Nemec v. Shrader - 991 A.2d 1120 (Del. 2010)

Rule:

The Supreme Court of Delaware will only imply contract terms when the party asserting the implied covenant of good faith and fair dealing proves that the other party has acted arbitrarily or unreasonably, thereby frustrating the fruits of the bargain that the asserting party reasonably expected. When conducting this analysis, the Court must assess the parties' reasonable expectations at the time of contracting and not rewrite the contract to appease a party who later wishes to rewrite a contract he now believes to have been a bad deal. 

Facts:

Booz Allen ("the Company") redeemed Joseph Nemec's and Gerd Wittkemper's stock after their post-retirement put rights expired, but before selling its government business division. Nemec and Wittkemper asserted, and the Chancellor dismissed, claims that the board breached the Company's Stock Plan's implied covenant of good faith and fair dealing, and its fiduciary duty; and unjustly enriched itself.

Issue:

Did the board breach the Company's Stock Plan implied covenant of good faith and fair dealing, and its fiduciary duty division?

Answer:

No

Conclusion:

The state supreme court found, inter alia, that the directors did nothing unfair and breached no fiduciary duty by causing the company to exercise its absolute contractual right to redeem the retired stockholders' shares at a time that was most advantageous to the company's working stockholders. Just as the retirees failed on the merits of their breach of contract claim, they failed to prove that the directors unjustly benefited from the pre-transaction redemption, in contravention of the fundamental principles of justice or equity and good conscience. Accordingly, their claims were properly dismissed.