ZRII, LLC v. Wellness Acquisition Group, Inc., (Del. Ch., Sept. 21, 2009), read opinion here. This 43-page Chancery Court decision addresses issues common to business litigation matters. Key employees leave to compete with their former employer, which was based in Utah. The Court applied Delaware law to determine that the prerequisites for a preliminary injunction were satisfied, as well as whether the fiduciary duties of officers were breached. Utah law applied, however, to the substantive claims of civil conspiracy and tortious interference with business relations; misappropriation of confidential information and trade secrets; and breach of company contracts. It light of only a portion of the opinion applying Delaware law, and despite the extensive factual background in the Court’s opinion, this will be a relatively short synopsis.
Bottom line: This opinion is noteworthy, for purposes of this blog, primarily due to its imposition of fiduciary duties on officers of an LLC in the procedural setting of a preliminary injunction motion based on Delaware law. The fiduciary duty claim is analyzed in the unusual context of a discussion about whether the elements of civil conspiracy under Utah law are satisfied.
The familiar elements that must be satisfied for a preliminary injunction are recited at page 21 of the opinion. (See, e.g., footnote 93. See also footnotes 130 and 134). For the probability of success on the merits factor, the Court focused on the application of that element to the civil conspiracy claims under Utah law. The Court describes in extensive detail the somewhat sordid details, such as spoliation of evidence, but in the end they do not relate directly to the analysis of Delaware legal issues, so I will not cover them here.
The parties did not disagree with the application of Delaware law for the imposition of fiduciary duties on the officers of the Delaware LLC. (See footnote 115). The Court found that there was a likelihood of success on the claims that the officers conspired in furtherance of their own interests–rather than the best interests of the company, to take over the company (or later take its employees to compete against it). In sum, the Court granted a preliminary injunction, but limited its duration to three months due to other proceedings among the parties where the remainder of the claims would apparently be addressed.