Sometimes, in order to give yourself a complete “free pass” in making a decision under a contract, you will provide that you may reach that decision “in the party’s sole discretion, with or without cause.”  Does that work?

Circumstances vary based on the facts, and the treatment of such language in a contract, for example for the sale of goods, may face a different standard from that applied to individuals in a joint business relationship.

In the recent Skye Mineral case, the Delaware Court of Chancery determined that a provision relied upon by a member of a limited liability company, permitting a decision which by the terms of the LLC agreement could be made in such party’s “sole discretion,” does not really mean what it says.

Parties engaged in a joint enterprise owe fiduciary duties in certain circumstances.  In partnerships particularly, the obligation is high.  Limited liability companies are often thought to be analogous to partnerships.  The situation in corporations is more muddied, and while in Massachusetts fellow shareholders in closely held corporations often are found to have various fiduciary duties to each other, the rulings in Delaware can fairly be said to be not quite so clear.

In Skye Mineral, the Court held that “sole discretion” language did not waive fiduciary duties of loyalty.  In order to waive those fiduciary duties, the document must specifically waive all “fiduciary duties, including duties of loyalty.”

Reference is made to my immediately prior post concerning “Contracts and Virus.”  These two post, taken together, make it clear that “boilerplate” contract language does not constitute good drafting.  I suggest recipients of this post take a look at their present form documents; is it time for a careful review?