Manbro Energy Corporation v. Chatterjee Advisors, LLC

Background

This order addressed disputed proposed jury instructions and pretrial issues after an earlier summary-judgment ruling. The earlier ruling granted in part and denied in part the defendants’ summary-judgment motion, denied Manbro’s partial summary-judgment motion, granted Manbro’s motion to dismiss counterclaims, and denied the defendants’ motion concerning expert testimony.

Manbro’s surviving claims arise from Chatterjee Advisors’ decision to compel Manbro’s withdrawal from the investment and surrender of its Haldia shares. The court stated that the claims ultimately derive from the contractual implied covenant of good faith and fair dealing. Although some claims are labeled breach-of-fiduciary-duty claims against people who were not parties to the contract, the court said those duties were solely contractual in this case.

Rulings on the Proposed Instructions

The defendants’ request for an instruction that an implied-covenant breach required both a breach of a specific implied obligation and arbitrary or unreasonable conduct was granted in part. The jury will be instructed, in substance, that Chatterjee Advisors had an implied contractual obligation to exercise its withdrawal discretion reasonably and in good faith, consistently with the agreement’s terms and purpose. The court identified the investment objective as maximizing long-term value for investors rather than allowing Chatterjee Advisors to obtain an improper personal benefit.

The court explained that the contract gave Chatterjee Advisors discretion to require a withdrawal at net asset value, defined as the lesser of cost or fair value. The implied covenant cannot require payment above cost or bar a withdrawal whenever fair value exceeds cost because those terms would conflict with the contract. The jury must nevertheless decide why Chatterjee Advisors compelled the withdrawal when it did, including what it knew about the value and prospects of the Haldia shares and whether it acted unreasonably, in bad faith, or for an improper personal benefit.

Manbro’s request for an instruction that the “lesser of cost or fair value” provision provided no defense to its implied-covenant claim was denied. The court clarified that this did not mean the provision necessarily provides a defense. Instead, the provision and Chatterjee Advisors’ awareness of it provide context for deciding whether forcing the withdrawal at that time was reasonable.

The defendants’ request to instruct the jury that Dr. Chatterjee’s fiduciary-duty liability depended on Chatterjee Advisors’ liability for breach of the implied covenant was granted. The defendants’ request for a business-judgment-rule instruction and Manbro’s requests for instructions on Delaware’s fair-value standard were denied, including Manbro’s requested limits on considering minority and marketability discounts and the post-withdrawal value of Haldia shares.

The defendants’ request for an expectation-damages instruction for the implied-covenant and derivative fiduciary-duty claims was granted. Expectation damages are damages intended to place a claimant in the position it would have occupied if the contract had been performed. The court stated that it intended to separate the trial’s liability and damages phases and give the expectation-damages instruction during the damages phase if appropriate.

Defenses and Attorneys’ Fees

The defendants’ request to reduce Manbro’s damages by 20 percent based on a “performance allocation” was denied. The court said the defendants could present appropriate evidence about damages, subject to later evidentiary rulings, but their brief pretrial argument was insufficient to decide whether that evidence would be admissible.

The defendants’ request for an indemnification-defense instruction was denied. The court held that the defense failed as a matter of law because the dispute concerned WPPE interests, while the cited subscription agreement concerned WP-II interests; Manbro had not signed a similar subscription agreement for WPPE. The court also held that the relevant statement was a representation acknowledging the lack of a public market, not a promise, and that the representation was not false when made. Manbro’s claim was that the defendants breached contractual and fiduciary duties by carrying out the withdrawal, not that Manbro should have been able to sell its investment on the open market.

The defendants’ request for a mitigation instruction was preliminarily granted in substantial part. Mitigation is the general duty to take feasible steps to reduce damages. The court said the defendants had offered at least some evidence that they offered Manbro equivalent Haldia interests. If evidence of Manbro’s failure to mitigate is presented at trial, the jury will receive an instruction on that duty, and Manbro may present evidence and argument that accepting the offer would have left it worse off.

Manbro’s request to have the jury decide whether the defendants acted in bad faith as a factual basis for a later attorneys’ fee motion was denied. The court stated that Delaware law generally permits a court to address traditional fee-shifting requests after trial and that the jury’s finding about whether the defendants acted reasonably and in good faith would assist the court if Manbro later sought fees after a verdict on the good-faith-and-fair-dealing claim.

Further Procedure

The court ordered the parties to meet and confer and file revised joint proposed jury instructions by April 14, 2023. Judge Lorna G. Schofield did not resolve the factual questions reserved for the jury, including whether the timing and circumstances of the forced withdrawal breached the implied covenant.