Miller v. Brightstar Asia, Ltd., 43 F.4th 112

Tyler Miller and Omar Elmi founded Harvestar (cellphone refurbishment). In 2018 Brightstar Asia bought 51% and the parties executed a Delaware-governed Shareholders Agreement.
The Agreement's Paragraph 14 permits conflicted transactions only on "terms no less favorable to" Harvestar than arm's-length deals. Paragraphs 10–11 grant Miller and Elmi individual put and call options whose prices depend on Harvestar metrics (EBIT, indebtedness, units processed, etc.).
Miller alleges Brightstar Asia promptly mismanaged Harvestar (large intercompany loans, canceling outside repair work, underpricing work for affiliates), which depressed Harvestar metrics and rendered Miller’s options worthless.
Miller sued directly in federal court for (inter alia) breach of Paragraph 14 (Count I) and breach of the implied covenant of good faith and fair dealing as to his options (Count III). The district court (adopting a magistrate report) dismissed the suit as asserting only derivative claims under Delaware law.
On appeal, the Second Circuit affirmed dismissal of Count I as derivative but vacated dismissal of Count III, holding Miller adequately pleaded a direct claim for breach of the implied covenant based on his individual option rights and remanded.

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether Miller can bring a direct claim for breach of Paragraph 14 (conflicted-transactions clause)	Paragraph 14 and the options rights together create individual contractual rights; Miller can sue directly for harms to his options	Paragraph 14 creates a duty to Harvestar, not to individual shareholders; any claim belongs to the corporation (derivative)	Derivative only. Paragraph 14 imposes a duty to the company; Miller must pursue a derivative claim
Whether Miller can bring a direct claim for breach of the implied covenant of good faith and fair dealing based on destruction of his options	The implied covenant fills gaps in the option-price formulas and imposes a duty to protect Miller’s option value; breach is an injury to Miller individually	Any covenant about conflicted transactions is duplicative of Paragraph 14 and belongs to Harvestar	Direct claim allowed. The implied covenant here is tied to Miller’s individual option rights and may be enforced directly
Standard of review for appellate review of district court’s adoption of a magistrate report	Miller objected to the magistrate’s legal conclusion and sought de novo review	Brightstar argued appellate review should be for clear/plain error because the district court reviewed the magistrate’s report for clear error	Appellate court reviews the legal question de novo; involvement of a magistrate does not alter de novo review of legal issues

Tooley v. Donaldson, Lufkin & Jenrette, Inc., 845 A.2d 1031 (Del. 2004) (establishes the direct vs. derivative inquiry: whether duty is owed to shareholder or corporation)
El Paso Pipeline GP Co. v. Brinckerhoff, 152 A.3d 1248 (Del. 2016) (contractual duty phrased as acting in "best interests of the Partnership" is owed to the entity)
NAF Holdings, LLC v. Li & Fung (Trading) Ltd., 118 A.3d 175 (Del. 2015) (party to a commercial contract may enforce its own contractual rights directly)
Dunlap v. State Farm Fire & Cas. Co., 878 A.2d 434 (Del. 2005) (implied covenant prevents arbitrary or unreasonable conduct that deprives a party of the contract’s benefits)
Dieckman v. Regency GP LP, 155 A.3d 358 (Del. 2017) (limits and explains use of implied covenant to fill contractual gaps and vindicate parties’ reasonable expectations)
Brookfield Asset Mgmt., Inc. v. Rosson, 261 A.3d 1251 (Del. 2021) (reiterates Tooley direct-claim requirements)
Citigroup Inc. v. AHW Inv. P’ship, 140 A.3d 1125 (Del. 2016) (clarifies Tooley does not apply where plaintiff asserts rights under a commercial contract)
Lexmark Int’l, Inc. v. Static Control Components, Inc., 572 U.S. 118 (2014) (on limits and meaning of "standing" and related jurisdictional terminology)