Cygnus Opportunity Fund, LLC v. Washington Prime Group, LLC

Court of Chancery of the State of Delaware · 2023 · Corporations

Updated August 22, 2026

CorporationsLLC fiduciary dutiesimplied covenantdisclosuresqueeze-out mergersfiduciary duty waiverofficer fiduciary dutiesduty of disclosure

Facts

After emerging from bankruptcy as a Delaware LLC, the company was controlled by SVP, which held 87% of the equity, while former equity holders received stapled units representing 9%. The LLC agreement prohibited SVP from engaging in a squeeze-out without specified approval, either from a majority of the independent managers or from a majority of the non-SVP members, and also contained a fiduciary duty waiver for managers and SVP but not for officers. SVP launched a tender offer without obtaining specified approval, then later caused a squeeze-out merger paying $27.25 per stapled unit, with only sparse post hoc disclosure and no appraisal rights. Plaintiffs alleged the units were worth substantially more and asserted fiduciary, contractual, implied covenant, and aiding-and-abetting claims.

Issue

Whether the complaint stated claims against the board, controller, and officers for fiduciary breaches, contractual breaches, and implied covenant violations arising from the tender offer, squeeze-out merger, and related disclosures. The court also considered whether the LLC agreement's fiduciary-duty waiver and exculpation provision required dismissal at the pleading stage.

Rule

Under 6 Del. C. § 18-1101(c), an LLC agreement may eliminate fiduciary duties if the waiver is plain and unambiguous, but it cannot eliminate the implied covenant of good faith and fair dealing. Officers excluded from such a waiver may still owe fiduciary duties, including disclosure duties that arise contextually when investors are asked to act, when fiduciaries choose to speak, or when a unilateral taking of investor interests may trigger a duty to inform. A breach of contract claim requires the existence of a contract and breach of a contractual obligation, and nominal damages can suffice. The implied covenant fills contractual gaps only to enforce the parties' bargain and can constrain discretionary use of approval mechanisms where their use would undermine bargained-for minority protections.

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Riverfront Retail Holdings, LLC, a Delaware LLC based in Cleveland, is controlled by North Harbor Capital, which owns 89% of the units. The LLC agreement states: "Each Covered Person other than any officer of the Company shall owe no duties, including fiduciary duties, to the Company or any member," and defines Covered Persons to include managers, officers, and the controller. Minority members sue the controller and the managers for breach of fiduciary duty after a cash-out transaction.

On a motion to dismiss, which result is most consistent with the governing rule?

Explanation. Delaware LLC agreements may eliminate fiduciary duties if the waiver is plain and unambiguous, but they cannot eliminate the implied covenant. A clause stating that covered persons other than officers owe no duties, including fiduciary duties, clearly protects managers and the controller. Thus, fiduciary-duty claims against those defendants should be dismissed, while the implied covenant remains available. (Derived from Cygnus Opportunity Fund, LLC v. Washington Prime Group, LLC (n.d.).)