302 A.3d 430
Del. Ch.2023Background
- Washington Prime Group emerged from Chapter 11 as a Delaware LLC controlled by Strategic Value Partners (SVP), which held ~87% equity; former common and preferred stockholders became minority stapled-unit holders (plaintiffs).
- The LLC Agreement (LLCA) mimics corporate governance: a five-member Board (SVP can remove/replace managers), specified “Independent Managers,” and a designated Minority Approved Independent Manager (Reid).
- SVP launched a two-tiered tender offer Nov–Dec 2021 (front‑loaded $25.75 then $25.00); purchased enough to raise its stake to ~88.2%; plaintiffs allege inadequate disclosures during the offer.
- In June 2022 the LLC effected a squeeze‑out merger converting each Stapled Unit into $27.25 cash with no appraisal right; the information statement was brief and omitted process, valuation support, and the JLLS fairness opinion.
- Plaintiffs sued alleging breaches of fiduciary duty (against officers, board, and SVP), breaches of the LLCA (including the No Acquisition Provision and Section 11.1(b) informational rights), breach of the implied covenant, and aiding-and-abetting; defendants moved to dismiss.
- Court decision on 12(b)(6): granted in part — dismissed fiduciary claims against Board and SVP (LLCA waived fiduciary duties); otherwise denied as to officers’ disclosure claims and several contract/implied covenant claims; some claims narrowed or deferred.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the LLCA eliminated fiduciary duties of Board and controlling unitholder (Counts II–III) | LLCA cannot bar judicial fiduciary standards; Board/SVP breached duties by orchestrating underpriced squeeze‑out and failing to disclose. | LLCA contains a clear, unambiguous fiduciary duty waiver permitted by 6 Del. C. §18‑1101(c); thus Board and SVP owe no fiduciary duties. | Waiver upheld; fiduciary claims against Board and SVP dismissed. |
| Whether officers (CEO, CFO, CAO) owed and breached disclosure duties in connection with the Tender Offer | Officers had a duty to disclose material information about the tender and failed to do so (no disclosures); plaintiffs who tendered were harmed. | Only SVP (the bidder) owed disclosure duties; LLCA waived duties for SVP/Board; officers had no independent duty to speak or were constrained by board directives. | Officer disclosure claim re Tender Offer survives pleading stage as reasonably conceivable; some non‑tendering plaintiffs lack standing. |
| Whether officers breached disclosure duties (and made misleading partial disclosures) in connection with the Squeeze‑Out Merger | The after‑the‑fact information statement was materially incomplete — omitted process, valuation, JLLS opinion — so officers breached duty to inform and duty not to make partial/ misleading disclosures. | No stockholder vote or investment decision was solicited; disclosure duty primarily rested with Board (which was exculpated); officers lacked ability to force fuller disclosure. | Duty to disclose could apply to officers in this context; plaintiffs plausibly alleged materially incomplete/ misleading disclosures — claim survives pleading stage. |
| Whether LLCA and parties’ conduct breached express contractual terms (No Acquisition Provision; Section 11.1(b)) and the implied covenant | SVP’s Tender Offer and the squeeze‑out violated the No Acquisition Provision (no Specified Approval); LLCA informational provisions were violated; defendants subverted protections (appointing conflicted approver). | Defendants say Tender Offer was not a Squeeze‑Out or met LLCA procedures (Reid’s approval sufficed); informational obligations were satisfied by existing disclosures/bankruptcy materials. | Breach of No Acquisition Provision (tender as squeeze‑out) and breaches of Section 11.1(b) for late/deficient financial statements stated at pleading stage; implied covenant claims (failure to disclose, subverting approval process, and price so inadequate as to be waste) also survive. |
Key Cases Cited
- Gantler v. Stephens, 965 A.2d 695 (Del. 2009) (Delaware Supreme Court: officers owe fiduciary duties identical to directors)
- Dieckman v. Regency GP LP, 155 A.3d 358 (Del. 2017) (implied covenant can constrain conflict‑resolution procedures and prevent subversion of protections)
- Stroud v. Grace, 606 A.2d 75 (Del. 1992) (duty of disclosure arises when fiduciaries solicit stockholder action or present an investment decision)
- Malpiede v. Townson, 780 A.2d 1075 (Del. 2001) (duty of disclosure is a contextual manifestation of care and loyalty)
- Nagy v. Bistricer, 770 A.2d 43 (Del. Ch. 2000) (summary judgment for plaintiffs where information statement contained virtually no material information)
- Turner v. Bernstein, 776 A.2d 530 (Del. Ch. 2000) (directors’ sparse post‑closing disclosures breached duty to inform)
- Malone v. Brincat, 722 A.2d 5 (Del. 1998) (fiduciary duty not to speak falsely in public filings/communications)
- Nemec v. Shrader, 991 A.2d 1120 (Del. 2010) (implied covenant is narrowly applied; courts must find a gap and assess reasonable expectations at contracting)
- TSC Indus., Inc. v. Northway, Inc., 426 U.S. 438 (U.S. 1976) (materiality standard for disclosure: whether omitted fact would have assumed actual significance in investor deliberations)