- within Law Department Performance and Tax topic(s)
Washington law makes clear that across all Washington business entities, those in control (e.g. directors, officers, managers, partners) owe fiduciary duties. Traditionally, these fiduciary duties include the duty of care and loyalty. Sometimes, Courts include the duty of good faith and fair dealing within fiduciary duties as well. Controllers should understand that this includes what is known as a duty of candor. Understanding and complying with this duty is of utmost importance to directors, officers, managers, and partners in Washington.
What is the Duty of Candor?
Courts sometimes refer to the duty of candor as the duty to disclose all material facts, or refrain from concealing material facts, from shareholders, LLC members, or copartners. Delaware courts regularly handle claims regarding the duty of candor and provide a good resource to controllers and practitioners for understanding. Under Delaware law, the duty of candor “is not an independent duty but the application in a specific context of the [controller’s] fiduciary duties of care, good faith, and loyalty.” Peña v. MacArthur Grp., Inc., 346 A.3d 1136, 1165 (Del. Ch. 2025). This includes disclosing “fully and fairly all material information within the [controller’s] control.” Id. In other words, directors, officers, managers and partners must disclose important details—normally about a transaction—to a company’s stakeholders.
Does Washington Impose a Duty of Candor?
As with many corporate issues, case law in Washington is scant regarding the duty of candor and its applicability to directors, officers, managers, and partners of Washington entities. However, one case worth highlighting, RSD AAP, LLC v. Alyeska Ocean, Inc., imposes a duty of candor to partners in a partnership.
RSD presented a partnership dispute under RCW 25.05, Washington’s Uniform Partnership Act, where the plaintiff argued its copartner failed to disclose material terms of a transaction before seeking the informed consent of the partners. In analyzing the claim, the Court affirmatively found the duty of candor within a partner’s duty of good faith, “which demands that the partner abstain from any and all concealment concerning matters pertaining to the partnership business and to refrain from making false statements to a copartner.” 190 Wn. App. 305 at 321. The Court ultimately rejected the plaintiff’s claim, finding the defendant’s disclosure was timely and included all material facts.
In other words, partners in Washington partnerships owe their copartners a duty of candor.
Do Washington Directors, Officer, and LLC Managers Owe a Duty of Candor?
The Court’s analysis in RSD has far reaching impacts beyond Washington partnerships. From my perspective, the Court’s reasoning in RSD can be applied to all other Washington entities with fiduciary duties of good faith. For example, Washington law likely imposes on directors and officers in a corporation a duty of candor as both RCW 23B.08.300(1) (directors) and RCW 23B.08.420(1) (officers) require directors and officers to act in good faith. This necessarily includes a duty of candor under RSD.
The analysis might be different for Washington LLCs. Under Washington’s LLC Act, RCW 25.15, there is no affirmative obligation to act in good faith. Rather, the Act merely states that LLC agreements cannot eliminate or modify the “implied contractual duty of good faith and fair dealing.” RCW 25.15.038(6)(b). I still think there is sufficient legal reasoning for imposing a duty of candor on LLC managers, the analysis is not as straightforward as with corporations.
Considerations for Practitioners and Controllers
In short, Washington law almost certainly imposes a duty of candor on the controllers of its business entities. RSD makes clear that the duty applies to partners in a partnership, and this analysis can be readily applied to directors and officers in a corporation. While the analysis remains different for LLCs, the duty of candor still probably applies, but there is sufficient room for sophisticated practitioners to think creatively about its application. As with everything else, proceed at your own peril.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
[View Source]