The recent opinion from the Delaware Court of Chancery in Dieckman v. Regency GP LP, C.A. No. 11130-CB (Del. Ch., March 29, 2016), provides a useful reminder that the Delaware statutes for alternative entities, such as the LP in this case, allow for a waiver of all fiduciary duties. The only exception to that rule is that the implied covenant of good faith and fair dealing cannot be waived, but that is a porous net that does not save many claims and is a notoriously difficult theory to prevail on. See 6 Del. C. Section 17-1101(d)(allowing elimination of fiduciary duties in LP).
This helpful opinion is also noteworthy for, in essence–in my words, reminding readers that claimants should look to federal law and not Delaware law in those cases where all fiduciary duties are waived under state law. See footnote 62. The court suggests a potential basis in federal law to seek remedies for disclosure violations and related claims, where Delaware law offers little or no solace in these situations. This noteworthy judicial observation should be compared to the many scholarly articles that decry the “creeping federalization” of corporate law, which for many years has threatened to displace Delaware as the nation’s leading source for corporate governance jurisprudence and a leading forum for corporate litigation. See, e.g., the scholarly articles of Professor Mark Roe and Professor Stephen Bainbridge, among many others. Footnote 62 refers to federal statutes that may be a source of potential claims when all fiduciary duties are waived under state law.
The decision cites to many prior Delaware opinions in which a provision in an LP agreement provides a procedure for handling conflicted, affiliated transactions by which a committee will “sanitize” such transactions. The court also notes that by contrast, fiduciary duties cannot be waived in the corporate context and the “cleansing procedure” of shareholder ratification in the corporate context is also dependent upon both sufficient disclosures and a majority of disinterested stockholders approving such contested transactions. See, e.g., footnote 30 for cases cited on this point.
Another practical iteration of Delaware law in this opinion for those who make their living in the vineyards of corporate and commercial litigation, relates to the elements of “tortious interference with contract”. One of the elements of such a claim is “an intentional act that is a significant factor in causing the breach of the contract.” An important exception to that requirement, however, exists when: “defendant’s wrongful conduct … induces the termination of the contract, irrespective of whether termination is lawful.” See footnote 74 for supporting case law.