Oxbow Carbon & Minerals Holdings, Inc. v. Crestview-Oxbow Acquisitions, LLC

Supreme Court of Delaware · 2019 · Corporations

202 A.3d 482 (2019)

Updated August 22, 2026

CorporationsLLC agreement interpretationimplied covenant of good faith and fair dealingDelaware LLCcontract interpretationimplied covenantexit saleequal treatment

Facts

Oxbow's LLC Agreement gave minority members a Put Right and, if the put was rejected, a right to require all members to engage in an Exit Sale, provided no member could be forced to sell unless its proceeds plus prior distributions equaled at least 1.5 times its capital contributions. In 2011 and 2012, Oxbow admitted two small investor entities affiliated with Koch and sulfur-company executives, and those Small Holders later owned about 1.4% of Oxbow's equity. Because the Small Holders had invested later at $300 per unit and had not yet received enough distributions, they needed $414 per unit at the time of the proposed sale to satisfy the 1.5x clause. After Oxbow rejected Crestview's put, Crestview sought to force an Exit Sale, but the proposed sale price would not satisfy the Small Holders' 1.5x threshold unless they received special treatment.

Issue

Whether the LLC Agreement's plain language allowed the Minority Members to force an Exit Sale through a leave-behind or top-off approach, and if not, whether the implied covenant could be used to imply a seller top-off based on an alleged gap concerning the Small Holders' admission. The court also considered whether any remedies for breach of the reasonable-efforts provision could stand if no valid Exit Sale was available under the contract.

Rule

When interpreting an LLC agreement, courts must read the agreement as a whole and give effect to its plain language. The implied covenant of good faith and fair dealing is a limited remedy that applies only when the contract is truly silent on the matter; it cannot be used to impose terms that could have been bargained for, to override provisions that address the conduct at issue, or to rebalance economic interests after foreseeable events. A grant of discretion to a board to set terms for admission of new members is a contractual choice, not a gap, absent bad-faith exercise of that discretion.

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Rivergate Logistics LLC, a Delaware LLC based in Houston, has an operating agreement giving certain minority members the right to force an entity sale if the company declines to buy their units. The agreement defines an entity sale as a transfer of "all, but not less than all" outstanding units, requires every transferred unit to be sold on the same terms and conditions, and says sale proceeds are distributed pro rata by percentage interest. A later-admitted member in Phoenix has a contractual minimum-return threshold that would require a higher per-unit price than the current buyer is offering.

If the minority members try to compel the sale at the offered price, which result is most consistent with the governing rule?

Explanation. The agreement must be read as a whole. Where it requires a transfer of all units, equal terms for each transferred unit, and pro rata allocation, those provisions foreclose forcing a sale in which one member is left behind or receives different economic treatment. The only reasonable reading is that the per-unit consideration must be high enough to satisfy the contractual threshold for every member.