Topic: Breach of Contract

FAILED BREACH OF CONTRACT CLAIMS UNDERSCORE CHANCERY COURT’S FOCUS ON CONTRACTUAL PLAIN LANGUAGE OVER OUTSIDE EVIDENCE

By: Scott Waxman and Adam Heyd

In Braga Investment & Advisory, LLC v. Yenni Income Opportunities Fund I, L.P., C.A. No. 2017-0393-AGB (Del. Ch. June 8, 2020), Braga Investment & Advisory, LLC (“Braga”), a minority investor in Steven Feller, P.E., LLC (“Newco”) alleged that Yenni Income Opportunities Fund I, L.P. (the “Fund”), the majority investor in Newco, had breached a purchase agreement for interests in Newco when the Fund amended it without Braga’s consent. Braga also contended that the Fund breached its co-investment agreement with Braga when it revoked Braga’s right to receive board packages under that agreement. The Delaware Court of Chancery (the “Court”) concluded that the Fund’s amendment of the purchase agreement did not require Braga’s consent, and that the Fund did not breach Braga’s right to receive board packages based on the ordinary use of that term.

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Chancery Court Denies Assignor’s Inspection Demand under Real Party in Interest Rule, Prohibits Substitute Plaintiff

By: Scott E. Waxman and Michael C. Payant

In SolarReserve CSP Holdings, LLC v. Tonopah Solar Energy, LLC, C.A. No 2020-0064-JRS (Del. Ch. July 24, 2020), the Delaware Court of Chancery (the “Court”) examined an alleged breach of contract based on the denial of inspection rights to which SolarReserve CSP Holdings, LLC (“SR”) was allegedly entitled under the LLC Agreement (the “LLCA”) of Tonopah Solar Energy, LLC (the “Company”). The Court entered judgment for the Company, finding (i) SR was not a real party in interest under Chancery Court Rule 17 because it had made a complete assignment of its rights under the LLCA, and (ii) the real party in interest assignee was not entitled to inspection rights under the LLCA.

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Chancery Court Declines to Dismiss Breach of Contract, Implied Covenant and Declaratory Judgment Claims Stemming from Termination Purportedly for Cause

By: Scott E. Waxman, Michael C. Payant, and Julia M. Knitter

In William Patrick Sheehan, et al. v. AssuredPartners, Inc., et al., C.A. No. 2019-0333-AML (Del. Ch. May 29, 2020), the Delaware Court of Chancery (the “Court”) granted in part and denied in part a motion to dismiss brought by insurance brokerage firm, AssuredPartners, Inc. (“AP Inc.”), and its private equity backers (collectively, the “Defendants”) finding that plaintiffs’ claims for breach of contract, breach of the implied covenant of good faith and fair dealing, and declaratory judgment survived under the minimal pleading standard for a motion to dismiss.

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Chancery Court Rules that LLC Unit Buyout Provision Operated As a Call Option

By Scott Waxman and Priya Chadha

In Kieran Walsh et al. v. White House Post Productions, LLC, et al., C.A. No. 2019-0419-KSJM (March 25, 2020), Plaintiffs Kieran Walsh and Francis Devlin brought claims for breach of contract, breach of the implied covenant of good faith and fair dealing, and specific performance following a dispute with Defendant Carbon Visual Effects, LLC (the “Company”) regarding a buyout provision in the Company’s LLC Agreement.  On a motion to dismiss, Vice Chancellor McCormick held that the buyout provision operated as a call option, requiring Defendants to purchase Plaintiffs’ LLC units once it exercised its option by noticing its intent to purchase them.

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COURT OF CHANCERY DECIDES MOTIONS TO DISMISS, MOTION FOR SUMMARY JUDGMENT, AND MOTION FOR JUDGMENT ON THE PLEADINGS WHEN PLAINTIFF SUES STOCKHOLDERS AND DIRECTORS OF THE COMPANY HE FOUNDED

By:  David L. Forney and Rachel Cheasty Sanders

In Craig T. Bouchard v. Braidy Industries, Inc., et al., Case No. 2020-0097-KSJM (Del. Ch. Apr. 28, 2020), the Delaware Court of Chancery addressed various motions filed by both Plaintiff and Defendants, including Defendants’ motions to dismiss for lack of personal jurisdiction and failure to state a claim, Plaintiff’s motion for judgment on the pleadings regarding an individual defendant’s defense, and Plaintiff’s motion for summary judgment.  Plaintiff Craig Bouchard filed suit against Defendants claiming breach of contract regarding a voting agreement to which Bouchard and each of Defendants are a party.  The Court granted the motions to dismiss for lack of personal jurisdiction over Defendants.  Further, the Court granted Plaintiff’s motion for judgment on the pleadings regarding the defense of unclean hands asserted by Defendant Braidy Industries, Inc.  Lastly, the Court denied Plaintiff’s motion for summary judgment on his breach of contract claim, finding that the factual records needed further development. 

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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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