Opting in and Out of Fiduciary Duties in Cooperative Ventures : Refining the So-Called Coasean Contract Theory

Professor O'Kelley comments on a familiar problem in the law of closely held business associations - the alleged exploitation of weaker or minority investors by stronger or majority participants. The fact pattern is simple. At the outset of the cooperative venture, a stronger participant assumes the role of proprietor, partner, or majority shareholder, while the weaker participant assumes the role of agent, partner, or minority shareholder. For whatever reason, the venturers do not explicitly guarantee or protect the weaker participant's right to income or continued participation in the venture. Consequently, at some later date the stronger participant reduces or eliminates the weaker investor's participation in or return from the cooperative venture. The weaker investor then seeks equitable relief, claiming that the stronger venturer's actions violate the implied fiduciary duties owed to the weaker participant. This comment explores how efficiency minded judges should apply the Cosean Contract Theory, and, thus, some light on the theory itself