Topic: Implied Covenant of Good Faith and Fair Dealing

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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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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In a $1.365 Billion Merger, the Target Company “Blindsided” the Proposed Buyer by Terminating the Merger Agreement and the Court Upheld the Termination; Court Requests Further Briefing re the $126.5 Million Reverse Termination Fee

By: Kevin Stichter and Tami Mack

In Vintage Rodeo Parent, LLC et al. v. Rent-A-Center, Inc., C.A. No. 2018-0927-SG (Del. Ch. March 14, 2019), the Delaware Court of Chancery (the “Court”) held that the target company Rent-A-Center, Inc. (“Rent-A-Center”) validly exercised its right to terminate the $1.365 billion merger under the merger agreement (the “Merger Agreement”) among Rent-A-Center and the proposed buyer Vintage Capital Management, LLC and certain affiliates (collectively, “Vintage”), despite Vintage’s claims that the term of the Merger Agreement had already been extended or, alternatively, that Rent-A-Center had not validly terminated.

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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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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 THERE MUST BE A GAP IN AGREEMENT FOR AN IMPLIED COVENANT OF GOOD FAITH AND FAIR DEALING

By: Scott E. Waxman and Douglas A. Logan

In Christopher Miller, et al., v. HCP & Company, et al., memorandum opinion 180201, the Court of Chancery granted a motion to dismiss because the underlying Limited Liability Company Agreement did not contain a “gap” for an implied covenant of good faith and fair dealing to fill. Rather, the Court of Chancery held that the Limited Liability Company Agreement contained negotiated investor favorable provisions regarding good faith and fair dealing, thus undercutting any argument that the Court of Chancery should read an implied covenant into the operating agreement.

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Court of Chancery Denies Motion to Dismiss Claim Alleging that General Partner Breached Contractual Duty of Good Faith

By: Scott Waxman and Zack Sager

In Morris vs. Spectra Energy Partners (DE) GP, LP, the Court of Chancery of the State of Delaware found that a limited partner adequately pled that the general partner of a master limited partnership breached its contractual duty to act in good faith in connection with a conflicted transaction between the master limited partnership and the indirect parent of the general partner.  The Court also dismissed claims for breach of the implied contractual covenant of good faith and fair dealing and tortious interference with a partnership agreement.

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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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Chancery Court Enforces Good Faith Standard of Care in Limited Partnership Agreement

By Eric Feldman and Priya Chadha

In Brinckerhoff v. Enbridge Energy Co., Inc., et al., C.A. No. 11314-VCS (April 29, 2016), the Delaware Court of Chancery reiterated its adherence to the principle stated in the Delaware Revised Uniform Limited Partnership Act (“DRULPA”) of giving “maximum effect to the principle of freedom of contract and to the enforceability of partnership agreements” as well as to the ability under DRULPA of parties to a limited partnership agreement to define their respective standards of care and scope of duties and liabilities, including to eliminate default fiduciary duties, and dismissed the plaintiff’s claims.

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Conflict Transaction Cleansed By Master Limited Partnership’s Special Committee

By Scott E. Waxman and Annamarie C. Larson

In Employees Retirement System of the City of St. Louis v. TC Pipelines GP, Inc., et al, (C.A. No. 11603-VCG), Vice Chancellor Glasscock granted the defendant’s motion to dismiss claims relating to the purchase of pipeline assets from the general partner’s parent.  The Court of Chancery held that the transaction was “fair and reasonable” to the master limited partnership because it was approved by a special committee and that the general partner did not breach the implied covenant of good faith and fair dealing.  In this case, the Court of Chancery reaffirmed parties’ abilities to contract freely when forming alternative entities such as a master limited partnership and confirmed that judicial review of such contractual terms is very limited.

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Chancery Court Grants in Part and Denies in Part a Motion to Dismiss in Fraud and Earnout Dispute

By: Jamie Bruce and John Sun

In Haney v. Blackhawk, C.A. No. 10851-VCN (Del. Ch. Feb. 26, 2016), the Delaware Court of Chancery granted in part and denied in part Blackhawk Network Holdings, Inc.’s (“Blackhawk”) motion to dismiss certain claims brought by Greg Haney (“Haney”) in his capacity as representative of the selling stockholders of CardLab, Inc. (“CardLab”). Haney brought claims against Blackhawk in connection with Blackhawk’s acquisition of CardLab in 2014 including, inter alia, for fraudulent inducement and breach of the implied covenant of good faith and fair dealing.

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