Chancery Grants Relief on Both Fiduciary Duty and Contract Claims Against Member of Joint Venture

In Re: Mobilactive Media, LLC, Consol. C.A. No. 5725-VCP (Del. Ch., Jan. 25, 2013).  What this Case is About:  This decision addresses claims between two members of a joint venture based on both breach of contract and breach of fiduciary duty.  Both claims were allowed to proceed and both claims prevailed as non-duplicative.  The Court also addressed a claim for usurpation of corporate opportunity and fraudulent transfer.  Defenses based on laches, waiver and unclean hands were rejected in this 92-page opinion.

Brief Overview

The dispute in this case between two members of a joint venture arose after a somewhat unsuccessful effort to take advantage of mobile marketing opportunities in North America.  One member was the former general counsel of Comcast Cable and the other member was a United Kingdom company that owned proprietary mobile marketing technologies.  The joint venture was not able to fulfill the expectations of the parties.  The defendant made multiple overtures to buy out the interest of the plaintiff in the venture, and the defendant also embarked on a strategy to acquire numerous companies within the mobile marketing industry.

The Court found that the original defendant violated its fiduciary duties by usurping corporate opportunities within the joint venture’s line of business as defined by the parties’ agreement, and the Court granted monetary relief in the form of damages based on the profits the defendants unjustifiably received from their participation, and opportunities that should have been, but were not, presented to the joint venture.  The Court rejected defenses that an alleged prior material breach of the agreement excused the defendant’s performance, and also rejected a defense based on laches and the doctrine of unclean hands.

Highlights of Legal Principles

This Chancery opinion, consistent with the Court’s practice, is replete with extensive factual details and is buttressed by 339 footnotes.  The most effective way to cursorily highlight the key legal principles addressed in this 92-page opinion is to provide bullets that refer to the pages of the slip opinion and the footnotes that readers can refer to for more thorough review.

●          The Court describes the elements of laches as a defense and how it interfaces with the statute of limitations, and why it was not a successful argument in this case.  See pages 26 and 27.

●          The Court explains the exacting standard that must be satisfied to establish a waiver especially where, as in this case, there is a non-waiver clause in the contract.  See footnote 152.

●          Importantly as a practice note, the Court cited to cases in footnote 152 to underscore that a mere perfunctory one sentence reference to an issue – - without a developed argument, is tantamount to not addressing the issue at all.

●          The Court explained that it was neither inequitable nor did it threaten the integrity of the Court for one member of a joint venture to use the LLC’s funds to revive the charter of the LLC, and to pay attorneys’ fees to commence litigation to enforce the terms of the LLC Agreement.  See page 34.  The foregoing was part of the reasoning of the Court that rejected the unclean hands argument.

●          The bold argument of claiming that a prior material breach by the opposing party excuses one’s performance, was not successful in this case, and the Court compared it to a slight breach that only gives rise to a damage claim.  See footnotes 161 to 164.  See also footnote 176 referring to the foregoing concept in the context of substantial performance.

●          Although a rudimentary concept, it is always useful to have the latest iteration of basic contract interpretation principles for ambiguous contracts, as well as the elements of a contract.  Those can be found at footnotes 179 to 187 and accompanying text.  See also footnote 195 regarding the use of the parties’ course of performance as the best evidence to interpret the intent of the parties in a contract.

●          An excellent recitation of the duties owed by joint venturers, as well as the elements of a fiduciary duty claim are itemized on page 56.

●          A claim for usurpation of corporate opportunity is discussed at pages 56 and 57.

●          The Court explained why, based on the facts of this case, it allowed simultaneous claims of both breach of fiduciary duty and breach of contract to proceed because the remedies for each in this case were different.  See footnote 219.  An additional reason is that the LLC Agreement contained express fiduciary duty requirements.

●          The Court reiterated well-established Delaware law that the measure of damages for breach of the duty of loyalty is very flexible and is much less exacting than would be the case in, for example, a breach of contract claim, based on the public policy that the burden for addressing any difficulty in the measure of damages should fall on the party that breached the duty of loyalty. (In its candid comparison of the parties’ experts on damages, the court preferred the plaintiff’s expert, Gregory Cowhey.)