bad faith, willful/intentional misconduct, or a knowing violation of the law. Practically speaking, RULLCA’s bar on alteration or elimination of fiduciary duties is moot because it allows for their alteration or elimination by the sum of their parts. Comparatively, RCW 25.15.018 does not allow the limited liability agreement to modify, expand, restrict, or eliminate the duty of a member or manager to avoid intentional misconduct and knowing violations of law, excessive distributions or the implied contractual duty of good faith and fair dealing.
Additionally, the Act includes no “manifestly unreasonable” standard as provided under RULLCA. Furthermore, it is unclear whether RULLCA’s “manifestly unreasonable” standard applies differently to its “unreasonable” standard applied throughout RULLCA.
Second, the Act subjects both members in member-managed LLCs and managers in manager-managed LLC to the same fiduciary duties. RCW 25.15.038. Comparatively, RULLCA provides for different fiduciary duties depending on whether one is a member or a manager. Additionally, Section 409(g) of RULLCA includes a “fairness to the LLC” defense against conflict-of-interest transactions, and any comparable claims in equity or in common law. The Act includes no such defense.
Does the Berman Court’s statement that Washington’s LLC Act was substantially based on RULLCA matter? That is the question this series of posts will seek to answer. Stay tuned!
*How can a 2007 case be cited as authority for this proposition when Washington’s LLC Act was passed in 2016?
To learn more about Washington’s LLC Act, please contact Beresford Booth at email@example.com or by phone at (425) 776-4100.