CHRISTOPHER MILLER, an individual, and CHRISTOPHER MILLER and LINDSAY MILLER as trustees of the C & L MILLER REVOCABLE TRUST, Plaintiffs Below, Appellants,
HCP TRUMPET INVESTMENTS, LLC, HISPANIA PRIVATE EQUITY II, L.P., HISPANIA INVESTORS II LLC, CARLOS SIGNORET, JASON SHAFER, MARK RUSSELL, and VICTOR MARURI, Defendants Below, Appellees.
Submitted: September 12, 2018
Below: Court of Chancery of the State of Delaware C.A. No.
STRINE, Chief Justice; VALIHURA, VAUGHN, SEITZ, and TRAYNOR,
Justices, constituting the Court en banc.
Collins J. Seitz, Jr. Justice.
Christopher Miller individually, and Miller and Lindsay
Miller as trustees of the C & L Miller Revocable Trust,
appeal from a Court of Chancery decision dismissing the
Millers' complaint for breach of the implied covenant of
good faith and fair dealing in an operating agreement for
Trumpet Search LLC, an entity co-founded by Christopher
Miller. The dispute arose when the Trumpet board agreed to
sell Trumpet to MTS Health Investors, LLC. According to the
Millers, the implied covenant of good faith and fair dealing
required the Board to conduct a Revlon-type or
"open-market" sale process before selling the
company to MTS.
Court of Chancery found that the Trumpet operating agreement
"explicitly vests the Board with sole discretion as to
the manner in which a sale is conducted, subject to the
limitation that the company is ultimately sold to an
unaffiliated third-party buyer." Thus, the implied covenant
could not be used to engraft implied terms onto an operating
agreement where the parties had expressly addressed the sale
issue. Alternatively, the court decided that "the
Plaintiffs have failed to point to any provision in the
[operating agreement] that suggests the parties would have
proscribed the manner in which Trumpet was marketed and sold
if the issue had come up at the time of
operating agreement provision relied on by the Court of
Chancery- Section 8.06(a)-did not address how the company was
to be sold. Instead, it gave the Board "sole
discretion" to structure the transaction as it saw fit
after agreeing to sell the company. Even if, as the Court of
Chancery found, the "sole discretion" language of
Section 8.06(a) applied to the way in which Trumpet was sold,
the mere vesting of "sole discretion" did not
relieve the Board of its obligation to use that discretion
consistently with the implied covenant of good faith and fair
dealing.Likewise, the fact that the operating
agreement had more specific provisions addressed to
conflict-of-interest transactions has relevance to the
application of the implied covenant, but does not vitiate its
But, we agree with the Court of Chancery's essential
holding that the implied covenant could not be used to imply
Revlon-type sale requirements in the Trumpet
operating agreement. Before the Court of Chancery, the
Millers argued for the broad proposition that the implied
covenant imposed an obligation to fulfill the same basic
duties required of a corporate board as Revlon.
Before us, the Millers' counsel candidly admitted that
this was their key theory below and that they did not make
more specific arguments that particular bad faith actions by
the defendants breached the implied covenant. Although we do
not agree with the Court of Chancery that the terms of
Section 8.06(a) displaced the implied covenant altogether, we
do believe that it correctly addressed the precise argument
made to it. The operating agreement's clear elimination
of fiduciary duties is inconsistent with the plaintiff's
argument that the agreement's implied covenant subsumes
the affirmative duties imposed upon corporate boards in the
change of control context by Revlon. Although there
are aspects of the record here that arguably could have
supported a more targeted claim of contractual impropriety,
the plaintiff did not attempt to advance targeted claims of
that type below or before us. Therefore, because it properly
addressed the precise claim made to it, the Court of Chancery
properly dismissed the complaint.
THEREFORE, IT IS ORDERED that the judgment of the Court of
Chancery is AFFIRMED.
 Revlon, Inc. v. MacAndrews &
Forbes Hold., Inc., 506 A.2d 173 (Del. 1995).
Miller v. HCP & Co., 2018
WL 656378, at *10 (Del. Ch. Feb. 1, ...