Parties to Delaware LLC Agreements Cannot Circumvent Fiduciary Duty Waivers via Implied Covenant of Good Faith and Fair Dealing

On April 30, 2025, the Delaware Court of Chancery issued a memorandum opinion dismissing with prejudice a postclosing challenge to the VillageMD acquisition of CityMD. The Delaware Supreme Court later summarily affirmed.

The Delaware Court of Chancery found that where an LLC agreement (i) eliminates fiduciary duties, (ii) authorizes conflicted action/self-interest, and (iii) expressly addresses the challenged conduct through detailed governance and amendment provisions, plaintiffs cannot repackage fairness or disclosure theories as an implied covenant claim. Unlike Delaware corporations — where fiduciary duties are structural and cannot be eliminated by contract — Delaware LLCs and partnerships are built around freedom of contract, and courts will not “import” fiduciary-like obligations by implication when the parties have bargained them away.

The Khan et al. v. Warburg Pincus, LLC, et al. opinion reinforces longstanding Delaware law regarding LLCs and partnerships: Parties to such agreements can agree to waive fiduciary duties, and the courts will not permit one party to get around such waivers through invocation of the implied covenant of good faith and fair dealing. This can include instances in which minority shareholders receive consideration that differs from majority investors, provided that the majority investor follows the agreed terms as written.