Delaware Court of Chancery Confirms that Minority, Non-Managing LLC Members Do Not Owe Fiduciary Duties

White and Williams LLP recently secured a significant victory in the Delaware Court of Chancery. On July 20, 2026, Vice Chancellor Lori W. Will affirmed the dismissal with prejudice of a breach of fiduciary duty claim against the firm’s client, Tharp and Associates, LLC (“Tharp”), in Ruby Hollow, LLC v. Tharp and Associates, LLC, C.A. No. 2024-0318-DG.

The decision confirms that in a manager-managed LLC, passive minority members do not owe fiduciary duties to the company, even when it is alleged they play an active role in company operations.

Background

Ruby Hollow, LLC (“Ruby Hollow”) is a manager-managed Delaware LLC with two managers each holding a 31% membership interest. Tharp held only a 7% interest and served as a consultant. Ruby Hollow sued Tharp for breach of fiduciary duty, alleging that Tharp’s communications with third parties and its oversight of precious metals mining operations gave rise to fiduciary obligations. Rather than point to the LLC agreement or voting control, Ruby Hollow relied solely on the “transaction-specific control” theory arguing that Tharp’s conduct alone was enough to make it a fiduciary.

The Decision

Tim Martin of White and Williams argued Tharp’s motion to dismiss before Magistrate in Chancery Danielle Gibbs, who recommended dismissal with prejudice in January 2026. Ruby Hollow filed exceptions, which Vice Chancellor Will reviewed de novo. The Vice Chancellor affirmed the dismissal on even broader grounds, holding that Tharp (a 7% passive, non-managing member) simply owed no fiduciary duties under any theory of control. The Court found that Tharp lacked any structural or functional authority over Ruby Hollow, noting that its 7% stake was dwarfed by the managers’ combined 62% interest and that Tharp held no blocking, appointment, removal, or veto rights. As the Vice Chancellor put it, “Delaware law does not convert unfaithful service providers with small ownership stakes into fiduciaries.”

Key Takeaways

Conduct alone is not enough. Playing a “central role” in company operations or serving as a consultant does not create fiduciary duties for a passive minority member. The inquiry turns on structural and functional authority.

Structural power is what matters. Courts will look for voting power, contractual governance rights, and managerial authority under the LLC agreement—not mere influence or involvement.

Contract defines the relationship. Obligations between an LLC and a minority member who also serves as a consultant are contractual, not fiduciary. Plaintiffs seeking to impose fiduciary duties on a minority member must show domination or control over the entity’s managers—not simply that the member engaged in conduct.

For questions regarding this decision or Delaware LLC law, please contact your White and Williams LLP attorney or the authors: Timothy S. Martin, Partner, 302.467.4509, martint@whiteandwilliams.com; Christopher F. Graham, Partner, 212.714.3066, grahamc@whiteandwilliams.com; Michael Ingrassia, Associate, 302.467.4503, ingrassiam@whiteandwilliams.com.