4:17-cv-13106
E.D. Mich.Sep 10, 2019Background:
- Plaintiff Michael McClure owned a 10% membership interest in Curaytor LLC and received a cash buyout following corporate transactions and mergers.
- McClure alleges Curaytor (and individual defendants) withheld distributions and tax/financial documents and used an appraiser whose methodology materially undervalued his interest (offer ~$664,000 vs. alleged worth in the millions).
- On September 27, 2018 the court granted in part and denied in part defendants’ motion to dismiss McClure’s First Amended Complaint; several counts were dismissed while Count II (contract-based dilution claim under Delaware law) survived.
- Both parties moved for reconsideration (filed October 11, 2018): McClure sought reinstatement of Counts III, VIII, IX, and X and leave to amend; defendants sought dismissal of Count II for failure to identify a breached contract provision.
- The court denied both motions (Sept. 10, 2019), finding McClure’s motion rehashed prior arguments and that amendment would be futile, while concluding defendants failed to show a palpable defect as to Count II.
- The court clarified that McClure plausibly pleaded a breach of §3.8 or the implied covenant of good faith and fair dealing under Delaware law based on alleged appraisal errors and a contractual “gap” that could permit unfair valuation.
Issues:
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Reconsideration of dismissal of Counts III, VIII, IX, X (breach of contract/ fiduciary duties/ statutory oppression) | McClure contends the court erred and the dismissed counts were sufficiently pleaded | Defendants maintain dismissal was proper and some claims (e.g., MCL §450.4515) do not apply or are time-barred | Denied: court found no palpable defect, McClure largely rehashed prior arguments; Count X statutory claim not applicable/time-barred |
| Leave to amend following denial of those counts | McClure sought leave to amend if pleading was deficient | Defendants opposed amendment as futile | Denied: amendment would be futile under Foman standard |
| Defendants’ reconsideration of Count II (breach of contract — valuation/dilution) | McClure argues §3.8 (and implied covenant) supplies a basis to challenge valuation practices and appraiser methodology | Defendants argue plaintiff failed to identify any express contract provision requiring a valuation method or process | Denied: court finds McClure adequately alleged breach of §3.8 and/or the implied covenant at the pleading stage |
| Whether plaintiff stated a plausible implied covenant claim based on alleged undervaluation | McClure alleges specific appraisal errors and omissions that frustrated contractual expectations and reduced value | Defendants argue the agreement’s plain language forecloses such a claim and there is no ‘gap’ to fill | Held for pleading stage: court finds a plausible gap and that, drawing inferences for plaintiff, the implied covenant claim survives 12(b)(6) |
Key Cases Cited
- Foman v. Davis, 371 U.S. 178 (1962) (standard for denying leave to amend when amendment would be futile)
- Kuroda v. SPJS Holdings, L.L.C., 971 A.2d 872 (Del. Ch. 2009) (elements required to plead breach of the implied covenant of good faith and fair dealing)
- Wal–Mart Stores, Inc. v. AIG Life Ins. Co., 901 A.2d 106 (Del. 2006) (Delaware courts may imply contract terms to fulfill parties’ reasonable expectations)
- Dunlap v. State Farm Fire & Cas. Co., 878 A.2d 434 (Del. 2005) (describing limits and purpose of the implied covenant)
- Nemec v. Shrader, 991 A.2d 1120 (Del. 2010) (implied covenant requires showing arbitrary or unreasonable action frustrating the bargain)
- Winshall v. Viacom Int'l Inc., 76 A.3d 808 (Del. 2013) (implied covenant cannot supply protections parties failed to obtain at the bargaining table)
- Gerber v. Enter. Prods. Holdings, LLC, 67 A.3d 400 (Del. Ch. 2013) (test whether parties would have agreed to proscribe complained-of conduct)
- Stoudemire v. Michigan Dep't of Corr., 705 F.3d 560 (6th Cir. 2013) (pleadings construed liberally to do justice)
- Minger v. Green, 239 F.3d 793 (6th Cir. 2001) (court examines substance beyond labels in complaints)
- Miller v. American Heavy Lift Shipping, 231 F.3d 242 (6th Cir. 2000) (Federal Rules favor liberality over technicality in pleadings)