Court of Chancery Dismisses Breach of Fiduciary Duty Claim as Duplicative of Breach of Contract Claim

By Scott Waxman and Zack Sager

In CIM Urban Lending GP, LLC v. Cantor Commercial Real Estate Sponsor, L.P., the Delaware Court of Chancery dismissed a breach of fiduciary duty claim against a general partner of a Delaware limited partnership because there was no independent factual basis for the breach of fiduciary duty claim apart from the plaintiffs’ breach of contract claim.

The plaintiffs, limited partners in a Delaware limited partnership (the “Partnership”), brought claims against one of the Partnership’s general partners (the “General Partner”) and certain of its affiliates (collectively, the “Defendants”) alleging: (1) breach of the partnership agreement of the Partnership; (2) unjust enrichment; (3) breach of fiduciary duty; and (4) aiding and abetting breach of fiduciary duty.  According to the Delaware Court of Chancery, the factual basis for each of these claims was the same: the General Partner allegedly overpaid one of its affiliates for work the affiliate did (or did not do) for the Partnership.

With respect to unjust enrichment, the Court dismissed the plaintiffs’ claim because it was based upon the same conduct as the breach of contract claim.  According to the Court, Delaware courts have consistently refused to permit unjust enrichment claims when the alleged wrong arises from a relationship governed by contract.  Moreover, when the standard is set by contract, contractual remedies remain the sole remedies even if the claim of unjust enrichment is alleged against a party who is not a party to the contract.

The Court also dismissed the breach of fiduciary duty claim because Delaware law does not permit fiduciary duty claims to proceed in parallel with breach of contract claims unless there is an independent basis for the fiduciary duty claims apart from the contractual claims.  According to the Court, this treatment of corresponding fiduciary duty and contract claims reflects Delaware’s perception that allowing a fiduciary duty claim to coexist in parallel with a contractual claim would undermine the primacy of contract law over fiduciary law in matters involving contractual rights and obligations.  Similarly, the Court dismissed the aiding and abetting breach of fiduciary duty claim given that such a claim can only exist if there is an underlying breach of fiduciary duty claim.

Lastly, the Court denied in part and granted in part the plaintiffs’ motion to compel discovery.

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