CHANCERY COURT ALLOWS CLAIMS DUE TO MANAGER’S ALLEGIANCE TO PARTICULAR EQUITY HOLDERS OVER THE COMPANY

By: Scott E. Waxman and Douglas A. Logan

In Klein and Cambridge Therapeutic Technologies, LLC, v. Wasserman et al., C.A. No. 2017-0643-KSJM (May 29, 2019), the Delaware Court of Chancery addressed claims of breach of fiduciary duties, tortious interference, and civil conspiracy. Defendants’ motion to dismiss the claims was granted in part and denied in part.

This dispute arose out of a business relationship with Defendants Monica and Robert Breslow (“Breslows”), Defendant Marc Wasserman (“Wasserman”), Plaintiff Cambridge Therapeutic Technologies, LLC (“CTT”), and Plaintiff John H. Klein (“Klein”). CTT is a Delaware limited liability company founded by Klein and engaged in the packaging and distribution of pharmaceuticals. Klein also served as the President and CEO of CTT until December 2017 when the board removed him for cause.

The Breslows invested $12.5 million in CTT and shortly thereafter sought a buy-out of their equity stake. While the Breslows were equity holders, they nominated Wasserman to the board. CTT alleged that the Breslows convinced Wasserman to use his position on the CTT board to “disrupt CTT operations as much as possible” in an effort to gain control and obtain a buy-out.

As a result, CTT sued both Wasserman and the Breslows, alleging: (1) Wasserman (as manager) and the Breslows (as controllers) breached their fiduciary duties; (2) the Breslows aided and abetted Wasserman’s breach of fiduciary duties; and (3) Wasserman and the Breslows breached their implied covenant of good faith and fair dealing. Additionally, Klein (former CEO of CTT) alleged: (1) Wasserman and the Breslows tortuously interfered with Klein’s Employment Agreement; and (2) Wasserman and the Breslows committed civil conspiracy.

The court denied defendants’ motion to dismiss count one—breach of fiduciary duties—as to Wasserman, and granted the motion to dismiss count one as to the Breslows. The court found that Wasserman certainly had fiduciary duties running to CTT at the time of the alleged incidents, but the Breslows lacked the “control” necessary to share those duties. Because count one was sufficiently plead as to Wasserman, the court denied defendants’ motion to dismiss count two—aiding and abetting by the Breslows.

The court granted defendants’ motion to dismiss count three—breach of the implied covenant of good faith and fair dealing—finding that there were no grounds to trigger the implied covenant where it had not been alleged that the agreement contained any contractual gaps that needed to be filled. The implied contractual covenant of good faith and fair dealing is sparingly used by the courts and only when the court finds that the parties failed to anticipate a situation, which, if they had anticipated it, they likely would have addressed the situation in their agreement.  Defendants’ motion to dismiss count four—tortious interference with Klein’s Employment Agreement—was also granted. The court found that Klein failed to allege a breach of contract underlying the tortious interference claim, and therefore failed to allege tortious interference. Finally, the court dismissed count five—civil conspiracy—because it lacked the necessary predicate of tortious interference.

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