Manbro Energy Corporation v. Chatterjee Advisors, LLC

Background

Manbro invested approximately $10 million in Winston Partners II, LLC, an investment fund. The fund acquired an indirect minority interest in Haldia Petrochemicals Limited through affiliated holding companies. Manbro later withdrew from Winston Partners II and received cash for its marketable assets plus an interest in the Winston Partners Private Equity Fund, which held the non-marketable Haldia investment.

The fund’s governing documents allowed its manager, Chatterjee Advisors, to require a member to withdraw at net asset value, defined for non-marketable investments as the lesser of cost or fair value. The documents also stated that the fund’s objective was to dispose of investments in an orderly way intended to maximize long-term value for former and continuing members.

In 2016, Dr. Purnendu Chatterjee acquired a controlling interest in Haldia and became its chairman. The defendants later created Project Percy to provide liquidity to the fund’s limited partners. TCG Investment, a company controlled by Dr. Chatterjee, purchased entities holding the fund’s indirect Haldia interest at 10 Indian rupees per Haldia share. The fund then distributed cash to investors using that valuation and dissolved. Manbro received approximately $2.4 million, representing the net asset value of its investment as of March 31, 2017.

Manbro alleged that the Haldia shares were worth substantially more than 10 rupees per share and that the defendants’ transaction improperly transferred that potential value to themselves. The defendants later offered to restore Manbro’s original indirect interest if Manbro returned the distribution, but Manbro rejected the offer.

Summary-Judgment Rulings

Summary judgment is granted when the evidence shows that no material fact is genuinely disputed and the moving party is entitled to judgment as a matter of law. Because the parties filed competing motions, the court evaluated each motion separately and viewed the evidence favorably to the party opposing that particular motion.

Implied Covenant Claim Against Chatterjee Advisors

The court denied the defendants’ motion for summary judgment on Manbro’s claim that Chatterjee Advisors breached the implied covenant of good faith and fair dealing. Under Delaware law, that covenant requires a party exercising contractual discretion to do so consistently with the agreement’s purpose and the parties’ contractual expectations.

The court concluded that a reasonable jury could find that Chatterjee Advisors used its discretion to liquidate Manbro’s interest in a way that benefited the defendants at Manbro’s expense rather than maximizing long-term value for the fund’s investors. Evidence concerning higher valuations for Haldia shares, including Manbro’s expert’s valuation range, created factual disputes about the shares’ value and the defendants’ knowledge and intent. The defendants’ contrary valuation report did not resolve those disputes as a matter of law.

Fiduciary-Duty Claim

The court denied summary judgment as to Dr. Chatterjee and granted summary judgment as to CMC and CFM on Manbro’s fiduciary-duty claim. The court also denied Manbro’s motion for partial summary judgment on that claim.

The claim was based on the theory that the Secondary Defendants were remote controllers—people who controlled the manager of an investment limited-liability company and therefore exercised control over its property. Under Delaware law, such a controller may owe a duty of loyalty not to use that control to benefit itself at the expense of the company or its members.

Because Dr. Chatterjee controlled Chatterjee Advisors, a reasonable jury could find that he used control over Chatterjee Advisors and the fund to benefit himself at Manbro’s expense. The court rejected the argument that the defendants’ eventual benefit, or lack of benefit, determined liability; the relevant issue was whether they acted to advantage themselves at Manbro’s expense. The court found insufficient evidence that CMC or CFM controlled Chatterjee Advisors’ conduct or benefited from the final distribution. The court stated that the extent of Dr. Chatterjee’s related liability could not be resolved before trial because Chatterjee Advisors’ liability remained unresolved.

Aiding-and-Abetting Claim

The court denied the defendants’ motion for summary judgment on Manbro’s claim that CMC, CFM, and Dr. Chatterjee aided and abetted a breach of fiduciary duty. Aiding and abetting requires knowing participation in another party’s fiduciary breach, and there can be no secondary liability without a primary breach.

The court found that a reasonable jury could conclude that CMC and CFM participated knowingly in any breach by Dr. Chatterjee or Chatterjee Advisors. It noted that CMC served as an investment adviser and was controlled by Dr. Chatterjee, while CFM sent the investor communication about the final distribution on its letterhead and under Dr. Chatterjee’s signature.

Unjust-Enrichment Claim

The court denied summary judgment for Dr. Chatterjee and granted summary judgment for CMC and CFM on Manbro’s unjust-enrichment claim. Unjust enrichment concerns the unjust retention of a benefit that causes another person’s loss when there is no adequate legal justification or remedy.

The parties agreed that this claim duplicated the fiduciary-duty claims. The court found that a reasonable jury could determine that Dr. Chatterjee improperly benefited from the final distribution, but Manbro offered no evidence that CMC or CFM benefited. The court noted that the two surviving claims against Dr. Chatterjee involved duplicative proof and damages and encouraged Manbro to consider voluntarily dismissing one before trial.

Counterclaims

The court granted Manbro’s motion to dismiss the defendants’ counterclaims. The defendants sought indemnification or, alternatively, damages based on an alleged breach of the implied covenant in a subscription agreement.

The court held that the indemnification provision did not apply because Manbro’s lawsuit was not based on a false representation or warranty about the marketability of its investment. Instead, Manbro alleged that the final distribution violated the defendants’ contractual or fiduciary duties. The court also dismissed the alternative implied-covenant counterclaim because the non-marketability provision did not create an indemnification claim under these circumstances, regardless of whether Manbro’s relevant counterparty was Winston Partners II or the later fund.

Expert-Testimony Motion and Final Disposition

The court denied the defendants’ motion to exclude the opinions of Manbro’s valuation expert, Dr. Antoinette Schoar. Applying Federal Rule of Evidence 702, the court found her qualified and concluded that the defendants’ criticisms of her valuation methods concerned the weight the evidence should receive, not whether it was admissible. The court also denied the defendants’ motion for oral argument as moot.

The defendants’ motion for summary judgment was granted in part and denied in part. The claims that survived were Manbro’s implied-covenant claim against Chatterjee Advisors; fiduciary-duty and unjust-enrichment claims against Dr. Chatterjee; and aiding-and-abetting claims against Dr. Chatterjee, CMC, and CFM. Summary judgment was granted on the fiduciary-duty and unjust-enrichment claims against CMC and CFM. Manbro’s motion for partial summary judgment was denied, its motion to dismiss the counterclaims was granted, and the expert-exclusion motion was denied.