Etter v. Fannin

• Court: Supreme Court of Delaware
• Decided: September 11, 2020
• Docket: 280, 2020
• Status: Published

Opinion

IN THE SUPREME COURT OF THE STATE OF DELAWARE

TODD F. ETTER, HOLLIS M. § GREENLAW, MICHAEL K. § WILSON, and BEN WISSINK, § No. 280, 2020 § Defendants Below, § Court Below—Court of Chancery Appellants, § of the State of Delaware § v. § C.A. No. 12541 § DAVID C. FANNIN and LUCILLE § S. FANNIN as CO-TRUSTEES of § the DAVID C. FANNIN § REVOCABLE TRUST DATED § AUGUST 3, 1995 and the LUCILLE § STEWART FANNIN REVOCABLE § TRUST DATED AUGUST 3, 1995, § § Plaintiffs Below, § Appellees. §

Submitted: September 1, 2020 Decided: September 11, 2020

Before SEITZ, Chief Justice; VALIHURA and VAUGHN, Justices.

ORDER

After careful consideration of the notice of interlocutory appeal, the

supplemental notice of interlocutory appeal, and the exhibits to those notices, it

appears to the Court that:

(1) This appeal arises from a Court of Chancery opinion granting in part

and denying in part a motion to dismiss. The following background is relevant to

the Court of Chancery’s ruling. (2) On April 29, 2019, the plaintiffs below-appellees David C. Fannin and

Lucille S. Fannin as Co-Trustees of the David C. Fannin Revocable Trust Dated

August 3, 1995 and the Lucille Stewart Fannin Revocable Trust Dated August 3,

1995 (“the Plaintiffs”) filed their second-amended derivative and class action

complaint (“the Complaint”). The Complaint arose from real estate development

loans made by United Development Funding, III, L.P. (“UDF III” or “the

Partnership”). The Complaint asserted claims on behalf of the Partnership and its

limited partners against: (i) UMTH Land Development, L.P. (“UMTH LD” or “the

General Partner”), the general partner of the Partnership; (ii) UMT Services, Inc.,

the general partner of the General Partner; (iii) certain entities affiliated with the

General Partner; and (iv) the defendants below-appellants Todd F. Etter, Hollis M.

Greenlaw, Michael K. Wilson, and Ben Wissink, who were alleged to control the

General Partner (collectively, the “Individual Defendants”).1

(3) The Plaintiffs alleged that the General Partner, UMT Services, and the

Individual Defendants owed and breached their fiduciary duties to the Partnership

and its limited partners. The Plaintiffs also alleged that affiliates of the General

Partner aided and abetted the breaches of fiduciary duty alleged in the Complaint

and were unjustly enriched. The defendants filed two separate motions to dismiss

1 The Complaint named additional individual defendants who were dismissed from the litigation in the interlocutory opinion and who are not parties to this appeal. 2 the Complaint. In their motion to dismiss, the Individual Defendants argued that

they did not owe fiduciary duties to the Partnership or its limited partners. They

urged the Court of Chancery not to follow In re USACafes, L.P. Litig.2 or its progeny,

which hold that those who control a general partner owe fiduciary duties to the

limited partnership.

(4) On July 31, 2020, the Court of Chancery issued an opinion granting in

part and denying in part the motions to dismiss (“the Opinion”).3 As to the

Individual Defendants, the Court of Chancery applied USACafes and held that the

Complaint adequately alleged that the Individual Defendants owed and breached

their fiduciary duties to UDF III and its limited partners.4 As to the entity defendants,

the Court of Chancery concluded that most of the Plaintiffs’ claims survived the

motion to dismiss.5

(5) The Individual Defendants filed an application for certification of an

interlocutory appeal. They argued that USACafes conflicted with Delaware law and

merited guidance from this Court. The Plaintiffs opposed the application.

(6) The Court of Chancery denied the application for certification.6 The

Court of Chancery first found that the Opinion did not decide a substantial issue

2 600 A.2d 43 (Del. Ch. 1991). 3 Fannin v. UMTH Land Dev., L.P., 2020 WL 4384230 (Del. Ch. July 31, 2020). The opinion was corrected on August 28, 2020. 4 Id. at *17-20. 5 Id. at *11-17, 20-34. 6 Fannin v. UMTH Land Dev., L.P., 2020 WL 5198356 (Del. Ch. Aug. 28, 2020). 3 relating to the merits of the case because there was no final determination of the

merits of the Plaintiffs’ claims in the Opinion.7 As to the Rule 42(b)(iii) criteria, the

Court of Chancery rejected the Individual Defendants’ contentions that the Opinion

(as opposed to USACafes) involved a question of law resolved for the first time in

Delaware (Rule 42(b)(iii)(A)), the decisions of the trial courts were conflicting on

the legal question of whether those who control a general partner can owe fiduciary

duties to a limited partnership or limited partners (Rule 42(b)(iii)(B)), and that

certification would serve considerations of justice (Rule 42(b)(iii)(H)).8 The Court

of Chancery emphasized that this Court has previously declined opportunities to

review the USACafes holding on an interlocutory basis (including in USACafes) and

that the Individual Defendants would most likely remain subject to discovery even

if they were dismissed from the case after an interlocutory appeal.9

(7) Applications for interlocutory review are addressed to the sound

discretion of the Court.10 In the exercise of our discretion and giving due weight to

the Court of Chancery’s well-reasoned denial of the application for certification, this

Court has concluded that the application for interlocutory review does not meet the

strict standards for certification under Supreme Court Rule 42(b). Exceptional

7 Id. at *2. 8 Id. at *3-5. 9 Id. 10 Supr. Ct. R. 42(d)(v). 4 circumstances that would merit interlocutory review of the Court of Chancery’s

interlocutory opinion do not exist in this case,11 and the potential benefits of

interlocutory review do not outweigh the inefficiency, disruption, and probable costs

caused by an interlocutory appeal.12

NOW, THEREFORE, IT IS ORDERED that the interlocutory appeal is

REFUSED. The filing fee paid by the appellants shall be applied to any future

appeal they file from a final order entered in the case.

BY THE COURT:

/s/ Collins J. Seitz, Jr. Chief Justice

11 Supr. Ct. R. 42(b)(ii). 12 Supr. Ct. R. 42(b)(iii). 5