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Fisk Ventures, LLC v. Segal, Civil Action No. 3017-CC - 2008 Del. Ch. LEXIS 158 (Ch. May 7, 2008)

Rule:

The mere exercise of one's contractual rights, without more, cannot constitute a breach of the implied covenant of good faith and fair dealing. Negotiating forcefully and within the bounds of rights granted by a limited liability company agreement does not translate to a breach of the implied covenant on the part of the members of the limited liability company.

Facts:

The principal, the member, and the investors formed the LLC to develop and market biomedical technology. The language of the LLC agreement created three membership classes. The LLC encountered difficulties because the two leading membership classes were unable to agree on the LLC's policies. The principal, who was the leader of one of the membership classes, accused the member and the investors, who were the members of the other leading membership class, of damaging the LLC. Thereafter, petitioner member sued to dissolve nominal respondent limited liability company (LLC) under Del. Code Ann. tit. 6, §§ 18-801 and 18-802. Respondent, the LLC's principal, filed counterclaims and third-party claims. The member and third-party respondent investors moved to dismiss the principal's claims for lack of personal jurisdiction under Del. Ch. Ct. R. 12(b)(2) as to one investor and failure to state a claim under Del. Ch. Ct. R. 12(b)(6).

Issue:

  1. Should the principal’s motion be dismissed for lack of personal jurisdiction?
  2. Under the circumstances of the case at hand, was the principal able to state a cause of action?

Answer:

1) Yes 2) No

Conclusion:

The court found that, although one investor played a significant role in the formation of the LLC and subsequently poured a sizeable amount of money into it, the principal was unable under Del. Code Ann. tit. 10, § 3104 and Del. Code Ann. tit. 6, § 18-109 to establish a nexus between the investor's contacts with the State of Delaware and the claims against him. Furthermore, the principal failed to allege a cause of action as the principal's substantive allegations reflected not breaches of contractual or fiduciary duties by the member and the investors, but rather reflected an exercise of bargained for contractual rights by the member and the investors. Hence, the court granted the two motions to dismiss.

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