Cygnus Opportunity Fund, LLC v. Washington Prime Group, LLC

• Court: Court of Chancery of Delaware
• Decided: August 9, 2023
• Docket: C.A. No. 2022-0718-JTL
• Status: Published

Opinion

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

CYGNUS OPPORTUNITY FUND, LLC, ) CYGNUS PROPERTY FUND V, LLC, ) CYGNUS PROPERTY FUND IV, LLC, ) CHAND KARAMCHANDANI, SHAMI ) KARAMCHANDANI, ALEX ) KEOLEIAN, K-BAR HOLDINGS, LLC, ) and SHIKAR PARTAB ) ) Plaintiffs, ) ) v. ) C.A. No. 2022-0718-JTL ) WASHINGTON PRIME GROUP, LLC, ) CHRISTOPHER CONLON, MARK ) YALE, LISA INDEST, MARTIN REID, ) JEFF JOHNSON, SUJAN PATEL, ) PHILLIP L. HAWKINS, and STRATEGIC ) VALUE PARTNERS, LLC, ) ) Defendants. )

MEMORANDUM OPINION ADDRESSING MOTION TO DISMISS

Date Submitted: May 10, 2023 Date Decided: August 9, 2023

John M. Seaman, Matthew L. Miller, Peter C. Cirka, ABRAMS & BAYLISS LLP, Wilmington, Delaware; Counsel for Plaintiffs.

Blake Rohrbacher, Ellen M. Boyle, RICHARDS, LAYTON & FINGER, P.A., Wilmington, Delaware; Andrew Ditchfield, Mari Grace Byrne, Tina Hwa Joe, Sean Stefanik, DAVIS POLK & WARDWELL LLP, New York, New York; Counsel for Defendants Washington Prime Group LLC, Christopher Conlon, Mark Yale, Lisa Indest, Jeff Johnson, Sujan Patel, Phillip L. Hawkins, and Strategic Value Partners, LLC.

Nicholas J. Rohrer, Lauren Dunkle Fortunato, Young Conaway Stargatt & Taylor, LLP, Wilmington, Delaware; Erik J. Olson, MORRISON & FORRESTER LLP, Palo Alto, California; Christina Golden Ademola, MORRISON & FORRESTER LLP, New York, New York; Counsel for Defendant Martin Reid.

LASTER, V.C. The plaintiffs challenge a squeeze-out merger in which they were eliminated from

a limited liability company by the company’s controller and its board of managers (the

“Squeeze-Out Merger”). The minority unitholders did not receive a vote on the Squeeze-

Out Merger and did not have any right to obtain an appraisal.

At the price offered in the Squeeze-Out Merger, the plaintiffs’ investment was worth

nearly $34 million. The plaintiffs claim their units were worth up to four times that much.

The plaintiffs sued the controller, the managers, and three officers. The defendants

moved to dismiss the complaint for failing to state a claim on which relief can be granted.

This decision grants the motion in part.

I. FACTUAL BACKGROUND

The facts are drawn from the complaint and the documents that it incorporates by

reference. Dkt. 1 (the “Complaint”). At this procedural stage, the Complaint’s allegations

are assumed to be true, and the plaintiff receives the benefit of all reasonable inferences.

A. The Company Enters Bankruptcy.

Washington Prime Group, LLC (the “Company”) is a fully integrated, self-managed

REIT that owns, develops, and manages shopping centers. Before its reorganization in

bankruptcy, the Company existed as a publicly traded Indiana corporation. The plaintiffs

purchased common and preferred stock issued by that publicly traded corporation.

In fall 2020, the Company announced that it was negotiating with the holders of its

unsecured senior notes (the “Senior Notes”). During the negotiations, Strategic Value

Partners, LLC (“SVP”) acquired a majority of the Senior Notes. SVP is an investment firm

that specializes in distressed debt. The Senior Notes would not mature until 2024. The Company’s next regular

payment was due in February 2021. The Company had more than enough cash on hand to

make the payment. Nevertheless, shortly before the due date, the Company announced that

it had elected to withhold the payment.

On June 11, 2021, the Company entered into a restructuring agreement with SVP

and other creditors. The agreement contemplated a Chapter 11 filing with a plan of

reorganization sponsored by SVP. Three days later, the Company filed for bankruptcy.

A group of preferred stockholders that included some of the plaintiffs formed an ad

hoc committee to challenge the plan. They obtained some improvements, as did an official

committee of equity holders.

On September 3, 2021, the Company emerged from bankruptcy as a privately held

Delaware limited liability company. SVP controlled the firm with 87% of its equity. The

former holders of the Company’s preferred and common equity received 9% of its equity

(the “Minority Unitholders”). Other former creditors received the rest.

B. The Company’s Governance Structure

In its post-bankruptcy incarnation, the Company’s internal affairs are governed by

its limited liability company agreement. Compl. Ex. A (the “LLC Agreement” or “LLCA”).

The LLC Agreement creates a governance structure that mimics a corporation.

First, there is a board of managers (the “Board”). Like a board of directors, the Board

has the authority to direct the “business and affairs of the Company” and “direct the officers

of the Company[.]” Id. § 6.1(a). The Board currently has five members. The only limitation

on its composition is that “so long as there are Owners other than SVP and its Affiliates,

2 there shall be at least one (1) Independent Manager on the Board.” LLCA § 6.3(a). The

LLC Agreement defines an “Independent Manager” as a

Person who is neither an employee nor an Affiliate of the Company or of SVP or any of its Affiliates, and has no, and has had no, relationship with the Company or with SVP or with any of its Affiliates which is material to that Person’s ability to be independent from the Company and SVP in connection with the duties as Independent Manager.

Id. § 1.1.

The members of the Board are Jeff Johnson, Sujan Patel, Christopher Conlon,

Martin Reid, and Phillip L. Hawkins. Johnson and Patel work for SVP. Conlon is the CEO.

Hawkins serves as Board Chair. Reid and Hawkins serve as Independent Managers. SVP

can remove and replace any member of the Board at any time without cause.

Next, the LLC Agreement contemplates that the Company will have officers. As

noted, Conlon serves as CEO. Mark Yale served as CFO until September 2022. Lisa Indest

serves as Vice President of Finance and Chief Accounting Officer. All three held the same

roles when SVP arrived on the scene and during the bankruptcy reorganization.

Furthering the corporate analogy, the LLC Agreement defines the Company’s

member interests as “Shares.” There are three series of Shares: Series A-1 Shares, Series

B-1 Shares, and Series C-1 Shares. The Minority Unitholders received Shares in the form

of Stapled Units comprising one share from each series. The plaintiffs in this action

received 1,246,724 Stapled Units.

C. Restrictions On SVP’s Ability To Acquire Additional Shares

The LLC Agreement places restrictions on SVP’s ability to acquire additional

Shares. It provides generally that “neither SVP nor its Affiliates shall engage in any

3 Transfer or other transaction to acquire (or otherwise squeeze out) all of the outstanding

Shares (a ‘Squeeze-Out’) without approval as a Specified Approval.” LLCA § 9.6(c) (the

“No Acquisition Provision”). The LLC Agreement defines “Transfer” broadly as “a

transfer by any Person” of any limited liability company interest “in any form.” Id. § 1.1.

The No Acquisition Provision thus prohibits SVP from increasing its ownership stake

without Specified Approval.

Specified Approval comes in two flavors. One is approval from “the majority of the

Independent Managers (whether or not acting as a Board Committee of Independent

Managers)” (“Manager Approval”). Id. § 6.4. The other is approval from “a majority of the

votes cast on the matter by Members other than SVP” (“Minority Approval”). Id.

Section 6.5 of the LLC Agreement, called the “Challenge Right,” places additional

restriction on SVP’s ability to engage in a Squeeze-Out for eighteen months after the

Company emerged from bankruptcy. Id. § 6.5. During that period, the Company first must

give notice to the owners of the Stapled Units. At that point, holders of at least 5% of the

Stapled Units “have the option to challenge the fairness of the terms of the . . . Squeeze-

Out.” Id. The lawsuit must be filed within twenty-one days after notice is provided. Id. In

connection with any exercise of the Challenge Right, “the Company will pay or reimburse,

as applicable, . . . reasonable and documented professional fees and expenses . . . subject

to an aggregate cap of $500,000.” Id.

The Challenge Right does not apply if (i) the Minority Unitholders’ stake has fallen

below 2.5% or (ii) the Squeeze-Out receives either Minority Approval or approval from

the Minority Approved Independent Manager. The LLC Agreement defines the “Minority

4 Approved Independent Manager” is as “the Manager designated as such on Schedule IV,

together with any replacement or successor Manager approved by a Majority of the

Minority Vote.” Id. § 1.1. Schedule IV identifies Reid as the initial Minority Approved

Independent Manager.

The plaintiffs question Reid’s ability to act as the Minority Approved Independent

Manager and represent the interests of Minority Unitholders. Citing Reid’s website and a

court filing in another case, they allege that Reid makes his living by advising private equity

funds and high-net-worth individuals on real estate investments. They maintain that

because his livelihood depends on good relations with investors like SVP, he will go along

with what SVP wants.

The LLC Agreement does not contain any mechanism for the Minority Unitholders

to remove or replace any manager, including the Minority Approved Independent Manager.

See id. § 6.3(b) (addressing manager removal and replacement). Only SVP has the

authority to remove and replace managers, which it can do “with or without cause and for

any reason or no reason at any time.” Id.

D. The Tender Offer

On November 9, 2021, nineteen days after the Company emerged from bankruptcy,

SVP launched a tender offer to purchase the Stapled Units (the “Tender Offer”). Minority

Unitholders who tendered on or before November 23 would receive $25.75 in cash per

Stapled Unit. See Compl. Ex. H (the “Offer to Purchase”). After that date, Minority

Unitholders who tendered would receive $25.00 in cash. SVP thus deployed a two-tiered,

front-loaded structure.

5 The Tender Offer nominally sought to acquire up to 7,103,819 Stapled Units, which

would take SVP’s ownership stake to 95%, but SVP “reserve[d] the right, in [its] sole

discretion, to purchase more than 7,103,819 Stapled Units in the Offer[.]” Id. at 10. It is

reasonable to infer that SVP sought to own 100% of the Company’s equity and that SVP

would have acquired all of the Stapled Units if it could. To that end, SVP disclosed that it

“may from time to time acquire Stapled Units, other than pursuant to the Offer, through

open market purchases, privately negotiated transactions, exchange offers, exercise of

optional redemption rights, offers to purchase or otherwise[.]” Id. at 19.

SVP acknowledged that the Tender Offer could be “considered a ‘Squeeze-Out’ as

defined in the [LLC Agreement]” and disclosed that risk in the Offer to Purchase. Id. at 12.

SVP did not obtain Specified Approval before proceeding with the Tender Offer. SVP also

did not engage in the notice process contemplated by the Challenge Right.

SVP and the Board did not make any recommendation in connection with the

Tender Offer. SVP disclosed that the consideration might not reflect fair value. No one

provided any financial information to the Minority Unitholders.

The Tender Offer closed on December 8, 2021. Only 3,568,563 Stapled Units were

tendered. SVP purchased those units and increased its ownership stake to 88.2%.

After the Tender Offer closed, plaintiff Shikar Partab asked one of the Company’s

officers for contact information for Reid, noting that he was designated in the LLC

Agreement as the Minority Approved Independent Manager. In January 2022, the

Company’s outside counsel rejected that request and informed Partab that Reid was not

6 required to communicate with him. The Minority Approved Independent Manager thus

gave the cold shoulder to a Minority Unitholder.

E. The Squeeze-Out Merger

Through a disclosure dated June 7, 2022, the Company informed the Minority

Unitholders that each of their Stapled Units had been converted into the right to receive

$27.25 in cash, without interest and with no right to an appraisal. That was the first time

the Minority Unitholders heard about the Squeeze-Out Merger.

The disclosure consisted of a three-page cover letter and a skeletal, five-page

information statement. Compl. Exs. C & D (collectively, the “Disclosure Documents”).

According to the Disclosure Documents, SVP provided the Company with a

proposal for the Squeeze-Out Merger on February 2, 2022, less than two months after the

Tender Offer closed and only three and a half months after the Company emerged from

bankruptcy. The Board responded to SVP’s proposal by creating a special committee of

one and appointing Reid as its sole member. The Disclosure Documents refer to

unidentified legal and financial advisors who purportedly assisted Reid in negotiating with

SVP. The Disclosure Documents did not describe the negotiations. It said that Reid

received a fairness opinion from Jones Lang LaSalle Securities LLC (“JLLS”), but the

Disclosure Documents did not include the opinion or provide a fair summary of its

contents. The Complaint alleges that the Board Chair—Hawkins—previously worked for

fourteen years at JLLS and has a son who is an executive vice president there. Although

Hawkins is an Independent Director, he was not on the committee.

7 The consideration provided in the Squeeze-Out Merger was $27.25 in cash. That

was 6% higher than the $25.75 per Stapled Unit offered in the first tier of the two-tiered

tender offer, and 10% higher than the $25 consideration offered in the second tier. At

$27.25 each, the plaintiffs’ Stapled Units were worth nearly $34 million.

The Disclosure Documents asserted that because Reid approved the Squeeze-Out

Merger, the Challenge Right did not apply.

F. One Of The Plaintiffs Requests Information.

On June 8, 2022, Partab sought additional information from Company counsel. A

lawyer responded on June 10. The email consisted of five sentences that did not answer

Partab’s questions and added nothing to the Disclosure Documents.

On June 22, 2022, plaintiff Cygnus Capital, Inc. formally demanded information

about the Squeeze-Out Merger. The Company rejected the demand on the grounds that

after the Squeeze-Out Merger, Cygnus no longer owned any interest in the Company and

had no informational rights.

On June 28, 2022, after receiving the Company’s annual report, Partab emailed two

Company officers with questions. He received no response.

G. This Litigation

On October 27, 2022, the plaintiffs filed the Complaint. They allege that the

Squeeze-Out Merger dramatically undervalued the Stapled Units, and they have provided

credible support for much higher valuations.

• A capitalization of net income methodology supports an estimate of $76 to 87 per Stapled Unit.

8 • Per-square-foot values based on sales of comparable properties support estimates of $60 per Stapled Unit.

• Replacement cost value supports an estimate of $120 per Stapled Unit.

• The Company’s own website claims that the value of its assets are greater than $4 billion with another $1 billion of properties in the pipeline, suggesting an estimate of $60 per Stapled Unit.

In this action, they seek damages equal to the fair value of their Stapled Units.

The Complaint contains seven counts. Count I is directed at Conlon, Yale, and

Indest (the “Officer Defendants”). The plaintiffs contend that the Officer Defendants

breached their fiduciary duties as officers by failing to provide the Minority Unitholders

with material information in connection with the Tender Offer and the Squeeze-Out Merger

and by altering the Company’s financial statements.

Count II is directed at the members of the Board. The plaintiffs contend that the

Board members breached their fiduciary duties in connection with the Tender Offer by

failing to provide the Minority Unitholders with material information. The plaintiffs assert

that the members of the Board breached their fiduciary duties in connection with the

Squeeze-Out Merger by approving an unfair transaction.

Count III is directed against SVP. The plaintiffs contend that SVP breached its

fiduciary duties as a controlling unitholder based on allegations that track the claims against

the Board.

Count IV asserts a claim against all defendants for breach of the express terms of

the LLC Agreement. The plaintiffs contend that SVP breached the No Acquisition

Provision by engaging in the Tender Offer and that other defendants failed to comply with

9 the Challenge Right. They also contend that the defendants breached Section 11.1(b) of the

LLC Agreement, which provides members with informational rights.

Count V asserts a claim against all defendants for breach of the implied covenant of

good faith and fair dealing. The plaintiffs contend that the defendants violated the implied

covenant by engaging in the Tender Officer and the Squeeze-Out Merger and by denying

them information.

Counts VI and VII asserts claims against the members of the Board and SVP for

aiding and abetting the breaches of fiduciary duty by the Officer Defendants.

II. LEGAL ANALYSIS

The defendants moved to dismiss the Complaint in its entirety under Rule 12(b)(6)

for failing to state a claim on which relief can be granted. When reviewing such a motion,

a Delaware court must “(1) accept all well pleaded factual allegations as true, (2) accept

even vague allegations as ‘well pleaded’ if they give the opposing party notice of the claim,

[and] (3) draw all reasonable inferences in favor of the non-moving party.” Cent. Mortg.

Co. v. Morgan Stanley Mortg. Cap. Hldgs. LLC, 27 A.3d 531, 535 (Del. 2011).

A. Counts II and III: Breach Of Fiduciary Duty Against The Board And SVP

Counts II and III of the Complaint are the easiest to address. In those counts, the

plaintiffs assert that the members of the Board and SVP breached their fiduciary duties by

engaging in the Tender Offer and Squeeze-Out Merger. Those claims fail because the LLC

Agreement contains a fiduciary duty waiver which provides that the members of the Board

and SVP do not owe any fiduciary duties.

10 The Delaware Limited Liability Company Act (the “LLC Act”) authorizes a limited

liability company agreement to modify the duties (including fiduciary duties) that a

member, manager, or other person otherwise would owe under common law. The operative

language states:

To the extent that, at law or in equity, a member or manager or other person has duties (including fiduciary duties) to a limited liability company or to another member or manager or to another person that is a party to or is otherwise bound by a limited liability company agreement, the member’s or manager’s or other person’s duties may be expanded or restricted or eliminated by provisions in the limited liability company agreement; provided, that the limited liability company agreement may not eliminate the implied contractual covenant of good faith and fair dealing.

6 Del. C. § 18-1101(c). A provision eliminating fiduciary duties must be “plain and

unambiguous.” Bay Ctr. Apartments Owner, LLC v. Emery Bay PKI, LLC, 2009 WL

1124451, at *9 (Del. Ch. Apr. 20, 2009).

The LLC Agreement contains a limited waiver of fiduciary duties for “Covered

Persons,” defined to include each “Manager or officer of the Company.” Id. § 1.1. It states:

Each Covered Person (other than any Covered Person who is an officer of the Company) shall, to the maximum extent permitted by the Act and other Applicable Law, owe no duties (including fiduciary duties) to the Members, the Owners, the Company or any other Person bound by this Agreement, notwithstanding anything to the contrary existing at law, in equity or otherwise[.]

Id. § 6.8(a) (the “Fiduciary Duty Waiver”).

The Fiduciary Duty Waiver is plain and unambiguous. The plaintiffs have cited a

string of provisions that supposedly create ambiguity, but none clouds its clarity or

warrants detailed discussion. Because of the Fiduciary Duty Waiver, Counts II and III are

dismissed.

11 B. Count I: Breach Of Fiduciary Duty Against The Officer Defendants

In Count I of the Complaint, the plaintiffs contend that the Officer Defendants

breached their fiduciary duties in connection with the Tender Offer and Squeeze-Out

Merger. The LLC Agreement provides that officers of the Company “shall exercise such

powers and perform such duties as are typically exercised by similarly titled officers in a

corporation and as shall be determined from time to time by the Board, but subject in all

instances to the supervision and control of the Board.” LLCA § 6.3(h). With those powers

come fiduciary duties.

By its express terms, the Fiduciary Duty Waiver does not protect the Officer

Defendants. That provision extends to “[e]ach Covered Person (other than any Covered

Person who is an officer of the Company).” LLCA § 6.8(a). Unlike the Board and SVP,

the Officer Defendants cannot rely on the Fiduciary Duty Waiver.

1. Breach Of Duty In Connection With The Tender Offer

The plaintiffs argue that the Officer Defendants breached their fiduciary duties

because the Company provided no disclosures whatsoever in connection with the Tender

Offer. That contention states a claim on which relief can be granted.1

1 The defendants correctly point out that the six non-tendering plaintiffs lack standing to challenge the failure to make any disclosures in connection with the Tender Offer because (i) they did not tender and (ii) the Tender Offer did not inflict any injury on them, such as by changing the rights that SVP could exercise. See New Enter. Assocs. 14, L.P. v. Rich, 292 A.3d 112, 150 (Del. Ch. 2023). Two plaintiffs tendered, so the standing argument has no real-world, pleading-stage effect.

12 Officer duties have long been an undertheorized area of Delaware law. That is

particularly so for the duty of disclosure, which is not a separate duty, but rather a

contextual manifestation of the duties of care and loyalty. Malpiede v. Townson, 780 A.2d

1075, 1086 (Del. 2001). Because the duty of disclosure arises situationally, its scope and

requirements depend on context. Stroud v. Grace, 606 A.2d 75, 85 (Del. 1992). When

confronting a disclosure claim, a court therefore must engage in context-specific analysis

to determine the source of the duty, its requirements, and any remedies for breach. See

Lawrence A. Hamermesh, Calling Off the Lynch Mob: The Corporate Director’s Fiduciary

Disclosure Duty, 49 Vand. L. Rev. 1087, 1099 (1996).

“Governing principles have been developed for recurring scenarios.” In re Wayport,

Inc. Litig., 76 A.3d 296, 314 (Del. Ch. 2013). One scenario that triggers a duty of disclosure

is when directors ask stockholders to take action. If directors place a matter before the

stockholders for a vote, then the directors have a duty to disclose all information material

to that vote. Likewise, if directors propose a transaction that presents stockholders with an

investment decision, such as a self-tender offer by the corporation or an affiliate, then the

directors have a duty to disclose all information material to that investment decision.

Stroud, 606 A.2d at 84; In re Orchard Enters., Inc. S’holder Litig., 88 A.3d 1, 16–17 (Del.

Ch. 2014). For simplicity, this decision refers to this duty as the “stockholder-action duty.”

In Gantler v. Stephens, 965 A.2d 695 (Del. 2009), the Delaware Supreme Court

implied that officers owe the stockholder-action duty. Addressing officer duties generally,

the Delaware Supreme Court ruled as follows:

13 In dismissing Count I as to the Officer Defendants, the Court of Chancery similarly erred. The Court of Chancery has held, and the parties do not dispute, that corporate officers owe fiduciary duties that are identical to those owed by corporate directors. That issue—whether or not officers owe fiduciary duties identical to those of directors—has been characterized as a matter of first impression for this Court. In the past, we have implied that officers of Delaware corporations, like directors, owe fiduciary duties of care and loyalty, and that the fiduciary duties of officers are the same as those of directors. We now explicitly so hold.

Id. at 708–09.

The count that the Delaware Supreme Court addressed when holding that officers

owe the same duties as directors was not a disclosure claim. Two other counts of the

complaint, however, both involved alleged disclosure deficiencies in a proxy statement. Id.

at 703. Those counts implicated the stockholder-action duty, and when analyzing those

claims, the Delaware Supreme Court held that the allegations stated claims against all of

the defendants, a term that included both directors and officers. The Delaware Supreme

Court did not analyze the officer claims separately.

Relying on Gantler, this court has held that a complaint states a claim against an

officer for breach of the stockholder-action duty when (i) the complaint’s allegations

supported an inference that the officer was involved in the drafting of the disclosure

document, such as a proxy statement, and (ii) the officer took responsibility for the

disclosure document by signing it or the disclosure violation fell within the officer’s area

14 of responsibility.2 At least under those circumstances, this court’s precedents hold that an

officer can breach the stockholder-action duty.

In this case, the defendants argue that SVP was the only party that could owe a duty

of disclosure because SVP launched the tender offer. As they see it, only SVP requested

investor action. Conveniently for the defendants, the LLC Agreement eliminated any

fiduciary duties that SVP might have owed, including the duty of disclosure.

2 See Teamsters Loc. 237 Additional Sec. Benefit Fund v. Caruso, 2021 WL 3883923, at *25–26 (Del. Ch. Aug. 31, 2021) (holding that complaint stated claim for breach of the duty of disclosure against CEO who signed proxy statement where alleged misstatements concerned CEO’s interactions with bidders, included the existence of activist pressure, the description of certain directors as independent); In re Columbia Pipeline Group, Inc. Merger Litig., 2021 WL 772562, at *56–58 (Del. Ch. Mar. 1, 2021) (holding that plaintiffs stated claim for breach of the duty of disclosure against CEO who signed proxy statement and against CFO/VP where disclosure violations concerned their interests in the transaction and their actions during the leadup to the transaction); Firefighters' Pension Sys. of City of Kansas City, Missouri Tr. v. Presidio, Inc., 251 A.3d 212, 288 (Del. Ch. 2021) (holding that CEO owed duty to disclose all material information in proxy statement in connection with a merger); City of Warren Gen. Empls.’ Ret. Sys. v. Roche, 2020 WL 7023896, at *19 (Del. Ch. Nov. 20, 2020) (holding that complaint stated claim for breach of the duty of disclosure against the CEO who signed the proxy statement for claims concerning acquisition projections, the description of how the go-shop operated); In re Baker Hughes Inc. Merger Litig., 2020 WL 6281427, at *15 (Del. Ch. Oct. 27, 2020) (holding that complaint stated claim against CEO who signed proxy statement for claim concerning the omission of unaudited financial results); Morrison v. Berry, 2019 WL 7369431, at *22–24 (Del. Ch. Dec. 31, 2019) (holding that complaint stated claim against general counsel for breach of the duty of disclosure where disclosure claims concerned the background of the transaction, it was reasonable to infer that general counsel was involved in the drafting of the Schedule 14D-9 and it was reasonable to infer that the general counsel knew about the alleged facts); id. at *25–27 (same for CEO); In re Hansen Med. Inc. S’holders Litig., 2018 WL 3025525, at *11 (Del. Ch. June 18, 2018) (holding that complaint stated claim for breach of the duty of disclosure against CEO who signed proxy statement; also holding that complaint stated claim against interim CFO who allegedly prepared misleading projections).

15 In tender offers governed by the federal securities laws, federal law imposes a

statutory duty on the target corporation’s directors to provide their stockholders with

material information, including a recommendation.3 Delaware disclosure law piggybacks

on the federal disclosure regime by layering on a state-law duty of full disclosure. See

Arnold v. Soc’y for Sav. Bancorp, Inc., 650 A.2d 1270, 1280 (Del. 1994); Matador Cap.

Mgmt. Corp. v. BRC Hldgs., Inc., 729 A.2d 280, 295 (Del. Ch. 1998). No Delaware

decision has held that the directors of a Delaware corporation have a duty of disclosure that

applies in connection with a third-party tender offer when that that was not already subject

to the federal regime. But Delaware courts also have not held that directors never have any

obligation to speak in response to a tender offer. Such a position would seem extreme,

because directors have an affirmative obligation to respond to threats to the corporation

and its stockholders. See Unocal Corp. v. Mesa Petroleum Co., 493 A.2d 946, 954 (Del.

1985) (explaining that when a board of directors confronted a hostile tender offer, the board

“is not a passive instrumentality” but rather has an obligation to protect the company’s

stockholders). If a controlling stockholder or third party makes a tender offer for the

corporation’s shares, then depending on the circumstances, the directors might well have a

duty to respond. To the extent officers owe the same duties as directors, the duty could

apply to them as well.

3 17 C.F.R. § 240.14e–2; see 15 U.S.C. § 78n(d)(4) (requiring compliance with the terms prescribed by the SEC whenever recommending that stockholders tender their shares); id. § 240.14d–9 (outlining the SEC’s requirements for the 14D–9); id. § 240.14d– 101 (Schedule 14D–9).

16 The Officer Defendants thus could have owed a duty of disclosure in connection

with the Tender Offer. To the extent they owed a duty of disclosure, they breached it

because they said nothing. But to the extent any such duty existed, the analysis also would

also have to take into account the officer’s duty of obedience. As an agent, an officer has

an obligation to comply with directives from its principal or from more senior agents to

whom the officers reports. See generally Restatement (Third) of Agency § 8.09 (Am. Law

Inst. 2006), Westlaw, (database updated August 2023). Stated in the negative, an officer

“may not act in a manner contrary to the express desires of the board of directors.” In re

Walt Disney Co. Deriv. Litig., 907 A.2d 693, 754 (Del. Ch. 2005), aff’d, 906 A.2d 27 (Del.

2006). But the duty of obedience does not require compliance with directives that would

expose an officer to criminal or civil sanctions or liability. See Restatement of Agency,

supra, § 8.09 (“An agent has no duty to comply with instructions that may subject the agent

to criminal, civil, or administrative sanctions or that exceed legal limits on the principal's

right to direct action taken by the agent. Thus, an agent has no duty to comply with a

directive to commit a crime or an act the agent has reason to know will be tortious.”).

“Thus, an officer does not have a duty to comply with directives that the officer has reason

to believe would constitute a breach of fiduciary duty.” Goldstein v. Denner, 2022 WL

1671006, at *52 (Del. Ch. May 26, 2022)

These competing duties create a conundrum. It is reasonably conceivable that a duty

of disclosure could exist in connection with a severely underpriced tender offer such that

fiduciaries for the entity and its investors would have a duty to say something. It is

reasonably conceivable that in the absence of the Fiduciary Waiver, both the Board and the

17 Officer Defendants could have owed that duty. The LLC Agreement only eliminated the

Board’s fiduciary duties, leaving the Officer Defendants’ duties intact. If the Board made

a decision against making any disclosure, then it would be difficult for the Officer

Defendants to disregard that decision, unless the decision was so obviously wrong that

compliance itself would constitute a breach of duty. But the Officer Defendants disclosed

nothing in connection with the Tender Offer. In that setting, it is conceivable that the

Officer Defendants may have had a duty to act.

The court cannot hash these issues out at the pleading stage. The plaintiff’s claim is

conceivable and therefore survives pleading-stage review. A motion for summary

judgment, filed after the plaintiff has had an opportunity for discovery, may provide a more

suitable vehicle for addressing the issues presented by this claim.

2. The Breach Of Duty In Connection With The Squeeze-Out Merger

The plaintiffs contend that the Officer Defendants breached their fiduciary duties in

connection with the Squeeze-Out Merger because the Company provided paltry and

inadequate disclosures. The Officer Defendants argue that no duty of disclosure existed

because no one asked the Minority Unitholders to vote or make an investment decision.

They also argue that any disclosure duty rested primarily on the Board, which owed no

duties, and that the officers were not in a position to insist that the Board disclose more.

a. The Duty To Inform

The Officer Defendants’ contention that no duty of disclosure existed fails to

provide a basis for granting the motion. The duty of disclosure is a context-specific duty,

and no Delaware decision holds that fiduciaries do not owe any duty in the context of a

18 transaction in which the fiduciaries unilaterally eliminates their investors from an

enterprise. I personally am not prepared to rule as a matter of law that a fiduciary can take

the property of its beneficiary without some level of disclosure, even in the absence of any

request for action. To the contrary, basic fiduciary principles suggests that a fiduciary

cannot do that.

“[T]he word ‘fiduciary’ is anglicized Latin, meaning trustee-like.” Gregory Klass,

What if Fiduciary Obligations are like Contractual Ones?, in Contract, Status, and

Fiduciary Law 93 (Paul B. Miller & Andrew S. Gold, eds., 2016). “Fiduciary duties are

thus obligations that are similar to those of a trustee, and a fiduciary relationship is one that

is analogous to that between an express trustee and beneficiary.” New Enter. Assocs. 14,

L.P. v. Rich, 295 A.3d 520, 545 (Del. Ch. 2023). Today, by statute, Delaware law

authorizes a trust agreement to modify nearly every aspect of a trustee’s duties. See id. The

analysis of what baseline fiduciary duties require, however, does not start with that

statutory scheme. It starts from the duties that existed at common law.

The obligation to keep beneficiaries informed is a central aspect of the trustee’s

duties at common law. George G. Bogert et al., Bogert’s The Law of Trusts and Trustees §

544 at 659 (3d ed. 2020), Westlaw (database updated June 2023). “[E]ven in the absence

of a request for information, a trustee must communicate essential facts” to beneficiaries.

McNeil v. Bennett, 798 A.2d 503, 510 (Del. 2002). The trustee must ensure that

beneficiaries are “reasonably informed of changes involving the trusteeship and about other

significant developments concerning the trust and its administration, particularly material

information needed by beneficiaries for the protection of their interests. Restatement

19 (Third) of Trusts § 82 (Am. L. Inst. 2007), Westlaw (database updated May 2023); accord

NHB Advisors, Inc. v. Monroe Cap. LLC, 2013 WL 6906234, at *4 (Del. Ch. Dec. 27,

2013).

The duty to keep beneficiaries informed imposes “an affirmative requirement that,

if and as circumstances warrant over the course of administration, the trustee inform fairly

representative beneficiaries of important developments and information that appear

reasonably necessary for the beneficiaries to be aware of in order to protect their interests.”

Restatement of Trusts, supra, § 82 cmt. d. Notably, “[t]hese types of disclosures do not

afford beneficiaries a right to veto trustee action,” and they do not depend on the existence

of a veto right. Id.; see Matter of Wood, 581 N.Y.S.2d 405, 409 (N.Y. App. Div. 2d Dept.

1992) (holding corporate trustee breached “the duty of communicating all the material facts

to the beneficiary” before liquidating trust assets despite contention that trustee had

authority to liquidate and followed bank’s standard procedure); Allard v. Pac. Nat. Bank,

663 P.2d 104, 404–05 (Wash. 1983) (holding trustee had breached obligation to disclose

“all material facts in connection with a nonroutine transaction which significantly affects

the trust estate and the interests of the beneficiaries prior to the transaction taking place”

when selling major asset despite beneficiaries not having power to stop transaction).

Because “disclosure is fundamental to sound administration of the trust, and to both the

trustee’s performance and the beneficiaries’ monitoring of associated fiduciary

obligations,” only clear language in a governing instrument can modify or limit this duty.

Restatement of Trusts, supra, § 82 cmt. d.

20 The duty to inform is not limited to trustees. It “runs through the whole law of

fiduciary and confidential relations.” Bogert, supra, § 544 at 660–61.

In a commercial enterprise like the Company, the duty to inform is obviously more

limited. The duty does not create a regular reporting obligation. See Metro Commc’n Corp.

BVI v. Advanced Mobilecomm Techs. Inc., 854 A.2d 121, 153 (Del. Ch. 2004). It could,

however, mandate disclosure about extraordinary events.

If the duty to inform could apply anywhere, it would apply to a transaction in which

a fiduciary unilaterally effectuates a taking of a beneficiary’s interest. In that setting, the

duty of loyalty could manifest as an obligation to inform the beneficiary of the material

facts surrounding the transaction, regardless of whether or not the beneficiary’s approval

is required.

The Squeeze-Out Merger is a transaction where the duty to inform could apply. In

substance, the defendants contend that they could have simply sent the plaintiffs a check

with no explanation whatsoever. As far as the defendants are concerned, they did not even

have to say, “Your shares have been converted into the right to receive this amount. So

long.” Such a result would be contrary to equity.

It is reasonably conceivable that a duty of disclosure existed in connection with the

Squeeze-Out Merger.

b. The Duty Not To Make Misleading Partial Disclosures

The Officer Defendants next reprise their argument that any duty of disclosure could

only rest with the Board, such that the Officer Defendants had no duty to speak. As this

decision has explained, it is reasonably conceivable that the duty of disclosure applies to

21 officers as well as defendants. That is particularly so for purposes of the Squeeze-Out

Merger, because the Board and the Officer Defendants chose to speak when they issued

the Disclosure Documents.

Under Delaware law, a fiduciary that chooses to speak must do so candidly and

completely. Zirn v. VLI Corp., 681 A.2d 1050, 1056 (Del. 1996). “Once defendants travel

down the road of partial disclosure, they have an obligation to provide an accurate, full,

and fair characterization.” Id. (cleaned up). The disclosures must cover the subject on

which the fiduciary chose to speak “in a manner that is materially complete and unbiased

by the omission of material facts.” In re Pure Res., Inc., S’holders Litig., 808 A.2d 421,

448 (Del. Ch. 2002). Even if the additional information independently would fall short of

the traditional materiality standard, it must be disclosed if necessary to prevent other

disclosed information from being misleading. Johnson v. Shapiro, 2002 WL 31438477, at

*4 (Del. Ch. Oct. 18, 2002).

When deciding whether information is material, Delaware law applies the federal

standard from TSC Industries, Inc. v. Northway, Inc., 426 U. S. 438 (1976). Rosenblatt v.

Getty Oil Co., 493 A.2d 929, 944 (Del. 1985). Information is material if there is a

“substantial likelihood” that the information “‘would have assumed actual significance in

the deliberations’ of a person deciding whether to buy, sell, vote, or tender stock.” In re

Oracle Corp., 867 A.2d 904, 934 (Del. Ch. 2004) (quoting Rosenblatt, 493 A.2d at 944),

aff’d, 872 A.2d 960 (Del. 2005) (TABLE). The test does not require that the information

be so significant as to cause a reasonable investor to act differently. Rosenblatt, 493 A.2d

at 944. Rather, the question is whether there is “a substantial likelihood that the disclosure

22 of the omitted fact would have been viewed by the reasonable investor as having

significantly altered the ‘total mix’ of information made available.” Id. (cleaned up).

In two decisions issued while serving on this court, Chief Justice Strine addressed

disclosure failures by fiduciaries that had provided stockholders in private companies with

virtually no information. See Nagy v. Bistricer, 770 A.2d 43 (Del. Ch. 2000); Turner v.

Bernstein, 776 A.2d 530 (Del. Ch. 2000). In Turner, the directors of a Delaware

corporation also controlled a majority of the corporation’s voting power, and they used

their control to cause the company to sell itself to a third party, with the directors approving

the transaction by written consent. 776 A.2d at 534. After the merger closed, the directors

circulated an information statement that provided the stockholders with “extremely cursory

information.” Id. at 532. The directors “did not give the stockholders any current financial

information or explain why the merger was in [their] best interests.” Id. The stockholders

“did not even receive the company’s most recent financial results for the periods proximate

to the vote,” nor “any projections of future company performance,” nor “any explanation

of why the [company’s] board believed that the merger consideration [should be

accepted].” Id. at 535. The court granted summary judgment to the plaintiffs, holding that

the duty to disclose all material information applied and that the directors “defaulted on

this obligation” where they “did not even attempt to put together a disclosure containing

any cogent recitation of the material facts pertinent to the stockholders’ choice.” Id. at 542.

In Nagy, the directors and controlling stockholders effected a merger between a

corporation and an affiliate. 770 A.2d at 47. As in Turner, they distributed an information

statement that provided minimal information. Id. at 48. The court noted that the document

23 (i) did not provide any financial information about the buyer or the seller; (ii) did not

describe the process or events leading to the merger, (iii) did not describe why the seller’s

board had agreed to the merger, and (iv) contained no information regarding the fact that

the seller’s controllers held a controlling interest in the buyer. Id. Despite the lack of

information, the defendants argued that the plaintiff had failed to state a disclosure claim.

The court bluntly rejected that argument.

This argument is fatuous. The Information Circular contains NO information from which [the plaintiff] would have any idea of the value of [the buyer] or [the seller]. The Information Circular contains NO information regarding the reasons [the defendants] supported the Merger as directors of [the seller], or the process that they used in coming to their decision to support the Merger. The Information Circular contains NO information regarding [the defendants’ controlling] interest in [the buyer].

Id. at 60. The court granted summary judgment in favor of the plaintiffs, holding that

“[i]nformation of this kind is self-evidently material.” Id.

Here, the Board and the Officer Defendants chose to speak about the Squeeze-Out

Merger. Once they issued the Disclosure Documents, they had a duty to provide the

information that Delaware law requires.

The Disclosure Documents fell short of that standard. The Disclosure Documents

contained no information concerning negotiations or the process leading up to the Squeeze-

Out Merger. The Disclosure Documents also lacked any information concerning the

Company’s prospects or any reasons why $27.25 was an appropriate price for the Squeeze-

Out Merger. It said that Reid received a fairness opinion from JLLS, but it did not include

the opinion or provide a fair summary of its contents. The Disclosure Documents explained

that the Independent Committee approved and recommended that the Board approve the

24 Squeeze-Out Merger, but it did not convey any of the Independent Committee’s reasoning

behind its recommendation. See Compl. Ex. D at 3. Similarly, the Disclosure Documents

contained no information explaining why the Board had voted in favor of the Squeeze-Out

Merger. The Disclosure Documents lacked any statements detailing the purported benefits

of the Squeeze-Out Merger. Framed more generally, the Disclosure Documents disclosed

what the Squeeze-Out Merger was, but did not disclose any information that would explain

how the Company made this decision or why this was an appropriate course of action.

It is reasonably conceivable that once the Board and the Officer Defendants chose

to speak about the Squeeze-Out Merger, they needed to provide significantly more

information than they chose to disclose in the Disclosure Documents. It is reasonably

conceivable that an investor would have viewed the omitted information as material. At

this stage of the case, it is reasonable to infer that the disclosures in the Disclosure

Documents were not sufficient.

Alternatively, the Officer Defendants argue that because the Company had emerged

from bankruptcy months before, the bankruptcy disclosures provided all of the material

information necessary to evaluate the Squeeze-Out Merger. To reach that conclusion at the

pleading stage requires a defendant-friendly inference, contrary to the Rule 12(b)(6)

standard, regarding the total mix of information. At the pleading stage, it is reasonable to

infer that the bankruptcy disclosures were not sufficient.

c. The Individual Officer Defendants

The Complaint seeks to hold Conlon, Yale, and Indest liable for breach of the duty

of disclosure. As noted previously, this court has upheld claims for breach of the duty of

25 disclosure against officers when either the officer took responsibility for the disclosure

document by signing it or the disclosure violation fell within the officer’s area of

responsibility. Under these standards, the Complaint states a claim against each of the

Officer Defendants.

i. Conlon

Conlon serves as the Company’s CEO. In that position, he is empowered to

“exercise such powers and perform such duties as are typically exercised by similarly titled

officers in a corporation[.]” LLCA § 6.3(h). It is reasonable to infer that in his capacity as

CEO, Conlon participated significantly in the drafting of the Disclosure Documents.

Conlon signed the letter sent to the Minority Unitholders, thereby taking responsibility for

the contents of the Disclosure Documents. See Compl. Ex. C at 3.

As CEO, Conlon had firsthand knowledge of the facts plaintiffs claim should have

been disclosed. He knew of SVP’s proposal to squeeze out the Minority Unitholders in

February 2022. He did not disclose SVP’s proposal until June, when he signed off on the

Disclosure Documents.

It is reasonable to infer that the Complaint states a claim for breach of the duty of

disclosure against Conlon.

ii. Yale

Yale served as the Company’s CFO at the time of the Squeeze-Out Merger. As CFO,

Yale had the same powers and duties as a typical CFO of a Delaware corporation. LLCA

§ 6.3(h). It is reasonably conceivable that Yale, in his capacity as CFO, knew of SVP’s

proposal and was involved in the preparation of the Disclosure Documents. It is reasonable

26 to infer that as CFO, Yale was privy to information the Minority Unitholders would have

found significant, including information about the background of the Squeeze-Out Merger,

the negotiations with SVP, and the financial performance of the Company.

Yale’s connection to deficient disclosures is one step removed from Conlon’s

because Yale did not sign the cover letter for the Disclosure Documents. Nevertheless, it

is reasonable to infer that as CFO, Yale assisted in the drafting of the Disclosure

Documents. If Yale contends that he had no involvement with the Disclosure Documents,

he can move for summary judgment on that basis.

It is reasonable to infer that the Complaint states a claim for breach of the duty of

disclosure against Yale.

iii. Indest

Indest serves as the Company’s Vice President of Finance and Chief Accounting

Officer. The allegations against Indest track those against Yale. The same analysis applies.

3. The Breach Of Duty In Connection With The Financial Statements

Another context in which the duty of disclosure applies is when a fiduciary speaks

through “public statements made to the market,” “statements informing shareholders about

the affairs of the corporation,” or public filings required by the federal securities laws.

Malone, 722 A.2d at 11 (Del. 1998). In that setting, the fiduciary owes “a duty to

stockholders not to speak falsely.” Wayport, 76 A.2d at 315. Fiduciaries “who knowingly

disseminate false information that results in corporate injury or damage to [investors]

violate their fiduciary duty, and may be held accountable in a manner appropriate to the

circumstances.” Malone, 722 A.2d at 9; accord id. at 14 (explaining that if fiduciaries “are

27 not seeking shareholder action, but are deliberately misinforming shareholders about the

business of the corporation, either directly or by a public statement, there is a violation of

fiduciary duty.”).

The plaintiffs contend that the Officer Defendants breached their duty of disclosure

when sending annual and quarterly financial statements to the plaintiffs. That is a setting

where fiduciary duties manifest as a duty not to speak falsely. The plaintiffs have not pled

facts supporting an inference that anything in the financial statements was false. This aspect

of Count I is dismissed.

C. Counts IV and V: The Contract Claims

Next in line are the contract claims. Count IV asserts that the defendants breached

explicit obligations set forth in the LLC Agreement. Count V asserts that the defendants

breached implicit obligations supplied by the implied covenant of good faith and fair

dealing. Those counts state claims on which relief can be granted.

Under the simplified pleading regime, when alleging a breach of contract, “a

plaintiff need not plead specific facts to state an actionable claim.” VLIW Tech., LLC v.

Hewlett-Packard Co., 840 A.2d 606, 611 (Del. 2003). At the pleading stage, it is sufficient

to allege “first, the existence of the contract . . .; second, the breach of an obligation

imposed by that contract; and third, the resultant damage to the plaintiff.” Id. at 612. The

reference to “resultant damage” is something of an overstatement. A claim for breach of

contract can give rise to an equitable remedy even in the absence of quantifiable harm.

Universal Studios Inc. v. Viacom Inc., 705 A.2d 579, 583 (Del. Ch. 1997). And a court can

vindicate a breach of contract through an award of nominal damages. In re P3 Health Gp.

28 Hldgs., LLC, 2022 WL 16548567, at *9 (Del. Ch. Oct. 31, 2022) (collecting authorities).

Alleging specific monetary harm is not a requirement.

The principal issue at the pleading stage is the existence of a contractual violation.

Garfield v. Allen, 277 A.3d 296, 328 (Del. Ch. 2022). “A breach of contract gives rise to a

right of action.” 23 Williston on Contracts § 63:8 (4th ed. 2007), Westlaw (database

updated May 2023). That is because any “unexcused failure to perform a contract is a legal

wrong. An action will therefore lie for the breach although it causes no injury.” 24

Williston, supra, § 64:9; see Norman v. Elkin, 860 F.3d 111, 128–29 (3d Cir. 2017).

1. Count IV: Breaches Of Express Provisions

In Count IV, the plaintiffs contend that the defendants breached express provisions

of the LLC Agreement. When determining the scope of a contractual obligation, “the role

of a court is to effectuate the parties’ intent.” Lorillard Tobacco Co. v. Am. Legacy Found.,

903 A.2d 728, 739 (Del. 2006). Absent ambiguity, the court “will give priority to the

parties’ intentions as reflected in the four corners of the agreement, construing the

agreement as a whole and giving effect to all its provisions.” In re Viking Pump, Inc., 148

A.3d 633, 648 (Del. 2016) (internal quotations omitted). “[A] contract is ambiguous only

when the provisions in controversy are reasonably or fairly susceptible of different

interpretations or may have two or more different meanings.” Rhone-Poulenc Basic Chems.

Co. v. Am. Motorists Ins. Co., 616 A.2d 1192, 1196 (Del. 1992). A contract is unambiguous

“[w]hen the plain, common, and ordinary meaning of the words lends itself to only one

reasonable interpretation . . . .” Sassano v. CIBC World Mkts. Corp., 948 A.2d 453, 462

29 (Del. Ch. 2008). “A contract is not rendered ambiguous simply because the parties do not

agree upon its proper construction.” Rhone-Poulenc, 616 A.2d at 1196.

“In upholding the intentions of the parties, a court must construe the agreement as a

whole, giving effect to all provisions therein.” E.I. du Pont de Nemours & Co., Inc. v. Shell

Oil Co., 498 A.2d 1108, 1113 (Del. 1985). The Delaware Supreme Court has also

instructed that “the basic business relationship between parties must be understood to give

sensible life to any contract.” Chi. Bridge & Iron Co. N.V. v. Westinghouse Elec. Co. LLC,

166 A.3d 912, 927 (Del. 2017). A reasonable reading therefore must be “situated in the

commercial context between the parties.” Id. at 926–27. But this principle cannot be used

to override the plain language of the agreement: “While [Delaware courts] have recognized

that contracts should be ‘read in full and situated in the commercial context between the

parties,’ the background facts cannot be used to alter the language chosen by the parties

within the four corners of their agreement.” Town of Cheswold v. Cent. Del. Bus. Park, 188

A.3d 810, 820 (Del. 2018) (quoting Chi. Bridge, 166 A.3d at 926–27). “[I]t is not the job

of a court to relieve sophisticated parties of the burdens of contracts they wish they had

drafted differently but in fact did not.” DeLucca v. KKAT Mgmt., L.L.C., 2006 WL 224058,

at *2 (Del. Ch. Jan. 23, 2006).

a. The Tender Offer And The No Acquisition Provision

The plaintiffs assert that the defendants breached the LLC Agreement by proceeding

with the Tender Offer without complying with the No Acquisition Provision. The No

Acquisition Provision prohibits SVP and its affiliates from engaging in a Squeeze-Out

without first obtaining Specified Approval. That theory states a claim.

30 At the pleading stage, it is reasonable to infer that the Tender Offer constituted a

Squeeze-Out because SVP reserved the right to purchase every tendered unit. SVP did not

represent that it would not purchase all outstanding Stapled Units, nor did SVP otherwise

bind itself to purchasing less than all outstanding Stapled Units. It is reasonable to infer

that SVP wanted to purchase every tendered unit and, if it could, all outstanding Stapled

Units. It is therefore reasonable to infer that the Tender Offer was a Squeeze-Out. The

Offer to Purchase acknowledged the risk that the Tender Offer could be “considered a

‘Squeeze-Out’ as defined in the Limited Liability Company Agreement of the Company.”

Compl. Ex. H at 12.

SVP did not obtain Specified Approval for the Tender Offer. It is therefore

reasonably conceivable that SVP breached the No Acquisition Provision by engaging in

the Tender Offer.4

b. Section 11.1(b) And The Financial Statements

The plaintiffs assert that the defendants breached Section 11.1(b) of the LLC

Agreement, which provided Minority Unitholders with the right to timely GAAP-

compliant annual and quarterly financial statements. The plaintiffs have pled claims for

breach of that obligation.

4 It also appears that by purchasing shares in the Tender Offer, SVP engaged in a Transfer without Specified Approval, which separately constitutes a violation of the No Acquisition Provision.

31 Under Section 11.1(b)(i) of the LLC Agreement, Minority Unitholders were entitled

to GAAP-compliant annual financial statements “no later than one hundred twenty (120)

days after the end of any calendar year.” The deadline for the 2021 financial statements

was April 30, 2021. The defendants did not make them available until May 24. Those

allegations state a claim for breach of Section 11.1(b).

Under Section 11.1(b)(ii), the Minority Unitholders were entitled to GAAP-

compliant quarterly financial statements no later than sixty days after the end of each of

the first three quarters. The plaintiffs allege that the financial statements for Q1 2022

contain significantly less information than the financial statements for Q4 2021. It is

reasonable to infer that successive quarterly financial statements prepared in accordance

with GAAP would contain comparable information. The defendants argue that no claim

can exist because the Q4 2021 financial statements are a financial report while the Q1 2022

financial statements are true financial statements. Section 11.1(b)(i) does not contemplate

that distinction. The plaintiffs’ allegations state a claim for breach of Section 11.1(b).

The plaintiffs further allege that the 2021 annual financial statements and the Q1

2022 financial statements did not contain all the information required by GAAP because

they failed to disclose SVP’s proposal for the Squeeze-Out Merger. The plaintiffs have not

identified an aspect of GAAP that would call for this disclosure. The plaintiffs have not

stated a viable claim for breach on that basis.

The defendants try to defeat the two viable claims of breach by asserting that the

plaintiffs failed to plead any cognizable damages. “A party need not plead cognizable

damages as an element of a claim for breach of contract” because the court “can vindicate

32 a breach of contract through an award of nominal damages.” P3 Health, 2022 WL

16548567, at *9, *30 (collecting authorities). The plaintiffs have plead a claim for breach

of Section 11.1(b).

c. The Squeeze-Out Merger And The No Acquisition Provision

Based on a representation that the defendants made in their opening brief, the

plaintiffs assert that the Squeeze-Out Merger violated the No Acquisition Provision. The

defendants stated that when the Squeeze-Out Merger took place, there were two

Independent Managers: Reid and Hawkins. Manager Approval requires the approval of a

majority of the Independent Managers. The Squeeze-Out Merger only received approval

from Reid. The Squeeze-Out Merger therefore did not receive approval from a majority of

the Independent Managers.

Because Reid’s approval does not satisfy the requirements for Manager Approval,

the Squeeze-Out Merger only could comply with the No Acquisition Provision if it

received Minority Approval. No one suggests that it did. It is therefore reasonably

conceivable that the Squeeze-Out Merger did not comply with the No Acquisition

Provision.

2. Count V: Breach Of The Implied Covenant Of Good Faith And Fair Dealing

In addition to asserting claims for breach of explicit provisions, the plaintiffs assert

claims for breach of implicit obligations supplied by the implied covenant of good faith

and fair dealing. A claim for breach of the implied covenant is a claim for breach of

33 contract. The only difference is the source of the provision. The plaintiffs have stated

claims for breach.

The application of the implied covenant is a “cautious enterprise.” Nemec v.

Shrader, 991 A.2d 1120, 1125 (Del. 2010). The implied covenant is “not an equitable

remedy for rebalancing economic interests after events that could have been anticipated,

but were not, that later adversely affected one party to a contract.” Id. at 1128. “Even where

the contract is silent, an interpreting court cannot use an implied covenant to re-write the

agreement between the parties, and should be most chary about implying a contractual

protection when the contract could easily have been drafted to expressly provide for it.”

Oxbow Carbon & Mins. Hldgs., Inc. v. Crestview-Oxbow Acq., LLC, 202 A.3d 482, 507

(Del. 2019).

The Delaware Supreme Court has exhorted trial courts to use particular caution

when applying the implied covenant to alternative entity agreements. In a series of

decisions, the Delaware Supreme Court has stressed that when plaintiffs have invested in

an alternative entity where the agreement waives fiduciary duties, then the plaintiffs

accepted the risks associated with a purely contractual relationship. For example, the

Delaware Supreme Court has quoted the observation that “‘the doctrine of caveat emptor .

. . is fitting given that investors in limited partnerships have countless other investment

opportunities available to them that involve less risk and/or more legal protection.’”

Boardwalk Pipeline P’rs, LP v. Bandera Master Fund LP, 288 A.3d 1083, 1110 (Del.

2022) (quoting Sonet v. Timber Co., L.P., 722 A.2d 319, 323 (Del. Ch. 1998)). And the

Delaware Supreme Court has highlighted the fact that the plaintiff “willingly invested in a

34 limited partnership that provided fewer protections to limited partners than those provided

under corporate fiduciary duty principles.” Norton v. K-Sea Transp. P’rs L.P., 67 A.3d

354, 368 (Del. 2013). In yet another decision, the Delaware Supreme Court offered a

warning:

With the contractual freedom accorded partnership agreement drafters, and the typical lack of competitive negotiations over agreement terms, come corresponding responsibilities on the part of investors to read carefully and understand their investment. Investors must appreciate that “with the benefits of investing in alternative entities often comes the limitation of looking to the contract as the exclusive source of protective rights.” In other words, investors can no longer hold the general partner to fiduciary standards of conduct, but instead must rely on the express language of the partnership agreement to sort out the rights and obligations among the general partner, the partnership, and the limited partner investors.

Dieckman v. Regency GP LP, 155 A.3d 358, 366 (Del. 2017)

In this case, the context is different. The plaintiffs bought shares in a corporation.

They ended up owning Stapled Units in a Delaware LLC only after SVP acquired a

majority of their corporation’s Senior Notes, engineered a Chapter 11 filing without the

Company ever defaulting on the Senior Notes, and pushed through a plan under which the

Company emerged in its current incarnation. To the extent that the concept of caveat

emptor has informed past cases, that factor does not apply here. At least at the pleading

stage, that suggests somewhat greater room exists for the implied covenant to conceivably

operate.

a. The Standard For Determining Whether An Implied Commitment Exists

“Every contract imposes upon each party a duty of good faith and fair dealing in its

performance and its enforcement.” Restatement (Second) of Contracts § 205 (Am. L. Inst.

35 1981), Westlaw (database updated May 2023). The Delaware Supreme Court has

summarized the implied covenant concisely as follows:

The implied covenant is inherent in all contracts and is used to infer contract terms to handle developments or contractual gaps that . . . neither party anticipated. It applies when the party asserting the implied covenant proves that the other party has acted arbitrarily or unreasonably, thereby frustrating the fruits of the bargain that the asserting party reasonably expected. The reasonable expectations of the contracting parties are assessed at the time of contracting.

Dieckman, 155 A.3d at 367 (cleaned up). To prevail on an implied covenant claim, a

plaintiff must prove “a specific implied contractual obligation, a breach of that obligation

by the defendant, and resulting damage to the plaintiff.” Cantor Fitzgerald, L.P. v. Cantor,

1998 WL 842316, at *1 (Del. Ch. Nov. 10, 1998). Those elements parallel a claim for

breach of an express contract provision, except that the operative provision is implied.

To determine whether an implicit obligation exists, a court “first must engage in the

process of contract construction to determine whether there is a gap that needs to be filled.”

Allen v. El Paso Pipeline GP Co., L.L.C., 113 A.3d 167, 183 (Del. Ch. 2014), aff’d, 2015

WL 803053 (Del. Feb. 26, 2015) (ORDER). “Through this process, a court determines

whether the language of the contract expressly covers a particular issue, in which case the

implied covenant will not apply, or whether the contract is silent on the subject, revealing

a gap that the implied covenant might fill.” NAMA Hldgs., LLC v. Related WMC LLC, 2014

WL 6436647, at *16 (Del. Ch. Nov. 17, 2014). The court must first find a gap because

“[t]he implied covenant will not infer language that contradicts a clear exercise of an

express contractual right.” Nemec v. Shrader, 991 A.2d 1120, 1127 (Del. 2010). “[B]ecause

the implied covenant is, by definition, implied, and because it protects the spirit of the

36 agreement rather than the form, it cannot be invoked where the contract itself expressly

covers the subject at issue.” Fisk Ventures, LLC v. Segal, 2008 WL 1961156, at *10 (Del.

Ch. May 7, 2008), aff’d, 984 A.2d 124 (Del. 2009) (ORDER).

“If a contractual gap exists, then the court must determine whether the implied

covenant should be used to supply a term to fill the gap. Not all gaps should be filled.”

Allen, 113 A.3d at 183. One reason a gap might exist is if the parties negotiated over a term

and rejected it. Under that scenario, the implied covenant should not be used to fill the gap

left by a rejected term because doing so would grant a contractual right or protection that

the party “failed to secure . . . at the bargaining table.” Aspen Advisors LLC v. United Artists

Theatre Co., 843 A.2d 697, 707 (Del. Ch. 2004), aff’d, 861 A.2d 1251 (Del. 2004).

But contractual gaps may exist for other reasons. “No contract, regardless of how

tightly or precisely drafted it may be, can wholly account for every possible contingency.”

Amirsaleh v. Bd. of Trade of City of N.Y., Inc., 2008 WL 4182998, at *1 (Del. Ch. Sept.

11, 2008). “In only a moderately complex or extend[ed] contractual relationship, the cost

of attempting to catalog and negotiate with respect to all possible future states of the world

would be prohibitive, if it were cognitively possible.” Credit Lyonnais Bank Nederland,

N.V. v. Pathe Commc’ns Corp., 1991 WL 277613, at *23 (Del. Ch. Dec. 30, 1991) (Allen,

C.).

Equally important, “parties occasionally have understandings or expectations that

were so fundamental that they did not need to negotiate about those expectations.” Katz v.

Oak Indus. Inc., 508 A.2d 873, 880 (Del. Ch. 1986) (Allen, C.) (quoting Corbin on

Contracts § 570, at 601 (Kaufman Supp. 1984)). “The implied covenant is well-suited to

37 imply contractual terms that are so obvious . . . that the drafter would not have needed to

include the conditions as express terms in the agreement.” Dieckman, 155 A.3d at 361.

“The implied covenant seeks to enforce the parties’ contractual bargain by implying

only those terms that the parties would have agreed to during their original negotiations if

they had thought to address them.” Id. at 418 (cleaned up). When applied to an exercise of

discretion, this means that the exercise of discretionary authority must fall within the range

of what the parties would have agreed upon during their original negotiations, if they had

thought to address the issue.

i. Disclosures Of Information

The plaintiffs argue that the defendants were under an implied obligation to disclose

information about the Tender Offer and the Squeeze-Out Merger. The plaintiffs assert that

the defendants had an obligation to do so generally and so that holders of Stapled Units

could determine whether they could exercise the Challenge Right. The defendants argue

that alleged disclosure violations cannot support an implied covenant claim because

Section 11.1(b) of the LLC Agreement specifies the information that the Minority

Unitholders had a right to receive. They argue that the Challenge Right did not apply to the

Tender Offer because it was not a Squeeze-Out and did not apply to the Squeeze-Out

Merger because Reid approved the transaction as the Minority Approved Independent

Manager.

At the pleading stage, these arguments fail under Dieckman. There, a limited

partnership engaged in a squeeze-out merger after obtaining “Special Approval” from a

committee using a procedure comparable to Manager Approval. The limited partnership

38 issued an information statement in connection with the transaction, and minority limited

partners filed suit. The limited partnership agreement eliminated all fiduciary duties, and

like the defendants here, the Dieckman defendants argued that they had no contractual

obligation under Delaware law to provide any information other than what the limited

partnership agreement specified. The Delaware Supreme Court disagreed, holding that the

implied covenant obligated the defendants to provide truthful and accurate disclosure of

material information. Dieckman, 155 A.3d at 367–68.

It is reasonably conceivable that the disclosure issued in connection with the Tender

Offer and Squeeze-Out Merger violated the implied covenant. That claim survives

dismissal.

ii. The Choice To Seek Manager Approval

The plaintiffs next argue that the defendants breached the implied covenant by

choosing to seek Manager Approval from Reid when he was not capable of acting

independently of SVP. As evidence of Reid’s lack of independence, the plaintiffs cite his

refusal to speak with one of the plaintiffs—a minority holder of Stapled Units—even

though the LLC Agreement designated Reid as the Minority Approved Independent

Manager. They also cite evidence that his livelihood depends on maintaining good relations

with firms like SVP.

The Delaware Supreme Court has made clear that the implied covenant constrains

a party’s exercise of discretion under an agreement. The implied covenant generally

requires that a party to a contract refrain from arbitrary or unreasonable conduct that has

the effect of preventing a counterparty from receiving the fruits of the bargain. That rule

39 operates with special force “when a contract confers discretion on a party.” Glaxo Gp. Ltd.

v. DRIT LP, 248 A.3d 911, 920 (Del. 2021). At a minimum, the implied covenant requires

that the party empowered with the discretion “use good faith in making that determination.”

Gilbert v. El Paso Co., 490 A.2d 1050, 1055 (Del. Ch. 1984), aff’d, 575 A.2d 1131 (Del.

1990). Terms that enhance the level of discretion, such as “sole discretion,” do not

eliminate the implied duty. Miller v. HCP Trumpet Invs., LLC, 194 A.3d 908, 2018 WL

4600818, at *1 (Del. Sept. 20, 2018) (ORDER) (“[T]he mere vesting of ‘sole discretion’

did not relieve the [holder] of its obligation to use that discretion consistently with the

implied covenant of good faith and fair dealing.”). When a party has sole discretion to

make a decision, “[t]hat setting provides more reason for the implied covenant to apply,

not less.” P3 Health, 2022 WL 16548567, at *26.

What does it mean to exercise discretion “in good faith” for purposes of the implied

covenant? It does not mean that a reviewing court introduces its own notions of what is

“fair or reasonable under the circumstances.” Allen, 113 A.3d at 184. When used with the

implied covenant, the term “good faith” contemplates “faithfulness to the scope, purpose,

and terms of the parties’ contract.” Gerber v. Enter. Prods. Hldgs., LLC, 67 A.3d 400, 419

(Del. 2013) (cleaned up), overruled on other grounds by Winshall v. Viacom Int’l, Inc., 76

A.3d 808 (Del. 2013). The concept of “fair dealing” similarly refers to “a commitment to

deal ‘fairly’ in the sense of consistently with the terms of the parties’ agreement and its

purpose.” Id. (cleaned up). The court must attempt to discern “what the parties would have

agreed upon had the issue arisen when they were bargaining originally.” Id. (cleaned up).

40 Applying these principles, the Delaware Supreme Court has held that inherent in a

conflict resolution procedure like the No Acquisition Provision is an obligation that the

managers of the entity “not act to undermine the protections afforded unitholders . . . .”

Dieckman, 155 A.3d at 360. The Delaware Supreme Court held that it inferably violated to

implied covenant to “subvert the Special Approval process by appointing conflicted

members . . . .” Id.

When SVP proposed the Squeeze-Out Merger, the Board had discretion over how

to comply with the No Acquisition Provision. The Board had a choice between Manager

Approval and Minority Approval. The plaintiffs contend that if the parties had been able

to bargain over that decision, they never would have agreed that SVP could seek Manager

Approval from an Independent Manager who (i) joined the SVP-affiliated members of the

Board in remaining silent throughout the Tender Offer, (ii) who was not willing to speak

with one of the Minority Unitholders, and (iii) owes his livelihood to maintaining good

relations with firms like SVP. Other pertinent factors identified in the Complaint include

the absence of any prior disclosure of the Squeeze-Out Merger to the Minority Unitholders,

the paltry after-the-fact disclosures made to the Minority Unitholders, and the inferably

glaring inadequacy of the price. It is reasonably conceivable that in the original bargaining

position, the parties would not have agreed that Manager Approval could be used under

those circumstances.

The defendants try to recast the plaintiffs’ argument as an implied obligation to seek

Minority Approval, and they point out that the No Acquisition Provision expressly

contemplates either Manager Approval or Minority Approval. The plaintiffs are not

41 contending that there is an obligation to seek Manager Approval. They are contending that

the obvious intent of the No Acquisition Provision is to provide protection for Minority

Unitholders and that it violates the spirt of that provision to empower Reid to provide

Specified Approval under the pled facts. The defendants answer that response by stating

that the LLC Agreement does not impose any express limitations on the circumstances

when either path for Specified Approval can be used, but the answer to that is, “Precisely.”

The absence of any express limitation is what creates a gap in the No Acquisition Provision.

The LLC Agreement provides the Board with discretion over which path to take, and the

implied covenant requires that the Board exercise that discretion reasonably.

In a last-ditch effort to avoid an implied covenant claim, the defendants fight with

the pled facts. They ask for a defendant-friendly inference by asserting that it is not

reasonable to infer a breach of the implied covenant when (i) the LLC Agreement

designated Reid as the Independent Manager, (ii) he received a fairness opinion from JLLS,

and (iii) the consideration offered in the Squeeze-Out Merger was approximately 10%

higher than the Tender Offer price. Those contentions are not dispositive. The largest

judgment in this court’s history resulted from a transaction that was negotiated for eight

months by an independent special committee that received a fairness opinion. See Ams.

Mining Corp. v. Theriault, 51 A.3d 1213, 1219 (Del. 2012). The fact that the LLC

Agreement designated Reid as the Independent Manager does not mean that he was

independent in fact or acted independently. A bare fairness opinion has little value: It

consists of one conclusory sentence plus a host of disclaimers. No one has seen the fairness

opinion, much less any underlying analysis. And the fact that SVP upped its price by 10%

42 over a unilateral tender offer that failed to garner the level of interest that SVP targeted

does not say anything about the fairness of the price. At the pleading stage, the court must

assume that the plaintiffs’ facts are true and give the plaintiffs the benefit of all reasonable

inferences.

iii. Price Inadequacy In The Squeeze-Out Merger

The plaintiffs finally argue that the defendants breached the implied covenant in

connection with the Squeeze-Out Merger because the consideration was so low. It is

reasonable to infer that the implied covenant would supply a standard equivalent to waste,

under which a party would breach the implied covenant by imposing a price that is so

extreme that no rational person would agree to it. The plaintiffs have pled facts that support

such a claim. At the pleading stage, taking the Complaint’s allegations as true, it is

reasonably conceivable that the consideration in the Squeeze-Out Merger was so low that

it violated the implied covenant.

3. The Parties Responsible For The Breach

Counts IV and V both state claims for breach of the LLC Agreement. The members

of the Board and SVP are parties to the LLC Agreement, so at the pleading stage, the claims

for breach of the LLC Agreement state claims against them. The defendants attempt to

parse who might be responsible for what obligation at the pleading stage, but the court will

not engage in that type of analysis at this point in the case.

The Officer Defendants contend that a claim for breach of contract cannot lie against

them because they are not parties to the LLC Agreement. They assert that proposition as if

43 it were self-evident, but an LLC Agreement is both a contract and a constitutive document

of the entity. It is the principal document that governs the Company’s internal affairs.

I am not prepared to rule peremptorily that an officer of an LLC is not bound by its

LLC agreement, even if the officer is not a signatory to the document. Under the LLC Act

and associated common law doctrine, an officer of an LLC can be a de facto manager.5

Managers are bound by an LLC agreement. See 6 Del. C. § 18-101(9) (“A member or

manager of a limited liability company or an assignee of a limited liability company interest

is bound by the limited liability company agreement whether or not the member or manager

or assignee executes the limited liability company agreement.”). Both modern and

venerable corporate authorities hold that an officer is bound by a corporation’s constitutive

documents, such as its bylaws.6 That suggests that the Officer Defendants could be bound

5 See, e.g., Metro Storage Int’l LLC v. Harron, 2019 WL 3282613, at *11 (Del. Ch. July 19, 2019); Phillips v. Hove, 2011 WL 4404034, at *22 (Del. Ch. Sept. 22, 2011); PT China LLC v. PT Korea LLC, 2010 WL 761145, at *5 & n.25 (Del. Ch. Feb. 26, 2010). 6 E.g., 8 William Meade Fletcher, Fletcher Cyclopedia of the Law of Corporations § 4197 at 802–04 (perm ed., rev. vol. 2011), Westlaw (database updated Sept. 2022) (“Bylaws are defined as private laws of the corporation . . . . The corporation, and its directors and officers, are bound by and must comply with them.”); Robert Charles Clark, Corporate Law § 3.3 at 115 (1986) (explaining that officer is bound by limits on express authority “in the corporation’s bylaws or in resolutions of the board” and noting that “[m]ost corporations’ bylaws list the officer positions and describe, in a general way, what each officer’s powers are to be”); Henry Winthrop Ballantine, Ballantine on Corporations § 65 at 167 (Rev. ed. 1946) (explaining that directors and officers are bound by limitations in the charter and bylaws but that the better view is that they are not liable if they violate those limitations in good faith and non-negligently); Joseph Kinnicut Angell & Samuel Ames, Treatise of the Law of Private Corporates Aggregate § 359 at 363 (7th ed. Rev. 1861) (citing Bank of Wilm. & Brandywine v. Wollaston, 3 Del. 90, 94 (Del. Super. Ct. 1840)); see also Ernest L. Folk, III, The Delaware General Corporation Law: A Commentary and Analysis 71 (1972) (noting that under Delaware law, the bylaws generally 44 by the LLC Agreement. At the pleading stage, the claims for breach of the LLC Agreement

survive as to all defendants.

D. The Exculpation Provision

The LLC Agreement contains an exculpatory provision that states:

No Covered Person shall be liable to the Company or to any Owner or Member for any loss or damage sustained by the Company or any Owner or Member, unless it is determined in a final, non-appealable judgment of a court of competent jurisdiction that the loss or damage shall have been the result of such Covered Person’s Malfeasance.

LLCA § 10.1(b) (the “Exculpation Provision”). Each of the defendants is a Covered

Person. See id. § 1.1 (definition of “Covered Person”). Unlike the Fiduciary Duty Waiver,

the Exculpation Provision does not a carve out officers.

The LLC Agreement defines “Malfeasance” self-referentially as “knowing fraud or

willful malfeasance.” Id. (definition of “Malfeasance”). “Malfeasance” means “[a]

wrongful, unlawful, or dishonest act[.]” Malfeasance, Black’s Law Dictionary (11th ed.

2019). “Malfeasance” is a synonym for “misconduct,” which refers to “unlawful,

dishonest, or improper behavior.” Misconduct, in id. “Willful misconduct” is misconduct

“committed voluntarily and intentionally.” Id. “Willful” conduct is “not necessarily

malicious.” Willful, in id. This court has interpreted “willful misconduct” as “intentional

wrongdoing, not mere negligence, gross negligence or recklessness,” but which involves

either malicious conduct or “conduct designed to defraud or seek an unconscionable

set out the powers and duties of officers and that officers are constrained by those designations).

45 advantage.” Dieckman v. Regency GP LP, 2021 WL 537325, at *36 (Del. Ch. Feb. 15,

2021), aff’d, 264 A.3d 641 (Del. 2021).

When determining “whether an actor engaged in willful misconduct” at the pleading

stage, “the trial court must draw reasonably conceivable inferences in favor of the plaintiff

based on what the allegations of the complaint suggest, recognizing that it may be virtually

impossible for a plaintiff to sufficiently and adequately describe the defendant’s state of

mind at the pleading stage.” W.D.C. Hldgs., LLC v. IPI P’rs, LLC, 2022 WL 2235005, at

*10 (Del. Ch. June 22, 2022). At this stage, it is enough that Malfeasance is reasonably

conceivable.

The defendants argue that the plaintiffs have not plead facts sufficient to support an

inference that any of them engaged in intentional wrongdoing. A defendant’s state of mind,

including a person’s knowledge or intent, “may be averred generally.” Anglo Am. Sec.

Fund, L.P. v. S.R. Glob. Int’l Fund, L.P., 829 A.2d 143, 158 (Del. Ch. 2003); see Ct. Ch.

R. 9(b). The degree to which a party must plead facts also takes into account whether “the

facts lie more in the knowledge of the opposing party than of the pleading party.” H–M

Wexford LLC v. Encorp, Inc., 832 A.2d 129, 146 (Del. Ch. 2003).

The Complaint alleges facts supporting a reasonable inference that each defendant

intentionally pursued a scheme to eliminate the Minority Unitholders at a grossly unfair

price. The Complaint identifies reasons to think that the value of the Stapled Units was at

least twice the value of the consideration provided in the Tender Offer and Squeeze-Out

Merger and potentially as much as four times greater. Cf. Morris v. Spectra Energy P’rs

(De) GP, LP, 2017 WL 2774559, at *14–16 (Del. Ch. June 27, 2017) (holding that 33%

46 difference between transaction price and actual value supported inference of subjective bad

faith). The scheme inferably violated provisions of the LLC Agreement and the Officer

Defendants’ fiduciary duties. The defendants cannot rely on the Exculpation Provision at

this phase of the case.

E. Counts V and VI: Aiding And Abetting Against The Board And SVP

The plaintiff asserts that the members of the Board and SVP aided and abetted the

breaches of fiduciary duty by the Officer Defendants. The court will not analyze those

claims at the pleading stage.

“A party does not have a right to a pleading-stage ruling at the start of a case.”

Harris, 289 A.3d at 342; see Spencer v. Malik, 2021 WL 719862, at *5 (Del. Ch. Feb. 23,

2021); see also In re Pattern Energy Gp., Inc. S’holders Litig., 2021 WL 1812674, at *46

& n.612 (Del. Ch. May 6, 2021). Rule 12(a)(1) allows a court to defer the decision of a

pleading-stage motion until a later point, including the trial on the merits. Ct. Ch. R.

12(a)(1) (“If the Court denies the motion or postpones its disposition until the trial on the

merits, the responsive pleadings shall be served within 10 days after notice of the Court’s

action.”). Rule 12(d) reiterates that authority, noting that a court should address a Rule

12(b)(6) motion in a preliminary hearing “unless the court orders that the hearing and

determination thereof be deferred until the trial.” Ct. Ch. R. 12(d). A trial court can also

determine when to address an issue using its inherent authority to control its docket. See

Harris, 289 A.3d at 342–43.

There can be significant value in dispensing with meritless claims at the pleading

stage. But a court need not examine the sufficiency of every count in a complaint or

47 consider every argument that a defendant has advanced. That is particularly true when an

issue will not result in the dismissal of a defendant from the case and where the case

involves a common nucleus of operative fact that will be the focus of discovery in any

event. In that setting, the case can readily proceed past the pleading stage.

Here, the Complaint states at least one claim for relief against each defendant. The

dispute concerns a common nucleus of operative fact, such that rulings on the aiding and

abetting claims will not narrow or expand the scope of discovery. No one will suffer

prejudice from the absence of a pleading-stage assessment. Given that context, there is no

reason at this point for the court to engage in additional analysis of the claims. Even if the

court dismissed them, the dismissal would be interlocutory and could be revisited, subject

to the law of the case doctrine, for good cause shown. The court therefore will defer ruling

on the aiding and abetting claims.

III. CONCLUSION

The defendants’ motion to dismiss is granted in part. Count I is dismissed to the

extent it relies on the financial statements. Counts II and III are dismissed in their entirety.

Other counts are limited to the extent set forth in this decision. Otherwise, the motion to

dismiss is denied.