A recent Delaware Court of Chancery decision addressed many Delaware legal precepts of importance in connection with claims by members in a web of related alternative entities, that have broad application for those involved in commercial and business litigation.
In the case styled Kuramo Capital Management, LLC v. Seruma, C.A. No. 2021-0323-KSJM (Del. Ch. April 30, 2024), the court issued a 94-page decision, with the first 51-pages or so providing a detailed factual background that describes the multiple layers of interrelated entities and the shifting relationships among the parties as well as the multiple changes of ownership which impacted the duties and liabilities that gave rise to a panoply of claims. The court provides two charts to diagram the evolving relationships among the many entities involved and how their interrelated ownership changed over time. Those charts filled the better part of two pages. See Slip op. at 13 and 17.
With that backdrop, it may seem bold and unrealistic to provide a short overview of such a lengthy decision with so many complicated factual details and intricate legal issues and analyses.
Nonetheless, for the benefit of those readers who are primarily interested in the essential takeaways from the decision, and the irreducible kernels of wisdom that might be generally applicable, as well as insights that might lead one to decide that it would be helpful to read the whole opinion, I provide the following bullet points:
Highlights
- The fiduciary duties of LLC managers, and the prerequisites for limiting or eliminating those duties is a perennial issue that the court addresses at page 53. See also footnotes 282 and 283.
- The court also describes the contractual standard requiring actions to be “fair and reasonable,” to be akin to, “if not equivalent to, entire fairness review.” See cases cited at footnote 283.
- The always important recitation of the well-known three standards of review when analyzing claims for breach of fiduciary duty, is addressed at page 55.
- The well-worn entire fairness standard is discussed and applied at pages 57 through 62.
- The court also noted that the plaintiff repackaged its claim for breach of fiduciary duty as a claim for fraud, but the fraud claims appeared largely duplicative.
- However familiar and pedestrian the elements for a breach of contract claim are, it’s always useful to be reminded of them. See Slip op. at 63.
- A helpful discussion explains why, based on the facts of this case, the court granted a D.J. that there was no right to indemnification due to the findings of a lack of good faith and breach of fiduciary duty, resulting in a claw back of funds previously advanced.
- A comparison of the elements for a tortious interference with contractual relations claim, with a claim for tortious interference with prospective business relations, was discussed at page 68 through 71. This analysis included the seven factors to determine if interference with the contract is justified, and the tension between some unavoidable interference as an allowable consequence of fair competition in the marketplace. Also discussed was the distinction between interference and free speech as described in Section 768 of the Restatement, Second, of Torts.
- The court noted the truism that a party to a contract cannot be liable for interfering with its own contract.