SMU Law Review SMU Law Review
Volume 68 Issue 3 Article 20
January 2015
The Ties That Bind: LLC Operating Agreements as Binding The Ties That Bind: LLC Operating Agreements as Binding
Commitments Commitments
Joan MacLeod Heminway
University of Tennessee, Knoxville
Recommended Citation Recommended Citation
Joan MacLeod Heminway,
The Ties That Bind: LLC Operating Agreements as Binding Commitments
, 68
SMU L. REV. 811 (2015)
https://scholar.smu.edu/smulr/vol68/iss3/20
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THE
TIES
THAT
BIND:
LLC
OPERATING
AGREEMENTS
AS
BINDING
COMMITMENTS
Joan
MacLeod
Heminway*
OMETIMES,
a
single
sentence,
clause,
phrase,
or
word
stimulates
ideas
or
action.
And
so
it
was
with
a
simple
passage
from
a
recent
federal
bankruptcy
court
opinion:
"....
LLC
operating
agreements
are
not
per
se
executory
contracts
governed
by
§
365
of
the
Bankruptcy
Code
because
of
their
unique
elements
and
features
under
state
law
that
are inconsistent
with
contract
law."
1
These
few
words
galvanized
two
questions
that
had
been
circulating
in
my
brain
for
quite
some
time.
First:
is
a
limited
liability
company
("LLC")
operating
agreement
(now
known
under
Delaware
law
and
in
certain
other
circles
as
a
limited
liability
com-
pany
agreement
2
)
a
contract?
And
second:
should
we
care
either
way?
These
two
questions
offer
insights
into
matters
of
immediate
relevance
to
practitioners
as
well
as
legal
scholars
and
law
teachers.
Specifically,
the
status
of
operating
agreements
as
contracts
may
have
implications
under
both
LLC
law
and
other
laws
involving
the
adjudication
of
rights
under
(or
effects
of)
operating
agreements
that
depend
on the
existence
(or
absence)
of
contractual
relations.
This
essay
highlights
both
issues.
LLC
law-and
especially
current
Delaware
LLC
law-has
consistently
been
described
by
scholars
and
other
commentators
as
highly
contrac-
*
W.P.
Toms
Distinguished
Professor
of
Law,
The University
of
Tennessee
College
of
Law.
New
York
University
School
of
Law,
J.D.
1985;
Brown
University,
A.B.
1982.
Thanks
to
Steve
Bainbridge,
Keith
Bishop,
and
Tom
Norris
for supplying
me
with
food
for
thought
that
laid
the
foundation
for
this
essay,
to Carter
Bishop,
Alex
Davie,
Josh
Fershee,
Ben Means,
Tom
Rutledge,
and
the
audience
members
at
a
2015
Law
and
Society
Associa-
tion
session
(at
which
the
ideas
underlying
this
essay
were
presented)
for
offering
encour-
agement
and
comments
on
prior
drafts,
and to
Matthew
Sipf
for
providing
valuable
research
assistance.
Work
on
the
essay
was
supported
by
a
summer
research
grant
from
The University
of Tennessee
College
of
Law
and
is
inspired
by
the
lengthy
and
rich
aca-
demic
legacy
left
to
us all
by
Professor
Alan
R. Bromberg.
I
owe
Alan
a
personal
debt
of
gratitude
for
the
scholarship
review
letter
he
wrote
for
my
tenure
review
a
number
of
years
ago,
in
which
he
helpfully
concluded
that
I
had
"both
substantial
scholarly
ability
and
sub-
stantial
promise
for
further
growth
and
achievement."
I
can
only
hope
that
my
work
lives
up
to
that
kind
assessment
and,
in
some
small
measure,
continues
in
the
spirit
of
his
schol-
arly
endeavors.
1.
In
re
Denman,
513
B.R.
720,
725
(Bankr.
W.D.
Tenn.
2014).
2.
For
ease
of reference,
this
essay
uses
the
term
"operating
agreement"
throughout,
except
when
quoting
or
referencing
the
analog
under
a
legal
regime
that
uses
a
different
term.
SMU
LAW
REVIEW
tual.
3
This
observation
(really
a
characterization)
manifests itself
in
dis-
tinct
ways
under the
laws
of
various
jurisdictions-in
some
states
constituting
a
strong
and
express
policy
underpinning
for LLC
internal
governance
rules.
Yet
an
operating
agreement
may
not
constitute
a
con-
tract
at common
law,
and
state
LLC
laws
do
not
expressly
label
an
oper-
ating
agreement
a
statutory
contract.
If an
operating
agreement
is
not
a
contract,
LLC
constituents
may
not
be
able
to
successfully
make
argu-
ments
grounded
in
contract
law
in
seeking
judicial
interpretation
or
en-
forcement
of
an
operating
agreement.
In
addition,
it
may
be
necessary
or
desirable
in
adjudicating
controver-
sies
or
otherwise
determining
legal
rights
under
areas
of
law
outside
LLC
law
to
ascertain
whether
an
operating
agreement
is
a
contract.
The
Den-
man
case
provides
an
example
of
this
phenomenon.
The
Denman
court
determined
that
the
status
of
an
operating
agreement
as
an
executory
contract for
federal bankruptcy
law
purposes
depended
in
part
on
whether
an
operating
agreement
may
be
classified
as
a
contract.
4
This
essay
is
designed
to
provide
preliminary
insights
into
the
status
of
operating
agreements
as
contracts
and
contextualize
the
significance
of
those
insights.
It
proceeds
in
three
principle
substantive
parts.
I
begin
by
defining
and
describing
operating
agreements
to
establish
their
basic
at-
tributes.
Next,
I
identify
the
nature
of
operating
agreements
by
reference
to
several
relevant
legal
contexts:
contract
law,
LLC
law,
partnership
law,
and corporate
law.
Finally,
before
briefly
concluding,
I
make
derivative
observations
about
operating
agreements
as
contracts.
I.
DEFINING
AND
DESCRIBING
THE
LLC
OPERATING
AGREEMENT
Operating
agreements
exist
because
of
LLC
law.
The
LLC
is
a
creature
of
late
20th
century state
statutory
law
that
marries
the
limited
liability
for
which
corporations
became
famous
with
flexible,
partnership-like
structural
norms
and
(apart
from
single-member
LLCs
that
enjoy
disre-
3.
See,
e.g.,
J.
William
Callison
&
Allan
W.
Vestal,
Contractarianism
and
Its
Discon-
tents:
Reflections
on
Unincorporated
Business
Organization
Law
Reform,
42
SUFFOLK
U.
L.
REV.
493,
496
(2009)
("LLC
law
in
the
United
States
has
become
the
contractarian
test
case,
and
one
frequently
hears
that
the
LLC
is
a
'creature
of contract,'
a
contractarian
dream
entity
where
any
deal
can
be
structured
among
the
parties.");
Larry
A. DiMatteo,
Policing
Limited
Liability
Companies
Under
Contract
Law,
46
AM.
Bus.
L.J.
279,
280-81
(2009)
("An
example
of the freedom
of
contract
approach
to
LLC
governance
is
the
Ar-
kansas
LLC
statute.
It
states
that
"maximum
effect"
should
be
given
to "the
principle
of
freedom
of
contract
[in
the
interpretation]
and
the enforceability
of
Operating
Agree-
ments.
This
is
the
approach
taken
by
the
Delaware
Act.");
Mohsen Manesh,
Delaware
and
the
Market
for
LLC
Law:
A
Theory
of
Contractibility
and
Legal
Indeterminacy,
52
B.C.
L.
REV.
189, 193
(2011)
("Delaware
LLC
law,
like
the
LLC
law
of
several
other
states,
affords
parties
an
extraordinarily
high
degree
of
contractibility,
allowing LLCs
to
contractually
tailor
virtually
all
matters
of
the firm's
internal
governance
in
the
terms of
the
LLC's
gov-
erning
agreement.").
4.
Denman
at
723
("Contract
rights
arise
upon
an
offer, acceptance,
and
transfer
of
adequate
consideration
between
at
least
two
assenting
parties.
If
these
elements
do
not
exist,
a
contract
right
does
not
exist
and,
thereby,
an
executory
contract
cannot
exist."
(citation
omitted)).
[Vol.
68
The
Ties
That
Bind
garded
entity
status)
default
partnership
taxation
for
federal
income
tax
purposes.
5
LLC
law
comprises
these
statutes
and
the
relevant
decisional
law
that
interprets
and
fills
gaps
in
the
statutory
framework.
Accordingly,
in
defining
and describing
the
LLC
and
the
operating
agreement,
one
must
look
to
both
statutory
law
and
decisional
law.
A.
PROTOTYPE
AND
UNIFORM
LLC
STATUTES
Like the
statutory
laws
establishing
other
business
entities,
LLC
stat-
utes
include
basic
rules
on
entity
structure
and
governance.
Although
the
applicable
law
varies
(sometimes
significantly)
from
state
to
state,
most
of
these
rules
are
default
rules.
Variation
of
those
rules
is
invited
through
private
ordering.
The
documentary
locus
for
that
private
ordering
is
the
operating
agreement.
LLC
statutes
expressly
provide
for
the
existence
of
the
operating
agreement
and
describe
its
function
in
LLC
law.
6
The
development
of
LLC
statutes
has
benefitted
over
the years
from
work
done
by
a
committee
of
the
American
Bar
Association,
which
de-
signed
a
Prototype
Limited
Liability
Company
Act
in
1992,7
and
the
Na-
tional Conference
of Commissioners
on
Uniform
State
Laws,
which
first
created
a
Uniform
Limited
Liability
Company
Act
in
1996.8
The
most
recent
versions
of
these
two
exemplar
LLC
statutes,
the
Revised
Proto-
type
Limited
Liability
Company
Act
(the
"Prototype
Act")
9
and
the
Re-
vised
Uniform
Limited
Liability
Company
Act
(the
"RULLCA"),
10
were
adopted
in
2011
and
2006,
respectively.
They
both
reflect
and
shape
the
statutes
adopted
in
individual
states.
11
5.
See,
e.g.,
Elf
Atochem
N.
Am.,
Inc.
v.
Jaffari,
727
A.2d
286, 290
(Del.
1999)
("The
LLC
is
an
attractive
form
of
business
entity
because
it
combines
corporate-type
limited
liability
with
partnership-type
flexibility
and
tax
advantages.").
6.
As
noted
infra
in
this
Part
I,
uniform,
prototype,
and
state
LLC
statutes
typically
allow
for written,
oral,
and
implied
operating
agreements,
at
least
under
certain
circum-
stances.
However,
some
of the
commentary
on
operating
agreements-especially
remarks
relating
to
the
validity,
binding
nature,
and
enforceability
of
operating
agreements-envi-
sions
a
written
document.
For
example,
jurists,
scholars,
and
other
observers
reference
"drafting"
or
"entering
into"
an
operating
agreement
and
note
the
identity
of
the
operat-
ing
agreement
"signatories."
In
assessing
the
status
of
an
operating
agreement
as
a
contract
or
agreement,
and
in
positing
possible clarifications
of
or
changes
to
that
status,
it
is
impor-
tant
to
take
into
account
the
possibility
that
some
or
all
of the terms
of
an
operating
agree-
ment
may
not
be
documented
in
a
writing.
7.
AM.
BAR
Ass'N
COMM.
ON
LLCs,
P'SHIPS
AND
UNINCORP.
ENTITIES,
PROTOTYPE
LTD. LIAB.
Co.
AcT
(1992).
8.
NAT'L
CONF.
OF
COMM'RS
ON
UNIF.
ST.
LAWS,
UNIFORM
LIMITED
LIABILITY
COM-
PANY
Acr
(1996).
9.
Am
Bar
Ass'n
Comm.
on LLCs,
P'ships
and
Unincorp.
Entities,
Revised
Prototype
Limited
Liability
Company
Act,
67
Bus.
LAW.
117
(2011).
10.
NAT'L
CONF.
OF
COMM'RS
ON
UNIF.
ST.
LAWS,
REVISED
UNIFORM
LIMITED
LIA-
BILITY
COMPANY
Ac-r
(2006),
available
at
http://www.uniformlaws.org/shared/docs/limited
%20liability%20company/ullca-final
06rev.pdf.
11.
The
Denman
case
was
decided
under,
and
therefore
cites
to,
Tennessee
law
in
construing
the
legal
nature
of
an
LLC
operating
agreement.
The
most
recent
iteration
of
limited
liability
company
law
in
Tennessee
(two
limited
liability
company
acts
currently
are
operative
in
Tennessee)
is
an
outlier
in
certain
key
aspects.
Most
prominently,
it
codifies
three,
rather
than
two,
different
types
of
LLC-director-managed,
manager-managed,
and
member-managed-and
adopts
related,
distinct
internal
governance
rules.
See
TENN.
2015]
SMU
LAW
REVIEW
The
Prototype
Act
principally
refers
to
the
operating
agreement
for
an
LLC
as
a
"limited
liability
company
agreement.
'1
2
Under
the
Prototype
Act:
[l]imited
liability
company
agreement"
means
any
agreement
(whether
referred
to
as
a
limited
liability
company
agreement,
oper-
ating
agreement,
or
otherwise),
written,
oral,
or
implied,
of
the
mem-
ber
or
members
as
to
the
affairs
and
activities
of
a
limited
liability
company
and
any
series
thereof.
The
limited
liability
company
agree-
ment
of
a
limited
liability
company
having
only
one
member
shall
not
be
unenforceable
by
reason
of
there
being
only
one
person
who
is
a
party
to
the
limited
liability
company
agreement.
The
limited
liability
company
agreement
includes
any
amendments
to
the
limited
liability
company
agreement.
1
3
Section
110(a)
of
the
Prototype
Act
relatedly
provides
that
"(1)
the
limited
liability
company
agreement
governs
relations
among
the
mem-
bers
as
members
and
between
the
members
and
the
limited
liability
com-
pany;
and
(2)
to
the
extent
the
limited
liability
company
agreement
does
not
otherwise
provide
for
a
matter
described
in
subsection
(a)(1),
this
Act
governs
the
matter.
",14
In
addition,
Section
110(c)
lists
LLC
rules
that
cannot
be
eliminated
modified,
restricted,
or
waived
in
the
limited
liabil-
ity
company
agreement.
15
The
RULLCA
supplies
similar
definitional
content,
defining
an
"oper-
ating
agreement"
as
the
agreement,
whether
or
not
referred
to
as
an
operating
agreement
and
whether
oral,
in
a
record,
implied,
or
in
any
combination
thereof,
of
all
the
members
of
a
limited
liability
company,
including
a
sole
member,
concerning
the
matters
described
in
Section
110(a).
The
term
includes
the
agreement
as
amended
or
restated.
1
6
Section
110(a),
referenced
in
that
definition,
provides
that
[e]xcept
as
otherwise
provided
in
subsections
(b)
and
(c),
the
operat-
ing
agreement
governs:
CODE
ANN.
§§
48-249-101
to
48-249-1133
(Tennessee
Revised
Limited
Liability
Company
Act).
Nevertheless,
Tennessee's
rules
regarding
the
operating
agreement
are
relatively
normative.
12.
The
original
Prototype
Limited
Liability
Company
Act
used
the
term
"operating
agreement,"
which
still
is
in
use
in
many
states.
The
drafters
explained
that
the
motivation
for
the
change
in
terminology
represented
"an
effort
to
better
signify
the
nature
of
the
agreement
among
the
members
by
referring
to
the
agreement
in
a
manner
consistent
with
the
general
and
limited
partnership
statutes
(which
refer
to
the
agreement
of the
partners
as
the
'partnership
agreement')."
Am
Bar
Ass'n,
Comm.
on
LLCs,
P'ships
and
Unincorp.
Entities,
supra
note
9,
at
119;
see
also
id.
at
131
("The
change
from
'operating
agreement'
to 'limited
liability
company
agreement'
reflects
a
combination
of
Colorado
and
Delaware
law
and
conforms
the
agreement
name
to
that
used
in
other
unincorporated
entities-e.g.,
'partnership
agreement'
and
'limited
partnership
agreement."').
13.
Id.
at
129
(§
101(14)).
14.
Id.
at
136.
15.
Id.
at
137-38.
16.
NAT'L
CONF.
OF
COMM'RS
ON
UNFr.
ST.
LAws,
supra
note
10,
§
102(13).
[Vol.
68
The
Ties
That
Bind
(1)
relations
among the
members
as
members
and
between
the
mem-
bers
and
the
limited
liability
company;
(2)
the
rights
and duties
under
this
[act]
of
a
person
in
the
capacity
of
manager;
(3)
the
activities
of
the
company
and
the
conduct of those
activities;
and
(4)
the
means
and
conditions
for
amending the
operating
agreement.
1
7
Subsection
(b)
notes
that
"[t]o
the
extent
the operating
agreement
does
not
otherwise provide for
a
matter
described
in
subsection
(a),
this
[act]
governs
the matter."
18
Finally, subsection
(c)
sets
forth
immutable
legal
principles-rules
of
the
road
for
LLCs
that
cannot
be
modified
in
the
operating
agreement.
19
The
RULLCA
is
accompanied
by
commentary,
and
the
comment
on
the operating
agreement
definition states
that
"[a]n
operating
agreement
is
a
contract,
and
therefore
all
statutory
language
pertaining to
the
oper-
ating
agreement must
be
understood
in
the
context
of
the
law
of
con-
tracts."
'20
The
comment
also
notes
that,
consistent
with
general
principles
of
contract
law,
unanimous
member
assent
is
required
to
establish
an
op-
erating
agreement.
2
' In
addition,
it
clarifies
the
validity
of
an
operating
agreement
in
a
single-member
LLC,
explaining
that,
"[b]ecause
a
key
function
of the
operating agreement
is
to
override
statutory
default
rules,
it
was
necessary
to
make
clear
that
a
sole
member
could
make
an
operat-
ing
agreement"
22
and
that
"the
operating
agreement
binds
the
LLC.
'
'23
Finally,
the
commentary
generally
describes
the operating
agreement
as
a
"foundational
contract"
that
derives
from
the
modern
conception
of a
partnership
agreement
under
the
Revised
Uniform
Partnership
Act.
24
B.
STATE
STATUTORY
AND
DECISIONAL
LAW
The
information
about operating agreements
offered
by
the
Prototype
Act
and
the
RULLCA
provides general
information
and
guidance. State
legislative
efforts reflect
and
have
contributed
to
the
Prototype
Act
and
the
RULLCA,
but
they
also
innovate
in
unique
ways.
State
decisional
law
fills
gaps
in
and
interprets state LLC
statutes,
including
with
respect
to
operating
agreements.
17.
Id.
§
110(a).
18.
Id.
§
110(b).
19.
Id.
§
110(c).
20.
Id.
§
102,
cmt.
13.
21.
Id.
(noting,
e.g.,
that
"[a]n
agreement
among
less
than
all
of
the
members
might
well
be
enforceable
among those
members
as
parties,
but
would
not
be
part
of
the
operat-
ing
agreement").
22.
Id.
23.
Id.
(citing
to
RULLCA
Section
111(a)).
24.
Id.
Prefatory
Note.
2015]
SMU
LAW
REVIEW
Delaware
law,
for
example,
provides
that
an
operating
agreement
is
"any
agreement
(whether
referred
to
as
a
limited
liability
company
agree-
ment,
operating
agreement
or
otherwise),
written,
oral
or
implied,
of
the
member
or
members
as
to
the
affairs
of
a
limited
liability
company
and
the
conduct
of
its
business."
'2 5
Colorado
law
similarly
provides
that
"'[o]perating
agreement'
means
any
agreement
of
all
of
the
members
as
to
the
affairs
of
a
limited
liability
company
and
the
conduct
of
its
busi-
ness"
26
and notes
that,
"[e]xcept
as
otherwise
provided
in
this
article
or
as
otherwise
required
by
a
written
operating
agreement,
the
operating
agreement
need
not
be
in
writing."
' 27
Under
Texas
law,
an
operating
agreement
is
called
a
"company
agreement"
and
is
defined
as
"any
agree-
ment,
written
or oral,
of
the
members
concerning
the
affairs
or
the
con-
duct
of
the
business
of
a
limited
liability
company."
' 28
The
definition
also
provides
that
"[a]
company
agreement
of
a
limited
liability
company
hav-
ing
only
one
member
is
not
unenforceable
because
only
one
person
is
a
party
to
the
company
agreement.
'29
Tennessee
law,
under
its
unique
re-
vised
limited
liability
company
act,
3
0
includes
a
relatively
comprehensive
description
of
the
operating
agreement.
Except
as
otherwise
provided
in
§
48-249-205
[setting
forth
waivable
and
non-waivable
LLC
act
rules],
all
members
of
an
LLC
may
enter
into
an
operating
agreement
to
regulate
the
affairs
of
the
LLC
and
the
conduct
of
its
business,
and
to govern
relations
between
or
among
the
members,
holders,
managers,
directors,
officers
and
the
LLC,
as
applicable.
Persons
other
than
members,
including
holders
of
financial
rights,
may,
but
need
not,
also
enter
into
the
operating
agreement.
The
LLC
also
may
be
a
party to
the
operating
agree-
ment.
An
operating
agreement
may
be
entered
into
either
before,
after
or
at
the
time of
filing
of
articles
of
organization,
and,
whether
entered
into
before,
after
or at
the
time
of
such
filing,
may
be
made
effective
as
of
the
formation
of
the
LLC,
or
at
a
later
time
or
date
provided
in
the
operating
agreement.
Except
to
the
extent
the
arti-
cles
of
organization
or
a
written
provision
of
an
operating
agreement
specifically
require
otherwise,
an
operating
agreement
need
not
be
in
writing.
The written
provisions
of
an
operating
agreement
need
not
be
set
out
in
a
single
integrated
document.
31
State
statutes
may
provide
guidance
on
the
interpretation
of
operating
agreements.
Delaware
law
includes
detailed
interpretive
provisions,
start-
ing
with
a
general
policy
"to
give
the
maximum
effect
to
the
principle
of
freedom
of
contract
and
to
the enforceability
of limited
liability
company
agreements.
' '32
"The
basic
approach
of
the
Delaware
Act
is
to
provide
25.
See
DEL.
CODE
ANN.
tit.
6,
§
18-101(7).
26.
COLO.
REV.
STAT.
§
7-80-102(11)(a).
27.
Id.
28.
TEx.
Bus.
ORGS.
CODE
ANN.
§ 101.001.
29.
Id.
30.
See
supra
note
11.
31.
TENN.
CODE
ANN.
§
48-249-203.
32.
DEL.
CODE ANN.
tit.
6,
§
18-1101(b);
accord
Ky.
REV.
STAT.
ANN.
§
275.003(1).
[Vol.
68
The
Ties
That
Bind
members
with
broad
discretion
in
drafting
the
Agreement...
.
,33
Nevada
law
is
similar,
providing
that
"[a]n
operating
agreement...
must
be
inter-
preted
and
construed
to
give
the
maximum
effect
to
the
principle
of
free-
dom
of
contract
and
enforceability.
'3
4
One
important
operating
agreement
interpretive
question
addressed
by
state
LLC
statutes
and
cases
is
the
extent
to
which
the
LLC
or
an
LLC
member
may
be
bound
by
an
operating
agreement
even
if
not
a
signatory
to
the operating
agreement.
In
Delaware,
decisional
law
addressing
this
question
led
to
statutory
changes.
In
Elf
Atochem
North American,
Inc.
v.
Jaffari,
35
decided
by
the
Delaware
Supreme
Court
in
1999
under
Dela-
ware's
LLC
act
as
then
in
existence,
the
court
held
that
an
LLC
was
bound
by
the
terms of
the
operating
agreement
even
though
the
LLC
was
not
a
signatory
to
the operating
agreement.
36
The court
reasoned
that
the
members
of
the
LLC
were
the
true
interested
parties
and
that
binding
the
LLC
to
the
operating
agreement
served
their
interests
(as
established
and
embodied
in
the
operating
agreement).
37
In
2002,
the Delaware
legislature
incorporated
this
rule from
Elf
Atochem
into
its
LLC
act,
which
now
provides
that:
"[a]
limited
liability
company
is
not
required
to
execute
its
limited
liability
company
agree-
ment.
A
limited
liability
company
is
bound
by
its
limited
liability
com-
pany
agreement
whether
or
not
the limited
liability
company
executes
the
limited
liability
company
agreement.
' 3
8
In
2005,
the
statute
was
further
amended
to
provide
that
"[a]
member
or
manager
of
a
limited
liability
company
or
an
assignee
of
a
limited
liability
company
interest
is
bound
by
the
limited
liability
company
agreement
whether
or
not
the
member
or
manager
or
assignee
executes
the limited
liability
company
agreement.
'39
The
2005
amendment
to
the
statute
was
recently
cited
in
a
Delaware
Chancery
Court
opinion
in
which
the
court found
that
an LLC
member
was
bound
by
a
fee
shifting
provision
in
an
operating
agreement
the
member
had
not
signed.
40
Delaware
has
taken
a
distinctly
different
approach
to
operating
agree-
ment
non-signatories
than
a
federal
trial
court
took
in
applying
Wisconsin
law
just
two
years
before
Elf
Atochem
was
decided.
In
Bubbles
&
Bleach,
LLC
v.
Becker,
41
after
canvassing
the
relevant
LLC
statute
and
applica-
ble
decisional
law,
the
court
held
that
a
non-signatory
LLC
was
not
33.
Elf
Atochem
N.
Am.,
Inc.
v.
Jaffari,
727
A.2d
286,
291
(Del.
1999).
34.
NEV.
REV.
STAT.
§
86.286.4(b).
35.
Elf
Atochem,
727
A.2d
286.
36.
Id.
at
287.
37.
Id.
at
293;
accord
Arfa
v.
Zamir,
2008
N.Y.
Misc.
LEXIS
10110,
*3
(N.Y.
Sup.
Ct.
Apr.
29,
2008)
(holding
that
"a
cause
of
action
for breach
of an
operating
agreement
can
be
asserted
by
an
LLC,
irrespective
of
whether
the
LLC
actually
executed
it").
38.
DEL.
CODE
ANN.
tit.
6,
§
18-101(7).
Similar
language
is
employed
in
Kentucky.
See
Ky.
REV.
STAT.
ANN.
§
275.003(4).
39.
Id.
40.
See
Seaport
Vill.
Ltd.
v.
Seaport
Vill.
Operating
Co.,
LLC,
No.
CIV.A.
8841-VCL,
2014
WL
4782817
(Del.
Ch.
Sept.
24,
2014).
41.
Bubbles
&
Bleach,
LLC
v.
Becker,
No.
97
C
1320,
1997
WL
285938
(N.D.
I11.
May
23,
1997).
2015]
SMU
LAW
REVIEW
bound
by
arbitration
provisions
in
an
operating
agreement
(comprising
two
agreements).
A
fair
reading
of
the
Agreements
in
their
entirety
leads
to
the
con-
clusion
that
B
&
B
was
not
a
party
thereto
and
is
therefore
not
bound
by
the
arbitration
clauses
therein.
Thus,
finding
no
contractual
basis
upon
which
to
bind
B
&
B
to
arbitration,
and
in
light
of
the
relevant
portions
of
the
Wisconsin
Limited
Liability
Statute,
this
court
denies
defendants'
motion.
4
2
The
court
found
nothing
in
the
operating
agreement
or
Wisconsin's
LLC
statute
that
could
be
construed
as
evidence
of
an
intention
to
bind
a
non-
signatory
LLC
to
the
operating
agreement.
In
a
2010
case
under
Illinois
law,
43
a
court
declined
to
follow
Elf
Atochem,
holding
that
non-signatory
LLCs
were
not,
based
on
the
issue
and
applicable
facts
in
that
case,
bound
by
their
operating
agreements.
The
court's
holding
relied
expressly
on
"the
statutory
guidelines,
as
well
as
the
fact
that
the
operating
agreements
d[id]
not
reveal
that
the
signato-
ries
were
signing
on
behalf
of
or
in
the
name
of
the
LLCs.
'
"
44
In
its
rea-
soning,
the
court
notes
that
LLCs
are
legal
entities
separate
from
their
members
that
have
the
ability
to
be
bound
as
independent
legal
actors
through
well-known
processes-processes
that
were
known
to
the
LLC
members
and
not
invoked
in
connection
with
the
matters
at
issue
in
the
case.
4
5
Perhaps
the
most
significant,
controversial
operating
agreement
issue
in
recent
years,
however,
has
been
the
extent
to
which
LLC
participants
can
agree
around
fiduciary
duties
by
making
provision
in
the
operating
agreement.
Delaware
law
provides
a
relatively
clear
answer.
46
The
Dela-
ware
LLC
act
"allows
an
LLC
agreement
to
alter
common
law
fiduciary
duty
rules
by
restricting,
expanding,
or eliminating
LLC
members'
or
managers'
fiduciary
duties."
' 47
Many
state
LLC
statutes,
however,
follow
the
rule
in
RULLCA
§
11048
(which
limits
the
extent
to
which
private
ordering
through
operating
agreements
can
alter
fiduciary
duties)
or oth-
erwise
restrict
the modification
of
fiduciary
duties
in
the
operating
agree-
ment
in
some
way.
4
9
42.
Id.
at
*6.
43.
Trover
v.
419
OCR,
Inc.,
921
N.E.2d
1249
(Ill.
App.
2010).
44.
Id.
at
1255.
45.
See
id.
at
1254-55.
46.
See
DEL.
CODE
ANN.
tit.
6,
§
18-1101(c).
47.
Marino
v.
Grupo
Mundial
Tenedora,
S.A.,
810
F.
Supp.
2d
601,
607
(S.D.N.Y.
2011)
(citing
DEL.
CODE
ANN.
tit.
6,
§
18-1101(c)).
48.
NAT'L
CONF.
OF
COMM'RS
ON
UNIF.
ST.
LAWS,
supra
note
10,
at
§
110(c)(4)
&
(d)-(g).
49.
See,
e.g.,
CAL.
CORP.
CODE
§
17701.10(c)(4),
(d)-(g);
FLA.
STAT.
ANN.
§
605.0105(3)(e),
(4);
MONT.
CODE
ANN.
§
35-8-109(3)(b)-(c);
TENN.
CODE
ANN.
§
48-
249-205(b)(13)-(14).
[Vol.
68
The
Ties
That
Bind
II.
CONTEXTUALIZING
THE
LLC
OPERATING AGREEMENT
Given
these
definitions
and
descriptions
of operating
agreements,
what
is
their
legal
nature? Are
they contracts
or
something
else?
The
legal
na-
ture
of
an
operating
agreement
can
be
assessed
from
a
number
of
differ-
ent
perspectives.
This
part
locates
operating
agreements
by
reference
to
four
important
legal
frameworks:
contract
law,
LLC
law,
partnership
law,
and
corporate
law.
A.
CONTRACT
LAW
At
common
law, a
contract
is
a
legally
enforceable
promise.
50
Under
basic
contract
law
principles, an
agreement
needs
to
meet
certain forma-
tive
requirements,
known
as
elements,
to
be
a
contract.
The
baseline
legal
elements
of
a
valid
contract
are
well
known
and relatively
simple
(even
if
not
straightforward
in
application):
"the
formation
of
a
contract requires
a
bargain
in
which
there
is
a
manifestation
of
mutual
assent
to
the
ex-
change and
a
consideration.1
5 1
A
contract
has
two
or
more parties
52
and,
in
its
archetypal
form,
codifies
bilateral
transactions,
obligations,
or
rela-
tionships.
5
3
Although
much
more
could
be
said
here
about
the
nature
of
a
contract,
this
unadorned
summary
is
adequate
for
purposes
of
the
limited
points
made
in
this essay.
Operating
agreements
do
involve
a
form
of
mutual
assent,
although
perhaps
not
in
the
classic
sense
in
which
there
is
a
promisor
and
prom-
isee.
The
finance
and
governance provisions
(which
may
relate
to
man-
agement,
fiduciary
duties,
and
other
obligations)
typically
comprising
an
operating
agreement
represent
a
bargained-for
consensus
as
among
the
members
and,
as
applicable,
managers.
Members
and
managers
may
con-
tribute
or
agree
to
provide money
capital
or
human
capital
and
exchange
mutual
promises
relating
to
the
conduct
of
the
business
of
the
LLC.
Some
or
all
of
this
may
be reflected
in
the
operating
agreement. Contract
law
contemplates
that
a
bargain
may consist
of
an
exchange
of promises
be-
tween
or
among contracting
parties and
that
promisors
and
promisees
to
50.
See
RESTATEMENT (SECOND)
OF
CONTRACTS
§
1
(1981)
("A
contract
is
a
promise
or
a
set
of
promises
for
the
breach
of
which
the
law
gives
a
remedy,
or the performance
of
which
the
law
in
some
way
recognizes
as
a
duty.");
GEORGE
W.
KUNEY
&
ROBERT
M.
LLOYD,
CONTRACTS:
TRANSACTIONS
AND
LITIGATION
1
(3d
ed.
2011)
("[A]
contract
is
'a
promise
that
the
law
will
enforce.').
51.
RESTATEMENT
(SECOND)
OF
CONTRACTS
§
17
(1981);
In
re
Denman,
513
BR.
720,
723
(Bankr.
W.D.
Tenn.
2014)
("Contract
rights
arise
upon
an
offer, acceptance, and
trans-
fer
of
adequate
consideration
between
at
least
two
assenting
parties.
If
these
elements
do
not
exist,
a
contract
right
does
not
exist
...."
(citation omitted)).
52.
See
RESTATEMENT
(SECOND)
OF
CONTRACTS
§
9
(1981)
("There
must
be
at
least
two
parties
to
a
contract,
a
promisor
and
a
promisee,
but there
may
be
any
greater
number.").
53.
See,
e.g.,
In
re
Estate
of
ACN,
509
N.Y.S.2d
966,
969
(N.Y.
Sur. Ct.
1986) ("A
contract
is a
bilateral
transaction
in which
an
exchange
of
benefits,
either present
or
de-
ferred,
is
exchanged.");
Amelia
H.
Boss,
Electronic
Data
Interchange
Agreements:
Private
Contracting
Toward
a
Global
Environment,
13
Nw. J.
INT'L
L.
&
Bus.
31,
67
(1992)
("The
traditional
concept
of
contract
is
a
bilateral
negotiated
agreement
between parties.").
2015]
SMU
LAW
REVIEW
a
contract
may
promise
each
other
the
same
performance.
5
4
As
a
result,
at
least
some
operating
agreements
may be
common
law
contracts.
Yet,
as
the
information
provided
supra
Part
I
of
this
essay
demonstrates,
the
nature
of
an
operating
agreement
is
not
fixed,
may
address
a
broad
scope
of
matters
relating
to
the
affairs
and
operations
of
the LLC
and
the
con-
duct
of
its
constituents,
and
may
differ
significantly
from
firm to firm
and
from
state
to
state.
The
Denman
court,
as
indicated
in
the
quote
that
introduces
this
essay,
concludes
that
an
operating
agreement
is
not
a
common
law
contract.
"Such
operating
agreements
. . . may
lack
mutual
assent,
consideration,
and
privity
amongst
the
parties.
Furthermore,
a
member's
failure
to
per-
form
under
an
LLC
operating
agreement
does
not
excuse
the
other
mem-
bers'
performance
under
the
LLC
operating
agreement
. . . .
55
In
its
analysis,
the
court
stresses
two
points.
First,
the
court
notes that
"[a]
sin-
gle
member
LLC
operating
agreement
does
not
have
multiple
members
and,
therefore,
can
satisfy
neither
the
mutual
assent
element
nor
the
ex-
change
of
consideration
element
of
contract
law."
'5
6
Second,
the
court
finds
that
"the
enforceability
of
an
LLC
operating
agreement
against
members
that
were
not
a
party
to
the
LLC
operating
agreement"
57
con-
flicts
with
contract
law
norms.
58
The
Denman
court's
supporting
rationale
is
transparent,
but
its
conclusions
are
contestable.
Specifically,
the
court
avers
that
"[a]
single
member
LLC
operating
agreement
does
not
have
multiple
members
and,
therefore,
can
satisfy
neither
the
mutual
assent
element
nor
the
exchange
of
consideration
ele-
ment
of
contract
law."
59
Said
another
way,
there
is
no
contract
if
there
is
only one
party.
Yet,
although
the
matter
is
not
free
from
doubt,
60
the
operating
agreement
for
a
single-member
LLC
still
may be
deemed
to
have
two
parties:
the
member
and
the
LLC
(which
may
be
bound,
even
if
not
a
signatory).
61
Tennessee
law,
which
governed
the
operating
agree-
ment
at issue
in
the
Denman
case,
supports
the
view
that
the
operating
54.
See,
e.g.,
RESTATEMENT
(SECOND)
OF
CONTRACTS
§§
3
&
10 (1981).
55.
Denman,
513
B.R. at
726.
56.
Id.
at
724.
57.
Id.
at
725.
58.
Id.
("[U]nder
contract
law,
parties
cannot
be
deemed
to
be
parties
to
a
contract
without
their
assent.
Similarly,
parties
to
contracts
must mutually
assent
to
amendments
to
existing
contracts;
whereas,
LLC operating
agreements
may
be
amended
without
all
mem-
bers
approving.").
59.
Id.
at
724.
60.
Courts
scrutinize
single-member
LLCs
carefully
in
applying
legal
rules
that
invite
inquiry
into
their separateness
from
their single
member.
See,
e.g.,
Anthony
Q.
Fletcher,
Publish
or Perish:
The
New
York
Limited
Liability
Company Law
Publication
Requirement
the
Fundamental
Flaw
of
an
Otherwise
Flawless
Law,
1
N.Y.U.
J.
L.
&
Bus.
139,
195
(2004)
(noting
that
"[f]ederal
agencies
and
almost
one-half
of
the states
have
adopted
the
view
that
the
LLC
is
a
legal
'person[
]"'
and
that
"[t]he
predominant
view
in
both
federal
and
state
law
is
that
the
LLC
possesses
all
the
attributes
of
legal
personhood.");
see
also
Daniel
S.
Kleinberger
&
Carter
G. Bishop,
The
Single-Member
Limited Liability
Company
As
Disregarded
Entity
Now
You
See
It,
Now
You
Don't,
Bus.
L.
TODAY,
August
2010,
at
1,
2-3.
61.
See
Larry
A.
DiMatteo,
supra
note
3,
at
300 (2009)
("The
operating agreement
establishes the
member-to-member
relationship,
but
it
does
so
in
the context
of
the
crea-
[Vol.
68
The
Ties
That
Bind
agreement
of
single-member
LLC
is
an
agreement
between
the
member
and
the
LLC.
62
Moreover,
the
LLC
may
be
a
signatory
to
the
operating
agreement.
6
3
In
addition,
the
Denman
court
ruled
that
enforcing
an
operating
agree-
ment
against
non-signatory
members
and
amending
an
operating
agree-
ment
without
unanimous
consent
are
inconsistent
with
contract
law.
For
example,
the
Tennessee
law
applicable
in
Denman
provides
that
"[a]n
LLC
is
bound
by
the
provisions
of
an
operating
agreement,
even
if
the
LLC
is
not
a
signatory
to
the agreement"
6
4
and
further
states
that,
[t]he
articles
or
the
written
provisions
of
an
operating
agreement...
may
provide
that
the
written
provisions
of
the
LLC's
operating
agreement
shall
be
binding
upon
a
person
who
thereafter
becomes
a
member
....
without
executing
an
existing
operating
agreement,
if
the
new
member
...
otherwise
complies
with
the
conditions
for
be-
coming
a
member
....
as
set
forth
in
the
LLC documents
of
such
LLC.
6
5
"[U]nder
contract
law,"
the
court
states,
"parties
cannot
be
deemed
to
be
parties
to
a
contract
without
their
assent."
'66
The
court
adds,
on
the
amendment
issue,
that
"parties
to
contracts
must
mutually
assent
to
amendments
to
existing
contracts;
whereas,
LLC
operating
agreements
may
be
amended
without
all
members
approving.
'
67
From
these
observa-
tions,
the
court
concludes
that
"[sluch
LLC
provisions
undermine
the
privity
of
contract
and
demonstrate
that
LLC
operating
agreements
are
unique
instruments
apart
from
executory
contracts.
'6
8
It
seems
fair
to
note,
however,
that
an
LLC
or
LLC
member
may
as-
sent
to the
terms
of
an
operating
agreement
without
being
a
signatory
69
tion
of
a
separate
legal
entity.
Thus,
it
also
creates
a
relationship
between
the
member
and
the
LLC.").
62.
TENN.
CODE
ANN.
§
48-249-203(c)
("An
LLC
with
a
single
member
may
adopt,
and,
if
so,
shall
be
bound
by,
an
operating
agreement
between
the
member
and
the
LLC.").
However,
some
state
LLC
statutes
describe
an
operating
agreement
for
a
single-member
LLC
as
an
agreement
with
only
one party,
even
when
the
state
law
recognizes
that
the
LLC
is
bound
by
the
agreement
as
an
entity
separate
from
its
owner.
See,
e.g.,
DEL.
CODE
ANN.
tit.
6,
§
18-101
("A
limited
liability
company
agreement
of
a
limited
liability
company
having
only
1
member
shall
not
be
unenforceable
by
reason
of
there
being
only
1 person
who
is a
party
to
the
limited
liability
company
agreement.");
MICH.
COMp.
LAWS
ANN.
§
450.4215
("An
operating
agreement
of
a
limited
liability
company
that
has
1
member
is
not
unenforceable
because
only
1
person
is
a
party
to
the
operating
agreement.");
TEX.
Bus.
ORGS.
CODE
ANN.
§
101.001
("A
company
agreement
of
a
limited
liability
company
having
only
one
member
is
not
unenforceable
because
only
one
person
is
a
party
to the
company
agreement.").
63.
Id.
§
48-249-203
("The
LLC...
may
be
a
party
to the
operating
agreement.").
64.
Id.
§
48-249-203(d).
65.
Id.
§
48-249-203(e).
But
see
TEX.
Bus.
ORGS.
CODE
ANN.
§
101.053
("The
com-
pany
agreement
of
a
limited
liability
company
may
be
amended
only
if
each
member
of
the
company
consents
to
the
amendment.").
66.
In
re
Denman,
513
B.R.
720,
725
(Bankr.
W.D.
Tenn.
2014).
67.
Id.
68.
Id.
69.
See,
e.g.,
RESTATEMENT
(SECOND)
OF
CONTRACTS
§
18
(1981)
("Manifestation
of
mutual
assent
to
an
exchange
requires
that
each
party
either
make
a
promise
or
begin
or
render
a
performance.").
2015]
SMU
LAW
REVIEW
and,
in so
doing, may
assent
to
a
statutory
rule
or
operating
agreement
provision
that
allows
for
amendment
of
the operating
agreement
with
less
than
unanimous
consent.
The
Tennessee
law
provision
that
binds
new
members
to
the operating
agreement,
for
instance,
requires
compliance
with
the
conditions
for
becoming
a
member,
70
which
may be
deemed
to
constitute
assent
to
the
terms
of
the
operating
agreement.
In
other
words,
under
Tennessee
law,
acceptance
by
a
member
of
the
terms
of
member-
ship
constitutes
acceptance
of
all
of
the
terms
and
provisions
of
the
oper-
ating
agreement.
Further,
contract
law
does
not
require
that
the
parties
commit
their
agreement
to
writing
71
and may
support
enforcement
of
a
valid
and
binding
agreement
that provides
for
amendment
without
the
approval
of
all
parties
(absent
an
independent
reason-e.g.,
bad faith,
un-
fair
dealing,
illegality,
or
violation
of
public
policy-to
find
the
provision
unenforceable).
7
2
B.
LLC
LAW
Delaware
LLC
law
implicitly
characterizes
limited
liability
company
agreements
as
contracts
and
invokes
contract
law
for
their
interpretation
and
enforcement.
73
Delaware
courts
cite
to
contract
law
principles
in
sup-
port
of
their
opinions
on LLCs
and
limited
liability
company
agreements.
For
example,
a
2014
unpublished
opinion
of
the
Court
of Chancery
cites
to
the
Delaware
LLC
act
for
the
proposition
that
an
LLC
is
bound
by
the
limited
liability
company
agreement
even
if
it
is
not
a
signatory,
asserting
that:
Basic
principles
of
contract
law
support
this
reading.
As
a
general
matter,
"only
parties to
a
contract
are
bound
by
that
contract."
Like-
wise,
"only
a
party
to
a
contract
may
be
sued
for
breach
of
that
con-
tract."
By
binding
a
Delaware
LLC
and
its
members
to
their
operating
agreement,
Section
18-101(7)
makes
them
parties
to
the
operating
agreement.
7
4
70.
See
supra
note
65
and
accompanying
text.
71.
See,
e.g.,
KUNEY
&
LLOYD,
supra
note
50,
at
v
("Contracts
can
be
oral,
in
writing,
or
both.").
Under
the
Restatement
(Second)
of
Contracts,
a
contract
is
a
legally
enforcea-
ble
promise,
and
"[a]
promise
may
be
stated
in
words
either
oral
or
written, or
may
be
inferred
wholly
or
partly
from
conduct."
RESTATEMENT
(SECOND)
OF CONTRACTS
§§
1 & 4
(1981).
See
also
supra
note
6.
72.
See,
e.g.,
Abbey
v.
Fortune
Drive
Assocs.,
2010
WL
1553616,
*8-9
(Cal.
Dist.
Ct.
App.
Apr.
20, 2010)
(provision
allowing
for
non-unanimous
contract
amendment
may
be
enforceable;
however,
"amendment
of
a
contract
by less
than
all
parties
is
subject
to
cer-
tain
common
law
constraints.
First
and
foremost
...
is
the intent
of the
parties
....
In
addition,
the
requirement
of
definiteness
and
the
obligation
of
parties
to
act
in
good faith
and
deal
fairly
limit
the
scope
of
amendments.").
Abbey
involved
the
enforceability
of
a
non-unanimous
amendment
to
an
operating
agreement,
authorized
under
the
amendments
provision
of the
operating
agreement,
that
(among
other
things)
added
an
arbitration
pro-
vision
to
the
operating
agreement.
73.
See,
e.g.,
6
DEL.
CODE
ANN.
§
1101(d);
see
also
DiMatteo,
supra
note
3,
at
286
("Delaware's
freedom
of
contract
approach
results
in
the
application
of
the
entire
common
law
of
contracts
to
govern
an
otherwise
statutorily
controlled
area
of
law.").
74.
Seaport
Vill.
Ltd.
v.
Seaport
Vill.
Operating
Co.,
LLC,
No.
CIV.A.
8841-VCL,
2014
WL
4782817,
at
*2
(Del.
Ch.
Sept.
24,
2014)
(citations
omitted).
[Vol.
68
The
Ties
That
Bind
Moreover,
the
Delaware
LLC
act
provides
that
"[a]
limited
liability
com-
pany
agreement
of
a
limited
liability
company
having
only
1
member
shall
not
be
unenforceable
by
reason
of
there
being
only
1
person
who
is
a
party
to
the
limited
liability
company
agreement.
'
75
Decisional
law
in
other
states
also
includes
references
to
operating
agreements
as
contracts
or
as
being
contractual
in
nature.
A
South
Caro-
lina
case
expressly
classifies
an
operating
agreement
as
a
contract.
76
Simi-
larly,
under
Colorado
law:
An
LLC's
operating
agreement
serves
as
a
multilateral
contract
among
the
members,
who
agree
that
the
exercise
of
their
member-
ship
and
management
rights
and
duties
will
be
bound
by
the
terms
set
forth.
This
conclusion
is
consistent
with
the
terms
of
the
...
oper-
ating
agreement
....
Thus,
the Operating
Agreement
itself
is
framed
in
terms
of
a
multilateral
agreement
among
the
members
and
it
is
appropriate
to
interpret
it
in
light
of
prevailing
principles
of
contract
law.
7
7
Moreover,
a
number
of
Louisiana
cases
address
the
contractual
nature
of
LLCs.
78
Although
the
opinions
in
these
cases
and
others
like
them
do
not
always
label
operating
agreements
"contracts,"
they
do
conclude
that
the
operating
agreements
at
issue
to
be valid,
binding,
and
enforceable
obligations
of
the
parties.
These
conclusions
do
not
necessarily
ensure
that
contract
law
will
apply
to
other
issues
relating
to
those
operating
agreements,
however.
C.
PARTNERSHIP
AND
CORPORATE
LAW
LLC
law
combines
attributes
of
partnership
and
corporate
law.
79
The
foundational
relationship
between
LLC
law
and
partnership
law
is
mani-
fest
in
the
Prototype
Act
and
the
RULLCA
80
and
has
been
acknowl-
edged,
including
by
reference
to
analogies
between
partnership
agreements
and
operating
agreements,
in
judicial
opinions
and
legal
scholarship.
81
Elf
Atochem,
the
1999
Delaware
Supreme
Court
case
cited
75.
DEL.
CODE
ANN.
tit.
6,
§
18-101(7);
accord
Ky
REV.
STAT.
ANN.
§
275.015(21).
76.
See
Clary
v.
Borrell,
727
S.E.2d
773,
778
(S.C.
Ct.
App.
2012)
("The
operating
agreement
of
a
limited
liability
company
is
a
binding
contract
that
governs
the
relations
among
the
members,
managers,
and
the
company.").
77.
Condo
v.
Conners,
266
P.3d
1110,
1115
(Colo.
2011)
(citations
omitted).
78.
See,
e.g.,
Ark-La-Tex
Safety
Showers,
LLC
v.
Jorio,
132
So.
3d
986
(La.
Ct.
App.
2013);
Risk
Mgmt.
Servs.,
LLC
v.
Moss,
40
So.
3d
176
(La.
Ct.
App.
2010);
Kinkle
v.
R.D.C.,
LLC,
889
So.
2d
405
(La.
App.
Ct.
2004).
79.
See,
e.g.,
Arfa
v.
Zamir,
2008
N.Y.
Misc.
LEXIS
10110,
*3
(N.Y.
Sup.
Ct.
Apr.
29,
2008)
("An
LLC
is
a
hybrid
entity,
combining
elements
of
the
corporate
and
partnership
form.");
Alan
R.
Bromberg,
Texas
Business
Organization
and
Commercial
Law-Two
Centuries
of
Development,
55
SMU
L.
REV.
83,
124
(2002)
("Limited
Liability
Companies
('LLCs')
came
into
Texas
law
in
1991
by
the
passage
of
a
complete
statute
patterned
partly
on
the TBCA
and
otherwise
on
TRLPA's
limited
partnership
features
designed
to
achieve
taxation
as
a
partnership
rather
than
a
corporation."
(footnote
omitted)).
80.
See
supra
note
24
and
accompanying
text.
81.
See,
e.g.,
Feeley
v.
NHAOCG,
LLC,
62
A.3d
649,
669
(Del.
Ch.
2012)
("Delaware
alternative
entity
statutes,
including
the LLC
Act
. . . ,
are
modeled
on
the
LP
Act
....
"
(footnote
omitted));
Wasserman
v.
Kay,
197
Md.
App.
586,
592
(Md. Ct.
Spec.
App.
2011)
2015]
SMU LAW
REVIEW
supra
Part
I.
B.,
expressly
cites to
guidance
on
limited
partnership
agree-
ments
as
a
foundation
for
its analysis.
82
Similar
observations
have been
made
about
corporate
law's
relationship
to
LLC
law
and
operating
agree-
ments.
83
The
Denman
court
found
that
"Itihe
rights
and duties
of
an
op-
erating
agreement
function
akin
to
corporate
by-laws,
establishing
the
structure
and
form
of
an
entity
and
arising
by
adoption
by
its
members
or
shareholders.
'
8
4
Various
observers
acknowledge
that
operating
agreements
share
char-
acteristics
with
both
partnership
agreements
and
corporate
bylaws.
8
5
(describing
an
operating
agreement
as
"much
like
a
partnership
agreement");
Scott
Y.
Barnes
et
al.,
1996
Limited
Liability
Company
Act,
8
S.
C.
LAW.
33,
34
(1996)
(describing
an
operating
agreement
as
"essentially
the same
as
a
partnership
agreement");
Peter
D.
Hutcheon,
The New
Jersey
Limited
Liability
Company
Statute:
Background
and
Concepts,
18
SETON
HALL
LEGIS.
J.
111,
136-37
(1993)
("The
operating
agreement
for
an
LLC
is
intended
to
function
for
an
LLC
much
like
the
limited
partnership
agreement
functions
for
a
limited
partnership
....
);
Anthony
J.
Luppino,
Multidisciplinary
Business
Planning
Firms:
Expanding
the
Regulatory
Tent
Without
Creating
a
Circus,
35
SETON
HALL
L.
REV.
109,
147
(2004)
(describing
an
LLC operating
agreement
as
"the
LLC
equivalent
of
a
part-
nership agreement").
82.
See
Elf
Atochem
N.
Am.,
Inc.
v.
Jaffari,
727
A.2d
286,
291
(Del.
1999).
83.
See,
e.g.,
Scott
R.
Anderson,
The
Illinois
Limited
Liability
Company:
A
Flexible
Alternative
for
Business,
25
LOY.
U.
CHI.
L.J.
55,
87
(1993)
(describing
an
operating
agree-
ment
as
"similar
to
corporate
by-laws");
Michael
A.
Budin,
Prepare
LLC
Documents
With
Care-Issues
to
Consider
to
Achieve
the
Desired
Results
for
Your
Client,
74
PA.
B.
A.
Q.
27,
31
(2003)
("Under
the
PA
LLC
Act,
the
operating
agreement
is
considered
a
counterpart
to
the
bylaws
of
a
corporation
....");
David
Groshoff,
Contrepreneurship?
Examining
Social
Enterprise
Legislation's
Feel-Good
Governance
Giveaways,
16
U.
PA.
J.
Bus.
L.
233,
247-48
(2013)
("Operating
agreements
typically
govern
an
LLC's
internal
affairs
in
a
simi-
lar
manner to
how
bylaws
govern
a
corporation.");
Martha
W.
Jordan,
Pennsylvania's
Lim-
ited
Liability
Company
Act
Raises
Taxing
Questions,
69
TEMP.
L. REv.
703,
705
n.10
(1996)
("The
operating
agreement
is
similar
to
corporate
bylaws.");
Carol
J.
Miller
et
al.,
Limited
Liability
Companies
Before
and
After
the
January
1997
IRS
"Check-The-Box"
Regulations:
Choice
of
Entity
and
Taxation
Considerations,
25
N.
Ky.
L.
REV.
585,
589
(1998)
(describ-
ing
the
operating
agreement
as
"comparable
to
corporate
by-laws").
84.
In
re
Denman,
513
B.R.
720,
723
(Bankr.
W.D.
Tenn.
2014).
85.
See,
e.g.,
Underground
Grp.,
LLC
v.
Hali
Power,
Inc.,
2012
N.Y.
Misc.
LEXIS
6323,
*13
(N.Y.
Sup.
Ct.
Mar.
21,
2012)
("As
with
partnership
agreements
and
corporate
by-laws,
an
LLC
operating
agreement
serves
to
fill
in
any
gaps
left
by
the
statute
or
to
vary
the
default
rules
as
desired by
the
equity
holders
and
as
permitted
by
law.");
Anderson,
supra
note
83,
at
65
n.57
("An
LLC
operating
agreement
is
similar
in
form
to
a
corpora-
tion's
by-laws
or
a
partnership
agreement
....
");
Steven
Aurlerieth,
The
ABCs
Of
LLCs
(Limited
Liability
Companies):
What
Are
They;
Who
Needs
Them;
And
Is
Vermont
Ready
for
Them?,
21
VER.
B. J.
&
L. DiG.
11, 12
(1995)
("The
operating
agreement
in
the
LLC
is
the counterpart
of
the
corporate
by-laws
and
the
partnership
agreement.");
Howard
M.
Friedman,
The
Silent
LLC
Revolution
-
The
Social Cost
Of
Academic
Neglect,
38
CREIGH-
TON
L.
REV.
35,
75
(2004)
("The
operating
agreement
resembles
the
partnership
agree-
ment
in
a
general
partnership;
it
also resembles
corporate
by-laws."
(footnote
omitted));
Ronald
J.
Kline
et
al.,
The
New
Limited
Liability
Company
in
Florida,
73
FLA.
BAR
J.
42,
44
(1999)
(describing
the LLC
operating
agreement
as
"a
combination
of
a
partnership
agreement
and
corporate
bylaws");
Robert
G.
Lang,
Utah's
Limited
Liability
Company
Act:
Viable
Alternative
or
Trap
for
the
Unwary?,
1993
UTAH
L.
REV.
941,
949
("The
LLC
operating
agreement
is
similar
to corporate
bylaws
or
a
partnership
agreement
....
");
Craig
J.
Langstraat
&
K.
Dianne
Jackson,
Choice
of
Business
Tax
Entity
after
the 1993
Tax
Act,
11
AKRON
TAX
J.
1,
6
(1995)
("[A]n
operating
agreement..,
resembles
the
by-laws
of
a
corporation
and
the
agreement
in
a
partnership.");
Kathleen
King
Parker,
The
Limited
Liability
Company:
An
Introduction,
39
B.B.J.
8,
9
(1995)
("An
LLC
operating
agreement
is
roughly
analogous
to
a
partnership
agreement
or
a
corporation's
articles
of
organization
and
by-laws.").
[Vol.
68
The
Ties
That
Bind
Many
agree
that operating
agreements
are
more
like
partnership
agree-
ments-especially
limited
partnership
agreements-because
of
their
fo-
cus
on
provisions
that
interact
with
partnership
tax
rules.
86
Also,
unlike
corporate
bylaws,
operating
agreements
are
optional
in
many
states.
8
7
Are
these
partnership
and
corporate
law
analogs
contracts?
Although
partnership
law
varies
from
state
to
state,
as
a
general
matter,
partners
are not
expressly
required
to
contract
to
form
a
partnership,
8
8
and
a
part-
nership
agreement
is
not
defined
in
a
manner
that
mandates
adherence
to
the
common
law
elements
of
a
contract.
89
However,
courts
often
view
partnership
agreements
as
enforceable
contracts
and
routinely
apply
principles
from
contract
law
in
interpreting
and
enforcing
the
terms
and
provisions
in
partnership
agreements.
90
Even
if
a
partnership
agreement
is
not
a
contract,
it
may
be
enforceable
among
the
partners
in
certain
respects.
91
And,
while
corporate
bylaws
admittedly
look
less
like
an
ar-
86.
See,
e.g.,
Anderson,
supra
note
83,
at
65
n.57
("An
LLC
operating
agreement
...
generally
will
be
more
analogous
to
a
partnership
agreement
than
to
corporate
by-laws
in
substance.");
id.
at
87-88
("Because
LLCs
are
generally
treated
as
partnerships
for
tax
purposes,
LLC
operating
agreements
should
generally
be
drafted
in
a
manner
similar
to
partnership
agreements."
(footnote
omitted));
id.
at
88
n.203
("In
contrast
to
standard
cor-
porate
by-laws,
LLC
operating
agreements
should
contain
provisions
such
as
partnership-
type
tax
allocations
that
address
the
requirements
and
tax
consequences
associated
with
subchapter
K
tax
treatment.");
B.
Todd
Bailey
&
Rick
D.
Bailey,
The
Idaho
Limited
Lia-
bility
Company:
In
Search
of
the
Perfect
Entity,
31
IDAHO
L.
REV.
1,
10
(1994)
("An
oper-
ating
agreement
of
an
LLC
is
similar
to
corporate
bylaws
or
a
partnership
agreement,
more
closely
resembling
the
latter.").
87.
See
supra
notes
25-31
and
accompanying
text
(illustrating
the
statutory
use
of
"any
agreement"
and
"may
enter
into");
see
also
Trippe
S.
Fried,
Minimizing
Disputes
and
Maxi-
mizing
Profits:
Five
Balancing
Acts
for
New
Business
Owners,
4
DEPAUL
Bus.
&
COMM.
L.J.
401,
408
(2006)
(noting that
"partnership
agreements
and
LLC
operating
agreements
are
not
always
required
by
statute").
88.
Under
the
Revised
Uniform
Partnership
Act,
a
partnership
exists
when
two
or
more
persons
associate
as
co-owners
to carry
on
a
business
for
profit.
REVISED
UNIFORM
PARTNERSHIP
Acr
§
101(6), 202(a)
(1997).
89.
See,
e.g.,
Sewing
v.
Bowman,
371
S.W.3d
321,
332
(Tex.
App.-Houston
[1st
Dist.]
2012,
no
pet.).
The Revised
Uniform
Partnership
Act
provides
the
following
definition
for
a
partnership
agreement:
"the
agreement,
whether
written,
oral,
or
implied,
among
the
partners
concerning
the
partnership,
including
amendments
to
the
partnership
agreement."
REVISED
UNIFORM
PARTNERSHIP
Acr
§
101(7).
90.
See,
e.g.,
In
re
Kinder
Morgan,
Inc.,
2014
Del.
Ch.
LEXIS
225,
*8
(Del.
Ch.
Nov.
5,
2014)
("Principles
of
contract
interpretation
apply
to limited
partnership
agreements.");
Norton
v.
K-Sea
Transp.
Partners
L.P.,
67
A.3d
354, 360
(Del.
2013)
("Limited
partnership
agreements
are
a
type
of contract.");
Schuss
v.
Penfield
Partners,
L.P.,
2008
Del.
Ch.
LEXIS
73,
*18
(Del.
Ch.
June
13,
2008)
("Limited
partnership
agreements
are
contracts
the
courts
construe
like
any
other
contract.");
Knapp
v.
Neptune
Towers
Assocs.,
72
Mass.
App.
Ct.
502,
508
n.9
(Mass.
App.
Ct.
2008)
("Courts
interpret
partnership
agreements
in
accordance
with
general
contract principles.");
In
re Midnight
Star
Enters.,
L.P.,
2006
SD
98,
P12
(S.D.
2006)
("The
partnership
agreement
is
a
contract
between
the
partners
and
effect
will
be
given
to
the
plain
meaning
of
its
words.");
In
re
Waggoner
Estate,
163
S.W.3d
161, 165
(Tex.
App.-Amarillo
2005,
no
pet.)
("The
law
applicable
to
construction
of
con-
tracts
has
been
applied
to
partnership
agreements
....
");
Kuderewski
v.
Estate
of Hobbs,
2001
Tenn.
App.
LEXIS
561, *10
(Tenn.
Ct.
App.
July
30,
2001)
("General
principles
of
contract
law
apply
to
partnership
agreements
.... ).
91.
See
generally
Grunstein
v.
Silva,
2014
Del.
Ch.
LEXIS
167,
*71
(Del.
Ch.
Sept.
5,
2014)
("Some
of
the
critical
elements
of an
enforceable
partnership
agreement
include
profits and
losses,
control,
and
ownership."
(citing
Cochran
v.
Nagle,
1995
WL
819054,
at
*2
(Del.
Ch.
Feb.
27,
1996)).
2015]
The
Ties
That
Bind
court's
contract
law
analysis
is
not
unassailable.
98
Moreover,
the
court
is
careful
to
note
that
its
analysis
is
based
on
the
application
of
Tennessee
law.
99
The
Denman
court's apparent restraint
is
appropriate
under
the
circumstances.
In
the
absence
of
a
statutory
provision
classifying
an
oper-
ating
agreement
as a
contract
under
applicable
federal
or
state
law,
00
a
specific
operating agreement
may
not
be
able
to
be
classified
as
a
con-
tract
because it
may
not
meet
the
common
law
requirements
for
a
contract.
Yet,
judges,
legal
scholars,
and
other
commentators
with
knowledge
of
the
law
often
assume
operating
agreements
are
contracts
or
categorize
them,
without
analysis,
as
contracts.'
0
'
What
of
that?
Does
this
classifica-
tion
reflect
inadequate
consideration
or
improper
engagement
of
the
rel-
evant
legal
analysis?
Unlikely.
A
more
plausible
explanation
derives
from
the
nature
of
the
law
of
contracts
and
the
context
in
which
the
classifica-
tion
is
made.
The
common
law
of contracts arose
to
give
legal
effect
to
people's
bar-
gained
for
and
agreed
to transactional
relationships
and
to
attach
legally
recognized
consequences
to
noncompliance
with
their
terms.
10
2
If
one
considers
the categorization
of
an
agreement
as
a
contract to
be,
at
its
core,
a
proxy
for
a
legally valid
covenant
that
may
bind
and
be
enforcea-
98.
See
supra
notes
61-62,
71-72 and accompanying
text.
99.
Denman,
513
B.R.
at
725
("Tennessee
LLC
operating agreements
are
not
per
se
executory contracts
governed
by
§
365
of
the
Bankruptcy
Code because
of
their
unique
elements
and
features
under
state
law
that
are
inconsistent
with
contract
law.").
100.
The
common
law
of
contracts
may be
supplemented
or
supervened
by
statutory
law
in specific
contexts.
For
example,
New
York
has
a
general
obligations
law
that
codifies
many
contract
law
rules.
N.Y.
GEN.
OBLIG.
LAW
§§
1-101-19-103.
Also,
the
Uniform
Com-
mercial Code
defines
a
contract
as
"the
total
legal
obligation
that
results from
the
parties'
agreement
as
determined
by
[the
Uniform
Commercial
Code]
as
supplemented
by
any
other
applicable
laws."
NAT'L
CONF.
OF
COMM'RS
ON
UNIF.
ST.
LAWS,
UNIFORM
COMMER-
CIAL
CODE
§
1-201(b)(11)
(2001),
available
at
http://www.uniformlaws.org/shared/docs/
uccl/uccl
amOl.pdf.
101.
See,
e.g.,
Showell
v.
Pusey,
2011
Del.
Ch.
LEXIS
123, *10
n.25
(Del.
Ch.
Sept. 1,
2011)
("LLC agreements
are
contracts ..
");
Bluewater
Logistics,
LLC
v.
Williford,
55
So.
3d
148,
159-60
(Miss.
2011)
("[A]n
LLC
operating agreement
is
a
contract,
subject
to
con-
tract
law[
] ....
");
TravelCenters
of
Am.,
LLC
v.
Brog,
2008
Del.
Ch.
LEXIS
199,
*3
(Del.
Ch.
Apr.
3,
2008)
("[L]imited
liability
companies
are
creatures
of
contract[
]
....
");
J.
William Callison,
Venture
Capital
and
Corporate
Governance:
Evolving
the
Limited
Liabil-
ity
Company
to
Finance
the
Entrepreneurial
Business,
26
IOWA
J.
CORP.
L.
97,
106
(2000)
(describing an
operating
agreement
as
"a
principal-agent
contract"); DiMatteo,
supra
note
3,
at
300
("[T]he
operating agreement
begins
a
long-term,
relational
contract.");
Wayne
M.
Gazur &
Neil
M.
Goff,
Assessing
the
Limited
Liability
Company,
41
CASE
W.
RES.
L.
REV.
387,
416
n.1
(1991)
("LLC
operating
agreements
are
contracts.");
Patrick
G.
Goetzinger
et
al.,
The
South
Dakota
Limited
Liability
Company
Act:
The
Next
Generation
Begins,
44
S.D.
L.
REV.
207,
221
(1999)
("The operating
agreement
is
the
contract
between
members,
man-
agers
and
the
company
....
");
Meghan
Gruebner,
Delaware's
Answer
to
Management
Deadlock
in
the
Limited Liability
Company:
Judicial
Dissolution,
32
J.
CORP.
L.
641, 649
(2007)
("[A]n
LLC
agreement
is
a
contract ....
");
Miller
et
al.,
supra
note
83,
at
589
(describing an
operating
agreement
as
"a
contract
between
the
members .... ").
102.
See
KUNEY
&
LLOYD,
supra
note
50,
at
vi
("[C]ontract
law
is
about
putting
rela-
tionships
together
and
defining
them,
as
well
as
taking them
apart
or
trying
to
mend
or
break
them.").
2015]
SMU
LAW
REVIEW
ble
against
those
who
consent
to
its
terms,
103
the
references
to
operating
agreements
as
contracts
makes
sense.
Although
an
operating
agreement
may
not
always
have
all
of
the
common
law
elements
of
a
contract,
LLC
law
typically
affords
it
a
contractual
status,
just
as
partnership
agreements
and
corporate
bylaws
are
afforded
contractual
status
under
partnership
and
corporate
law,
respectively.
Said
another
way,
LLC
law
performs
the
same
function
for
operating
agreements
that
contract
law
provides
for
contracts-namely,
it
estab-
lishes
the
rules
for
determining
when
the
terms
of
a
consensual
relation-
ship
resulting
in
the
formation
and
maintenance
of an
LLC
are
valid,
binding
on
the
parties,
and
enforceable
by
one
party
against
another
as
a
matter
of
law.
One
might
then
observe
that
an
operating
agreement
is
a
statutory
form
of
contract,
rather
than
a
common
law
contract-one
with
its
own legal
rules.
An operating
agreement
does
not
need
to
be
a
con-
tract
in
any
other
sense
in
order
for
it
to have
the
necessary
legal
effects
as
a valid,
binding,
and
enforceable
obligation.'
04
Yet,
in
the
absence
of
an
express
acknowledgement
in
LLC
law
that
an
operating
agreement
is
a
statutory
contract,
some
uncertainty
continues
to
exist
about
the
appli-
cation
of
the
many
aspects
of
contract
law
to
operating
agreements
in
both
advisory
and
adjudicatory
contexts.
IV.
CONCLUDING
Ultimately,
then,
an
operating
agreement
may
or
may
not
be
a
com-
mon
law
contract.
But
that
legal
categorization
may
not
matter
for
pur-
poses
of
simple
legal
conclusions
regarding
the
force
and
effect
of
operating
agreements
under
LLC
law.
A
state's
LLC
law
may
establish
the
circumstances
in
which
operating
agreements
are
valid,
binding,
and
enforceable
and
may
provide
that operating
agreements
are
contracts
or
are
to
be
treated
as
contracts
in
general
or
for
specific
purposes.
This
is,
in
essence,
what
the
Delaware
courts
and
legislature
did
in
the
Elf
Atochem
opinion
and
the
resulting
amendments
to
Delaware
LLC
law,
respectively.
10
5
However,
the
legal
conclusion
that
an
operating
agreement
is
or
is
not
a
contract-and
more
specifically,
a
common
law
contract-may
matter
103.
See,
e.g.,
Jay
M.
Feinman,
Un-Making
Law:
The
Classical
Revival
in
the
Common
Law,
28
SEATTLE
U.
L.
REV.
1,
26
(2004)
(noting
that
contract
law
decides
"which
promises
to
enforce,
how
to
interpret
and
fill
gaps
in
them,
and
what
remedies
to
provide
for
breach");
Blake
D.
Morant,
The
Teachings
of
Dr.
Martin
Luther
King,
Jr.
and
Contract
Theory:
An
Intriguing
Comparison,
50
ALA.
L.
REV.
63,
93-94
("The
key
to
contract
the-
ory
remains
enforcement,
where
bargainers
gain
security
through
the
use
of
contract
rules
and
from
the
knowledge
that
any
breach
of
a
validly
formed
contract
will
result
in
a
remedy.").
104.
See
generally
Olson
v.
Halvorsen,
986
A.2d
1150,
1161
(Del.
2009)
("[T]he
LLC
Act,
like
many
other
contracts,
treats
LLC
agreements
by
permitting
oral,
written,
or
im-
plied agreements.");
Elf
Atochem
N.
Am.,
Inc.
v.
Jaffari,
727
A.2d
286,
292
(Del.
1999)
("In
general,
the
commentators
observe
that
only
where
the
agreement
is
inconsistent
with
mandatory
statutory
provisions
will
the
members'
agreement
be
invalidated.").
105.
See
supra
notes
35-39
and
accompanying
text.
[Vol.
68
The
Ties
That
Bind
in legal
contexts
that
depend
on
the
common
law
of
contracts
for their
rules.
This
may
include,
for
example,
the
application
of
the
executory
contracts
definition
in
the
Denman
case.
The
Denman
court
states
that
the
underlying
legal
issue
as
to
the
existence
of
an
executory
contract
depends
on the
existence
of
a
contract.
10
6
The
Denman
court
relied heav-
ily
on
the
terms
and provisions
of
Tennessee
LLC
law
in
rendering
its
decision
that
the
operating
agreement
at
issue
was
not
a
contract.
Al-
though
the
matter
is
not
free
from
doubt,
the
Denman
case may
have
been
resolved
differently
if
the
court
found
clear
evidence
in
or
under
Tennessee
LLC
law
that
an
operating
agreement
was
a
contract.
Yet,
before
determining
that
a
contract
law
conclusion
or
analysis
an-
swers
a
question
in
a
legal
regime
outside
contract
law
(or
even
outside
a
statutory
law
that
labels
a specific
type
of
agreement
as
a
contract),
in the
absence
of
clear
statutory
guidance
under
that
legal
regime,
a
decision-
maker
is
best
advised
to
look
behind
the "contract"
label
of
an
agreement
to
the
dominant
policy
and
theory
relevant
to
the
applicable
legal
regime.
Where
the
objectives
and
philosophy
of
contract
law
and
the
non-con-
tract
law
regime
are
consistent,
a
common
law
contract
inquiry
may
well
be
appropriate.
But
where
the
policy
and
theory
underlying
contract
law
and
the
non-contract
law
regime
diverge,
an
analysis
based
on the
com-
mon
law
of
contracts
may
be
inapposite
or
even
counterproductive.
As
I
believe
Alan
Bromberg,
in
whose
honor
and
memory
this
essay
was
drafted,
10 7
would
note,
there
is
an
opportunity
here
for
legislative
action
that
the
specialty
bar
associations,
the
American
Bar
Association,
and
state
bar
associations
can
encourage.
1
08
If
applicable
policy
makes
it
advisable
for
operating
agreements
to
be
contracts
or
to be
consistently
treated
as
contracts-or
not
be
or
be
treated
as
contracts-in
a
specific
situation,
a
statute
(or
at
least
explicit
regulatory
guidance)
can
and
should
be written
for
that
purpose.
Perhaps
this
essay
will
encourage
closer
attention
to
that
issue
and,
in
doing
so,
foster clearer
advice.
LLC
106.
In
re
Denman,
513
B.R.
720,
726
(Bankr.
W.D.
Tenn.
2014)
("Executory
contracts
are 'contracts,'
and,
therefore,
must
satisfy
the
elements
and
requirements
of
contract
law.").
Interestingly,
other
cases
addressing
the
question
of
whether
an
operating
agree-
ment
is
an executory
contract
under
federal
bankruptcy
law
(including
cases
cited
in the
Denman
opinion)
do
not
question
the
operating
agreement's
classification
as
a
contract.
See,
e.g.,
In
re
Tsiaoushis,
383
B.R.
616,
618-20
(Bankr.
E.D.
Va.
2007)
afTd,
No.
1:07
CV
436,
2007
WL
2156162 (E.D.
Va. July
19,
2007)
(focusing
on
the
existence
of unperformed
obligations);
in
re
Allentown
Ambassadors,
Inc.,
361
B.R.
422,
444
(Bankr.
E.D.
Pa.
2007)
(focusing
on
"ongoing,
material,
unperformed
obligations"
under
the
operating
agree-
ment);
In
re
DeLuca,
194
B.R.
65,
77
(Bankr.
E.D.
Va.
1996)
("[T]he
operating
agree-
ment
...
is
an
executory
contract,
since
the
object
of
the
agreement
...
has
not
yet
been
accomplished
and
the
parties
have
on-going
duties
and
responsibilities
to
bring
the
project
to
a
successful
conclusion.");
In
re
Daugherty
Constr.,
Inc.,
188
B.R.
607,
612
(Bankr.
D.
Neb.
1995)
(focusing
on
the
existence
of
unperformed
obligations).
107.
See
supra
*.
108.
See
Alan
R. Bromberg
et
al.,
The
Role
of
the
Business
Law
Section
and
the
Texas
Business
Law
Foundation
in
the
Development
of
Texas
Business
Law,
TEX.
J.
Bus.
L.
41,
44,
(2005)
(telling
"the
proud
story"
of
the role
of
the
Section
of
Business
Law
of
the
State
Bar
of
Texas
and
the Texas
Business
Law
Foundation
in
developing
the
business
law
of
the
State
of
Texas).
2015]
830
SMU
LAW
REVIEW
[Vol.
68
operating
agreements
are
contracts
or
otherwise
constitute
valid,
binding,
and
enforceable
legal
commitments
in
a
given
context
if
the
applicable
statute
says
so.
That
much,
we
can
count
on.