IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
IN RE P3 HEALTH GROUP ) Consol. C.A. No. 2021-0518-JTL HOLDINGS, LLC )
ORDER DENYING GREG KAZARIAN’S MOTION TO DISMISS COUNT VII
1. Hudson Vegas Investment SPV, LLC (“Hudson”) was a minority investor
in P3 Health Group Holdings, LLC (the “Company”). In this litigation, Hudson has
asserted various claims based on a transaction between the Company and a special
purpose acquisition company, commonly known as a SPAC.
2. The defendants filed a surfeit of motions to dismiss on various grounds,
including Rule 12(b)(6). The court has issued a decision addressing the breach of contract
claims that Hudson asserted. Dkt. 172 (the “Contract Opinion,” cited as “Op.”). This
order incorporates that decision by reference.
3. In Count VII of its complaint, Hudson has asserted a claim for breach of
fiduciary duty against Kazarian in his capacity as an officer of the Company. In Count
VII, Hudson alleges that Kazarian breached his fiduciary duties by accepting a secret,
personal, financial incentive from Foresight.
4. The LLC Agreement expressly preserves the fiduciary duties of the
Company’s officers. Ex. 1 § 5.6(d). The operative language states: “The Officers, in the
performance of their duties as such, shall owe to the Company and the Members duties of
the type owed by the officers of a corporation to such corporation and its stockholders
under the laws of the State of Delaware.” Id. 5. As described in the Contract Opinion, Chicago Pacific and the Company
pursued a de-SPAC merger with Foresight, but that transaction became far less attractive
to the Company in April 2021. Op. at 11–12.
a. An important aspect of the de-SPAC merger was the Company’s
ability to raise additional financing through the PIPE. Chicago Pacific principals handled
nearly every aspect of the PIPE. The letter of intent contemplated a PIPE of $400 to $500
million. Id. at 11.
b. In April 2021, the SPAC market began to weaken, and JPMorgan
warned Chicago Pacific that the PIPE would top out at $300 to $350 million, nearly one-
third less than the letter of intent contemplated. Id.
c. As April 2021 unfolded, the SPAC market declined further. By April
29, JPMorgan was telling Tolan that the maximum proceeds had fallen to $250 million.
No one provided the information to the Board. Tolan decided to continue moving forward
with the de-SPAC merger. Id. at 11–12.
d. To shore up Chicago Pacific’s commitment to the transaction,
Wasson gave Tolan and Kazarian the opportunity to invest personally in a follow-on
SPAC called Foresight Acquisition Corp. II (“Foresight II”). Tolan described the
invitation as “an honor.” Id. at 12. Without making any disclosure to the Board, Tolan
and Kazarian accepted, and on May 7, 2021, they invested $500,000 and $100,000 in
Foresight II. Based on historical rates of return to SPAC insiders, Tolan and Kazarian
stood to reap nearly $9 million and $5 million, respectively, if Foresight II completed an
acquisition. Id.
-2- 6. It is reasonably conceivable that Kazarian acted in bad faith and breached
his duty of loyalty as an officer by accepting the opportunity to invest in Foresight II.
a. The Delaware Supreme Court has held that a corporate officer owes
the same fiduciary duties as a corporate director. See Gantler v. Stephens, 965 A.2d 695,
708–09 (Del. 2009). Directors of a Delaware corporation owe two fiduciary duties—
loyalty and care. Stone ex rel. AmSouth Bancorporation v. Ritter, 911 A.2d 362, 370
(Del. 2006). At a minimum, officers owe those same duties. Gantler, 965 A.2d at 708–
09.
b. The duty of loyalty includes a requirement to act in good faith,
which is “a subsidiary element, i.e., a condition, of the fundamental duty of loyalty.”
Stone, 911 A.2d at 370 (cleaned up). “A failure to act in good faith may be shown, for
instance, where the fiduciary intentionally acts with a purpose other than that of
advancing the best interests of the corporation.” In re Walt Disney Co. Deriv. Litig.
(Disney II), 906 A.2d 27, 67 (Del. 2006) (cleaned up).
c. Like directors, officers must “place the interests of the corporation
and shareholders that they serve before their own.” TVI Corp. v. Gallagher, 2013 WL
5809271, at *25 (Del. Ch. Oct. 28, 2013). And like directors, officers have a duty to act
“loyally by trying to do their job for proper corporate purposes in good faith,” rather than
disloyally by putting other interests, such as the self-interest of a superior, ahead of the
corporation’s best interest. Hampshire Gp., Ltd. v. Kuttner, 2010 WL 2739995, at *12
(Del. Ch. July 12, 2010).
-3- d. By accepting the opportunity to invest in Foresight II, Kazarian
engaged in self-interested conduct. Because he acted unilaterally, Kazarian bears the
burden of proving that his actions were entirely fair. It is reasonably conceivable that it
was not entirely fair to the Company for Kazarian to accept a personal benefit from the
Company’s counterparty in the midst of a deal process.
7. It is reasonably conceivable that Kazarian acted in bad faith and breached
his duty of loyalty as an officer by failing to disclose the Foresight II investment to the
Board.
a. An officer’s duty of loyalty has additional dimensions beyond a
director’s duty of loyalty because officers act as agents for the entity. See Lebanon Cnty.
Empls.’ Ret. Fund v. AmerisourceBergen Corp., 2020 WL 132752, at *21 (Del. Ch. Jan.
13, 2020) (“Officers also are fiduciaries in their capacities as agents who report to the
board of directors.”), aff’d, 243 A.3d 417 (Del. 2020). “Under a particularly well-
developed body of fiduciary law, agents owe additional and more concrete duties to their
principal.” Metro Storage Int’l LLC v. Harron, 275 A.3d 810, 843–44 (Del. Ch. 2022).
b. “An agent owes the principal a duty to provide information to the
principal that the agent knows or has reason to know the principal would wish to have.”
Restatement (Third) of Agency § 8.11 cmt. b (Am. Law Inst. 2006), Westlaw, (database
updated Oct. 2022). “That duty exists because a principal’s decisions may also be
affected by information about an agent and the agent’s conduct once the agent has been
retained by the principal.” Metro Storage, 275 A.3d at 851 (cleaned up). Officers, as
agents, “owe a duty to disclose relevant information if they have notice of facts which
-4- they should know may affect the decisions of their principals as to their conduct.” Triton
Constr. Co., Inc. v. E. Shore Elec. Servs., Inc., 2009 WL 1387115, at *14 (Del. Ch. May
18, 2009), aff’d, 2010 WL 376924 (Del. Jan. 14, 2010) (ORDER). An officer of a
Delaware entity has “the responsibility to disclose to their superior officer or principal
material information relevant to the affairs of the agency entrusted to them.” Hampshire
Gp., 2010 WL 2739995, at *13 (internal quotations omitted).
c. In his role as an officer of the Company, Kazarian was an agent of
the Board. In that capacity, Kazarian had a duty to provide the Board with the
information it needed during the year-long process leading to the de-SPAC merger. As
Free access — add to your briefcase to read the full text and ask questions with AI
IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
IN RE P3 HEALTH GROUP ) Consol. C.A. No. 2021-0518-JTL HOLDINGS, LLC )
ORDER DENYING GREG KAZARIAN’S MOTION TO DISMISS COUNT VII
1. Hudson Vegas Investment SPV, LLC (“Hudson”) was a minority investor
in P3 Health Group Holdings, LLC (the “Company”). In this litigation, Hudson has
asserted various claims based on a transaction between the Company and a special
purpose acquisition company, commonly known as a SPAC.
2. The defendants filed a surfeit of motions to dismiss on various grounds,
including Rule 12(b)(6). The court has issued a decision addressing the breach of contract
claims that Hudson asserted. Dkt. 172 (the “Contract Opinion,” cited as “Op.”). This
order incorporates that decision by reference.
3. In Count VII of its complaint, Hudson has asserted a claim for breach of
fiduciary duty against Kazarian in his capacity as an officer of the Company. In Count
VII, Hudson alleges that Kazarian breached his fiduciary duties by accepting a secret,
personal, financial incentive from Foresight.
4. The LLC Agreement expressly preserves the fiduciary duties of the
Company’s officers. Ex. 1 § 5.6(d). The operative language states: “The Officers, in the
performance of their duties as such, shall owe to the Company and the Members duties of
the type owed by the officers of a corporation to such corporation and its stockholders
under the laws of the State of Delaware.” Id. 5. As described in the Contract Opinion, Chicago Pacific and the Company
pursued a de-SPAC merger with Foresight, but that transaction became far less attractive
to the Company in April 2021. Op. at 11–12.
a. An important aspect of the de-SPAC merger was the Company’s
ability to raise additional financing through the PIPE. Chicago Pacific principals handled
nearly every aspect of the PIPE. The letter of intent contemplated a PIPE of $400 to $500
million. Id. at 11.
b. In April 2021, the SPAC market began to weaken, and JPMorgan
warned Chicago Pacific that the PIPE would top out at $300 to $350 million, nearly one-
third less than the letter of intent contemplated. Id.
c. As April 2021 unfolded, the SPAC market declined further. By April
29, JPMorgan was telling Tolan that the maximum proceeds had fallen to $250 million.
No one provided the information to the Board. Tolan decided to continue moving forward
with the de-SPAC merger. Id. at 11–12.
d. To shore up Chicago Pacific’s commitment to the transaction,
Wasson gave Tolan and Kazarian the opportunity to invest personally in a follow-on
SPAC called Foresight Acquisition Corp. II (“Foresight II”). Tolan described the
invitation as “an honor.” Id. at 12. Without making any disclosure to the Board, Tolan
and Kazarian accepted, and on May 7, 2021, they invested $500,000 and $100,000 in
Foresight II. Based on historical rates of return to SPAC insiders, Tolan and Kazarian
stood to reap nearly $9 million and $5 million, respectively, if Foresight II completed an
acquisition. Id.
-2- 6. It is reasonably conceivable that Kazarian acted in bad faith and breached
his duty of loyalty as an officer by accepting the opportunity to invest in Foresight II.
a. The Delaware Supreme Court has held that a corporate officer owes
the same fiduciary duties as a corporate director. See Gantler v. Stephens, 965 A.2d 695,
708–09 (Del. 2009). Directors of a Delaware corporation owe two fiduciary duties—
loyalty and care. Stone ex rel. AmSouth Bancorporation v. Ritter, 911 A.2d 362, 370
(Del. 2006). At a minimum, officers owe those same duties. Gantler, 965 A.2d at 708–
09.
b. The duty of loyalty includes a requirement to act in good faith,
which is “a subsidiary element, i.e., a condition, of the fundamental duty of loyalty.”
Stone, 911 A.2d at 370 (cleaned up). “A failure to act in good faith may be shown, for
instance, where the fiduciary intentionally acts with a purpose other than that of
advancing the best interests of the corporation.” In re Walt Disney Co. Deriv. Litig.
(Disney II), 906 A.2d 27, 67 (Del. 2006) (cleaned up).
c. Like directors, officers must “place the interests of the corporation
and shareholders that they serve before their own.” TVI Corp. v. Gallagher, 2013 WL
5809271, at *25 (Del. Ch. Oct. 28, 2013). And like directors, officers have a duty to act
“loyally by trying to do their job for proper corporate purposes in good faith,” rather than
disloyally by putting other interests, such as the self-interest of a superior, ahead of the
corporation’s best interest. Hampshire Gp., Ltd. v. Kuttner, 2010 WL 2739995, at *12
(Del. Ch. July 12, 2010).
-3- d. By accepting the opportunity to invest in Foresight II, Kazarian
engaged in self-interested conduct. Because he acted unilaterally, Kazarian bears the
burden of proving that his actions were entirely fair. It is reasonably conceivable that it
was not entirely fair to the Company for Kazarian to accept a personal benefit from the
Company’s counterparty in the midst of a deal process.
7. It is reasonably conceivable that Kazarian acted in bad faith and breached
his duty of loyalty as an officer by failing to disclose the Foresight II investment to the
Board.
a. An officer’s duty of loyalty has additional dimensions beyond a
director’s duty of loyalty because officers act as agents for the entity. See Lebanon Cnty.
Empls.’ Ret. Fund v. AmerisourceBergen Corp., 2020 WL 132752, at *21 (Del. Ch. Jan.
13, 2020) (“Officers also are fiduciaries in their capacities as agents who report to the
board of directors.”), aff’d, 243 A.3d 417 (Del. 2020). “Under a particularly well-
developed body of fiduciary law, agents owe additional and more concrete duties to their
principal.” Metro Storage Int’l LLC v. Harron, 275 A.3d 810, 843–44 (Del. Ch. 2022).
b. “An agent owes the principal a duty to provide information to the
principal that the agent knows or has reason to know the principal would wish to have.”
Restatement (Third) of Agency § 8.11 cmt. b (Am. Law Inst. 2006), Westlaw, (database
updated Oct. 2022). “That duty exists because a principal’s decisions may also be
affected by information about an agent and the agent’s conduct once the agent has been
retained by the principal.” Metro Storage, 275 A.3d at 851 (cleaned up). Officers, as
agents, “owe a duty to disclose relevant information if they have notice of facts which
-4- they should know may affect the decisions of their principals as to their conduct.” Triton
Constr. Co., Inc. v. E. Shore Elec. Servs., Inc., 2009 WL 1387115, at *14 (Del. Ch. May
18, 2009), aff’d, 2010 WL 376924 (Del. Jan. 14, 2010) (ORDER). An officer of a
Delaware entity has “the responsibility to disclose to their superior officer or principal
material information relevant to the affairs of the agency entrusted to them.” Hampshire
Gp., 2010 WL 2739995, at *13 (internal quotations omitted).
c. In his role as an officer of the Company, Kazarian was an agent of
the Board. In that capacity, Kazarian had a duty to provide the Board with the
information it needed during the year-long process leading to the de-SPAC merger. As
detailed in the Contract Opinion, Kazarian played a key role in the negotiations with
Foresight. See Op. at 5, 9. Kazarian voiced support for the letter of intent with Foresight.
Id. at 9. When Hudson raised concerns about the Board’s narrow focus on Foresight, it
was Kazarian who addressed their objections. Id. at 5. When Hudson expressed a desire
to exercise the Preemptive Option, it was Kazarian who orchestrated the Company’s
response. Id. at 9. Kazarian advocated strongly for Foresight to be the SPAC to help the
Company access the public markets.
d. It is reasonably conceivable that Kazarian had a duty to provide the
Board with information about an interest that gave him an incentive to favor Foresight. It
is reasonably conceivable that Kazarian’s receipt of a side benefit in the form of the
opportunity to invest in Foresight II was information that Kazarian had an obligation to
disclose to the Board.
-5- e. In their capacity as members of the Board, the Hudson Managers
were entitled to know about Kazarian’s side deal. As explained in the Contract Opinion,
Kazarian actively worked to limit the information the Hudson Managers received. Id. at
11.
f. Kazarian did not disclose to the Board or to the Hudson Managers
that he had received a side benefit from Foresight.
g. Hudson’s claim for breach of fiduciary duty against Kazarian in his
capacity as an officer states a claim on which relief can be granted.
8. To negate Hudson’s claim, Kazarian argues that he had transitioned out of
his role as Chief Strategic Officer by the time he accepted the opportunity to invest in
Foresight II. That is a fact issue that cannot be decided on a motion to dismiss.
9. Kazarian also responds that he could accept the Foresight II investment
opportunity because the LLC Agreement authorized the significant members and their
affiliates to pursue other business interests, even if those interests competed with the
Company. The relevant language states:
The Members expressly acknowledge and agree that . . . (i) each of the [Chicago Pacific] Members, Leavitt, the Class D Members, and each of their respective Affiliates are permitted to have, and may presently or in the future have, investments or other business relationships with entities engaged in the Business other than through the Company or any of its Subsidiaries (an “Other Business”), . . . (iii) none of the [Chicago Pacific] Members, Leavitt, the Class D Members, nor any of their respective Affiliates will be prohibited by virtue of their respective investments in the Company or its Subsidiaries or their service as Managers or service on the Company’s or its Subsidiaries’ board of managers or directors from pursuing and engaging in any such activities, (iv) none of the [Chicago Pacific] Members, Leavitt, the Class D Members, nor any of their respective Affiliates will be obligated to inform or present the Company or
-6- its Subsidiaries or the Board of any such opportunity, relationship or investment, . . . and (vi) the involvement of any of the [Chicago Pacific] Members, Leavitt, the Class D Members, and/or any of their respective Affiliates in any Other Business will not constitute a conflict of interest by such Persons with respect to the Company or its Members or any of the Company's Subsidiaries.
Ex. 1 § 6.6(a). This is a standard provision designed to eliminate the entity opportunity
doctrine that otherwise would apply by default and could limit the ability of fund
investors to own businesses or pursue business opportunities that could compete with the
company. See Martin I. Lubaroff, Paul M. Altman, Srinivas M. Raju, & Joshua J. Novak,
Delaware Limited Partnerships § 14.05 at 14-114 (Supp. 2022) (discussing an analogous
provision in a limited partnership agreement allowing a partner the “ability to pursue
business opportunities for itself or otherwise compete with the business of the
partnership”). It does not say anything about an officer accepting a personal benefit from
the counterparty in an ongoing negotiation.
10. Kazarian also relies on an exculpation provision in the LLC Agreement that
eliminates liability for managers across a wide class of claims. The pertinent provision
provides:
Except for any liability arising out of or resulting from a Manager’s act of fraud as determined by a final judgment, order or decree of an arbitrator or a court of competent jurisdiction . . ., the personal liability of a Manager to any other Manager, the Company, or to any Member for any loss suffered by the Company or any monetary damages for breach of contract or breach of any duty (including any fiduciary duties, any and all such fiduciary duties having been eliminated pursuant to Section 5.6(b)) is hereby eliminated to the fullest extent permitted by the Delaware Act and any other applicable law. In furtherance of the foregoing and not in limitation thereof, each Manager shall not be liable for errors in judgment and may consult with and rely on counsel and accountants and any Member, Manager, Officer, employee or committee of the Company or any of its subsidiaries
-7- or other professional in respect of the affairs of the Company and shall in no event have any personal liability in respect thereof.
Ex. 1 § 5.7. Kazarian argues that he is entitled to receive exculpation in his capacity as a
manger unless Hudson can specifically plead facts showing that he took action solely in
his capacity as an officer.
a. At the pleading stage, Hudson need only plead facts indicating that it
is reasonably conceivable that Kazarian acted in an officer capacity. See In re MultiPlan
Corp. S’holders Litig., 268 A.3d 784, 819 (Del. Ch. 2022) (denying motion to dismiss
where the complaint was “replete with allegations regarding [an officer]” even though
“the capacity in which he was acting” was not clearly specified); Malca v. Rappi, Inc.,
2021 WL 2044268, at *6 (Del. Ch. May 20, 2021) (ORDER) (“If a plaintiff reasonably
alleges facts that suggest such an agency relationship is present and the alleged fiduciary
acted contrary to that core principle, the plaintiff has successfully stated a claim upon
which relief may be granted.”).
b. The complaint meets that burden. The vast majority of Kazarian’s
actions took place outside of board meetings. It is reasonably conceivable that Kazarian
was acting as an officer when he was not attending board meetings or otherwise
responding to requests for board action.
11. Count VII states a claim on which relief can be granted. The motion to
dismiss Count VII is denied.
/s/ J. Travis Laster Vice Chancellor Laster November 3, 2022
-8-