City of Sarasota Firefighters' Pension Fund v. Inovalon Holdings Inc.

COURT OF CHANCERY
OF THE
STATE OF DELAWARE
KATHALEEN ST. JUDE MCCORMICK LEONARD L. WILLIAMS JUSTICE CENTER
CHANCELLOR 500 N. KING STREET, SUITE 11400
WILMINGTON, DELAWARE 19801-3734

June 10, 2025

Ned Weinberger Raymond J. DiCamillo
Mark D. Richardson Kevin M. Gallagher
Brendan W. Sullivan Craig K. Ferrere
LABATON KELLER SUCHAROW LLP RICHARDS, LAYTON & FINGER, P.A.
222 Delaware Avenue, Suite 1510 920 North King Street
Wilmington, DE 19801 Wilmington, DE 19801

William M. Lafferty A. Thompson Bayliss
Ryan D. Stottmann Eric A. Veres
Alexandra M. Cumings Caleb R. Volz
Louis F. Masi Nicholas F. Mastria
MORRIS NICHOLS ARSHT ABRAMS & BAYLISS LLP
& TUNNELL LLP 20 Montchanin Road, Suite 200
1201 N. Market Street, 16th Floor Wilmington, DE 19807
Wilmington, DE 19801

Re: City of Sarasota Firefighters’ Pension Fund v. Inovalon
Holdings Inc., C.A. No. 2022-0698-KSJM

Dear Counsel:

This letter decision addresses Defendants’ supplemental motions to dismiss

raised on remand.1 The motions to dismiss are denied in part and granted in part.

1 See City of Sarasota Firefighters’ Pension Fund v. Inovalon Hldgs., Inc., C.A. No.

2022-0698-KSJM (Del. Ch. Aug. 11, 2023) (TRANSCRIPT) (the “Dismissal Decision”),
rev’d and remanded, 319 A.3d 271 (Del. 2024) (the “Appellate Decision”). Plaintiffs
are City of Sarasota Firefighters’ Pension Fund, Steamfitters Local 449 Pension
Fund, and Steamfitters Local 449 Retirement Security Fund. Defendants were:
Inovalon Holdings, Inc.; Keith R. Dunleavy; Meritas Group, Inc.; Meritas Holdings
LLC; Dunleavy Foundation; Isaac S. Kohane; Mark A Pulido; Denise K. Fletcher;
William D. Green; William J. Teuber; and Lee D. Roberts. Defendants Andre
Hoffman, Cape Capital SCSP, and Sicar-Inovalon Sub-Fund were voluntarily
dismissed on January 25, 2023. Dkt. 37. Other Defendants were voluntarily
dismissed in response to the supplemental motions to dismiss, as discussed below.
C.A. No. 2022-0698-KSJM
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I. FACTUAL BACKGROUND

The facts are set forth in the Appellate Decision and are otherwise drawn from

the Complaint.2 By way of summary, Plaintiffs filed this suit challenging the

acquisition of Inovalon Holdings, Inc. by a private equity consortium led by Nordic

Capital (the “Transaction”). Plaintiffs assert claims for breach of fiduciary duties

against the Inovalon Board of Directors, breach of fiduciary duty against the CEO,

and unjust enrichment as to certain Defendants that rolled over their equity and one

who accepted a post-closing compensation package.3 Plaintiffs also claim that the

Transaction violated the implied covenant of good faith and fair dealing in Inovalon’s

Charter, which required a separate class vote on the Transaction, because the

stockholder vote was not fully informed.4

Defendants moved to dismiss the Complaint, and I granted dismissal under

MFW5 in a bench ruling on July 31, 2023.6 Because I dismissed the entire Complaint

on the grounds that the Transaction complied with MFW, I did not reach Defendants’

argument that Plaintiffs failed to plead a non-exculpated claim against a group of

See Dkt. 99. Terms not defined in this letter decision have the same meaning ascribed
to them in the Appellate Decision.
2 C.A. No. 2022-0698-KSJM, Docket (“Dkt.”) 1 (“Compl.”).

3 Id. ¶¶ 226–253.

4 Id. ¶¶ 254–259.

5 Kahn v. M & F Worldwide Corp., 88 A.3d 635 (Del. 2014) (“MFW”), overruled in part

on other grounds by Flood v. Synutra Int’l, Inc., 195 A.3d 754, 766 n.81 (Del. 2018
(holding that “to the extent that note 14 [in MFW] is inconsistent with this decision,
Swomley, or the Court of Chancery’s opinion in MFW, it is hereby overruled”).
6 See Dismissal Decision at 21–50.
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Defendants referred to as the “Committee” or “Committee Defendants.”7 My holding

under MFW eliminated the predicate for Plaintiffs’ claim for breach of the Charter’s

implied covenant, and so I did not independently evaluate Defendants’ Rule 12(b)(6)

arguments as to that claim.

The Delaware Supreme Court reversed and remanded the Dismissal Decision,

holding the stockholder vote approving the Transaction was not fully informed and

therefore did not comply with MFW.8 The Supreme Court held that Defendants failed

to disclose material information concerning the nature and extent of the Committee’s

advisors’ conflicts. In particular, the Proxy Statement failed to disclose: Evercore’s

concurrent representation of Nordic and Insight;9 the amount of fees J.P. Morgan

stood to receive from concurrent representations of the Consortium members;10 and

the over $400 million in fees J.P. Morgan received from Consortium members during

the previous two years (instead selectively disclosing only $15.2 million in fees

received from Nordic).11 The Supreme Court also credited Plaintiffs’ allegations that

the Proxy Statement overstated Evercore’s role in conducting Transaction-related

7The Committee comprises Defendants Mark A. Pulido, William D. Green, and
William J. Teuber. See Dkt. 17 (Comm.’s Opening Br.) at 61–64; Dkt. 43 (Comm.’s
Reply Br.) at 35–36.
8 Appellate Decision, 319 A.3d at 275.

9 Id. at 292–95.

10 Id. at 295–97.

11 Id. at 298–99.
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market outreach.12 The Supreme Court did not address Plaintiffs’ additional

arguments on appeal, including that the Transaction violated MFW’s ab initio

requirement.

In their supplemental motions to dismiss filed on remand, Defendants advance

two arguments that this court previously did not reach. The “Individual

Defendants”—comprising the Committee Defendants and “Non-Committee

Defendants” Isaac S. Kohane, Denise K. Fletcher, and Lee D. Roberts—moved to

dismiss the claims against them under Cornerstone.13 Defendants also moved to

dismiss the claim for breach of the Charter.14 In response to the Non-Committee

Defendants’ motion under Cornerstone, Plaintiffs dismissed the claims against

them.15 The parties briefed the other issues and the court heard oral argument on

February 7, 2025.16

12 Id. at 299–304 (noting that the Court “need not ‘pile on’ another basis for reversal”

but cautioning that “the Proxy [] appear[s] to overstate the role that Evercore played
in the outreach efforts”).
13 Dkt. 89 (“Comm.’s Supp. Opening Br.”) at 4–7 (relying on In re Cornerstone
Therapeutics Inc. S’holder Litig., 115 A.3d 1173, 1175–76 (Del. 2015)); Dkt. 90 (“Non-
Comm.’s Supp. Opening Br.”) at 2–5 (relying on Cornerstone, 115 A.3d 1173, 1175–
76, 1179–80).
14 Comm.’s Supp. Opening Br. at 9; Non-Comm.’s Supp. Opening Br. at 8–9.

15 Dkt. 96 (“Pls.’ Ans. Br. to Supp. Mot. to Dismiss”) at 1 n.1; Dkt. 99.

16 Dkts. 131, 132.
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II. LEGAL ANALYSIS

“[T]he governing pleading standard in Delaware to survive a motion to dismiss

is reasonable ‘conceivability.’”17 When considering such a motion, the court must

“accept all well-pleaded factual allegations in the [c]omplaint as true . . . , draw all

reasonable inferences in favor of the plaintiff, and deny the motion unless the plaintiff

could not recover under any reasonably conceivable set of circumstances susceptible

of proof.”18 The court, however, need not “accept conclusory allegations unsupported

by specific facts or . . . draw unreasonable inferences in favor of the non-moving

party.”19

A. The Cornerstone Arguments

The Committee Defendants argue that the claims against them must be

dismissed because they are entitled to exculpation. To state a claim against an

individual director under Cornerstone, “the [c]omplaint must ‘plead[ ] facts

supporting a rational inference that the director harbored self-interest adverse to the

stockholders’ interest, acted to advance the self-interest of an interested party from

whom they could not be presumed to act independently, or acted in bad faith.’”20

17 Cent. Mortg. Co. v. Morgan Stanley Mortg. Capital Hldgs. LLC, 27 A.3d 531, 537

(Del. 2011).
18 Id. at 536 (citing Savor, Inc. v. FMR Corp., 812 A.2d 894, 896–97 (Del. 2002)).

19 Price v. E.I. du Pont de Nemours & Co., 26 A.3d 162, 166 (Del. 2011) (citing Clinton

v. Enter. Rent-A-Car Co., 977 A.2d 892, 895 (Del. 2009)).
20 See Frederick Hsu Living Tr. v. ODN Hldg. Corp., 2017 WL 1437308, at *37 (Del.

Ch. Apr. 14, 2017), as corrected (Apr. 25, 2017) (quoting Cornerstone, 115 A.3d at
1179–80); see also Tornetta v. Maffei, C.A. No. 2019-0649-AGB at 23:9–15 (Del. Ch.
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Plaintiffs argue that it is reasonably conceivable that the Committee

Defendants acted in bad faith. To plead bad faith, a plaintiff can allege facts

supporting the inference that a director’s conduct was motivated “by an actual intent

to do harm, or when there is an intentional dereliction of duty, [or] a conscious

disregard for one’s responsibilities.”21 To plead bad faith based on disclosure

deficiencies, a plaintiff must plead that the defendants intentionally withheld or

failed to disclose the material information in conscious disregard of their fiduciary

duties.22

Plaintiffs argue that it is reasonably conceivable that each of the Committee

Defendants acted disloyally in two ways: first, by knowingly failing to disclose their

Feb. 23, 2021) (TRANSCRIPT) (“To state a bad faith claim, a plaintiff must show
either an extreme set of facts to establish that disinterested directors were
intentionally disregarding their duties or that the decision under attack is so far
beyond the bounds of reasonable judgment that it seems essentially inexplicable on
any ground other than bad faith.”).
21 McElrath v. Kalanick, 224 A.3d 982, 991 (Del. 2020) (quoting In re Walt Disney Co.

Deriv. Litig., 906 A.2d 27, 64, 66 (Del. 2006)) (internal quotation marks omitted).
22 See In re USG Corp. S’holder Litig., 2020 WL 5126671, at *26 (Del. Ch. Aug. 31,

2020) (“To plead bad faith based on the nondisclosure of the Board’s view of USG’s
intrinsic value, the Plaintiffs must plead that the Defendant directors intentionally
withheld their view of intrinsic value in conscious disregard of their fiduciary
duties.”), aff’d sub nom., Anderson v. Leer, 265 A.3d 995 (Del. 2021); see also Morrison
v. Berry, 2019 WL 7369431, at *18 (Del. Ch. Dec. 31, 2019) (“Bad faith, in the context
of omissions, requires that the omission be intentional and constitute more than an
error of judgment or gross negligence[.] The Plaintiff . . . must adequately allege bad
faith in the disclosures themselves.”).
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advisors’ conflicts; and, second, by knowingly making false disclosures concerning

their advisors’ market outreach.23

Plaintiffs’ first theory rests on the Proxy Statement’s failure to disclose

Evercore’s concurrent representations of Nordic and Insight, J.P. Morgan’s

concurrent conflicts with Consortium members, and J.P. Morgan’s receipt of $400

million in fees from those same counterparties. The Supreme Court found that

information material.24 It is thus material as a matter of law.25 The Committee

Defendants do not dispute it is reasonably conceivable that each were aware of the

undisclosed conflict-related information.26

The question is whether it is reasonably conceivable that the Committee

Defendants acted in bad faith by withholding information concerning the

Committee’s advisors from the Proxy Statement. As the Appellate Decision held, the

material nondisclosures concerning the Committee’s advisors were “uniquely

23 Pls.’ Ans. Br. to Supp. Mot. to Dismiss at 5–9.

24 Appellate Decision, 319 A.3d at 291–99.

25 See generally Cede & Co. v. Technicolor, Inc., 884 A.2d 26, 38 (Del. 2005) (“It is well-

settled that when an appellate court remands for further proceedings, the trial court
must proceed in accordance with the appellate court’s mandate as well as the law of
the case established on appeal.”).
26 Comm.’s Supp. Opening Br. at 6 (acknowledging that “the Committee received

conflicts disclosures from Evercore and JPM”); Appellate Decision, 319 A.3d at 293
(“Evercore also disclosed to the Special Committee that it concurrently represented
Nordic on a potential unrelated transaction.”); id. (acknowledging allegation that
“Evercore alluded to [its Insight] representation in its August 18, 2021
memorandum”).
C.A. No. 2022-0698-KSJM
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important considerations for minority stockholders,”27 and the Proxy Statement

“suggests that Evercore was in a better position than it actually was to mitigate any

effects of J.P. Morgan’s conflicts.”28 Given the significance of this information in the

eyes of the high court,29 it is reasonably conceivable that the Committee Defendants

withheld this information to make the process look better.30

Defendants argue that the Committee Defendants’ disclosure of aspects of the

advisors’ conflicts undercuts the inference that they failed to disclose other conflicts

in bad faith.31 Yet the Committee Defendants disclosed Evercore’s work for the

Consortium but failed to disclose J.P. Morgan’s Consortium work.32 That is,

information deemed material as to J.P. Morgan was withheld as to Evercore. The

implication is that the Committee Defendants recognized this information as

material but chose not to disclose it as to Evercore. This supports an inference that

the Committee Defendants intentionally withheld material information.

27 Appellate Decision, 310 A.3d at 292; id. (“[I]t is imperative for the stockholders to

be able to understand what factors might influence the financial advisor’s analytical
efforts . . . . ” (quoting City of Dearborn Police and Fire Revised Ret. Sys. v. Brookfield
Asset Mgmt. Inc., 314 A.3d 1108, 1132 (Del. 2024) (internal quotation marks
omitted)).
28 Appellate Decision, 310 A.3d at 304.

29 See id. at 303–04.

30 In re PLX Tech. Inc. S’holders Litig., C.A. No. 9880-VCL (Del. Ch. Sept. 3, 2015)

(TRANSCRIPT) at 52:19–24 (“[T]he allegation is that the directors knew about this
stuff. They approved the projections. They approved prior projections. So if the
disclosure claim goes forward . . . [i]t is not a care violation; it is a knowing violation.”).
31 Comm.’s Supp. Opening Br. at 5–7.

32 Compl. ¶¶ 169–177.
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Moreover, according to the Appellate Decision, the total mix of information

disclosed regarding the Committee’s advisors is problematic for other reasons. As the

high court observed, the Proxy Statement suggested Evercore “may” have a material

conflict with a transaction counterparty,33 when the Committee Defendants were

aware of Evercore’s actual concurrent conflict and overstated its role in the sale

process.34 The Proxy Statement similarly described J.P. Morgan’s fees as “customary

compensation” without context, which obscured the nature of J.P. Morgan’s material

relationship with Consortium members from stockholders to mislead them about the

significance of its participation in the sale process.35

Defendants cite to Morrison36 and USG37 for the proposition that the total mix

of disclosed information can undermine an inference that omissions were made in bad

faith.38 In each case, however, the defendants disclosed information altered the total

mix of information in a way that belied a finding of bad faith.39 By contrast, the Proxy

33 Appellate Decision, 319 A.3d at 292 (“Evercore may provide financial advisory or

other services to the Company and the Acquiror and their respective affiliates,
including Nordic Capital X, GIC, Insight and their respective affiliates, in the future,
and in connection with any such services Evercore may receive compensation.”)
(quoting Proxy at 53)).
34 See id. at 294.

35 See id. at 297.

36 2019 WL 7369431.

37 2020 WL 5126671.

38 Comm.’s Supp. Opening Br. at 5–6.

39 Morrison, 2019 WL 7369431, at *19–20 (dismissing directors on remand under

Cornerstone after the Supreme Court ruled that the 14-D9 contained material
omissions where “the facts that the 14D-9 does disclose” made it unreasonable “to
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Statement contains no countervailing disclosures concerning the Committee advisors’

conflicts foreclosing reasonable inferences in Plaintiffs’ favor. Rather, as discussed

above, the Proxy Statement supports an inference the Committee Defendants

intentionally withheld material information concerning Evercore and contains

otherwise misleading or incomplete disclosures regarding the advisors.

Plaintiffs’ second theory rests on the Supreme Court’s observation that the

Proxy Statement also materially overstated Evercore’s role in market outreach (and

in mitigating J.P. Morgan’s conflicts) and directly contradicted the Special

Committee’s meeting minutes.40 As the Appellate Decision stated, “the Proxy’s

description of Evercore’s role in the market outreach efforts do not sit comfortably

with the corresponding accounts set forth in the minutes;”41 if the “minutes are

accurate . . . then the Proxy does appear to overstate the role that Evercore played in

the outreach efforts[;]”42 and “[t]he Proxy’s suggestions of a more active role for

infer that the 14D-9 represented the knowingly-crafted deceit or knowing indifference
to duty that would show bad faith”); USG, 2020 WL 5126671, at *27–28 & n.332
(dismissing directors under Cornerstone despite material nondisclosures concerning
the target company’s intrinsic value where the proxy statement also disclosed that
the board “discussed the pros and cons of issuing a public statement regarding the
Board’s view of the intrinsic value, but decided not to issue such a statement,”
concluding that affirmatively disclosing the board’s decision not to disclose that
information undermined any finding that the omission was in bad faith).
40 Compl. ¶ 178.

41 Appellate Decision, 310 A.3d at 304.

42 Id. at 303.
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Evercore takes on added significance in a scenario where J.P. Morgan, as the lead

advisor, faced conflicts.”43

It is reasonably conceivable that the Committee Defendants were aware that

J.P. Morgan played an outsized role in market outreach and Evercore was sidelined.

Each attended the August 11, 12, 13, and 16, 2021 meetings during which the

Committee confirmed that J.P. Morgan (not Evercore) was exclusively handling

third-party outreach, or directed J.P. Morgan (not Evercore) to continue such

outreach.44 As the Supreme Court highlighted: “The minutes even break-out the

market outreach discussion with a separate heading — ‘JPM Update.’”45 The

Committee and counsel also updated the full Board on J.P. Morgan’s exclusive

market outreach, including on August 6 and 17.46 The contradictions between the

minutes and Proxy Statement give rise to the inference that the Committee

Defendants intentionally overstated Evercore’s involvement.

This court has rejected motions to dismiss complaints alleging similar facts.

In Tornetta v. Maffei, the plaintiffs alleged that the press release announcing the

challenged merger falsely stated that a financial advisor performed merger-related

work when it had stopped advising the board well before the merger.47 Chancellor

43 Id. at 304.

44 Compl. ¶¶ 125–127, 130–133, 135–136, 148, 178.

45 Appellate Decision, 310 A.3d at 303 n.179.

46 See Dkt. 36 (Pls.’ January 2023 Omnibus Ans. Br.) at 69.

47 Tornetta, Tr. at 24:16–25:6.
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Bouchard rejected the directors’ Cornerstone defense, inferring bad faith because they

attended a meeting where the CFO discussed including the advisor’s name in the

press release in exchange for a fee reduction.48 Similarly here, Plaintiffs allege the

Committee Defendants received updates at meetings on the outreach conducted by

J.P. Morgan alone, yet chose to overstate Evercore’s role in the Proxy Statement.

In In re Hansen Medical Inc. Shareholders Litigation, the plaintiffs alleged the

proxy was misleading because it disclosed financial projections management

considered unrealistic and only included some projections “to keep the CFO from

looking stupid.”49 Then-Vice Chancellor Montgomery-Reeves held they pled a non-

exculpated claim against the CFO who prepared the financial projections, inferring

bad faith because it was reasonably conceivable he knew management’s skepticism

of the projections made the proxy materially misleading.50 Here, it is reasonably

conceivable the Committee Defendants were aware the characterization of Evercore’s

role was misleading when they prepared the Proxy Statement.

In Chen v. Howard-Anderson, Vice Chancellor Laster upheld the plaintiff’s

disclosure claims on summary judgment because “the record support[ed] an inference

that the defendants knew about the disclosure problems before approving the [p]roxy

48 Id. at 25:7–26:10.

492018 WL 3030808, at *10 (Del. Ch. June 18, 2018) (internal quotation marks
omitted).
50 Id. at *10–11.
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[s]tatement.”51 There, the directors were in a position to review the disputed

description of the merger process, which mischaracterized negotiations and did not

accurately describe actions taken by some of the director defendants.52 The court can

similarly infer bad faith here because the Committee Directors were aware of the true

nature of Evercore’s participation, which Plaintiffs allege was incorrectly described

in the Proxy Statement.53

In light of the findings of the Appellate Decision, both of Plaintiffs’ stated bases

for their claim support an inference that the Committee Defendants omitted the

material information in bad faith.

The Committee Defendants also argue, as a matter of atmospherics, that it is

unreasonable to infer bad faith because “it took a review by the Supreme Court . . . to

clarify that such facts were material.”54 If the trial court did not view this information

51 87 A.3d 648, 653 (Del. Ch. 2014).

52 Id. at 692. As the Committee Defendants observe, the Chen defendants’
“‘questionable conduct’ during discovery” supplied additional support for the bad faith
inference. Comm.’s Supp. Br. at 8–9 (quoting Chen, 87 A.3d at 653, 692). The lack of
discovery and any attendant inferences that could be drawn therefrom does not
diminish Plaintiffs’ theory in this case.
53 See also Johnson v. Shapiro, 2002 WL 31438477, at *8 (Del. Ch. Oct. 18, 2002)

(rejecting an exculpation defense raised by a director, explaining that “when a party
has ‘averred sufficient evidence to permit the inference that one or more defendants
may have knowingly withheld material information from the company’s
shareholders,’ then such allegations may be deemed to implicate a ‘violation of the
directors’ duty of loyalty’” (quoting In re Reliance Sec. Litig., 91 F.Supp.2d 706, 731–
32 (D. Del. 2000)); PLX, Tr. at 52:7–54:2 (rejecting an exculpation defense and
sustaining disclosure claims related to directors’ knowledge of undisclosed
projections).
54 Comm.’s Supp. Opening Br. at 6.
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as material, how can one fault the Committee Defendants? It is a fair question, but

it ignores the law of the case. The Supreme Court held that the identified information

is material, so it is. And it is reasonably conceivable that the Committee Defendants

knowingly withheld it. That is enough to state a non-exculpated claim against them.

B. The Implied-Covenant Argument

Defendants have moved to dismiss Count V of the Complaint claiming that

Inovalon and the Director Defendants breached the covenant of good faith and fair

dealing implied in Article IV, Section D(2)(c) of the Charter.55 That provision

authorizes “different treatment of the shares of each class” when “approved by the

affirmative vote of the holders of a majority of the outstanding shares of Class A

Common Stock and Class B Common Stock, each voting separately as a class.”56

Plaintiffs concede that Inovalon obtained approval from holders of a majority of the

outstanding shares of Class A and Class B Common Stock voting, each voting

separately as a class. Plaintiffs argue, however, that Defendants breached the

Charter because the stockholder vote was uninformed.57

Plaintiffs base their argument on Dieckman v. Regency GP LP,58 where the

Supreme Court reversed the dismissal of a claim for breach of a limited partnership

55 Compl. ¶¶ 33, 255–259.

56 Id. ¶ 33.

57 Pls.’ Ans. Br. to Supp. Mot. to Dismiss at 14–15.

58 155 A.3d 358 (Del. 2017).
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agreement where the unitholder vote was not fully informed.59 The high court

reasoned that the limited partnership agreement contained an implied obligation not

to mislead unitholders when soliciting their approval. The Supreme Court thus

deemed the approval vote not effective and sustained the plaintiff’s contract claim.60

Plaintiffs argue that the Charter, like the limited partnership agreement in

Dieckman, contains an implied obligation not to mislead stockholders when soliciting

their approval.61

Plaintiffs’ reliance on Dieckman ignores the nature of the implied covenant and

important distinctions between alternative entity and corporate law. The implied

covenant is a “cautious enterprise”62 that courts invoke to “infer contract terms to

handle developments or contractual gaps that the asserting party pleads neither

party anticipated and courts will invoke the implied covenant to imply terms when

necessary to protect the reasonable expectations of the parties.”63 Parties to

alternative entity agreements have the freedom to eliminate or modify fiduciary

obligations that cannot be altered in the corporate context.64 For implied covenant

59 Id. at 361–62.

60 Id. at 368–69.

61 Pls.’ Ans. Br. to Supp. Mot. to Dismiss at 13–14.

62 Oxbow Carbon & Minerals Hldgs., Inc. v. Crestview-Oxbow Acq., LLC, 202 A.3d

482, 506–07 (Del 2019) (quoting Nemec v. Shrader, 991 A.2d 1120, 1125 (Del. 2010)).
63 Baldwin v. New Wood Resources LLC, 283 A.3d 1099, 1116 (Del. 2022) (quoting

Dieckman, 155 A.3d at 367) (cleaned up).
64 See, e.g., 6 Del. C. § 18-1101(c) (“To the extent that, at law or in equity, a member

or manager or other person has duties (including fiduciary duties) to a limited
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purposes, that freedom to eliminate fiduciary obligations informs the parties’

reasonable expectations when contracting.

In Dieckman, the limited partnership agreement eliminated default fiduciary

obligations and included a safe-harbor provision that operated similar to MFW. The

safe-harbor provisions insulated conflicted transactions from judicial review where

the general partner obtained special approval by an independent conflicts committee

as well as approval by an unaffiliated unitholder.65 The high court emphasized the

nature of the contractual provision at issue in its decision, observing that “[t]he

favorable vote led not only to approval of the transaction, but allowed the General

Partner to claim the protections of the safe harbor and immunize the merger

transaction from judicial review.”66 The implied covenant analysis required the Court

to ask what the parties reasonably expected when displacing the fiduciary regime.

And the Court reasoned that it was “obvious” that the parties would have reasonably

liability company or to another member or manager or to another person that is a
party to or is otherwise bound by a limited liability company agreement, the member’s
or manager’s or other person’s duties may be expanded or restricted or eliminated by
provisions in the limited liability company agreement; provided, that the limited
liability company agreement may not eliminate the implied contractual covenant of
good faith and fair dealing.” (emphasis added)); 6 Del. C. § 17-1101(d) (“To the extent
that, at law or in equity, a partner or other person has duties (including fiduciary
duties) to a limited partnership or to another partner or to another person that is a
party to or is otherwise bound by a partnership agreement, the partner’s or other
person’s duties may be expanded or restricted or eliminated by provisions in the
partnership agreement; provided that the partnership agreement may not eliminate
the implied contractual covenant of good faith and fair dealing.” (emphasis added)).
65 Dieckman, 155 A.3d at 360.

66 Id. at 367–68 (emphasis added).
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expected “that the general partner not engage in misleading or deceptive conduct to

obtain safe harbor approvals.”67

Because fiduciary duties cannot be eliminated in the corporate context, I do

not need to speculate as to the parties’ expectations when displacing a fiduciary

regime here. There is no space for or purpose to the implied covenant in this context.

Count V is dismissed.

III. CONCLUSION

Defendants’ motions to dismiss are granted in part and denied in part. Count

V is dismissed and the Committee Defendants’ motion under Cornerstone is denied.

The parties shall submit a form of order memorializing this ruling within one week.

Sincerely,

/s/ Kathaleen St. Jude McCormick

Chancellor

cc: All counsel of record (by File & ServeXpress)

67 Id. at 361.