Case Title: Miller, et al. v. HCP Trumpet Investments, LLC, et al.

Citation: 

Docket Number: 107, 2018

State: delaware

Court: Delaware Supreme Court

Date: 2018-09-20T00:00:00Z

Document:
IN THE SUPREME COURT OF THE STATE OF DELAWARE 
 
CHRISTOPHER MILLER, an 
individual, and CHRISTOPHER 
MILLER and LINDSAY MILLER as 
trustees of the C & L MILLER 
REVOCABLE TRUST, 
                       Plaintiffs Below, 
             Appellants, 
 
             v. 
 
HCP TRUMPET INVESTMENTS, 
LLC, HISPANIA PRIVATE 
EQUITY II, L.P., HISPANIA 
INVESTORS II LLC, CARLOS 
SIGNORET, JASON SHAFER, 
MARK RUSSELL, and VICTOR 
MARURI,   
 
             Defendants Below, 
             Appellees. 
§ 
§ 
§  No. 107, 2018 
§ 
§  Court Below:  Court of Chancery 
§  of the State of Delaware 
§   
§  C.A. No. 2017-0291 
§   
§ 
§ 
§ 
§ 
§ 
§ 
§ 
§ 
§ 
§ 
 
 
 
 
Submitted:  September 12, 2018 
Decided:  
September 20, 2018 
 
Before STRINE, Chief Justice; VALIHURA, VAUGHN, SEITZ, and 
TRAYNOR, Justices, constituting the Court en banc. 
 
    ORDER  
(1) 
Christopher Miller individually, and Miller and Lindsay Miller as 
trustees of the C & L Miller Revocable Trust, appeal from a Court of Chancery 
decision dismissing the Millers’ complaint for breach of the implied covenant of 
good faith and fair dealing in an operating agreement for Trumpet Search LLC, an 
2 
 
entity co-founded by Christopher Miller.  The dispute arose when the Trumpet board 
agreed to sell Trumpet to MTS Health Investors, LLC.  According to the Millers, the 
implied covenant of good faith and fair dealing required the Board to conduct a 
Revlon-type or “open-market” sale process before selling the company to MTS.1   
(2) 
The Court of Chancery found that the Trumpet operating agreement 
“explicitly vests the Board with sole discretion as to the manner in which a sale is 
conducted, subject to the limitation that the company is ultimately sold to an 
unaffiliated third-party buyer.”2  Thus, the implied covenant could not be used to 
engraft implied terms onto an operating agreement where the parties had expressly 
addressed the sale issue.  Alternatively, the court decided that “the Plaintiffs have 
failed to point to any provision in the [operating agreement] that suggests the parties 
would have proscribed the manner in which Trumpet was marketed and sold if the 
issue had come up at the time of contracting.”3   
(3) 
The operating agreement provision relied on by the Court of Chancery–
Section 8.06(a)—did not address how the company was to be sold.  Instead, it gave 
the Board “sole discretion” to structure the transaction as it saw fit after agreeing to 
sell the company.4  Even if, as the Court of Chancery found, the “sole discretion” 
                                          
 
1 Revlon, Inc. v. MacAndrews & Forbes Hold., Inc., 506 A.2d 173 (Del. 1995). 
2 Miller v. HCP & Co., 2018 WL 656378, at *10 (Del. Ch. Feb. 1, 2018). 
3 Id. at *12. 
4 Section 8.06(a) provided that “the Board shall determine in its sole discretion the manner in 
which [a sale of all Trumpet membership units to an independent third party] shall occur, whether 
3 
 
language of Section 8.06(a) applied to the way in which Trumpet was sold, the mere 
vesting of “sole discretion” did not relieve the Board of its obligation to use that 
discretion consistently with the implied covenant of good faith and fair dealing.5  
Likewise, the fact that the operating agreement had more specific provisions 
addressed to conflict-of-interest transactions has relevance to the application of the 
implied covenant, but does not vitiate its application. 
(4) 
But, we agree with the Court of Chancery’s essential holding that the 
implied covenant could not be used to imply Revlon-type sale requirements in the 
Trumpet operating agreement.  Before the Court of Chancery, the Millers argued for 
the broad proposition that the implied covenant imposed an obligation to fulfill the 
same basic duties required of a corporate board as Revlon.  Before us, the Millers’ 
counsel candidly admitted that this was their key theory below and that they did not 
make more specific arguments that particular bad faith actions by the defendants 
                                          
 
as a sale of assets, merger, transfer of Membership Interests or otherwise.”  App. to Opening Br. 
at A80 (Operating Agreement).  
5 Compare Paige Capital Mgmt., LLC v. Lerner Master Fund, LLC, 2011 WL 3505355, at *32 
(Del. Ch. Aug. 8, 2011) (holding that a provision granting the general partner “sole discretion” 
without “further flesh[ing] out what that term means . . . simply says that” the general partner “has 
the singular (i.e., sole) authority (i.e., discretion) to consider and decide this matter”), with Paul 
M. Altman & Srinivas M. Raju, Delaware Alternative Entities and the Implied Contractual 
Covenant of Good Faith and Fair Dealing Under Delaware Law, 60 BUS. LAW. 1469, 1484 (2005) 
(illustrating how room for the application of the implied covenant can be narrowed by using the 
words “sole discretion” along with language saying that the party granted that discretion may 
“consider only such interests and factors as it desires, including its own interests,” and eliminating 
any “duty or obligation to give any consideration to any interest of or factors affecting the” entity 
or its investors). 
4 
 
breached the implied covenant.  Although we do not agree with the Court of 
Chancery that the terms of Section 8.06(a) displaced the implied covenant 
altogether, we do believe that it correctly addressed the precise argument made to it.  
The operating agreement’s clear elimination of fiduciary duties6 is inconsistent with 
the plaintiff’s argument that the agreement’s implied covenant subsumes the 
affirmative duties imposed upon corporate boards in the change of control context 
by Revlon.  Although there are aspects of the record here that arguably could have 
supported a more targeted claim of contractual impropriety, the plaintiff did not 
attempt to advance targeted claims of that type below or before us. Therefore, 
because it properly addressed the precise claim made to it, the Court of Chancery 
properly dismissed the complaint. 
  
NOW, THEREFORE, IT IS ORDERED that the judgment of the Court of 
Chancery is AFFIRMED. 
 
 
 
 
 
 
BY THE COURT: 
 
 
 
 
 
 
 
 
/s/ Collins J. Seitz, Jr. 
 
 
 
 
 
 
 
 
Justice 
                                          
 
6 App. to Opening Br. at A65 (Operating Agreement, § 3.09) (“Notwithstanding any other 
provision of this Agreement or any duty otherwise existing at law or in equity, no Manager of the 
Board shall, to the fullest extent permitted by law, owe any duties (including fiduciary duties) to 
the Members or the LLC; provided, however, that the Board of Managers shall have the duty to 
act in accordance with the implied contractual obligation of good faith and fair dealing.”).