Bloomberg BNA’s Corporate Law & Accountability Report is available on the Corporate Law Resource Center. This news service keeps corporate practitioners informed of legal developments of...
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.
To contact the reporter on this story: Michael Greene in Washington at email@example.com
To contact the editor responsible for this story: Ryan Tuck at firstname.lastname@example.org
The opinion is available at http://www.bloomberglaw.com/public/document/THE_RENCO_GROUP_INC_Plaintiff_v_MacANDREWS_AMG_HOLDINGS_LLC_MacAN.
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to email@example.com.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to firstname.lastname@example.org.
Put me on standing order
Notify me when new releases are available (no standing order will be created)