A recent Chancery decision is notable for its application of the implied covenant of good faith and fair dealing in a partnership agreement that waives all conventional fiduciary duties, and replaces them with a contract-based standard of conduct. The decision in Bandera Master Funds LP v. Boardwalk Pipeline Partners, LP, C.A. No. 2018-0372-JTL (Del. Ch. Oct. 7, 2019), is an exemplary exegesis of standards and nuances and subtleties that must be addressed before finding a breach of the implied covenant of good faith and fair dealing–especially when conventional default fiduciary duties in the alternative entity context are waived. See Slip op. at 46-48.

Why this case is notable: This case provides a cornucopia of “first principles” of Delaware corporate law in several footnotes. See, e.g., footnotes 5-9 and accompanying text.

For example, the court observes that in for-profit entities, fiduciary duties are owed to all stockholders–and the court describes those increasingly important instances where consideration of other constituencies and factors may be consistent with that primary focus of fiduciaries, i.e., the shareholder wealth maximization norm. See Slip op. at 30-31 and n.8.

This decision is also worthy of attention because it finds a difficult-to-prove breach of the implied covenant of good faith and fair dealing. The court explains why, based on the facts presented, it is “reasonably conceivable” that the implied covenant was breached. See Slip op. at 48-49.  The court also reasoned that it was not surprising that there was no express term that barred manipulation of a “call price.”

UPDATE: The venerable Professor Bainbridge, a nationally-prominent corporate law professor, often cited by Delaware courts, graciously linked to this post on his blog.