Via our friend, prominent Delaware practitioner and blogger Francis Pileggi, we learned of Bandera Master Funds LP v. Boardwalk Pipeline Partners, LP, C.A. No. 2018-0372-JTL (Del. Ch. Oct. 7, 2019), which he aptly describes as "notable for its application of the implied covenant of good faith and fair dealing in a partnership agreement that waives all conventional fiduciary duties, and replaces them with a contract-based standard of conduct. The decision ... is an exemplary exegesis of standards and nuances and subtleties that must be addressed before finding a breach of the implied covenant of good faith and fair dealing–especially when conventional default fiduciary duties in the alternative entity context are waived."
This decision is also worthy of attention because it finds a breach of the difficult-to-prove breach of the implied covenant of good faith and fair dealing. The court explains why, based on the facts presented, it is “reasonably conceivable” that the implied covenant was breached. See Slip op. at 48-49. The court also reasoned that it was not surprising that there was no express term that barred manipulation of a “call price.”
If and when I ever get around to writing a long planned article on the implied covenant of good faith, this case will figure prominently. Having said that, however, here at PB.com we have been talking a lot about corporate purpose lately and so our attention was drawn to this passage from the opinion:
When exercising their authority, directors must seek “to promote the value of the corporation for the benefit of its stockholders.” “It is, of course, accepted that a corporation may take steps, such as giving charitable contributions or paying higher wages, that do not maximize corporate profits currently. They may do so, however, because such activities are rationalized as producing greater profits over the long-term.” Leo E. Strine, Jr., Our Continuing Struggle with the Idea that For-Profit Corporations Seek Profit, 47 Wake Forest L. Rev. 135, 147 n.34 (2012). Decisions of this nature benefit the corporation as a whole and, by increasing the value of the corporation, increase the share of value available for the residual claimants. Nevertheless, “Delaware case law is clear that the board of directors of a for-profit corporation . . . must, within the limits of its legal discretion, treat stockholder welfare as the only end, considering other interests only to the extent that doing so is rationally related to stockholder welfare.”
Here we have more proof that those commentators who claim Delaware law does not mandate shareholder wealth maximization are either misinformed or disingenuous.
