A recent Delaware Court of Chancery opinion discussed the nuances of an unusual personal and business relationship, akin to a “familial intimacy”, that formed the basis for the court to conclude that a fiduciary relationship could be proven at trial. See Bamford v. Penfold, L.P., C.A. No. 2019-0005-JTL (Del. Ch. Feb. 28, 2020).
The court provides a detailed and scholarly legal analysis about the specific factual circumstances based on which the court may conclude that a fiduciary relationship might be found–beyond the more common fiduciary roles, such as a corporate director. This 74-page opinion also provides eminently quotable citations to authority and quotable statements of the law in connection with a case involving claims against a former long-term close friend who turned out to be a beguiling business partner. The court determined that at least some of the claims would not be dismissed at the motion to dismiss stage based on the standards of Rule 12(b)(6).
The court’s opinion provides a wealth of recitations of legal principles of great importance and widespread relevance to commercial litigators. Among the more memorable and consequential nuggets of widespread application include the following:
Criteria to Find Existence of a Fiduciary Relationship:
The plaintiff in this case alleged that a fiduciary relationship existed based on: (i) the role of the defendant as a trusted financial advisor; and (ii) the long-term, very close personal and business friendship that rose to the level of “familial closeness.” For example, each of the two friends were godfathers to each other’s child. See pages 16-17.
The court describes in detail the multiple factors and many factual details that support the court’s finding–for purposes of this motion to dismiss–at this early stage, that a fiduciary relationship creating a fiduciary duty could be proven at trial based on the allegations made.
The court’s analysis at page 18-24 deserves careful reading on this point, and the court’s insights into Delaware law on this topic should be included in the toolbox of every litigator who may have occasion to analyze whether a particular relationship has the necessary attributes for a court to find that a fiduciary relationship exists.
Elements of a Claim for Common Law Fraud:
Although the elements of a common law fraud claim are well-known, the court’s description of the specificity required by Chancery Rule 9(b) are useful as a reminder of the nuances involved. See pages 24 to 27.
Requirements of an Effective Anti-Reliance Clause:
Many cases have been highlighted on these pages that address the consequential legal principles that determine whether the exact wording of an anti-reliance clause will be sufficient to bar claims based on extra-contractual statements. This opinion explains with copious citations to cases and learned commenwhat the prerequisites are for an effective anti-reliance clause that will be upheld when sophisticated parties negotiate those terms in an agreement. See page 31 to 36. See, e.g., Praire Capital case, highlighted on these pages, cited by the court as an anti-reliance clause that was upheld. But cf. the Chancery decision in the Anvil case, highlighted on these pages, that did not meet the test of enforceability. See also footnote 7 which refers to the court’s admonition that an anti-reliance clause cannot be used to take advantage of an unsophisticated party. See pages 31 to 36.
Fiduciary Duty of Disclosure:
The court describes those situations when silence in the face of a duty of disclosure by a fiduciary could create liability. See pages 41 to 48.
Double-Derivative Claim in LLC Context:
Delaware decisions addressing the nuances of a double-derivative claim are not numerous by comparison to cases that address the requirements for a single-derivative claim, but the court in this opinion explains why a double-derivative claim is permissible in the LLC context.
The court also provides a journey into the dark history of the “continuous ownership requirement” for derivative suits, and its exceptions, and refers to many scholarly sources that provide support for its reasoning why, based on the facts of this case, the continuous ownership requirement was not a bar to the claims in this matter.