Manbro Energy Corporation v. Chatterjee Advisors, LLC

Background

Manbro Energy Corporation, a former investor in Winston Partners Private Equity, LLC, brought a putative class action seeking damages from Chatterjee Advisors, LLC; Chatterjee Fund Management, LP (CFM); Chatterjee Management Company (CMC), doing business as The Chatterjee Group; and Purnendu Chatterjee. The complaint alleged that the defendants managed the Fund and made a final distribution to investors at a net asset value based on the investment’s cost less impairment, rather than its allegedly much higher fair market value. Manbro alleged that the defendants retained the Fund’s shares in Haldia Petrochemicals Limited and thereby kept the potential gains for themselves.

The complaint asserted six counts: breach of contract against Chatterjee Advisors; breach of the implied covenant of good faith and fair dealing against Chatterjee Advisors; tortious interference with contractual relations against CFM, CMC, and Chatterjee; breach of fiduciary duty against all defendants; aiding and abetting breach of fiduciary duty against the Secondary Defendants; and unjust enrichment against all defendants. The court applied Delaware law to all claims except tortious interference, for which it applied New York law.

Rulings on the Claims

Count I — Breach of contract against Chatterjee Advisors. The court granted the motion to dismiss this claim. The Agreement did not require Chatterjee Advisors to dissolve the Fund or liquidate its investments before making a final distribution. The Agreement and Information Statement also authorized the manager, in its sole discretion, to require a member’s withdrawal at net asset value. The court concluded that the Agreement did not require payment based on fair market value or payment of unrealized gains.

Count II — Implied covenant of good faith and fair dealing against Chatterjee Advisors. The court denied the motion to dismiss this claim. Although the contract gave Chatterjee Advisors discretion to require withdrawals at net asset value, the complaint adequately alleged that the discretion was exercised inconsistently with the Fund’s stated purpose of disposing of investments in a way intended to maximize long-term value. The complaint also adequately alleged that the decision was not made in good faith.

Count III — Tortious interference with contractual relations against CFM, CMC, and Chatterjee. The court dismissed this claim. The complaint did not allege enough specific facts showing that each Secondary Defendant intentionally procured a breach by Chatterjee Advisors or that the defendants’ actions were the necessary cause of the alleged breach. The allegations that the defendants orchestrated the distribution were conclusory, and the specific allegations about the distribution letter and net asset value calculation were insufficient.

Count IV — Breach of fiduciary duty. The court granted the motion to dismiss as to Chatterjee Advisors and denied it as to CFM, CMC, and Chatterjee. The claim against Chatterjee Advisors was duplicative because it sought to remedy the same alleged harm addressed by the implied-covenant claim. The claim against the Secondary Defendants could proceed because they were not parties to the Agreement, and the complaint adequately alleged that they controlled or substantially participated in management of the Fund and knowingly participated in the alleged misconduct.

Count V — Aiding and abetting breach of fiduciary duty. The court allowed this claim to proceed against CFM, CMC, and Chatterjee. The complaint plausibly alleged the existence of a fiduciary relationship, a breach, knowing participation, and resulting damages. The claim could proceed in the alternative because it remained disputed whether the Secondary Defendants themselves owed fiduciary duties.

Count VI — Unjust enrichment. The court granted the motion to dismiss as to Chatterjee Advisors and denied it as to CFM, CMC, and Chatterjee. Manbro abandoned the claim against Chatterjee Advisors by failing to address the defendants’ dismissal argument. The court also stated that the claim was duplicative of the implied-covenant claim. The claim against the Secondary Defendants survived because it was adequately tied to the alleged breach of fiduciary duty.

Disposition

Judge Lorna G. Schofield held that the defendants’ motion to dismiss was granted in part and denied in part. The surviving claims are Count II against Chatterjee Advisors and Counts IV, V, and VI against CFM, CMC, and Chatterjee. The Clerk of Court was directed to close the motion.