MILLER v. FIBERLIGHT, LLC Et Al.

FIFTH DIVISION
MCFADDEN, P. J.,
BRANCH and BETHEL, JJ.
NOTICE: Motions for reconsideration must be
physically received in our clerk’s office within ten
days of the date of decision to be deemed timely filed.
http://www.gaappeals.us/rules
October 31, 2017
In the Court of Appeals of Georgia
A17A0683. MILLER v. FIBERLIGHT, LLC et al.
MCFADDEN, Presiding Judge.
In this action, a minority member of a Delaware limited liability company sued
the majority members and the chair of the board of directors for, among other things,
breach of default fiduciary duties imposed by Delaware law and breach of the duty
of good faith and fair dealing. The trial court granted the defendants’ motion for
summary judgment on all of the plaintiff’s claims, and he appeals. We find that the
plaintiff’s claim that the defendants breached default fiduciary duties by unilaterally
rejecting offers to purchase the company depends upon disputed issues of fact. So we
reverse the trial court’s grant of summary judgment to the defendants on that claim
(and the related claims derivative of that claim). We affirm the grant of summary
judgment in all other respects.
1. Facts and procedural posture.
Michael Miller filed this action challenging certain decisions made by the
board of directors of defendant FiberLight, LLC, the Delaware limited liability
company of which Miller was a founder, was formerly an officer and member of the
board of directors, and in which he currently holds a membership interest. Defendants
NT Assets, LLC and Thermo Telecom Partners, LLC are investors in and the majority
members of FiberLight.1 Defendant Jim Lynch is the chair of FiberLight’s board of
directors.
Miller filed this action after he was terminated from his position as president
of FiberLight. He alleges that the defendants breached their fiduciary duties to him
and the other minority members of FiberLight and breached the implied covenants of
good faith and fair dealing. He appeals the grant of summary judgment to the
defendants.
To prevail on a motion for summary judgment, . . . the moving
party must show that there is no genuine dispute as to a specific material
fact and that this specific fact is enough, regardless of any other facts in
the case, to entitle the moving party to judgment as a matter of law.
1
At some point after the events at issue here, Thermo Telecom Partners
transferred its interest in FiberLight to defendants Thermo Development, Inc. and FL
Investment Holdings, LLC.
2
When a defendant moves for summary judgment as to an element of the
case for which the plaintiff, and not the defendant, will bear the burden
of proof at trial the defendant may show that he is entitled to summary
judgment either by affirmatively disproving that element of the case or
by pointing to an absence of evidence in the record by which the
plaintiff might carry the burden to prove that element. And if the
defendant does so, the plaintiff cannot rest on his pleadings, but rather
must point to specific evidence giving rise to a triable issue.
Beale v. O’Shea, 319 Ga. App. 1, 2 (735 SE2d 29) (2012) (citation and punctuation
omitted). We review a summary judgment ruling “de novo, viewing the evidence in
the record, as well as any inferences that might reasonably be drawn from that
evidence, in the light most favorable to the nonmoving party.” Id. (citation omitted).
So viewed, the record shows that Miller was an employee of
telecommunications company Xspedius Corporation when he was asked to run
Xspedius’s fiber business as a separate, subsidiary company. Thermo Telecom
Partners was the principal owner of Xspedius. For the next year or two, the subsidiary
company was called Xspedius Fiber Group. Defendant Jim Lynch and nonparty Jay
Monroe, who owns Thermo Telecom Partners, were Miller’s bosses.
On April 22, 2005, the entity ceased to be known as Xspedius Fiber Group and
became FiberLight, LLC. At that time, Thermo Telecom Partners, Miller, Kevin
3
Coyne, Ron Kormos, and two other individuals entered a limited liability company
agreement governing the operation of FiberLight. The agreement was amended
multiple times. The crux of Miller’s complaint is that he was coerced by economic
duress to agree to the amendments, which enabled the defendants to redeem most of
Miller’s interest in FiberLight upon his termination.
Although the limited liability company agreement was amended multiple times,
certain provisions were identical from one version to the next. For example, all
versions provided that the agreements were governed by and would be construed
under the law of Delaware. All versions provided that the board of directors was
deemed the manager of FiberLight for purposes of the Delaware Limited Liability
Act.
The initial agreement set out the members’ ownership interests in FiberLight
as follows: Miller owned 21.111 percent, Thermo Telecom Partners owned 5 percent,
and Coyne, Kormos, and the other individuals owned the remaining 73.889 percent.
The initial agreement established a three-member board of directors. Two directors
would be elected by the vote of members holding a majority of the percentage
interests, while Thermo Telecom Partners had the right to designate the third director.
Lynch was Thermo Telecom Partners’s designated director as well as the chairman
4
of the board. Miller was a director and the president, and Coyne was a director and
the chief financial officer. The initial agreement provided that it could only be
amended with the unanimous consent of the members. It provided that the officers
served at the pleasure of the board, which could remove them from office at any time
with or without cause. Defendant NT Assets was not a party to the first agreement.
The second agreement, entitled “second amended and restated limited liability
company agreement,” reflected the repurchase and allocation of an individual owner’s
interest in the company, which resulted in an increase in Miller’s interest to 32.7704
percent and an increase in Thermo Telecom Partners’ interest to 6.4678 percent. The
provisions establishing a three-member board of directors, describing the election of
those board members, providing for the removal of officers, and requiring unanimity
of the members to amend the agreement were unchanged from the initial agreement.
Defendant NT Assets was not a party to the second amended agreement.
The pivotal third amended and restated limited liability company agreement,
effective as of January 1, 2006, made many changes. Significantly, it reflected the
conversion of the more than $10 million in outstanding debt FiberLight owed to its
largest creditors, Thermo Telecom Partners and NT Assets, into equity in Fiberlight.
Formerly creditors (with Thermo Telecom Partners owning a 6.4678 percent
5
membership interest), Thermo Telecom Partners and NT Assets were now members
holding the largest membership interest in the company. Thermo Telecom Partners’
expansion of its membership interest and NT Assets’ acquisition of a membership
interest reduced the individual members’ membership interests accordingly.
Further, the third agreement divided the members’ interests into two classes:
investor interests, which were based on the amount of money the particular member
had invested in the company, and incentive interests, which were intended to
compensate the individual members, who were also employees of FiberLight, upon
the sale of the business. Under the third agreement, Thermo Telecom owned a
25.9869 percent investor interest and NT Assets owned a 72.3536 percent investor
interest, for a total ownership interest of 98.3405 percent of the company. Miller
owned a .5804 percent investor interest and a .0010 percent incentive interest, for a
total ownership of .5814 percent; Kevin Coyne owned a .5562 percent investor
interest and a .0010 percent incentive interest, for a total ownership interest of .5572
percent; and Ron Kormos, the final individual member, owned a .5199 percent
investor interest and a .0010 percent incentive interest, for a total ownership interest
of .5209 percent.
6
The third agreement required the redemption of the individual member’s
interests should that member’s employment be terminated, directing that the
“Company shall purchase all of the Investor Interest then owned by the Terminated
Member” and that “the Company shall redeem the entire unvested portion of such
terminated employee’s Incentive Interest,” although the board could waive the right
to automatic redemption of the incentive interests.
The third amended agreement also changed the structure of the board of
directors, giving Thermo Telecom Partners and NT Assets the right to jointly
designate up to three directors, so long as they held a majority of the percentage
interests; they designated Lynch as a director but had the right to add two more
directors at any time. Miller and Coyne remained directors.
The third agreement added a provision that was absent from the initial
agreement and the second amended and restated agreement about the voting of
directors. The new voting provision stated that
[e]ach Director shall have one (1) vote at all board meetings, except that
so long as Thermo and NT Assets collectively hold a majority of the
Percentage Interests, the following rules shall apply to any votes taken
by the Board at any duly called Board meeting: (a) if there is one (1)
Thermo/NT Assets Designee on the Board, then such Thermo/NT Assets
Designee shall have three (3) votes; (b) if there are two (2) thermo/NT
7
Assets Designees on the board, then each such Thermo/NT Assets
Designee shall have two (2) votes; and (c) if there are three (3)
Thermo/NT Assets Designees on the Board, then each such Thermo/NT
Assets Designee shall have one (1) vote. For any action to be adopted by
the Board, such action must be either (1) approved by the affirmative
vote of Directors having a total of at least three (3) votes at duly called
Board meeting, or (ii) approved by written consent of all Directors then
serving on the Board.
So Miller and Coyne each had one vote, and as long as Thermo Telecom Partners and
NT Assets had one designated director, they had three votes, which allowed them to
adopt any action unilaterally. Previously, as noted, the limited liability agreement
could only be amended with the unanimous consent of the members.
The fourth amended and restated limited liability company agreement, effective
as of October 27, 2008, made no changes about which Miller complains. (Although
the trial court found that the fourth amended agreement reduced Miller’s interest and
increased Thermo Telecom Partners’ and NT Assets’ interests, the agreement in the
appellate record listing the parties’ interests does not reflect such a change.)
The fifth amended and restated limited liability company agreement, effective
as of March 17, 2011, changed terms used to calculate payouts to investors should
8
FiberLight be sold under certain conditions. It reduced the individual members’
interests and increased Thermo Telecom Partners’ and NT Assets’ interests.
Miller, Coyne, and Kormos each invested between $56,000 and $60,000 in
FiberLight. Thermo Telecom Partners and NT Assets invested more than $14 million.
Miller understood that when a company borrowed money, the lender gained more
control. He conceded that Thermo Telecom Partners’ and NT Assets’ converting their
debt to equity was not improper but instead was a financial strategy. But he did not
believe the conversion of the debt into equity should have impacted his own equity
position. (He testified that he believed the first and second operating agreements were
entered after Thermo Telecom Partners’ and NT Assets’ conversion of FiberLight’s
debt to equity, although the third agreement, by its terms, was entered to reflect that
change.)
Miller perceived the third amended agreement as “basically stripp[ing him] of
[his] 25 percent position in the company to about .0058 something or a half a percent,
which was significant.” Miller did not think the incentive interest structure
established in the third amended agreement benefitted him because previously he had
had a much larger piece of the company. He would have preferred not to have his
interest diluted by additional capital contributions, given the sweat equity he had in
9
the company. He thought the incentive interests were too low. Additionally, although
he understood that the company no longer had an option but was required to redeem
the investor interests, he did not agree with that change.
Miller summed up agreements three, four, and five as follows:
Each one of those agreements did not allow and did not provide any
substantial rights for the minority shareholders at all, including me.
There was nothing in those agreements that allowed us to retain our
equity. There was nothing in those agreements that would give us any
protection as it applies to those equity and incentive interests. . . . [they]
were continued efforts to strip me of any of my equity or incentive
interest.
After Miller was terminated from FiberLight and his interests largely redeemed,
he filed this action.
2. Breach of fiduciary duties.
Miller argues that the trial court erred in granting summary judgment to the
defendants because the question of whether they breached fiduciary duties they owed
to Miller as the owner of a minority interest in FiberLight depends on disputed issues
of fact. He argues that the defendants breached their fiduciary duties to him in three
respects: they coerced him via economic duress into signing the third, fourth, and
10
fifth amended agreements; they terminated his employment and redeemed his
interests in the company; and they rejected offers to purchase FiberLight.
(a) Default fiduciary duties under Delaware law.
Miller does not base his claims upon any fiduciary duty imposed in the limited
liability company agreements. Instead, he bases his claims upon fiduciary duties
imposed by default under Delaware law.
When a Delaware limited liability company agreement is silent on the issue of
fiduciary duties, Delaware law now imposes default fiduciary duties. In 2013, “the
Delaware Legislature . . . pass[ed] an amendment that provides for default fiduciary
duties.” CSH Theatres, LLC v. Nederlander of San Francisco Assns., 2015 Del. Ch.
LEXIS 115, *34-35 n.54 (III) (C) (1) (Del. Ch. 2015). See 6 Del. C. § 18-1104 (“In
any case not provided for in this chapter, the rules of law and equity, including the
rules of law and equity relating to fiduciary duties and the law merchant, shall
govern.”). The statute, however, became effective August 1, 2013, well after these
agreements were entered. 6 Del. C. § 18-1104. Whether such default duties applied
to limited liability company agreements entered before 2013 — such as the
agreements at issue here — is not absolutely clear.
11
According to dicta in a 2012 Delaware Supreme Court opinion,”whether the
[pre-2013 Delaware] LLC statute [did] — or [did] not — impose default fiduciary
duties is one about which reasonable minds could differ.” Gatz Properties, LLC v.
Auriga Capital Corp., 59 A3d 1206, 1219 (III) (C) (Del. 2012). See generally
Mohsen Manesh, Damning Dictum: The Default Duty Debate In Delaware, 39 J.
Corp. L. 35, 54–63 (2013). The Delaware Supreme Court did not answer the question,
but it did recognize that a “long line of Chancery2 precedents [have held] that default
fiduciary duties apply to the managers of an LLC.” Feeley v. NHAOCG, LLC, 62 A3d
649, 660 (II) (D) (1) (Del. Ch. 2012) (collecting cases). And even in the period
between the Delaware Supreme Court’s Gatz decision and the statutory fix, the
Chancery Court continued to find such default duties. Id. at 660-661 (II) (D) (1).
Accordingly, we follow the long line of Chancery precedents to find that default
fiduciary duties applied to the agreements at issue in this appal. Such default fiduciary
2
According to its website, “The Delaware Court of Chancery is widely
recognized as the nation’s preeminent forum for the determination of disputes
involving the internal affairs of the thousands upon thousands of Delaware
corporations and other business entities through which a vast amount of the world’s
commercial affairs is conducted. Its unique competence in and exposure to issues of
business law are unmatched.” http://courts.delaware.gov/chancery\/ (retrieved
October 2, 2017).
12
duties include the duties of care and loyalty. McKenna v. Singer, 2017 Del. Ch.
LEXIS 138, *41-42 (II) (B) (Del. Ch. 2017).
(i) The duty of care.
“The duty of care requires that [managers] act on an adequately informed
basis with [manager] liability for a duty of care violation predicated upon concepts
of gross negligence.” McKenna, supra, at *41-42 (citation and punctuation
omitted). “[A] lack of due care [is] fiduciary action taken solely by reason of gross
negligence and without any malevolent intent[,]” In re Walt Disney Co. Deriv.
Litig., 906 A2d 27, 64 (2) (Del. 2006), meaning an intent “having, showing, or
arising from intense often vicious ill will, spite, or hatred.”
https://www.merriam-webster.com/dictionary/malevolent (retrieved October 3,
2017). Malevolent polices are those that are “so plainly unwise as to be
irreconcilable with honest . . . intelligent [] judgment.” Salnita Corp. v. Walter
Holding Corp., 168 A.74, 76 (Del. Ch. 1933).
(ii) The duty of loyalty.
“The duty of loyalty mandates that the best interest of the [company] and its
[members] takes precedence over any interest possessed by a [manager], officer or
controlling [member] and not shared by the [members] generally.” McKenna, supra,
13
at *42 (II) (B) (citation and punctuation omitted). The duty of loyalty prevents
managers from using “their position of trust and confidence to further their private
interests.” Cede & Co. v. Technicolor, Inc., 634 A2d 345, 361 (Del. 1993). (Although
Cede involved corporate directors, “managers of Delaware limited liability companies
owe the same fiduciary duties as directors of Delaware corporations when the limited
liability company agreement does not opt out of fiduciary duties.” McKenna, supra,
at *41 (II) (B) (citations omitted).)
(b) The operating agreements did not exclude the default fiduciary duties.
The defendants argue that certain provisions in the operating agreements
(provisions that were identical in the third, fourth, and fifth amended agreements)
excluded the default fiduciary duties. See 6 Del. C. § 18-1101 (c) (“To the extent that,
at law or in equity, a member or manager or other person has duties (including
fiduciary duties) to a limited liability company or to another member or manager or
to another person that is a party to or is otherwise bound by a limited liability
company agreement, the member’s or manager’s or other person’s duties may be
expanded or restricted or eliminated by provisions in the limited liability company
agreement; provided, that the limited liability company agreement may not eliminate
the implied contractual covenant of good faith and fair dealing.”).
14
“Drafters of an LLC agreement must make their intent to eliminate fiduciary
duties plain and unambiguous.” Feeley, 62 A3d at 664 (II) (D) (2) (citation and
punctuation omitted). The intent must be explicit. Kelly v. Blum, 2010 Del. Ch.
LEXIS 31, *46 (II) (B) (2) (a) (Del. Ch. 2010). Indeed, as demonstrated by the
citations in the margin, the effective elimination of the default fiduciary duties
often requires the use of the words “fiduciary duties” or the express statement that
all duties are eliminated.3
3
See, e.g., Wiggs v. Summit Midstream Partners, LLC, 2013 Del. Ch. LEXIS
84, *37-38 (III) (E) (2) (Del. Ch. Mar. 28, 2013) (“Summit shall have no duties
(including fiduciary duties) or liabilities relating thereto to [Management] or to the
other Members, except as may be specifically provided [in the Agreement] and
required by any provisions of the [Delaware LLC] Act or other applicable law that
cannot be waived. Accordingly, [Summit] shall be entitled to act solely on its own
behalf, and in its own interests.”) (punctuation and footnote omitted); CNL-AB LLC
v. Eastern Property Fund I SPE (MS Ref) LLC, 2011 Del. Ch. LEXIS 25, *38 (II) (B)
(2) (Del. Ch. 2011) (“The execution, delivery or performance by the Managing
Member . . . of any agreement authorized or permitted under this Agreement shall be
in the sole and absolute discretion of the Managing Member without consideration
of any other obligation or duty, fiduciary or otherwise, of the Company or the
Members and shall not constitute a breach by the Managing Member of any duty that
the Managing Member may owe the Company or any Non—Managing Member or
any other Persons under this Agreement or of any duty stated or implied by law or
equity.”) (emphasis added and footnote omitted); In re Atlas Energy Resources, LLC,
2010 Del. Ch. LEXIS 216, *21-22 (III) (A) (1) (Del. Ch. 2010) (“[W]henever a
potential conflict of interest exists or arises between any Affiliate of the Company,
on the one hand, and the Company or any Group Member, on the other, any
resolution or course of action by the Board of Directors in respect of such conflict of
interest shall be permitted and deemed approved by all Members, and shall not
15
None of the provisions to which the defendants point include such explicit
language. Specifically, the defendants argue that the following provisions
eliminated any default duty of care owed by members and directors:
4.2 Limited Liability; Exculpation. Except as expressly set forth in
this Agreement or required by law, no Member shall be personally liable
for any debt, obligation, or liability of the Company, whether arising in
contract, tort, or otherwise, solely by reason of being a Member of the
Company. Neither the Company nor any Director or officer shall have
any right claim, or cause of action against any Member of the Company
arising out of such Member having acted or failed to act in accordance
with such Member’s rights or obligations as a Member hereunder.
constitute a breach of this Agreement . . . or of any duty existing at law, in equity or
otherwise, including any fiduciary duty, if the resolution or course of action in respect
of such conflict of interest is (i) approved by Special Approval, (ii) approved by the
vote of holders of a majority of the Outstanding Common Units (excluding Common
Units held by interested parties), (iii) on terms no less favorable to the Company than
those being generally available to or available from unrelated third parties or (iv) fair
and reasonable to the Company, taking into account the totality of the relationships
between the parties involved (including other transactions that may be particularly
favorable to the Company).”) (emphasis added and footnote omitted); Fisk Ventures,
LLC v. Segal, 2008 Del. Ch. LEXIS 158, *41-42 (III) (C) (Del. Ch. 2008) (“[T]he
[limited liability company agreement] eliminates fiduciary duties to the maximum
extent permitted by law by flatly stating that members have no duties other than those
expressly articulated in the Agreement. Because the Agreement does not expressly
articulate fiduciary obligations, they are eliminated.”).
16
5.3 Limited Liability; Exculpation. Except as expressly set forth in
this Agreement or required by law, no Director shall be personally liable
for any debt, obligation, or liability of the Company, whether arising in
contract, tort, or otherwise, solely by reason of being a Director of the
Company. Neither the Company nor any Member or Officer shall have
any right, claim, or cause of action against any Director arising out of
such Director’s having acted or failed to act in accordance with such
Director’s rights or obligations hereunder.
The defendants argue that the following provision eliminated the default duty
of loyalty:
4.13 Members May Participate in Other Activities. Members and
their Affiliates and Directors, either individually or with others, shall
have the right to participate in other business ventures of every kind,
whether or not such other business ventures compete with The
Company. No Member, acting in the capacity of a Member, shall be
obligated to offer to the Company or to the other Members any
opportunity to participate in any such other business venture. Neither the
Company nor the other Members shall have any right to any income or
profit derived from any such other business venture of a Member.
The defendants also argue that the entire agreement paragraph eliminates
default fiduciary duties:
14.1 Entire Agreement. This Agreement, including the schedules
attached hereto, and any subscription agreement executed by the
17
Members relative to their respective Membership Interests, constitute
the entire agreement among the Members with respect to the subject
matter hereof, and supersede all prior and contemporaneous agreements,
representations, and understandings of the parties. No party hereto shall
be liable nor bound to the other in any manner by any warranties,
representations, or covenants with respect to the subject matter hereof
except as specifically set forth herein.
None of these paragraphs plainly, unambiguously, and explicitly eliminate default
fiduciary duties. Consequently, we find, as did the trial court, the default fiduciary
duties apply to the decisions that Miller challenges here.
(c) Coercion.
Miller argues that the defendants breached the fiduciary duties they owed him
by coercing him through economic duress to sign amendments to Fiberlight’s
operating agreement that advantaged defendants over Miller by reducing the value
of Miller’s interest in the company. Miller claims that this economic duress took the
form of threats to terminate him: he was told to sign the agreements or he would be
fired.
He argues that critical changes resulted from the coerced execution of the third
and fifth agreements: the management members of FiberLight were stripped of any
meaningful control; the defendants via Lynch gained voting control of the board of
18
directors and the authority to terminate managers; the defendants took a controlling
interest in the equity of FiberLight; the incentive interest structure was introduced;
and the possible value of the incentive interest was capped, channeling excess value
to the investor interests, held almost entirely by the defendants. In essence, Miller
concedes that the operating agreements allowed the defendants to terminate him and
to redeem his membership interest in the company, but argues that the defendants
may not rely on the operating agreements because he was coerced into signing them.
(i) Third amended agreement.
Miller’s claim that the defendants breached fiduciary duties by coercing him
through economic duress into signing the third amended agreement fails. The
defendants were not majority members when Miller signed the third amended
agreement, so they owed him no fiduciary duties at that time.
Under the second amended agreement, Thermo Telecom Partners had only a
6.4678 membership interest in FiberLight and NT Assets had no interest. “[M]inority
members of an LLC do not owe fiduciary duties to other members.” Marino v. Grupo
Mundial Tenedora, S.A., 810 FSupp2d 601, 608 (S.D.N.Y. 2011) (applying Delaware
law). The trial court observed in the order granting summary judgment to the
defendants,
19
[u]nder the Second Amendment, Thermo Telecom only held 6.4678%
in FiberLight; Miller, Coyne, and another individual together held the
majority interest. Thermo Telecom became a majority member by virtue
of its debt to equity conversion, which was memorialized in the Third
Amendment. Before the third Amendment was executed, Thermo
Telecom did not hold a majority membership interest and any duress
would be because of [its] large creditor position in FiberLight and not
by virtue of [its] status as FiberLight members.
But “[i]n contrast to a controlling [member], a [limited liability company’s] creditor
— even one that owns a majority of the [company’s] debt — does not owe fiduciary
duties to [members]. It is well established in Delaware corporate law that the
obligations of creditors to [business] debtors are governed by contract, not fiduciary
duty principles.” Hamilton Partners, L.P. v. Highland Capital Mgmt., L.P., 2014 Del.
Ch. LEXIS 72, *42 (III) (C) (Del. Ch. 2014) (citation omitted).
Morever, the undisputed evidence is that at the time Miller signed the third
amended agreement, the defendants lacked the authority to terminate him. Under the
second agreement, Thermo Telecom Partners had the right to designate one of the
three directors. Miller and Coyne were the other two directors and held the other two
votes. NT Assets was not a member, had no voice in choosing the directors, and had
no vote. The second agreement gave the board the right to remove officers. Thus the
20
defendants, with one vote to the individual members’ two, lacked the power to
terminate Miller from his position at the time he signed the third amended agreement.
Miller concedes this fact in his appellate brief, stating that it was the third amended
agreement itself that granted Lynch, as the designated representative of the Thermo
Companies, the authority to terminate Miller.
So the trial court did not err by granting the defendants summary judgment on
Miller’s claim that the defendants breached fiduciary duties when they forced him to
sign the third amended agreement by coercing him with threats of termination. That
claim is defeated by the undisputed facts.
(ii) Fourth and fifth amended agreements.
As observed above, Miller claims that the defendants wrongfully diminished
his membership interest in FiberLight. And although he concedes that the operating
agreements allowed FiberLight to do so, he implicitly argues that the agreements
should be disregarded because his consent to those agreements was coerced. But the
failure of Miller’s claim as to the third amended agreement defeats his claims that the
defendants breached their fiduciary duties by enforcing the fourth and fifth amended
agreements. This is because it was the third amended agreement that gave Thermo
Telecom Partners and NT Assets the right to enact the fourth and fifth amended
21
agreements, even without Miller’s consent. Simply put, the defendants had the
unilateral right –- given to them under the third amending operating agreement — to
enact the fourth and fifth amended operating agreements, and their exercise of their
rights under those agreements did not breach the common law default fiduciary duties
of care and loyalty owed to Miller.
Miller has not cited, and we have not found, any Delaware authority supporting
the proposition that a party taking action specifically authorized under a limited
liability company agreement breaches a default fiduciary duty. Rather, Delaware law
is clear that provisions in a limited liability company’s operating agreement supersede
default fiduciary duties. See 2009 Caiola Family Trust v. PWA, LLC, 2014 Del. Ch.
LEXIS 261, *36-37 (5) (C) (Del. Ch. 2014). (“A limited liability company organized
under Delaware law may displace fiduciary duties altogether or tailor their application
by the terms of its operating agreement.”) (citation and punctuation omitted). The trial
court did not err in granting summary judgment on any claims based on coercion of
the fourth and fifth amended agreements.
(b) Miller’s termination and the redemption of his interest.
Miller argues that whether the defendants breached the default fiduciary duties
owed to him by redeeming his interest in the company upon his termination depends
22
upon disputed issues of fact. (Miller acknowledges he was an employee at will and
he is not seeking wrongful termination damages.) But a party taking action
specifically authorized under a limited liability company agreement does not breach
a default fiduciary duty. 2009 Caiola Family Trust, supra. Miller concedes that the
operating agreements authorized the redemption of his interests. The trial court did
not err in granting summary judgment on this claim.
(c) Rejection of offers to purchase FiberLight.
Miller argues that whether the defendants breached their fiduciary duties to him
by rejecting offers to purchase Fiberlight depends upon disputed issues of fact. The
defendants counter, and the trial court found, that FiberLight never received any such
offers. This is a disputed issue of fact.
First we address the defendants’ argument that Miller waived this claim by
raising it for the first time in his response to the defendants’ motion for summary
judgment. In his amended complaint, Miller alleged that the defendants rejected “at
least one offer to purchase FiberLight at a substantial profit to both the majority and
minority members,” and that “[b]y this and other conduct . . . [the defendants]
breached the fiduciary duties they owed to Miller.” Contrary to the defendants’
position, Miller “quite clearly pled claims” that the defendants breached their
23
fiduciary duties to him by rejecting offers to purchase Fiberlight. Duffield v. Chui,
314 Ga. App. 214, 215 n. 3 (723 SE2d 506) (2012).
We find no merit in [the defendants’] contention that this argument is
not properly before us because [Miller] did not raise it below. The
Georgia Civil Practice Act requires only notice pleading and, under the
Act, pleadings are to be construed liberally and reasonably to achieve
substantial justice consistent with the statutory requirements of the Act.
Rucker v. Columbia Nat. Ins. Co., 307 Ga. App. 444, 446 (1) (a) (705 SE2d 270)
(2010).
As for the merits of Miller’s argument, we agree that whether the defendants
breached default fiduciary duties by rejecting offers to purchase FiberLight depends
upon disputed issues of fact. Although the defendants denied there were any such
offers, Miller testified about offers to purchase FiberLight from Quanta Services,
General Atlantic, and Summit LLC. According to Miller, Lynch unilaterally rejected
all three offers.
Miller testified that in 2008, Quanta sent FiberLight a letter of intent, which he
described as a firm but not binding offer to buy the company, but Lynch rejected it
without explanation. Lynch testified that the communication from Quanta was a letter
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of intent, not an offer, and that he had discussions with the senior management team,
but “they chose not to go forward.”
In 2011, according to Miller, FiberLight engaged two firms to investigate
selling the company, resulting in the identification of eight potential purchasers and
final offers to purchase. Miller testified that General Atlantic was the highest bidder
and made a firm offer pending due diligence. During due diligence, General Atlantic
found some accounting issues and reduced the offer price. According to Miller,
Lynch was offended because General Atlantic had said the offer price was firm, and
he cut off negotiations without consulting the minority members, including Miller.
Lynch, on the other hand, acknowledged that General Atlantic “participated in the
sale process that we engaged in in 2011,” but testified that “they never got to the
point where they had a firm price.”
Finally, Miller testified that in 2011 or the summer of 2012, Summit LLC
submitted an offer in excess of $400 million for FiberLight with no contingencies,
pending due diligence. According to Miller, Summit had proceeded through the due
diligence process. But Lynch rejected the offer because Summit reduced the offer
price. Lynch did not consult Miller before rejecting the offer. Lynch, on the other
hand, testified that “Summit chose not to move forward” because it was not
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comfortable with certain potential FiberLight liabilities, and Summit’s inquiries never
proceeded to the due diligence stage.
Miller testified that he and the other minority members had no influence as to
whether to accept any offers. Initially, he was “under the assumption . . . that the
management team actually had a decision process in the sale of the company and that
we could influence that sale with Jim [Lynch]. Later [in 2008] [he] found out [they]
didn’t have any influence related to that and it was solely his decision . . . .” He added
that he “had no decision-making capabilities at all. That it was all Jim Lynch.”
Given this conflicting testimony, we find that whether the defendants rejected
offers to purchase FiberLight, thereby breaching default fiduciary duties, depends on
disputed issues of material fact. See generally Gantler v. Stephens, 965 A2d 695, 704-
709 (I) (Del. 2009). Consequently, the trial court erred by granting summary
judgment to the defendants on this claim.
3. Statute of limitation.
Miller argues that the trial court erred by ruling that his claims arising from the
third amended operating agreement are barred by the statute of limitation. Given our
holding in Division 2 (c) (i) that the defendants are entitled to summary judgment on
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the claims arising from the third amended operating agreement, we do not reach this
issue.
4. Breach of covenant of good faith and fair dealing.
Miller argues that the trial court erred in granting the defendants summary
judgment on his claim for breach of the covenant of good faith and fair dealing. The
trial court ruled that there was no such breach because the terms of the agreements
allowed the defendants to terminate Miller and redeem his membership interests.
Miller argues that the reasoning is flawed because he was coerced into signing the
amended agreements. For the reasons discussed above, this argument lacks merit.
Miller also argues that regardless of whether the agreements allowed the
defendants to redeem his membership interests, he should be allowed to pursue this
claim because the covenants protect reasonable expectations, and he expected a
substantial return on his investment in FiberLight, an expectation that was confirmed
when Lynch told him that Fiberlight would “do right” by him.
The implied covenant of good faith and fair dealing attaches to
every contract, and requires a party in a contractual relationship to
refrain from arbitrary or unreasonable conduct which has the effect of
preventing the other party to the contract from receiving the fruits of the
bargain. Nevertheless, Delaware law requires that the contract’s express
terms be honored, and prevents a party who has after-the-fact regrets
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from using the implied covenant of good faith and fair dealing to obtain
in court what it could not get at the bargaining table. [T]o state a claim
for breach of the implied covenant of good faith and fair dealing, a
plaintiff must allege a specific obligation implied in the contract, a
breach of that obligation, and resulting damages. This [c]ourt cannot
invoke an implied covenant, however, to re-write the agreement between
the parties, and should be most chary about implying a contractual
protection when the contract could easily have been drafted to expressly
provide for it.
CMS Investment Holdings, LLC v. Castle, 2015 Del. Ch. LEXIS 169, *55-56 (IV) (C)
(Del. Ch. 2015) (citations and punctuation omitted) . “Existing contract terms control,
however, such that implied good faith cannot be used to circumvent the parties’
bargain, or to create a free-floating duty unattached to the underlying legal document.
Thus, one generally cannot base a claim for breach of the implied covenant on
conduct authorized by the terms of the agreement.” Dunlap v. State Farm Fire & Cas.
Co., 878 A2d 434, 441 (C) (Del. 2005) (citations and punctuation omitted). In other
words, “[a] party does not act in bad faith by relying on contract provisions for which
that party bargained where doing so simply limits advantages to another party.” Alpha
Balanced Fund, LLLP v. Irongate Performance Fund, LLC, 342 Ga. App. 93,
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102-103 (1) (b) (802 SE2d 357) (2017) (applying Delaware law; citation and
punctuation omitted).
Miller does not dispute that the actions of which he complains were allowed
under the agreements. He would imply a contract term that prevented the defendants
from exercising explicit contract terms. But “the implied covenant cannot be invoked
to override express provisions of a contract.” Kuroda v. SPJS Holdings, LLC, 971
A2d 872, 888 (Del. Ch. 2009). See generally Nemec v. Shrader, 991 A2d 1120, 1122-
1128 (Del. 2010) (company did not violate good faith covenant by exercising option
to redeem retired stockholders’ shares to the benefit of working stockholders;
company, whose directors stood to benefit from redemption, exercised an express
contractual right). Compare Merrill v. Crothall-American, Inc., 606 A2d 96, 101 (V)
(Del. 1992) (whether employer breached implied covenant of good faith and fair
dealing by inducing employee to enter employment contract through fraud, deceit, or
misrepresentation was a jury question).
Finally, in support of his argument that the defendants breached the duty of
good faith by redeeming his membership interest, Miller points to a provision in the
agreement stating that “The removal of an Officer who is also a Member shall not
affect the rights of such Officer as a Member and shall not in itself constitute the
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withdrawal, resignation, retirement, or expulsion of such Member.” He argues that
redeeming his interest upon his termination affected his rights as a member in
violation of this provision. “The limiting aspect of this argument is that specific
language in a contract controls over general language, and where specific and general
provisions conflict, the specific provision ordinarily qualifies the meaning of the
general one.” Wiggs, supra, 2013 Del. Ch. LEXIS 84, at *38 (III) (E) (2) (citation
omitted). As discussed above, the agreement specifically allowed the defendants to
redeem Miller’s interests. The trial court did not err by granting the defendants
summary judgment on this claim.
5. Remaining claims.
Miller argues that we should reverse the grant of summary judgment to the
defendants on his claims for aiding and abetting a breach of fiduciary duty, breach of
contract, oppression, declaratory judgment, punitive damages, and attorney fees
because those rulings were based entirely on the trial court’s decision on his breach
of fiduciary duty and breach of the covenant of good faith and fair dealing claims.
Because we reverse in part the grant of summary judgment to the defendants on the
breach of fiduciary duty claims, we also reverse the grant of summary judgment to the
defendants on Miller’s claim for aiding and abetting a breach of fiduciary duty.
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Likewise, we reverse the grant of summary judgment to the defendants on Miller’s
claims for punitive damages and attorney fees, which the trial court granted only on
the basis that none of Miller’s claims survived summary judgment.
However, Miller’s breach of contract, oppression, and declaratory judgment
claims are not derivative of his claim that the defendants breached their default
fiduciary duties by rejecting offers to buy FiberLight, the only claim on which we
reverse the trial court’s grant of summary judgment. And Miller makes no argument
in support of his enumeration that the trial court erred in granting summary judgment
on these claims. Therefore, we affirm the grant of summary judgment on Miller’s
claims for breach of contract, oppression, and declaratory judgment.
Judgment affirmed in part and reversed in part. Branch and Bethel, JJ.,
concur.
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