Court Holds Fund Manager’s Disclosed Fee Interest Did Not Strip Its Decisions Of Business Judgment Protection

Posted: November 4, 2026 / Written by: Samuel L. Butt / Categories Summary Judgment, Fiduciary Duties, Commercial

Court Holds Fund Manager’s Disclosed Fee Interest Did Not Strip Its Decisions Of Business Judgment Protection

On October 9, 2026, in Chen Dongwu v. New York City Regional Center LLC, Index No. 652024/2017, Justice Robert R. Reed granted defendants’ motion for summary judgment dismissing all of plaintiffs’ remaining claims.

On the fiduciary duty claims, the Court explained:

A conflict of interest that is specifically disclosed in the governing offering or operating documents, and to which the investor assents by subscribing, does not support a breach of fiduciary duty claim (see Wen v New York City Regional Center, LLC, 695 F Supp 3d 517, 549 [SD NY 2023] [finding that regional center defendants’ collection of management fees “did not create an impermissible conflict of interest because the offering memoranda fully disclosed them”]). “‘A breach of fiduciary duty claim may not be based on a conflict of interest or even self-dealing where the conflict was specifically disclosed in the partnership agreement or prospectus’” (id., quoting Schneider v Wien & Malkin LLP, 2004 WL 2495843, at *14 [Sup Ct, NY County 2004], and citing Seaford Funding Ltd. P’shp v M&M Assocs. II, L.P., 672 A2d 66, 72 [Del Ch 1995] [“A conflict of interest disclosed in a prospectus or partnership agreement and a plaintiff’s acceptance of the terms of the prospectus or Partnership Agreement precludes the plaintiff from bringing a derivative claim based on the facts disclosed in those documents”]).

. . . The mere fact that a fiduciary could, or does, financially benefit from a particular business decision does not, standing alone, create a disqualifying conflict of interest sufficient to strip that decision of business judgment protection. To hold otherwise would mean that virtually every disbursement, fee collection, or portfolio management decision made by any compensated manager of a pooled investment vehicle would be presumptively disloyal, since compensated managers by definition benefit, in some general sense, from the continuation of the fee-generating relationship.

The attorneys at Schlam Stone & Dolan LLP have significant experience prosecuting and defending derivative actions and breach of fiduciary duty claims. Contact the Commercial Division Blog Committee at commercialdivisionblog@schlamstone.com if you or a client have questions concerning such issues.

To read more about fiduciary duty claims against the managers of LLCs and investment vehicles, see Schlam Stone & Dolan’s related Commercial Division Blog posts on a decision holding that the business judgment rule shielded an LLC managing member’s decision to cancel swap agreements because the plaintiff did not allege fraud or self-dealing and a decision holding, after trial, that an LLC managing member did not breach his fiduciary duty by presenting an investment opportunity to a different fund because the operating agreement gave him the right to do so.