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Matthew v. Laudamiel, C.A. No. 5957-VCN (Del. Ch. Feb. 21, 2012) (Noble, V.C.)

February 21, 2012

In this memorandum opinion, the Court of Chancery granted multiple motions to dismiss, two on personal jurisdiction grounds and the remainder for failing to state a claim upon which relief could be granted.  In doing so, the Court, among other things, analyzed alleged breaches of the implied covenant of good faith and fair dealing and discussed two ways in which to bring a claim on behalf of a limited liability company after it has been dissolved.

The company at issue was Aeosphere LLC, a Delaware limited liability company (“Aeosphere” or the “Company”), which dissolved prior to litigation.  Plaintiff Stewart Matthew (“Matthew”), a former member, manager, and co-CEO of the Company, brought various claims against Christophe Laudamiel, a former member, manager, and co-CEO of the Company (“Laudamiel”), Roberto Capua, a former manager of the Company (“Capua”), and Action 1 srl, a former member of the Company (“Action 1” and together with Laudamiel and Capua, the “Aeosphere Defendants”).  Matthew also brought various claims against Fläkt Woods Group SA (“Fläkt Woods”) and SEMCO LLC, an affiliate of Fläkt Woods (“SEMCO”), two companies that purportedly had business dealings with Aeosphere.  The Court ultimately dismissed the claims against Fläkt Woods and SEMCO for lack of personal jurisdiction. 

In response to Matthew’s complaint, the Aeosphere Defendants brought a counterclaim alleging that Matthew breached the implied covenant of good faith and fair dealing by (i) refusing to accept or reject contracts that required his approval as a manager and officer of the Company, (ii) refusing to cooperate in the management of the Company, (iii) improperly using Company resources, and (iv) refusing to attend an emergency board meeting.  In addition, Laudamiel and Action 1 asserted counterclaims against Matthew alleging a breach of an employment agreement and unjust enrichment.  Matthew moved to dismiss all of these counterclaims arguing that each failed to state a claim upon which relief could be granted. 

The Court agreed with Matthew and granted his motion to dismiss.  The Court first analyzed the claim that Matthew breached the implied covenant of good faith and fair dealing.  According to the Court, the implied covenant “acts as a way to import terms into the agreement to analyze unanticipated developments or to fill gaps in the contract’s provisions.”  Actions do not constitute a breach of the implied covenant if such actions are addressed in the contract.  Rather, the Court noted, such actions should be addressed under the standards agreed to in the contract. 

The Court held that the limited liability company agreement of the Company (the “LLC Agreement”) governed every alleged instance of misconduct, thus making the implied covenant inapplicable.  With respect to the first instance of alleged misconduct, the Court noted that Section 5.1.2 of the LLC Agreement provided that no manager shall “unreasonably delay approving or disapproving” any action of the Company.  In addition, Section 7.1 of the LLC Agreement required the managers and officers of the Company to “perform their managerial duties in good faith, in a manner they reasonably believe[d] to be in the best interest of the Company and its Members, and with such care, including reasonable inquiry, as an ordinarily prudent person in a like position would [have used] under similar circumstances.”  The Court stated that these provisions addressed Matthew’s alleged refusal to accept or reject contracts as a manger and officer of the Company.  Thus, the Court held that the Aeosphere Defendants could not challenge such actions under the implied covenant of good faith and fair dealing.  The Court also found that Section 7.1 covered Matthew’s alleged refusal to cooperate in the management of the Company and the alleged misuse of Company resources.  As such, the Court held that the Aeosphere Defendants could not challenge these actions under the implied covenant of good faith and fair dealing. 

With respect to the final alleged breach of the implied covenant, the Court found that the LLC Agreement also addressed Matthew’s refusal to attend the emergency board meeting.  Specifically, Section 5.1.2 of the LLC Agreement provided that the managers “shall use their best efforts to attend all properly called meetings of the Board.”  Because the Court found that this provision addressed the challenged action, the Aeosphere Defendants were precluded from challenging the conduct under the implied covenant of good faith and fair dealing.

Finally, the Court dismissed the claims for breach of the employment agreement and unjust enrichment because they were derivative claims, which Laudamiel and Action 1 lacked standing to assert directly.  Laudamiel and Action 1 argued that because the Company had dissolved, they could not assert derivative claims.  They argued that, as former members of the Company, they became owners of these claims upon receipt of the Company’s assets in liquidation.  Therefore, they argued, they owned these claims and could assert them directly.  The Court, however, disagreed and dismissed the counterclaims accordingly.  It held that the dissolution and cancellation of a limited liability company “does not transform derivative claims into direct claims held proportionately by the LLC’s members.”  According to the Court, Laudamiel and Action 1 had two options to assert these claims on behalf of the dissolved Company: (i) revive the Company in accordance with the Delaware Limited Liability Company Act (the “Act”), and then bring the derivative claims; or (ii) appoint a trustee under Section 18-805 of the Act “to take charge of the [Company’s] property, and to collect the debts and property due and belonging to the [Company], with the power to prosecute and defend, in the name of the [Company], or otherwise, all such suits as may be necessary or proper for the purposes aforesaid.”

The full opinion is available here