Topic: Breach of Contract

Alleged Scheme to Exercise Partnership Agreement Call Right at Unfair Price Supports Breach, Tortious Interference Claims

By: Scott E. Waxman and Michael C. Payant

In In re CVR Refining, LP Unitholder Litigation, C.A. No. 2019-0062-KSJM (Del. Ch. Jan. 31, 2020), the Delaware Court of Chancery (the “Court”) concluded plaintiffs had pleaded reasonably conceivable breach of partnership agreement and tortious interference with contract claims in connection with an alleged scheme by defendants to exercise a contractual call right and buy out minority partnership unitholders at artificially depressed prices. The Court granted in part and denied in part defendants’ motion to dismiss.

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Delaware Court of Chancery Allows Direct Claims for Breach of Contract and Fraud to Proceed, Even After Dismissing Related Derivative Claims

By Scott E. Waxman and Frank J. Mazzucco

In MKE Holdings, Ltd. and David Bergevin v. Kevin Schwartz, et al. and Verdesian Life Sciences, LLC, C.A. No. 2018-0729-SG (Del. Ch. Jan. 29, 2020), the Delaware Court of Chancery allowed direct claims for breach of contract and fraud in connection with an equity financing to survive a motion to dismiss, even after having previously dismissed the related derivative claims.  

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Delaware Holds that Directors May Choose Lower Value All-Cash Deal Over Stock Deal So Long as the Decision is Made in Good Faith and Free of Conflicts

By Lisa R. Stark and Sara M. Kirkpatrick

Recently, the Delaware Court of Chancery dismissed fiduciary duty claims brought by former Essendant, Inc. (“Essendant”) stockholders after Essendant terminated its stock-for-stock merger with Genuine Parts Company (“GPC”) which was valued at $13.20 – $23.90 per share, including synergies, in favor of a lower all-cash offer of $12.80 per share, proposed by private equity fund Sycamore Partners (“Sycamore”), a minority stockholder of Essendant. Plaintiffs argued that Sycamore was a controlling stockholder of Essendant and either breached its fiduciary duties to Essendant’s stockholders or aided and abetted the Essendant directors’ breaches of fiduciary duty. Plaintiffs also argued that a majority of the Essendant directors acted disloyally or in bad faith in connection with the transaction. The Court dismissed the complaint, finding that the plaintiffs failed to adequately plead (1) non-exculpated claims against Essendant’s directors or (2) that Sycamore was a controlling stockholder or aided or abetted any breach of fiduciary duty. The Chancery Court decision, In re Essendant, Inc. Stockholder Litig., C.A. No. 2018-0789-JRS (Del. Ch. Dec. 30, 2019), was appealed to the Delaware Supreme Court on February 20, 2020.

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Partnership Agreement May Provide Grounds for Relief in Case Involving Drop in Unit Price Following Disclosure of General Partner’s Intent to Exercise Call Right

By: Scott E. Waxman and Serena M. Hamann

In Bandera Master Fund LP, et al. v. Board Pipeline Partners, LP, C.A. No. 2018-0372-JTL (Del. Ch. Oct. 7, 2019), the Delaware Court of Chancery (the “Court”) denied the defendants’ Rule 12(b)(6) motion to dismiss breach of contract claims because the plaintiffs had established reasonably conceivable breaches of the governing partnership agreement. These breaches related to the defendants’ public statements concerning the general partner’s possible exercise of a call right leading to a sharp decrease in partnership unit prices prior to the actual exercise of the call right.

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Settlement Agreement Violates Preferred Stockholder Consent Rights

By: Jill B. Louis and Pouya D. Ahmadi

In PWP Xerion Holdings III LLC v. Red Leaf Resources Inc., C.A. No. 2017-0235-JTL (Del. Ch. Oct. 23, 2019), the Delaware Court of Chancery (the “Court”) granted Xerion Holdings III LLC’s (“Xerion”) motion for partial summary judgement on a breach of contract claim, holding that the Red Leaf Resources, Inc. (“Red Leaf” or the “Company”) breached Xerion’s contractual right to consent as the holder of a majority of the shares of the Company’s Series A preferred stock.

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Chancery Court Reaffirms Protection of Mandatory Advancement Rights

By: David Forney and Rich Minice

In Nielsen v. EBTH Inc., C.A. No. 2019-0164-MTZ (Del. Ch. Sep. 30, 2019), the Delaware Court of Chancery reaffirmed its standard favoring advancement of expenses to officers or directors of a company where the corporation provides mandatory advancement rights either by its certificate of incorporation (“Charter”) or separate indemnification agreements. The court granted summary judgment in favor of the plaintiffs because they (i) either used their corporate powers or such powers were necessary for the commission of the alleged misconduct in the underlying action; or (ii) the alleged misconduct in the underlying action is inextricably intertwined with the actions taken in the plaintiffs’ former capacities as officers or directors, such that the plaintiffs would necessarily be required to disprove allegations that they acted improperly as such. Advancement is appropriate when either of the two prongs for this nexus test are met.

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A SIGNATURE ALONE IS NOT DISPOSITIVE EVIDENCE OF AN INTENT TO BE BOUND IN AN AGREEMENT

By: Scott E. Waxman and Mehreen Ahmed

In Eagle Force Holdings, LLC, and EF Investments, LLC, v. Stanley V. Campbell, 2999991.08000 (Del. Ch. Aug. 29, 2019), the Delaware Court of Chancery (the “Court”) held that Stanley Campbell’s (“Campbell”) conduct and communications with the Plaintiff before and during the signing of the transaction documents did not constitute an overt manifestation of assent to be bound by the documents. Therefore, the breach of contract and breach of fiduciary duty claims failed.

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earn-out provision of merger agreement requires extrinsic evidence to aid interpretation

By Scott E. Waxman and Pouya D. Ahmadi

In Western Standard, LLC, v. SourceHOV Holdings, Inc. and Pangea Acquisitions, Inc., C.A. No. 2018-0280-JRS (Del. Ch. July 24, 2019), the Delaware Court of Chancery (the “Court”) refused to the grant SourceHOV Holdings, Inc. (“SourceHOV”) and Pangea Acquisitions, Inc.’s (“Pangea”) motion to dismiss, holding that more extrinsic evidence was needed for the Court to be able to interpret the terms of the merger agreement (the “Merger Agreement”) among Pangea and BancTec, Inc. (“BancTec”) and decide whether there was a valid breach of a contract claim.

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Court of Chancery Finds that the Implied Contractual Covenant of Good Faith and Fair Dealing Requires Delaware LLC to Exercise Discretion in Good Faith

By: Scott Waxman and Zack Sager

In Coca-Cola Beverages Florida Holdings, LLC v. Goins, the Court of Chancery granted in part and denied in part a motion to dismiss a claim for breach of the implied contractual covenant of good faith and fair dealing, and, in so doing, found that the discretion afforded to a Delaware limited liability company under an agreement was required to be exercised in good faith.  In addition, the Court analyzed a motion to dismiss claims for breach of contract, unjust enrichment, quantum meruit, and fraud.

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It’s Not What You Thought You Signed That Counts: Chancery Court Rejects Plaintiffs’ Claims For Breach of Contract Plaintiffs Thought They Had Made

By: Remsen Kinne and Alidad Vakili

In Concerned Citizens of the Estates of Fairway Village, et al, v. Fairway Cap, LLC and Fairway Village Construction Inc., C.A. No. 2017-0924-JRS (Del. Ch. March 6, 2019), homeowners resident in Fairway Village, a residential planned community (“Plaintiffs”) claimed that plans and actions taken by one of the community’s developers, defendant Fairway Cap, LLC (“Fairway Cap”), to construct, own and lease townhouse condominiums in the community for use as rental apartments breached contractual provisions of Fairway Village’s governing documents. In its verdict for defendants, the Court of Chancery (the “Court”) rejected those claims, and concluded that Plaintiffs failed to prove a breach of contract and denied Plaintiffs’ motion for summary judgment.

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CHANCERY COURT GRANTS DEFENDANT’S MOTION ON THE PLEADINGS WHERE NAMED DEFENDANTS DID NOT OWE ANY OF THE CONTRACTUAL OR FIDUCIARY OBLIGATIONS PLAINTIFF TRIED TO ENFORCE

By: Scott Waxman and Samantha Beatty

In Ross v. Institutional Longevity Assets LLC, C.A. No. 2017-0186-TMR (Del. Ch. Feb. 26, 2019), the Chancery Court, in a motion for judgement on the pleadings, found that the plain language of a limited liability company’s operating agreement was sufficient to affirm the notion that the plaintiff had failed to establish a set of facts to support his breach of contract and breach of fiduciary duty claims. The Court found that (i) where the language of a contract is clear, the parties’ disagreement will not render a contract ambiguous; (ii) where a plaintiff has not identified gaps in the language of a contract, there can be no evidence that an implied covenant of good faith has been breached, and (iii) where a fiduciary duty claim arises out of the same conduct as a contract claim, the fiduciary claim is superfluous.

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COURT OF CHANCERY FINDS NO BUYER DUTY TO MAXIMIZE CONTINGENT SALE CONSIDERATION OWED TO SELLER

By Scott E. Waxman and Thomas F. Meyer

In Glidepath Ltd. v. Beumer Corp., C.A. No. 12220-VCL (Del. Ch. February 21, 2019), the Delaware Court of Chancery held that the buyer of a company did not breach transaction documents or violate the implied covenant of good faith and fair dealing in maximizing the long-term value of the company at the expense of short-term profits that would have resulted in greater contingent consideration being paid to the seller plaintiffs (the “Sellers”).

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