Topic: Breach of Contract

Chancery Court Denies In Part Motion to Dismiss Breach of Contract and Breach of Fiduciary Duties Claims

By Shoshannah Katz and Priya Chadha

In Feldman v. Soon-Shiong, et al. (C.A No. 2017-0487-AGB), the Delaware Court of Chancery denied in part and granted in part a motion to dismiss claims involving, among other things, breach of contract and breach of the fiduciary duty of loyalty, following a defendant’s withdrawal of $47 million from a company bank account.

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

By: Scott Waxman and Zack Sager

In MHS Capital LLC v. Goggin, the Delaware Court of Chancery granted a motion to dismiss a breach of fiduciary duty claim against the manager of a Delaware limited liability company because all of the manager’s conduct that could have formed the basis of such claim was covered by the duties of the manager delineated in the limited liability company agreement.  The Court also analyzed and dismissed claims for, among other things, fraud, breach of the implied contractual covenant of good faith and fair dealing, unjust enrichment, and misappropriation of trade secrets.

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Court of Chancery Holds That Plaintiff Failed to Meet Burden of Proof With Respect to Mistake-Based Reformation Claim

By: Scott Waxman and Tami Mack

In Richard B. Gamberg 2007 Family Trust v. United Restaurant Group, L.P., C.A. No. 10994-VCMR (Del. Ch. January 26, 2018), the Court of Chancery held that limited partner, Richard B. Gamberg 2007 Family Trust (the “Plaintiff”), failed to meet its burden of proof with respect to various claims against United Restaurant Group L.P. (the “Partnership”), Atlantic Coast Dining, Inc. (the “General Partner”), and the directors/shareholders of the General Partner (the “Shareholder Defendants”; together with the Partnership and the General Partner, the “Defendants”), which included a mistake-based reformation claim, among other breach of contract and breach of fiduciary duty claims.

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CHANCERY COURT NULLIFIES DISSOLUTION OF LIMITED LIABILITY COMPANIES FOR FAILURE TO SET ASIDE A RESERVE TO SATISFY KNOWN CLAIMS

By: Scott E. Waxman and Calvin D. Kennedy

In Kevin Capone and Steven Scheinman v. LDH Management Holdings LLC, et al., C.A. No. 11687-VCG (Del. Ch. April 25, 2018), the plaintiffs, Kevin Capone (“Capone”) and Steven Scheinman (“Scheinman”), and the defendants, LDH Management Holdings LLC (“Management Holdings”), LDHMH MM, LLC (together with Management Holdings, the “LLCs”), Castleton Commodities International LLC (f/k/a Louis Dreyfus Highbridge Energy LLC (“LDH”)) and certain members of the Board of Directors of LDH, each moved for summary judgment regarding the plaintiffs’ claim that the defendants violated Delaware law by cancelling the LLCs without setting aside a reserve for the plaintiffs’ breach of contract claims.  The court granted the plaintiffs’ motion for summary judgment and held that the defendants were aware of the plaintiffs’ non-frivolous claims for breach of contract against the LLCs and, therefore, the defendants acted in violation of Delaware law when they failed to create a reserve to cover the plaintiffs’ claims when the LLCs were dissolved.

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CHANCERY COURT FINDS ORAL AGREEMENT TO SETTLE PROXY CONTEST BINDING AND ORDERS SPECIFIC PERFORMANCE OF THE SETTLEMENT AGREEMENT

By Josh Gaul and Caitlin Velasco

In Sarissa Capital Domestic Fund LP, et al. v. Innoviva, Inc., C.A. No. 2017-0309-JRS (Del. Ch. Dec. 8, 2017), the Delaware Court of Chancery ruled in favor of dissident stockholder plaintiffs, Sarissa Capital Domestic Fund LP, et al. (“Sarissa”) of Innoviva, Inc. (“Innoviva”), concluding that Sarissa and Innoviva entered into a binding, oral settlement agreement to resolve a proxy contest prior to Innoviva’s 2017 annual stockholder meeting and specific performance of the settlement agreement was warranted. Read More

CHANCERY COURT DISMISSES BREACH OF CONTRACT AND FIDUCIARY DUTY CLAIMS BROUGHT UNDER AN UNENFORCEABLE CONTRACT

By Scott E. Waxman and Michael Bill

In Eagle Force Holdings, LLC v. Campbell, No. 10803-VCMR (Del. Ch. Ct. September 1, 2017), the Court of Chancery dismissed plaintiffs’ breach of contract and fiduciary duty claims against the defendant due to a lack of personal jurisdiction over the defendant. Plaintiffs argued the defendant consented to personal jurisdiction in Delaware by entering into the (1) Contribution and Assignment Agreement (the “Contribution Agreement) and (2) Amended and Restated Limited Liability Company Agreement (the “LLC Agreement,” and together with the Contribution Agreement, the “Transaction Documents”), but the Chancery Court found the Transaction Documents to be missing material terms and, thus, held them to be unenforceable.

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CHANCERY COURT DISMISSES BREACH OF CONTRACT CLAIM DUE TO PLAINTIFF’S FAILURE TO PROFFER A REASONABLE CONSTRUCTION OF MERGER AGREEMENT PROVISION

By: Christopher H. Cunningham and Joseph Phelps

In Fortis Advisors LLC v. Shire US Holdings, Inc., No. 12147-VCS (Del. Ch. Aug. 9, 2017), the plaintiff, Fortis Advisors LLC, which was acting as representative (the “Representative”) for the former stockholders of SARcode Bioscience Inc., a private biopharmaceutical company (the “Target”), pursuant to a merger agreement, alleged that the acquiror Shire US Holdings, Inc., a Delaware subsidiary of a global biopharmaceutical company (the “Acquiror”), breached the provisions of a merger agreement by refusing to pay certain milestone payments that were due.  The Court of Chancery granted the Acquiror’s motion to dismiss for failure to state a breach of contract claim, concluding that, while the Acquiror’s interpretation of the operative provision at issue was reasonable based on its plain and unambiguous language, the Representative failed to proffer a competing reasonable construction of such provision and thus the Court was required to grant the motion to dismiss.

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CHOICE OF LAW PROVISION IN STOCKHOLDERS’ AGREEMENT INSUFFICIENT TO CREATE PERSONAL JURISDICTION OVER DELAWARE CORPORATION’S FORMER CEO

By Shoshannah D. Katz and Max E. Kaplan

By order dated August 4, 2017, Vice Chancellor Slights dismissed the complaint seeking to enforce non-compete and non-solicitation provisions in a stockholders’ agreement in EBP Lifestyle Brands Holdings, Inc. v. Boulbain, C.A. No. 2017-0269-JRS (Del. Ch. Aug. 4, 2017), finding that the Delaware Chancery Court lacked personal jurisdiction over the defendant.  Specifically, the Court held that defendant’s execution of a stockholders’ agreement governed by Delaware law and concerning a Delaware corporation was insufficient to satisfy the statutory and constitutional requirements to establish personal jurisdiction over an individual not resident or transacting business in Delaware.

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Chancery Court Permits Limited Partners’ Claims Against General Partners to Proceed Despite Ongoing Bankruptcy of the Partnership

By: Scott Waxman and David Noll

On a motion to “’confirm the trial schedule,’” Vice Chancellor Glasscock determined that actions brought by the limited partners of a partnership based upon the general partner’s alleged fraud, self interest and breach of the partnership agreement were direct claims and therefore not subject to a stay pursuant to the partnership’s bankruptcy proceeding. Sehoy Energy LP et al. v. Haven Real Estate Group, LLC et al., C.A. No. 12387-VCG (Del. Ch. April 17, 2017), addressed a situation in which  the general partner of a limited partnership (and the person controlling the general partner) used funds of the limited partnership to make investments into the business of a personal friend  which ultimately resulted in the bankruptcy of the partnership.

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DELAWARE CHANCERY COURT DISMISSES CLAIMS DUE TO A PRIOR BROAD SETTLEMENT RELEASE

By Scott Waxman and Thomas Meyer

In Geier v. Mozido, LLC, C.A. No. 10931-VCS (Del. Ch. Sept. 29, 2016) (Slights, V.C.), the Delaware Court of Chancery granted the motion of Mozido LLC (“LLC”) and Mozido, Inc., a subsidiary of LLC (“Inc.” and together with LLC, “Defendants”), to dismiss claims relating to incentive options promised, but not delivered, to a former director of LLC (“Plaintiff”).

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Chancery Court Finds Statute of Limitations Bars Humvee Joint Venture Breach of Contract Claims

By Scott Waxman and Mark Hammes

In AM General Holdings v. The Renco Group, C.A. No. 7639-VCS (Del. Ch. Aug. 22, 2016), the Court of Chancery held that Delaware’s three-year statute of limitations barred contract claims brought by one party in a joint venture to produce Humvee automobiles against its joint venture partner.

AM General LLC (“AM General”) manufactured and sold specialized vehicles including the Humvee. Prior to 2004, its sole member was The Renco Group, Inc. (“Renco”).  In August 2004, Renco and MacAndrews & Forbes Holdings Inc.  (“M&F”) entered into a joint venture with Renco whereby they formed AM General Holdings LLC (“Holdco”).  Renco contributed AM General to Holdco and M&F contributed cash.  An M&F subsidiary became the managing member of Holdco.  A Holdco Agreement set forth the mechanisms for distribution of profits between Renco and M&F and provided for certain contractual protections for Renco, restricting certain related party transactions, management fees, distributions and the like and giving Renco access to books and records of Holdco.

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Chancery Court Dismisses Only Certain Counterclaims Against Baseball’s Derek Jeter

By: Merrick Hatcher and Joshua Haft

In a mixed ruling, the Chancery Court denied, in part, baseball legend Derek Jeter’s motion to dismiss claims that he breached his fiduciary duty as a director of undergarment manufacturer RevolutionWear, that he violated the implied covenant of good faith and fair dealing, and that he fraudulently induced a contract with RevolutionWear and fraudulently concealed restrictions in his endorsement contract with Nike that precluded Jeter from fulfilling his promise to allow RevolutionWear to announce his role as a founder, substantial owner, and director.

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