Standard of Negligence-Fiduciary Duty of Care

If the South Carolina Statutory Default Rules control (meaning the written LLC Operating Agreement is silent on the duty of care), the duty of care to which LLC owner/members and LLC managers are held is the standard of gross negligence, that is, the actor is only liable to the LLC and the other LLC owner/members for doing something or failing to do something if the action or inaction was taken with reckless disregard of the consequences (see also Fiduciary Duties and Potential Owner/Member Liability).

Now that I draft my own LLC Operating Agreements, I explain the different levels of care in the Pre-Organization Questionnaire Letter and ask clients if they have a preference. When I organizing “Form” LLCs, whether I offered the choice to my clients depended on which “form” I used.

Even though I usually recommend and clients usually choose gross negligence as the standard, it is beneficial to have them consider it up front and consider it to the point of having to make a decision (see Pre-Organization Questionnaire Letter) because 1) if they do not consider it they may not realize they have a duty, 2) on the other hand, they may wrongly assume the standard is higher and have problems in the future if a fellow LLC owner/member performs below their expectations, and 3) law students and lawyers struggle with the legal concept of negligence so any extra focus on the subject for LLC owner/members is a good thing.

“Surveyors can measure an acre. But measuring negligence is different. The definitions of negligence are not definitions at all, strictly speaking.” Justice Hugo L. Black, in Schultz v. Pennsylvania R. Co., 350 U.S. 523, 525 (1956).