Monthly Archives: December 2016

When two of the nation’s leading business law jurists question a judge-made doctrine of a relatively recent vintage for giving rise “to a particularly odd pattern of routine veil piercing,” [1] one senses that a doctrinal change may be stirring. In this case, those two jurists are Delaware Chief Justice Leo Strine and Delaware Vice-Chancellor Travis Laster. And the legal doctrine the judicial pair decry is the one announced just 25 years ago in In re USACafes, L.P. [2]

In USACafes, the Delaware Chancery Court held that where the general partner of a limited partnership (“LP”) is itself a corporation—rather than a natural person—the directors of the corporate general partner owe a fiduciary duty directly to the limited partners of the LP. Because it was decided in the context of an LP—addressing who owes fiduciary duties to the limited partners of an LP—USACafes is often conceived of as a doctrine of LP law. But to marginalize USACafes as an LP law doctrine neglects its corporate law ramifications. USACafes is as much a corporate law doctrine, dictating to whom corporate directors owe a fiduciary duty. And this says nothing about USACafes’ application to corporate affiliates, controlling shareholders, LLCs, and other business arrangements. Indeed, stated generally, the doctrine of USACafes holds that whenever a business entity (a “fiduciary entity”) exercises control over and, therefore, stands in a fiduciary position to another business entity (the “beneficiary entity”), those persons exercising control, whether directly or indirectly, over the fiduciary entity (the “controller(s)”) owe a fiduciary duty to the beneficiary entity and its owners.
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