Nature of the Case
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Facts
P was a co-founder of the LLC, Trumpet Search (Trumpet). As of May 5, 2016, D the largest holders of membership units in Trumpet. P was a co-founder of the LLC, Trumpet Search (Trumpet). As of May 5, 2016, D the largest holders of membership units in Trumpet. As of that date, the members executed the Second Amended and Restated Operating Agreement (OA). Trumpet created new 'Class E' membership units, which, upon sale of Trumpet, would be entitled to a 'first in line' payment of 200% of the holders' investment in the Class E units. D purchased approximately 80% of these new units, for a capital investment of just under $2 million. D also held nearly 90% of the existing 'Class D' units; according to the OA, upon sale, these units were next in line, also to receive 200% of the holders' investment. D had contributed around $12 million for the Class D units. D was entitled to the bulk of the first $30 million before sales proceeds would be available to holders of other classes of membership units. D was also entitled to appoint four of the seven managers on the Trumpet Board. According to the OA, where the Board approved a sale of the company, every member was obligated to consent to the sale. The OA also gave the Board sole discretion as to the manner of any sale, conditioned only on the sale being to an unaffiliated third party. The members explicitly agreed, under the OA, to waive all fiduciary duties, to one another and from the managers to the members. P claims the D-dominated Board would have an incentive to negotiate any sales price up to about $30 million, but little incentive to negotiate further. D wanted to sell to MTS who initially offered $31 million. The D majority of managers elected not to run an open sales process for Trumpet. They gave the non-affiliated managers little time to find alternative buyers. Trumpet was able to undertake an abbreviated sales process and put pressure on MTS to increase its offer, which it did, to $41 million and ultimately to $43 million. The Trumpet Board approved the sale at $43 million. P argues that an open auction of Trumpet would have resulted in a substantially higher sales price. The Complaint alleges that when the OA was executed, Ps 'had the reasonable expectation . . . that before a sale of Trumpet, D's Board members, as directed by D, would execute an open-market process designed to achieve the highest value reasonably available for all [of] Trumpet's members, not just for the membership interests affiliated with D. Under MTS's approximately $43 million offer, participating Class A and B members receive almost nothing, but they are entitled to about one-third of their investment if they waive claims against the Board. Nonparticipating Class A and B members, Class C members, and Common Interest members receive nothing. Ps aver that if an open-market sales process had been pursued, 'it is reasonable that a much higher price could have been obtained.' Ps point out that if Trumpet had sold for $53 million, 'all preferred classes of members (all the way through to the Class C members) would have received a full payout.' Ps are suing in part for a breach of the implied covenant of good faith and fair dealing. Ds moved to dismiss the Complaint under Court of Chancery Rule 12(b)(6).
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