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By Michael Greene
Feb. 5 — In a Jan. 29 decision, the Delaware Chancery Court discussed when fiduciary duty and implied covenant of good faith and fair dealing claims can survive if pled in connection with breach of contract claims.
In a dispute over an LLC agreement, Vice Chancellor John W. Noble held that the plaintiff's claim for breach of the implied covenant could survive alongside a breach of contract claim. However, he dismissed breach of fiduciary duty claims because any duties violated did exist independent of the contract.
The plaintiff The Renco Group Inc. filed a lawsuit against MacAndrews & Forbes Holdings Inc. and its sole shareholder, Ronald O. Perelman, alleging that the defendants breached an LLC agreement between the parties.
In addition to the breach of contract claims, the plaintiff brought various other claims interrelated to the LLC agreement. The defendant moved to dismiss the breach of contract claims in part and the remaining claims in full.
After refusing to dismiss the breach of contract claims, the court addressed whether the plaintiff could advance its implied covenant claim in the alternative.
“The Court is hesitant to imply terms not contained in an explicit agreement drafted by sophisticated and experienced parties and their counsel,” Vice Chancellor Noble opined.
Traditionally, he added, the court only resorts to the implied covenant analysis when the contract is silent on the issue being disputed.
In an unrelated Jan. 30 opinion, the chancery court dismissed a claim for breach of the implied covenant alleged in the alternative because the plaintiff failed to identify a gap in agreement that must be filled by implying terms.
However, in this case, the court determined that the implied covenant claim can survive notwithstanding contractual language on point.
Vice Chancellor Noble reasoned that given the complexity of the parties' arrangement, the early stage of the proceedings and the breadth of the factual allegations, it was reasonably conceivable that the defendants' alleged misconduct “went to matters so fundamental that Plaintiff's reasonable expectations were frustrated.”
“Although the Court does not readily find breaches of the implied covenant and any success will be meaningless if the contract claims succeed, Defendants’ motion to dismiss the implied covenant claims is denied” he concluded.
The court also addressed whether the plaintiff's fiduciary duty claims should be dismissed as duplicative of the breach of contract claims.
Vice Chancellor Noble found that the plaintiff failed to show a reasonably conceivable breach of fiduciary duty independent from its rights under the LLC agreement.
“The Holdco Members chose to govern their relationship with a complex, negotiated agreement,” he opined. “If Defendants have violated any of Plaintiff’s rights, the [LLC] agreement—not some general duty of loyalty or care—governs the remedy to which Plaintiff is entitled.”
The court also dismissed the plaintiff's claims for tortious interference with contractual relations and fraudulent transfers on separate grounds.
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The opinion is available at http://www.bloomberglaw.com/public/document/THE_RENCO_GROUP_INC_Plaintiff_v_MacANDREWS_AMG_HOLDINGS_LLC_MacAN.
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