Eric Douglas Guilbeau v. Footprint International Holdco, Inc.

• Court: Court of Chancery of Delaware
• Decided: April 30, 2026
• Docket: C.A. No. 2024-0968-JTL
• Status: Published

Opinion

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

ERIC DOUGLAS GUILBEAU, et al.,

Plaintiffs,

v. C.A. No. 2024-0968-JTL FOOTPRINT INTERNATIONAL HOLDCO, INC., CLEVELAND AVENUE, LLC, FOOTPRINT CA LLC, CA OPPORTUNITY FUND I LLC, CLEVELAND MANOR INVESTMENTS II LLC, CA FOOD I FUND LLC, OLYMPUS GROWTH FUND VII, L.P., OLYMPUS GROWTH FUND VII PARALLEL, L.P., MOVENDO CAPITAL, B.V., ZENCAP HOLDINGS FP, LLC, DON THOMPSON, MANU BETTEGOWDA, STEFAN KIRSTEN, HILLA SFERRUZZA, BRIAN KRZANICH, RICHARD J. DALY, KEVIN EASLER, LESLIE BRUN, and YOKE CHUNG,

Defendants.

OPINION ADDRESSING RULE 12(B)(6) MOTIONS TO DISMISS

Date Submitted: February 3, 2026 Date Decided: April 30, 2026

Timothy R. Dudderar, Aaron R. Sims, Ellis H. Huff, Camilia R. Stoyanova, POTTER ANDERSON & CORROON LLP, Wilmington, Delaware; Attorneys for Plaintiffs Eric Douglas Guilbeau, as the trustee of the Guilbeau Living Trust Dated November 11, 2003, Paul Winandy, 356 Investments, LLC, Arch Partners LLC, Jason Anderson, Brian Francis Austin, Tanner Blaine Bickelhaupt, Steven W. Carter, Marisa A. Dulin, Eric J. Guilbeau, Ivan Dean Johnson, Joseph R. Kosakowski, Wallace Jay Lovelace, David Michael McGowan, Geoffrey Emeka Mobisson, Shawn David Olson, Jeffrey Lee Smith, Daniel Joseph Tiernan, Yasmin Rahimi, as the trustee of the Rahimi Twins Trust, Craig Bruya, Second Avenue Partners LLC, Tracy Neighbors, and Marcus Labastida II.

Daniel A. Mason, Sabrina M. Hendershot, Miranda N. Gilbert, PAUL, WEISS, RIFKIND, WHARTON & GARRISON LLP, Wilmington, Delaware; Susanna M. Buergel, Geoffrey Chepiga, Marques Tracy, PAUL, WEISS, RIFKIND, WHARTON & GARRISON LLP, New York, New York; Attorneys for Defendants Footprint International Holdco, Inc., Don Thompson, Manu Bettegowda, Stefan Kirsten, Hilla Sferruzza, Brian Krzanich, Richard J. Daly, Kevin Easler, Leslie Brun, and Yoke Chung.

Kaan Ekiner, Nathan D. Barillo, COZEN O’CONNOR, Wilmington, Delaware; Michael de Leeuw, Tamar Wise, COZEN O’CONNOR, New York, New York; Attorneys for Defendants Cleveland Avenue, LLC, Footprint CA LLC, CA Opportunity Fund I LLC, Cleveland Manor Investments II LLC, CA Food I Fund LLC, Olympus Growth Fund VII, L.P., Olympus Growth Fund VII Parallel, L.P., and Movendo Capital, B.V.

Ronald N. Brown, III, Kelly L. Freund, DLA PIPER LLP (US), Wilmington, Delaware; Attorneys for Defendant Zencap Holdings FP, LLC.

LASTER, V.C. Early stage friends-and-family investors acquired Class A preferred stock.

They now challenge a cram-down financing, claiming it resulted from breaches of

contract. The defendants moved to dismiss those claims under Rule 12(b)(6). Their

motions are granted.1

I. FACTUAL BACKGROUND

The facts are drawn from the second amended complaint (the “Complaint”) and

the documents it incorporates by reference.2 At this procedural stage, the court must

credit the Complaint’s well-pled allegations and draw all reasonable inferences in the

plaintiffs’ favor.

A. The Company And The Class A Offering

Footprint International Holdco, Inc. (the “Company”) develops biodegradable

food packaging. The Company is a Delaware corporation with its principal place of

business in Phoenix, Arizona.

Troy Swope and Yoke Chung co-founded the Company. Swope served as CEO

until January 2023. Chung is the Chief Technology Officer.

1 The court will issue a separate decision addressing the fiduciary and related

claims. The court will not enter an order implementing this decision until after the separate decision has issued. The time for any motion for reconsideration, any application for interlocutory appeal, or any similar relief will run from the date of the implementing order. That is an accommodation, not an invitation.

2 Citations in the form “Compl. ¶ ___” refer to paragraphs of the Complaint,

which is the operative pleading. Dkt. 55. Citations in the form “Ex. ___ at ___” refer to exhibits to the Complaint. Id. In 2019 and early 2020, the plaintiffs invested in the Company via a private

offering of Class A non-participating preferred stock. Approximately eighty friends-

and-family investors participated in the round. Each paid $25,000 per share. No

single participant acquired or possessed a majority position in the Class A stock. The

round raised approximately $90 million.

In connection with the offering, the Class A stockholders signed a governance

agreement dated October 1, 2019 (the “Governance Agreement”). Over time, the

parties entered into a series of amended and restated versions of the Governance

Agreement, so it is helpful to refer to this version as the “First Agreement.”3 The other

parties to the First Agreement were the Company, Chung, and ZenCap Holdings FP,

LLC (“ZenCap”), an investment vehicle affiliated with Zenfinity Capital LLC that

already owned common stock and acquired Class A stock.

The First Agreement provided that the Company’s board of directors (the

“Board”) would consist of five directors.4 ZenCap would designate three directors for

as long as it held at least 10% of the issued and outstanding equity. ZenCap

designated Swope, Chung, and Kevin Easler, the founder, Chairman, and CEO of

Zenfinity Capital.5

3 Ex. B.

4 Id. § 4.2.

5 See Dkt. 65, Ex. 2 at 282.

2 The holders of a majority of the outstanding shares of Class A stock would

designate one director (the “Class A Director”).6 The Class A stockholders designated

Brian Krzanich, the former CEO of Intel Corporation.7

The fifth director had to be an independent third party whom the other

directors regarded as an industry expert or who could provide value to the Board and

who was acceptable to a majority of the holders of common stock (the “Common-

Approved Director”). The First Agreement named Les Brun, the co-founder,

Chairman, and CEO of Ariel Alternatives, LLC (“Ariel”), a private asset management

firm.8

The First Agreement granted the Class A stockholders a favorable liquidation

preference equal to 1.4x of the purchase price plus the top spot in the liquidation

distribution waterfall. The First Agreement prohibited the Company from changing

the Class A stock’s “rights, powers or preferences” except with approval from a Board

majority that included the affirmative vote of the Class A Director. The relevant

language stated:

The Company shall not, either directly or indirectly by amendment, merger, consolidation or otherwise, do any of the following actions without the written consent or affirmative vote of a majority of the Board of Directors (including an affirmative vote of the Class A Designated Director) . . . .

6 Ex. B § 4.2(b).

7 See Dkt. 65, Ex. 2 at 283.

8 See id.

3 5.1 Any change in the rights, powers or preferences of the Class A Stock;

5.2 The authorization, creation, or issuance of any new class or series of capital stock having rights, powers or preferences that are senior to or on parity with the Class A Stock;

5.3 Increase or decrease in the authorized number of Board Members;

5.4 Declaration of any dividend or otherwise make a distribution to holders of capital stock;

5.5 Any amendment of the bylaws or the certificate of incorporation of the Company; and

5.6 Any redemption of any shares of capital stock (other than pursuant to Section 3.2 hereof or Section 2 of each Founder Agreement).9

B. The Second Agreement

On September 18, 2020, the Company, ZenCap, Chung, Swope, and the Class

A stockholders executed an amended and restated version of the Governance

Agreement (the “Second Agreement”).10 It expanded the size of the Board and added

Richard Daly as another independent Common-Approved Director. Daly is the former

CEO of Broadridge Financial Solutions, Inc., a corporate services and financial

technology firm.11 The Board now comprised ZenCap’s three designees (Swope,

Chung, and Easler), two Common-Approved Directors (Brun and Daly), and the Class

A Director (Krzanich).12

9 Ex. B § 5.

10 Ex. C.

11 Dkt. 65, Ex. 2 at 282.

12 Ex. C § 4.2.

4 The Second Agreement maintained the Class A stockholders’ protections. Most

notably, it prohibited the Board from changing the Class A stock’s “rights, powers or

preferences” without the approval of a Board majority that included the Class A

Director.13

C. The Funds Purchase Class A Stock.

In November 2020, entities affiliated with three institutional investors (the

“Funds”) invested $150 million to acquire shares of Class A stock. The affiliates who

became stockholders were (1) Cleveland Avenue, LLC (“Cleveland”), (2) Olympus

Growth Fund VII, L.P. and Olympus Growth Fund VII Parallel, L.P. (together,

“Olympus”), and (3) Movendo Capital B.V. (“Movendo”). After the purchase, they

comprised some of the largest Class A stockholders.

On November 2, 2020, the Company, ZenCap, Olympus, two Cleveland-

affiliated entities, Chung, Swope, and the Class A stockholders executed an amended

and restated version of the Governance Agreement (the “Third Agreement”).14 It

changed the Board composition to the following:

• The Company’s CEO, Swope;

• Three ZenCap designees, but with Swope replaced by Daly, who was formerly a Common-Approved Director;

• One Common-Approved Director, Brun;

13 Id. § 5.

14 Ex. D. Movendo became a party to the Third Agreement on a later date, when

it became a holder of Company securities. See id. §§ 1.18, 6.6.

5 • The Class A Director, Krzanich;

• One director designated by Olympus for as long as it held at least 50% of its securities;

• One director designated by Movendo for as long as it held at least 50% of its securities; and

• One director designated by Cleveland for as long as it held at least 50% of its securities.15

Olympus designated Manu Bettegowda, Olympus’s managing partner. Movendo left

its seat initially unfilled, but designated Stefan Kirsten, one of its non-executive

directors, the following month.16 Cleveland also initially left its seat unfilled, but soon

designated Don Thompson, its founder and CEO, later that month.17 Thompson

became the Chairman of the Board in June 2021.18

The Third Agreement expanded the Class A stockholders’ protective

provisions. As in the First and Second Agreements, it required the Board majority to

include the affirmative vote of the Class A Director, but it expanded the list of

transactions to which the special voting requirement applied. The pertinent language

stated:

The Company shall not, and shall not permit any Subsidiary to, either directly or indirectly by amendment (of this Agreement or any other document, including the Certificate of Incorporation), merger, consolidation or otherwise, do any of the following actions without (x)

15 Id. § 4.2.

16 See Dkt. 65, Ex. 2 at 283.

17 See id.

18 Id.

6 the written consent or affirmative vote of a majority of the Board of Directors (including, (A) for so long as Olympus retains at least 50% of the Securities it holds as of the Effective Date, an affirmative vote of the Olympus Designated Director, (B) an affirmative vote of the Class A Designated Director, and (C) for so long as ZenCap continues to own beneficially or of record at least ten percent (10%) of the issued and outstanding Common Stock and/or Preferred Stock of the Company, an affirmative vote of the Primary ZenCap Designated Director) given in writing or by vote at a meeting, consenting or voting (as the case may be), (y) for so long as Olympus retains at least 50% of the Securities it holds as of the Effective Date, the affirmative consent of Olympus, and (z) for so long as ZenCap continues to own beneficially or of record at least ten percent (10%) of the issued and outstanding Common Stock and/or Preferred Stock of the Company, the affirmative consent of ZenCap . . . .

5.1 Change the rights, powers or preferences of the Class A Stock other than with respect to any side letters that do not provide for rights senior to or more advantageous to any party thereto (other than the Company) than previously provided to any holder of Class A Stock;

5.2 Authorize, create, or issue any new class or series of equity securities (including any security convertible or exchangeable for any such new class or series of equity securities) having rights, powers or preferences that are senior to or on parity with those granted to Class A Stock;

5.3 Increase or decrease in the authorized number of Board Members;

5.4 Authorize, declare, or pay any dividend on, or otherwise make a distribution to holders of any class of capital stock;

5.5 Amend, alter, repeal any provision of, or add any provision to, the bylaws of the Company or the Certificate of Incorporation, except for any amendment, alteration, repeal or addition that does not adversely affect the Class A Stock in a manner different than or disproportionate to any other class of Securities;

5.6 Repurchase, redeem, or otherwise acquire for value, any shares of capital stock (other than pursuant to Section 3.2 hereof or Section 2 of each Founder Agreement or the redemption of the Class B Non- Participating Preferred Stock as expressly authorized in the Certificate of Incorporation), in each case, at a price no greater than provided for in the Certificate of Incorporation;

7 5.7 Create or authorize the creation of any debt security or instrument or incur or guarantee indebtedness for borrowed money (excluding any accounts payable incurred by the Company in the ordinary course of business) where the aggregate amount of all such obligations at any one time is greater than $100,000,000, in each case other than in connection with any new indebtedness used to replace, refinance or otherwise eliminate existing indebtedness;

5.8 Authorize any reclassification or recapitalization of the outstanding capital stock that alters the relative rights, powers or preference of the Class A Stock with respect to any other security of the Company in any manner;

5.9 Acquire (whether by asset purchase, stock purchase, merger (but excluding any reverse merger with an entity that has no commercial operations and was primarily formed to raise capital through an initial public offering for the purpose of an acquisition (commonly known as a special purpose acquisition vehicle or a blank check company)) or other similar transaction, or combination thereof) the assets or business of any person (other than the purchase of assets in the ordinary course of business), or enter into any joint venture, in either case, that is material to the business of the Company and its Subsidiaries, taken as a whole, other than pursuant to all transactions the aggregate value of which do not exceed $50,000,000 in any fiscal year;

5.10 Enter into any contract or transaction with any director or officer of the Company, or any corporation, partnership, association or other organization of which any director or officer of the Company is a director or officer, or in which such person has a financial interest, other than (a) in the ordinary course of business in connection with such person’s employment or service as an officer or director with the Company and (b) any agreement set forth on Schedule 5.10; or

5.11 Adopt or amend any Company equity incentive plan (other than an increase in the maximum number shares of Common Stock authorized for issuance, in the aggregate not to exceed 2,800,000 shares of Common Stock, as adjusted for stock splits, reverse splits, and similar recapitalizations);

5.12 Declare bankruptcy, liquidate or dissolve the Company (excluding, for the avoidance of doubt, a Liquidation Event (as defined in the Certificate of Incorporation), or make any assignment for the benefit of creditors; or

8 5.13 Consummate a public offering of the Common Stock unless such offering is a Qualified IPO.19

The Third Agreement was the last iteration of the Governance Agreement that the

Company sent to the plaintiffs concurrently with its execution.

D. The Amendments That Eroded The Class A Protections

On July 15, 2021, the Board approved a term sheet for a merger with Gores

Holdings VIII. Over the next eighteen months, the Company purported to amend the

Governance Agreement five times. Each time, it did so without informing the

plaintiffs and without their consent.

The fourth version of the Governance Agreement purportedly became effective

as of September 7, 2021 (the “Fourth Agreement”). The plaintiffs never received a

copy. It preserved the Class A stockholders’ protections.

The fifth version of the Governance Agreement purportedly became effective

as of November 10, 2021 (the “Fifth Agreement”).20 The plaintiffs did not receive a

copy until they filed suit to enforce a books-and-records request in August 2023. The

Fifth Agreement preserved the Class A stockholders’ protections and added Hilla

Sferruzza as a Common-Approved Director.

The sixth version of the Governance Agreement does not bear a specific date

but purportedly became effective at some point in December 2021 (the “Sixth

19 Ex. D § 5.

20 Ex. F.

9 Agreement”).21 The plaintiffs did not receive a copy until they filed suit to enforce

their books-and-records request. The Sixth Agreement excluded the Class C stock

from the protective provision that limited the Company’s ability to issue new classes

of stock with preferences equal or superior to the Class A stock. The same month, the

Company filed an amendment to its certificate of incorporation that authorized Class

C stock with liquidation rights senior to the Class A stock.

The seventh version of the Governance Agreement purportedly became

effective as of September 5, 2022 (the “Seventh Agreement”). The plaintiffs never

received a copy. It excluded Class D stock from the protective provision that limited

the Company’s ability to issue new classes of stock with preferences equal or superior

to the Class A stock. The next day, the Company filed an amendment to its certificate

of incorporation that authorized Class D stock with liquidation rights senior to the

Class A stock and pari passu with Class C stock.

The eighth version of the Governance Agreement purportedly became effective

on January 5, 2023 (the “Eighth Agreement”).22 The plaintiffs did not receive a copy

until they filed suit to enforce their books-and-records request. The Eighth

Agreement excluded Class E stock from the protective provision that limited the

Company’s ability to issue new classes of stock with preferences equal or superior to

the Class A stock. A few days earlier, the Company had filed an amendment to its

21 Ex. G.

22 Ex. H.

10 certificate of incorporation that authorized Class E stock with liquidation rights

senior to the Class A stock and pari passu with Class C and Class D stock.

On December 5, 2022, the Company and Gores Holdings VIII announced the

termination of their merger, citing unfavorable market conditions.23

E. The Bridge Loans

With the merger off the table, the Company needed financing. In January

2023, the Board approved three bridge loans: (i) a $31 million loan from Cleveland,

(ii) a $30 million loan from 222 N. Canal, LLC, an entity affiliated with Thompson,

and (iii) a $10 million loan from Movendo. The notes for all three loans were

convertible into a new series of Class F stock. The transactions with 222 N. Canal

and Movendo attributed a $1 billion valuation to the Company.

The same month, Ariel offered to invest approximately $125 million in the

Company (the “Ariel Proposal”). No one at the Company meaningfully considered the

Ariel Proposal.

On February 3, 2023, the Board formed a special committee to consider

financing proposals from “related-party investors” (the “Committee”).24 Daly,

23 Footprint and Gores Holdings VIII, Inc. Mutually Agree to Terminate Business Combination Due to Unfavorable Market Conditions, Footprint (Dec. 5, 2022), https://news.footprintus.com/en/footprint-and-gores-holdings-viii-inc.- mutually-agree-to-terminate-business-combination-due-to-unfavorable-market- conditions.

24 Compl. ¶ 99.

11 Krzanich, and Sferruzza comprised the Committee. Daly was a ZenCap designee.

Krzanich was the Class A Director. Sferruzza was a Common-Approved Director.

The Board deemed the three Committee members “independent of

management.”25 The Board also determined that each member “has no relationship

(business or otherwise) with [Cleveland], Olympus or Movendo that would impair his

or her ability to independently consider a Proposal, and has no interest in any

Proposal that is different from, or in addition to, the interests of the Unaffiliated

Shareholders.”26

On March 17, 2023, the Committee considered a proposal from the Funds to

invest up to $500 million in Class F stock (the “Class F Financing”). The Committee

recommended that the Company proceed with the proposal.

On March 27, 2023, the Board received an offer from Shuler Capital Corp. to

acquire at least 80% of all of the Company’s equity (including most or all the Class A

stock) at a valuation of $670 million. Shuler also proposed to invest $545 million into

the Company and pay off $180 million of the Company’s liabilities (the “Shuler

Proposal”).27 During a meeting on March 30, the Committee acknowledged the Shuler

Proposal would address the Company’s “severe liquidity position and the challenges

25 Id. ¶ 101.

26 Id. (emphasis omitted).

27 Id. ¶ 105.

12 that presented to the Company’s ability to continue to operate as a going concern,”

but “did not deem it advisable to proceed.”28

Also during March 2023, Apollo Global Management offered to invest in the

Company at a $1 billion valuation (the “Apollo Proposal”). Neither the Committee nor

the Board pursued the Apollo Proposal.

F. The Class F Financing

On April 2, 2023, the Board approved the Class F Financing. The Funds

received new Class F stock and they exchanged their Class A stock for new shares of

Class A-1 stock that converted into ~1.71 times more common stock than Class A

stock.

When approving the Class F Financing, the Board noted “the likelihood of

insolvency based on the Company’s current financial condition.”29 According to the

plaintiffs, the Company’s professed need for cash and desire to avoid insolvency were

not the true motivations for the Class F Financing. The true motivation was to enable

the Funds to seize control of the Company, wipe out the Class A stockholders’

protections, and generate benefits for themselves.

G. The Purchase Agreement

After the Board approved the Class F Financing, the Company solicited

consents from stockholders who possessed the right to block it. ZenCap held a

28 Id. ¶ 106.

29 Id. ¶ 119.

13 blocking right, and the Company agreed to use $10 million of the proceeds from the

Class F Financing to redeem shares of Class B stock that ZenCap held. The Company

also converted ZenCap’s remaining Class B stock into a new series of Class B-1 stock

with significantly better liquidation rights than the original Class B stock.

Through affiliates, the Koch family held shares of Class D stock that carried a

blocking right. The Company agreed to use $35 million of the proceeds from the Class

F Financing to redeem all of the Koch family’s shares of Class D stock. The Company

also agreed that the Koch family would receive additional cash payments in a

liquidation event or IPO, or receive additional shares.30

The Company could not obtain the required consent from its lenders for the

Koch family’s repurchase, so Cleveland stepped in to acquire their shares.31 In

exchange, the Company agreed to enhance the value of Cleveland’s newly purchased

shares by (i) increasing their original issue price and (ii) decreasing their conversion

30 The Complaint hedges about whether the Koch family retained any shares

or received additional shares and whether the family secured improved terms for its shares. At oral argument, the plaintiffs argued that the Koch family kept shares “and those shares would explode in value in the e[v]ent of a future liquidation,” but later admitted that they were “not sure if the possible contractual payout in the event of a future IPO or liquidation event would flow from [retained] shares or from a separate contractual right.” Dkt. 115 at 53–54.

31 The Complaint wavers about whether the Company agreed to redeem the

Koch family’s Class D shares. At one point, the Complaint alleges that a redemption occurred. Compl. ¶ 127. That is consistent with the Class F Preferred Stock Purchase Agreement, which indicates that the Company “redeem[ed] all shares of Class D Preferred Stock held by Koch in the aggregate amount not to exceed $35,000,000.” Dkt. 65, Ex. 17 § 1.6. But the Complaint later alleges that Cleveland purchased shares of Class C and Class D stock from the Koch family. Compl. ¶ 141.

14 price. Those two variables drive the conversion formula, and as a result of these

changes, Cleveland’s newly purchased shares would convert in connection with an

IPO into nearly twenty-seven times more shares of common stock than before.32

Based on these agreements, ZenCap and Koch delivered their consents. On

April 6, 2023, the Company executed the Class F Preferred Stock Purchase

Agreement (the “Class F Purchase Agreement”).33

H. The Board Shrinks.

When the Board approved the Class F Purchase Agreement, it had ten

members:

• Thompson as Cleveland’s designee and the Board Chair;

• Bettegowda as Olympus’s designee;

• Kirsten as Movendo’s designee;

• Easler, Daly, and Chung as ZenCap’s designees;

• Swope as the CEO;

• Brun and Sferruzza as Common-Approved Directors; and

• Krzanich as the Class A Director.

32 The Complaint meanders through these events. Initially, the Complaint suggests that the Koch family secured the enhancements before Cleveland purchased them, but later alleges that the Company approved the amendments “to benefit [Cleveland], at the expense of diluting [the Company]’s other stockholders.” Compl. ¶ 141.

33 Dkt. 65, Ex. 17.

15 By some unidentified mechanic, the Board shrank to four directors: Thompson,

Bettegowda, Kirsten, and Sferruzza.

I. The Subscription Period

In crafting the Class F Financing, the Funds left unfilled 10% of the round ($50

million of the total $500 million). Cleveland committed to invest $350 million, and

Olympus and Movendo committed to invest $100 million. The Funds offered the last

10% to other stockholders.

On August 11, 2023, the Company provided its stockholders with a notice,

subscription agreements, and term sheet (“Term Sheet”) for the Class F Financing.34

The transaction attributed a pre-money valuation of $500 million to the Company,

half of what the Board had used in two bridge loans from January 2023. At that

valuation, the Class F stock would account for 50% of the equity.

The Term Sheet included a document titled “Class F Cap Table Analysis.”35 It

showed the distributions each class of stock would receive based on a liquidity event

that afforded the Company a $1.2 billion valuation—20% higher than the post-money

valuation in the Class F Financing. Everyone would be made whole except for the

Class A stockholders; they would receive just 4% of their original investment.

34 Ex. E.

35 Id. at 99.

16 The Company set September 5, 2023, as the date when the subscription period

would expire. That gave prospective investors three weeks to review and decide

whether to invest.

The Term Sheet did not disclose several aspects of the Class F Financing,

including the Funds’ favorable share conversions, amendments to the Company’s

charter less than a month earlier that benefitted Cleveland, or the depressed

valuation of the Company used for the Class F Financing.

A ninth version of the Governance Agreement became effective in connection

with the Class F Financing (the “Ninth Agreement”). The Term Sheet attached a

copy.36 It was the first version of the Governance Agreement that the plaintiffs had

seen since the Third Agreement. The Ninth Agreement eliminated all of the Class A

protections. It also eliminated the Class A Director.

The Class F Financing had a devastating effect on the Class A stockholders.

They were pushed down to nearly the bottom of the liquidation waterfall. Their 1.4x

liquidation preference was reduced to 1.0x. And if the Company’s value nearly tripled

from its pre-money valuation, they only would receive 4% of their original investment.

J. This Litigation

The plaintiffs sued, asserting claims grounded in breaches of the Governance

Agreement and breaches of fiduciary duty. The plaintiffs asserted their contractual

claims in the alternative based on either the Third or Fifth Agreement. At oral

36 Id. at 44.

17 argument, the plaintiffs agreed that the outcome is the same under either agreement.

This decision analyzes the Fifth Agreement, which is later in time.37

The Complaint asserts twelve counts. This decision analyzes three counts that

assert contractual or contract-adjacent claims.

Count I asserts claims for breach of the implied covenant of good faith and fair

dealing inherent in the Fifth Agreement. That count contends that a subset of the

plaintiffs’ counterparties breached implied terms in the Fifth Agreement by

amending it to allow new classes of stock to be issued with superior rights and

preferences. The plaintiffs assert Count I against the Company, ZenCap, Chung, the

Cleveland-affiliated entities, and Olympus, but not against Swope or Movendo.

Count II contends that Krzanich tortiously interfered with the Class A

stockholders’ rights under the Fifth Agreement by voting in favor of the share

issuances and other transactions that culminated in the Class F Financing.

Count III asserts a claim for promissory estoppel against Krzanich. The

Complaint contends that he promised to act in the best interests of all Class A

stockholders, which meant not approving transactions that would harm Class A

stockholders.

II. LEGAL ANALYSIS

The defendants moved to dismiss the Complaint under Rule 12(b)(6). That

motion tests whether the complaint states a claim on which relief can be granted.

37 The parties to the Third and Fifth Agreements were identical.

18 When considering a Rule 12(b)(6) motion, “a trial court should accept all well-pleaded

factual allegations in the Complaint as true, accept even vague allegations in the

Complaint as ‘well-pleaded’ if they provide the defendant notice of the claim, [and]

draw all reasonable inferences in favor of the plaintiff.”38 The court should “deny the

motion unless the plaintiff could not recover under any reasonably conceivable set of

circumstances susceptible of proof.”39 “Our governing ‘conceivability’ standard is

more akin to ‘possibility,’ while the federal ‘plausibility’ standard falls somewhere

beyond mere ‘possibility’ but short of ‘probability.’”40

A. The Inoperative Agreement Defense

As a threshold matter, the defendants argue that the plaintiffs cannot assert

claims based on the Fifth Agreement because subsequent versions of the Governance

Agreement superseded it. The plaintiffs argue that they are entitled to rely on the

Fifth Agreement because the Company concealed it from the plaintiffs when it was

in effect, and because the act of purporting to amend it breached the implied

covenant. Because the plaintiffs’ claims fall short even under the Fifth Agreement,

this decision assumes for purposes of analysis that the Fifth Agreement remains

operative and was not superseded.

38 Cent. Mortg. Co. v. Morgan Stanley Mortg. Cap. Hldgs. LLC, 27 A.3d 531,

536 (Del. 2011).

39 Id.

40 Id. at 537 n.13.

19 B. Count I: The Implied Covenant Claims

Count I invokes the implied covenant. As a matter of black-letter law, “[e]very

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

performance and its enforcement.”41 Delaware law likewise recognizes that an

implied covenant of good faith and fair dealing “attaches to every contract.” 42 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.43

The Delaware Supreme Court has recognized that the implied covenant can apply in

two different settings: (1) when a party invokes the covenant to imply an omitted

right or obligation, and (2) when a party invokes the covenant to constrain a

counterparty’s exercise of contractual discretion.44 This case implicates both.

41 Restatement (Second) of Contracts § 205 (Am. L. Inst. 1981), Westlaw (database updated Oct. 2024).

42 Dunlap v. State Farm Fire & Cas. Co., 878 A.2d 434, 442 (Del. 2005).

43 Dieckman v. Regency GP LP, 155 A.3d 358, 367 (Del. 2017) (internal quotation marks omitted).

44 See Johnson & Johnson v. Fortis Advisors LLC, 352 A.3d 229, 253 (Del. 2026)

(explaining the “two primary ways” that the implied covenant operates).

20 1. The Claims Based On Allegedly Omitted Terms

One use of the implied covenant is to supply an omitted right or obligation. The

plaintiffs contend that the Fifth Agreement implies the existence of the following

terms:

• The Class A Director must act in the best interests of the Class A stockholders.

• The Class A Director must vote against transactions that would harm the Class A stockholders.

• The Board must always have a Class A Director.

• The parties must not permit the issuance of new classes of stock with preferences superior to the Class A stock.

• The parties must not amend the charter to authorize new classes of stock with preferences superior to the Class A stock.

• The parties must not engage in interested transactions that reallocate value away from the Class A stock.

None of the allegedly implied terms is reasonably conceivable.

a. The Law Governing The Omitted-Term Version Of The Implied Covenant

When determining whether the implied covenant can supply an omitted term,

the court initially examines the contract to determine whether a gap exists that the

implied covenant could fill. If a gap exists, then the court must determine whether to

use the implied covenant to fill it. Not all gaps should be filled. Only if a gap exists

and should be filled does the court consider what omitted term should fill the gap. If

all three requirements are met, then the court compares the allegedly wrongful

conduct against the implied term to determine whether the implied covenant was

breached.

21 i. Identifying A Gap

When a party claims that the implied covenant should supply a term, the court

“first must engage in the process of contract construction to determine whether there

is a gap that needs to be filled.”45 “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.”46

The court must start by determining whether a gap exists because “[t]he

implied covenant will not infer language that contradicts a clear exercise of an

express contractual right.”47 “[B]ecause the implied covenant is, by definition,

implied, and because it protects the spirit of the agreement rather than the form, it

cannot be invoked where the contract itself expressly covers the subject at issue.”48

A court thus cannot determine whether to invoke the implied covenant until

after the court has determined what the contract explicitly contemplates. The court

45 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) (TABLE).

46 NAMA Hldgs., LLC v. Related WMC LLC, 2014 WL 6436647, at *16 (Del.

Ch. Nov. 17, 2014).

47 Nemec v. Shrader, 991 A.2d 1120, 1127 (Del. 2010).

48 Fisk Ventures, LLC v. Segal, 2008 WL 1961156, at *10 (Del. Ch. May 7,

2008), aff’d, 984 A.2d 124 (Del. 2009) (TABLE).

22 starts with the express terms to assess what they cover. If a gap remains, then the

court can move to the second step.

ii. Determining Whether A Gap Should Be Filled

“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.”49 “Not all gaps should be

filled.”50

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 because

doing so would grant a party what they “failed to secure . . . at the bargaining table.”51

A court must not use the implied covenant to “rewrite a contract” that a party “now

believes to have been a bad deal.”52 “Parties have a right to enter into good and bad

contracts, the law enforces both.”53

Contractual gaps can also exist for other reasons.54 One is a desire (or tacit

willingness) to have common law principles apply. “Parties negotiate in the shadow

49 El Paso Pipeline, 113 A.3d at 183.

50 Id.

51 Aspen Advisors LLC v. United Artists Theatre Co., 843 A.2d 697, 707 (Del.

Ch.) (Strine, V.C.), aff’d, 861 A.2d 1251 (Del. 2004).

52 Nemec, 991 A.2d at 1126.

53 Id.

54 See generally Karen Eggleston, Eric A. Posner & Richard Zeckhauser, The

Design and Interpretation of Contracts: Why Complexity Matters, 95 Nw. U. L. Rev. 91 (2000). In this now-classic work, the authors discuss reasons why parties may favor contractual simplicity over contractual complexity. In their lexicon, complexity 23 of default principles of law.”55 Thanks to a centuries-long Anglo-American legal

tradition, there are a lot of default principles. If a contract is silent, and if the default

principles covering that area are well-developed, then those principles presumptively

apply.56 They fill the gap, obviating the need for the court to do so.

Strategic ambiguity can also produce gaps. Parties to a contract who anticipate

disagreeing over an issue may opt to leave the issue open or the language ambiguous

to preserve their positions for future litigation.57 Perhaps the issue will not arise, in

means carefully spelling out lots of contract terms; simplicity means using a shorter, less-developed contract. For practical purposes, simplicity is synonymous with gaps. Factors that affect the choice between complexity and simplicity include environmental complexity, negotiation costs, asymmetric information, monitoring dynamics, evolutionary pressures and forms, convention, trust and reputation, enforcement costs, bounded rationality, and ease of renegotiation. Id. at 132.

55 New Enter. Assocs. 14, L.P. v. Rich, 292 A.3d 112, 138 (Del. Ch. 2023); see

also Reinhard & Kreinberg v. Dow Chem. Co., 2008 WL 868108, at *3 (Del. Ch. Mar. 28, 2008) (observing when interpreting the term “defense” that “a reasonable, third- party observer understands that sophisticated parties who are represented by counsel-like those in this dispute-bargain for and draft their agreements under the shadow of established law” such that the established law informs the meaning to be given to the term when parties have not contracted for a different definition).

56 New Enter., 292 A.3d at 138; accord Level 4 Yoga, LLC v. CorePower Yoga,

LLC, 2022 WL 601862, at *14 n.150 (Del. Ch. Mar. 1, 2022) (noting that “default common law rules” apply to a contractual relationship and that “contracting parties always bargain in the shadow of the common law, unless they choose expressly to disclaim it”), aff’d, 287 A.3d 226 (Del. 2022) (TABLE); see Arwood v. AW Site Servs., LLC, 2022 WL 705841, at *31 (Del. Ch. Mar. 9, 2022) (applying principle to hold that “[w]hen parties choose not to (or fail to) allocate the risk of sandbagging in their contract, the buyer may rest on its reasonable belief that it has acquired as part of the transaction the seller’s implicit promise to be truthful in its representations”).

57 Claire A. Hill, Bargaining in the Shadow of the Lawsuit: A Social Norms

Theory of Incomplete Contracts, 34 Del. J. Corp. L. 191, 200 (2009).

24 which case they have saved the time and effort that would go into working out a

compromise.58 If it does, then the gap or ambiguity “can be viewed as an embedded

option, which the party may seek to exercise if future uncertainties play out in a

particular way.”59

Sheer complexity can produce gaps too. Commercial contracts can be long and

multi-faceted.60 Their language can be cumbersome, inartful, or imprecise. Lawyers

typically start with a form, usually a precedent from a prior deal. Over time,

provisions accumulate—both for good and ill. Some cover issues that arose previously

and the agreement now addresses, offering contract-law versions of G.K. Chesterton’s

58 See Richard A. Posner, The Law and Economics of Contract Interpretation,

83 Tex. L. Rev. 1581, 1583 (2005) (“Deliberate ambiguity may be a necessary condition of making the contract; the parties may be unable to agree on certain points yet be content to take their chances on being able to resolve them, with or without judicial intervention, should the need arise.”), cited in United Rentals, Inc. v. RAM Hldgs., Inc., 937 A.2d 810, 845 n.203 (Del. Ch. 2007).

59 George S. Geis, An Embedded Options Theory of Indefinite Contracts, 90

Minn. L. Rev. 1664, 1669 (2006).

60 See Melissa Sawyer, Merger Agreements are Too Long, Harv. L. Sch. F. on

Corp. Governance (Nov. 28, 2025), https://corpgov.law.harvard.edu/2025/11/28/merger-agreements-are-too-long/; see also Steven M. Davidoff & Christina M. Sautter, Lock-Up Creep, 38 J. Corp. L. 681 (2013) (discussing the increasing complexity of lockups in merger agreements).

25 fence.61 But others may touch on similar issues using different terms or different

structures. The resulting interactions and interstices create gaps.62

Many contractual gaps result from resource constraints, be they temporal,

financial, or cognitive. Contracting is costly, so even the most skilled and

sophisticated parties will necessarily leave gaps.63

This last source of gaps encounters the Delaware Supreme Court’s decision in

Nemec. There, then-Chief Justice Steele wrote that the implied covenant only applies

to “developments that could not be anticipated, not developments that the parties

simply failed to consider.”64 In Johnson & Johnson, the Delaware Supreme Court

reaffirmed that formulation, observing that “hindsight cannot correct oversight.”65

Read literally, however, the “could not be anticipated” test would be impossible

to overcome. With sufficient luck and creativity, virtually any future state of the

world could be anticipated. The problem is not that anticipating a particular future

61 According to Chesterton, “There exists in such a case a certain institution or

law; let us say, for the sake of simplicity, a fence or gate erected across a road. The more modern type of reformer goes gaily up to it and says, ‘I don’t see the use of this; let us clear it away.’ To which the more intelligent type of reformer will do well to answer: ‘If you don’t see the use of it, I certainly won’t let you clear it away. Go away and think. Then, when you can come back and tell me that you do see the use of it, I may allow you to destroy it.’” G.K. Chesterton, The Thing 35 (1929).

62 See Hill, supra, at 194–95.

63 See Lonergan v. EPE Hldgs., LLC, 5 A.3d 1008, 1018 (Del. Ch. 2010).

64 Nemec, 991 A.2d at 1126.

65 Johnson & Johnson, 352 A.3d at 255.

26 state is impossible. The problem is that there are so many future states that parties

could anticipate. Not only that, but with the benefit of hindsight, the state of the

world that actually arises will seem like a future that not only could, but should have

been anticipated. Were “could not be anticipated” truly the law, the implied covenant

would have no meaning.

Johnson & Johnson makes clear that the implied covenant remains

meaningful. As the justices acknowledged in that decision, “[n]o contract, regardless

of how tightly or precisely drafted it may be, can wholly account for every possible

contingency.”66 That is because “[i]n 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.”67 Consequently, even

the most skilled and sophisticated parties will necessarily “fail to address a future

state of the world . . . because contracting is costly and human knowledge

imperfect.”68 The implied covenant can reach those scenarios, even if they

theoretically could have been anticipated by parties with sufficient resources,

creativity, and luck.

66 Id. at 254 (internal quotation marks omitted).

67 Credit Lyonnais Bank Nederland, N.V. v. Pathe Commc’ns Corp., 1991 WL

277613, at *23 (Del. Ch. Dec. 30, 1991) (Allen, C.).

68 Lonergan, 5 A.3d at 1018.

27 The “could not be anticipated” test also cannot be literally true because the

Delaware Supreme Court has recognized that “parties occasionally have

understandings or expectations that were so fundamental that they did not need to

negotiate about those expectations.”69 The justices have explained that “[t]he implied

covenant is well-suited to imply contractual terms that are so obvious . . . that the

drafter would not have needed to include the conditions as express terms in the

agreement.”70 Terms so obvious that both sides implicitly understood them are,

necessarily, terms that could have been anticipated. Indeed, they were both

anticipated and known, yet the implied covenant can address them because they were

so basic that no one would have thought to include them in the agreement.

The “could not be anticipated” formulation thus offers a helpful reminder that

courts must not too readily identify a contractual gap, but it cannot be strictly true.

Rather, a court considering whether to invoke the implied covenant must assess

whether the parties realistically could have addressed the contingency. “Making that

assessment in turn requires resisting hindsight’s seductive acuity, where knowledge

of what actually happened makes the unforeseen seem readily foreseeable.”71 A gap

69 Dieckman, 155 A.3d at 368 & n.26 (citing Katz v. Oak Indus. Inc., 508 A.2d

873, 880 (Del. Ch. 1986) (Allen, C.) (quoting Corbin on Contracts (Kaufman Supp. 1984), § 570)).

70 Id. at 361.

71 Calumet Cap. P’rs LLC v. Victory Park Cap. Advisors, LLC, — A.3d —, —,

2026 WL 374887, at *24 (Del. Ch. Jan. 29, 2026).

28 is worth filling when parties could not have realistically addressed it, either because

of the circumstances they faced or their implicit understandings.72

iii. Supplying An Omitted Term

If a gap both exists and should be filled, then the court must supply the omitted

term. “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.”73 The plaintiff therefore must show

“from what was expressly agreed upon that the parties who negotiated the express

terms of the contract would have agreed to proscribe the act later complained of . . .

had they thought to negotiate with respect to that matter.”74 Put differently, the trial

court must “analyze[] whether the parties would have bargained for a contractual

term proscribing the conduct that allegedly violated the implied covenant had they

foreseen the circumstances under which the conduct arose.”75

Here again, the Delaware Supreme Court’s admonitions against freewheeling

deployment of the implied covenant loom large. Wielding the implied covenant is a

72 Id.

73 Gerber v. Enter. Prods. Hldgs., LLC, 67 A.3d 400, 418 (Del. 2013), overruled on other grounds by Winshall v. Viacom Int’l, Inc., 76 A.3d 808 (Del. 2013).

74 Katz, 508 A.2d at 880.

75 Baldwin v. New Wood Res. LLC, 283 A.3d 1099, 1118 (Del. 2022).

29 “cautious enterprise,”76 and to imply a term is a “limited and extraordinary legal

remedy.”77

When, then, should the implied covenant be used? English law has developed

helpful answers that go beyond the current state of Delaware jurisprudence.78 A

leading Privy Council judgment states,

[F]or a term to be implied, the following conditions (which may overlap) must be satisfied: (1) it must be reasonable and equitable; (2) it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it; (3) it must be so obvious that “it goes without saying”; (4) it must be capable of clear expression; [and] (5) it must not contradict any express term of the contract.79

On the issue of obviousness, Lord Justice MacKinnon offered a pithy test in a 1926

judgment: “Prima facie that which in any contract is left to be implied and need not

be expressed is something so obvious that it goes without saying; so that, if, while the

parties were making their bargain, an officious bystander were to suggest some

express provision for it in their agreement, they would testily suppress him with a

common ‘Oh, of course!’”80

76 Nemec, 991 A.2d at 1125.

77 Id. at 1128.

78 My thanks to Glenn D. West, a learned commentator on contract law, for

bringing the English decisions to my attention. See https://www.weil.com/people/glenn-west. We were having nerdy discussions about the implied covenant unconnected to this or another case.

79 BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266,

282–83.

80 Shirlaw v Southern Foundries (1926) Ltd [1939] 2 KB 206, 227.

30 Thus, under English law, “a term should not be implied into a detailed

commercial contract merely because it appears fair or merely because one considers

that the parties would have agreed [to] it if it had been suggested to them.”81 The

term must also “be so obvious as to go without saying or to be necessary for business

efficacy.”82 The additional requirements limit the court’s flexibility in deploying the

implied covenant, but using more tractable concepts than Delaware law has yet

deployed.

b. The Constituency Director Provisions

The plaintiffs argue for two implied provisions that would constrain the Class

A Director. One is affirmative: The Class A Director must act in the best interests of

the Class A stockholders. The other is negative: The Class A Director must vote

against transactions that would harm the Class A stockholders. Both seek to treat

the Class A Director as a “constituency director,” i.e., a director who must pursue the

best interests of a designated corporate constituency rather than the best interests of

the corporation and its stockholders as a whole.83 The plaintiffs’ implied provisions

81 Marks and Spencer plc v BNP Paribas Securities Services Trust Co (Jersey)

Ltd [2015] UKSC 72, [2016] AC 742 [21].

82 Id. at [23].

83 Other terms include “blockholder directors” and “representative directors.”

E.g., J. Travis Laster & John Mark Zeberkiewicz, The Rights and Duties of Blockholder Directors, 70 Bus. Law. 33 (2015) (referencing “blockholder” directors); E. Norman Veasey & Christine T. Di Guglielmo, How Many Masters Can a Director Serve ? A Look at the Tensions Facing Constituency Directors, 63 Bus. Law. 761 (2008) (referencing “constituency” and “representative” directors); Simone M. Sepe, Intruders in the Boardroom: The Case of Constituency Directors, 91 Wash. U. 31 would treat the Class A Director as a constituency director for the Class A stock. But

it is not reasonably conceivable that the Fifth Agreement implies those terms.

The implied covenant analysis starts by asking whether there is a gap that

could be filled. From one perspective, the Fifth Agreement contains a gap: It provides

for the existence of the Class A Director but does not state what the Class A Director’s

duties are. But that gap only exists if a reader approaches the Fifth Agreement

without any understanding of baseline aspects of Delaware corporate law.

The Fifth Agreement operates against an extensive backdrop of law governing

a director’s duties. By providing for the Class A Director and not specifying the Class

A Director’s duties, the Fifth Agreement left that background law in place. Relying

on that law does not leave a gap, and it certainly does not leave a gap to be filled.

Delaware law does not generally recognize constituency directors.84 Delaware

law rests on the bedrock principle that directors of a Delaware corporation owe

L. Rev. 309 (2013) (referencing “constituency,” “representative,” and “designated” directors).

84 Laster & Zeberkiewicz, supra, at 51 (“Delaware law has consistently rejected

the concept of so-called ‘constituency directors.’”); accord Veasey & Di Guglielmo, supra, at 761 (summarizing Delaware case law and concluding that “existing standards of conduct and liability incorporate the necessary flexibility to balance the potentially competing duties of constituency directors with protection of the interests of various corporate constituencies”); ABA Section of Bus. Law, Corporate Director’s Guidebook—1994 Edition, reprinted in 49 Bus. Law. 1243, 1250 (1994) (“A director should exercise independent judgment for the overall benefit of the corporation and all of its shareholders, even if elected at the request of a controlling shareholder, a union, a creditor, or an institutional shareholder or pursuant to contractual rights.”); see Sepe, supra, at 367 (summarizing Delaware case law and advocating for “turning the duty of undivided loyalty [to shareholders] into a default rule that parties could 32 fiduciary duties to act carefully, loyally, and in good faith to promote the value of the

corporation for the benefit of its stockholders.85 “In a world with many types of stock—

preferred stock, tracking stock, common stock with special rights, common stock with

diminished rights (such as non-voting common stock), plain vanilla common stock,

etc.—and many types of stockholders—record and beneficial holders, long-term

holders, short-term traders, activists, momentum investors, noise traders, etc.—the

question naturally arises: which stockholders?”86 “The answer is the stockholders in

the aggregate in their capacity as residual claimants, which means the

undifferentiated equity as a collective, without regard to any special rights.”87

Directors thus owe fiduciary duties to the entity and the entire body of stockholders

generally rather than to individual stockholders or stockholder subgroups.88

opt out of by appointing constituency directors” who are “allowed to exercise residual control to the exclusive benefit of their sponsors”).

85 See, e.g., Frederick Hsu Living Tr. v. ODN Hldg. Corp., 2017 WL 1437308,

at *17 (Del. Ch. Apr. 14, 2017) (explaining that for directors to act loyally to advance the best interests of the corporation means that they must seek “to promote the value of the corporation for the benefit of its stockholders”); see generally Unocal Corp. v. Mesa Petroleum Co., 493 A.2d 946, 955 (Del. 1985) (“[C]orporate directors have a fiduciary duty to act in the best interests of the corporation’s stockholders.”); eBay Domestic Hldgs., Inc. v. Newmark, 16 A.3d 1, 34 (Del. Ch. 2010) (explaining that directors’ fiduciary duties include “acting to promote the value of the corporation for the benefit of its stockholders”).

86 Frederick Hsu Living Tr., 2017 WL 1437308, at *17.

87 Id.

88 See, e.g., Klaassen v. Allegro Dev. Corp., 2013 WL 5967028, at *11 (Del. Ch.

Nov. 7, 2013) (“[C]orporate directors do not owe fiduciary duties to individual stockholders; they owe fiduciary duties to the entity and to the stockholders as a 33 Those principles do not change when a particular class or series of stock, or a

particular individual or group, has the ability to elect, appoint, or designate a

director. Delaware decisions consistently reject the argument that the director can or

should serve the particular interests of the appointing group.89 Underscoring that

point, directors breach the duty of loyalty by acting to benefit the investor that

appointed them rather than pursuing the best interests of the corporation and its

stockholders as a whole.90

whole.”); Gilbert v. El Paso Corp., 1988 WL 124325, at *9 (Del. Ch. Nov. 21, 1988) (“[T]he directors’ fiduciary duty runs to the corporation and to the entire body of shareholders generally, as opposed to specific shareholders or shareholder subgroups.”), aff’d, 575 A.2d 1131 (Del. 1990); Phillips v. Insituform of N. Am., Inc., 1987 WL 16285, at *6, *10 (Del. Ch. Aug. 27, 1987) (Allen, C.) (acknowledging the “board’s obligation to the corporation and all of its shareholders”).

89 See, e.g., Phillips, 1987 WL 16285, at *10 (holding that Delaware law “demands of directors . . . fidelity to the corporation and all of its shareholders and does not recognize a special duty on the part of directors elected by a special class to the class electing them”); Cede & Co. v. Technicolor, Inc., 634 A.2d 345, 361 (Del. 1993) (“[T]he duty of loyalty mandates that the best interest of the corporation and its shareholders takes precedence over any interest possessed by a director, officer or controlling shareholder and not shared by the stockholders generally.”), decision modified on reargument on other grounds, 636 A.2d 956 (Del. 1994); In re Trados Inc. S’holder Litig., 2009 WL 2225958, at *7 (Del. Ch. July 24, 2009) (stating that, “in circumstances where the interests of the common stockholders diverge from those of the preferred stockholders, it is possible that a director could breach her duty by improperly favoring the interests of the preferred stockholders over those of the common stockholders” and that the “plaintiff can avoid dismissal if the Complaint contains well-pleaded facts that demonstrate that the director defendants were interested or lacked independence with respect to this decision”).

90 See Technicolor, 634 A.2d at 361; In re Trados Inc. S’holder Litig., 73 A.3d

17, 43–56 (Del. Ch. 2013) (applying the entire fairness test where a board lacked a majority of disinterested, independent directors because the directors pursued the 34 The existence of this background law means that the Fifth Agreement does not

contain a gap. By remaining silent on the topic of the Class A Director’s duties, the

parties left well-established Delaware law in place.

Even assuming that a gap existed and needed filling, the plaintiffs’ proposed

provisions would not be the solution. Imposing a contractual-constituency duty on the

Class A Director would put that individual in the impossible position of serving two

masters: The Class A Director would simultaneously owe a contractual obligation to

pursue the best interests of the Class A stockholders plus a fiduciary obligation to

pursue the best interests of the Company and all of its stockholders. Those obligations

could readily diverge.

The Delaware Supreme Court identified a similar conflict in Van Gorkom,

albeit in a less noticed and more widely accepted part of that controversial opinion.91

interests of the stockholders who appointed them rather than the best interests of the corporation and its stockholders as a whole).

91 Smith v. Van Gorkom, 488 A.2d 858 (Del. 1985). I omit the in-citation reference to Van Gorkom’s subsequent history, because it is convoluted and potentially misleading. Strict rules of citation call for identifying Van Gorkom as having been overruled in part by Gantler v. Stephens, 965 A.2d 695 (Del. 2009). That case responded to Van Gorkom’s loose use of the term “ratification” to refer to the effect of an organic stockholder vote contemplated by the DGCL. The Delaware Supreme Court limited the use of the term “ratification” to its “classic” sense, namely situations where one decision-maker has made a decision unilaterally. Gantler, 965 A.2d at 713. The decision overruled Van Gorkom to the extent the earlier case used the term “ratification” to refer to an organic vote called for by the DGCL. See id. at 713 n.54. Other than on this narrow point of terminology, Gantler did not overrule Van Gorkom. Unfortunately, Gantler’s attempt to correct the terminology used in Van Gorkom created the misimpression that the case had worked a broader change in Delaware law. The Delaware Supreme Court has held subsequently that Gantler did not have this broader consequence. See Corwin v. KKR Fin. Hldgs. LLC, 125 A.3d 35 The stockholder plaintiff contended that the directors of Trans Union Corporation

breached their fiduciary duties by approving a merger agreement without securing

the ability to explore alternatives. The directors argued that they retained that right,

at least until the stockholder vote.92 The Delaware Supreme Court disagreed. The

justices first rejected the concept of an inherent fiduciary termination right. Next, the

justices looked for an express termination right in the merger agreement. Finding

none, the high court concluded that the directors were locked into the contract.93 That

meant the directors faced a conflict between their duty to act in the best interests of

the corporation and its stockholders and the corporation’s contractual obligation to

close the merger.94

304, 311 (Del. 2015). It muddies the waters to cite Gantler as having overruled Van Gorkom in part, both because Gantler only sought to clarify a point of terminology and because Corwin subsequently made clear that Gantler did not “unsettle a long- standing body of case law.” Id.

92 Van Gorkom, 488 A.2d at 878–79.

93 Id. at 884, 887–88.

94 Id. at 888. See generally William T. Allen, Understanding Fiduciary Outs:

The What and the Why of an Anomalous Concept, 55 Bus. Law. 653, 654 (2000) (“One of the holdings of the Delaware Supreme Court in Smith v. Van Gorkom was that corporate directors have no fiduciary right (as opposed to power) to breach a contract.” (footnote omitted)); R. Franklin Balotti & A. Gilchrist Sparks, III, Deal-Protection Measures and the Merger Recommendation, 96 Nw. U. L. Rev. 467, 468–69 (2002) (“In Smith v. Van Gorkom, the Delaware Supreme Court established that Delaware law does not give directors, just because they are fiduciaries, the right to accept better offers, distribute information to potential new bidders, or change their recommendation with respect to a merger agreement even if circumstances have changed.” (footnote omitted)); John F. Johnston, Recent Amendments to the Merger Sections of the DGCL Will Eliminate Some—But Not All—Fiduciary Out Negotiation and Drafting Issues, 1 Mergers & Acquisitions L. Rep. 20, 777, 778 (BNA) (July 20, 36 Because of the resulting potential for conflict, corporate counsel began

insisting on explicit contractual rights to explore and, if appropriate, accept a superior

proposal. But for the contractual out, directors who believed themselves obligated by

their fiduciary duties to pursue an alternative would face the same dilemma that

beset the directors in Van Gorkom. Directors might decide that their duties to the

corporation and its stockholders required breaching the contract, but the breach

would still be a breach.95 The corporation would face contractual remedies, including

potentially damages, specific performance, or other forms of relief.96

1998) (“[T]here is . . . no public policy that permits fiduciaries to terminate an otherwise binding agreement because a better deal has come along, or circumstances have changed.”); John F. Johnston & Frederick H. Alexander, Fiduciary Outs and Exclusive Merger Agreements—Delaware Law and Practice, Insights: The Corp. & Sec. L. Advisor, Feb. 1997, at 15, 15 (“[T]he Delaware Supreme Court held that directors of Delaware corporations may not rely on their status as fiduciaries as a basis for either: (1) terminating a merger agreement due to changed circumstances, including a better offer; or (2) negotiating with other bidders in order to develop a competing offer.”); A. Gilchrist Sparks, III, Merger Agreements Under Delaware Law—When Can Directors Change Their Minds?, 51 U. Mia. L. Rev. 815, 817 (1997) (“[Van Gorkom] makes it clear that under Delaware law there is no implied fiduciary out or trump card permitting a board to terminate a merger agreement before it is sent to a stockholder vote.”).

95 In re Columbia Pipeline Gp., Inc. Merger Litig., 316 A.3d 359, 397 n.124 (Del.

Ch. 2024) (“[D]irectors seeking to comply with the fiduciary standard of conduct could decide to engage in efficient breach. But that does not mean that the directors’ fiduciary duties overrides the corporation’s contractual obligations. It simply means that the directors can engage in the same type of cost-benefit analysis as any other contractual counterparty. Directors who cause their corporation to engage in efficient breach have not freed the corporation from its contract.”), vacated after reversal of liability finding, 342 A.3d 324 (Del. 2025).

96 Id. A breach of fiduciary duty claim based on engaging or not engaging in

efficient breach affects the liability of the directors. It does not affect a claim by the contractual counterparty to enforce its rights, unless both the board breached its 37 A contractual constituency-director obligation would give rise to the same type

of conflict. Parties in the original bargaining provision would not readily agree to that

outcome. Put differently, they would not view that outcome as self-evident and

implicit. Borrowing from English law, the parties to the original negotiation would

not regard a constituency-director provision as necessary to give business efficacy to

their agreement, nor as so obvious that “it goes without saying.” If an officious

bystander observing the negotiations proposed the provision, the parties would not

respond with a loud, “Of course!” They would recognize that the provision could create

problematic conflicts and necessitate a suite of additional contractual workarounds.

In response, the plaintiffs simply insist that it would be “absurd” to think that

the Class A Director would do anything other than serve their interests. 97 As the

foregoing discussion shows, that perspective is not absurd. It accords with Delaware

law. If indeed the Class A stockholders subjectively harbored a different

understanding about whom the Class A Director would serve, then their expectation

was unreasonable. It is not reasonably conceivable that the Fifth Agreement could

include an implied term requiring the Class A Director to act as a constituency

director for the Class A stockholders.

duties when entering into the contract and the counterparty aided and abetted that breach. See C & J Energy Servs., Inc. v. City of Mia. Gen. Emps.’, 107 A.3d 1049, 1052–54 (Del. 2014).

97 Dkt. 95 at 74–75.

38 c. The Permanent Class A Director Provision

The plaintiffs next argue for an implied provision that would require the

Company to always have a Class A Director. It is not reasonably conceivable that the

Fifth Agreement included that term.

This court has rejected the argument that counterparties violated the implied

covenant when they used the contractually contemplated amendment process to

eliminate a party’s director election right.98 This court has also rejected the argument

that parties to an LLC agreement breached its terms when they used a contractually

permitted merger to eliminate an investor’s director designation right.99 More

generally, Delaware courts have regularly held that parties can use a merger to

eliminate the protective provisions benefitting a particular class or series of stock

unless the protective provisions expressly apply to a merger.100

98 OptimisCorp v. Waite, 2015 WL 5147038, at *75 (Del. Ch. Aug. 26, 2015),

aff’d, 137 A.3d 970 (Del. 2016) (TABLE).

99 In re P3 Health Gp. Hldgs., LLC, 2022 WL 16548567, at *12 (Del. Ch. Oct.

31, 2022) (“If Hudson wanted to be able to assert a claim for breach of the Class D Designation Right based on a merger in which the Company did not survive and the governing documents of the successor entity did not provide for the Class D Designation Right, then Hudson needed to obtain that right explicitly.”).

100 See, e.g., Elliott Assocs., L.P. v. Avatex Corp., 715 A.2d 843, 854–55 (Del.

1998); Benchmark Cap. P’rs IV, L.P. v. Vague, 2002 WL 1732423, at *10–11 (Del. Ch. July 15, 2002), aff’d sub nom. Benchmark Cap. P’rs IV, L.P. v. Juniper Fin. Corp., 822 A.2d 396 (Del. 2003) (TABLE); Sullivan Money Mgmt., Inc. v. FLS Hldgs. Inc., 1992 WL 345453, at *7 (Del. Ch. Nov. 20, 1992), aff’d, 628 A.2d 84 (Del. 1993) (TABLE); Warner Commc’n, Inc. v. Chris-Craft Indus., Inc., 583 A.2d 962, 970 (Del. Ch.), aff’d, 567 A.2d 419 (Del. 1989) (TABLE). See generally Fed. United Corp. v. Havender, 11 A.2d 331, 334–35 (Del. 1940).

39 Against this legal backdrop, there is no gap to fill. The Fifth Agreement

permits amendment. Nothing in the Fifth Agreement bars further amendment to

eliminate the Class A Director. The counterparties properly amended it.

d. The Implicit Veto Provisions

The plaintiffs last argue for an implied provision under which the other parties

to the Fifth Agreement could not (i) permit the issuance of new classes of stock with

preferences superior to the Class A stock, (ii) amend the charter to authorize new

classes of stock with preferences superior to the Class A stock, or (iii) engage in

interested transactions that reallocate value away from the Class A stock.101 In

substance, the Class A stockholders want an implied contractual veto over each type

of action. It is not reasonably conceivable that a gap exists that the implied

prohibitions could fill.

The Fifth Agreement already contains the Class A protections. Those

provisions state that without the “written consent or affirmative vote of a majority of

the Board of Directors (including . . . an affirmative vote of the Class A Designated

Director . . . ),” the Company could not take a list of specified acts.102 With the parties

having agreed upon those express terms, it is not reasonably conceivable that the

Fifth Agreement implicitly contains other contractual vetoes.

101 Compl. ¶ 172.

102 Ex. F § 5.

40 The Class A protections address the issuance of new classes of stock with

superior preferences, charter amendments, and interested transactions. The actions

that the Company cannot take without the approval of the Class A Director include

actions that would:

5.1 Change the rights, powers or preferences of the Class A Stock other than with respect to any side letters that do not provide for rights senior to or more advantageous to any party thereto (other than the Company) than previously provided to any holder of Class A Stock;

5.2 Authorize, create, or issue any new class or series of equity securities . . . having rights, powers or preferences that are senior to or on parity with those granted to Class A Stock;

...

5.5 Amend, alter, repeal any provision of, or add any provision to, the bylaws of the Company or the Certificate of Incorporation, except for any amendment, alteration, repeal or addition that does not adversely affect the Class A Stock in a manner different than or disproportionate to any other class of Securities;

5.8 Authorize any reclassification or recapitalization of the outstanding capital stock that alters the relative rights, powers or preference of the Class A Stock with respect to any other security of the Company in any manner;

5.10 Enter into any contract or transaction with any director or officer of the Company, or any corporation, partnership, association or other organization of which any director or officer of the Company is a director or officer, or in which such person has a financial interest, other than (a) in the ordinary course of business in connection with such person’s

41 employment or service as an officer or director with the Company and (b) any agreement set forth on Schedule 5.10 . . . .103

These provisions cover the same ground as the implied vetoes that the plaintiffs seek.

Having obtained a specific set of protections covering those issues, the plaintiffs

cannot now claim that a gap exists requiring more advantageous provisions.

Of course, the Class A protections do not map perfectly onto the provisions that

the plaintiffs want. Assuming for the sake of argument that the mismatch gives rise

to a gap, the court must ask whether it should be filled. To answer this question,

imagine the original bargaining position and ponder whether, if the issue had come

up at that time, the parties would have readily agreed to the specific vetoes the

plaintiffs now want. It is not reasonably conceivable that the other parties would have

readily agreed. Having granted the Class A protections, they would almost certainly

want something in return for conferring additional rights on the Class A stockholders.

To the same effect, if an officious bystander observing the negotiation suggested

clarifying the Fifth Agreement to require specific Class A stockholder approval, the

parties would not respond with a united, “Of course!” Although the plaintiffs might

have endorsed that view, the other parties would not. They would say something like,

“You already have these protections, so why do you need more?” At best, further

negotiation would have ensued. It is therefore not reasonably conceivable that the

implied covenant can support the implicit veto rights.

103 Id.

42 2. The Claims Based On Discretionary Contract Rights

A second use of the implied covenant addresses situations “when a contract

confers discretion on a party.”104 The plaintiffs contend that the express terms of the

Fifth Agreement conferred discretionary rights that the other parties to the contract

could not use in particular ways. Framed generally, they assert that the other parties

had an implied obligation to exercise their discretionary rights so as to protect and

preserve the Class A stockholders’ rights. None of the allegedly implied restrictions

on discretionary exercise is reasonably conceivable.

a. The Law Governing The Discretionary-Exercise Version Of The Implied Covenant

The high court has stated that “[w]hen the party exploits that discretion in a

manner that defeats the ‘overarching purpose’ of the bargain, courts may imply a

requirement that such discretion be exercised reasonably and in good faith to ensure

that the discretionary power is applied consistently with what reasonable parties

would have agreed to at signing.”105 That framing has three apparent elements: (1)

action that defeats the overarching purpose of the bargain, resulting in (2) a

requirement that the discretion be exercised reasonably and in good faith so that (3)

the discretionary power is applied consistently with what reasonable parties would

have agreed to at signing.

104 Glaxo Gp. Ltd. v. DRIT LP, 248 A.3d 911, 920 (Del. 2021).

105 Johnson & Johnson, 352 A.3d at 253.

43 Unfortunately, each of these elements suggests a different test. The element

that would allow the greatest degree of judicial intervention would require only that

the discretion be “exercised reasonably and in good faith.” Of those two concepts,

reasonableness seems more restrictive than good faith. Standing alone, therefore,

that element could allow a court to impose its own understanding of what constitutes

a reasonable exercise of discretion under the circumstances.

Other statements by the Delaware Supreme Court rule out that approach. The

justices have stated that the implied covenant is not “an equitable remedy for

rebalancing economic interests,”106 and it “cannot be used to circumvent the parties’

bargain, or to create a free-floating duty . . . unattached to the underlying legal

document.”107

At the other end of the spectrum, the element that would suggest the least

room for judicial intervention asks whether the exercise of discretion defeats an

overarching purpose of the bargain. That language comports with similar statements

by the high court about the limited circumstances in which the implied covenant

should be used. But when a discretionary right is expressly part of the parties’

bargain, how does a court evaluate whether its use violates the overarching purpose

of the bargain? A party can argue legitimately that its ability to exercise its

106 Nemec, 991 A.2d at 1128.

107 Dunlap, 878 A.2d at 441 (footnote omitted) (internal quotation marks omitted); see Gerber, 67 A.3d at 418 (the implied covenant “is not a free-floating duty unattached to the underlying legal documents”).

44 discretionary right freely is part of the spirit of the bargain and fulfills its overarching

purpose.

That leaves us with the third and most helpful framing. The court must

evaluate whether the party is exercising discretionary power consistent with what

reasonable parties would have agreed to at signing. That test recognizes that when

used with the implied covenant, the term “good faith” contemplates “faithfulness to

the scope, purpose, and terms of the parties’ contract.”108 The concept of “fair dealing”

similarly contemplates “a commitment to deal ‘fairly’ in the sense of consistently with

the terms of the parties’ agreement and its purpose.”109 A court deploying the implied

covenant “does not ask what duty the law should impose on the parties given their

relationship at the time of the wrong, but rather what the parties would have agreed

to themselves had they considered the issue in their original bargaining positions at

the time of contracting.”110

Although Delaware law has developed that standard for the branch of the

implied covenant that supplies an omitted term, the same test can govern a party’s

exercise of a discretionary right. In essence, the discretionary right simplifies the

traditional implied-covenant inquiry because the court need not look for a gap. The

108 Gerber, 67 A.3d at 419 (emphasis omitted).

109 Id.

110 Id. at 418 (citing ASB Allegiance Real Estate Fund v. Scion Breckenridge

Managing Member, LLC, 50 A.3d 434, 440–42 (Del. Ch. 2012), aff’d in part, rev’d in part on other grounds, 68 A.3d 665 (Del. 2013)).

45 discretionary right produces an inherent gap. The court therefore proceeds to the next

step and asks how the parties would have filled the gap in the original bargaining

position. Discretion must be exercised “consistently with what reasonable parties

would have agreed to at signing.”111

This interpretive approach still leaves one problem. In Baldwin, the Delaware

Supreme Court revived a line of authority under which a party can breach the implied

covenant by acting in subjective bad faith. There, an operating agreement allowed an

LLC to determine in its discretion whether a person met the standard of conduct for

indemnification. A person who had been denied indemnification sued, alleging “a

hostile and adverse relationship” in which the LLC terminated the plaintiff,

determined that he was not entitled to indemnification, and engaged in litigation

tactics intended to cause the plaintiff “to incur needless additional attorneys’ fees and

costs.”112 The trial court dismissed the complaint, but the high court reversed, holding

that the complaint stated a claim for breach of the implied covenant because the

discretionary right had to be exercised in good faith.113

In holding that the complaint sufficiently alleged that the defendants acted in

bad faith, Baldwin treated the concept of bad faith under the implied covenant as

111 Johnson & Johnson, 352 A.3d at 253.

112 Baldwin, 283 A.3d at 1122.

113 Id. at 1119.

46 synonymous with bad intent.114 As support, Baldwin cited Desert Equities, a decision

where the Delaware Supreme Court referred to bad faith under the implied covenant

as a “state of mind”115 involving “the conscious doing of a wrong because of dishonest

purpose or moral obliquity.”116 Baldwin also cited Amirsaleh, a decision where this

court stated a party could establish a breach of the implied covenant by showing that

“the exercise of discretion was done in bad faith (i.e., that it was motivated by an

improper purpose or done with a culpable mental state).”117 Relying on those

precedents, Baldwin credited the plaintiff’s allegation that the LLC was “trying to

avoid indemnification” and had “taken every opportunity it could to try to avoid

paying advancement.”118 The justices treated that allegation as “sufficient—albeit,

barely so” to raise a litigable issue regarding scienter sufficient to state a claim for

breach of the implied covenant.119

In reaching this conclusion, Baldwin did not discuss intervening authority that

called into question Desert Equities and Amirsaleh. The implied covenant is a

114 See id. at 1118 nn.110 & 111 (citing Desert Equities, Inc. v. Morgan Stanley

Leveraged Equity Fund, II, L.P., 624 A.2d 1199 (Del. 1993), Amirsaleh v. Bd. of Trade of City of N.Y., Inc., 2009 WL 3756700 (Del. Ch. Nov. 9, 2009)).

115 Desert Equities, 624 A.2d at 1208.

116 Id. at 1208 n.16.

117 Amirsaleh, 2009 WL 3756700, at *5.

118 Baldwin, 283 A.3d at 1121.

119 Id.

47 contract-law doctrine, and a breach of contract ordinarily does not turn on intent.

True, drafters can craft a provision that turns on a counterparty’s mental state,120

but absent specific language, proving a breach of contract claim does not require

scienter.121 In other words, absent specific contractual language, “‘[w]illful’ breaches

have not been distinguished from other breaches.”122 This court therefore suggested

in ASB Allegiance that Desert Equities and Amirsaleh represented a wrong turn for

purposes of the implied covenant and mistakenly imported tort concepts into an area

120 See, e.g., Hexion Specialty Chems., Inc. v. Huntsman Corp., 965 A.2d 715,

746–49 (Del. Ch. 2008) (interpreting merger agreement in which contractual limitation on liability did not apply to a “knowing and intentional breach”).

121 See Hifn, Inc. v. Intel Corp., 2007 WL 1309376, at *13 (Del. Ch. May 2, 2007)

(“[T]o the extent that [plaintiff] is contending that [defendant’s] subjective motivations for wanting out of the contract give rise to an inference that it acted in bad faith, that argument fails under settled law.”); Myer Ventures, Inc. v. Barnak, 1990 WL 172648, at *5 (Del. Ch. Nov. 2, 1990) (“[T]he contract does not require scienter for a breach to exist.”); Gilbert v. El Paso Co., 490 A.2d 1050, 1055 (Del. Ch. 1984) (holding that when party enforces conditions that “are expressed, the motivation of the invoking party is, in the absence of fraud, of little relevance”), aff’d, 575 A.2d 1131 (Del. 1990).

122 Restatement (Second) of Contracts, supra, ch. 16 intro.; see ASB Allegiance,

50 A.3d at 442 (“A scienter requirement might seem to uproot the implied covenant from the land of contract and replant it in the realm of tort.”); NACCO Indus., Inc. v. Applica, Inc., 997 A.2d 1, 35 (Del. Ch. 2009) (noting Delaware’s recognition of efficient breach, which permits a party to breach intentionally without incurring additional liability beyond the ordinary contract law remedies).

48 of contract law.123 In 2013, the Delaware Supreme Court in Gerber endorsed and

adopted ASB Allegiance’s analysis “as a correct statement of the law.”124

Gerber necessarily rejected the intent-based language from Desert Equities and

Amirsaleh, implicitly overruling those decisions. Baldwin, however, resurrected

them. After Baldwin, bad intent can breach the implied covenant. But because

parties can breach contracts intentionally, the intent-based version of the implied

covenant must be limited. How then to apply it?

Consistent with other implied covenant cases, Baldwin stresses that the

implied covenant should come into play when “the other party has acted arbitrarily

or unreasonably, thereby frustrating the fruits of the bargain that the asserting party

reasonably expected.”125 That framing seems to recognize that when parties enter

into a contract, they join together in a cooperative enterprise to create joint surplus—

the proverbial fruits of the bargain.126 As the Restatement (Second) of Contracts

123 See ASB Allegiance, 50 A.3d at 440–42.

124 Gerber, 67 A.3d at 418.

125 Baldwin, 283 A.3d at 1119 (quoting Dieckman, 155 A.3d at 367 (quoting

Nemec, 991 A.2d at 1126)).

126 See Contrarian Funds L.L.C. v. Westpoint Int’l, Inc., C.A. No. 2617-CC, at 6

(Del. Ch. Nov. 3, 2010) (TRANSCRIPT) (“[C]ontracts are entered into for the benefit of all parties to the contract.”), aff’d, 26 A.3d 213 (Del. 2011); see also Northview Motors, Inc., v. Chrysler Motors Corp., 227 F.3d 78, 92 (3d Cir. 2000) (alluding to the “mutual benefits created by legally binding agreements”); Barbara v. MarineMax, Inc., 2013 WL 1952308, at *5 (E.D.N.Y. May 10, 2013) (“[C]ourts expect that parties will be guided by self-interest to enter into mutually beneficial contracts in the first place.” (citing Travellers Int’l, A.G. v. Trans World Airlines, Inc., 41 F.3d 1570, 1577 49 explains, parties commit themselves to advancing “an agreed common purpose.” 127

While parties to a contract obviously are not fiduciaries and are free to act in their

own interests, they have committed themselves to a joint effort.128

When looking to what parties would have agreed to when bargaining

originally, a court must take into account that shared purpose. Given their agreed

(2d Cir. 1994))); Schlumberger Tech. Corp. v. Swanson, 959 S.W.2d 171, 177 (Tex. 1997) (“all contracting parties presumably contract for their mutual benefit”).

127 Restatement (Second) of Contracts, supra, § 205 cmt. a (“Good faith performance or enforcement of a contract emphasizes faithfulness to an agreed common purpose and consistency with the justified expectations of the other party . . . .”); see 1 Williston On Contracts § 1:1 (4th ed. 2008), Westlaw (database updated May 2025) (“Contract law is designed to protect the expectations of the contracting parties. It is intended to enforce the expectancy interests created by the parties’ promises so that they can allocate risks and costs during their bargaining. The goal of contract law is to hold parties to their agreements so that they receive the benefits of their bargains.” (footnotes omitted)); 17A Am. Jur. 2d Contracts § 362 (under the implied covenant of good faith and fair dealing, “neither party shall do anything which will have the effect of destroying or injuring the right of the other party to receive the fruits of the contract”). See generally Alan Schwartz & Robert E. Scott, Contract Theory and the Limits of Contract Law, 113 Yale L.J. 541, 552–54 (2003) (“Bargaining power . . . is exercised in the division of the surplus . . . . Parties jointly choose the contract terms so as to maximize the surplus . . . .”).

128 ArchKey Intermediate Hldgs. Inc. v. Mona, 302 A.3d 975, 1005 (Del. Ch.

2023); see Libeau v. Fox, 880 A.2d 1049, 1056–57 (Del. Ch. 2005) (alluding to the “wealth-creating and peace-inducing effects of civil contracts”), aff’d in part, rev’d in part on other grounds, 892 A.2d 1068 (Del. 2006). See generally Schwartz & Scott, supra, at 544 (“[C]ontract law should facilitate the efforts of contracting parties to maximize the joint gains (the ‘contractual surplus’) from transactions.”); Gerrit De Geest, N Problems Require N Instruments, 35 Int’l Rev. L. & Econ. 42, 46 (2013) (“[T]he fundamental goal of contract law [is] to maximize the joint surplus of the parties . . . .”); Jeffrey L. Harrison, A Case for Loss Sharing, 56 S. Cal. L. Rev. 573, 594 (1983) (“Partnership law and contract law are both designed to foster the sharing of a jointly created surplus.”).

50 common purpose, a party in the original bargaining position would expect that the

counterparty would not use a discretionary right to destroy the contractual

relationship maliciously and without any justification rationally related to the shared

contractual purpose.129 That premise is so basic that asking for a commitment against

malicious action would be unthinkable.130 Framed from the English law perspective,

a party to the negotiation who raised the issue would be met with the response that

“it goes without saying.”131 If an officious bystander observing the negotiation

suggested confirming that the contract prohibited a party from using a discretionary

right to destroy the contractual relationship, both sides would immediately say, “Of

course!”

Exercising a discretionary right maliciously and without a contractual

justification goes beyond self-interested action and transcends situations involving

efficient breach.132 The general rule remains: A party has wide discretion within

which to wield a discretionary right consistent with the parties’ understandings from

their original bargaining positions. A party obviously can wield a discretionary right

to promote contractual goals and create joint surplus. Just as obviously, a party can

wield a discretionary contractual right to protect its own interests. A party with a

129 Calumet, 2026 WL 246995, at *29.

130 See ArchKey, 302 A.3d at 1005.

131 BP Refinery, 180 CLR at 282–83.

132 Calumet, 2026 WL 246995, at *29.

51 good faith basis for its determination cannot be held liable for the intent-based

version of the implied covenant.133 “But a party cannot wield a discretionary

contractual right like a mafia gangster by using it to inflict harm on the counterparty

unless the counterparty does what it wants.”134

b. The Discretionary Contract Rights

The plaintiffs allege that the defendants breached the implied covenant by

inappropriately exercising the discretion they possessed under the Fifth Agreement.

The plaintiffs claim that the defendants had an implied obligation to exercise their

discretionary rights to protect and preserve the Class A stockholders’ rights. The

protection of the implied covenant does not go so far.

The plaintiffs set out in the wrong direction by arguing for a best-interest duty.

An obligation to act in the best interests of another party is a fiduciary duty, not a

contractual one. The parties to the Fifth Agreement committed themselves to advance

a shared purpose, but they were generally free to act in their own interests. The

plaintiffs continue in the wrong direction by failing to frame any constraint on the

133 See New Wood Res. LLC v. Baldwin, 2023 WL 4883924, at *9 (Del. Super.

July 31, 2023) (“While one could argue negligence from these facts, or that ACR was just plain wrong in its assessment, no reasonable jury could find bad faith from them. Further, no other facts exist in this record to show, for instance, that Mr. Bursky harbored any personal animus or intentionally sought to harm Dr. Baldwin, when he executed the Written Consent as President of ACR.”), aff’d, 315 A.3d 445 (Del. 2024).

134 Calumet, 2026 WL 246995, at *29.

52 exercise of the defendants’ discretionary rights in terms of what the parties would

have contemplated during their original bargaining.

Eventually, the plaintiffs do inferably argue that the defendants set out to

harm them by depriving the Class A stockholders of their liquidation preference and

reallocating most of the value of their shares to the more senior classes of equity. The

Complaint’s allegations, however, defeat this theory.

The Complaint does not support the inference that the defendants acted

maliciously and without any justification rationally related to the parties’ shared

contractual purpose. The Complaint acknowledges that the Company needed

financing. The Complaint alleges that the defendants should have considered and

pursued the Shuler, Ariel, and Apollo Proposals, instead of approving the Class F

Financing to benefit themselves and their affiliates, but the Complaint acknowledges

that some form of financing transaction was warranted.135 That means that the

defendants had a contractually grounded reason for pursuing the Class F Financing.

Facing a situation where the Company could fail and the investors end up with

135 See, e.g., Compl. ¶¶ 106–08, 110 (alleging that the Shuler Proposal was a

“favorable opening proposal” that “could have been sweetened,” would have addressed the Company’s “severe liquidity position and the challenges that presented to the Company’s ability to continue to operate as a going concern,” and “would have provided a much more ‘meaningful return to the Company’s stakeholders’” than the Class F Financing); id. ¶ 115 (alleging that the Board failed to “run a meaningful process to find possible alternative financing sources”); id. ¶ 198 (“The opportunities presented by Shuler, Apollo, and Ariel were clearly superior to the Class F [Purchase Agreement] in that they would have been beneficial to all stockholders and, indeed, likely could have been sweetened with just some negotiation by the Special Committee.”).

53 nothing, the defendants could properly exercise their contractual rights to obtain the

financing the Company needed.136 It is not inferable that the defendants approved

the Class F Financing for the sole purpose of harming the Class A stockholders, so

the claim based on the discretionary-exercise version of the implied covenant fails.

C. The Remaining Claims

After working through the implied covenant claims, the two remaining

contract-adjacent claims become easy. Neither states a claim on which relief can be

granted.

1. Count II: The Tortious Interference Claim

Count II contends that Krzanich tortiously interfered with the implied terms

in the Fifth Agreement. Delaware follows the Restatement (Second) of Torts when

analyzing a claim for tortious interference with contract.137 Generally, “[o]ne who

intentionally and improperly interferes with the performance of a contract . . .

between another and a third person by inducing or otherwise causing the third person

not to perform the contract, is subject to liability to the other.”138 Reframed as

136 See Ex. E at 12–13 (the Term Sheet’s risk factors disclosing that the Company has a “history of net losses” and the Class F Financing “alleviated substantial doubt about [the Company’s] ability to continue as a going concern”); Compl. ¶ 119 (“[T]he Board approved the Class F transaction, noting ‘the likelihood of insolvency based on the Company’s current financial condition.’”).

137 WaveDivision Hldgs., LLC v. Highland Cap. Mgmt., L.P., 49 A.3d 1168,

1174 (Del. 2012); ASDI, Inc. v. Beard Rsch., Inc., 11 A.3d 749, 751 (Del. 2010).

138 Restatement (Second) of Torts § 766 (Am. L. Inst. 1979), Westlaw (database

updated Sept. 2025).

54 elements, a plaintiff must plead: (1) a contract, (2) the defendant’s knowledge of it,

and (3) an intentional act that is a significant factor in causing a breach of the

contract, (4) done without justification, (5) that causes injury.139 Without an

underlying breach of contract, a tortious interference claim is not viable.140

The intentional act causing the breach need not be tortious, only intentional.141

An independently tortious method of interference makes a finding of improper

interference more likely. Therefore, “the nature of [the] conduct is an important

factor,” but an inherently tortious method of interference—such as an act of fraud or

other wrongdoing—is not required.142

Here, the tortious interference claim fails because it is not reasonably

conceivable that there was a breach of any implied term. Because the plaintiffs have

failed to plead an underlying breach, their tortious interference claim falls short.

139 Bhole, Inc. v. Shore Invs., Inc., 67 A.3d 444, 453 (Del. 2013); see NAMA

Hldgs., 2014 WL 6436647, at *25–26 (applying law for analyzing claims for tortious interference with contract to claim for tortious interference with the implied covenant).

140 See STX Bus. Sols., LLC v. Fin.-Info.-Techs., LLC, 2024 WL 4645104, at *6

(Del. Ch. Oct. 31, 2024), aff’d, 342 A.3d 399 (Del. 2025) (TABLE).

141 Bandera Master Fund LP v. Boardwalk Pipeline P’rs, LP, 2024 WL 4115729,

at *38 (Del. Ch. Sept. 9, 2024), aff’d in part, rev’d in part and remanded, 2025 WL 3537343 (Del. Dec. 10, 2025) (TABLE); Restatement (Second) of Torts, supra, § 766 cmt. c.

142 Restatement (Second) of Torts, supra, § 766 cmt. c.

55 2. Count III: The Promissory Estoppel Claim

Count III asserts that by accepting his appointment as the Class A Director,

Krzanich promised to act in the best interests of the Class A stockholders, make

decisions that would protect the rights and preferences of the Class A stock, and vote

against transactions that would harm the Class A stockholders. The plaintiffs assert

that Krzanich broke his promise by engaging in the same conduct underlying Count

II. This theory also fails.

A claim for promissory estoppel requires a plaintiff to show: “(i) a promise was

made; (ii) it was the reasonable expectation of the promisor to induce action or

forbearance on the part of the promisee; (iii) the promisee reasonably relied on the

promise and took action to his detriment; and (iv) such promise is binding because

injustice can be avoided only by enforcement of the promise.”143

“Historically, courts have treated promissory estoppel as a consideration

substitute . . . .”144 In other words, the doctrine of promissory estoppel existed to

“hold[] individuals liable on their promises despite the absence of consideration.” 145

Over time, however, “the doctrine appears to have evolved in Delaware into one that

provides a basis for expectancy relief,” and promissory estoppel is viewed as an

143 SIGA Techs., Inc. v. PharmAthene, Inc., 67 A.3d 330, 347–48 (Del. 2013).

144 2 Donald J. Wolfe, Jr. & Michael A. Pittenger, Corporate and Commercial

Practice in the Delaware Court of Chancery § 15.02[c], at 15-11 to -12 (2d ed. 2025).

145 4 Williston on Contracts, supra, § 8:4.

56 equitable remedy that “often turn[s] on ‘whether injustice could be avoided only by

an enforcement of the promise.’”146 “The prevention of injustice is the ‘fundamental

idea’ underlying the doctrine of promissory estoppel.”147

Promissory estoppel is a “narrow doctrine, designed to protect the legitimate

expectations of parties rendered vulnerable by the very processing of attempting to

form commercial relationships.”148 The “routine role” of promissory estoppel “should

be to assure that those who are reasonably induced to take injurious action in reliance

upon non-contractual promises receive recompense for that harm.”149

“Delaware courts have been careful when considering promissory estoppel

claims to avoid rendering them an imprecise judicial cost-shifting exercise.”150 The

promise must “be a real promise—mere expressions of expectation, opinion, or

assumption are insufficient.”151 “The promise must also be reasonably definite and

146 2 Wolfe & Pittenger, supra, § 15.02[c], at 15-12 (quoting Grunstein v. Silva,

2009 WL 4698541, at *10 (Del. Ch. Dec. 8, 2009)).

147 Chrysler Corp. (Delaware) v. Chaplake Hldgs., Ltd., 822 A.2d 1024, 1034

(Del. 2003).

148 Ramone v. Lang, 2006 WL 905347, at *14 (Del. Ch. Apr. 3, 2006).

149 Id.

150 Riverside Risk Advisors LLC v. Chao, 2022 WL 14672745, at *32 (Del. Ch.

Oct. 26, 2022) (internal quotation marks omitted), aff’d, 303 A.3d 51 (Del. 2023) (TABLE).

151 Territory of U.S. V.I. v. Goldman, Sachs & Co., 937 A.2d 760, 804 (Del. Ch.

2007), aff’d, 956 A.2d 32 (Del. 2008) (TABLE); see Riverside Risk Advisors, 2022 WL 14672745, at *32–33.

57 certain.”152 The Delaware Supreme Court has instructed that promissory estoppel

does not apply “where a fully integrated, enforceable contract governs the promise at

issue.”153

Under this test, the plaintiffs’ allegations do not support a reasonably

conceivable inference of an enforceable promise. They claim that by agreeing to serve

as the Class A Director, Krzanich promised to act in the best interests of the Class A

stockholders, protect their rights and preferences, and vote against transactions that

would harm them. But that is not a reasonable inference for the same reason that it

is not reasonable to imply an obligation under the Fifth Agreement.

The Fifth Agreement states that a Board majority that included the

affirmative vote of the Class A Director could (1) create new classes of stock with

rights, powers, and preferences senior to those granted to the Class A stock and (2)

authorize any reclassification or recapitalization of outstanding stock that changes

the rights, powers, and preferences of the Class A stock relative to another security.154

A neophyte reader without a background in corporate law might think that Krzanich

implicitly promised to protect the Class A stockholders, but that is not a reasonable

reading. That promise would inherently conflict with the Class A Director’s fiduciary

152 Territory of U.S. V.I., 937 A.2d at 804.

153 SIGA Techs., 67 A.3d at 348.

154 Ex. F § 5.

58 duties to the Company’s stockholders as a whole. It would turn the Class A Director

into a constituency director, contrary to Delaware law.

The plaintiffs have failed to adequately plead that Krzanich made a promise,

so the court need not consider the remaining elements of a claim for promissory

estoppel. The motion to dismiss Count III is granted.

III. CONCLUSION

The motions to dismiss are granted as to Counts I, II, and III.