JOURNAL ENTRY AND OPINION
ANN DYKE, J.:
{¶ 1} Defendant-appellant, Tamaron Worley ("appellant"), appeals her conviction for obstructing justice. For the reasons set forth below, we affirm.
{¶ 2} On March 12, 2009, the Cuyahoga County Grand Jury indicted appellant on one count of obstructing justice in violation of R.C. 2921.32(A)(2). Appellant pled not guilty to the charge and after she waived her right to a jury, the case proceeded to a bench trial on July 27, 2009. At trial, the state presented the following individuals for examination: Karen Engram, Alicia Lightfoot, Lamont MacCannon, Detective Anthony Malone, and Detective Cody Cunningham. These individuals provided the following undisputed facts.
{¶ 3} On July 12, 2008, Lester Worley, a.k.a. "Little Man" ("Lester"), and Lamont Fulton were playing cards at Garfield Avenue in Cleveland, Ohio around 5:00 a.m. An argument erupted between Lester and Fulton over five dollars owed in the card game. The argument became very heated and resulted in Lester briefly retreating to obtain a shotgun. When he returned, he pointed the gun and shot Fulton in the abdomen, ultimately causing his death.
{¶ 4} The state presented the following testimony to establish the events surrounding the shooting.
{¶ 5} Karen Engram testified that during the early morning hours of July 12, 2008, she witnessed three men in the street yelling at each other about five dollars that had been won in a card game. She then saw one of the men go to a silver vehicle and retrieve a long gun from the passenger seat. With the weapon, the man walked up the street, briefly spoke to one of the other men, and then fired one gunshot at the other man.
{¶ 6} Immediately thereafter, Engram witnessed the shooter turn around and walk backwards towards the silver vehicle. At the same time, Engram saw appellant run off her porch and proclaim to the shooter, "come on." They both entered the silver vehicle and appellant drove from the scene of the crime with the shooter in the passenger seat.
{¶ 7} Alicia Lightfoot testified that the victim, Lamont Fulton, came to her house, which was located on Garfield Road, to visit on July 12, 2008. On that evening, he decided to play a card game with the neighbor, Lester. The game ended and the two began arguing over five dollars.
{¶ 8} Lightfoot testified that she witnessed Lester retreat from the argument and walk down an alley next to a fence. Shortly after losing sight of Lester, he reappeared with what appeared to be a stick, but was in actuality, a shotgun. Lester continued to argue with Fulton, then raised the gun, and shot him in the chest. Afterwards, Lester walked towards a silver vehicle, driven by appellant, which was "ready to go." Lester entered the passenger side with the gun in hand and the vehicle sped off.
{¶ 9} Lamont MacCannon provided that on July 12, 2008, he was standing outside on the porch when he saw Lester and Fulton arguing about five dollars. During the midst of the argument, Lester stepped by a fence and returned with what MacCannon believed was a stick but later discovered was a shotgun. Lester took the gun over to Fulton and the two exchanged a few more words before Lester shot Fulton in the chest. Lester stood over Fulton's body as MacCannon ran to assist Fulton. In response, Lester ran up the street and MacCannon heard a car engine start and a vehicle pull off.
{¶ 10} Detective Anthony Malone testified that he responded to Garfield Road on July 12, 2008. Upon arrival, paramedics were attending to Fulton, who had been shot in the chest and was breathing faintly. They treated him for only five minutes before transporting him away in an ambulance. Immediately thereafter, Det. Malone began interviewing witnesses.
{¶ 11} As a result of his interviews, Det. Malone proceeded to appellant's residence. He had previously run the license plate to the silver Saturn owned by appellant. When Det. Malone initially questioned her, appellant stated that she knew nothing about the incident or Lester's whereabouts. She permitted police to search her home but the detectives did not find Lester at the home.
{¶ 12} Det. Malone made a report concerning this encounter with appellant. In the report, he stated that appellant informed him that she dropped Lester off in the area of 79th Street and Superior Avenue. Other than that, she did not provide police with any information. Finally, Det. Malone testified that Fulton later died as a result of the gunshot wound.
{¶ 13} Detective Cody Cunningham testified that he, along with his partner Sergeant Ken Boton and Detective Charles Battle, interviewed witnesses and took photographs of the crime scene. He also went back to appellant's house to arrest her after he discovered that she had driven the shooter, Lester, from the scene of the crime. Cunningham testified that he arrived at appellant's home around 11:00 a.m. and her children answered the door. When Det. Cunningham asked to speak with appellant, the individuals told him she was sleeping and would not let him inside. Det. Cunningham directed them to wake her and they went upstairs. They returned only to tell the detectives that appellant refused to wake up. Det. Cunningham told them again to wake her and bring her downstairs. After going through that process a couple of times, appellant finally came downstairs.
{¶ 14} Once downstairs, detectives spoke with appellant regarding the shooting. First, she denied knowing anything about the incident. She claimed that Lester merely asked her for a ride to 79th Street and Superior Avenue. Initially, she also asserted that Lester did not have a shotgun when she gave him the ride. Finding appellant's version of the facts unbelievable, they arrested her and transported her to the police station.
{¶ 15} At the station, appellant changed her story a number of times. First, she stated that she heard a loud bang and Lester came inside the house of Jessica King, his girlfriend, asking appellant for a ride.
{¶ 16} After Det. Cunningham learned from other witnesses that appellant was not being truthful, he again questioned her regarding the incident. This time, appellant told Det. Cunningham that before the shooting, she saw Lester enter the house, retrieve a shotgun, and exit the home. She followed him and as she was leaving, she witnessed Lester walking down the street with a shotgun. Still unconvinced as to this version of the events, Cunningham returned her to jail.
{¶ 17} He again retrieved appellant from jail, this time seeking a more accurate portrayal of the situation. Cunningham testified that during her third opportunity, appellant stated that she followed Lester down the street and, while she was behind a truck or SUV, saw a white blast from a shotgun. She stepped out from behind the vehicle to see a male lying in the middle of the street. Lester then began walking towards appellant, who proclaimed "come on" to Lester and the two left in her vehicle. Finally, appellant told the detective that she dropped Lester off at 79th Street and Superior Avenue. Once she dropped her brother off, she never contacted the police.
{¶ 18} Following presentation of the state's case-in-chief, appellant moved for acquittal pursuant to Crim. R. 29(A). The trial court denied this request and appellant proceeded to testify on her own behalf.
{¶ 19} Appellant testified that she was at King's house when her brother, Lester, came home during the early morning hours of July 12, 2008. He got the card table and took it down the street.
{¶ 20} A while later she heard a loud argument in the street. She went outside to the card table and told Lester to stop fighting. After she returned to King's house, she again heard shouting. She again went outside, heard someone say "shoot me," and saw a flash and poof. She did not know who shot the gun, nor did she see Lester with a gun prior to the shooting. Responding to the gun shot, appellant ran back to King's house, retrieved her car keys and purse and entered her silver Saturn. Without her saying a word, Lester jumped in the back seat with his gun still smoking.
{¶ 21} She testified that Lester looked "crazed" and she was scared because he was screaming at her to "Pull the fuck off." She stated that she was not trying to help him escape but rather was frightened and attempting to remove herself from "the situation." Lester told appellant to drop him off at a building located on 79th Street. She did as directed and proceeded directly home thereafter.
{¶ 22} Immediately upon arriving home, she met with Det. Malone. She informed Malone where she dropped Lester off and then allowed him to search her home. After the police towed her vehicle from the house, she returned inside and her brother telephoned. She told him to surrender to police. {¶ 23} Later that evening, Det. Cunningham came to her house and arrested her. At the police station, appellant maintains she provided the same version of events given during her testimony at trial.
{¶ 24} Following her testimony, appellant rested her case and renewed her motion for acquittal. The trial court denied her second request and on July 29, 2009, found appellant guilty of obstructing justice as charged in the indictment. On August 27, 2009, the trial court sentenced appellant to one year of community control sanctions and 80 hours of community service work.
{¶ 25} Appellant now appeals her conviction and presents two assignments of error. Finding both assignments interrelated, we will address them simultaneously. Appellant's first assignment of error provides:
{¶ 26} "The trial court erred in denying appellant's motion for acquittal pursuant to Ohio Criminal Rule 29, where evidence is not sufficient to support a conviction."
{¶ 27} Her second states:
{¶ 28} "The evidence presented at trial was insufficient to prove the charges at bar beyond a reasonable doubt."
{¶ 29} Within these assignments of error, appellant argues that the evidence was insufficient to support her conviction for obstructing justice. For the following reasons, we disagree.
{¶ 30} Crim. R. 29(A) governs motions for acquittal and provides for a judgment of acquittal if the evidence is insufficient to sustain a conviction.
Pursuant to Crim. R. 29, a court shall not order an entry of judgment of acquittal if the evidence is such that reasonable minds can reach different conclusions as to whether each material element of a crime has been proved beyond a reasonable doubt. A Crim. R. 29(A) motion for acquittal "should be granted only where reasonable minds could not fail to find reasonable doubt." State v. Apanovitch (1987), 33 Ohio St.3d 19, 23, 514 N.E.2d 394; State v. Jordan, Cuyahoga App. Nos. 79469 and 79470, 2002-Ohio-590.
{¶ 31} The standard for a Rule 29 motion is virtually identical to that employed in testing the sufficiency of the evidence. State v. Thompkins, supra. In State v. Jenks (1991), 61 Ohio St.3d 259, 574 N.E.2d 492, paragraph two of the syllabus, the Ohio Supreme Court set forth the following standard of review to be applied by an appellate court when reviewing a claim of insufficient evidence:
{¶ 32} "An appellate court's function when reviewing the sufficiency of the evidence to support a criminal conviction is to examine the evidence admitted at trial to determine whether such evidence, if believed, would convince the average mind of a defendant's guilt beyond a reasonable doubt. The relevant inquiry is whether, after viewing the evidence in a light most favorable to the prosecution, any rational trier of fact could have found the essential elements of the crime proven beyond a reasonable doubt. ( Jackson v. Virginia, 443 U.S. 307, 99 S.Ct. 2781, 61 L.Ed.2d 560, followed.)"
{¶ 33} The elements pertinent in the prosecution of appellant are provided in R.C. 2921.32(A)(2), which states in part, as follows: {¶ 34} "(A) No person, with purpose to hinder the discovery, apprehension, prosecution, conviction, or punishment of another for crime or to assist another to benefit from the commission of a crime, * * * shall * * * [p]rovide the other person or child with money, transportation, a weapon, a disguise, or other means of avoiding discovery or apprehension."
{¶ 35} Appellant maintains that she did not purposely hinder apprehension of Lester, but rather, was merely seeking to leave the scene of the crime when her brother jumped into her vehicle with the smoking gun. Because he looked crazed and was mentally disturbed, she drove him to 79th Street per his directives as she feared for her own safety. In support of this argument, appellant points to the fact that she informed police of the location she dropped off Lester and even attempted to convince him to surrender to police. We find appellant's argument unpersuasive.
{¶ 36} Our review of the evidence and pertinent law reveals the state adequately established that appellant purposely hindered the apprehension of Lester. A person acts purposely when "it is his specific intention to cause a certain result, or, when the gist of the offense is a prohibition against conduct of a certain nature, regardless of what the offender intends to accomplish thereby, it is his specific intention to engage in conduct of that nature." R.C. 2901.22(A).
{¶ 37} The evidence introduced at trial adequately established that appellant drove Lester from the crime scene immediately after he shot and killed Fulton, thereby hindering the police's apprehension of Lester. Both Engram and Lightfoot testified that they witnessed appellant drive away from the crime scene with Lester in her vehicle. Appellant admitted to this fact. Additionally, Engram specifically testified that, immediately after the shooting, she saw appellant come down the steps of the house carrying her purse and keys and told Lester to "come on." As a result, the two entered the vehicle and left the scene. Det. Cunningham confirmed this statement when he testified that appellant admitted to him during her interrogation that she told Lester to "come on." This evidence demonstrates that appellant purposely, and not unintentionally, transported her brother away from the scene of the crime.
{¶ 38} Moreover, the state sufficiently established that appellant hindered the apprehension of Lester by taking him away from the scene of the crime. The police, who arrived only minutes following the shooting, were unable to arrest Lester after the shooting. In fact, he eluded apprehension for well over a month following the shooting. Therefore, a rational trier of fact could have found that the essential elements of obstruction of justice were proven beyond a reasonable doubt. Appellant's two assignments of error are overruled.
Judgment affirmed.
It is ordered that appellee recover from appellant costs herein taxed.
The court finds there were reasonable grounds for this appeal.
It is ordered that a special mandate issue out of this court directing the common pleas court to carry this judgment into execution. A certified copy of this entry shall constitute the mandate pursuant to Rule 27 of the Rules of
Appellate Procedure.
KENNETH A. ROCCO, P.J., and MELODY J. STEWART, J., CONCUR.
iffs accuse America and certain Individual Defendants of dictating the terms of the merger. For example, they argue that America and the affiliated Individual Defendants (those other than the members of the Special Committee) dictated the timing of the merger and forced the Special Committee to agree to eliminate Energy's cash distributions and to agree to the merger despite the absence of a "majority of the minority" condition from the merger agreement. They accuse Energy's affiliated directors generally and
E. Cohen, J. Cohen, and Herz specifically, of limiting the information available to the Special Committee and of improperly influencing the committee's decision.
Plaintiffs argue that the Special Committee acquiesced in America's demands in violation of their duties to Energy's minority unitholders and otherwise failed to negotiate in good faith. They also accuse the Special Committee of adopting the merger without considering Energy's other strategic options, such as a joint venture with a third party.
Finally, they argue that all the Individual Defendants breached their fiduciary duties by approving the merger based on a less than complete investigation of its terms.
On the other hand, Defendants contend that the Complaint should be dismissed because it fails to allege the breach of any applicable fiduciary duty by any Defendant with regard to the approval of this merger. With regard to America, they argue that, regardless of any fiduciary duties that may apply to it as Energy's controlling unitholder, the LLC Agreement provides a mechanism to resolve the conflict of interest. With regard to the Individual Defendants, they argue that the LLC Agreement completely eliminated Energy's directors' and officers' fiduciary duties and replaced them with a contractually defined duty of good faith that Plaintiffs have not adequately alleged was breached.
Finally, Defendants argue that the Court should not import the corporate law concept of entire fairness into the limited liability company merger context where the LLC Agreement imposes contractual protections that make the protections of entire fairness unnecessary.
IV. DISCUSSION
The Court may a grant motion to dismiss for failure to state a claim under Court of Chancery Rule 12(b)(6) only if the plaintiffs would be unable to recover under "any reasonably conceivable set of circumstances susceptible of proof." The Court accepts the truth of all well-pled facts as alleged in the complaint and draw all inferences in a light most favorable to the plaintiffs. To survive this motion, the plaintiffs must have pleaded enough facts to suggest plausible, ultimate entitlement to the relief sought. The Court is not required to accept conclusory allegations unsupported by specific, factual allegations, nor must it accept every strained interpretation of the plaintiff's allegations, but instead must only accept those reasonable inferences that "logically flow from the face of the complaint."
In re Gen. Motors (Hughes) S'holder Litig., 897 A.2d 162, 167 (Del. 2006) (citation omitted).
Desimone v. Barrows, 924 A.2d 908, 928 (Del. Ch. 2007).
Id. at 929.
Gen. Motors (Hughes), 897 A.2d at 167.
The parties focused their briefs on the question of what fiduciary duties applied to each Defendant for purposes of considering, negotiating, and approving the merger. This is understandable because Plaintiffs' case can only survive the motion to dismiss if, at the threshold, Defendants had a duty to Plaintiffs. Plaintiffs argue that traditional fiduciary duties of care and loyalty applied to all the Defendants. In response, Defendants contend that the LLC Agreement contractually eliminated all Defendants' traditional fiduciary duties and contractually imposed different duties on them for purposes of negotiating and entering the merger.
"Limited Liability Companies are creatures of contract, `designed to afford the maximum amount of freedom of contract, private ordering and flexibility to the parties involved.'" One aspect of this flexibility is that parties to a limited liability agreement can contractually expand, restrict, modify, or fully eliminate the fiduciary duties owed by the company or its members, subject to certain limitations. By contrast, in the absence of explicit provisions in a limited liability company agreement to the contrary, the traditional fiduciary duties owed by corporate directors and controlling shareholders apply in the limited liability company context.
R R Capital, LLC v. Buck Doe Run Valley Farms, LLC, 2008 WL 3846318 (Del. Ch. Aug. 19, 2008) (quoting In re Grupo Dos Chiles, LLC, 2006 WL 668443, at *2 (Del.Ch. Mar.10, 2006)).
6 Del. C. §§ 18-1101(c), (e). A limited liability company agreement cannot validly eliminate either certain statutory mandates or the implied contractual covenant of good faith and fair dealing.
Bay Ctr. Apartments Owner, LLC v. Emery Bay PKI, LLC, 2009 WL 1124451, at *8-*11 (Del. Ch. Apr. 20, 2009) (citations omitted); see also Kelly v. Blum, 2010 WL 629850, at *11 (Del. Ch. Feb. 24, 1010) (Contractual alterations of traditional fiduciary duties must be explicit.).
Thus, the Court must construe each identified provision of the LLC Agreement to determine (1) whether it applies to a particular Defendant in these circumstances; (2) if so, whether the provision imposes on that Defendant a duty that differs from that Defendant's traditional fiduciary duties; and (3) whether Plaintiffs have stated a claim for breach of any applicable duty. The Court turns first to Plaintiffs' claims that America breached its fiduciary duties as the controlling unitholder of Energy.
A. Claims Against Defendant America
1. America's Fiduciary Duties
When interpreting the LLC Agreement, the Court must, as with any contract, begin the analysis with an examination of the plain language. The Court may look to extrinsic evidence of the parties' intent only if the contractual language is ambiguous, and it may not twist the contract's language to manufacture ambiguity.
Citadel Holding Corp. v. Roven, 603 A.2d 818, 822 (Del. 1992).
Eagle Indus., Inc. v. DeVilbiss Health Care, Inc., 702 A.2d 1228, 1232 (Del. 1997). Plaintiffs' briefs cite Energy's Prospectus, attached to the Opening Brief in Support of Defendants' Motion to Dismiss as Exhibit C, as evidence of the Agreement's meaning. Both because of general principles of construction and because the Agreement contains an integration clause stating that the Agreement "constitutes the entire agreement among the parties hereto . . .," the Court will not consider the Prospectus or other extrinsic evidence of the meaning of the LLC Agreement's plain language. See LLC Agreement § 14.4.
Defendants contend that the only conflict of interest created by the merger is between America, an Affiliate of Energy, and Energy itself, which, as they note, had to approve the merger before it could go into effect. They argue that such a conflict is fully resolved under the procedures established in § 7.9(a) of the LLC Agreement. Plaintiffs, in contrast, define the conflict as between America, as Energy's controlling unitholder, and Energy's public unitholders. In that case, they say, § 7.9(a) would not apply, with the result that America's traditional fiduciary duties would remain in effect. Section 7.9(a) reads, in relevant part:
[W]henever a potential conflict of interest exists or arises between any Affiliate of the Company, on the one hand, and the Company or any Group Member, on the other, any resolution or course of action by the Board of Directors in respect of such conflict of interest shall be permitted and deemed approved by all Members, and shall not constitute a breach of this Agreement . . . or of any duty existing at law, in equity or otherwise, including any fiduciary duty, if the resolution or course of action in respect of such conflict of interest is (i) approved by Special Approval, (ii) approved by the vote of holders of a majority of the Outstanding Common Units (excluding Common Units held by interested parties), (iii) on terms no less favorable to the Company than those being generally available to or available from unrelated third parties or (iv) fair and reasonable to the Company, taking into account the totality of the relationships between the parties involved (including other transactions that may be particularly favorable to the Company).
The parties agree that America is an Affiliate of Energy for purposes of § 7.9(a). Plaintiffs allege, and Defendants do not dispute, that America is also Energy's controlling unitholder.
Opening Brief in Support of Defendants' Motion to Dismiss ("OB") at 14 n. 9. Plaintiffs' Response to Defendants' Motion to Dismiss ("RB") at 18.
See OB at 1-3 ("On April 27, 2009, Atlas Energy . . . announced a merger by which it would become a wholly owned subsidiary of Atlas America, its chief unitholder."); RB 4-6; Compl. ¶ 46 (quoting Energy's December 2006 Prospectus: "contracts between us, on the one hand and our manager and Atlas America and its affiliates, on the other, will not be the result of arm's length negotiations."). Even if Defendants were to contest America's status as Energy's controlling unitholder, Plaintiffs' allegations regarding America's voting interests in Energy and its control of Energy's Board and management sufficiently establish America's control of Energy for purposes of this motion to dismiss. See Citron v. Fairchild Camera Instrument Corp., 569 A.2d 53, 70 (Del. 1989) (holding that in the absence of a majority voting interest "[a] plaintiff must allege domination by a majority shareholder through actual control of corporate conduct.").
Delaware's case law clearly teaches that, "in the absence of provisions in the LLC agreement explicitly disclaiming the applicability of default principles of fiduciary duty, controlling members in a manager-managed LLC owe minority members the traditional fiduciary duties that controlling shareholders owe minority shareholders." The Court is especially wary of eliminating such duties in the context of a publicly traded limited liability company without sufficient evidence within the contractual language of the parties' intent to do so. Thus, unless § 7.9(a) or some other provision of the LLC Agreement explicitly disclaims America's duties as controlling unitholder of Energy or mandates that the conflict presented by the merger be resolved contractually, America owes the Energy's minority unitholders traditional fiduciary duties of care and loyalty with regard to the merger.
Kelly v. Blum, 2010 WL 629850, at *12 (Del. Ch. Feb. 24, 2010) (internal quotations omitted).
Defendants rely upon Brickell Partners v. Wise for the proposition that parties to a limited liability company or limited partnership agreement may contractually eliminate the conflict of interest in a transaction between a controlling party and the entity. This is undoubtedly true. The Court held in Brickell that a conflict created when a limited partnership acquired a company owned by the general partner was validly resolved under a provision in the limited partnership agreement that read:
794 A.2d 1 (Del. Ch. 2001).
whenever a potential conflict of interest exists or arises between the General Partner or any of its Affiliates, on the one hand, and the Partnership, the Operating Companies, any Partner or any Assignee,
on the other hand, any resolution or course of action in respect of such conflict of interest shall be permitted and deemed approved by all Partners,
and shall not constitute a breach of this Agreement. . . .
The relevant difference between the provision in Brickell and § 7.09(a) of the LLC Agreement, however, is that the Brickell provision explicitly addresses conflicts between the general partner and other partners, while § 7.09(a) does not mention Energy's unitholders, controlling or otherwise, at all. Defendants' reliance on Brickell is, therefore, misplaced.
Defendants also cite Flight Options Int'l., Inc. v. Flight Options LLC to show that a limited liability company agreement may establish contractual standards for governing conflicted transactions between the company and its affiliates that replace the company's "general fiduciary duties." In that case, the Court observed that if the defendants were "subject to the full panoply of fiduciary duties . . ., the appropriate standard for review of their conduct would be `entire fairness'. . . ." In fact, the limited liability company agreement did provide that the company's members owed each other the same fiduciary duties that shareholders of a Delaware corporation have to each other. The agreement, however, also provided a standard of review governing conflicted transactions involving the controlling member: "[A]ll transactions between the Company on one the one hand, and any Affiliate of the Company on the other hand, will be on arms' length terms and conditions, including fair market values. . . ." Noting that the members of the limited liability company were all sophisticated parties, the Court held that the provision was enforceable and that it limited the controlling members' fiduciary duties with regard to an interested transaction with the company to a duty to negotiate the transaction on arms' length terms, instead of imposing a duty to assure that the transaction would be entirely fair to the minority members.
2005 WL 2335353, at *7-*8 (Del. Ch. Sept. 20, 2005).
Id. at *7 n. 28.
Id. at *7.
Section 7.9(a) of the LLC Agreement differs materially from the provision quoted from the Flight Options limited liability company agreement. While the latter provision applied to "transactions" between the company and its affiliates, § 7.9(a) governs only "conflicts of interest" between Energy and its Affiliates, such as America. The contractual language of § 7.9(a) does not purport to resolve conflicts of interest between America and Energy's minority unitholders.
This Court recently addressed the import of a provision, similar to § 7.9(a) of the LLC Agreement in that it covered "conflicts of interest," in the context of construing a limited partnership agreement. In Lonergan v. EPE Holdings LLC, the plaintiffs, limited partners, sought to enjoin a merger between the general partner and the limited partnership, but the limited partnership agreement both provided a contractual standard that governed conflicts of interest under the agreement, and also specifically eliminated the general partner's fiduciary duties to the limited partners. The Plaintiffs claimed that the implied covenant of good faith and fair dealing required that the merger be reviewed under entire fairness. The Court rejected the plaintiffs' claims under the implied covenant as an attempt to revive fiduciary duties that had been eliminated by contract. It reviewed the merger under the contractual standard provided in the limited partnership agreement and held that the plaintiffs had failed to state a colorable claim that the merger process had not satisfied that contractual standard.
2010 WL 3987173 (Del. Ch. Oct. 11, 2010).
Id. at *7, *9-*10.
Id. at *12.
The LLC Agreement differs from the limited partnership agreement in Lonergan in two determinative respects. First, the LLC Agreement does not eliminate America's fiduciary duties as the controlling unitholder of Energy. Although the LLC Act explicitly allows modification or elimination of members' fiduciary duties, § 7.9(d) eliminates only directors and officers' fiduciary duties. Although Article 12 of the LLC Agreement eliminates directors' fiduciary duties (including those imposed by § 7.9(b)) when they decline to approve a merger, Article 12 does not mention the duties of Energy's members or eliminate any fiduciary duties when the Board acts to approve a merger. Because the LLC Agreement does not eliminate America's fiduciary duties, America owes Energy's minority unitholders "the traditional fiduciary duties that controlling shareholders owe minority shareholders."
6 Del. C. § 18-1101(d) ("A limited liability company agreement may provide for the limitation or elimination of any and all liabilities for breach of contract and breach of duties (including fiduciary duties) of a member, manager or other person to . . . another member or manager. . . .").
Kelly v. Blum, 2010 WL 629850, at *12 (Del. Ch. Feb. 24, 2010). Indeed, Defendants have not directly argued that the LLC Agreement specifically eliminates America's duties as Energy's controlling unitholder, and their general arguments that the LLC Agreement was never meant to impose fiduciary duties on any party ( see, e.g., Tr. of Oral Arg. (July 20, 2010) at 14) fail. That the LLC Agreement expressly eliminates the fiduciary duties of some individuals and entities does not lead to the conclusion that the fiduciary duties of others are eliminated by implication. Similarly, Defendants' argument that § 7.9(a) must eliminate America's fiduciary duties as controlling unitholder because any other interpretation would render part of the provision surplusage must also fail. Defendants contend that, because § 7.9(d) eliminates the fiduciary duties of Energy's directors and officers, the only duties left for § 7.9(a) to eliminate are America's. The Court must, if it can reasonably do so, construe the LCC Agreement in a way that gives meaning to all of its terms. S ee Chase Alexa, LLC v. Kent County Levy Court, 991 A.2d 1148, 1152 (Del. 2010). The words "including fiduciary duties" may in fact be surplusage here: as Defendants note, the LLC Agreement eliminates fiduciary duties "not once, but three times. . . ." (RB at 11). That the phrase "including fiduciary duties" appears both in § 7.9(a) and § 7.9(d), however, is not justification to extend the application of § 7.9(a) to entities not specified in the text.
Second, Section 7.9(a) of the LLC Agreement, which provides a contractual standard of review when conflicts arise between Energy and Energy's Affiliates, does not apply to conflicts of interest between America (which the parties agree is an Affiliate of Energy) and Energy's public unitholders. America owes fiduciary duties directly to the minority unitholders. The merger created a conflict between America's interest in acquiring the balance of Energy for the lowest possible price and the minority unitholders' interest in obtaining a high price for their units. Section 7.9(a) of the LLC Agreement simply does not address this conflict of interest and, thus, does not provide the standard of review applicable to this dispute. Because neither § 7.9(a) nor any other section of the LLC Agreement contractually defines the standard under which a merger between America and Energy should be assessed, the Court must review the merger, and America's duties with regard to it, under the standards prescribed by the common law.
Defendants read § 7.9 to allow for resolution of all conflicts relating to an interested transaction. In short, they identify a conflict between America and Energy and contend that conflict is substantially the same as any conflict between America and the minority unitholders regarding the merger. They argue that the LLC Agreement provides a means for resolving all conflicts arising out of the same set of facts and reaches all stakeholders who may be affected by the conflict. They cite Energy's 2006 Prospectus as support for that interpretation: "Whenever a conflict arises between Atlas America, or manager or their affiliates on the one hand, and us or any other unitholder, on the other, our board of directors will resolve that conflict." (Prospectus at 141) (emphasis added). The language referring to unitholders does not appear in the LLC Agreement, however, and, as extrinsic evidence, the Court may only consider the Prospectus if § 7.9(a) is ambiguous. The Court need not decide, for purposes of the pending motion to dismiss, whether the LLC Agreement is ambiguous, especially where the parties have not focused on the issue of ambiguity. Here, it is sufficient that Plaintiffs have advanced a plausible interpretation of § 7.9(a)'s text that supports their claim.
Furthermore, if § 7.9(a) is ambiguous and the Court's analysis may be informed by the words of the Prospectus (or other extrinsic evidence), the question of whether the text of the LLC Agreement is clear enough to accomplish the objective attributed to it by the Defendants need not be resolved by the Court in the context of the pending motion to dismiss.
The Delaware Supreme Court held, in Kahn v. Lynch, that a negotiated merger between a corporation and its controlling shareholder must be evaluated under entire fairness regardless of any safeguards the deal includes to protect the minority's interest. Although the standard of review that applies to tender offers involving a subsidiary and its parent remains subject to doubt, the instruction of Lynch and its more recent progeny that, in the context of a negotiated merger, "protective device[s] such as independent committee approval or majority-of-the-minority stockholder approval cannot alter the standard of review," is well established. This is so because, regardless of the safeguards a board may employ to protect the interests of the minority, such a merger is characterized by what this Court has termed "inherent coercion." A controlling party has advantages over the minority with regard to information, timing, and the ability to "influence, however subtly, the vote of [the ratifying] minority." Because a parent's merger with its subsidiary is "entirely suffused with the parent's coercive power," a court must review the transaction under entire fairness to assure that the parties "are assiduous in fulfilling their fiduciary duties."
Kahn v. Lynch Comm. Sys., Inc., 638 A.2d 1110, 1116 (Del. 1994); see also Citron v. E.I. Du Pont de Nemours Co., 584 A.2d 490, 500 (Del. Ch. 1990) (applying the entire fairness standard in the context of a stock-for-stock parent-subsidiary merger).
In re CNX Gas Corp. S'holders Litig., 2010 WL 2705147, at *4-*6 (discussing the multiple alternative standards of judicial review that can apply in the context of tender offers by a controlling shareholder seeking to acquire the corporation); see also In re Pure Resources, Inc., S'holders Litig., 808 A.2d 421, 437 (Del. Ch. 2002) ("If anything, later cases have extended the rule in Lynch to a broader array of cases involving controlling shareholders.")
Pure Resources, 808 A.2d at 433.
Lynch, 638 A.2d at 1116-17, quoting Citron, 584 A.2d at 502.
Gesoff v. IIC Indus., Inc., 902 A.2d 1130, 1144 (Del. Ch. 2006).
Defendants urge the Court not to import the concept of entire fairness into this case because it concerns a limited liability company instead of a corporation. Emphasizing that limited liability companies are creatures of contract, they argue that the protections provided by the common law to minority shareholders are unnecessary because parties are able to define the protections they desire by contract. Had the LLC Agreement expressly addressed the duties and the conflict of interest at issue in this case, Defendants would have been correct.
Just as a merger between a parent and its corporate subsidiary inherently threatens the interests of minority shareholders, a merger between a parent and its publicly held limited liability company subsidiary inherently threatens the rights of minority unitholders. The difference is that, in the context of a limited liability company, the parties can specify by contract the protections, or lack thereof, that they want the minority to have against such threats. If they do so, a court will respect the parties' freedom of contract and will not apply the default standard of review.
As with limited partnership agreements, however, parties to a limited liability company agreement bear the risk that they have drafted it incompletely. The LLC Agreement neither eliminates the fiduciary duties that the common law imposes by default on America, nor provides a contractual standard of review that governs the conflict of interest arising out of those duties. America owes the public unitholders of Energy the same fiduciary duties a controlling shareholder would owe minority shareholders in the corporate context. Under Lynch and its progeny, the Court must evaluate America's merger with Energy under entire fairness in order to assure that America has been assiduous in fulfilling those duties.
See Lonergan, 2010 WL 3987173, at *8.
2. Evaluation of Plaintiffs' Claims under the Entire Fairness Standard
The conclusion that a transaction must be reviewed under entire fairness "normally will preclude dismissal of a complaint on a Rule 12(b)(6) motion to dismiss." Nonetheless, the Court must determine whether Plaintiffs' allegations suggest that the merger was not entirely fair; that is, that the merger was not characterized by fair price and fair dealing.
Orman v. Cullman, 794 A.2d 5, 42 (Del. Ch. 2002).
Weinberger v. UOP, Inc., 457 A.2d 701, 703, 711 (Del. 1983).
With regard to price, Plaintiffs allege, inter alia, that the exchange ratio at which Energy's public unitholders received America stock under the merger agreement undervalued Energy and did not adequately compensate unitholders for the loss of cash distributions. They argue that the final exchange ratio, which represented a 0.3% premium on Energy's then-current trading price of $14.35 per unit (and which had been negotiated up from America's initial offer, equivalent to $12.43 per unit, a discount of more than 13% relative to Energy's trading price on the day America made the offer) was "grossly inadequate." Plaintiffs allege that Energy had been, at the time, trading at an historic low, and contend that the ratio did not account for the company's future prospects. Among other specific allegations, Plaintiffs note that one candidate to become the Special Committee's financial advisor had evaluated Energy as, "unique among Production MLPs in that its asset base should warrant a premium valuation . . . due to the emergence of the Marcellus Shale." They further allege that UBS, which was ultimately selected as the Committee's financial advisor, had charted "the then current exchange ratio of Energy units versus America stock with a 15% and 30% premium at 1.27x and 1.44x, respectively. . . ." In light of the 0.3% premium they ultimately received, Plaintiffs have alleged facts suggesting that Energy's outstanding units were worth materially more than what the unitholders received under the merger agreement.
See Compl. ¶¶ 70-82.
Compl. ¶¶ 70.
Id. at ¶ 70.
Id. at ¶ 76.
Id. at ¶ 71.
With regard to process, Plaintiffs allege that America, through its directors and officers who were also part of Energy's Board or its management, withheld material information from the Special Committee and improperly influenced its deliberations. They further allege that America imposed "`take it or leave it' conditions and eviscerate[ed] the Energy's Board's power to negotiate or resist." For example, Plaintiffs assert that America forced the Special Committee to accept § 4.15 of the merger agreement, which eliminated cash distributions to Energy's unitholders during the pendency of the merger. They allege that America framed the Five Alternatives without input from Energy, limiting Energy's choices from the outset, and then presented the Five Alternatives to Energy in such a way as to make a merger between the two companies appear to be the Special Committee's only choice.
See, e.g., Compl. ¶¶ 92, 98.
Id. at 85.
Id. at ¶¶ 86, 99. The merger agreement is attached to the Complaint as Exhibit J.
Id. at ¶¶ 95, 97.
Plaintiffs next allege that America had existing relationships with "the same players" at UBS who served as the Special Committee's financial advisors and that America exerted its influence over those UBS employees to feed information to the Special Committee selectively and to cause UBS to issue an improperly favorable fairness opinion on the merger's terms. Plaintiffs' allegations regarding process are somewhat weaker and less specific than the allegations regarding price, but the Court must consider "all relevant factors" when conducting a review for entire fairness.
Id. at ¶¶ 104-110.
Weinberger, 457 A.2d at 711.
Taken together, Plaintiffs' allegations as to price and process, which the Court must take as true for purposes of Defendants' motion, adequately suggest that the merger was not entirely fair to Energy's public unitholders. Thus, the Court denies Defendants Motion to Dismiss with regard to Plaintiffs' claim for breach of fiduciary duty by America.
B. Claims Against the Individual Defendants
The Court next addresses Plaintiffs' claims against Energy's directors and officers, beginning with analysis of the duties Individual Defendants owed to Plaintiffs with regard to the merger under the terms of the LLC Agreement.
1. Duties of the Individual Defendants
Section 7.9(d) of the LLC Agreement provides, "Except as expressly set forth in this Agreement or required by law, none of the Directors, nor any other Indemnitee shall have any duties or liabilities, including fiduciary duties, to the Company or any Member." This language unambiguously eliminates the traditional fiduciary duties of Energy's directors and officers. Thus, the only duties owed by the Individual Defendants are those set forth elsewhere in the LLC Agreement or imposed by the implied covenant of good faith and fair dealing.
See Lonergan, 2010 WL 3987173, at *7 (construing a similar provision in a limited partnership agreement).
Section 7.9(b) imposes the following contractual duty of good faith on Energy's directors and officers unless another provision of the LLC Agreement expressly provides otherwise:
Whenever the Board of Directors or any Director or Officer makes a determination or takes or declines to take any other action . . . then, unless another express standard is provided for in this Agreement, the Board of Directors or such other Director of Officer shall make such determination or take or decline to take such other action in good faith. . . . In order for a determination or other action to be in "good faith" for the purposes of the Agreement, the Person or Persons making such determination or taking or declining to take such other action must believe that the determination is in the best interest of the Company.
Section 7.9(b) contractually imposes on Energy's officers and directors a fiduciary duty to act in good faith in all cases unless a different provision of the LLC Agreement specifically imposes a different duty. For purposes of the LLC Agreement, an act is in good faith if the actor subjectively believes that it is in the best interests of Energy. Thus, while under Delaware's common law, "the objective elements of good faith dominate the subjective element," under § 7.9(b), only the subjective intent of Energy's officers and directors matters when determining whether they acted in good faith.
Desimone v. Barrows, 924 A.2d 908, 951 (Del. Ch. 2007) (quoting Melvin A. Eisenberg, The Duty of Good Faith in Corporate Law, 31 Del. J. Corp. L. 1, 23 (2006)).
Plaintiffs argue that Section 7.9(b)'s limited and subjective definition of good faith, which is narrower than Delaware's common law conception of good faith, is unenforceable. They contend that the contractual definition of good faith eliminates the implied covenant of good faith and fair dealing from the LLC Agreement, which is impermissible under the Delaware LLC Act.
6 Del. C. § 18-1101(c).
This argument misconstrues the role of the implied covenant of good faith and fair dealing, which is "a limited and extraordinary legal remedy" that addresses only events that could not reasonably have been anticipated at the time the parties contracted. The covenant does not, therefore, dictate to parties the terms they must or must not include in a contract, but instead protects a party from arbitrary conduct that was objectively unanticipated by the terms of the contract and that frustrates the "fruits of the bargain that the asserting party reasonably expected." More specifically, where the parties have contractually agreed to eliminate fiduciary duties, they may not invoke the implied covenant as a back door through which such duties may be reimposed after the fact. Section 7.9(d) of the Agreement uses unambiguous language to eliminate the fiduciary duties of Energy's directors and officers. Section 7.9(b), just as clearly, imposes a standard of subjective good faith upon them. That Defendants would rely upon the provision is not "reasonably unanticipated," and Plaintiffs cannot invoke the implied covenant to override these provisions. Thus, an Energy director or officer satisfies the duty to act in good faith under § 7.9(b) of the LLC Agreement if she subjectively believes her conduct is in the best interest of Energy and its unitholders.
Nemec v. Shrader, 991 A.2d 1120, 1128 (Del. 2010) ("Delaware's implied duty of good faith and fair dealing is not an equitable remedy for rebalancing economic interests after events that could have been anticipated, but were not. . . .").
Id. at 1126. (describing the role of the implied covenant).
Lonergan, 2010 WL 3987173, at *8 ("To use the implied covenant to replicate fiduciary review would vitiate the limited reach of the concept of the implied duty of good faith and fair dealing." (internal quotations omitted).
6 Del. C. §§ 18-1101(c), (e).
Plaintiffs argue, however, that regardless of the standard imposed by § 7.9(b) on most conduct under the LLC Agreement, Article 12 of the agreement specifically imposes different fiduciary duties on them when they act to approve a merger. Article 12, "Merger, Consolidation or Conversion," does, in fact, alter the fiduciary duties of Energy's directors and officers in one context: § 12.2 provides that "the Board of Directors shall have no duty or obligation to consent to any merger . . . and may decline to do so free of any fiduciary duty or obligation whatsoever to the Company or any Member. . . ." Thus, the Directors owe no duty, except to act in accordance with the implied covenant of good faith and fair dealing, when they act to decline a merger. In addition, Plaintiffs contend that the absence of any reference in § 12.2 to the duties that the Board owes when they act to approve a merger indicates that Energy's directors are subject to full traditional fiduciary duties in that context. Defendants counter that § 12.2 eliminates the duty of good faith imposed by § 7.9(b) when the Board of Directors declines to enter a merger, but leaves the duty imposed by § 7.9(b) in effect when the Board of Directors approves a merger.
Defendants' reading of Article 12 is the proper one. Section 7.9(b) of the LLC Agreement defines the duty of good faith that is imposed on Energy's directors and officers unless a different duty is specified. Section 12.2 does not specify that any particular duty applies to directors deciding to approve a merger. Reading the various provisions of the LLC Agreement in harmony, the Court concludes that § 7.9(b)'s duty to act in good faith applies to Energy's Board of Directors' and officers' conduct with regard to negotiating and adopting the merger agreement.
Thus, to state a claim for breach of the contractually defined fiduciary duty against the Individual Defendants, Plaintiffs must present allegations that Individual Defendants negotiated and ultimately approved the merger with America in a manner they subjectively believed was not in the best interests of Energy and its unitholders. The Court will consider Plaintiffs' allegations against each Individual Defendant, beginning with those who served on the Special Committee.
2. Analysis of the Individual Defendants' Conduct under the Duty of Subjective Good Faith Created by § 7.9(b)
a. Defendants Warren, W. Jones, and Davis
Defendants Warren, W. Jones, and Davis comprised the Special Committee that Energy's Board formed to consider the Five Alternatives. Each was an independent director with respect to America, and Plaintiffs have not attacked their independence except to note that each was promised a seat on the Board of Directors of the surviving company if Energy merged with America. Plaintiffs allege that the Special Committee did not give due consideration to any strategic option for Energy besides the merger with America, and they cite notes taken by Defendant Davis suggesting that she, even before joining Energy's Board of Directors or the Special Committee, viewed a merger with America as the best option for Energy. Plaintiffs say that throughout the process of considering, negotiating and approving the merger, the Special Committee briefly considered various options (from pursuing third party ventures as an alternative to the merger to suggesting inclusion of a majority of the minority provision in the merger agreement once negotiations were underway), but was ultimately constrained from pursuing them by America's dominant negotiating position.
Compl. ¶ 49.
Id. at ¶ 97.
While allegations that the Special Committee failed even to look at all of its options or to negotiate the best deal available might suffice to state a colorable claim for breach of the traditional fiduciary duties of care and loyalty, they do not suggest the type of subjective bad faith required to state a claim under the duty imposed by § 7.9(b) of the LLC Agreement. Even the allegation that the Special Committee's independence was compromised by America's offer to guarantee the Independent Directors seats on the surviving company's Board of Directors does not suggest that the Special Committee believed it was acting against Energy's interest, since there is no allegation that the guaranteed seats on the Atlas Energy, Inc. Board caused the Special Committee members to agree to a merger they subjectively believed was not in Energy's best interest.
See id. at ¶ 48; see also, e.g., Krim v. ProNet, Inc., 744 A.2d. 523, 528 n. 16 (Del. Ch. 1999) ("[T]he fact that several directors would retain board membership in the merged entity does not, standing alone, create a conflict of interest.").
Only one allegation directly addresses the Special Committee members' subjective motivations and approaches a suggestion they believed they were acting against the best interests of Energy's unitholders, but even that allegation is not sufficient to sustain Plaintiffs' claims against the Special Committee members. Section 4.15 of the merger agreement, executed on April 27, 2009, suspended all of Energy's future cash distributions to unitholders, beginning with the distribution due to be announced that very day. Plaintiffs accuse the Special Committee of deciding to eliminate Energy's cash distributions to unitholders despite their knowledge that eliminating the distributions would harm certain unitholders. Plaintiffs say the Special Committee improperly caved to America's insistence that distributions be eliminated and that the merger be approved on or before April 27, 2010, when Energy would have been obligated to announce distributions based on first quarter earnings. Plaintiffs allege that the Special Committee members made the decisions in spite of their knowledge that a March 23, 2009, presentation by UBS (when it was seeking appointment as the Special Committee's financial advisor) had indicated that "one of the cons" of eliminating distributions was that such an action would have "[n]egative implications for unitholder base." Specifically UBS had noted that "[c]ertain funds are prohibited from holding no-distribution paying units" and identified the possibility that units would produce "[p]otentially insufficient cash flow to offset taxable income."
Compl. ¶¶ 111, 120.
Id. at ¶ 67.
Id. at ¶ 120.
Id.
Although Plaintiffs' complaint, understandably, did not include any "pros" that UBS might have mentioned along with the one negative consequence Plaintiffs identified, standing alone, these allegations are of the type that might be sufficient to defeat a motion to dismiss. Here, however, they do not stand alone. Plaintiffs' allegation that "America even indicated that any continuation of cash distributions would result in an even lower exchange ratio," demonstrates that the Special Committee was forced to weigh the consequences of ceasing distributions against the possibility of getting a worse deal for all unitholders. That the Special Committee members chose one alternative over the other does not suggest that they acted with the subjective bad faith necessary to support a claim that they breached the duty of good faith imposed on them by § 7.9 of the LLC Agreement. Indeed, none of Plaintiffs allegations suggests the members of the Special Committee were being insincere when they, in Plaintiffs' words, "determined by unanimous vote that the Merger was advisable, fair and reasonable to and in the best interests of Energy and its public unitholders, and recommended the Merger to the full Energy Board." Thus, the Court will dismiss Plaintiffs' claims against Defendants Warren, W. Jones, and Davis.
Id. at ¶ 112.
Id. at ¶ 64.
b. Defendants E. Cohen, J. Cohen, Weber, M. Jones, Wolf, and Herz
Plaintiffs likewise fail to state claims against the remaining Individual Defendants. Although Plaintiffs accuse certain defendants of conduct that might constitute breach of traditional fiduciary duties, they do not allege that the Individual Defendants engaged in conduct with the subjective belief that it was contrary to Energy's best interests.
According to the Complaint, for example, E. Cohen single-mindedly pursued a merger between America and Energy. Plaintiffs believe that other alternatives may have benefited Energy more, but they do not allege that E. Cohen shared their belief and yet pursued a merger nevertheless. Plaintiffs accuse E. Cohen of advocating eliminating Energy's cash distributions for months before the merger was proposed, but their allegations show that he first did so in the context of discussing the effects of the economic downturn on Energy and America, and that he later explained that his intent was for the surviving Atlas Energy, Inc. to use the cash of both companies to develop the Marcellus Shale. Such allegations do not show that E. Cohen acted with subjective bad faith towards Energy or its unitholders. Plaintiffs do not allege that E. Cohen believed other than that Development of the Marcellus Shale would ultimately benefit Atlas Energy, Inc, and thus, Energy's unitholders (through their ownership interest in the surviving company). Whether that belief was correct is not relevant under the standard prescribed by the LLC Agreement, absent some allegation that E. Cohen intended to harm Energy or its unitholders. As with their allegations regarding elimination of the cash distributions, Plaintiffs' contentions that E. Cohen steered specific information to or otherwise influenced, the Special Committee to approve the merger do not suggest that he believed his efforts were harming Energy or its unitholders. It is clear that E. Cohen pursued the merger zealously; Plaintiffs have not alleged that he acted with subjective bad faith.
Id. at ¶¶ 50, 53.
Plaintiffs' allegations against the other Independent Directors are similar in character to, but less specific than, those against E. Cohen. They describe the reasons each Defendant was conflicted, but acknowledge the actions the Energy Board took to alleviate those conflicts. While Wolf, previously a member of the Conflicts Committee, held a financial interest in America, he recused himself with regard to proposed transactions involving America. Although Plaintiffs correctly note that Defendants E. Cohen, J. Cohen, Weber, M. Jones, and Herz had fiduciary duties to America to get the best deal for that company in any merger with Energy, these directors dealt with the conflict by appointing the independent directors to the Special Committee and giving the Special Committee the authority to negotiate on Energy's behalf. As with their allegations against E. Cohen, Plaintiffs' allegations against the other Individual Defendants that they failed to present certain alternatives to the Special Committee or that they tried to influence the Special Committee to approve the merger do not suggest that they did so under the belief that they were acting against Energy's best interests. Because Plaintiffs' allegations against the remaining Individual Directors do not show that they acted in violation of the duty imposed on them by § 7.9(b) of the LLC Agreement, the claims against Defendants E. Cohen, J. Cohen, Weber, M. Jones, Wolf, and Herz will be dismissed.
V. CONCLUSION
For the reasons set forth above, the Court denies Defendants' Motion to Dismiss as to Count I of the Complaint, which alleges claims against America, but the Court grants Defendants' Motion to Dismiss as to Count II of the Complaint, which alleges claims against the Individual Defendants. An implementing order will be entered.