2023-1103-MAA
Del. Ch.Feb 13, 2025Background
- The case arises from the sale and management of Mobileum, Inc.; Audax sold a controlling interest in Mobileum to H.I.G., while retaining a significant minority stake via plaintiff AG Mobile Holdings, L.P.
- The Limited Partnership Agreement governed the post-sale partnership between H.I.G. and plaintiff, with Matrix Topco, L.P. as the partnership entity and Matrix Topco GP as General Partner.
- Over a year post-transaction, the board formed a Special Committee (composed of H.I.G.-appointed board members) to investigate alleged accounting irregularities at Mobileum.
- The Special Committee, excluding plaintiff’s appointed board member, led to H.I.G. ultimately filing a fraud suit against Audax, prompting plaintiff to sue in Chancery for various alleged contractual breaches.
- Plaintiff asserted claims for breach of contract (board exclusion and denied information rights), breach of the implied covenant of good faith and fair dealing, and tortious interference, seeking damages for mismanagement and process irregularities.
- Defendants moved to dismiss all claims on grounds of lack of liability, failure to state a claim, and insufficient damage pleading.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Exclusion from Board Committee (Section 6.3) | Plaintiff (AG Mobile) argues Section 6.3 requires their board representative on all committees, including the Special Committee. | Defendants argue that including plaintiff’s member on a committee investigating plaintiff’s own alleged wrongdoing is absurd, implying a carve-out is necessary. | For plaintiff: Section 6.3 unambiguously requires their representation on all committees; exclusion was breach. |
| Access to Financial Information (Section 11.2) | Plaintiff claims entitlement to documents regarding the investigation under "other financial reports"; by withholding, defendants breached the contract. | Defendants assert these documents are not "financial reports" in the ordinary course as described in the agreement. | For defendants: "Other financial reports" does not include the investigation materials sought. |
| Related Party Transaction (Section 8.17) | Plaintiff alleges defendants breached by hiring Special Committee counsel as a conflicted related-party transaction. | Defendants argue no covered "transaction" involving H.I.G. and the partnership occurred per plain meaning. | For defendants: No qualifying transaction was alleged; claim dismissed. |
| Implied Covenant of Good Faith | Plaintiff contends the agreement impliedly required consultation of Board (including plaintiff’s reps) for major decisions. | Defendants maintain the agreement expressly allocates board control and consultation rights; no contractual gap exists. | For defendants: No gap exists to trigger implied covenant; express terms control. |
| Who May Be Liable | Plaintiff argues all defendants can be liable. | Defendants assert limited partners and the General Partner are insulated; only Board members may be bound for breaches of their obligations. | For defendants (in part): Only individual Board members may potentially be liable for breaching Section 6.3. |
| Tortious Interference | Plaintiff brings this as an alternate claim for board exclusion. | Defendants argue parties to a contract can't tortiously interfere with it. | For defendants: Claim fails as Individual Defendants are construed as parties. |
Key Cases Cited
- Gotham Partners, L.P. v. Hallwood Realty Partners, L.P., 817 A.2d 160 (Del. 2002) (Delaware courts respect partnership agreement terms and parties' ability to freely contract and limit liabilities).
- VLIW Technology, LLC v. Hewlett-Packard Co., 840 A.2d 606 (Del. 2003) (to state a breach of contract, plaintiff must show contract existence, breach, and resulting damages; at pleading, only violation need be plausible).
- Nemec v. Shrader, 991 A.2d 1120 (Del. 2010) (implied covenant only fills gaps not addressed by express contract terms).
- El Paso Pipeline GP Company, L.L.C. v. Brinckerhoff, 152 A.3d 1248 (Del. 2016) (direct/derivative claim distinction in partnership context).
- Boardwalk Pipeline Partners, LP v. Bandera Master Fund LP, 288 A.3d 1083 (Del. 2022) (Delaware law permits partnership agreements to broadly limit fiduciary and other liabilities by contract).