1. “Top 10 Business Law Cases From the Past Year”
Business & Corporate Law Section Annual CLE
May 9, 2014
Wendy Gerwick Couture

2. THEMES
 Idaho statutes re: liens & security interests
 Oral agreements
 Shareholder purchase or repurchase
 Good faith
 Clarifying Delaware law

3. THEMES
 Idaho statutes re: liens & security interests
 Oral agreements
 Shareholder purchase or repurchase
 Good faith
 Clarifying Delaware law
X

4. Farmers Nat’l Bank v. Green River Dairy, LLC, 155 Idaho
853, 318 P.3d 622 (Jan. 24, 2014).

5. Green River
Dairy, LLC
Farmers
National
Bank
$$$
perfected
security
interest
Farmers Nat’l Bank v. Green River Dairy, LLC, 155 Idaho
853, 318 P.3d 622 (Jan. 24, 2014).

6. Green River
Dairy, LLC
Farmers
National
Bank
$$$
perfected
security
interest
Commodities
Dealers
§ 45-1802
feed lien
???
Farmers Nat’l Bank v. Green River Dairy, LLC, 155 Idaho
853, 318 P.3d 622 (Jan. 24, 2014).

7. § 45-1802 - An agricultural commodity producer or an agricultural commodity
dealer who sells, or delivers under contract or bailment, an agricultural
product has a lien on the agricultural product or the proceeds of the sale of
the agricultural product as provided in section 45-1804, Idaho Code. The lien
created in this chapter may attach regardless of whether the purchaser uses
the agricultural product purchased to increase the value of his livestock or
whether he uses the agricultural product purchased to maintain the value,
health or status of his livestock without actually increasing the value of his
agricultural product.
Farmers Nat’l Bank v. Green River Dairy, LLC, 155 Idaho
853, 318 P.3d 622 (Jan. 24, 2014).

8. § 45-1802 - An agricultural commodity producer or an agricultural commodity
dealer who sells, or delivers under contract or bailment, an agricultural
product has a lien on the agricultural product or the proceeds of the sale of
the agricultural product as provided in section 45-1804, Idaho Code. The lien
created in this chapter may attach regardless of whether the purchaser uses
the agricultural product purchased to increase the value of his livestock or
whether he uses the agricultural product purchased to maintain the value,
health or status of his livestock without actually increasing the value of his
agricultural product.
§ 45-1801(1) - “agricultural product” does not include livestock
Farmers Nat’l Bank v. Green River Dairy, LLC, 155 Idaho
853, 318 P.3d 622 (Jan. 24, 2014).

9. § 45-1802 - An agricultural commodity producer or an agricultural commodity
dealer who sells, or delivers under contract or bailment, an agricultural
product has a lien on the agricultural product or the proceeds of the sale of
the agricultural product as provided in section 45-1804, Idaho Code. The lien
created in this chapter may attach regardless of whether the purchaser uses
the agricultural product purchased to increase the value of his livestock or
whether he uses the agricultural product purchased to maintain the value,
health or status of his livestock without actually increasing the value of his
agricultural product.
§ 45-1801(1) - “agricultural product” does not include livestock
Dissent by Justice Jim Jones – Under this
reading, the second sentence is superfluous.
Farmers Nat’l Bank v. Green River Dairy, LLC, 155 Idaho
853, 318 P.3d 622 (Jan. 24, 2014).

10. 2003
In re Goedhart,
03.3 IBRC 167 -
feed lien does
not attach to
livestock
2012
District court
decision in
this case
2014
Supreme
Court’s
reversal
UNCERTAINTY
?
Farmers Nat’l Bank v. Green River Dairy, LLC, 155 Idaho
853, 318 P.3d 622 (Jan. 24, 2014).

11. THEMES
 Idaho statutes re: liens & security interests
 Oral agreements
 Shareholder purchase or repurchase
 Good faith
 Clarifying Delaware law
X

12. KeyBank Nat’l Ass’n v. PAL I, LLC, 155 Idaho 287, 311
P.3d 299 (Oct. 3, 2013).

13. Tri-Steel
KeyBank
$$$
perfected
security
interest
KeyBank Nat’l Ass’n v. PAL I, LLC, 155 Idaho 287, 311
P.3d 299 (Oct. 3, 2013).
Inventory,
equipment, tools,
parts, supplies,
etc.

14. Tri-Steel
KeyBank
$$$
perfected
security
interest
KeyBank Nat’l Ass’n v. PAL I, LLC, 155 Idaho 287, 311
P.3d 299 (Oct. 3, 2013).
Inventory,
equipment, tools,
parts, supplies,
etc.
PAL I, LLC
Money Judgment
• Writ of execution
• Levy by sheriif

15. KeyBank Nat’l Ass’n v. PAL I, LLC, 155 Idaho 287, 311
P.3d 299 (Oct. 3, 2013).
§ 11-203 - The following procedures
shall apply . . . to any claim by a third
party that property levied upon is his
property or that he has a security
interest therein. . . . A third party
claimant shall prepare a written claim
setting forth the grounds upon which
he claims the property, and in the case
of a secured party, also stating the
dollar amount of the claim. A claim of
exemption or third party claim may be
filed only if property has been levied
upon.
(a) The claim of exemption or third
party claim shall be delivered or mailed
to the sheriff within fourteen (14) days
after the date the sheriff hand delivers
or mails the documents required to be
served upon the defendant and third
parties . . .

16. KeyBank Nat’l Ass’n v. PAL I, LLC, 155 Idaho 287, 311
P.3d 299 (Oct. 3, 2013).
§ 11-203 - The following procedures
shall apply . . . to any claim by a third
party that property levied upon is his
property or that he has a security
interest therein. . . . A third party
claimant shall prepare a written claim
setting forth the grounds upon which
he claims the property, and in the case
of a secured party, also stating the
dollar amount of the claim. A claim of
exemption or third party claim may be
filed only if property has been levied
upon.
(a) The claim of exemption or third
party claim shall be delivered or mailed
to the sheriff within fourteen (14) days
after the date the sheriff hand delivers
or mails the documents required to be
served upon the defendant and third
parties . . .
§ 38-9-315 – (a) Except as otherwise
provided in this chapter and in
section 28-2-403(2):
(1) A security interest or agricultural
lien continues in collateral
notwithstanding sale, lease, license,
exchange or other disposition
thereof unless the secured party
authorized the disposition free of
the security interest or agricultural
lien; and
(2) A security interest attaches to
any identifiable proceeds of
collateral.

17. KeyBank Nat’l Ass’n v. PAL I, LLC, 155 Idaho 287, 311
P.3d 299 (Oct. 3, 2013).
§ 11-203 - The following procedures
shall apply . . . to any claim by a third
party that property levied upon is his
property or that he has a security
interest therein. . . . A third party
claimant shall prepare a written claim
setting forth the grounds upon which
he claims the property, and in the case
of a secured party, also stating the
dollar amount of the claim. A claim of
exemption or third party claim may be
filed only if property has been levied
upon.
(a) The claim of exemption or third
party claim shall be delivered or mailed
to the sheriff within fourteen (14) days
after the date the sheriff hand delivers
or mails the documents required to be
served upon the defendant and third
parties . . .
§ 38-9-315 – (a) Except as otherwise
provided in this chapter and in
section 28-2-403(2):
(1) A security interest or agricultural
lien continues in collateral
notwithstanding sale, lease, license,
exchange or other disposition
thereof unless the secured party
authorized the disposition free of
the security interest or agricultural
lien; and
(2) A security interest attaches to
any identifiable proceeds of
collateral.
Under these
facts, not an
authorized
disposition.

18. KeyBank Nat’l Ass’n v. PAL I, LLC, 155 Idaho 287, 311
P.3d 299 (Oct. 3, 2013).
§ 11-203 - The following procedures
shall apply . . . to any claim by a third
party that property levied upon is his
property or that he has a security
interest therein. . . . A third party
claimant shall prepare a written claim
setting forth the grounds upon which
he claims the property, and in the case
of a secured party, also stating the
dollar amount of the claim. A claim of
exemption or third party claim may be
filed only if property has been levied
upon.
(a) The claim of exemption or third
party claim shall be delivered or mailed
to the sheriff within fourteen (14) days
after the date the sheriff hand delivers
or mails the documents required to be
served upon the defendant and third
parties . . .
§ 38-9-315 – (a) Except as otherwise
provided in this chapter and in
section 28-2-403(2):
(1) A security interest or agricultural
lien continues in collateral
notwithstanding sale, lease, license,
exchange or other disposition
thereof unless the secured party
authorized the disposition free of
the security interest or agricultural
lien; and
(2) A security interest attaches to
any identifiable proceeds of
collateral.
Under these
facts, not an
authorized
disposition.
Under these facts,
KeyBank not estopped
under doctrine of
“quasi-estoppel” from
asserting security
interest.

19. KeyBank Nat’l Ass’n v. PAL I, LLC, 155 Idaho 287, 311
P.3d 299 (Oct. 3, 2013).
§ 11-203 - The following procedures
shall apply . . . to any claim by a third
party that property levied upon is his
property or that he has a security
interest therein. . . . A third party
claimant shall prepare a written claim
setting forth the grounds upon which
he claims the property, and in the case
of a secured party, also stating the
dollar amount of the claim. A claim of
exemption or third party claim may be
filed only if property has been levied
upon.
(a) The claim of exemption or third
party claim shall be delivered or mailed
to the sheriff within fourteen (14) days
after the date the sheriff hand delivers
or mails the documents required to be
served upon the defendant and third
parties . . .
§ 38-9-315 – (a) Except as otherwise
provided in this chapter and in
section 28-2-403(2):
(1) A security interest or agricultural
lien continues in collateral
notwithstanding sale, lease, license,
exchange or other disposition
thereof unless the secured party
authorized the disposition free of
the security interest or agricultural
lien; and
(2) A security interest attaches to
any identifiable proceeds of
collateral.
Under these
facts, not an
authorized
disposition.
Under these facts,
KeyBank not estopped
under doctrine of
“quasi-estoppel” from
asserting security
interest.
WARNING: If fail to
comply with § 11-203 or
to otherwise assert security
interest during sheriff’s
sale, possibly lose it?

20. THEMES
 Idaho statutes re: liens & security interests
 Oral agreements
 Shareholder purchase or repurchase
 Good faith
 Clarifying Delaware law
X

21. Silicon Int’l Ore, LLC v. Monsanto Co., 155 Idaho 538,
314 P.3d 593 (Nov. 27, 2013).

22. Silicon Int’l Ore, LLC v. Monsanto Co., 155 Idaho 538,
314 P.3d 593 (Nov. 27, 2013).
Monsanto,
Quartzite
Mine Owner
WGI,
Mine Operator

23. Silicon Int’l Ore, LLC v. Monsanto Co., 155 Idaho 538,
314 P.3d 593 (Nov. 27, 2013).
Monsanto,
Quartzite
Mine Owner
WGI,
Mine Operator
SIO
Silica Sand
Acquiror

24. Silicon Int’l Ore, LLC v. Monsanto Co., 155 Idaho 538,
314 P.3d 593 (Nov. 27, 2013).
Monsanto,
Quartzite
Mine Owner
WGI,
Mine Operator
SIO
Silica Sand
Acquiror
Master
Agreement
expired

25. Silicon Int’l Ore, LLC v. Monsanto Co., 155 Idaho 538,
314 P.3d 593 (Nov. 27, 2013).
Monsanto,
Quartzite
Mine Owner
WGI,
Mine Operator
SIO
Silica Sand
Acquiror
Master
Agreement
expired
Alleged
verbal
agreement

26. Alleged verbal
agreement
• Monsanto agreed to furnish SIO with agreed-upon
quantities of silica sand if processed in safe and
environmentally friendly manner.
• SIO could sell the processed sand to third parties, but
Monsanto reserved the right to limit the market.
• SIO could extract sand from the quarry.
• The agreement would remain in force as long as “mutually
beneficial” to SIO and Monsanto.
• The agreement would be “mutually beneficial” as long as
(1) SIO conformed to Monsanto’s environmental, safety,
and control regulations; (2) SIO paid Monsanto an agreed-
upon royalty; and (3) SIO permitted Monsanto to control
the markets in which SIO could sell the sand.
Silicon Int’l Ore, LLC v. Monsanto Co., 155 Idaho 538,
314 P.3d 593 (Nov. 27, 2013).

27. Alleged verbal
agreement
Statute of Frauds
§ 28-2-201(1) – contract for the sale
of goods for the price of $500 or
more
Silicon Int’l Ore, LLC v. Monsanto Co., 155 Idaho 538,
314 P.3d 593 (Nov. 27, 2013).

28. Alleged verbal
agreement
Statute of Frauds
§ 28-2-201(1) – contract for the sale
of goods for the price of $500 or
more
If hybrid contract (with terms re: sale
of goods and services), test:
“whether the predominant factor, the
thrust, the purpose of the agreement
is a transaction of sale, with labor
incidentally involved”
Silicon Int’l Ore, LLC v. Monsanto Co., 155 Idaho 538,
314 P.3d 593 (Nov. 27, 2013).

29. Alleged verbal
agreement
• Monsanto agreed to furnish SIO with agreed-upon
quantities of silica sand if processed in safe and
environmentally friendly manner.
• SIO could sell the processed sand to third parties, but
Monsanto reserved the right to limit the market.
• SIO could extract sand from the quarry.
• The agreement would remain in force as long as “mutually
beneficial” to SIO and Monsanto.
• The agreement would be “mutually beneficial” as long as
(1) SIO conformed to Monsanto’s environmental, safety,
and control regulations; (2) SIO paid Monsanto an agreed-
upon royalty; and (3) SIO permitted Monsanto to control
the markets in which SIO could sell the sand.
Silicon Int’l Ore, LLC v. Monsanto Co., 155 Idaho 538,
314 P.3d 593 (Nov. 27, 2013).

30. Alleged verbal
agreementXStatute of Frauds
§ 28-2-201(1) – contract for the sale
of goods for the price of $500 or
more
If hybrid contract (with terms re: sale
of goods and services), test:
“whether the predominant factor, the
thrust, the purpose of the agreement
is a transaction of sale, with labor
incidentally involved”
UNENFORCEABLE
Silicon Int’l Ore, LLC v. Monsanto Co., 155 Idaho 538,
314 P.3d 593 (Nov. 27, 2013).

31. Alleged verbal
agreementXStatute of Frauds
§ 28-2-201(1) – contract for the sale
of goods for the price of $500 or
more
If hybrid contract (with terms re: sale
of goods and services), test:
“whether the predominant factor, the
thrust, the purpose of the agreement
is a transaction of sale, with labor
incidentally involved”
UNENFORCEABLE
“An enforceable contract must
contain the essential terms of
agreement and not be too
vague, indefinite, or uncertain as
to those terms.”
Silicon Int’l Ore, LLC v. Monsanto Co., 155 Idaho 538,
314 P.3d 593 (Nov. 27, 2013).

32. Alleged verbal
agreement
• Monsanto agreed to furnish SIO with agreed-upon
quantities of silica sand if processed in safe and
environmentally friendly manner.
• SIO could sell the processed sand to third parties, but
Monsanto reserved the right to limit the market.
• SIO could extract sand from the quarry.
• The agreement would remain in force as long as “mutually
beneficial” to SIO and Monsanto.
• The agreement would be “mutually beneficial” as long as
(1) SIO conformed to Monsanto’s environmental, safety,
and control regulations; (2) SIO paid Monsanto an agreed-
upon royalty; and (3) SIO permitted Monsanto to control
the markets in which SIO could sell the sand.
Silicon Int’l Ore, LLC v. Monsanto Co., 155 Idaho 538,
314 P.3d 593 (Nov. 27, 2013).

33. Alleged verbal
agreementXStatute of Frauds
§ 28-2-201(1) – contract for the sale
of goods for the price of $500 or
more
If hybrid contract (with terms re: sale
of goods and services), test:
“whether the predominant factor, the
thrust, the purpose of the agreement
is a transaction of sale, with labor
incidentally involved”
UNENFORCEABLE
“An enforceable contract must
contain the essential terms of
agreement and not be too
vague, indefinite, or uncertain as
to those terms.”
UNENFORCEABLE
Silicon Int’l Ore, LLC v. Monsanto Co., 155 Idaho 538,
314 P.3d 593 (Nov. 27, 2013).
X

34. Equitable
Estoppel Claim
Against
Monsanto
YES, equitable estoppel claim can be
asserted where the purported
agreement does not comply with the
Statute of Frauds.
Silicon Int’l Ore, LLC v. Monsanto Co., 155 Idaho 538,
314 P.3d 593 (Nov. 27, 2013).

35. Equitable
Estoppel Claim
Against
Monsanto
YES, equitable estoppel claim can be
asserted where the purported
agreement does not comply with the
Statute of Frauds.
BUT, the doctrine of equitable
estoppel assumes the existence of a
complete agreement that is not
unenforceable as vague or
incomplete.
X
Silicon Int’l Ore, LLC v. Monsanto Co., 155 Idaho 538,
314 P.3d 593 (Nov. 27, 2013).

36. Equitable
Estoppel Claim
Against
Monsanto
YES, equitable estoppel claim can be
asserted where the purported
agreement does not comply with the
Statute of Frauds.
BUT, the doctrine of equitable
estoppel assumes the existence of a
complete agreement that is not
unenforceable as vague or
incomplete.
X
Tortious
Interference
Claim Against
WGI
YES, the failure to comply with the
Statute of Frauds merely renders a
contract voidable, and thus it can still
be subject to tortious interference.
Silicon Int’l Ore, LLC v. Monsanto Co., 155 Idaho 538,
314 P.3d 593 (Nov. 27, 2013).

37. Equitable
Estoppel Claim
Against
Monsanto
YES, equitable estoppel claim can be
asserted where the purported
agreement does not comply with the
Statute of Frauds.
BUT, the doctrine of equitable
estoppel assumes the existence of a
complete agreement that is not
unenforceable as vague or
incomplete.
X
Tortious
Interference
Claim Against
WGI
YES, the failure to comply with the
Statute of Frauds merely renders a
contract voidable, and thus it can still
be subject to tortious interference.
BUT, a party cannot interfere with an
agreement that is too vague and
uncertain to be enforceable.
X
Silicon Int’l Ore, LLC v. Monsanto Co., 155 Idaho 538,
314 P.3d 593 (Nov. 27, 2013).

38. THEMES
 Idaho statutes re: liens & security interests
 Oral agreements
 Shareholder purchase or repurchase
 Good faith
 Clarifying Delaware law
X
X

39. In re Wayport, Inc. Litigation, 76 A.3d 296 (Del. Ch. May
1, 2013).

40. In re Wayport, Inc. Litigation, 76 A.3d 296 (Del. Ch. May
1, 2013).
No special
disclosure
duties

41. In re Wayport, Inc. Litigation, 76 A.3d 296 (Del. Ch. May
1, 2013).
No special
disclosure
duties
Duty to
disclose all
material facts

42. In re Wayport, Inc. Litigation, 76 A.3d 296 (Del. Ch. May
1, 2013).
No special
disclosure
duties
Duty to
disclose all
material facts
Duty to
disclose
“special facts”

43. In re Wayport, Inc. Litigation, 76 A.3d 296 (Del. Ch. May
1, 2013).
No special
disclosure
duties
Duty to
disclose all
material facts
Duty to
disclose
“special facts”

44. In re Wayport, Inc. Litigation, 76 A.3d 296 (Del. Ch. May
1, 2013).
“not aware of any
bluebirds of
happiness in the
Wayport world right
now”
June 8, 2007

45. In re Wayport, Inc. Litigation, 76 A.3d 296 (Del. Ch. May
1, 2013).
“not aware of any
bluebirds of
happiness in the
Wayport world right
now”
June 8, 2007 July 2, 2007
learned about
the patent
sale

46. In re Wayport, Inc. Litigation, 76 A.3d 296 (Del. Ch. May
1, 2013).
“not aware of any
bluebirds of
happiness in the
Wayport world right
now”
June 8, 2007 July 2, 2007
learned about
the patent
sale
Late Sept. 2007
purchased
stock from
outside
shareholder
DUTY TO UPDATE
FRAUD

47. THEMES
 Idaho statutes re: liens & security interests
 Oral agreements
 Shareholder purchase or repurchase
 Good faith
 Clarifying Delaware law
X
X

48. Blaustein v. Lord Baltimore Capital Corp., 84 A.3d 954
(Del. Jan. 21, 2014).

49. Blaustein v. Lord Baltimore Capital Corp., 84 A.3d 954
(Del. Jan. 21, 2014).
Nixon v. Blackwell, 626 A.2d 1366 (Del. 1993) – “The tools of good corporate
practice are designed to give a purchasing minority stockholder the opportunity
to bargain for protection before parting with consideration. It would do violence
to normal corporate practice and our corporation law to fashion an ad hoc ruling
which would result in a court-imposed stockholder buy-out for which the parties
had not contracted.”

50. Blaustein v. Lord Baltimore Capital Corp., 84 A.3d 954
(Del. Jan. 21, 2014).
Nixon v. Blackwell, 626 A.2d 1366 (Del. 1993) – “The tools of good corporate
practice are designed to give a purchasing minority stockholder the opportunity
to bargain for protection before parting with consideration. It would do violence
to normal corporate practice and our corporation law to fashion an ad hoc ruling
which would result in a court-imposed stockholder buy-out for which the parties
had not contracted.”
“Under common law, the directors of a closely held corporation have no general
fiduciary duty to repurchase the stock of a minority stockholder. An investor
must rely on contractual protections if liquidity is a matter of concern. Blaustein
has no inherent right to sell her stock to the company at ‘full value,’ or any other
price. It follows that she has no right to insist on the formation of an
independent board committee to negotiate with her.”

51. Blaustein v. Lord Baltimore Capital Corp., 84 A.3d 954
(Del. Jan. 21, 2014).
Shareholder Agreement paragraph 7(d):
“Notwithstanding any other provision of this Agreement, the Company may
repurchase Shares upon terms and conditions agreeable to the Company and the
Shareholder who owns the Shares to be repurchased provided that the
repurchase is approved either (i) by a majority, being at least four, of all the
Directors of the Company then authorized . . . at a duly called meeting of the
Board of Directors or (ii) in writing by Shareholders who, in the aggregate, own of
record or beneficially 70% or more of all Shares then issued and outstanding.”

52. Blaustein v. Lord Baltimore Capital Corp., 84 A.3d 954
(Del. Jan. 21, 2014).
Shareholder Agreement paragraph 7(d):
“Notwithstanding any other provision of this Agreement, the Company may
repurchase Shares upon terms and conditions agreeable to the Company and the
Shareholder who owns the Shares to be repurchased provided that the
repurchase is approved either (i) by a majority, being at least four, of all the
Directors of the Company then authorized . . . at a duly called meeting of the
Board of Directors or (ii) in writing by Shareholders who, in the aggregate, own of
record or beneficially 70% or more of all Shares then issued and outstanding.”
“The implied covenant of good faith and fair dealing
cannot be employed to impose new contract terms that
could have been bargained for but were not.”

53. Blaustein v. Lord Baltimore Capital Corp., 84 A.3d 954
(Del. Jan. 21, 2014).
Blaustein v. Lord Baltimore Capital Corp., No. 6685–VCN, 2013
WL 1810956 (Del.Ch. Apr. 30, 2013).
“Susan's predicament is not enviable, but she must live with
the Shareholders' Agreement for which she bargained. She had
an opportunity to negotiate specific buyout terms. Her
attorneys were sophisticated and well-regarded. The Court
cannot read into the Shareholders' Agreement obvious terms
that she did not secure during the bargaining process. Nor can
the Court, on these facts, utilize fiduciary principles to help her
case.”

54. THEMES
 Idaho statutes re: liens & security interests
 Oral agreements
 Shareholder purchase or repurchase
 Good faith
 Clarifying Delaware law
X
X

55. Delaware LLC Act – Effective August 1, 2013
6 Del. Code § 18-1104
In any case not provided for in this chapter, the
rules of law and equity, including the rules of
law and equity relating to fiduciary duties and
the law merchant, shall govern.

56. Delaware LLC Act
6 Del. Code § 18-1101(c)
To the extent that, at law or in equity, a member
or manager or other person has duties
(including fiduciary duties) to a limited liability
company or to another member or manager or
to another person that is a party to or is
otherwise bound by a limited liability company
agreement, the member's or manager's or other
person's duties may be expanded or restricted
or eliminated by provisions in the limited
liability company agreement; provided, that the
limited liability company agreement may not
eliminate the implied contractual covenant of
good faith and fair dealing.
Delaware Rev. Unif. LP Act
6 Del. Code § 17-1101(c)
To the extent that, at law or in equity, a partner
or other person has duties (including fiduciary
duties) to a limited partnership or to another
partner or to another person that is a party to or
is otherwise bound by a partnership agreement,
the partner's or other person's duties may be
expanded or restricted or eliminated by
provisions in the partnership agreement;
provided that the partnership agreement may
not eliminate the implied contractual covenant
of good faith and fair dealing.

57. Delaware LLC Act
6 Del. Code § 18-1101(c)
To the extent that, at law or in equity, a member
or manager or other person has duties
(including fiduciary duties) to a limited liability
company or to another member or manager or
to another person that is a party to or is
otherwise bound by a limited liability company
agreement, the member's or manager's or other
person's duties may be expanded or restricted
or eliminated by provisions in the limited
liability company agreement; provided, that the
limited liability company agreement may not
eliminate the implied contractual covenant of
good faith and fair dealing.
GOOD
FAITH
Delaware Rev. Unif. LP Act
6 Del. Code § 17-1101(c)
To the extent that, at law or in equity, a partner
or other person has duties (including fiduciary
duties) to a limited partnership or to another
partner or to another person that is a party to or
is otherwise bound by a partnership agreement,
the partner's or other person's duties may be
expanded or restricted or eliminated by
provisions in the partnership agreement;
provided that the partnership agreement may
not eliminate the implied contractual covenant
of good faith and fair dealing.

58. GOOD
FAITH
Fiduciary Duty
of Loyalty
(including
good faith)
Contractual
Duty of Good
Faith
Implied Duty
of Good Faith
& Fair Dealing

59. GOOD
FAITH
Fiduciary Duty
of Loyalty
(including
good faith)
Contractual
Duty of Good
Faith
Implied Duty
of Good Faith
& Fair Dealing
Can be
eliminated or
supplanted.

60. GOOD
FAITH
Fiduciary Duty
of Loyalty
(including
good faith)
Contractual
Duty of Good
Faith
Implied Duty
of Good Faith
& Fair Dealing
Can be
eliminated or
supplanted.
How is
good faith
defined?

61. DV Realty v. Policemen’s Annuity, 75 A.3d 101 (Del. Aug.
26, 2013).
LPA § 3.10(a)(ii)
Both General Partners (and only both, not either General Partner
individually) may be removed without Cause by an affirmative vote
or consent of the Limited Partners holding in excess of 75% of the
[Limited] Partnership Interests then held by all Limited Partners;
provided that consenting Limited Partners in good faith determine
that such removal is necessary for the best interest of the [Limited]
Partnership.

62. DV Realty v. Policemen’s Annuity, 75 A.3d 101 (Del. Aug.
26, 2013).
• If defined in LP Agreement  as defined.
• If undefined  ???

63. DV Realty v. Policemen’s Annuity, 75 A.3d 101 (Del. Aug.
26, 2013).
• If defined in LP Agreement  as defined.
• If undefined  ???
Court of Chancery, drawing
from UCC § 1-201, held that
“good faith” means
“honesty in fact and the
observance of reasonable
commercial standards of fair
dealing.”

64. DV Realty v. Policemen’s Annuity, 75 A.3d 101 (Del. Aug.
26, 2013).
• If defined in LP Agreement  as defined.
• If undefined  ???
Court of Chancery, drawing
from UCC § 1-201, held that
“good faith” means
“honesty in fact and the
observance of reasonable
commercial standards of fair
dealing.”
Delaware Supreme Court:
Not “good faith” if “so
beyond the bounds of
reasonable judgment that it
seems essentially
inexplicable on any ground
other than bad faith.”

65. GOOD
FAITH
Fiduciary Duty
of Loyalty
(including
good faith)
Contractual
Duty of Good
Faith
Implied Duty
of Good Faith
& Fair Dealing
Can be
eliminated or
supplanted.
• As defined.
• If undefined, subjective
inquiry into whether “so far
beyond the bounds of
reasonable judgment.” DV
Realty

66. GOOD
FAITH
Fiduciary Duty
of Loyalty
(including
good faith)
Contractual
Duty of Good
Faith
Implied Duty
of Good Faith
& Fair Dealing
Can be
eliminated or
supplanted.
• As defined.
• If undefined, subjective
inquiry into whether “so far
beyond the bounds of
reasonable judgment.” DV
Realty
Can “safe harbors”
conclusively establish
good faith?
Can “safe harbors”
conclusively establish
good faith?

67. Gerber v. Enter. Prods. Holdings, LLC, 67 A.3d 400 (Del.
June 10, 2013).

68. Gerber v. Enter. Prods. Holdings, LLC, 67 A.3d 400 (Del.
June 10, 2013).
LPA 7.9(b) – “Whenever the General
Partner . . . takes any other action, or any
of its Affiliates causes it to do so, in its
capacity as the general partner of the
Partnership . . . then, . . . the General
Partner, or such Affiliates causing it to do
so, shall . . . take such other action in
good faith.”
Implied contractual duty of good
faith and fair dealing

69. Gerber v. Enter. Prods. Holdings, LLC, 67 A.3d 400 (Del.
June 10, 2013).
LPA 7.9(b) – “Whenever the General
Partner . . . takes any other action, or any
of its Affiliates causes it to do so, in its
capacity as the general partner of the
Partnership . . . then, . . . the General
Partner, or such Affiliates causing it to do
so, shall . . . take such other action in
good faith.”
Implied contractual duty of good
faith and fair dealing
Safe Harbor 2 –
Precludes judicial
review of any conflict of
interest transaction if
approved by “Special
Approval.”
Safe Harbor 1 –
Conclusive
presumption that
General Partner acts in
good faith if in reliance
on investment banker’s
opinion.

70. Gerber v. Enter. Prods. Holdings, LLC, 67 A.3d 400 (Del.
June 10, 2013).
LPA 7.9(b) – “Whenever the General
Partner . . . takes any other action, or any
of its Affiliates causes it to do so, in its
capacity as the general partner of the
Partnership . . . then, . . . the General
Partner, or such Affiliates causing it to do
so, shall . . . take such other action in
good faith.”
Implied contractual duty of good
faith and fair dealing
Safe Harbor 2 –
Precludes judicial
review of any conflict of
interest transaction if
approved by “Special
Approval.”
Safe Harbor 1 –
Conclusive
presumption that
General Partner acts in
good faith if in reliance
on investment banker’s
opinion.
X

71. Gerber v. Enter. Prods. Holdings, LLC, 67 A.3d 400 (Del.
June 10, 2013).
LPA 7.9(b) – “Whenever the General
Partner . . . takes any other action, or any
of its Affiliates causes it to do so, in its
capacity as the general partner of the
Partnership . . . then, . . . the General
Partner, or such Affiliates causing it to do
so, shall . . . take such other action in
good faith.”
Implied contractual duty of good
faith and fair dealing
Safe Harbor 2 –
Precludes judicial
review of any conflict of
interest transaction if
approved by “Special
Approval.”
Safe Harbor 1 –
Conclusive
presumption that
General Partner acts in
good faith if in reliance
on investment banker’s
opinion.
X Requires that a party
“refrain from arbitrary
and unreasonable
conduct which has the
effect of preventing the
other party to a contract
from receiving the fruits
of its bargain”

72. Gerber v. Enter. Prods. Holdings, LLC, 67 A.3d 400 (Del.
June 10, 2013).
LPA 7.9(b) – “Whenever the General
Partner . . . takes any other action, or any
of its Affiliates causes it to do so, in its
capacity as the general partner of the
Partnership . . . then, . . . the General
Partner, or such Affiliates causing it to do
so, shall . . . take such other action in
good faith.”
Implied contractual duty of good
faith and fair dealing
Safe Harbor 2 –
Precludes judicial
review of any conflict of
interest transaction if
approved by “Special
Approval.”
Safe Harbor 1 –
Conclusive
presumption that
General Partner acts in
good faith if in reliance
on investment banker’s
opinion.
X Requires that a party
“refrain from arbitrary
and unreasonable
conduct which has the
effect of preventing the
other party to a contract
from receiving the fruits
of its bargain”

73. GOOD
FAITH
Fiduciary Duty
of Loyalty
(including
good faith)
Contractual
Duty of Good
Faith
Implied Duty
of Good Faith
& Fair Dealing
Can be
eliminated or
supplanted.
• As defined.
• If undefined, subjective
inquiry into whether “so far
beyond the bounds of
reasonable judgment.” DV
Realty
• Safe harbors can insulate
from liability.

74. GOOD
FAITH
Fiduciary Duty
of Loyalty
(including
good faith)
Contractual
Duty of Good
Faith
Implied Duty
of Good Faith
& Fair Dealing
Can be
eliminated or
supplanted.
• As defined.
• If undefined, subjective
inquiry into whether “so far
beyond the bounds of
reasonable judgment.” DV
Realty
• Safe harbors can insulate
from liability.
• Presumptive “good
faith” provisions
don’t insulate.

75. GOOD
FAITH
Fiduciary Duty
of Loyalty
(including
good faith)
Contractual
Duty of Good
Faith
Implied Duty
of Good Faith
& Fair Dealing
Can be
eliminated or
supplanted.
• As defined.
• If undefined, subjective
inquiry into whether “so far
beyond the bounds of
reasonable judgment.” DV
Realty
• Safe harbors can insulate
from liability.
• Presumptive “good
faith” provisions
don’t insulate.
• Implied duty applies
to conduct pursuant
to safe harbor

76. Implied Duty of Good Faith &
Fair Dealing
“Express contractual provisions always supersede the implied
covenant, but even the most carefully drafted agreement will
harbor residual nooks and crannies for the implied covenant to fill.
In those situations, what is ‘arbitrary’ or ‘unreasonable’—or
conversely ‘reasonable’– depends on the parties’ original
contractual expectations, not a ‘free-flowing’ duty applied at the
time of the wrong.”
Gerber v. Enter. Prods. Holdings, LLC, 67 A.3d 400 (Del.
June 10, 2013).

77. THEMES
 Idaho statutes re: liens & security interests
 Oral agreements
 Shareholder purchase or repurchase
 Good faith
 Clarifying Delaware lawX
X

78. SIGA Techs., Inc. v. Pharmathene, Inc., 67 A.3d 330 (Del.
May 24, 2013).
SIGA Pharmathene

79. SIGA Techs., Inc. v. Pharmathene, Inc., 67 A.3d 330 (Del.
May 24, 2013).
SIGA Pharmathene
License term sheet
“Non-binding”
Unsigned

80. SIGA Techs., Inc. v. Pharmathene, Inc., 67 A.3d 330 (Del.
May 24, 2013).
SIGA Pharmathene
License term sheet
“Non-binding”
Unsigned
Merger AgreementBridge Financing Agreement
Upon termination of the merger, “SIGA and Pharmathene will
negotiate in good faith with the intention of executing a definitive
License Agreement in accordance with the terms set forth in the
License Agreement Term Sheet attached as Exhibit C.”

81. SIGA Techs., Inc. v. Pharmathene, Inc., 67 A.3d 330 (Del.
May 24, 2013).
SIGA Pharmathene
License term sheet
“Non-binding”
Unsigned
Merger AgreementBridge Financing Agreement
Upon termination of the merger, “SIGA and Pharmathene will
negotiate in good faith with the intention of executing a definitive
License Agreement in accordance with the terms set forth in the
License Agreement Term Sheet attached as Exhibit C.”

82. SIGA Techs., Inc. v. Pharmathene, Inc., 67 A.3d 330 (Del.
May 24, 2013).
The parties were obligated to negotiate in good faith with the
intention of executing a definitive License Agreement with
economic terms substantially similar to the terms of the term
sheet.

83. SIGA Techs., Inc. v. Pharmathene, Inc., 67 A.3d 330 (Del.
May 24, 2013).
The parties were obligated to negotiate in good faith with the
intention of executing a definitive License Agreement with
economic terms substantially similar to the terms of the term
sheet.
Bad faith implies the “conscious
doing of a wrong because of
dishonest purpose or moral
obliquity”

84. SIGA Techs., Inc. v. Pharmathene, Inc., 67 A.3d 330 (Del.
May 24, 2013).
The parties were obligated to negotiate in good faith with the
intention of executing a definitive License Agreement with
economic terms substantially similar to the terms of the term
sheet.
Bad faith implies the “conscious
doing of a wrong because of
dishonest purpose or moral
obliquity”
• If the parties have an agreement to negotiate in good faith
• Based on a preliminary agreement that contains certain
major terms but leaves other terms open for further
negotiation
• And the trial court makes a factual finding that the parties
would have reached an agreement but for the defendant’s
bad faith negotiations

85. SIGA Techs., Inc. v. Pharmathene, Inc., 67 A.3d 330 (Del.
May 24, 2013).
The parties were obligated to negotiate in good faith with the
intention of executing a definitive License Agreement with
economic terms substantially similar to the terms of the term
sheet.
Bad faith implies the “conscious
doing of a wrong because of
dishonest purpose or moral
obliquity”
• If the parties have an agreement to negotiate in good faith
• Based on a preliminary agreement that contains certain
major terms but leaves other terms open for further
negotiation
• And the trial court makes a factual finding that the parties
would have reached an agreement but for the defendant’s
bad faith negotiations
Expectation
damages are
available!!!

86. THEMES
 Idaho statutes re: liens & security interests
 Oral agreements
 Shareholder purchase or repurchase
 Good faith
 Clarifying Delaware lawX

87. Klaassen v. Allegro Dev., No. 583, 2014 WL 996375,
(Del. Mar. 14, 2014).

88. Klaassen v. Allegro Dev., No. 583, 2014 WL 996375,
(Del. Mar. 14, 2014).
NO ADVANCE NOTICE OF AGENDA
“It is settled Delaware law that
corporate directors are not
required to be given notice of
regular board meetings.”

89. Klaassen v. Allegro Dev., No. 583, 2014 WL 996375,
(Del. Mar. 14, 2014).
NO ADVANCE NOTICE OF AGENDA
“It is settled Delaware law that
corporate directors are not
required to be given notice of
regular board meetings.”
“It follows that there is no default
requirement that directors be
given advance notice of specific
agenda items to be addressed at a
regular board meeting.”

90. Klaassen v. Allegro Dev., No. 583, 2014 WL 996375,
(Del. Mar. 14, 2014).
NO ADVANCE NOTICE OF AGENDA
“It is settled Delaware law that
corporate directors are not
required to be given notice of
regular board meetings.”
“It follows that there is no default
requirement that directors be
given advance notice of specific
agenda items to be addressed at a
regular board meeting.”
DECEPTIVE TACTICS
“Our courts do not approve the
use of deception as a means by
which to conduct a Delaware
corporation’s affairs, and nothing
in this Opinion should be read to
suggest otherwise.”

91. Klaassen v. Allegro Dev., No. 583, 2014 WL 996375,
(Del. Mar. 14, 2014).
NO ADVANCE NOTICE OF AGENDA
“It is settled Delaware law that
corporate directors are not
required to be given notice of
regular board meetings.”
“It follows that there is no default
requirement that directors be
given advance notice of specific
agenda items to be addressed at a
regular board meeting.”
DECEPTIVE TACTICS
“Our courts do not approve the
use of deception as a means by
which to conduct a Delaware
corporation’s affairs, and nothing
in this Opinion should be read to
suggest otherwise.”
BUT, this is an equitable claim,
thus rendering actions voidable
rather than void, and subject to
equitable defenses.

92. THEMES
 Idaho statutes re: liens & security interests
 Oral agreements
 Shareholder purchase or repurchase
 Good faith
 Clarifying Delaware lawX

93. In re Hecla Mining Co. Deriv. Shareholder Litig., No.
2:12-CV-97-REB, 2014 WL 689036 (D. Idaho Feb. 20,
2014).

94. In re Hecla Mining Co. Deriv. Shareholder Litig., No.
2:12-CV-97-REB, 2014 WL 689036 (D. Idaho Feb. 20,
2014).
If alleged that directors
made a conscious
business decision in
breach of fiduciary duty
Aronson test: A plaintiff
must plead sufficient facts
to raise a reasonable
doubt that
(1) That the directors are
disinterested and
independent
OR
(2) That the challenged
transaction was the
product of a valid exercise
of business judgment.

95. In re Hecla Mining Co. Deriv. Shareholder Litig., No.
2:12-CV-97-REB, 2014 WL 689036 (D. Idaho Feb. 20,
2014).
If alleged that directors
made a conscious
business decision in
breach of fiduciary duty
If alleged that directors
violated their oversight
duties
Aronson test: A plaintiff must
plead sufficient facts to raise a
reasonable doubt:
• That the directors are
disinterested and
independent
OR
• That the challenged
transaction was the
product of a valid exercise
of business judgment.
Rales test: A plaintiff must plead
sufficient facts to raise a reasonable
doubt:
• That the board of directors could
have properly exercised its
independent and disinterested
business judgment in responding to
a demand.

96. In re Hecla Mining Co. Deriv. Shareholder Litig., No.
2:12-CV-97-REB, 2014 WL 689036 (D. Idaho Feb. 20,
2014).
If alleged that directors
made a conscious
business decision in
breach of fiduciary duty
If alleged that directors
violated their oversight
duties
Aronson test: A plaintiff must
plead sufficient facts to raise a
reasonable doubt:
• That the directors are
disinterested and
independent
OR
• That the challenged
transaction was the
product of a valid exercise
of business judgment.
Rales test: A plaintiff must plead
sufficient facts to raise a reasonable
doubt:
• That the board of directors could
have properly exercised its
independent and disinterested
business judgment in responding to
a demand.
One way: Show that a majority of the
board faces a sufficiently substantial
threat of personal liability.

97. In re Hecla Mining Co. Deriv. Shareholder Litig., No.
2:12-CV-97-REB, 2014 WL 689036 (D. Idaho Feb. 20,
2014).
If alleged that directors
made a conscious
business decision in
breach of fiduciary duty
If alleged that directors
violated their oversight
duties
Aronson test: A plaintiff must
plead sufficient facts to raise a
reasonable doubt:
• That the directors are
disinterested and
independent
OR
• That the challenged
transaction was the
product of a valid exercise
of business judgment.
Rales test: A plaintiff must plead
sufficient facts to raise a reasonable
doubt:
• That the board of directors could
have properly exercised its
independent and disinterested
business judgment in responding to
a demand.
One way: Show that a majority of the
board faces a sufficiently substantial
threat of personal liability.

98. In re Hecla Mining Co. Deriv. Shareholder Litig., No.
2:12-CV-97-REB, 2014 WL 689036 (D. Idaho Feb. 20,
2014).
If alleged that directors
made a conscious
business decision in
breach of fiduciary duty
If alleged that directors
violated their oversight
duties
Aronson test: A plaintiff must
plead sufficient facts to raise a
reasonable doubt:
• That the directors are
disinterested and
independent
OR
• That the challenged
transaction was the
product of a valid exercise
of business judgment.
Rales test: A plaintiff must plead
sufficient facts to raise a reasonable
doubt:
• That the board of directors could
have properly exercised its
independent and disinterested
business judgment in responding to
a demand.
One way: Show that a majority of the
board faces a sufficiently substantial
threat of personal liability.

99. Thank you!
wgcouture@uidaho.edu