Baldwin v. New Wood Resources LLC ( 2022 )

IN THE SUPREME COURT OF THE STATE OF DELAWARE
RICHARD BALDWIN, §
§
Defendant/Counterclaim- § No. 303, 2021
Plaintiff Below, Appellant, §
§
v. § Court Below: Superior Court
§ of the State of Delaware
NEW WOOD RESOURCES LLC, §
§
Plaintiff/Counterclaim- § C.A. No. N20C-10-231
Defendant Below, Appellee. §
Submitted: June 8, 2022
Decided: August 16, 2022
Before SEITZ, Chief Justice; VALIHURA, VAUGHN, TRAYNOR, and
MONTGOMERY-REEVES Justices, constituting the Court en Banc.
Upon appeal from the Superior Court. REVERSED and REMANDED.
Sean J. Bellew, Esquire (argued), Bellew, LLC, Wilmington, Delaware. Of Counsel:
Chris L. Gilbert, Esquire, Gilbert PC, Dallas, Texas, for Appellant.
Richard P. Rollo, Esquire (argued), Travis S. Hunter, Esquire, Renée Mosley Delcollo,
Esquire, Richards Layton & Finger, P.A., Wilmington, Delaware for Appellee.
VALIHURA, Justice:
This appeal involves a breach of contract claim arising out of an indemnitee’s
refusal to repay money advanced pursuant to an LLC Agreement. Under the LLC
Agreement, a Person is entitled to indemnification if the Person acted in good faith and in
a manner believed to be in or not opposed to the best interests of the Company.1 The
indemnification payments are further conditioned on the Person’s written undertaking to
repay all amounts advanced under the LLC Agreement if it is later determined that the
Person has not satisfied the standard of conduct, and thus, is not entitled to indemnification.
According to the LLC Agreement, the determination of whether a Person acted in
good faith may be made in one of three ways: (1) by the managers; (2) by independent
legal counsel; or (3) by a majority of the then-outstanding unitholders. We address the
narrow issue of whether the LLC Agreement contains an implied covenant of good faith
that would require this determination of a Person’s entitlement to indemnification to be
made in good faith. For the reasons set forth below, we hold that it does. Therefore, we
REVERSE and REMAND for further proceedings consistent with this opinion.
I. FACTUAL AND PROCEDURAL BACKGROUND
A. The Parties
Plaintiff/Counterclaim-Defendant Below-Appellee New Wood Resources LLC
(“New Wood”) is a Delaware limited liability company that was formed on September 6,
1
A52 (Second Am. & Restated LLC Agreement § 8.2). “Person” is defined in the LLC Agreement
as “any natural person, corporation, limited partnership, general partnership, joint stock company,
joint venture, association, company, trust, bank trust company, []land trust, business trust, or other
organization, whether or not a legal entity, and any government or agency or political subdivision
thereof.” A75 (Schedule II Ex. A, Defined Terms).
2
2013.2 New Wood operates a plywood and veneer manufacturing facility in Mississippi
known as Winston Plywood & Veneer LLC (“WPV”). New Wood controls WPV through
New Wood’s wholly-owned subsidiary, WPV Holdco LLC (“Holdco”).3 ACR Winston
Preferred Holdings LLC (“ACR”) held approximately 85.52 percent of New Wood’s then-
outstanding units, making it the majority holder of New Wood. Andrew M. Bursky
(“Bursky”) was President of ACR. Kurt Liebich (“Liebich”) was the former Chief
Executive Officer of Winston.
Defendant/Counterclaim-Plaintiff Below-Appellant Dr. Richard F. Baldwin
(“Baldwin”) served as a manager of New Wood starting in September of 2013,4 and served
as a member of New Wood’s Board of Managers.5 Baldwin served as the manager of Oak
Creek Investments LLC (“OCI”).6 OCI is also a member of New Wood. Baldwin was
asked to invest in New Wood, and to oversee the revitalization of a newly acquired
plywood mill in Louisville, Mississippi.7
2
A12 (Pl.’s Am. Compl. ¶ 2); A13 (Pl.’s Am. Compl. ¶ 7).
3
A126 (Def.’s Countercl. ¶¶ 8–9).
4
A12 (Pl.’s Am. Compl. ¶ 3).
5
A13 (Pl.’s Am. Compl. ¶ 8).
6
A16 (Pl.’s Am. Compl. ¶ 12); A130 (Def.’s Countercl. ¶ 20); A175 (Pl.’s Answer to Def.’s
Countercl. ¶ 20).
7
A126 (Def.’s Countercl. ¶ 10). Baldwin avers that he “is a renowned expert in the forest-products
industry, including plywood manufacturing,” and that “he has been installing major equipment in
plywood mills since 1965.” A126 (Def’s Countercl. ¶ 5). Also, as the Court of Chancery observed,
“Baldwin has an extensive track record of revitalizing underperforming plywood mills.” Court of
Chancery Ruling, Winston Plywood & Veneer LLC v. Oak Creek Investments, LLC, C.A. No.
2018-0350-JRS, Dkt. No. 71, at 5 (Del. Ch. March 20, 2020) (TRANSCRIPT) [hereinafter Mar.
20, 2020 Ct. Ch. Ruling].
3
B. The LLC Agreement
In March 2014, New Wood’s members entered the Second Amended and Restated
Limited Liability Company Agreement (the “LLC Agreement” or the “Agreement”).8 The
LLC Agreement provides certain indemnification and advancement rights to its Managers.
Specifically, Section 8.2 governs indemnification rights. The first part of Section 8.2
addresses who is entitled to indemnification as well as the standard of conduct an
indemnitee must satisfy:
Right to Indemnification. Subject to the limitations and conditions as
provided in this Article 8, each Person who was or is made a party or is
threatened to be made a party to or is involved in any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative,
arbitrative or investigative (hereinafter, a “Proceeding”), or any appeal in
such a Proceeding or any inquiry or investigation that could lead to such a
Proceeding, by reason of the fact that it, or a Person of whom it is the legal
representative, is or was a Member, Manager, Member of a Committee of the
Board or an Officer, or while a Member, Manager or an Officer is or was
serving at the request of the Company as a member, manager, director,
officer, partner, venturer, proprietor, trustee, employee, agent or similar
functionary of another foreign or domestic limited liability company,
corporation, partnership, joint venture, sole proprietorship, trust, employee
benefit plan or other Person (each, an “Indemnitee”) shall be indemnified by
the Company to the fullest extent permitted by the Act, as the same exists or
may hereafter be amended (but, in the case of any such amendment, only to
the extent that such amendment permits the Company to provide broader
indemnification rights than said Act permitted the Company to provide prior
to such amendment) against judgments, penalties (including excise and
similar taxes and punitive damages), fines, settlements and reasonable
expenses (including attorneys’ fees) actually incurred by such Person in
connection with such Proceeding, and indemnification under this Article 8
shall continue as to a Person who has ceased to serve in the capacity which
initially entitled such Person to indemnity hereunder. Notwithstanding
anything to the contrary in this Section 8.2, no Person shall be entitled to
indemnification hereunder unless it is found (in the manner described below
8
A13 (Pl.’s Am. Compl. ¶ 7). Pursuant to the LLC Agreement, New Wood is managed by its
Board of Managers (the “Board”). A13 (Pl.’s Am. Compl. ¶ 8).
4
in this Section 8.2) that, with respect to the matter for which such Person
seeks indemnification, such Person acted in good faith and in a manner that
he or she reasonably believed to be in or not opposed to the best interests of
the Company and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his or her conduct was unlawful. The termination
of any Proceeding by judgment, order, settlement, conviction, or upon a plea
of nolo contendere or its equivalent, shall not, of itself, create a presumption
that the Person did not act in good faith and in a manner which he or she
reasonably believed to be in or not opposed to the best interests of the
Company and, with respect to any criminal Proceeding, had reasonable cause
to believe that his or her conduct was unlawful.9
The second part of Section 8.2 addresses how the determination is made as to
whether an indemnitee has met the standard of conduct:
The finding of the standard of conduct required above shall be made (a) by
a majority vote of all of the Managers who are not parties to such Proceeding
even though less than a quorum or (b) if there are no such Managers, or if
such Managers so direct, by independent legal counsel in a written opinion
or (c) by holders of a Majority of the then-outstanding Units (determined
without regard to any Members that are parties to such Proceeding).
Notwithstanding anything to the contrary herein, “internal disputes” shall be
excluded from the types of claims indemnified hereunder. For purposes of
the preceding sentence, an “internal dispute” is defined exclusively as any
proceeding commenced by any Atlas Member or one or more officers,
directors, managers, partners, members or employees of any Atlas Member
against any other Atlas Member or one or more other officers, directors,
managers, partners, members or employees of such Atlas Member.10
Section 8.3 governs advancement rights, and provides as follows:
Advance Payment. The right to indemnification conferred in this Article 8
shall include the right to be paid or reimbursed by the Company the
reasonable expenses incurred by a Person of the type entitled to be
indemnified under Section 8.2 who was, is or is threatened to be made a
named defendant or respondent in a Proceeding in advance of the final
disposition of the Proceeding and without any determination as to the
Person’s ultimate entitlement to indemnification; provided, however, that
9
A52–53 (Second Am. & Restated LLC Agreement § 8.2) (emphasis added).
10
A53 (Second Am. & Restated LLC Agreement § 8.2) (emphasis added).
5
the, payment of such expenses incurred by any such Person in advance of the
final disposition of a Proceeding shall be made only upon delivery to the
Company of a written affirmation by such Person of its good faith belief that
it has met the standard of conduct necessary for indemnification under this
Article 8 and a written undertaking, by or on behalf of such Person, to repay
all amounts so advanced if it shall ultimately be determined that such
indemnified Person is not entitled to be indemnified under this Article 8 or
otherwise.11
Thus, Section 8.3 conditions a Person’s receipt of advancement on: (1) delivery of the
written affirmation by the Person that the Person has satisfied the standard of conduct (an
“Affirmation”), and (2) execution of a written undertaking to repay all advanced amounts
if it is ultimately determined that the Person is not entitled to indemnification (an
“Undertaking”).
C. Baldwin’s Employment by New Wood
New Wood leased the WPV manufacturing facility in Louisville, Mississippi.12 The
facility had been dormant for years and was in need of repair. New Wood began to make
repairs so that it could operate a plywood mill. New Wood chose Baldwin to oversee the
restoration and revitalization of the WPV manufacturing facility because of Baldwin’s
expertise and prior successful business ventures in the forest-products industry.13
However, prior to the WPV facility’s completion, the facility was destroyed by an EF-4
tornado.14 Thereafter, WPV received funding from the Federal Emergency Management
11
A53 (Second Am. & Restated LLC Agreement § 8.3) (emphasis added).
12
A127 (Def.’s Countercl. ¶¶ 11, 12).
13
A126 (Def.’s Countercl. ¶¶ 5, 6, 10).
14
A127 (Def.’s Countercl. ¶ 13).
6
Agency, and Baldwin took the lead role on behalf of New Wood to restore the WPV facility
and transform it into a functioning and profitable plywood manufacturing facility.15
On August 24, 2016, just before the WPV mill was set to begin operations, Baldwin
was terminated from his position as the President and General Manager of WPV by Bursky
and Liebich.
D. The Underlying Actions
Three underlying lawsuits preceded the current litigation (the three lawsuits are
referred to collectively as the “Lawsuits”). The Lawsuits were by and between Baldwin,
New Wood, Bursky, and other entities in the following courts: the Mississippi federal
court, the Mississippi state court, and the Delaware Court of Chancery.16
OCI, which was managed by Baldwin at the time, 17 initiated the first action on
February 9, 2018 by filing a complaint in the United States District Court for the Northern
District of Mississippi (the “Mississippi Federal Action”). The Mississippi Federal Action
alleged breach of contract, fraud, breach of the implied covenant of good faith and fair
dealing, and breach of fiduciary duty, among other things, against Atlas FRM LLC d/b/a
Atlas Holdings LLC, Bursky,18 Liebich, New Wood, Holdco, and WPV (collectively, the
15
A127 (Def.’s Countercl. ¶ 14).
16
A16–17 (Pl.’s Am. Compl. ¶¶ 12–17). The Mississippi federal court action is captioned Oak
Creek Investments, LLC v. Atlas Holdings LLC, No. 1:18-cv-0023-SA-DAS (N.D. Miss.). The
Mississippi state court action is captioned Oak Creek Investments, LLC v. Atlas FRM LLC d/b/a
Atlas Holdings, LLC, No. 2018-091-CVM (Miss. Cir. Ct., Winston Cty.). The Delaware Court of
Chancery action, referred to herein as the Delaware Plenary Action, is captioned Winston Plywood
& Veneer LLC v. Oak Creek Investments, LLC, C.A. No. 2018-0350 (Del. Ch.).
17
Baldwin was the Managing Member of OCI. A16 (Pl.’s Am. Compl. ¶ 12).
18
For example, the Mississippi Federal Action contained the following allegation against Bursky:
7
“Defendants”). OCI sought declaratory judgment relief relating to the alleged improper
dilution of OCI’s equity interests and veil piercing arising out of a Management Services
Agreement by and between Baldwin and WPV and investments by Baldwin in New Wood
and Holdco.19 According to Baldwin, the basis for the claims in the Mississippi Federal
Action arose out of and related to the termination of Baldwin as the President and General
Manager of WPV.
On May 17, 2018, the Defendants moved for dismissal of the Mississippi Federal
Action for lack of subject matter jurisdiction.20 That same day, the Defendants filed suit
against OCI and Baldwin in the Delaware Court of Chancery (the “Delaware Plenary
Action”), asserting various claims for breach of fiduciary duty, breach of contract, and
Acting in their individual and representative capacities, Defendants Bursky’s and
Liebich’s willful and bad-faith conduct, as well as the conduct of others, reached a
climax on August 24, 2016 when, just weeks before the [WPV] mill was set to
begin operations, with no prior notice, with no plausible rationale or reason, with
no regard for OCI’s significant investment in NWR and WPV, and with no
consideration for Dr. Baldwin’s efforts leading the mill to startup, or his superior
knowledge of constructing and operating a plywood mill, Dr. Baldwin was
summarily terminated from his role as President and General Manager of WPV.
Opening Br. at 6 (citing Pl.’s Compl. ¶ 21, Oak Creek Invs., LLC v. Atlas Holdings LLC, No. 1:18-
cv-0023 (N.D. Miss. Feb. 9, 2018)). In his answering brief in the proceedings before the Superior
Court, Baldwin avers that the claims for breach of the implied covenant of good faith and fair
dealing and breach of fiduciary duty asserted in the Mississippi Federal Action “arose from the
wrongful attempted ouster of Dr. Baldwin and purposeful dilution of OCI’s equity in New Wood.”
B36 (Def./Countercl.-Pl. Richard F. Baldwin’s Answering Br. in Opp’n to Pl./Countercl.-Def.
New Wood Resources LLC’s Mot. for J. on the Pleadings [hereinafter Super. Ct. Ans. Br.]). The
Court of Chancery noted in its March 20, 2020 Transcript Ruling that Baldwin alleged that his
termination “was the culmination of a pattern of micromanagement by Bursky and Liebich that
undermined Baldwin’s authority and decision-making.” Mar. 20, 2020 Ct. Ch. Ruling, C.A. No.
2018-0350-JRS, at 6.
19
See A16 (Pl.’s Am. Compl. ¶ 12).
20
A16 (Pl.’s Am. Compl. ¶ 13).
8
negligence. The Delaware Plenary Action also sought a declaratory judgment that OCI’s
allegations against the Defendants in the Mississippi Federal Action were false.
On May 25, 2018, OCI filed a Notice of Dismissal Without Prejudice in the
Mississippi Federal Action.21 That same day, OCI refiled the claims asserted in the
Mississippi Federal Action against the same Defendants in the Circuit Court of Winston
County, Mississippi (the “Mississippi State Action”).22 The Defendants moved to dismiss
based on Mississippi’s “first-filed-rule” and on forum non conveniens.
E. Baldwin’s Advancement Action
While litigation in the Mississippi State Action was pending, Baldwin and OCI
sought advancement of their litigation expenses pursuant to Section 8.3 of the LLC
Agreement. Under Section 8.3, Baldwin and OCI were required to provide an Affirmation
and an Undertaking. On August 10, 2018, Baldwin sent a letter on his own behalf23 and
one on behalf of OCI24 whereby they agreed “to repay all amounts so advanced if it shall
ultimately be determined that [Baldwin/OCI is] not entitled to be indemnified in this
lawsuit.” New Wood declined Baldwin’s and OCI’s requests.25
On January 10, 2019, Baldwin filed an advancement action in the Delaware Court
21
According to Baldwin, none of the Defendants had filed an answer to the complaint, making the
dismissal without prejudice “automatic.” Opening Br. at 8.
22
A17 (Pl.’s Am. Compl. ¶ 14); A144 (Advancement Compl. ¶ 7).
23
A93 (Baldwin’s Written Undertaking).
24
A94 (OCI’s Written Undertaking).
25
A161 (Advancement Compl. ¶ 54); Opening Br. Addendum at 5 (New Wood Res. LLC v.
Baldwin, 2021 WL 3784258, at 2 (Del. Super. Aug. 23, 2021)).
9
of Chancery against New Wood, Holdco, and WPV (the “Advancement Action”).26 In this
action, Baldwin sought advancement for fees incurred in the Delaware Plenary Action as
well as fees and interest incurred in litigating the Advancement Action (the “fees on fees”).
On February 22, 2019, the Mississippi State Action was dismissed on grounds of
forum non conveniens.27 Following that dismissal, on March 25, 2019, Baldwin and OCI
filed their Answer and Counterclaims in the Delaware Plenary Action.28
On May 9, 2019, Baldwin moved for partial summary judgment in the Advancement
Action. In his accompanying brief, Baldwin stated that New Wood had not advanced any
funds in response to his August 10, 2018 demand. Baldwin alleged that on September 10,
2018, New Wood’s counsel stated that it was “assessing” his demand.29 In addition, New
Wood sought from Baldwin and OCI “‘all potential sources of alternative funding’ along
with ‘any documents relating to or reflecting such rights[.]’”30 New Wood also sought
26
A131 (Def.’s Countercl. ¶ 29); see generally A142–64 (Advancement Compl.). The
Advancement Action is captioned Baldwin v. New Wood Resources, LLC, C.A. No. 2019-0019
(Del. Ch.).
27
Opening Br. at 10. On November 17, 2020, the Court of Appeals of Mississippi reversed and
remanded the matter and directed the circuit court to enter a new judgment that included a
stipulation tolling the statute of limitations beginning on the date that OCI filed its complaint in
that matter. See Oak Creek Invs., LLC v. Atlas FRM LLC, 307 So.3d 503, 505 (Miss. Ct. App.
2020). The Court of Appeals of Mississippi agreed that the action should be dismissed, but only
based on forum non conveniens. The court explained that the matter could not be dismissed based
on the first-filed-rule because that rule only applies when the first and second actions are pending
in Mississippi courts. Accordingly, the court remanded for the lower court to obtain a stipulation
of the parties, as required under the Mississippi code. The court, however, declined to address the
parties’ other arguments on appeal because it considered those issues beyond the scope of appeal.
28
A130 (Def.’s Countercl. ¶ 24).
29
A157 (Advancement Compl. ¶ 39).
30
Id.10
“details of all steps Dr. Baldwin and/or OCI have taken to secure funding from any other
source.”31 Baldwin argued that New Wood “sought to create insurmountable hurdles” for
OCI and him.32 Baldwin stated that he responded to these requests, which were met with
further requests for additional information and further delay.
During the September 16, 2019 oral argument on Baldwin’s motion for partial
summary judgment in the Advancement Action, the Vice Chancellor noted that he
“struggle[ed] to see [the defendants’] construction as being a reasonable one[,]”33 and ruled
that Baldwin was entitled to advancement of his litigation expenses, including attorneys’
fees, incurred in defending against the claims asserted in the Delaware Plenary Action, as
well as his fees and expenses incurred in the Advancement Action following his execution
of the Undertakings. The Court of Chancery directed the parties to “put[] in place a
31
Id.32
A157–58 (Advancement Compl. ¶ 39).
33
Baldwin v. New Wood Res., LLC, C.A. No. 2019-0019-JRS, Dkt. No. 46, at 34 (Del. Ch. Sept.
16, 2019) (TRANSCRIPT) [hereinafter Sept. 16, 2019 Ct. Ch. Tr.]; see A131 (Def.’s Countercl.
¶ 30). Section 8.6 of the LLC Agreement requires that prior to seeking indemnification pursuant
to Section 8, each indemnitee will use reasonable efforts to pursue indemnification available from
insurance, any Subsidiary, if any, involved, and other sources in a timely manner. A54 (Second
Am. & Restated LLC Agreement § 8.6). Baldwin argued below that to read Section 8.6 as
requiring exhaustion of other sources prior to advancement would eviscerate the advancement
provision in Section 8.3. The Court of Chancery also struggled with New Wood’s construction of
the LLC Agreement stating that “the only right that is subject to the exhaustion condition is the
right to indemnification” as opposed to advancement. Sept. 16, 2019 Ct. Ch. Tr., C.A. No. 2019-
0019-JRS, at 35:7–12 (“So what I’m struggling with is since we see advancement separated out
here in the contract in 8.3, and our law recognizes it as a subset of indemnification, but a separate
right, why would that 8.3 that says nothing of exhaustion there be subject to an exhaustion
condition?”). In its bench ruling, the Court of Chancery rejected New Wood’s argument stating
that “[b]y it’s unambiguous terms, Section 8.6 only applies to indemnification, not advancement.”
Id. at 76:7–9.
11
Fitracks process to govern future advancement requests.”34 On October 14, 2019, the
Court of Chancery entered an order directing New Wood to pay $269,881.61 as 75% of
the advancement costs sought for Baldwin’s and OCI’s costs and expenses defending the
Delaware Plenary Action through September 17, 2019, $17,726.97 in prejudgment interest
and $214,459.49 as 75% of the fees on fees costs they incurred bringing the Advancement
Action.35
New Wood made its first timely partial advancement payment, but then objected to
the subsequent advancement request.36 This prompted Baldwin to file, on March 16, 2020,
a motion for fees and expenses pursuant to Court of Chancery Rule 8837 (the “Rule 88
34
Sept. 16, 2019 Ct. Ch. Tr., C.A. No. 2019-0019-JRS, at 84:7–8. A Fitracks process is a set of
procedures described in Danenberg v. Fitracks, Inc., 58 A.3d 991 (Del. Ch. 2012) which requires
“the senior Delaware counsel for the party seeking advancements [to] oversee[] the preparation of
a detailed submission supporting the advancement request and [to] certif[y] that the amounts
sought fall within the scope of the advancement right.” White v. Curo Texas Holdings, LLC, 2017
WL 1369332, at *1 (Del. Ch. Feb. 21, 2017). If the responding party objects, the senior Delaware
counsel for the responding party will oversee “the preparation of a similarly detailed set of
objections and certif[y] that those amounts fall outside the scope of the advancement right.” Id.“After the exchange of written materials, the senior Delaware lawyers confer in good faith in an
effort to resolve disputes without court involvement.” Id.35
A200–01 (Order Granting Pls.’ Mot. Partial Summ. J. ¶¶ 3–4).
36
Oral Ruling, Baldwin v. New Wood Res., LLC, C.A. No. 2019-0019-JRS, Dkt. No. 59, at 29:12–
15 (Del. Ch. August 10, 2020) (TRANSCRIPT) [hereinafter Aug. 10, 2020 Ct. Ch. Ruling].
37
Court of Chancery Rule 88 provides:
In every case in which an application to the Court [of Chancery] is made for a fee
or for reimbursement for expenses or services the Court [of Chancery] shall require
the applicant to make an affidavit or submit a letter, as the Court [of Chancery] may
direct, itemizing (1) the amount which has been received, or will be received, for
that purpose from any source, and (2) the expenses incurred and services rendered,
before making such an allowance. This rule shall not apply to any petition for the
allowance of additional commissions or fees pursuant to Rule 192.
Ct. Ch. R. 88.
12
Motion”) requesting outstanding fees and expenses, plus pre- and post-judgment interest.38
In his Rule 88 Motion, Baldwin stated that New Wood was asserting that it had insufficient
funds to advance the amounts owed. His Rule 88 Motion also stated that New Wood had
paid $502,068.07 of the $638,702.13, plus interest, requested. Baldwin requested that New
Wood be ordered to pay $223,373.70, plus pre- and post-judgment interest as well as fees
on fees.
On January 23, 2020, New Wood, Holdco, and WPV voluntarily dismissed their
claims in the Delaware Plenary Action, which left only Baldwin’s and OCI’s counterclaims
remaining.39
On March 20, 2020, the Court of Chancery granted New Wood’s Rule 12(c) motion
for partial judgment on the pleadings in the Delaware Plenary Action as to the following
claims: fraud and fraud in the inducement against Bursky, Liebich, New Wood, ACR, and
Holdco (Counts III and IV); conspiracy to commit fraud against all Defendants (Count
VIII); and corporate veil piercing against Atlas, Bursky, and Liebich (Count XI).40 Based
on the denial of Baldwin’s and OCI’s fraud claims, the court dismissed the alter-ego claim
as well.41 Baldwin’s and OCI’s other claims for breach of contract, breach of fiduciary
38
Pl.’s Mot. Fees & Expenses Pursuant to Rule 88, Baldwin v. New Wood Res., LLC, C.A. No.
2019-0019-JRS, Dkt. No. 48 (Del. Ch. March 16, 2020).
39
A131 (Def.’s Countercl. ¶ 25).
40
Mar. 20, 2020 Ct. Ch. Ruling, C.A. No. 2018-0350-JRS, at 15:9–12; see Order, Winston
Plywood & Veneer LLC v. Oak Creek Invs., LLC, C.A. No. 2018-0350-JRS, Dkt. No. 66 (Del. Ch.
Mar. 27, 2020).
41
Mar. 20, 2020 Ct. Ch. Ruling, C.A. No. 2018-0350-JRS, at 14:3–7.
13
duty, and declaratory judgment were not at issue for purposes of the Court of Chancery
12(c) motion for partial judgment on the pleadings.
F. The April 23, 2020 Written Consent by ACR
Pursuant to Section 8.2 of the LLC Agreement, New Wood sought a determination
as to whether Baldwin and OCI were entitled to indemnification. Under Section 8.2,
Baldwin and OCI were entitled to indemnification if they “acted in good faith and in a
manner that [they] reasonably believed to be in or not opposed to the best interests of the
Company[.]”42 This determination could be made in one of three ways:
(a) by a majority vote of all of the Mangers who are not parties to such
Proceeding even though less than a quorum or (b) if there are no such
Managers, or if such Managers so direct, by independent legal counsel in a
written opinion or (c) by holders of a Majority of the then-outstanding Units
(determined without regard to any Members that are parties to such
Proceeding).43
In this case, the determination was made by the holders of a majority of the then-
outstanding units. At the time of the indemnification determination, ACR held
approximately 85.52 percent of New Wood’s then-outstanding units, making it the majority
unitholder of New Wood.44 On April 23, 2020, Bursky, as the President of ACR, executed
a Written Consent of Certain Members of New Wood Resources LLC (the “Written
Consent”).45 The Written Consent, dated April 23, 2020, stated that
the undersigned Members, constituting a Majority of the currently
outstanding Units (determined without regard to Members that are party to
42
A14 (Pl.’s Am. Compl. ¶ 10).
43
A15 (Pl.’s Am. Compl. ¶ 10).
44
A134 (Def.’s Countercl. ¶ 44).
45
A108–11 (Written Consent).
14
the Lawsuits), (i) are familiar with and have had sufficient time to consider
the performance, conduct and behavior of Baldwin prior to his resignation,
(ii) are familiar with and have had sufficient time to consider the allegations
and claims made by the parties to the Lawsuits, and (iii) have determined that
Baldwin failed to act in good faith and in a manner that he reasonably
believed to be in or not opposed to the best interests of the Company with
respect to the matters at issue in the Lawsuits.46
Without explanation, ACR stated that it had determined that “Baldwin failed to act
in good faith[.]”47 The entirety of the Written Consent’s “good faith” determination is
contained in the following paragraph:
RESOLVED, that undersigned, constituting a Majority of the currently
outstanding Units (determined without regard to Members that are party to
the Lawsuits), have determined that Baldwin failed to act in good faith and
in a manner that he reasonably believed to be in or not opposed to the best
interests of the Company, in connection with the matters at issue in the
Lawsuits.48
New Wood thereafter requested that Baldwin repay the advanced amounts. Baldwin
refused.
On August 10, 2020, the Court of Chancery held oral argument in the Advancement
Action and provided a ruling on Baldwin’s Rule 88 Motion. The parties agreed that New
Wood would pay Baldwin “$223,373.70 for advanceable fees and expenses.”49 Thus, the
court considered Baldwin’s motion “equivalent to a motion for judgment,” and the court
asked the parties to submit a proposed form of judgment.50
46
A109 (Written Consent).
47
A110 (Written Consent).
48
Id.49
Aug. 10, 2020 Ct. Ch. Ruling, C.A. No. 2019-0019-JRS, at 29:17–18.
50
Id. at 31:3–11.
15
On August 26, 2020, the Court of Chancery granted the proposed order in the
Advancement Action and entered final judgment (the “Judgment”).51 According to the
order, New Wood withdrew “all objections to [Baldwin’s and OCI’s] counsels’ attorney
certifications for fees to be advanced to date[.]”52 Therefore, Baldwin and OCI were
entitled to advancement amounts of “$223,373.70 in fees and expenses, plus interest owed
as of October 7, 2019 in the amount of $22,994.40, plus prejudgment interest at the
Delaware legal rate of 5.25% in the amount of $7,688.31[.]”53 Further, Baldwin and OCI
were entitled to be indemnified in the amount of $111,086.55 for their attorneys’ fees and
expenses incurred in connection with the Rule 88 Motion, as well as the fees and expenses
incurred for time spent preparing invoices, demands, and addressing responses.54
Combined with the amounts ordered on October 14, 2019, the total amount to be paid to
Baldwin by New Wood was $867,211.03, consisting of $541,664.99 in advancement and
$325,546.04 in indemnification.55
Following the Court of Chancery’s order, New Wood failed to honor its obligation
to advance Baldwin funds to cover his litigation expenses. 56 According to Baldwin’s
Counterclaim, New Wood contended that it was “nearing insolvency and did not have the
51
B83–84 (Order Granting Award Pursuant to Rule 88 Mot.).
52
B83 (Order Granting Award Pursuant to Rule 88 Mot. ¶ 1).
53
B83–84 (Order Granting Award Pursuant to Rule 88 Mot. ¶ 1). Judgment was entered in favor
of Baldwin and OCI for $254,056.41. B84 (Order Granting Award Pursuant to Rule 88 Mot. ¶ 1).
54
B84 (Order Granting Award Pursuant to Rule 88 Mot. ¶ 2).
55
Opening Br. Addendum at 6 (New Wood Res. LLC, 2021 WL 3784258, at *2). Neither party
disputes these sums.
56
A132 (Def.’s Countercl. ¶ 32).
16
funds to satisfy the Judgment.”57 Only after Baldwin domesticated the Judgment in
Mississippi and sought discovery concerning New Wood’s finances did New Wood
comply with the Court of Chancery’s order.58
G. The Current Breach of Contract Lawsuit
On October 26, 2020, New Wood initiated this lawsuit in the Delaware Superior
Court against Baldwin seeking to claw back the $867,211.03 New Wood had paid to
Baldwin.59 New Wood alleged that Baldwin’s failure to repay the advanced monies
constituted a breach of the LLC Agreement and Baldwin’s Undertaking.60 In support of
its breach of contract claim, New Wood alleged that Baldwin had “failed to act in good
faith and in a manner that he reasonably believed to be in or not opposed to the best interests
of New Wood, in connection with the matters at issue in the Lawsuits[.]”61
In response, Baldwin filed an Answer with affirmative defenses and a counterclaim
(the “Counterclaim”) against New Wood. Baldwin asserted the following three affirmative
defenses: (1) under the implied covenant of good faith and fair dealing, the LLC
Agreement required the indemnification finding to be made in good faith; (2) Baldwin had
acted in good faith; and (3) New Wood’s delay in satisfying the judgment issued in
57
A132 (Def.’s Countercl. ¶ 33).
58
A132–33 (Def.’s Countercl. ¶ 34–35). The Counterclaim alleges that “[t]o date, New Wood had
advanced a total of $867.211.03 to Dr. Baldwin.” A133 (Def.’s Countercl. ¶ 40).
59
A18 (Pl.’s Am. Compl. ¶¶ 18–20).
60
A18–19 (Pl.’s Am. Compl. ¶¶ 21–25).
61
A18 (Pl.’s Am. Compl. ¶ 19).
17
Baldwin’s favor in the Advancement Action caused Baldwin to incur expenses offsetting
any money he owed to New Wood.62
Baldwin’s Counterclaim against New Wood asserted that the Written Consent had
been entered into “in bad faith and in an attempt to improperly avoid New Wood’s
indemnification obligations.”63 Baldwin’s Counterclaim sought a declaratory judgment
that: (i) Section 8.2 of the LLC Agreement contains an implied term that any such
indemnification determination must be made in good faith, (ii) the Written Consent was
entered into in a bad faith attempt to avoid New Wood’s indemnification obligations under
the LLC Agreement; (iii) New Wood was required to pay the attorneys’ fees and costs
Baldwin incurred in domesticating the Judgment in Mississippi, and (iv) Baldwin was
entitled to his attorneys’ fees and costs for pursing the Counterclaims.64
On March 16, 2021, New Wood filed a motion for judgment on the pleadings as to
its breach of contract claim and Baldwin’s Counterclaim. In response, Baldwin argued that
New Wood’s motion should be denied because the implied covenant of good faith and fair
dealing filled a gap in Section 8.2—namely, that the indemnification decision must be
made in good faith.
Baldwin elaborated on these assertions in his pleadings and in the briefing below.
As Baldwin alleges in his Counterclaim, New Wood voluntarily refused to comply with
the Judgment entered by the Court of Chancery. Specifically, he alleges that:
62
A124 (Def.’s Answer at 13).
63
A136 (Def.’s Countercl. ¶ 56).
64
A137 (Def.’s Countercl. ¶ 58).
18
37. Indeed, New Wood refused, through its designee WPV, to voluntarily
advance any of the fees owed to Dr. Baldwin.
38. New Wood only complied with its obligation after: (i) the Court of
Chancery entered an order compelling New Wood to advance those fees; (ii)
the Judgment was entered against New Wood; (iii) the Judgment was
domesticated in Mississippi; and (iv) Dr. Baldwin pursued discovery to
investigate New Wood’s claim of insolvency.
39. Upon information and belief, New Wood was not nearing insolvency
and chose to purposefully delay and force Dr. Baldwin to incur needless costs
and fees (including attorneys’ fees) to domesticate and satisfy the
Judgment.65
Baldwin alleges that rather than responding to various discovery requests he served, New
Wood paid the Judgment thereby mooting the requests.66
Citing to his Counterclaims, Baldwin argued in his answering brief below that “[t]he
written consent was entered into by ACR in a bad faith attempt to avoid New Wood’s
indemnification obligations because New Wood has attempted to avoid those obligations
by first denying Dr. Baldwin his advancement rights, a position Vice Chancellor Slights
‘struggle[ed] [sic] to see . . . a[s] a reasonable one,’ and then refused to voluntarily comply
with the Judgment.”67
65
A133 (Def.’s Countercl. ¶¶ 37–39).
66
See A133 (Def.’s Countercl. ¶ 36) (“On or about December 8, 2020, the eve of New Wood’s
deadline to respond to Dr. Baldwin’s discovery requests—which sought documents showing New
Wood’s financial health and ability to voluntarily satisfy the Judgment—New Wood attempted to
satisfied [sic] the Judgment, with an aim to moot those discovery requests.”).
67
B41 (Super. Ct. Ans. Br. at 13) (alterations in original).
19
Focusing on New Wood’s conduct, and citing to his pleadings, he argued further
that New Wood had not acted in good faith:
The allegations in the Answer, as well as Dr. Baldwin’s Affirmative
Defenses, indicate that New Wood acted in bad faith and for the sole purpose
of improperly avoiding its indemnification obligations. Indeed, Dr.
Baldwin’s Counterclaims and Affirmative Defenses show that New Wood
(i) took what the Court of Chancery found to be an unreasonable position in
its argument that Dr. Baldwin was not entitled to advancement, Countercl.
¶ 30, (ii) voluntarily withdrew its meritless claims against Dr. Baldwin, id.
¶ 25, (iii) purposefully delayed satisfying the Judgment until Dr. Baldwin
domesticat[ed] the Judgment in Mississippi and served discovery on New
Wood to investigate its claims of poverty, id. ¶¶ 32–37, and (iv) after losing
on merits-based determinations related to the parties[’] dispute, attempted to
claw back the amounts paid to Dr. Baldwin by having ACR enter into the
written consent containing no analysis, description, or example of Dr.
Baldwin’s alleged action. Id. ¶ 44–45. It is clear from Dr. Baldwin’s
allegations that New Wood is attempting to use a procedural tool to deny Dr.
Baldwin his right to indemnification, just as New Wood has sought to do
since the parties’ dispute arose.68
Thus, Baldwin argued that “[t]he fact that a majority of [his] advancement was
incurred as a result of New Wood’s refusal to voluntarily comply with advancement
obligations further demonstrates the bad faith with which New Wood (and the other related
defendants in the Advancement and Delaware Chancery Action) have conducted
themselves in all of these related cases.”69 In sum, he argued that “New Wood, through
ACR, made a bad faith determination that Dr. Baldwin was not entitled to
indemnification.”70
68
B44–45 (Super. Ct. Ans. Br. at 16–17).
69
B42–43 (Super. Ct. Ans. Br. at 14 n.6).
70
B48 (Super. Ct. Ans. Br. at 20).
20
The Superior Court heard oral argument during which Baldwin asserted that his
Counterclaim was both an implied covenant claim and an independent claim seeking to
imply a term in the LLC Agreement.71 At the conclusion, the Superior Court asked the
parties to supplement the record by providing relevant authority relating to Baldwin’s latest
“implied term claim.”72
On August 23, 2021, the Superior Court entered judgment in New Wood’s favor.73
The court interpreted the LLC Agreement’s language and the Undertaking as expressly
requiring Baldwin to repay the $541,644.99 that New Wood had advanced to him.74
According to the Superior Court, the parties agreed in Section 8.2 of the LLC Agreement
that Baldwin would not be entitled to indemnification unless he adhered to the standard of
conduct set forth in Section 8.2, i.e., that he acted in good faith and in a manner believed
to be in or not opposed to New Wood’s best interests.75 Further, the Superior Court held
71
A193 (New Wood Res. LLC v. Baldwin, C.A. No. N20C-10-231 AML CCLD, at 28:13–14 (May
12, 2021) (TRANSCRIPT) [hereinafter May 12, 2021 Super. Ct. Tr.]).
72
A197 (May 12, 2021 Super. Ct. Tr., C.A. No. N20C-10-231 AML CCLD, at 43:12–44:6).
73
New Wood Res. LLC v. Baldwin, 2021 WL 3784258 (Del. Super. Ct. Aug. 23, 2021).
74
Specifically, the Superior Court found that
Baldwin does not dispute that he signed the written undertaking to repay or that a
majority of New Woods’ unitholders ultimately made a determination that he was
not entitled to indemnification in the Delaware Plenary Action. Neither party
disputes that Section 8.2’s language is clear and unambiguous, and the parties agree
on the precise amounts advanced to Baldwin. Even drawing all reasonable
inferences in Baldwin’s favor, there is no material dispute that Baldwin
contractually was required to repay the advanced amounts if it was later determined
he was not entitled to indemnification.
Id. at *4.
75
Id.
21
that Baldwin’s Undertaking required Baldwin to repay all amounts advanced to him
because it was ultimately determined that he was not entitled to indemnification. The
Superior Court applied this reasoning only with respect to the amounts advanced to
Baldwin because only the advance payments were subject to Baldwin’s Undertaking.76
Therefore, Baldwin was not required to reimburse New Wood for amounts previously paid
as indemnification.
The court also held that Baldwin had not pled a cognizable counterclaim because he
had asserted the claim against the wrong party. The Superior Court focused on the Written
Consent executed by the majority of New Woods’ unitholders (through ACR, as authorized
by its President, Bursky) and ACR’s determination that Baldwin had not satisfied Section
8.2’s standard of conduct. Accordingly, the court found that “New Wood [could not] be
said to have breached the implied covenant of good faith and fair dealing when the
challenged decision was made by a non-party.”77
The Superior Court also rejected Baldwin’s assertion that a covenant of good faith
and fair dealing is implied in Section 8.2. Baldwin relied on Dieckman v. Regency GP
76
See id. at *5. Specifically, the court stated the following:
Sections 8.2 and 8.3 do not authorize claw-back of amounts paid out for
indemnification, even if New Wood paid these amounts before any “good faith or
best interests” determination. Rather, Sections 8.2 and 8.3 establish the standard
that governs when indemnification must be paid. In short, Baldwin is not
contractually obligated to reimburse New Wood the $325,546.04 paid as
indemnification for the Advancement Action.
Id.
77
Id.
22
LP78 to support his argument that Section 8.2 required any indemnification determination
to be made in good faith, and that explicitly including “good faith” language would have
been “obvious and provocative.”79
However, the Superior Court described Baldwin’s reliance on Dieckman as
“misplaced and unsupported by the pleaded facts.”80 According to the court, Dieckman is
factually and legally distinct for two reasons.81 First, Dieckman was decided in the context
of a publicly traded master limited partnership, and in that context, investors could not
competitively negotiate the partnership agreement’s terms and had to rely on the public
document and public disclosures. Second, the safe harbor provision at issue was a
voluntary protection that the general partner attempted to utilize to immunize the merger
from judicial review. In contrast, the Superior Court reasoned that the LLC Agreement
had been privately negotiated, and that the LLC Agreement expressly mandated a good
faith requirement for the indemnitee. The court stated that imposing an additional free-
floating good faith covenant would “subject every express and mandatory provision in the
LLC Agreement to fact-intensive and unyielding judicial review[,]” which is “not
consistent with” Delaware law.82
Similarly, the Superior Court rejected Baldwin’s argument that the court should
78
155 A.3d 358 (Del. 2017).
Baldwin’s Answering Br. in Opp. to New Wood’s Mot. J. Pleadings, C.A. No. N20C-10-231
79
AML, Dkt. No. 16, at 21 (Del. Super. Apr. 15, 2021).
80
New Wood Res. LLC, 2021 WL 3784258, at *6.
81
Id.82
Id.23
invoke the doctrine of necessary implication. The court stated that “[t]he doctrine of
necessary implication permits a court to read an implied promise into a contract in order to
carry out the purpose for which the promise was made or prevent one party from frustrating
the other’s right to receive the fruits of the contract.”83 The court reasoned that the doctrine
did not apply in this case “because the implied term would contradict the LLC Agreement’s
express language.”84 Therefore, the Superior Court granted New Wood’s motion for
judgment on the pleadings.
This appeal followed.
H. The Parties’ Contentions on Appeal
Baldwin raises three arguments on appeal. First, he contends that the Counterclaim
against New Wood is proper, and that he did not sue the wrong entity. According to
Baldwin, even though Bursky executed the Written Consent on behalf of ACR, joining
Bursky as a third-party defendant in this lawsuit would serve no purpose because New
Wood is the real party in interest. Second, he contends that the covenant of good faith and
fair dealing is implicit in Section 8.2 of the LLC Agreement. Alternatively, Baldwin asserts
that this Court should invoke the doctrine of necessary implication to imply a term that
requires New Wood to make an indemnification determination in good faith.85
83
Id. (citing In re IT Grp., Inc., 448 F.3d 661, 671 (3d Cir. 2006)).
84
Id.85
The Superior Court rejected Baldwin’s argument under the doctrine of necessary implication for
the same reasons it rejected his implied covenant argument. We note that Baldwin does not cite
any Delaware decisions applying this doctrine nor does he explain what distinguishes it from the
implied covenant. We do not address or rest our holding on the doctrine of necessary implication.
24
New Wood argues that Baldwin’s affirmative defenses and Counterclaim fail at the
outset because New Wood did not execute the Written Consent and, therefore, it cannot be
found liable. New Wood argues that even if Baldwin sued the correct party, the implied
covenant of good faith cannot be used to rewrite the LLC Agreement. Finally, New Wood
asserts that this Court could affirm on alternative grounds—namely, that Baldwin’s
affidavit of defense was deficient under Delaware law.86
II. STANDARD OF REVIEW
We review questions of law and contractual interpretation, including the
interpretation of LLC agreements, de novo.87 We review de novo a trial court’s judgment
granting a motion for judgment on the pleadings.88
III. ANALYSIS
A. New Wood is the Correct Party
New Wood argues that because the Written Consent was executed by holders of a
majority of the then-outstanding units -- and not New Wood -- Baldwin’s Counterclaim
86
New Wood alleges that Baldwin’s Affidavit failed to swear to the truth of the facts on which his
defenses were based and instead swore only that the facts supporting his defenses were in his
Answer. The Superior Court did not address this issue. Nevertheless, we reject this argument and
hold that Baldwin’s Affidavit was sufficient under 10 Del. C. § 3901(a). See, e.g., J. A.
Montgomery, Inc. v. Marks Mobile Homes, Inc., 254 A.2d 853, 856 (Del. Super. 1969) (finding
defendant’s affidavit of defense sufficient where the affidavit referred to facts contained in the
answer and were sworn to in the affidavit as correct).
87
CompoSecure, L.L.C. v. CardUX, LLC, 206 A.3d 807, 816 (Del. 2018) (citing Osborn ex rel.
Osborn v. Kemp, 991 A.2d 1153, 1158 (Del. 2010)).
88
See OptiNose AS v. Currax Pharms., LLC, 264 A.3d 629, 635 (Del. 2021) (citing Desert
Equities, Inc. v. Morgan Stanley Leveraged Equity Fund, II, L.P., 624 A.2d 1199, 1204 (Del. 1993)
(“[O]ur review of the trial court’s grant of a motion for judgment on the pleadings presents a
question of law, which we review de novo.”)).
25
must fail. We disagree.
Superior Court Civil Rule 17 states that “[e]very action shall be prosecuted in the
name of the real party in interest.”89 Black’s Law Dictionary defines a real party in interest
as “[a] person entitled under the substantive law to enforce the right sued on and who
generally, but not necessarily, benefits from the action’s final outcome.”90
The right Baldwin seeks to enforce is his entitlement to indemnification under the
LLC Agreement. The only entity that is required to indemnify Persons under the LLC
Agreement is New Wood. Section 8.2 provides that, subject to its limitations and
conditions, Persons meeting the standard of conduct “shall be indemnified by the
Company.”91 “Company” is defined as New Wood.92 New Wood is managed by a board
89
Super. Ct. Civ. R. 17(a). See 4 Moore’s Federal Practice § 17.10[1] (2022 ed.) (“Real parties in
interest are the persons or entities possessing the right or interest to be enforced through the
litigation.”).
90
Real Party in Interest, Black’s Law Dictionary (11th ed. 2019) (emphasis added). See Evans v.
Just. Of the Peace Ct. No. 19, 652 A.2d 574, 578 (Del. 1995) (In a case where the Justice of the
Peace Court sanctioned a lawyer, this Court held that it was improper to name the Justice of the
Peace who sanctioned him because “[t]hat individual Justice of the Peace had and has no
cognizable personal interest in the outcome of [the appeal],” and that the real party in interest was
the Justice of the Peace Court.); NorthPointe Holdings, LLC v. Nationwide Emerging Managers,
LLC, 2012 WL 2005453, at *6 (Del. Super. May 24, 2012) (“The real party in interest is one who,
by the substantive law, possesses the rights sought to be enforced.” (citing Cammile v. Sanderson,
101 A.2d 316, 318 (Del. Super. 1953))); Citimortgage, Inc. v. Trader, 2011 WL 3568180, at *1
(Del. Super. May 13, 2011) (“A real party in interest is defined as someone who has the right
sought to be enforced by the action.”); see also Lynch v. Gonzalez, 2020 WL 5648567, at 6 n.52
(Del. Ch. Sept. 22, 2020) (“Stated another way, a real party in interest is the person who is entitled
to the fruits of the action.” (quoting SolarReserve CSP Holdings, LLC v. Tonopah Solar Energy,
LLC, 2020 WL 4251968, at *4 (Del. Ch. July 24, 2020))).
91
A52 (Second Am. & Restated LLC Agreement § 8.2).
92
A28 (Second Am. & Restated LLC Agreement).
26
of managers who conduct the day-to-day activities on behalf of New Wood.93 Section 8.2
provides that the managers of New Wood, independent legal counsel, or the majority of
New Wood’s then-outstanding unitholders may determine whether an indemnitee acted in
good faith and in the best interests of New Wood. Even though ACR made that
determination, New Wood is the entity obligated to indemnify persons or entities who meet
the requirements under the LLC Agreement. As New Wood recognized by filing suit in
Superior Court, it is also the only entity entitled to claw back funds pursuant to an
undertaking if the standard of conduct for indemnification is not met.94 Thus, New Wood
is the real party-in-interest.
B. Section 8.2 Contains an Implied Covenant of Good Faith and Fair Dealing
“The implied covenant is inherent in all contracts” and ensures that parties do not
“frustrat[e] the fruits of the bargain” by acting “arbitrarily or unreasonably.”95 The
covenant of good faith and fair dealing “embodies the law’s expectation that ‘each party to
a contract will act with good faith toward the other with respect to the subject matter of the
contract.’”96 The covenant also encompasses “the principle of contract construction that
93
A42 (Second Am. & Restated LLC Agreement § 7.1).
94
To the extent that Bursky or ACR are needed as fact witnesses, their testimony could be obtained
by deposition to explore ACR’s basis for determining that Baldwin was not entitled to
indemnification and what role, if any, New Wood had in that determination.
95
Dieckman, 155 A.3d at 367.
96
Sheehan v. AssuredPartners, Inc., 2020 WL 2838575, at *11 (Del. Ch. May 29, 2020) (quoting
Allied Cap. Corp. v. GC-Sun Holdings, L.P., 910 A.2d 1020, 1032 (Del. Ch. 2006)).
27
‘if one party is given discretion in determining whether [a] condition in fact has occurred[,]
that party must use good faith in making that determination.’”97
Courts utilize the implied covenant “to infer contract terms ‘to handle developments
or contractual gaps that the asserting party pleads neither party anticipated[,]’”98 and courts
will invoke the implied covenant to imply terms when necessary to protect the reasonable
expectations of the parties.99 Thus, the implied covenant is a “cautious enterprise”100 and
is “best understood” as “a judicial tool used to imply terms in a contract that protect the
reasonable expectations of the parties to (or beneficiaries of) the contract.”101
However, Delaware courts do not use the implied covenant as “an equitable remedy
for rebalancing economic interests after events that could have been anticipated, but were
97
Wilmington Leasing, Inc. v. Parrish Leasing Co., L.P., 1996 WL 560190, at *2 (Del. Ch. Sept.
25, 1996) (alterations in original) (quoting Gilbert v. El Paso Co., 490 A.2d 1051, 1055 (Del. Ch.
1984), aff’d, 575 A.2d 1131 (Del. 1990)); see also Glaxo Grp. Ltd. v. DRIT LP, 248 A.3d 911, 920
(Del. 2021) (“[t]he implied covenant imposes a good faith and fair dealing obligation when a
contract confers discretion on a party.”); Oxbow Carbon & Minerals Holdings, Inc. v. Crestview-
Oxbow Acquisition, LLC, 202 A.3d 482, 503–04 (Del. 2019) (noting that “the vesting of a Board
with discretion does not relieve the Board of its obligation to use that discretion consistently with
the implied covenant of good faith and fair dealing”); CC Finance LLC v. Wireless Properties,
LLC, 2012 WL 4862337, at *4 (Del. Ch. Oct. 1, 2012) (“[T]he implied covenant is particularly
important . . . in contracts that defer a decision at the time of contracting and empower one party
to make that decision later.”) (citations and quotations omitted); Airborne Health, Inc. v. Squid
Soap, LP, 984 A.2d 126, 146–47, 147 n.1 (Del. Ch. 2009) (collecting authorities for the proposition
that “[w]hen a contract confers discretion on one party, the implied covenant requires that the
discretion be used reasonably and in good faith.”).
98
Dieckman, 155 A.3d at 367 (quoting Nemec v. Shrader, 991 A.2d 1120, 1125 (Del. 2010)
(internal citations omitted)).
99
Id.100
Oxbox Carbon & Minerals Holdings, Inc., 202 A.2d at 506–07 (citing Nemec, 991 A.2d at
1125).
101
Amirsaleh v. Bd. of Trade of City of New York, Inc., 2009 WL 3756700, at *4 (Del. Ch. Nov.
9, 2009) (citing E.I. DuPont de Nemours & Co. v. Pressman, 679 A.2d 436, 443 (Del. 1966)).
28
not, that later adversely affected one party to a contract.”102 Nor is the implied covenant to
be used as a backstop to imply terms that parties failed to include but which could easily
have been drafted.103 But when the contract is “truly silent” about the issue, and the express
terms of the partnership agreement naturally imply certain corresponding conditions,
unitholders are entitled to have those terms enforced according to the reasonable
expectations of the parties at the time of contracting.104
The Delaware Limited Liability Company Act (the “Act”) gives “maximum effect
to the principle of freedom of contract.”105 This provides contracting parties with a wide
latitude of contractual freedom.106 This freedom includes the ability to explicitly expand,
102
Oxbow Carbon & Minerals Holdings, Inc., LLC, 202 A.3d at 507 (quotations removed); see
also Nemec, 991 A.2d at 1126 (“When conducting [the implied covenant] analysis, we must assess
the parties' reasonable expectations at the time of contracting and not rewrite the contract to
appease a party who later wishes to rewrite a contract he now believes to have been a bad deal.”
(internal citations omitted)).
103
See Nationwide Emerging Managers, LLC v. Northpointe Holdings, LLC, 112 A.3d 878, 897
(Del. 2015) (stating that courts should be hesitant to imply terms the parties could easily have
drafted the contract to include); Nemec, 991 A.2d at 1126 (“Parties have a right to enter into good
and bad contracts, the law enforces both.”); Airborne Health, Inc., 984 A.2d at 147 (holding that
the implied covenant does not apply where sophisticated parties “represented by able counsel”
opted not to include provisions that “are familiar to any transactional lawyer”); Corporate Prop.
Assocs. 14 Inc. v. CHR Holding Corp., 2008 WL 963048, at *5 (Del. Ch. Apr. 10, 2008) (declining
to invoke the implied covenant where the parties were sophisticated, the provision sought was well
known, and the parties bargained over related issues but did not secure the term they sought to
have implied).
104
Dieckman, 155 A.3d at 361; see id. at 367 (“The reasonable expectations of the contracting
parties are assessed at the time of contracting.”).
105
6 Del. C. § 18-1101(b).
106
See Elf Atochem N. Am., Inc. v. Jaffari, 727 A.2d 286, 290 (Del. 1999) (stating that the LLC
statute can be characterized as “flexible” because it “generally permits members to engage in
private ordering with substantial freedom of contract to govern their relationship, provided they
do not contravene any mandatory provisions of the [LLC statute]”).
29
restrict, or eliminate traditional fiduciary duties.107 Notwithstanding this freedom, the Act
specifically prohibits eliminating the implied covenant of good faith and fair dealing.108
“To sufficiently plead [a] breach of the implied covenant of good faith and fair
dealing, a complaint ‘must allege a specific implied contractual obligation, a breach of that
obligation by the defendant, and resulting damage to the plaintiff.’”109 The party asserting
the implied covenant has the burden of proving “that the other party has acted arbitrarily
or unreasonably, thereby frustrating the fruits of the bargain that the asserting party
reasonably expected.”110 When determining the parties’ reasonable expectations, the court
analyzes “whether the parties would have bargained for a contractual term proscribing the
conduct that allegedly violated the implied covenant had they foreseen the circumstances
107
6 Del. C. § 18-1101(c); see Kelly v. Blum, 2010 WL 629850, at *10 (Del. Ch. Feb. 24, 2010)
(determining whether the LLC agreement explicitly expanded, restricted, or eliminated the default
fiduciary duties the managers and controlling members owed to the company).
108
6 Del. C. § 18-1101(c) (“[T]he limited liability company agreement may not eliminate the
implied contractual covenant of good faith and fair dealing.”).
109
Sheehan, 2020 WL 2838575, at *11 (quoting Kuroda v. SPJS Holdings, L.L.C., 971 A.2d 872,
888 (Del. Ch. 2009)).
110
Dieckman, 155 A.3d at 367 (quoting Nemec, 991 A.2d at 1126 (citing Dunlap v. State Farm
Fire & Cas. Co., 878 A.2d 434, 442 (Del. 2005))); Desert Equities, Inc., 624 A.2d at 1208 (noting
that in the context of the implied covenant, “an allegation of bad faith [] relates to state of mind”);
id. at 1208 n.16 (“[The] term ‘bad faith’ is not simply bad judgement [sic] or negligence, but rather
it implies the conscious doing of a wrong because of dishonest purpose or moral obliquity; it is
different from the negative idea of negligence in that it contemplates a state of mind affirmatively
operating with furtive design or ill will.” (alteration in original) (citing Bad Faith, Black’s Law
Dictionary (5th ed. 1983)); see also Amirsaleh, 2009 WL 3756700, at * 5 (“To prove that the
defendant has failed to exercise its discretion in good faith, the plaintiff must show that the exercise
of discretion was done in bad faith (i.e., that it was motivated by an improper purpose or done with
a culpable mental state).”).
30
under which the conduct arose.”111
We agree with Baldwin’s assertion that the LLC Agreement contains an implied
obligation requiring that the indemnification determination be made in good faith. Section
8.2 states that an indemnitee “shall be indemnified by [New Wood] to the fullest extent
permitted by the Act[.]”112 Section 8.2 qualifies the right to indemnification by requiring
a determination that the indemnitee “acted in good faith and in a manner that he or she
reasonably believed to be in or not opposed to the best interests of [New Wood].” 113
Baldwin’s Counterclaim suggests a possible gap -- that a determination of entitlement to
indemnification will not be made in “bad faith.” We hold that although a good faith
requirement is not expressly stated in Section 8.2, it is implicit in Section 8.2’s language.
Dieckman is instructive. In Dieckman, two limited partnerships in the same master
limited partnership group sought to merge in a conflicted transaction. The limited
partnership agreement provided the general partner with conflict resolution safe harbors if
the transaction were approved either by a fully independent special committee or by a
majority of unaffiliated unitholders. The partnership agreement did not expressly address
how the general partner was to conduct itself when seeking the safe harbors.
To obtain the approval of a majority of unaffiliated unitholders, the limited
partnership agreement expressly required a summary disclosure of the merger agreement.
111
Amirsaleh, 2009 WL 3756700, at *4 (citing PAMI-LEMB I Inc. v. EMB-NHC, L.L.C., 857 A.2d
998, 1016 (Del. Ch. 2004)); see also Glaxo Grp. Ltd, 248 A.3d at 919 (“The court’s goal is to
preserve the economic expectations of the parties.”).
112
A52–53 (Second Am. & Restated LLC Agreement § 8.2).
113
A53 (Second Am. & Restated LLC Agreement § 8.2).
31
Instead of a summary disclosure, the general partner distributed a 165-page proxy
statement that described at length the planned merger. But the proxy statement failed to
disclose that one member of the two-member special committee had alleged “overlapping
and shifting allegiances” that might have called into question his independence.
We held that the implied covenant of good faith and fair dealing barred the general
partner from seeking safe harbor protection where he had used deceptive and misleading
tactics to comply with the safe harbor’s express terms. We explained that it was reasonably
conceivable that “implied in the language of the [limited partnership agreement’s] conflict
resolution provision [was] a requirement that the General Partner not act to undermine the
protections afforded unitholders in the safe harbor process.”114 Practically speaking,
partnership agreement drafters “do not include obvious and provocative conditions in an
agreement like ‘the General Partner will not mislead unitholders when seeking Unaffiliated
Unitholder Approval[.]’”115 Thus, some aspects of the agreement are “so obvious” that the
participants never think, or see no need, to address them.
Just as it would be “too obvious” to demand the inclusion of an express condition
that a general partner not subvert a safe harbor protection through materially misleading
disclosures, here too, it would be “too obvious” to demand the inclusion of an express
114
Dieckman, 155 A.3d at 368 (“Partnership agreement drafters, whether drafting on their own, or
sitting across the table in a competitive negotiation, do not include obvious and provocative
conditions in an agreement like ‘the General Partner will not mislead unitholders when seeking
Unaffiliated Unitholder Approval’ or ‘the General Partner will not subvert the Special Approval
process by appointing conflicted members to the Conflicts Committee.’”).
115
Id.
32
condition that the person or persons making a determination as to whether a Person has
met the standard of conduct do so in good faith.
The Court of Chancery’s opinion in Wilmington Leasing v. Parrish Leasing116 also
supports this conclusion. In that case, a limited partnership agreement gave the limited
partners a right to remove the general partner if they determined that the general partner
had “failed or [was] unable to perform satisfactorily.”117 The limited partners subsequently
executed an agreement removing the general partner based on a finding that the general
partner’s performance was unsatisfactory. The limited partners then sued to enforce the
removal against the general partner. In response, the general partner alleged that the
purported removal was invalid because it was not made reasonably and in good faith as
required by the implied covenant.
The Court of Chancery agreed with the general partner and concluded that the
implied covenant of good faith was implicit in the grant of the limited partners’ removal
power. The court relied on a principle of contract construction that provides that “if one
party is given discretion in determining whether [a] condition in fact has occurred[,] that
party must use good faith in making that determination.” 118 The court explained that
without this implied covenant, “the limited partners could remove, maliciously or
unreasonably, a general partner who was performing satisfactorily,” thus rendering the
116
Wilmington Leasing, 1996 WL 560190.
117
Id. at *1.
118
Id. at *2 (citing Gilbert, 490 A.2d at 1055).
33
standard of satisfactory performance meaningless.119 Accordingly, the Court of Chancery
denied the limited partners’ motion for judgment on the pleadings.
The Court of Chancery’s decision in Sheehan v. AssuredPartners, Inc. is similarly
supportive of our holding.120 In Sheehan, the Court of Chancery declined to dismiss an
implied covenant claim based on employment agreements that detailed different outcomes
if the employees were fired “with or without [c]ause.”121 The court stated that the implied
covenant “protects an agreement’s spirit against underhanded tactics that deny a party the
fruits of its bargain.”122 The Court of Chancery explained that although the employment
agreements accounted for “two types of terminations and a process applicable to each,” the
employees nevertheless “identifie[d] a possible gap” in the agreements -- that the
terminations “[would] not be done in ‘bad faith.’”123
Here the LLC Agreement calls for either the managers, legal counsel, or the majority
of the then-outstanding unitholders to make a subjective discretionary determination as to
whether an indemnitee has met a specific standard of conduct. But the LLC Agreement
does not expressly state whether such determination must be made in good faith. If
indemnification under Section 8.2 of the LLC Agreement could be denied for any reason,
119
Id.
120
2020 WL 2838575 (Del. Ch. May 29, 2020). In Sheehan, this Court designated a Superior
Court judge to sit by designation in the Court of Chancery action so that one judicial officer could
resolve the parties’ overlapping and related disputes.
121
Id. at *3.
122
Id. at *11.
123
Id.
34
even in bad faith, the standard in Section 8.2 — requiring the indemnitee to act in good
faith — would be rendered meaningless.124 Further, the parties bargained for
indemnification “to the fullest extent permitted” so long as the indemnitee acted in good
faith and in the best interests of New Wood. This “fullest extent” statement is consistent
with Delaware’s policy of favoring indemnification and advancement rights. 125 Implying
a good faith obligation in Section 8.2 is consistent with the policy embedded in the “fullest
extent” language of the LLC Agreement and gives effect to this statement.126
This Court held two oral arguments on this matter. Following the first panel
argument, New Wood appears to have retreated from seriously challenging the existence
of an implied covenant of good faith in Section 8.2. During the second en Banc argument,
counsel for New Wood essentially agreed that an indemnification determination pursuant
to Section 8.2 is required to be made in good faith.127 New Wood also offered no basis
124
See, e.g., Wilmington Leasing, 1996 WL 560190, at *2 (“[A]bsent such an implied requirement
[of good faith], the limited partners could remove, maliciously or unreasonably, a general partner
who was performing satisfactorily.”).
125
See, e.g., Stifel Fin. Corp. v. Cochran, 809 A.2d 555, 561 (Del. 2002) (The purpose of Section
145(a) is to encourage capable persons “to serve as corporate directors, secure in the knowledge
that expenses incurred by them in upholding their honesty and integrity as directors will be borne
by the corporation they serve.”).
126
See E.I. du Pont de Nemours & Co. v. Shell Oil Co., 498 A.2d 1108, 1113 (Del. 1985) (“In
upholding the intentions of the parties, a court must construe the agreement as a whole, giving
effect to all provisions therein.”).
127
The following exchange took place:
The Court: Let me ask you a question. Hypothetically speaking, if Mr. Burksy
signed the so-called Written Consent on behalf of ACR Winston Preferred
Holdings, if he was motivated by personal hostility toward Baldwin, rather than
any sincere question about what the Agreement says, would that be okay?
35
upon which to distinguish Dieckman, Wilmington Leasing,128 and Sheehan,129 other than
the “proper party” and sufficiency of the pleadings grounds. As a result, New Wood’s
position on this appeal now rests mainly on its assertions that Baldwin sued the wrong party
New Wood’s Counsel: Would that be okay? I do not believe that Mr. Bursky
acting on behalf of ACR could engage in bad faith conduct when making that
determination. That would not be okay.
Oral argument video, at 25:19–25:1,
https://livestream.com/accounts/5969852/events/10395723/videos/231575613.
New Wood’s Counsel stated further that Baldwin would have a claim for breach of the implied
covenant of good faith if ACR had been named a party:
The Court: So, if ACR and Mr. Bursky were parties here, would they have a claim?
New Wood’s Counsel: I believe it would have changed the outcome, provided that
this Court or the below court made the determination that the allegations of bad
faith were sufficiently pled.
Oral argument video, at 29:07–29:22,
https://livestream.com/accounts/5969852/events/10395723/videos/231575613. We appreciate
counsel’s candor before this Court.
128
Oral argument video, at 26:28–28:25,
https://livestream.com/accounts/5969852/events/10395723/videos/231575613.
At the en Banc oral argument, other than focusing on the “proper party” issue, New Wood’s
129
Counsel did not distinguish Sheehan.
The Court: What about Judge LeGrow’s decision a year earlier in Sheehan v.
Assured Partners, May 29, 2020, doesn’t that suggest the majority consent has to
be exercised in good faith?
New Wood’s Counsel: Your Honor, I believe the case law as a general matter is
where a contract provides a contractual party discretion to make a subjective
decision, that the implied covenant will impose an outer limit on that. All of the
cases I’m aware of, when those issues arose, the party who made the decision, was
actually a party.
Oral argument video, at 28:26–29:00
https://livestream.com/accounts/5969852/events/10395723/videos/231575613.
36
and that he has not sufficiently alleged bad faith. We have addressed the “proper party”
issues above.
As to the sufficiency of his bad faith allegations, the Superior Court did not address
this issue, given its other rulings. In the context of a motion for judgment on the pleadings,
the court accords the party opposing a motion for judgment on the pleadings the same
benefits as a party defending a motion to dismiss.130 Accordingly, the court accepts the
truth of all well-pleaded facts and draws all reasonable factual inferences in favor of the
non-moving party — in this case, Baldwin.
Although Baldwin has alleged bad faith on the part of ACR, ACR is not a party. As
to New Wood, Baldwin’s counsel argued below that New Wood “has taken every
opportunity it could to try to avoid paying advancement and now it’s trying to avoid
indemnification[,]” and that “[i]t’s doing that through a procedural route in the LLC
Agreement.”131 And although his counsel argued further that New Wood “collaborated
with its majority holder,” he then conceded that such collaboration on the Written Consent
was not actually alleged in Baldwin’s Counterclaims or Affirmative Defenses.132 Thus,
New Wood argues that as to the basis for the Written Consent reflecting the conclusion
130
Catlin Specialty Ins. Co. v. CBL & Assocs. Properties, Inc., 2017 WL 4784432, at *5 (Del.
Super. Sept. 20, 2017).
131
A195 (May 12, 2021 Super. Ct. Tr., C.A. No. N20C-10-231 AML CCLD, at 37:6–10).
132
A195 (May 12, 2021 Super. Ct. Tr., C.A. No. N20C-10-231 AML CCLD, at 38:4–9).
37
that Baldwin had not met the standard of conduct, Baldwin’s pleadings are insufficient as
to New Wood.
Despite this concession by Baldwin’s prior counsel, at this stage of the proceedings,
we think that Baldwin’s allegations are sufficient — albeit, barely so — to withstand a
motion for judgment on the pleadings.133 The pleadings reveal a hostile and adverse
relationship between Bursky, Liebich, and New Wood on the one hand, and Baldwin on
the other, beginning with Baldwin’s termination and continuing throughout the various
lawsuits. Bursky and Liebich were the individuals who allegedly terminated Baldwin from
his position as President and General Manager of WPV, according to Baldwin’s allegations
in the Mississippi Federal Action. Further, Bursky and New Wood were adverse to
Baldwin in the prior actions in Mississippi and Delaware leading to the Advancement
Action as Bursky was one of the individuals, along with New Wood, sued by Baldwin in
Mississippi. Bursky also was a plaintiff in the Delaware Plenary Action where Baldwin
was a defendant.134 Bursky obviously played some role in Baldwin’s indemnification
determination, as Bursky was the one who signed the Written Consent on behalf of the
Baldwin’s Answer and Counterclaims refer to and attach some of the prior pleadings by and
133
among Baldwin, New Wood, ACR and Bursky.
134
The Plaintiffs in the Delaware Plenary Action were Winston Plywood & Veneer LLC, WPV
Holdco LLC, New Wood Resources LLC, Atlas FRM LLC d/b/a Atlas Holdings LLC, Andrew
M. Bursky and Kurt Liebich. The Defendants were Oak Creek Investments, LLC and Richard
Baldwin.
38
majority unitholder, ACR in his capacity as President of ACR. Baldwin specifically alleges
bad faith on the part of ACR.
Although Baldwin does not specifically allege facts indicating that New Wood
“collaborated with ACR on the indemnification determination” he does state in his
Affirmative Defenses (which were directed to New Wood’s claims) that “the Written
Consent was entered into in a bad faith attempt to avoid New Wood’s indemnification
obligations.”135 Baldwin also alleges in his pleadings that New Wood engaged in bad faith
conduct in the advancement litigation before and after the April 23, 2020 Written Consent
was signed, evidencing a motive to frustrate his advancement and indemnification rights.
Further to this point, Baldwin asserts in his Answer to New Wood’s Superior Court
complaint that “a majority of the advancement amount that was paid to Dr. Baldwin is the
result of Dr. Baldwin’s efforts to pursue his advancement rights and collect on a judgment
issued by the Delaware Court of Chancery entitling him to those amounts.”136 Similarly,
in his Third Affirmative Defense he asserts that “New Wood improperly delayed in
satisfying the [J]udgment issued in favor [of] Dr. Baldwin in the Advancement Action,
causing Dr. Baldwin to incur needless additional attorneys’ fees and costs, and those fees
and costs offset any amount New Wood claims it is owed.”137 He alleges that, “New Wood
was not nearing insolvency and chose to purposefully delay and force Dr. Baldwin to incur
needless costs and fees (including attorneys’ fees) to domesticate and satisfy the
135
A124 (Def.’s Answer at 13).
136
A121 (Def.’s Answer ¶ 18).
137
A124 (Def.’s Answer at 13).
39
Judgment,”138 and that “New Wood’s purposeful delay was done in bad faith and caused
Dr. Baldwin to incur unnecessary additional fees and expenses.”139 He alleges further that
“New Wood Resources sought to improperly claw back its payment for the Judgment.”140
Baldwin further alleges in his Counterclaims that during oral argument on his
motion for partial summary judgment in the Advancement Action, the Court of Chancery
observed that it struggled to see the Defendants’ construction of the agreement “as being a
reasonable one . . . .”141 Later, Baldwin was required to transfer the Judgment in the
Delaware Advancement Action against New Wood to Mississippi, then have it
domesticated and serve discovery to ultimately recover the fees that New Wood was
obligated to pay. Finally, Baldwin alleges in his Counterclaims that “[t]here is a true and
judicial [sic] controversy between the parties regarding whether New Wood acted in bad
faith in (i) purposefully delaying payment under the Judgment, causing Dr. Baldwin to
incur unnecessary additional fees and expenses and (ii) improperly determining that Dr.
Baldwin was not entitled to indemnification.”142
Thus, although Baldwin’s pleadings lack specific facts as to New Wood’s conduct
vis-à-vis the actual Written Consent entered into on April 23, 2020, he does allege bad faith
138
A133 (Def.’s Countercl. ¶ 39).
139
A136 (Def.’s Countercl. ¶ 52).
140
A134 (Def.’s Countercl. ¶ 41).
141
See Sept. 16, 2019 Ct. Ch. Tr., C.A. No. 2019-0019-JRS, at 34:21–22.
142
A136–137 (Def.’s Countercl. ¶ 57).
40
on the part of New Wood throughout the overall advancement proceedings.143 Albeit in a
disorganized fashion, Baldwin has sufficiently pleaded enough to create an issue of fact as
to New Wood’s good faith in discharging its obligations under Section 8.2 and to overcome
New Wood’s contention that it was merely presented with, and acted on, a facially valid
consent obtained by ACR.144 As we have recognized, “a fairly pleaded claim of good
faith/bad faith raises essentially a question of fact which generally cannot be resolved on
the pleadings or without first granting an adequate opportunity for discovery.” 145
This Court recognizes, as evidenced by the allegations contained in the pleadings in
this case, as well as in the Delaware Plenary Action (of which this Court can take judicial
notice),146 that there are two sides to this long-running, multi-state, multi-faceted feud.
143
See, e.g., Desert Equities, Inc., 624 A.2d at 1206 (holding that “[f]or purposes of determining
defendants’ Rule 12(c) motion, the trial court was required to accept as true the allegations that
the General Partner had acted in bad faith and in a retaliatory manner or, at the very least, was
required to infer such from the allegations in the complaint.”). We give no weight to the
unsupported statements in Baldwin’s Opening Brief wherein he asserts, with no record citations,
that Bursky “executed the Written Consent at the behest and direction of New Wood/New Wood’s
counsel[,]” and that “it is also a given that Mr. Bursky did not draft the Written Consent and that
it was drafted by New Wood’s attorneys. . . .” Opening Br. at 21.
144
See, e.g., Bay Center Apts. Owner, LLC v. Energy Buy PKI, LLC, 2009 WL 1124451, *7 (Del.
Ch. April 20, 2009) (“In the context of corporate entities, ‘[t]he implied covenant functions to
protect stockholders’ expectations that the company and its board will properly perform the
contractual obligations they have under the operative organizational agreements[,]’” and that
“[p]art of corporate managers’ proper performance of their contractual obligations is to use the
discretion granted to them in the company’s organizational documents in good faith.” (quoting
Wood v. Baum, 953 A.2d 136, 143 (Del. 2008) and citing Desert Equities, Inc., 624 A.2d at 1206);
see also Thompson v. The Williams Cos., Inc., 2007 WL 3326007 at *5 (Del. Ch. July 31, 2007)
(observing that the implied covenant inheres in advancement and indemnification agreements and
protects “against any pretextual terms and conditions designed merely to deny [the plaintiff]
advancement.”).
145
Desert Equities, Inc., 624 A.2d at 1208.
146
See, e.g., Windsor I, LLC v. CWCapital Asset Mgmt. LLC, 238 A.3d 863, 873 n.45 (Del. 2020)
(noting that the Court of Chancery has recognized three occasions where a Delaware court may
41
Whether Baldwin is able to prove that New Wood breached the implied covenant of good
faith and fair dealing is for another day. Given that Baldwin has not yet had an opportunity
to take discovery and given that at this stage of the pleadings all reasonable factual
inferences must be drawn in his favor as the non-moving party, we conclude that the
judgment of the Superior Court granting New Wood’s motion for judgment on the
pleadings should be, and hereby is, REVERSED.
IV. CONCLUSION
For the reasons stated herein, we REVERSE and REMAND for further
proceedings consistent with this opinion.
consider documents extraneous to a complaint: “(i) when the document is integral to a plaintiff’s
claim and incorporated into the complaint; (ii) when the document is not being relied upon to prove
the truth of its contents; and (iii) when the document, or a portion thereof, is an adjudicative fact
subject to judicial notice.” (quoting In re Gardner Denver, Inc., 2014 WL 715705, at *2 (Del. Ch.
Feb. 21, 2014) (noting that the trial court may take judicial notice of matters that are not subject to
reasonable dispute))). See, e.g., Hamilton Partners, L.P. v. England, 11 A.3d 1180, 1188 (Del.
Ch. 2010) (taking judicial notice of public filings, pleadings in a prior lawsuit in New York, and a
complaint in a related action in the Delaware Court of Chancery).
42