Corporate – Implied covenant – Punitive damages

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Where a plaintiff claiming a freeze-out now seeks leave to file a third amended complaint that would add a new claim for breach of the implied covenant of good faith and fair dealing and seek punitive damages for an alleged breach of contract, the plaintiff should be permitted to add a claim for breach of the implied covenant, but the proposed claim for contractual punitive damages would be futile.

“This lawsuit arises from business dealings among four people who formed a Delaware limited liability company called Market Maker Solutions LLC (‘MMS’). Daniel Petrucci claims that the three individual defendants froze him out by claiming that MMS had no value as a going concern and that its assets were worthless, dissolving MMS and transferring its assets to a new entity, and leveraging those assets and Petrucci’s contributions to MMS to develop a profitable new company in the same line of business that MMS had been pursuing. …

“The facts alleged in the proposed third amended complaint state a viable claim for breach of the covenant of good faith and fair dealing that is implied in the MMS operating agreement. …

“Defendants argue that they cannot be sued under the implied covenant because all of the acts or omissions challenged by Petrucci are subject to express provisions of the LLC Agreement. …

“This argument is without merit. Although the LLC Agreement contains provisions giving the Board sole discretion to transfer assets out of MMS, the implied covenant requires that such discretion be exercised in good faith and not used to deprive the minority members of the value of their shares. …

“Petrucci has plausibly alleged that Defendants undertook a course of action in a deliberate attempt to deny Petrucci the fruits of the parties’ bargain, by transferring the assets of the LLC without receiving fair value in exchange. The allegations that Defendants did not act in good faith but instead implemented a scheme to deprive Petrucci of the value of his ownership share in MMS state a viable claim for breach of the implied covenant. …

“The Court agrees with Defendants that the facts alleged in the proposed amended complaint do not plausibly suggest that Petrucci could seek punitive damages if he were to prevail on his claim for breach of contract. …

“Since the conduct that allegedly constituted a breach of contract is not also an independent tort, the proposed claim for punitive damages would be futile under [Bhole, Inc. v. Shore Investments, Inc., 67 A.3d 444, 454 (Del. 2013)] and [E.I. DuPont de Nemours & Co. v. Pressman, 679 A.2d 436, 445 (Del. 1996)].”

Petrucci v. Esdaile, et al. (Lawyers Weekly No. 09-052-19) (5 pages) (Salinger, J.) (Suffolk Superior Court) (Docket No. 1684CV03998-BLS2) (May 9, 2019).

Click here to read the full text of the opinion.