2024-0523-LWW
Del. Ch.Apr 30, 2025Background
- CityMD, initially physician-owned, became majority-owned by Warburg Pincus through several affiliated private equity funds in 2017.
- In 2019, CityMD merged with Summit Medical Group to form WP CityMD Topco LLC (“the Company”), governed by a detailed LLC Agreement with distinct classes of units for Warburg (Class A) and other investors (Class B).
- The LLC Agreement provided tag-along rights to minority (Class B) unitholders for participation in sales on equal terms with Warburg, but also contained waivers of fiduciary duties for Warburg and allowed amendments with class consent.
- In 2022, Warburg negotiated a merger of the Company with VillageMD, which included different consideration for Class A (all cash) and Class B (partial equity) unitholders; amending the LLC Agreement and waiving tag-along rights required a Class B majority vote.
- Class B unitholders approved the amendment and the merger, then later saw the value of their equity decline. Plaintiffs (Class B) sued, alleging breach of the implied covenant of good faith and fair dealing, among other claims.
- Defendants moved to dismiss under Rule 12(b)(6); the Chancery Court dismissed with prejudice, finding the LLC Agreement’s express terms left no basis for plaintiffs’ claims.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Breach of implied covenant of good faith and fair dealing | Warburg and the Company breached an implicit obligation not to destroy Class B’s tag-along rights or coerce approval for the amendment | The LLC Agreement expressly allowed amendment of tag-along rights by class vote, and fiduciary duties were waived | No implied obligation exists where the contract addresses the matter; claim dismissed |
| Breach of Contract | Approval of the merger and amendment did not comply with the LLC Agreement | Procedures in the LLC Agreement, including class vote, were followed | No express breach alleged or briefed; claim deemed waived/dismissed |
| Tortious interference with contract | Warburg, VillageMD, and Walgreens intentionally interfered by eliminating the tag-along right and structuring disparate merger consideration | No underlying breach of contract alleged; LLC Agreement authorized the acts at issue | Absent a viable breach of contract, tortious interference claim fails |
| Unjust enrichment | Warburg and the WP Investors were unjustly enriched by the scheme to deprive Class B of equal merger consideration | Express contract (LLC Agreement) governs, precluding unjust enrichment claim | Comprehensive contract precludes unjust enrichment remedy; claim dismissed |
Key Cases Cited
- Savor, Inc. v. FMR Corp., 812 A.2d 894 (Del. 2002) (sets out the pleading standard for motions to dismiss under Rule 12(b)(6))
- Oxbow Carbon & Mins. Hldgs., Inc. v. Crestview-Oxbow Acq., LLC, 202 A.3d 482 (Del. 2019) (implied covenant does not fill gaps when contract expressly addresses the conduct)
- Dunlap v. State Farm Fire and Cas. Co., 878 A.2d 434 (Del. 2005) (implied covenant is a limited, gap-filling doctrine)
- Nemec v. Shrader, 991 A.2d 1120 (Del. 2010) (implied covenant cannot be used to override clear contractual rights)
- Aspen Advisors LLC v. United Artists Theatre Co., 861 A.2d 1251 (Del. 2004) (tortious interference claims require underlying breach of contract)
- Kuroda v. SPJS Hldgs., L.L.C., 971 A.2d 872 (Del. Ch. 2009) (requirements for implied covenant claim)