USA – CONNECTICUT Trends and Developments Contributed by: David I Albin and Cole Mayhew, Finn Dixon & Herling LLP
After having sketched out the purpose and bounds of the Implied Covenant, Vice Chancellor Will turned to its application to the private equity fund’s amendment: “[The optometrist] asserts that, when the parties signed the […] LLC Agreement, it was unforesee - able that [the private equity fund] might use a merger to [indirectly] effect an amendment [that it could not effect directly]. But Section 18-209 (f) of the LLC Act contemplates this very situation. It sanctions an amendment or adoption of a new LLC agreement ‘notwithstanding any provision of the limited liability company agreement relating to amendment or adop - tion of a new limited liability company agreement.’” And so, since the private equity fund took an act that statutory law specifically allowed it to take, there was not a contractual gap that the optometrist could not have anticipated, and thus the Implied Covenant sim - ply did not apply. Vice Chancellor Will concluded this portion of her opinion by also noting that the chal - lenged actions did not “frustrate the ‘overarching pur - pose’” of the transaction, as the optometrist got his contracted USD14 million for 65% of his business and only lost claimed contract rights for which he had not actually negotiated adequate protection. Gunderson - independent legal significance of a reincorporation The second case in the triumvirate was Gunderson v The Trade Desk, Inc. , decided by Vice Chancellor Fioravanti in November of 2024. In Gunderson , the facts were very similar to those of Campus Eye . An investor challenged The Trade Desk, Inc.’s (Delaware) reincorporation as a Nevada corporation. As a result of this reincorporation, charter provisions that required a two-thirds vote for the elimination of certain protec - tive provisions were “disappeared” in the new cer - tificate of incorporation of the newly reincorporated Nevada entity. Notwithstanding that the reincorporation in plain lan - guage had the effect of repealing the two-thirds vot - ing requirement without having first obtained such charter-mandated two-thirds vote, Vice Chancellor Fioravanti comprehensively and easily dealt with the investor’s principal argument under the banner of the
Independent Legal Significance Doctrine (as detailed by Benchmark and its related cases), holding that: • the elimination of these provisions by means of reincorporation was no different than doing so by means of merger; • reincorporation was specifically authorised by stat - ute just like mergers; and • if the investors counting on the two-thirds require - ment wanted to be protected from its elimination by means of reincorporation, they needed to pro - tect themselves by insisting on similar Benchmark - prescribed language as that negotiated by those wanting to protect their rights from token mergers. Having introduced the Independent Legal Significance Doctrine to the analysis, Vice Chancellor Fioravanti then made short shrift of its interaction with the Implied Covenant, summarily dismissing the covenant’s appli - cation in such an instance: “Plaintiff’s implied cov - enant argument has been addressed statutorily.” Calumet capital - acting with sole discretion Turning to Calumet , Vice Chancellor Laster dealt with a motion to dismiss that involved an alternative invest- ment broker (“Investor”) that entered into a number of agreements with a litigation financier (the “Lender”) engaged in the business of lending money to law firms. Under the arrangements, the Investor would have preferential access to new loan opportunities for two years, during which time the Investor and its affiliates would have a right of first offer on funding the Lender’s litigation loans. In turn, the Lender would administer and service the funded loans and receive certain economic incentives as the loans were satis - fied. However, the Lender alleged that after the business plan had proven to be lucrative, the Investor plotted to take away the Lender’s business for itself using both contractual and extra-contractual means to cir - cumvent the Lender from the finding, placement and funding model. After disposing of other claims, Vice Chancellor Last - er sided with the Lender and refused the Investor’s motion to dismiss the Lender’s claims that Investor violated the Implied Covenant by using a contractual
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