New Wood Resources LLC v. Baldwin
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Opinion
IN THE SUPERIOR COURT OF THE STATE OF DELAWARE
NEW WOOD RESOURCES LLC, ) ) Plaintiff/ ) Counterclaim Defendant, ) ) v. ) C.A. No. N20C-10-231 SKR CCLD ) RICHARD BALDWIN ) ) Defendant/ ) Counterclaim Plaintiff. )
Submitted: June 14, 2023 Decided: July 31, 2023
MEMORANDUM OPINION
Richard P. Rollo, Esquire, Travis S. Hunter, Esquire, Jordan L. Cramer, Esquire, Richards, Layton & Finger, P.A., Wilmington, Delaware, Attorneys for Plaintiff/Counterclaim Defendant New Wood Resources LLC.
Sean J. Bellew, Esquire, Bellew LLC, Wilmington, Delaware; Chris L. Gilbert, Esquire, Gilbert PC, Dallas, Texas, Attorneys for Defendant/Counterclaim Plaintiff Richard Baldwin.
Rennie, J. I. INTRODUCTION
Plaintiff and defendant have been embroiled in lawsuits against each other
over the past several years. Defendant’s exit from a plaintiff-owned company was
the catalyst for multiple lawsuits spanning state and federal courts. This iteration of
the conflict stems from plaintiff’s agreement to indemnify defendant for costs
incurred in defending certain lawsuits. This commitment was conditioned upon
defendant’s agreement to repay plaintiff, if it was later determined that defendant
was not entitled to indemnification under the standard set forth in their agreement.
Defendant requested indemnification, and plaintiff complied after being ordered by
a court. Plaintiff then determined that defendant did not meet the contractual
standard for indemnification and sought to claw back the funds advanced to
defendant. That is what this action is about—the claw back.
Plaintiff asserted a breach of contract claim as a result of defendant’s refusal
to return the advanced indemnification funds. In response, defendant asserted a
counterclaim that alleges, among other things, that the agreement contained an
implied term requiring any determination on indemnification to be made in good
faith. This Court previously granted judgment on the pleadings in plaintiff’s favor
on both the breach claim and the counterclaim. As to the breach claim, the Court
determined that defendant breached the agreement and, as to the counterclaim, the
Court determined that that the agreement contained no implied term. The ruling on the counterclaim was appealed to the Delaware Supreme Court. The Supreme Court
held that the agreement contained an implied term that any indemnification
determination must be made in good faith. Thus, the case was remanded to this
Court.
Following remand, the parties conducted discovery. Plaintiff now moves for
summary judgment on the counterclaim. The issue before the Court is whether
defendant can demonstrate that plaintiff breached the implied covenant of good faith
and fair dealing when plaintiff determined that defendant was not entitled to
indemnification. Stated differently, can defendant establish that plaintiff acted in
bad faith? The answer is no, because the record does not support a plausible finding
of bad faith. Accordingly, for the reasons set forth more fully below, plaintiff is
entitled to summary judgment on defendant’s counterclaim. Plaintiff is also entitled
to judgment in its favor on its breach claim because defendant has no valid basis to
excuse his breach.
II. FACTUAL AND PROCEDURAL BACKGROUND
A. The Parties
Plaintiff/Counterclaim Defendant, New Wood Resources LLC (“New
Wood”), is a Delaware limited liability company with its principal place of business
2 in Boise, Idaho.1 New Wood has multiple members.2 Defendant/Counterclaim
Plaintiff, Dr. Richard Baldwin, served as a member of New Wood’s Board of
Managers from September 13, 2013 to August 24, 2016.3 Dr. Baldwin is a citizen
of Texas.4
Several non-parties are relevant to this action. Oak Creek Investments, LLC
(“OCI”) is a member of New Wood. Dr. Baldwin served as OCI’s manager.5 New
Wood operates a plywood and veneer manufacturing facility in Mississippi known
as Winston Plywood & Veneer LLC (“WPV”).6 New Wood controls WPV through
its wholly owned subsidiary WPV Holdco LLC (“Holdco”).7 ACR Winston
Preferred Holdings LLC (“ACR”) was the majority holder of New Wood Units at
the relevant time, holding approximately 85.52% of New Wood’s then-outstanding
Units.8 Andrew Bursky was President of ACR.9 Kurt Liebich is the former CEO of
WPV.10
1 Amended Complaint (“Am. Compl.”) ¶ 2 (D.I. 6). 2 Id. 3 Id. ¶ 3; Answer & Counterclaim (“Counterclaim”) ¶ 3 (D.I. 7). 4 Am. Compl. ¶ 3. 5 See id. ¶ 12; Plaintiff/Counterclaim Defendant’s Opening Brief (“Opening Br.”) at 5 (D.I. 61). 6 Baldwin v. New Wood Res. LLC, 283 A.3d 1099, 1102 (Del. 2022). 7 Id. 8 Id. 9 Id. 10 Id. 3 B. Dr. Baldwin’s Employment by New Wood
New Wood leased the WPV manufacturing facility in Mississippi.11 The
facility was dormant and in need of repairs.12 New Wood started repairs with the
intent to operate a plywood mill there.13 New Wood selected Dr. Baldwin to oversee
the facility’s repairs because he was an industry expert.14 Before repairs were
completed, a tornado destroyed the facility.15 As a result of the damage to the
facility, WPV received funding from the Federal Emergency Management Agency,
and Dr. Baldwin led the facility’s restoration effort on behalf of New Wood.16 On
August 24, 2016, Dr. Baldwin’s employment as President and General Manager of
WPV ended.17
C. The LLC Agreement
The verbiage of New Wood’s Second Amended and Restated Limited
Liability Company Agreement (the “LLC Agreement”) is central to this dispute.
The LLC Agreement provides specific indemnification and advancement rights to
11 Baldwin, 283 A.3d at 1104. 12 Id. 13 Id. 14 Id. 15 Id. 16 Id. at 1104-05. 17 It is unclear from the record whether Dr. Baldwin resigned or whether he was terminated. Compare Baldwin, 283 A.3d at 1105 (stating that Dr. Baldwin was “terminated”), with Answering Br., Ex. A at 1 (stating in the New Wood Written Consent document that Dr. Baldwin resigned). 4 its Managers.18 Hence, as a Manager, Section 8.2 of the LLC Agreement establishes
Dr. Baldwin’s indemnification rights:
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IN THE SUPERIOR COURT OF THE STATE OF DELAWARE
NEW WOOD RESOURCES LLC, ) ) Plaintiff/ ) Counterclaim Defendant, ) ) v. ) C.A. No. N20C-10-231 SKR CCLD ) RICHARD BALDWIN ) ) Defendant/ ) Counterclaim Plaintiff. )
Submitted: June 14, 2023 Decided: July 31, 2023
MEMORANDUM OPINION
Richard P. Rollo, Esquire, Travis S. Hunter, Esquire, Jordan L. Cramer, Esquire, Richards, Layton & Finger, P.A., Wilmington, Delaware, Attorneys for Plaintiff/Counterclaim Defendant New Wood Resources LLC.
Sean J. Bellew, Esquire, Bellew LLC, Wilmington, Delaware; Chris L. Gilbert, Esquire, Gilbert PC, Dallas, Texas, Attorneys for Defendant/Counterclaim Plaintiff Richard Baldwin.
Rennie, J. I. INTRODUCTION
Plaintiff and defendant have been embroiled in lawsuits against each other
over the past several years. Defendant’s exit from a plaintiff-owned company was
the catalyst for multiple lawsuits spanning state and federal courts. This iteration of
the conflict stems from plaintiff’s agreement to indemnify defendant for costs
incurred in defending certain lawsuits. This commitment was conditioned upon
defendant’s agreement to repay plaintiff, if it was later determined that defendant
was not entitled to indemnification under the standard set forth in their agreement.
Defendant requested indemnification, and plaintiff complied after being ordered by
a court. Plaintiff then determined that defendant did not meet the contractual
standard for indemnification and sought to claw back the funds advanced to
defendant. That is what this action is about—the claw back.
Plaintiff asserted a breach of contract claim as a result of defendant’s refusal
to return the advanced indemnification funds. In response, defendant asserted a
counterclaim that alleges, among other things, that the agreement contained an
implied term requiring any determination on indemnification to be made in good
faith. This Court previously granted judgment on the pleadings in plaintiff’s favor
on both the breach claim and the counterclaim. As to the breach claim, the Court
determined that defendant breached the agreement and, as to the counterclaim, the
Court determined that that the agreement contained no implied term. The ruling on the counterclaim was appealed to the Delaware Supreme Court. The Supreme Court
held that the agreement contained an implied term that any indemnification
determination must be made in good faith. Thus, the case was remanded to this
Court.
Following remand, the parties conducted discovery. Plaintiff now moves for
summary judgment on the counterclaim. The issue before the Court is whether
defendant can demonstrate that plaintiff breached the implied covenant of good faith
and fair dealing when plaintiff determined that defendant was not entitled to
indemnification. Stated differently, can defendant establish that plaintiff acted in
bad faith? The answer is no, because the record does not support a plausible finding
of bad faith. Accordingly, for the reasons set forth more fully below, plaintiff is
entitled to summary judgment on defendant’s counterclaim. Plaintiff is also entitled
to judgment in its favor on its breach claim because defendant has no valid basis to
excuse his breach.
II. FACTUAL AND PROCEDURAL BACKGROUND
A. The Parties
Plaintiff/Counterclaim Defendant, New Wood Resources LLC (“New
Wood”), is a Delaware limited liability company with its principal place of business
2 in Boise, Idaho.1 New Wood has multiple members.2 Defendant/Counterclaim
Plaintiff, Dr. Richard Baldwin, served as a member of New Wood’s Board of
Managers from September 13, 2013 to August 24, 2016.3 Dr. Baldwin is a citizen
of Texas.4
Several non-parties are relevant to this action. Oak Creek Investments, LLC
(“OCI”) is a member of New Wood. Dr. Baldwin served as OCI’s manager.5 New
Wood operates a plywood and veneer manufacturing facility in Mississippi known
as Winston Plywood & Veneer LLC (“WPV”).6 New Wood controls WPV through
its wholly owned subsidiary WPV Holdco LLC (“Holdco”).7 ACR Winston
Preferred Holdings LLC (“ACR”) was the majority holder of New Wood Units at
the relevant time, holding approximately 85.52% of New Wood’s then-outstanding
Units.8 Andrew Bursky was President of ACR.9 Kurt Liebich is the former CEO of
WPV.10
1 Amended Complaint (“Am. Compl.”) ¶ 2 (D.I. 6). 2 Id. 3 Id. ¶ 3; Answer & Counterclaim (“Counterclaim”) ¶ 3 (D.I. 7). 4 Am. Compl. ¶ 3. 5 See id. ¶ 12; Plaintiff/Counterclaim Defendant’s Opening Brief (“Opening Br.”) at 5 (D.I. 61). 6 Baldwin v. New Wood Res. LLC, 283 A.3d 1099, 1102 (Del. 2022). 7 Id. 8 Id. 9 Id. 10 Id. 3 B. Dr. Baldwin’s Employment by New Wood
New Wood leased the WPV manufacturing facility in Mississippi.11 The
facility was dormant and in need of repairs.12 New Wood started repairs with the
intent to operate a plywood mill there.13 New Wood selected Dr. Baldwin to oversee
the facility’s repairs because he was an industry expert.14 Before repairs were
completed, a tornado destroyed the facility.15 As a result of the damage to the
facility, WPV received funding from the Federal Emergency Management Agency,
and Dr. Baldwin led the facility’s restoration effort on behalf of New Wood.16 On
August 24, 2016, Dr. Baldwin’s employment as President and General Manager of
WPV ended.17
C. The LLC Agreement
The verbiage of New Wood’s Second Amended and Restated Limited
Liability Company Agreement (the “LLC Agreement”) is central to this dispute.
The LLC Agreement provides specific indemnification and advancement rights to
11 Baldwin, 283 A.3d at 1104. 12 Id. 13 Id. 14 Id. 15 Id. 16 Id. at 1104-05. 17 It is unclear from the record whether Dr. Baldwin resigned or whether he was terminated. Compare Baldwin, 283 A.3d at 1105 (stating that Dr. Baldwin was “terminated”), with Answering Br., Ex. A at 1 (stating in the New Wood Written Consent document that Dr. Baldwin resigned). 4 its Managers.18 Hence, as a Manager, Section 8.2 of the LLC Agreement establishes
Dr. Baldwin’s indemnification rights:
Subject to the limitations and conditions as provided in this Article 8, each Person who was or is made a party or is threatened to be made a party to or is involved in any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative, arbitrative or investigative (hereinafter, a “Proceeding”), or any appeal in such a Proceeding or any inquiry or investigation that could lead to such a Proceeding, by reason of the fact that it, or a Person of whom it is the legal representative, is or was a Member, Manager, Member of a Committee of the Board or an Officer, or while a Member, Manager or an Officer is or was serving at the request of the Company as a member, manager, director, officer, partner, venturer, proprietor, trustee, employee, agent or similar functionary of another foreign or domestic limited liability company, corporation, partnership, joint venture, sole proprietorship, trust, employee benefit plan or other Person (each, an “Indemnitee”) shall be indemnified by the Company to the fullest extent permitted by the [Delaware Limited Liability Company] Act, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Company to provide broader indemnification rights than said Act permitted the Company to provide prior to such amendment) against judgments, penalties (including excise and similar taxes and punitive damages), fines, settlements and reasonable expenses (including attorneys’ fees) actually incurred by such Person in connection with such Proceeding, and indemnification under this Article 8 shall continue as to a Person who has ceased to serve in the capacity which initially entitled such Person to indemnity hereunder. Notwithstanding anything to the contrary in this Section 8.2, no Person shall be entitled to indemnification hereunder unless it is found (in the manner described below in this Section 8.2) that, with respect to the matter for which such Person seeks indemnification, such Person acted in good faith and in a manner that he or she reasonably believed to be in or not opposed to the best interests of the Company and, with respect to any
18 “Managers” is defined in the LLC Agreement. See Defendant/Counterclaim Plaintiff’s Answering Brief (“Answering Br.”), Ex. B § 7.2(a) (D.I. 70); see also id., Ex. B at Exhibit A to the LLC Agreement at 4 (defining “Manager”). 5 criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful. . . . The finding of the standard of conduct required above shall be made (a) by a majority vote of all the Managers who are not parties to such Proceeding even though less than a quorum or (b) if there are no such Managers, or if such Managers so direct, by independent legal counsel in a written opinion or (c) by holders of a Majority of the then-outstanding Units (determined without regard to any Members that are parties to such Proceeding). Notwithstanding anything to the contrary herein, “internal disputes” shall be excluded from the types of claims indemnified hereunder. For purposes of the preceding sentence, an “internal dispute” is defined exclusively as any proceeding commenced by any Atlas Member or one or more officers, directors, managers, partners, members or employees of any Atlas Member against any other Atlas Member or one or more other officers, directors, managers, partners, members or employees of any Atlas Member against any other Atlas Member or one or more other officers, directors, managers, partners, members or employees of such Atlas Member.19
Section 8.3 of the LLC Agreement covers “Advance Payment” and states:
The right to indemnification conferred in this Article 8 shall include the right to be paid or reimbursed by the Company the reasonable expenses incurred by a Person of the type entitled to be indemnified under Section 8.2 who was, is or is threated to be made a named defendant or respondent in a Proceeding in advance of the final disposition of the Proceeding and without any determination as to the Person’s ultimate entitlement to indemnification; provided, however, that the[] payment of such expenses incurred by any such Person in advance of the final disposition of a Proceeding shall be made only upon delivery to the Company of a written affirmation by such Person of its good faith belief that it has met the standard of conduct necessary for indemnification under this Article 8 and a written undertaking, by or on behalf of such Person, to repay all amounts so advanced if it shall ultimately be determined that such indemnified Person is not entitled to be indemnified under this Article 8 or otherwise.20
19 Id., Ex. B § 8.2 (underlining and bold in original) (italics added). 20 Id., Ex. B § 8.3 (underlining in original) (italics added). 6 D. Lawsuits and Advancement
1. Underlying Actions
Four lawsuits that are relevant to this action will be discussed—two in
Mississippi, and two in the Delaware Court of Chancery.
On February 9, 2018, Dr. Baldwin, as the manager of OCI, filed a complaint
in the United States District Court for the Northern District of Mississippi against
New Wood, WPV, Holdco, Mr. Bursky, Mr. Liebich, and Atlas FRM LLC d/b/a
Atlas Holdings, LLC (“Atlas”). Dr. Baldwin alleged breach of contract, fraud,
breach of the implied covenant of good faith and fair dealing, and breach of fiduciary
duties, among other counts (the “Mississippi Federal Action”).21 In the Mississippi
Federal Action, OCI also sought declaratory relief for an alleged improper dilution
of OCI’s equity interests and veil piercing arising from a Management Services
Agreement by and between Dr. Baldwin and WPV and investments by Dr. Baldwin
in New Wood and Holdco.22 Dr. Baldwin alleged, and the Delaware Supreme Court
noted, that Dr. Baldwin’s basis for the Mississippi Federal Action arose from the end
of his employment as President and General Manager of WPV.23
21 See Opening Br. at 5-6, Ex. 1. 22 See id. at 5-6; see also Baldwin, 283 A.3d at 1105. 23 See Baldwin, 283 A.3d at 1105-06. 7 On May 17, 2018, the defendants in the Mississippi Federal Action moved to
dismiss for lack of subject matter jurisdiction.24 On the very same day, those same
defendants filed a suit against OCI and Dr. Baldwin in the Delaware Court of
Chancery, asserting claims for breach of contract, breach of fiduciary duty, and
negligence (the “Delaware Plenary Action”).25 Those defendants also asserted a
declaratory judgment claim in the Delaware Plenary Action and requested a
declaration that OCI’s allegations in the Mississippi Federal Action were false.26
On May 25, 2018, OCI filed a notice of dismissal without prejudice in the
Mississippi Federal Action and refiled the same claims against the same defendants
in the Circuit Court of Winston County, Mississippi (the “Mississippi State
Action”).27 The Mississippi State Action was dismissed in February 2019 under the
doctrine of forum non conveniens.28
2. Advancement Action
Before dismissal of the Mississippi State Action, Dr. Baldwin and OCI sought
advancement of their litigation expenses under Section 8.3 of the LLC Agreement.29
Section 8.3 required Dr. Baldwin and OCI to provide an “affirmation” and an
24 Answering Br. at 12. 25 Id.; Opening Br. at 6. 26 Baldwin, 283 A.3d at 1106. 27 Answering Br. at 12. 28 Id. 29 See Baldwin, 283 A.3d at 1106. 8 “undertaking.”30 On August 10, 2018, Dr. Baldwin sent one letter on behalf of
himself and one on behalf of OCI stating that they agreed “to repay all amounts so
advanced if it shall ultimately be determined that [Dr. Baldwin and OCI are] not
entitled to be indemnified in [the Delaware Plenary Action].”31 New Wood denied
Dr. Baldwin’s and OCI’s requests.32
On January 10, 2019, Dr. Baldwin and OCI filed an advancement action in
the Delaware Court of Chancery against New Wood, Holdco, and WPV (the
“Advancement Action”).33 Dr. Baldwin and OCI sought advancement for the fees
incurred in the Delaware Plenary Action, and fees and interest incurred in litigating
the Advancement Action (the “fees on fees”).34
On March 25, 2019, after the Mississippi State Action was dismissed, Dr.
Baldwin and OCI filed their answer and asserted counterclaims against New Wood,
WPV, Holdco, Atlas, Mr. Bursky, and Mr. Liebich in the Delaware Plenary Action.35
Thereafter, in May 2019, Dr. Baldwin moved for partial summary judgment
in the Advancement Action.36 The Vice Chancellor ruled that Dr. Baldwin was
entitled to advancement of the litigation expenses that Dr. Baldwin incurred in
30 See Answering Br., Ex. B § 8.3. 31 Opening Br., Ex. 2. 32 See Answering Br. at 12. 33 Id.; Baldwin, 283 A.3d at 1106. 34 Answering Br. at 12; Baldwin, 283 A.3d at 1106. 35 Answering Br. at 13. 36 Baldwin, 283 A.3d at 1107. 9 defending the claims in the Delaware Plenary Action, plus fees and expenses
incurred in the Advancement Action, following the execution of his “undertaking”
letter.37
The precise ruling by Court of Chancery was issued in October 2019. It
ordered New Wood to pay: 75% ($269,881.61) of the advancement costs sought for
Dr. Baldwin’s and OCI’s costs and expenses incurred in defending the Delaware
Plenary Action through September 17, 2019; $17,726.97 in pre-judgment interest;
and 75% ($214,459.49) of the fees on fees Dr. Baldwin and OCI incurred in bringing
the Advancement Action.38 New Wood made only a first partial payment but then
objected to subsequent payments.39 Dr. Baldwin thereafter filed a motion for fees
and expenses under Court of Chancery Rule 88 (the “Rule 88 Motion”).40 In the
Rule 88 Motion, Dr. Baldwin asserted that New Wood improperly claimed that it
had insufficient funds to advance the amounts owed.41 Dr. Baldwin acknowledged
in the Rule 88 Motion that New Wood paid $502,068.07 of the $638,702.13, plus
interest, that was requested.42 Dr. Baldwin requested that New Wood be ordered to
pay $233,373.70, plus pre- and post-judgment interest, as well as fees on fees.43
37 Id. 38 Id. at 1107-08. 39 See Answering Br. at 14. 40 Baldwin, 283 A.3d at 1108. 41 Id. 42 Id. 43 Id. 10 Meanwhile, in January 2020, New Wood, Holdco, and WPV voluntarily
dismissed their claims in the Delaware Plenary Action, leaving only Dr. Baldwin’s
and OCI’s counterclaims remaining.44 Later, in March 2020, New Wood moved for
partial judgment on the pleadings in the Delaware Plenary Action. After considering
the motion, the Court of Chancery dismissed certain of Dr. Baldwin’s and OCI’s
counterclaims, while others remained.45
E. April 2020 Written Consent
To be entitled to indemnification, Section 8.2 of the LLC Agreement requires
Dr. Baldwin to act in good faith and in a manner that he reasonably believed to be
in or not opposed to the best interests of New Wood.46 New Wood sought a
determination as to whether Dr. Baldwin and OCI were entitled to indemnification
under Section 8.2. This Section permits such a determination to be made in one of
three ways—one of which is “by holders of a Majority of then-outstanding Units
(determined without regard to any Members that are parties to such Proceeding).”47
New Wood chose this option. Specifically, at that time, ACR held approximately
85.52% of New Wood’s then-outstanding Units, and Mr. Bursky was the President
of ACR.48 On April 23, 2020, Mr. Bursky executed a Written Consent of Certain
44 Id. 45 Id. 46 See Answering Br., Ex. B § 8.2. 47 Id. 48 See Baldwin, 283 A.3d at 1109. 11 Members of New Wood Resources LLC (the “Written Consent”).49 The Written
Consent stated:
[T]he undersigned Members, constituting a Majority of the currently outstanding Units (determined without regard to Members that are party to the Lawsuits), (i) are familiar with and have had sufficient time to consider the performance, conduct and behavior of Baldwin prior to his resignation, (ii) are familiar with and have had sufficient time to consider the allegations and claims made by the parties to the Lawsuits, and (iii) have determined that Baldwin failed to act in good faith and in a manner that he reasonably believed to be in or not opposed to the best interest of the Company with respect to the matters at issue in the Lawsuits.50 The Written Consent itself sheds no additional light on ACR’s determination
that Dr. Baldwin failed to act in good faith. After execution by Mr. Bursky, New
Wood adopted the Written Consent and requested that Dr. Baldwin repay the
advanced amounts. Dr. Baldwin refused.51
Eventually, in August 2020, the Court of Chancery ruled on Dr. Baldwin’s
Rule 88 Motion in the Advancement Action.52 In total, the Court of Chancery
ordered New Wood to pay Dr. Baldwin $867,211.03, which consisted of
$541,664.99 in advancement and $325,546.04 in indemnification.53 New Wood did
49 See Answering Br., Ex. A. 50 Id., Ex. A at 2 (emphasis added). 51 Baldwin, 283 A.3d at 1109. 52 Id. 53 Id. at 1110. 12 not pay until Dr. Baldwin domesticated the judgment in Mississippi.54 New Wood
thereafter sought to claw back the money paid and initiated the current action.
F. The Current Action
1. Superior Court Proceedings
New Wood filed the current action on October 26, 2020.55 New Wood’s
Amended Complaint alleges that Dr. Baldwin breached the LLC Agreement and the
“undertaking.”56 On January 20, 2021, Dr. Baldwin filed his Answer and a
Counterclaim. In the Answer, Dr. Baldwin asserted three affirmative defenses: (1)
Section 8.2 of the LLC Agreement requires that the findings in the Written Consent
be made in good faith, (2) Dr. Baldwin acted in good faith, and (3) New Wood’s lag
in satisfying the judgment for Dr. Baldwin in the Advancement Action caused him
to incur expenses offsetting any money he owed to New Wood.57
Dr. Baldwin’s Counterclaim seeks a declaration that: (i) New Wood must pay
Dr. Baldwin the attorneys’ fees and costs he incurred in domesticating the
Advancement Action judgment in Mississippi, including the cost of discovery there;
(ii) Section 8.2 of the LLC Agreement contains an implicit term that any
determination of a right to indemnification must be made in good faith; and (iii) the
54 Id. 55 Complaint (D.I. 1). 56 See Am. Compl. ¶¶ 21-25. 57 Counterclaim at 13. 13 Written Consent was entered into in a bad faith attempt to avoid New Wood’s
indemnification obligations under Section 8.2.58
On March 16, 2021, New Wood moved for judgment on the pleadings on its
breach of contract claim and Dr. Baldwin’s Counterclaim.59 This Court heard oral
argument on New Wood’s motion on May 12, 2021.60 During oral argument, Dr.
Baldwin asserted that his Counterclaim was both an implied covenant claim and a
claim seeking to imply a term in the LLC Agreement.61
On August 23, 2021, this Court entered judgment in New Wood’s favor.62
This Court interpreted the LLC Agreement and undertaking to require Dr. Baldwin
to repay $541,644.99, the amount advanced by New Wood.63 Because the Written
Consent stated that Dr. Baldwin acted in bad faith and was not entitled to
indemnification, this Court held that Dr. Baldwin’s undertaking required him to
repay the money advanced to him by New Wood.64 Only the advancement
payments, not the indemnification payments, were subject to the undertaking, and
thus, Dr. Baldwin was required to repay only the advancement money.65 This Court
58 Id. ¶ 58. 59 See Plaintiff/Counterclaim Defendant’s Motion for Judgment on the Pleadings (D.I. 12). 60 See Judicial Action Form (D.I. 20). 61 Baldwin, 283 A.3d at 1112. 62 See Order (D.I. 23); see also New Wood Res. LLC v. Baldwin, 2021 WL 3784258 (Del. Super. Aug. 23, 2021), rev’d and remanded, 283 A.3d 1099 (Del. 2022). 63 Baldwin, 283 A.3d at 1112-13. 64 Id. at 1113. 65 Id. 14 also determined that LLC Agreement Section 8.2 did not contain an implied
covenant of good faith and fair dealing that would require New Wood to make the
Written Consent’s indemnification determination in good faith.66 This Court
additionally found that Dr. Baldwin did not plead a cognizable Counterclaim
because the Counterclaim was asserted against New Wood rather than ACR—the
entity that determined Dr. Baldwin failed to act in good faith.67
2. Appeal to the Supreme Court
On October 22, 2021, Dr. Baldwin appealed this Court’s ruling to the Supreme
Court.68 The Supreme Court held two arguments on this matter.69 The Supreme
Court determined that Dr. Baldwin asserted his Counterclaim against the correct
party, New Wood. The Supreme Court reasoned that New Wood is the real party-
in-interest because New Wood is the entity obligated to indemnify persons who meet
the requirements under the LLC Agreement.70 Additionally, the Supreme Court held
that Section 8.2 contains an implied covenant of good faith and fair dealing,
obligating New Wood to make the indemnification determination in good faith.71
The Supreme Court stated:
[A]lthough Baldwin’s pleadings lack specific facts as to New Wood’s conduct vis-à-vis the actual Written Consent entered into on April 23, 66 See New Wood Res. LLC, 2021 WL 3784258, at *6. 67 Id. at *5. 68 See Notice of Appeal to Supreme Court (D.I. 33). 69 Baldwin, 283 A.3d at 1120. 70 Id. at 1115-16 71 Id. at 1118. 15 2020, he does allege bad faith on the part of New Wood throughout the overall advancement proceedings. Albeit in a disorganized fashion, Baldwin has sufficiently pleaded enough to create an issue of fact as to New Wood’s good faith in discharging its obligations under Section 8.2 and to overcome New Wood’s contention that it was merely presented with, and acted on, a facially valid consent obtained by ACR.72
The Supreme Court reversed this Court’s decision and remanded it for further
proceedings, noting that “[w]hether Baldwin is able to prove that New Wood
breached the implied covenant of good faith and fair dealing is for another day.”73
3. Remand to Superior Court
After remand, the parties conducted written discovery and depositions of Mr.
Bursky, Mr. Liebich, Dr. Baldwin, and Dr. Baldwin’s son, Richard Baldwin.74 After
the parties conducted discovery, New Wood moved for summary judgment on Dr.
Baldwin’s Counterclaim and New Wood’s breach of contract claim.75 The Court
heard oral argument on New Wood’s Motion for Summary Judgment on June 14,
2023. This memorandum opinion addresses that Motion.
III. STANDARD OF REVIEW
The Court “will grant summary judgment if, after viewing the record in a light
most favorable to the non-moving party, no genuine issues of material fact exist and
72 Id. at 1123 (citations omitted). 73 Id. at 1124. 74 Answering Br. at 17. 75 As discussed further below, New Wood contends this Court already found for New Wood on its breach of contract claim. The Court notes New Wood’s position but will address the breach claim below. 16 the movant is entitled to judgment as a matter of law.”76 On a motion for summary
judgment, the Court: “(i) construes the record in the light most favorable to the non-
moving party; (ii) detects, but does not decide, genuine issues of material fact; and
(iii) denies the motion if a material fact is in dispute.”77 The moving party bears the
initial burden of showing that its motion is supported by the undisputed factual
record.78 If the moving party meets that burden, the burden shifts to the non-moving
party to show a genuine issue of material fact remains for trial.79
Even though the Court construes the factual record in the light most favorable
to the non-moving party,80 the Court “will not indulge in speculation and conjecture;
a motion for summary judgment is decided on the record presented and not on
evidence potentially possible.”81
IV. PARTIES’ CONTENTIONS
New Wood filed its Motion for Summary Judgment on Dr. Baldwin’s
Counterclaim and New Wood’s breach of contract claim. First, New Wood contends
76 CVR Refin., LP v. XL Specialty Ins. Co., 2021 WL 5492671, at *8 (Del. Super. Nov. 23, 2021) (citing Merrill v. Crothall-Am., Inc., 606 A.2d 96, 99-100 (Del. 1992)); see also Del. Super. Ct. Civ. R. 56. 77 CVR Refin., LP, 2021 WL 5492671, at *8 (citing Judah v. Del. Tr. Co., 378 A.2d 624, 632 (Del. 1997); Merrill, 606 A.2d at 99; Ebersole v. Lowengrub, 180 A.2d 467, 468-69 (Del. 1962)). 78 Id. (citing Moore v. Sizemore, 405 A.2d 679, 680 (Del. 1979)). 79 Id. (citing Brzoska v. Olson, 668 A.2d 1355, 1364 (Del. 1995)). 80 Id. (citing Judah, 378 A.2d at 632). 81 In re Asbestos Litig., 509 A.2d 1116, 1118 (Del. Super. 1986) (citing Rochester v. Katalan, 320 A.2d 704, 708 n.7 (Del. 1974); Chrysler Corp. v. New Castle Cnty., 464 A.2d 75, 85 (Del Super. 1983)). 17 that Dr. Baldwin has no basis to obtain a declaration about the Mississippi
proceeding because he is already seeking this declaration in the Court of Chancery.82
Second, New Wood maintains that Dr. Baldwin has not presented any facts to
dispute that the Written Consent was executed and acted on in good faith, which
defeats Dr. Baldwin’s Counterclaim and, in effect, also mandates a finding for New
Wood on the breach of contract claim.83
Dr. Baldwin takes the opposite position. Dr. Baldwin’s primarily contends
that New Wood is not entitled to summary judgment because the evidence does not
establish New Wood’s good faith, but in fact suggests New Wood acted in bad
faith.84 Dr. Baldwin argues, inter alia, that Mr. Bursky and Mr. Liebich failed to
cite any facts upon which the Written Consent is based and instead offered only
conclusory statements and irrelevant complaints about job performance and
unrelated litigation.85 Dr. Baldwin withdrew the part of his Counterclaim relating to
collecting fees from domesticating the Advancement Action judgment in
Mississippi, because that claim is being litigated in the Court of Chancery.86 In short,
Dr. Baldwin maintains that the evidence does not support finding that New Wood
acted in good faith.
82 See Opening Br. at 13-14. 83 See id. at 15-22. 84 See Answering Br. at 20. 85 See id. at 29-34. 86 See id. at 2 n.1. 18 V. DISCUSSION
A. The Counterclaim
Dr. Baldwin’s Counterclaim states:
Dr. Baldwin is entitled to a declaratory judgment that: (i) New Wood is required to pay Dr. Baldwin the attorneys’ fees and costs he incurred in domesticating the [Advancement Action judgment in] Mississippi (including the discovery efforts Dr. Baldwin was required to engage in prior to New Wood paying the [j]udgment) in an amount to be proved at trial; (ii) Section 8.2 of the LLC Agreement contains an implicit term that any determination of a right to indemnification must be made in good faith; and (iii) the Written Consent by ACR was entered into in a bad faith attempt to avoid New Wood’s indemnification obligations under Section 8.2 of the LLC Agreement.87 Dr. Baldwin withdrew part (i) of his Counterclaim.88 With respect to part (ii)
of the Counterclaim, the Supreme Court held that Section 8.2 contains an implicit
term that any indemnification determination must be made in good faith.89
Therefore, the only remaining issue to decide with respect to the Counterclaim is
whether New Wood acted on the Written Consent in bad faith.90
New Wood contends that there is a rebuttable presumption that all persons act
in good faith, and that Dr. Baldwin has no facts to dispute that the Written Consent
87 Counterclaim ¶ 58. 88 See Answering Br. at 2 n.1. 89 See Baldwin, 283 A.3d at 1118 (“We hold that although a good faith requirement is not expressly stated in Section 8.2, it is implicit in Section 8.2’s language.”). 90 See id. at 1124 (“Whether Baldwin is able to prove that New Wood breached the implied covenant of good faith and fair dealing is for another day.”); see also Amirsaleh v. Bd. of Trade of City of New York, Inc., 2009 WL 3756700, at *5 (Del. Ch. Nov. 9, 2009) (“[T]o prove a breach of the implied covenant [Dr. Baldwin] must demonstrate that [New Wood] acted in ‘bad faith.’”). 19 was executed and acted on in good faith.91 Dr. Baldwin counters that Mr. Bursky
and Mr. Liebich failed to cite any facts upon which the Written Consent is based and
instead offered only conclusory and irrelevant statements concerning job
performance and unrelated litigation.92 Dr. Baldwin misapprehends who holds the
burden to demonstrate bad faith.
It is well established that Delaware law presumes a person acts in good faith.93
So to prove a breach of the implied covenant of good faith and fair dealing, Dr.
Baldwin must demonstrate that New Wood acted in bad faith.94 And to prove bad
faith, Dr. Baldwin must demonstrate that New Wood’s “conduct was motivated by
91 Opening Br. at 15. 92 Answering Br. at 24. 93 Thomas v. King, 99 A.2d 778, 781 (Del. 1953); see also KE Prop. Mgmt. Inc. v. 275 Madison Mgmt. Corp., 1993 WL 285900, at *7 (Del. Ch. July 27, 1993) (“There is a rebuttable presumption that all persons act honestly, properly, in good faith and without fraud.” (citing Thomas, 99 A.2d at 781)); Amirsaleh, 2009 WL 3756700, at *4 (“[The] Court [of Chancery] has previously held that a breach of the implied covenant of good faith and fair dealing ‘implicitly indicates bad faith conduct.’” (quoting Cont’l Ins. Co. v. Rutledge & Co., Inc., 750 A.2d 1219, 1234 (Del. Ch. 2000))). 94 Amirsaleh, 2009 WL 3756700, at *5. Dr. Baldwin’s counsel suggests that “bad faith” is defined as an “intentional dereliction of duty.” Answering Br. at 29 (citing Goldstein v. Denner, 2022 WL 1671006, at *40 (Del. Ch. May 26, 2022)). The “intentional dereliction of duty” language arises in the fiduciary duty context. See, e.g., Goldstein, 2022 WL 1671006, at *40-41 (discussing bad faith and “intentional dereliction of duty” in the breach of fiduciary duty context); Lydonell Chem. Co. v. Ryan, 970 A.2d 235, 240 (Del. 2009) (discussing “intentional dereliction of duty” and good faith in the breach of fiduciary duty context); In re Walt Disney Co. Derivative Litig., 906 A.2d 27, 64 (Del. 2006) (“The precise question is whether the Chancellor’s articulated standard for bad faith corporate fiduciary conduct—intentional dereliction of duty, a conscious disregard for one’s responsibilities—is legally correct.” (emphasis added)). The current action concerns the implied covenant of good faith and fair dealing, not fiduciary duties. The Court employs caselaw from implied covenant cases for its bad faith standard. It will not consider the “intentional dereliction of duty” standard. 20 a culpable mental state.”95 The term “‘bad faith’ is not simply bad [judgment] or
negligence, but rather it implies the conscious doing of a wrong because of dishonest
purpose or moral obliquity; it is different from the negative idea of negligence in
that it contemplates a state of mind affirmatively operating with furtive design or ill
will.”96 Bad faith has been defined in many ways,97 but in essence it means that New
Wood’s conduct “must be driven by an improper purpose.”98 Dr. Baldwin must
present evidence to “rebut the presumption” of good faith; otherwise, summary
judgment for New Wood is proper.99
1. Neither ACR’s Nor New Wood’s Actions Constitute Bad Faith.
Mr. Bursky, President of ACR, was deposed for this case.100 Dr. Baldwin’s
counsel asked Mr. Bursky how ACR came to the determination that Dr. Baldwin did
not act in good faith.101 Mr. Bursky responded that ACR “carefully assessed the
95 Amirsaleh, 2009 WL 3756700, at *5; see also id. at *5 n.24 (collecting cases discussing “bad faith” in the implied covenant context). 96 Desert Equities, Inc. v. Morgan Stanley Leveraged Equity Fund, II, L.P., 624 A.2d 1199, 1208 n.16 (Del. 1993) (citing Bad Faith, BLACK’S LAW DICTIONARY (5th ed. 1983)); see also Baldwin, 283 A.3d at 1118 n.110 (citing Desert Equities for the same proposition). 97 See, e.g., Amirsaleh, 2009 WL 3756700, at *5 n.24 (collecting cases). 98 Id. at *5. 99 KE Prop. Mgmt. Inc., 1993 WL 285900, at *9 (citing Burkhart v. Davies, 602 A.2d 56, 59 (Del. 1991)). KE Property Management Inc. aptly states that an “allegation of bad faith ‘raises essentially a question of fact’, which means that such an allegation generally is sufficient to defeat a motion . . . for judgment on the pleadings”; but, where “the non-moving party bears the burden of persuasion at trial, as [Dr. Baldwin] does here as to overcoming the presumption of good faith, the non-moving party, after adequate opportunity for discovery, must introduce competent evidence, which, if true, would rebut the presumption or summary judgment will be granted against it.” KE Prop. Mgmt. Inc., 1993 WL 285900, at *9 (citing Desert Equities, Inc., 624 A.2d at 1208- 09; Burkhart, 602 A.2d at 59). 100 See Exhibit (“Bursky Tr.”) (D.I. 71). 101 Id. at 160:5-12, 162:9-11. 21 track record” of Dr. Baldwin’s behavior pre- and post-exit from WPV, and ACR
assessed Dr. Baldwin’s claims in the multiple lawsuits between the relevant
parties.102 From that assessment, ACR determined in the Written Consent that Dr.
Baldwin did not act in good faith and was not entitled to indemnification. Dr.
Baldwin takes Mr. Bursky’s deposition responses and claims that the Written
Consent was executed in bad faith, because it was based on irrelevant facts.103
Specifically, Dr. Baldwin emphasizes that Section 8.2 of the LLC Agreement
requires that the determination of good faith (or lack thereof) must be based on facts
relating to the action for which Dr. Baldwin sought indemnification.104 Dr. Baldwin
maintains that the “action” at issue for purposes of indemnification is the Delaware
Plenary Action.105
Even assuming that Dr. Baldwin’s interpretation of Section 8.2 is correct,
ACR’s considerations underlying the Written Consent do not amount to bad faith.
Bad faith “is different from the negative idea of negligence in that it contemplates a
state of mind affirmatively operating with furtive design or ill will.” 106 While one
could argue negligence from these facts, or that ACR was just plain wrong in its
102 See id. at 162:12-163:20. This is consistent with New Wood’s supplemental interrogatory responses. See Opening Br., Ex. 13 at 4-7. 103 See Answering Br. at 34. 104 See id. at 31. 105 See id. at 36. 106 Desert Equities, Inc., 624 A.2d at 1208 n.16 (citing Bad Faith, BLACK’S LAW DICTIONARY); see also Baldwin, 283 A.3d at 1118 n.110 (citing Desert Equities for the same proposition). 22 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. It should be emphasized that at this stage of the
proceedings discovery is complete and the record is set. The current record is the
well from which the parties must dip to present evidence supporting or buttressing
their respective positions. There is no evidence presented from the record to suggest
that ACR executed the Written Consent with “furtive design or ill will.”
There is also no evidence to support the contention that New Wood acted in
bad faith when it relied on ACR’s Written Consent. Mr. Liebich, former CEO of
WPV and New Wood’s 30(b)(6) witness, testified that ACR made the determination
that Dr. Baldwin failed to act in good faith, and New Wood acted based on that
determination.107 Dr. Baldwin does not explain how New Wood’s act of reliance on
ACR’s Written Consent constitutes bad faith under Delaware law.
Further, Dr. Baldwin’s interrogatory responses do nothing to support his bad
faith contention. In February 2023, Dr. Baldwin’s counsel responded to New
Wood’s “First Set of Interrogatories and First Requests for Production of
Documents.”108 Interrogatory number one asked Dr. Baldwin to identify “each and
107 See Opening Br., Ex. 16 at 100:24-101:7. 108 See id., Ex. 7. 23 every factual basis” for the contention that the Written Consent was not executed in
good faith.109 Dr. Baldwin responded in pertinent part:
By way of further answer, on August 10, 2020 the Court of Chancery held a final hearing on the issue of Dr. Baldwin’s right to indemnification . . . , and on August 26, 2020 the Court issued its final Order . . . , which in combination with its prior Order awarded Dr. Baldwin the combined sum of $867,211.03. During the entirety of these proceedings, and including during the oral argument on August 10, [New Wood] never disclosed to the Court of Chancery its purported “resolution” of April 23, 2020 [i.e., the Written Consent] that Dr. Baldwin had been acting in “bad faith” and was never entitled to indemnification or advancement at all. Moreover, [New Wood] raised the argument in this Court that its resolution was never subject to any “good faith” standard, an argument that the Delaware Supreme Court squarely rejected in its written opinion of August 16, 2022.110
The contents of the above answer do not rise to a showing of bad faith by
ACR or New Wood. New Wood’s tactical decision to not raise the Written Consent
as an argument in the Court of Chancery does not constitute bad faith. The same is
true for New Wood’s position during argument in this Court or the Supreme Court.
Bad faith requires “conduct [] motivated by a culpable mental state” that is “driven
by an improper purpose.”111 These tactical decisions do not establish the “conscious
doing of a wrong because of dishonest purpose or moral obliquity.”112 Instead, these
109 Id., Ex. 7 at 3. 110 Id., Ex. 7 at 4. 111 Amirsaleh, 2009 WL 3756700, at *5 (citation omitted). 112 Desert Equities, Inc., 624 A.2d at 1208 n.16 (citing Bad Faith, Black’s Law Dictionary). 24 are merely tactical and strategic decisions. A reasonable jury could not find that
these tactical decisions constitute “bad faith.”113
The discovery record further cuts against Dr. Baldwin’s position. New
Wood’s counsel asked Dr. Baldwin, during a deposition, if Dr. Baldwin had any
basis “to assert that Mr. Bursky didn’t execute” the Written Consent “in good
faith.”114 Dr. Baldwin responded that he “ha[d] no idea what Mr. Bursky did” and
that Dr. Baldwin had “no basis to answer that question.”115
While Dr. Baldwin has presented multiple conclusory arguments that ACR
and New Wood acted in bad faith, Dr. Baldwin has presented no evidence of bad
faith by ACR or New Wood with respect to executing and acting on the Written
Consent. Absent that anchoring evidence of bad faith related to the Written Consent,
Dr. Baldwin’s claim cannot withstand summary judgment.
2. Even If ACR’s Actions Could Be Viewed as Bad Faith, There Is No Evidence of Bad Faith by New Wood.
Even assuming arguendo that ACR’s actions rose to the level of bad faith,
there is no evidence that New Wood colluded with, or had any knowledge of, ACR’s
actions. In other words, there is no evidence that New Wood had any knowledge
113 See Gap 41 Ventures, L.L.C. v. Snehyasmeena Corp., 2020 WL 95857, at *1 (Del. Super. Jan. 8, 2020) (“Summary judgment is only appropriate if [the claim] lack[s] evidentiary support such that no reasonable jury could find in its favor.” (citing Hecksher v. Fairwinds Baptist Church, Inc., 115 A.3d 1187, 1200-05 (Del. 2015); Edmisten v. Greyhound Lines, Inc., 2012 WL 3264925, at *2 (Del. Aug. 13, 2012))). 114 Opening Br., Ex. 8 at 73:20-23. 115 Id., Ex. 8 at 74:3-4, 74:11-12. 25 leading New Wood to doubt ACR’s determination that Dr. Baldwin failed to act in
good faith. For instance, Mr. Liebich, New Wood’s 30(b)(6) witness, stated at his
deposition: “The determination that [Dr. Baldwin] acted in bad faith was made by
our majority member, ACR.”116 Mr. Liebich further stated that “[t]he finding of bad
faith was made by, as I said earlier, ACR. . . . [T]he [de]termination [sic] of bad faith
pursuant to Section 8.2 in the LLC [A]greement was made by ACR. That’s where
that determination was made.”117 Even further, in answering questions about ACR’s
assessment, Mr. Liebich stated that “I’m not a party to ACR, nor was I involved in
the conversations with ACR.”118 Mr. Liebich’s testimony remains unrebutted, and
no evidence exists to show that New Wood was aware of ACR’s decision-making
process. Moreover, no evidence exists to show that New Wood had any reason to
doubt ACR’s determination in the Written Consent.
Dr. Baldwin must present evidence of New Wood’s bad faith for his implied
covenant claim to survive summary judgment.119 Dr. Baldwin asserted his
116 Id., Ex. 16 at 100:24-25. 117 Id., Ex. 16 at 105:12-18. 118 Id., Ex. 16 at 105:21-22. While Mr. Liebich stated that he “believe[d] [Dr. Baldwin] has acted in bad faith,” that does not mean that New Wood knew what ACR did. See id., Ex. 16 at 101:15. 119 See Amirsaleh, 2009 WL 3756700, at *5 (“[T]o prove a breach of the implied covenant [counterclaim] plaintiff must demonstrate that [counterclaim] defendant[] acted in ‘bad faith’”.); see also KE Prop. Mgmt. Inc., 1993 WL 285900, at *9 (noting on summary judgment that party asserting bad faith must overcome the presumption of good faith and “must introduce competent evidence which, if true, would rebut the presumption or summary judgment will be granted against it” (citation omitted)). 26 Counterclaim against New Wood, not ACR.120 Further, Dr. Baldwin’s implied
covenant claim is premised on the LLC Agreement, to which New Wood is a party,
not ACR.121 Dr. Baldwin executed the undertaking pursuant to the LLC
Agreement.122 And, in the words of the Supreme Court, “[a]lthough [Dr.] Baldwin
has alleged bad faith on the part of ACR, ACR is not a party.”123
Even assuming there is evidence of ACR’s bad faith, which ultimately the
Court does not find, that is not enough. Dr. Baldwin must present evidence of New
Wood’s bad faith. Dr. Baldwin has not done so.124
3. The Court Is Not Permitted to Independently Determine Whether Dr. Baldwin Acted in Good Faith.
It is important to note that the Court cannot make an independent
determination regarding whether Dr. Baldwin acted in good faith. The LLC
Agreement does not permit it. Delaware law does not permit it.
Section 8.2 of the LLC Agreement governs the good faith determination
procedure which states in pertinent part:
[N]o Person shall be entitled to indemnification hereunder unless it is found (in the manner described below in this Section 8.2) that, with respect to the matter for which such Person seeks indemnification, such Person acted in good faith and in a manner that he or she reasonably believed to be in or not opposed to the best interest of the Company[.]
120 See Counterclaim. 121 See Answering Br., Ex. B at preamble. 122 See Opening Br., Ex. 2. 123 Baldwin, 283 A.3d at 1121. 124 Additionally, the LLC Agreement does not contain a provision permitting New Wood to reassess ACR’s determination in the Written Consent. 27 . . . The finding of the standard of conduct required above shall be made (a) by a majority vote of all of the Managers who are not parties to such Proceeding even though less than a quorum or (b) if there are no such Managers, or if such Managers so direct, by independent legal counsel in a written opinion or (c) by holders of a Majority of the then- outstanding Units (determined without regard to any Members that are parties to such Proceeding).125 Recently, in a related action, the Court of Chancery examined Section 8.2 and
noted that its “language is similar to [Delaware General Corporation Law] Section
145(d), with one crucial difference: it specifically omits Section 145(d)’s reference
to ‘unless ordered by a court.’”126 DGCL Section 145(d) relates to indemnification
and states that determinations on indemnification shall be made in one of four
enumerated ways, “unless ordered by a court.”127 The Vice Chancellor expounded
on the above, stating:
Section 8.2’s applicable standard-of-conduct condition decision- making process roughly mirrors [DGCL] Section 145(d), with one quite notable exception. The drafters of Section 8.2 omitted the key phrase . . . “unless otherwise ordered by a court . . . .” Applying the plain terms of Section 8.2, then, it is clear to me that [Dr. Baldwin’s and OCI’s] request for indemnification via a fees-on-fees award [in the Court of Chancery] would be improper at this time since Section 8.2 identifies the decision-makers for entitlement to indemnification and, in this posture, I [i.e., a court] am not among them. Unlike [DGCL] Section 145(d), the contracted-for language of Section 8.2 quite specifically
125 Answering Br., Ex. B. § 8.2. 126 See Supplemental Authority, Ex. A at 7:16-19 (D.I. 73) [hereinafter Chancery Ruling]. For context, this quote is from a transcript of a telephonic bench ruling by Vice Chancellor Cook in a related action, captioned as: Richard F. Baldwin and Oak Creek Investments, LLC, v. New Wood Resources LLC, Winston Plywood & Veneer LLC, and WPV Holdco LLC, C.A. No: 2022-1059- NAC. The bench ruling occurred on June 12, 2023, and the Vice Chancellor ruled that Dr. Baldwin was not entitled to advancement in this action in Superior Court. See id. at 3:20-4:6. 127 See 8 Del. C. § 145(d) (2023). 28 does not include the “unless otherwise ordered by the court” language. In considering this, then, I cannot ignore the Written Consent and the conditions that generated the [W]ritten [C]onsent.128
“Delaware ‘is a freedom of contract state, with a policy of enforcing the
voluntary agreements of sophisticated parties in commerce.’”129 Other sections of
the LLC Agreement contemplate judicial determinations.130 If the Court injected
itself into Section 8.2’s good faith determination, the Court would nullify the explicit
language of other LLC Agreement sections. Doing so would disregard long
established Delaware precedent requiring the Court to “construe the agreement as a
whole, giving effect to all provisions therein.”131 If the parties intended that the good
faith determination be made by a court, they could have written it into the LLC
Agreement.132 The fact that Section 8.2 roughly mirrors DGCL Section 145(d),
128 Chancery Ruling at 23:10-24:2. 129 Terrell v. Kiromic Biopharma, Inc., -- A.3d --, 2023 WL 3237142, at *7 (Del. May 4, 2023) (quoting Pers. Decisions, Inc. v. Bus. Planning Sys., Inc., 2008 WL 1932404, at *6 (Del. Ch. May 5, 2008), aff’d, 970 A.2d 256 (Del. 2009)). 130 See, e.g., Answering Br., Ex. B. §§ 8.1 (employing the language “as determined by a final, nonappealable order of a court of competent jurisdiction” in the “Exculpation” provision), 12.1(c) (employing the language “entry of a decree of judicial dissolution of the Company” in the “Dissolution” provision). 131 See, e.g., E.I. du Pont de Nemours & Co., Inc. v. Shell Oil Co., 498 A.2d 1108, 1113 (Del. 1985) (citation omitted); see also Sonitrol Hldg. Co. v. Marceau Investissements, 607 A.2d 1177, 1183 (Del. 1992) (“Under general principles of contract law, a contract should be interpreted in such a way as to not render any of its provisions illusory or meaningless.” (citation omitted)); Kuhn Constr., Inc. v. Diamond State Port Corp., 990 A.2d 393, 396-97 (Del. 2010) (“We will read a contract as whole and we will give each provision and term effect, so as not to render any part of the contract mere surplusage.” (citation omitted)). 132 See Sarraf 2018 Fam. Tr. v. RP Holdco, LLC, 2022 WL 10093538, at *9 (Del. Super. Oct. 17, 2022) (noting that in an unambiguous contract, when a party sought relief that was not in the language of the contract, the Court would not write it in post hoc, and further noting that if “the parties intended such a result, they could have written it into the” contract). 29 except that Section 8.2 excludes the language “unless ordered by a court,” suggests
that the parties contemplated judicial review and decided against it. Thus, it would
be a stark deviation from this jurisdiction’s adherence to freedom of contract
principles if the Court were to override the clear terms of the LLC Agreement and
exercise judicial review of Dr. Baldwin’s actions.133
Separately, although not raised by any of the parties in their briefing, the Court
finds it pertinent to address a recent Supreme Court decision—Terrell v. Kiromic
Biopharma, Inc.134 In Terrell, a former director sought declaratory and injunctive
relief against a corporation regarding the meaning of a stock option agreement and
an option grant notice.135 Dr. Terrell was compensated for his work at Kiromic
Biopharma, Inc. through three stock-option grants.136 The third option grant notice
contained provisions that Kiromic interpreted to mean that the two previous grants
were supplanted by the third.137 Dr. Terrell disagreed.138 The stock option
agreement vested a “committee,” made up of at least one Kiromic director, with the
authority to interpret the stock option agreement.139 The committee determined that
133 Terrell, -- A.3d --, 2023 WL 3237142, at *7 (“Delaware ‘is a freedom of contract state, with a policy of enforcing the voluntary agreements of sophisticated parties in commerce.’” (quoting Pers. Decisions, Inc., 2008 WL 1932404, at *6)). 134 -- A.3d --, 2023 WL 3237142 (Del. May 4, 2023). 135 Id. at *1. 136 Id. 137 Id. at *2. 138 Id. 139 Id. at *2, *4. 30 its authority to interpret the stock option agreement extended to interpreting the
option grant notices.140 The committee concluded that the third option grant notice
superseded and nullified the previous two grants, but offered no basis for its
reasoning.141 The Court of Chancery deferred to the committee’s determination and
dismissed Dr. Terrell’s claim on the basis that it lacked subject matter jurisdiction.142
Dr. Terrell appealed the Court of Chancery’s ruling and argued that it erred
by failing to review the committee’s determination before dismissing his claim.143
The Supreme Court held that the Court of Chancery erred by failing to review the
committee’s determination.144 The Supreme Court found that even though the Court
of Chancery determined that the stock option agreement’s interpretation provision
was not an arbitration provision, but more like an expert determination,145 that expert
determination was reached by relying on contract interpretation principles, and,
ultimately, resulted in a legal determination by the committee.146
Hence, the Supreme Court held that review of the expert determination, which
was based on legal conclusions reached by the committee, required a de novo review
140 Id. at *3. 141 Id. 142 See id. at *4. 143 Id. 144 Id. at *9 (“Because [the interpretation provision] is an expert determination, not an arbitration [provision], and because it requires the Committee to reach legal determinations, not issue findings of fact within its area of expertise, the Court of Chancery is not required to defer to the Committee’s conclusions.”). 145 See id. at *5-6. 146 Id. at *6-7. 31 of the interpretation of the relevant agreements.147 Simply put, Terrell states that a
court must review a committee’s (or some other similar decision-maker’s) contract-
interpretation-based legal conclusions de novo if the appropriate circumstances arise.
Those circumstances are not present here. This action between Dr. Baldwin
and New Wood is distinct from Terrell. In this case, the LLC Agreement vested
ACR, as a holder of a majority of then-outstanding units, with the authority to
determine whether Dr. Baldwin acted in good faith and, thus whether Dr. Baldwin
was entitled to indemnification. Importantly, “Good faith” is defined in the LLC
Agreement:
[N]o Person shall be entitled to indemnification hereunder unless it is found (in the manner described below in this Section 8.2) that, with respect to the matter for which such Person seeks indemnification, such Person acted in good faith and in a manner that he or she reasonably believed to be in or not opposed to the best interests of the Company.148
Thus, ACR did not make a legal interpretation of the LLC Agreement, nor
did it reach a legal conclusion, because good faith is defined in the LLC Agreement.
Further, ACR did not make an expert determination. Instead, it made a factual
determination based on a contractually defined standard and found only that Dr.
Baldwin’s actions were not in the best interests of New Wood. Therefore, the basis
for judicial review, set out in Terrell, does not apply here.
147 Id. at *9. 148 Answering Br., Ex. B § 8.2 (underlining in original) (italics added). 32 This Court reviewed whether ACR and New Wood acted in bad faith by
executing and acting on the Written Consent. The Court has determined that New
Wood did not engage in a concerted course of bad faith with ACR. Terrell does not
sanction judicial override of the LLC Agreement to engage in de novo review of
ACR’s determination that Dr. Baldwin acted in bad faith. Hence, the “parties are
stuck with what they bargained for.”149
With discovery complete, there is no evidence in the record for a reasonable
trier of fact to conclude that New Wood acted in bad faith. Dr. Baldwin cannot rebut
the presumption that New Wood acted in good faith. As a result, New Wood’s
Motion for Summary Judgment on the Counterclaim is GRANTED.
B. The Breach of Contract Claim
This Court originally granted New Wood’s 12(c) motion on its breach of
contract claim against Dr. Baldwin and against Dr. Baldwin on his Counterclaim.150
On appeal, the Supreme Court addressed “the narrow issue of whether the LLC
Agreement contains an implied covenant of good faith that would require this
determination of a Person’s entitlement to indemnification to be made in good
faith.”151 The Supreme Court held that there is an implied covenant, so it reversed
149 See Senior Hous. Cap., LLC v. SHP Senior Hous. Fund, LLC, 2013 WL 1955012, at *3 (Del. Ch. May 13, 2013); see also Terrell, 2023 WL 3237142, at *8 (quoting Senior Hous. Cap., LLC, 2013 WL 1955012, at *3). 150 See New Wood Res., 2021 WL 3784258, at *1. 151 Baldwin, 283 A.3d at 1102. 33 and remanded the case back to this Court. Notably, the Supreme Court did not
address New Wood’s breach of contract claim. New Wood contends this Court’s
prior ruling on the breach of contract claim stands and is not at issue now.152 Based
on the procedural history of this case, the Court tends to agree.153 Nonetheless, the
Court briefly addresses New Wood’s breach of contract claim.
The elements of a breach of contract claim are: “(1) the existence of a
contractual obligation; (2) a breach of that obligation; and (3) damages resulting
from the breach.”154
Here, the LLC Agreement and Dr. Baldwin’s undertaking created a valid
contract between New Wood and Dr. Baldwin.155 New Wood provided Dr. Baldwin
$541,664.99 in advancement.156 ACR, and in effect New Wood, later determined
that Dr. Baldwin was not entitled to that money via the Written Consent,157 and Dr.
Baldwin did not repay that money to New Wood when New Wood requested it.158
Dr. Baldwin therefore breached his contractual obligation to repay New Wood. New
152 See Plaintiff/Counterclaim Defendant’s Reply Brief (“Reply Br.”) at 9 n.12 (D.I. 72). 153 The breach of contract claim was not an issue raised by the parties in their respective briefs to the Supreme Court. See Richard Baldwin v. New Wood Resources LLC, No. 303,2021 (D.I. 15, D.I. 19, D.I. 20). 154 Buck v. Viking Hldg. Mgmt. Co. LLC, 2021 WL 673459, at *3 (Del. Super. Feb. 22, 2021) (citing VLIW Tech., LLC v. Hewlett-Packard Co., 840 A.2d 606, 612 (Del. 2003)). 155 See Baldwin, 283 A.3d at 1104 (“Section 8.3 conditions [Dr. Baldwin’s] receipt of advancement on: (1) delivery of the written affirmation by [Dr. Baldwin] . . . , and (2) execution of a written undertaking to repay all advanced amounts if it is ultimately determined that [Dr. Baldwin] is not entitled to indemnification.”). 156 See id. at 1110. 157 See Answering Br., Ex. A; Baldwin, 283 A.3d at 1109. 158 Baldwin, 283 A.3d at 1109. 34 Wood suffered damages from the breach in the amount of $541,664.99 that New
Wood advanced to Dr. Baldwin.
Based on this Court’s ruling on the Counterclaim, Dr. Baldwin has no valid
remaining defenses to his breach. To be sure, Dr. Baldwin’s second affirmative
defense to New Wood’s breach claim is that “New Wood’s claims are barred because
at all relevant times hereto Dr. Baldwin acted in good faith and in a manner that he
reasonably believed to be in or not opposed to the best interest of New Wood.”159
As explained above, the LLC Agreement contains no provision for this Court to
decide whether Dr. Baldwin acted in good faith. Instead, that decision is to be made
by (1) a manager vote, (2) a written opinion by independent legal counsel, or (3) a
member vote.160 Because that decision was made pursuant to a valid member vote,
Dr. Baldwin has no viable affirmative defense. And, as determined above, Dr.
Baldwin’s Counterclaim fails, and he has no claim to counter his breach.
Therefore, New Wood’s Motion for Summary Judgment on the breach of
contract claim is GRANTED.
159 Counterclaim at 13. Dr. Baldwin’s two other affirmative defenses are inapplicable because one is covered by his Counterclaim, and the other is based on offset for domesticating the Advancement Action judgment in Mississippi. See id. 160 See Answering Br., Ex. B § 8.2. 35 VI. CONCLUSION
Summary Judgment on New Wood’s Breach of Contract claim and on the
Counterclaim is GRANTED. Dr. Baldwin shall repay the $541,664.99 advanced
to him, together with applicable prejudgment interest. Counsel for New Wood shall
submit a proposed order to this effect by August 11, 2023.
IT IS SO ORDERED.
______________________________ Sheldon K. Rennie, Judge
Related
Cite This Page — Counsel Stack
New Wood Resources LLC v. Baldwin, Counsel Stack Legal Research, https://law.counselstack.com/opinion/new-wood-resources-llc-v-baldwin-delsuperct-2023.