USACafes: A Return

It is often noted that alternative entities (e.g., limited partnerships (LPs), limited liability companies (LLCs)) are creatures of contract. Fisk Ventures LLC v. Segal et al., 2008 WL 1961156, at *8 (Del. Ch.) (“[L]imited liability companies . . . are creatures . . . of contract, those duties or obligations must be found in the LLC Agreement or some other contract.”).
At the same time, over 25 years ago, during the formative years of the law regarding alternative entities, the Delaware Court of Chancery posed the following hypothetical in the seminal case of In re USACafes, L.P. Litigation:
Consider, for example, a classic self-dealing transaction: assume that a majority of the board of the corporate general partner [of a limited partnership] formed a new entity and then caused the general partner to sell partnership assets to the new entity at an unfairly small price, injuring the partnership and its limited partners. Can it be imagined that such persons have not breached a duty to the partnership itself? And does it not make perfect sense to say that the gist of the offense is a breach of the equitable duty of loyalty that is placed upon a fiduciary?
600 A.2d 43, 49 (Del. Ch. June 7, 1991), appeal refused sub nom. Wyly v. Mazzafo, 602 A.2d 1082 (Del. 1991) (TABLE). Not suffering from subtlety, the court relied on “general [equitable] principles and trust law” to hold that the individuals who controlled the general partner of a limited partnership (either directly or indirectly) owed a fiduciary duty of loyalty to the limited partnership and its limited partners.
Stated differently, the duty of loyalty owed by the human controllers of an entity-managed LLC or LP is extra-contractual and stems from traditional equitable duties under common law. This was a dramatic change in the law, which previously only permitted finding liability against the human controllers of a corporate general partner under a veil-piercing theory, as opposed to the theory that they owed a direct fiduciary duty to the limited partnership and its limited partners. See Gotham Partners, L.P. v. Hallwood Realty Partners, L.P., 2000 WL 1476663, at *20 (Del. Ch.) (stating that, before USACafes: “Only if there had been abuse of the corporate form by the owners of the corporate general partner that would justify veil piercing would the limited partners be able to look beyond the corporate partner to others for redress.”).
This article argues in favor of a return to the pre-USACafes state of the law, because the equitable aims of USACafes and the contractarian nature of alternative entities are not inherently in tension. Who owes fiduciary duties to an alternative entity should be determined solely by looking at the operating agreement, not “[by] disregard[ing] a negotiated agreement among sophisticated parties. . . .” R & R Capital, LLC v. Buck & Doe Run Va