Court Opinion

ID: 4121257
Source: CourtListenerOpinion
Date Created: 2017-01-31 17:07:02.398033+00
Date Added: 2024-06-11T14:32:00.247016
License: Public Domain

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

CELESTIALRX INVESTMENTS, LLC             )
and KRITTIKA LIFE SCIENCES, LLC,         )
                                         )
                 Plaintiffs,             )
                                         )
      v.                                 ) C.A. No. 11733-VCG
                                         )
JOSEPH J. KRIVULKA; LEONARD              )
MAZUR; DONALD OLSEN; JJK                 )
PARTNERS, LLC; MIST                      )
ACQUISITION, LLC; MIST                   )
PHARMACEUTICALS, LLC; MIST               )
PARTNERS, LLC; JAK INVESTMENT            )
PARTNERS, LLC; CRANFORD                  )
PHARMACEUTICALS, LLC;                    )
CRANFORD THERAPEUTICS, LLC;              )
HOLMDEL PHARMACEUTICALS,                 )
LP; HOLMDEL THERAPEUTICS,                )
LLC; LMAZUR ASSOCIATES, JV; and          )
AKRIMAX PHARMACEUTICALS,                 )
                                         )
                 Defendants,             )
                                         )
                 and                     )
                                         )
AKRIMAX PHARMACEUTICALS,                 )
LLC,                                     )
                                         )
                 Nominal Defendant.      )

                        MEMORANDUM OPINION

                       Date Submitted: October 20, 2016
                        Date Decided: January 31, 2017

Steven Schwartz, of SCHWARTZ & SCHWARTZ, Dover, Delaware; OF
COUNSEL: Benjamin C. Curcio, Paul F. Campano, Jessica A. Tracy, Michael D.
Zahler, of CURCIO MIRZAIAN SIROT LLC, Roseland, New Jersey, Attorneys for
Plaintiffs CelestialRX Investments, LLC, and Krittika Life Sciences, LLC.

Garrett B. Moritz, John A. Eakins, Nicholas D. Mozal, of ROSS ARONSTAM &
MORITZ LLP, Wilmington, Delaware; OF COUNSEL: Andrew E. Anselmi,
Zachary D. Wellbrock, of MCCUSKER, ANSELMI, ROSEN & CARVELLI, P.C,
Florham Park, New Jersey, Attorneys for Defendants Joseph J. Krivulka, JJK
Partners, LLC, JAK Investment Partners, LLC, Mist Acquisition, LLC, Mist
Pharmaceuticals, LLC, Mist Partners, LLC, Cranford Therapeutics, LLC, and
Holmdel Therapeutics, LLC.

Samuel T. Hirzel, II, of HEYMAN ENERIO GATTUSO & HIRZEL LLP,
Wilmington, Delaware, Attorney for Defendants Leonard Mazur and LMazur
Associates, JV.

Andrew D. Cordo, F. Troupe Mickler IV, of ASHBY & GEDDES, Wilmington,
Delaware, Attorneys for Defendant Donald Olsen.

Jody C. Barillare, of MORGAN, LEWIS & BOCKIUS LLP, Wilmington, Delaware;
OF COUNSEL: Brian A. Herman, of MORGAN, LEWIS & BOCKIUS LLP, New
York, New York, Attorneys for Defendant Cranford Pharmaceuticals, LLC.

Ryan P. Newell, Lauren P. DeLuca, of CONNOLLY GALLAGHER LLP,
Wilmington, Delaware, Attorneys for Defendant Holmdel Pharmaceuticals, LP.

Phillip A. Rovner, Jonathan A. Choa, of POTTER ANDERSON & CORROON
LLP, Wilmington, Delaware, Attorneys for Defendant Akrimax Pharmaceuticals
LLC.

GLASSCOCK, Vice Chancellor
      This procedurally awkward and factually prolix Memorandum Opinion

reserves outstanding Motions to Dismiss, in favor of consideration of Motions for

Partial Summary Judgment, which appeared to offer low-hanging fruit which, if

reaped at the outset, might avoid significant litigation effort. The two issues so

addressed involve the standard of care in the governing limited liability company

agreement, and the effect of a release agreement, entered by the principal of the main

plaintiff here, on that entity’s ability to proceed with its claims. Plucking that fruit

has proved more difficult than I anticipated, and whether its elimination from the

menu of this litigation will shorten the meal remains to be seen. With these issues

resolved, at any rate, I encourage the parties to mediate this dispute, litigation of

which will no doubt involve much more unpalatable effort.

      This action arises out of an alleged conspiracy to funnel valuable

pharmaceutical interests away from an entity in which the Plaintiff, CelestialRX,

LLC (“CelestialRX”), is a member. The operative amended complaint brings

sixteen different counts against over a dozen Defendants. The numerous Defendants

have banded together into five groups; each group has moved to dismiss this action.

Two groups have moved for partial summary judgment. The parties have identified

two preliminary issues which, if decided, could significantly clarify the legal issues

in this action. The first is whether a July 1, 2013 release (the “Release Agreement”)

bars causes of action brought by CelestialRX that accrued prior to the release. The
                                           1
second is the extent to which the limited liability company agreement (the “LLC

Agreement”) and a July 1, 2013 amendment to that agreement (“Amendment No.

7”) limit or modify fiduciary duties. This Memorandum Opinion addresses those

preliminary issues.

       Because these two preliminary issues were raised by Defendants’ Motions for

Partial Summary Judgment, I will address them under that standard. I am reserving

decision on the outstanding Motions to Dismiss and will ask for further guidance

from the parties in light of my decisions below on these two preliminary legal issues.

I undertake this unusual procedure in the interest of efficiency.

                                   I. BACKGROUND1

       This action involves a tangled web of pharmaceutical transactions, licensing,

and sales agreements among various related entities. Thus this case’s background is

dense. The following provides a detailed but non-exhaustive overview of the context

of this dispute sufficient to understand this Court’s analysis of the two legal issues

addressed: interpretation of the July 1, 2013 Release Agreement, and interpretation

of certain duty-related provisions in the LLC Agreement and Amendment No. 7. A

heavier focus is given to the pre-July 1, 2013 events as such context is helpful to

understand the documents executed that day. There are substantial disputes in this

1
  Except where otherwise noted, the information in this section is undisputed and taken from the
verified pleadings, affidavits, and other evidence submitted to the Court. Reasonable inferences
are drawn in favor of the non-moving party—the Plaintiffs here.
                                               2
litigation arising after July 1, 2013; because of the nature of this Memorandum

Opinion, those are discussed with less detail. The casual reader may be satisfied

with the brief summary, below.

      This action arises from allegedly improper self-dealing transactions by two

members of a three-member limited liability company. The company, Akrimax

Pharmaceuticals, LLC (“Akrimax” or the “Company”), is a Defendant in this action

along with the two alleged wrong-doers—Joseph J. Krivulka and Leonard Mazur.

The third member of Akrimax is itself a limited liability company, and brings this

action challenging such transactions on various grounds.       That third member,

Plaintiff CelestialRX, is wholly owned by a non-party, Steve Laumas. Akrimax is a

pharmaceutical business and engaged in a morass of licensing and sales agreements

underlying this dispute. The Plaintiffs allege that Krivulka improperly inserted

various entities that he controlled or was invested in (the “Middlemen Entities”) as

middlemen between Akrimax and other drug companies from whom Akrimax

sought to receive drug rights. The Middlemen Entities received a cut of the sales or

marketing performed by Akrimax. The favorability of the terms under which the

Middlemen Entities were interposed between the company and third parties is

heavily disputed.

      In the Spring of 2013 Krivulka and his entities notified Akrimax of their

intention to terminate Akrimax’s rights to sell and distribute certain drugs.

                                         3
Allegedly, this was the first time CelestialRX and Laumas learned of the Middlemen

Entities’ existence and dealings with Akrimax, and Laumas thereafter began

investigating—and disputing the propriety of—Krivulka’s actions. Ultimately a

“settlement” was reached whereby the Middlemen Entities agreed that Akrimax

would retain certain drug rights in exchange for paying additional fees, among other

concessions. In connection with the settlement, Laumas (but, according to the

Plaintiffs, not CelestialRX) released all claims against Krivulka and Mazur. These

higher fees ultimately were not paid, allegedly as part of a scheme by Krivulka to

damage Akrimax, and Akrimax eventually lost the rights returned to it via the

settlement. CelestialRX brings this action alleging misconduct by Krivulka and

others for almost every transaction between Krivulka’s related entities and Akrimax.

       A. Parties

              1. The Plaintiffs

       Plaintiff CelestialRX is a Delaware limited liability company with its

principal place of business in Old Greenwich, Connecticut.2 CelestialRX’s sole

member and manager is Sandeep “Steve” Laumas (“Laumas”).3 The Plaintiff,

CelestialRX, is a member of the Defendant, Akrimax.4

2
  Transmittal Aff. of Michael D. Zahler, Esq., in Support of Pls’ Opposition to Motions for
Summary Judgment and to Dismiss (“Zahler Aff.”) at Ex. 1 (the “Amended Complaint” or
“Compl.”) ¶ 4.
3
  Compl. ¶ 4; Pls’ Answering Br. in Opposition to Krivulka Defs’ Motions 6 (“Laumas is the sole
member of CelestialRX and Krittika.”).
4
  Compl. ¶ 4.
                                              4
       Plaintiff Krittika Life Sciences, LLC (“Krittika”) is also a Delaware limited

liability company and shares a principal place of business with CelestialRX in Old

Greenwich, Connecticut.5          Krittika’s sole member is Laumas and, as with

CelestialRX, Laumas manages Krittika.6 Krittika is a consulting entity which had a

contractual relationship with Defendant Akrimax.7

              2. The Defendants

                     a. Nominal Defendant

       Defendant Akrimax is a Delaware limited liability company that sells and

markets “pharmaceutical products in the areas of cardiovascular medicine

endocrinology and pain management.”8 Defendants Joseph Krivulka and Leonard

Mazur were the initial members of Akrimax.9 Plaintiff CelestialRX subsequently

joined as a third member.10 Akrimax is a nominal defendant for purposes of

CelestialRX’s claims, but is also a direct defendant for Krittika’s breach of contract

claims regarding its consulting agreement.11

5
  Id. at ¶ 5.
6
  Id.; Pls’ Answering Br. in Opposition to Krivulka Defs’ Motions 6 (“Laumas is the sole member
of CelestialRX and Krittika”).
7
  Compl. ¶ 3.
8
  Id. at ¶ 28; See Krivulka Defs’ Opening Br. 9.
9
  Compl. ¶ 28.
10
   Id.
11
   Id. at ¶ 6.
                                              5
                      b. Individual Defendants

       Defendant Joseph J. Krivulka (“Krivulka”) is a resident of New Jersey and an

investor in numerous pharmaceutical businesses.12 He is an original member of

Akrimax. Following the July 1, 2013 settlement and amendments Krivulka holds

100% of Akrimax’s Common Voting Units and a majority of total units.13 He

became the sole Manager of Akrimax pursuant to the July 1, 2013 amendment.14

Prior to the July 1, 2013 amendment the Manager of Akrimax was the Board of

Directors “acting collectively.”15 Krivulka also has investments in various other

entities including Mist Acquisition, LLC, Mist Pharmaceuticals, LLC, Mist Partners,

LLC, JJK Partners, LLC, JAK Investment Partners, LLC, Holmdel Therapeutics,

LLC and Cranford Therapeutics, LLC.16

       Defendant Leonard Mazur (“Mazur”) is a resident of New Jersey and co-

founded Akrimax in 2007.17 Between January 11, 2008, and July 1, 2013, Mazur

12
   Id. at ¶ 7; See Krivulka Defs’ Opening Br. 8. (citing Compl. ¶ 7).
13
   See Transmittal Aff. of John A. Eakins, Esq., in Support of Krivulka Defs’ Motions for Summary
Judgment and to Dismiss (“Eakins Aff.”) Ex. 45 at Ex. A.
14
   See Eakins Aff. Ex. 45 ¶ 6(b).
15
   See Eakins Aff. Ex. 2 § 4.01(b).
16
   See Compl. ¶ 7; Krivulka Defs’ Opening Br. 8 (citing Compl. ¶ 7). Through his ownership
interests in Holmdel Therapeutics Krivulka is also a minority equity holder in Holmdel
Pharmaceuticals. Similarly, through his interest in Cranford Therapeutics Krivulka is also a
minority equity holder in Cranford Pharmaceuticals.
17
   Compl. ¶¶ 8, 28.
                                               6
served on Akrimax’s board of directors with Krivulka and Laumas.18 Mazur, like

Krivulka, has various investment interests outside his interest in Akrimax.

       Defendant Donald Olsen (“Olsen”) resides outside of Delaware, and is the

former President and CEO of nominal defendant Akrimax.19

       Before turning to the blizzard of entities involved in this matter, I note that the

basic initial membership structure for Akrimax is set out in Figure 1 below.

                                            Figure 120

18
   Zahler Aff. Ex. 3 § 4.01(b); See Eakins Aff. Ex. 45 ¶ 6(b).
19
   Compl. ¶ 9; Def Olsen’s Opening Br. 2.
20
   See Zahler Aff. Ex. 2 at Ex. A, Signature Page; Zahler Aff. Ex. 3 at Ex. A. I have excluded
North Sounds’ Class A shares to avoid confusion.
                                              7
                      c. The Entity Defendants

          There are numerous entity level defendants—some more relevant than others.

Below is a brief description of each.

          Defendant JJK Partners, LLC (“JJK Partners”) is a Delaware limited liability

company.21 Krivulka is the sole member of JJK Partners.22 Following Amendment

No. 7 Krivulka holds his interest in Akrimax through JJK Partners—that is JJK

Partners is a Member of Akrimax holding “Krivulka Units.”23 However, he initially

held his interest in Akrimax in his own name.24 Further, JJK Partners has a

consulting agreement with Akrimax through which Krivulka receives his board

fees.25

          Defendant JAK Investment Partners, LLC (“JAK Investment Partners”) is a

Delaware limited liability company.26               Krivulka is the sole member of JAK

21
   Zahler Aff. Ex. 5.
22
   See Zahler Aff. Ex. 7 at Ex. B.
23
   Eakins Aff. Ex. 45 at Ex. A (indicating JJK Partners is the member holding “Krivulka Units”).
24
   See Eakins Aff. Ex. 2 at Ex. A.
25
   Zahler Aff. Ex. 25.
26
   Zahler Aff. Ex. 6. I note that JAK Investments, LLC was named in the Amended Complaint,
but was dismissed via stipulation of the parties. See Compl. ¶ 13; Stipulation and Order Dismissing
Defendant JAK Investments, LLC Without Prejudice (April 6, 2016). The Complaint alleged that
Krivulka had signed documents on behalf of JAK Investments, LLC and held interests in certain
entities via JAK Investments, LLC. See Compl. ¶ 13. Certain ownership documents were in fact
errantly signed by JAK Investments, LLC, however it is now clear they should have referred to
JAK Investment Partners. Stipulation and Order Dismissing Defendant JAK Investments, LLC
Without Prejudice (April 6, 2016).
                                                8
Investment Partners.27 Defendant Mist Partners, LLC was majority owned by JAK

Investment Partners.28

       Defendant Mist Partners, LLC (“Mist Partners”) is a Delaware limited liability

company and was formed in October 2009.29 Mist Partners was majority owned by

JAK Investment Partners, which Krivulka beneficially owned.30 Mist Partners is the

sole owner and member of Mist Acquisition, LLC.31

       Defendant Mist Acquisition, LLC (“Mist Acquisition”) is also a Delaware

limited liability company formed in October 2009 and, as stated above, is wholly

owned by Mist Partners.32 Krivulka has served as Chairman of Mist Acquisition,

and Mazur has served as Vice Chairman.33 Mist Acquisition, as discussed below,

engaged in a number of the transactions challenged in this litigation.

       Defendant Mist Pharmaceuticals, LLC (“Mist Pharmaceuticals”) is a

Delaware limited liability company formed in June 2011.34 Mist Pharmaceuticals,

at various points in this litigation held, distributed and revoked rights to sell or

27
   See Zahler Aff. Ex. 8 at Signature Block, Ex. B.
28
   See Compl. ¶ 14; Krivulka Defs’ Opening Br. 12.
29
   Eakins Aff. Ex. 7 § 2.01.
30
   See id. at Ex. B; Stipulation and Order Dismissing Defendant JAK Investments, LLC Without
Prejudice (April 6, 2016).
31
   See Eakins Aff. Ex. 8 at Ex. A.
32
   Eakins Aff. Ex. 8.
33
   Eakins Aff. Ex. 8 ¶ 7.
34
   See Zahler Aff. Ex. 14.
                                             9
promote certain drugs at issue. Krivulka had an over ninety percent interest in Mist

Pharmaceuticals.35 Krivulka was Chairman of Mist Pharmaceuticals’ board.36

       Defendant Cranford Therapeutics, LLC (“Cranford Therapeutics”) is a

Delaware limited liability company formed in October 2013 by Krivulka.37

Krivulka, through JJK Partners, held a majority interest in Cranford Therapeutics.38

Defendants Olsen and Mazur also held equity in Cranford Therapeutics.39 Cranford

Therapeutics owns a minority interest of approximately twelve percent in Defendant

Cranford Pharmaceuticals, LLC.40

       Defendant Cranford Pharmaceuticals, LLC (“Cranford Pharmaceuticals”) is a

Delaware limited liability company and was also formed by Krivulka in October

2013.41 Krivulka has served as CEO of Cranford Pharmaceuticals.42 The majority

equity holder of Cranford Pharmaceuticals is a third-party investor—Juggernaut

Capital.43 Cranford Pharmaceuticals engaged in a number of the transactions which

the Plaintiffs challenge in this litigation.

35
   Eakins Deposition Aff. Ex. A at 19:15–18 (Krivulka); Zahler Aff. Ex. 15 at Ex. B.
36
   Zahler Aff. Ex. 15 § 6.01(b).
37
   Zahler Aff. Ex. 18.
38
   Zahler Aff. Ex. 19 at Ex. B.
39
   Id.
40
   See Eakins Aff. Ex. 58 at Ex. A.
41
   Zahler Aff. Ex. 20.
42
   Eakins Aff. Ex. 58 § 4.03(a).
43
    Id. at Ex. A. (indicating Juggernaut Capital contributed $22 million, whereas Cranford
Therapeutics contributed on $3 million).
                                               10
       Defendant Holmdel Therapeutics, LLC (“Holmdel Therapeutics”) is a

Delaware limited liability company formed in December 2012.44                   Defendant

Krivulka, through JJK Partners, owns 50.05% of Holmdel Therapeutics.45

Defendant Mazur, through his entity LMazur Associates JV, owns 25% of Holmdel

Therapeutics.46       Holmdel Therapeutics is a limited partner in Holmdel

Pharmaceuticals, LP, and holds an approximately 13% stake as a minority investor.47

       Holmdel Pharmaceuticals, LP (“Holmdel Pharmaceuticals”) is a Delaware

limited partnership formed in December 2012.48 Holmdel Pharmaceuticals’ general

partner is HP General Partner LLC,49 which is controlled by unrelated third-party

SWK.50 SWK contributed approximately $13 million in capital whereas Holmdel

Therapeutics contributed approximately $2 million.51 Holmdel Pharmaceuticals

acquired and transferred rights to certain drugs at issue in this litigation.

       Defendant LMazur Associates JV (“LMazur”) is an entity which had a

consulting agreement with Akrimax.52 Defendant Mazur received his board fees via

LMazur. Defendant Mazur also made investments in various entities via LMazur.

44
   Zahler Aff. Ex. 17.
45
   Eakins Aff. Ex. 24 at Ex. B.
46
   Id.
47
   Eakins Aff. Ex. 25 at Partner Schedule.
48
   Id. at Recitals.
49
   Id. at Partner Schedule.
50
   See Eakins Aff. Ex. 67 at Note 1.
51
   Eakins Aff. Ex. 25 at Partner Schedule.
52
   See Zahler Aff. Ex. 24.
                                             11
                    d. Defendant Groups

      Given the number of Defendants in this litigation, it is helpful to note that the

Defendants have formed the five groups discussed below.

      The first group of Defendants is the “Krivulka Defendants” which consists of

the following: Joseph Krivulka, JJK Partners, JAK Investment Partners, Mist

Acquisition, Mist Pharmaceuticals, Mist Partners, Cranford Therapeutics and

Holmdel Therapeutics. The Krivulka Defendants have moved to dismiss each count

against them, and for partial summary judgment on each of the two preliminary

issues.

      The next group of Defendants, the “Mazur Defendants,” consists of

Defendants Leonard Mazur and LMazur. The Mazur Defendants have moved to

dismiss each count against them for lack of personal jurisdiction and failure to state

a claim, and for partial summary judgment regarding the preliminary issue of the

effect of the July 1, 2013 release.

      Defendant Olsen is on his own, and has moved to dismiss for lack of personal

jurisdiction and failure to state a claim.          Similarly, Defendant Holmdel

Pharmaceuticals is on its own, and has moved to dismiss for failure to state a claim.

Finally, Cranford Pharmaceuticals is on its own and has moved to dismiss for failure

to state a claim.

                                          12
       B. Akrimax’s Beginnings and Select Transactions53

       Akrimax was formed by Krivulka and Mazur on October 24, 2007.54 There

was no initial capital contribution by Krivulka or Mazur.55 On January 11, 2008,

Akrimax amended its governing documents to permit an investment by a hedge fund,

North Sound Capital.56 Laumas previously worked at North Sound Capital, however

at the time of North Sound’s investment he was no longer at the hedge fund.57 North

Sound invested $35 million and received 35,000,000 non-voting, Class A preferred

units.58 The record indicates that in connection with this investment, which Laumas

was involved in facilitating, CelestialRX, Laumas’ entity, received 49% of

Akrimax’s common voting units.59 Thus the common voting units, as outlined in

Figure 1, were initially distributed as follows, 49% to CelestialRX, 25.5% to Mazur,

and 25.5% to Krivulka.60 These voting shares appear to have been received without

capital contribution, and the initial capital came from North Sound.61

53
   I note other transactions involving the drugs InnoPran XL and Suprenza, for example, occurred
between formation and July 1, 2013 and were mentioned in the briefing. However, because they
were not heavily emphasized I chose to omit them from this background section for efficiency.
54
   Zahler Aff. Ex. 2 at Recitals.
55
   See id. at Ex. A.
56
   See Eakins Aff. Ex. 2 at Recital C.
57
   Eakins Deposition Aff. Ex. B at 33:12–21 (Laumas).
58
   See Krivulka Defs’ Opening Br. 11 (citing Eakins Aff. Ex. 2); Pls’ Answering Br. in Opposition
to Krivulka Defs’ Motions 5 (citing Zahler Aff. Ex. 3).
59
   See Zahler Aff. Ex. 3 at Ex. A.
60
   See id.
61
   See Zahler Aff. Ex. 2 at Ex. A; Pls’ Answering Br. in Opposition to Krivulka Defs’ Motions 13
(indicating the “sole source” of initial capital was the $35 million from North Sound).
                                               13
       Akrimax’s January 11, 2008 Second Amended LLC Agreement provided that

the initial directors “shall be Joseph Krivulka, Len Mazur and Steve Laumas,”62 and

that each director had one vote.63 Further, it provided that the Manager of the

Company was the Board of Directors acting collectively.64 The Second Amended

LLC Agreement contained various provisions modifying fiduciary duties.65

                      a. Rouses Point and Inderal

       Also on January 11, 2008, Akrimax purchased a manufacturing facility in

Rouses Point, New York from Wyeth Pharmaceuticals for $20 million.66 As part of

a separate agreement executed the same day Akrimax purchased rights to Inderal

and certain other drugs for $12 million from Wyeth Pharmaceuticals.67 Thus

Akrimax’s early productive assets were the facility and the drug rights purchased

from Wyeth. Later that year, Rouses Point Pharmaceuticals (“RPP”) was formed.68

Krivulka and Mazur collectively hold a controlling interest in RPP.69 Akrimax

62
   Eakins Aff. Ex. 2. § 4.01(b).
63
   Id. at § 4.01(c).
64
   Id. at § 4.01(b).
65
   Id. at §§ 4.01(h), 8.01–02.
66
   Eakins Aff. Ex. 4 § 2.1.
67
   Eakins Aff. Ex. 3 § 2.1.
68
   Zahler Aff. Ex. 27.
69
   Zahler Aff. Ex. 28 at Ex. A; Krivulka Defs’ Opening Br. 52.
                                              14
appointed RPP as the exclusive distributor of Propranolol ER, an Inderal generic, on

February 9, 2009.70

                      b. NitroMist

       On October 27, 2009 Mist Acquisition entered into a transaction with a third

party, NovaDel Pharma Inc. (“NovaDel”) to acquire the rights to the drug NitroMist

via a License and Distribution Agreement.71 To secure the rights, Mist Acquisition

agreed to pay NovaDel an up-front fee of $1 million, milestone payments, and

performance payments.72 Two days later, on October 29, 2009, Mist Acquisition

entered into a Commercialization, Distribution, and Support Services Agreement

with Akrimax (the “NitroMist Services Agreement”).73 Via the NitroMist Services

Agreement, Akrimax was assigned Mist Acquisition’s right to distribute NitroMist

in exchange for Akrimax assuming the responsibilities of the October 27, 2009

License Agreement, excluding the $1 million up-front payment in the License

Agreement,74 and agreeing to pay Mist Acquisition a royalty on net sales.75 Thus

Akrimax was able to receive the rights, without the substantial upfront payment;

however, if certain milestones were met, deferred payments totaling $1 million

70
   Zahler Aff. Ex. 29 at 33–34. Rouses Point Pharmaceuticals, as a result of the agreement, was
responsible for paying Akrimax a service fee of 60% of Propranolol ER’s gross profit. Id. I note,
the term of this deal was five years. See id.
71
   Eakins Aff. Ex. 9.
72
   See id. at §§ 4.1–4.3.
73
   Eakins Aff. Ex. 10.
74
   See id. at §§ 3.5(h), 4.1.
75
   See id. at §§ 4.1, 4.2.
                                               15
would be owed by Akrimax to Mist Acquisition.76 Additionally, Akrimax was

required to make a $45,000 per quarter distribution fee payment to Mist Acquisition

for four quarters.77

                       c. Tirosint

       On January 27, 2010 Akrimax entered into a Promotion Agreement (the

“Tirosint Agreement”) with Alpharma Pharmaceuticals, LLC to market and

distribute the drug Tirosint.78 The Tirosint Agreement provided Akrimax and its

affiliates an exclusive right to promote, market, sell and distribute Tirosint.79 The

Tirosint Agreement required Akrimax to expend millions per year on product

promotion,80 and required certain minimum product purchases per year. 81

       That same day, January 27, 2010, Akrimax assigned to Mist Acquisition all

of its “rights and obligations” under the Tirosint Agreement.82 From the record

developed at this point, it appears at the time of this transfer, there was no

consideration rendered by Mist Acquisition other than assuming Akrimax’s

obligations under the Tirosint Agreement.83

76
   Id. at § 4.4.
77
   Id. at § 4.3.
78
   See Eakins Aff. Ex. 11.
79
   Id. at § 2.2.
80
   Id. at § 3.1.
81
   Id. at § 5.4.
82
   Eakins Aff. Ex. 12 ¶¶ 1–2.
83
   See id.; Eakins Deposition Aff. Ex. C at 91:3–11 (Mazur).
                                              16
       On December 7, 2011, Mist Acquisition entered into a Promotion,

Distribution and Support Services Agreement (the “Tirosint Services Agreement”)

with Akrimax.84 Pursuant to this agreement Akrimax would retain 90% of Tirosint’s

sales and would pay a 10% royalty to Mist Acquisition.85 Further, the Tirosint

Services Agreement was backdated to be effective as of January 27, 2010.86 The

Tirosint Services Agreement required the 10% royalty rate to be paid on accrued

distributions since the promotion commencement date.87 The favorability of these

terms is disputed—the Krivulka Defendants argue the transfer occurred after

Tirosint’s launch, which presumably required some expenditure by Mist, and that

the terms were favorable given Mist Acquisitions’ “substantial assumption of

obligations.”88    The Plaintiffs, for their part, assert that the transactions were

“purposeless” and that “[b]ut for these purposeless transactions, Akrimax would

have retained 100% of . . . gross sales.”89

                     d. Primlev

       On October 3, 2011, Mist Pharmaceuticals entered into a Marketing Rights

Agreement (the “Primlev Agreement”) with unrelated third-parties Argent

Development Group and Mikart, Inc. to acquire distribution rights for the drug

84
   Eakins Aff. Ex. 19.
85
   Id. at § 6.2.
86
   Id. at Recitals.
87
   Id. at § 6.3.
88
   Krivulka Defs’ Opening Br. 14.
89
   Pls’ Answering Br. in Opposition to Krivulka Defs’ Motions 17.
                                             17
Primlev.90 The Primlev Agreement required Mist Pharmaceuticals to pay a total of

$1,923,581 over four years, with a $700,000 payment due upon closing.91 The

Primlev Agreement indicated that Mist Pharmaceuticals “does not have a sales

force,” but that Akrimax does and desires to market and distribute Primlev on behalf

of Mist Pharmaceuticals.92

       The next day, October 4, 2011, Mist Pharmaceuticals entered into a

Commercialization, Distribution and Support Services Agreement (the “Primlev

Services Agreement”) with Akrimax.93 This agreement provided Akrimax the

ability to market and distribute Primlev in exchange for Akrimax bearing the “costs

and expenses” associated with commercialization,94 paying Mist Pharmaceuticals

$1,503,000 in scheduled payments over four years—but with no up-front payment

due upon closing,95 and paying Mist Pharmaceuticals a 20% royalty on net sales.96

Again the parties dispute the favorability of these terms. The Plaintiffs assert Mist

Pharmaceuticals is an unnecessary “middle man,”97 whereas the Krivulka

Defendants assert Akrimax did not have the resources to expend upfront and the

90
   Eakins Aff. Ex. 16.
91
   Id. at § 8.1.
92
   Id. at Recitals.
93
   Eakins Aff. Ex. 17.
94
   Id. at § 3.3.
95
   Id. at § 4.2.
96
   Id. at § 4.1.
97
   Pls’ Answering Br. in Opposition to Krivulka Defs’ Motions 18.
                                             18
Primlev Services Agreement permitted them to generate revenue “without

purchasing the rights.”98

       C. The Settlement with Pfizer

       In 2011 and 2012, an ongoing dispute between Akrimax and Pfizer was

settled.99 Pfizer had acquired Wyeth after Wyeth’s January 11, 2008 transaction

with Akrimax for the Rouses Point manufacturing facility and various drug rights,

including Inderal. Pfizer alleged that Akrimax had failed to comply with its

obligations arising from the January 2008 transactions.100 Laumas voted in favor of

the settlement with Pfizer.101 Mazur also voted in favor of the settlement over

Krivulka’s objection.102

       The settlement had two different agreements. The first was the Settlement

Agreement entered on June 27, 2011.103             The Settlement Agreement required

Akrimax to return the Rouses Point manufacturing facility to Pfizer, along with the

rights to Inderal and the other pharmaceutical products.104 In exchange Pfizer

released Akrimax of certain obligations—appearing to total upwards of $20

98
   Krivulka Defs’ Opening Br. 16.
99
   See Eakins Aff. Ex. 71 at 9–10.
100
    See Eakins Aff. Ex. 13 at Recitals.
101
    Eakins Deposition Aff. Ex. B at 115:13–17 (Laumas).
102
    See Feb. 2, 2016 Krivulka Aff. ¶ 13.
103
    Eakins Aff. Ex. 13.
104
    Id. at Recitals, §§ 1.47, 1.94, 2.2.
                                             19
million.105 That same day Pfizer and Akrimax entered into a License and Option

Agreement.106 The License and Option Agreement permitted Akrimax to continue

its sales of both Inderal and its generic version Propranolol ER, 107 and provided

Akrimax the option to reacquire certain rights for $45,000,000.108

       Thus, over Krivulka’s objection, Laumas and Mazur voted to return the

Inderal rights and the Rouses Point manufacturing facility to Pfizer.109 Each side

has a different theory regarding the effect of this vote. The Plaintiffs assert that this

dispute between Mazur, Laumas, and Krivulka angered Krivulka; it motived him to,

in bad faith, “exact revenge upon his partners” and Akrimax. 110 The Krivulka

Defendants’ spin on the vote is that it fundamentally changed Akrimax as a

company. The Defendants argue Akrimax “transitioned from an entity receiving

revenues based on manufacturing” and revenue streams from its initial Inderal

purchase in 2008, “to an entity earning revenues marketing and selling

pharmaceuticals under rights acquired by other entities.”111

105
    See id. at § 2.2; Krivulka Defs’ Opening Br. 15 (“Pfizer released Akrimax’s obligations of
approximately $20 million.”).
106
    Eakins Aff. Ex. 14.
107
    Id. at Recital B, Schedule 1.44.
108
    Id. at § 6.3.2.
109
    See Pls’ Answering Br. in Opposition to Krivulka Defs’ Motions 50.
110
    Id.; See id. at 114 (“Thus, Krivulka decided prior to July 1, 2013 that he didn't need those kind
of partners [Laumas]; and he engineered the default as revenge for the vote.”) (alterations in
original) (internal quotations omitted).
111
    Krivulka Defs’ Opening Br. 15.
                                                20
       D. “For Convenience” Termination Provisions

       On February 23, 2011, the October 29, 2009 NitroMist Services Agreement

between Mist Acquisition and Akrimax was amended.112 The original NitroMist

Services Agreement provided that Akrimax could terminate the agreement “for

convenience” upon one hundred eighty days prior written notice, under certain

conditions.113 The 2011 amendment changed the “for convenience” termination

provision by adding that Mist Acquisition may terminate the agreement and retake

Akrimax’s distribution rights “at any time for convenience upon thirty (30) days

prior written notice.”114 The Plaintiffs argue this amendment was improper and done

“with neither Laumas’ knowledge nor consent.”115

       Regarding Primlev, the original October 4, 2011 Primlev Services Agreement

between Mist Pharmaceuticals and Akrimax provided that Mist Pharmaceuticals

may terminate the agreement “for any reason with a 30 day notice.”116 Similarly,

regarding Tirosint, the original December 7, 2011 Tirosint Services Agreement

between Mist Acquisition and Akrimax provided that Mist Acquisition may

terminate the agreement “for convenience upon thirty (30) days’ prior written notice

to Akrimax.”117

112
    Zahler Aff. Ex. 32.
113
    See Eakins Aff. Ex. 10 § 8.2(d).
114
    Zahler Aff. Ex. 32 § 8.2(f).
115
    Pls’ Answering Br. in Opposition to Krivulka Defs’ Motions 18.
116
    Eakins Aff. Ex. 17 § 8.1.
117
    Eakins Aff. Ex. 19 § 11.3(c).
                                              21
       E. Spring 2013—Certain Akrimax Rights Are Terminated

       On April 12, 2013 a series of letters were sent providing Akrimax notice that

its rights to Primlev, NitroMist, and Tirosint, were being terminated effective June

1, 2013, pursuant to the “for convenience” provisions described above.118

Specifically, Mist Pharmaceuticals, via letter over Krivulka’s signature, informed

Akrimax that the Primlev Services Agreement was terminated.119 Mist Acquisition,

via letters over Krivulka’s signature, terminated the NitroMist Services Agreement

and the Tirosint Services Agreement.120

       Following these termination letters, Laumas began requesting information

from Akrimax.121 Through the termination letters Laumas learned, purportedly for

the first time, of the Mist entities’ involvement with Akrimax.122 On May 7, 2013

Laumas sent a flurry of emails requesting information from Akrimax.123 On the

evening of May 7, 2013, Laumas also sent Krivulka and Mazur a consolidated list

of eighteen categories of documents he was requesting, which included account

balances, employee credit card statements, and legal invoices.124

118
    See Zahler Aff. Ex. 37.
119
    Id.
120
    Id.
121
    See, e.g., Zahler Aff. Ex. 38.
122
    See Compl. ¶¶ 60–62; See also Pls’ Answering Br. in Opposition to Krivulka Defs’ Motions 20
(“Thus, Laumas first discovered Mist Acquisition's and Mist Pharmaceutical's involvement with
Tirosint, NitroMist, and Primlev from the April 12, 2013 termination letters.”).
123
    See Zahler Aff. Exs. 39, 40, 41, 42, 43.
124
    Eakins Aff. Ex. 32.
                                              22
       Laumas was provided with much of the information and documents he

requested. For example, Laumas was sent a disk containing various Akrimax

contracts, after which he requested further information about particular drugs.125 He

was also given various financial statements.126 Laumas indicated that he was

gathering this information to inform his decision to enter “some kind of settlement

agreement with Joe [Krivulka].”127

       F. The July 1, 2013 “Settlement”

              1. The Lead Up

       The record reflects that on May 28, 2013, Mazur and Laumas, over Krivulka’s

objection,128 voted to retain Reitler Kailas & Rosenblatt LLC (“Reitler”) on behalf

of the Akrimax board of directors.129 A complaint was drafted by Reitler, dated May

29, 2013, with Akrimax as the plaintiff and Krivulka, Mist Pharmaceuticals, and

Mist Acquisition as the defendants.130 Laumas worked together with Mazur in

preparing the complaint, but it was not filed.131 The draft complaint alleged several

counts including conversion, breach of fiduciary duty, aiding and abetting breaches

of fiduciary duty, and fraud.132 The counts in the draft complaint arose out of many

125
    Eakins Aff. Exs. 34, 36.
126
    See Eakins Aff. Exs. 28, 29, 31, 33, 35.
127
    Eakins Deposition Aff. Ex. B at 184:7–21 (Laumas).
128
    See Eakins Aff. Ex. 37.
129
    See Eakins Aff. Ex. 38.
130
    Eakins Aff. Ex. 39 at 1, 21.
131
    Eakins Deposition Aff. Ex. B at 204:12–206:23 (Laumas).
132
    Eakins Aff. Ex. 39 ¶¶ 60–75.
                                             23
of the pre-July 1, 2013 transactions at issue in the present litigation—including

Nitromist, Tirosint and Primlev.133 The complaint, however, was never filed and

Reitler was not further retained because progress was made towards settlement.134

       On June 3, 2013, Laumas sent Mazur a draft term sheet for a settlement

between Akrimax and both Mist Pharmaceuticals and Mist Acquisition.135 Laumas’

June 3, 2013 draft term sheet proposed that “Akrimax becomes the licensee and

owner of all products with a royalty paid to Mist on a product by product basis” with

the products being Tirosint, NitroMist, Suprenza, and Primlev.136 The proposed

terms substantially increased the royalty percentage Akrimax would pay to the Mist

entities on each product.137 It also provided that certain catch-up board fees would

be paid and, under the heading “Legal” that there would be “[g]eneral releases

amongst all members.”138

       The termination notices sent in April 2013 indicated that the termination date

would be June 1, 2013. However, on June 5, 2013, Mist Pharmaceuticals and Mist

Acquisition agreed to forbear the respective termination notices until the end of the

month.139 The stated purpose of the forbearance was to give the Mist Entities and

133
    See id. at ¶¶ 22–51.
134
    Eakins Deposition Aff. Ex. B at 206:12–16 (Laumas).
135
    Eakins Aff. Ex. 40.
136
    Id.
137
    See id. For example, Tirosint would go from a royalty of 10% of gross sales to 30% of gross
sales.
138
    Id.
139
    Zahler Aff. Ex. 52.
                                              24
Akrimax the opportunity to negotiate “a mutually agreeable resolution of the

disputes among the Parties.”140 The agreement was signed by Krivulka on behalf of

the Mist entities and by Mazur and Laumas on behalf of Akrimax.141 During the

forbearance period, Akrimax agreed to not seek additional documentation from a

particular law firm, or to “seek any discovery.”142

       On June 10, 2013, Krivulka circulated an email titled “Issues to discuss.”143

Among other things, the email proposed that Mazur and Laumas choose between (1)

paying a 30% royalty on drugs coming back into Akrimax, and keeping a 49% equity

stake in Akrimax, or (2) paying a 20% royalty and keeping a 24.5% equity stake in

Akrimax.144 Krivulka’s terms also provided that “Steven Laumas and Leonard

Mazur will release any and all parties without prejudice,” and that Krivulka would

have the final decision over the sale of any company assets.145

       On June 14, 2013 Laumas circulated a new term sheet to Krivulka and

Mazur.146 The royalty rates Laumas selected to be paid by Akrimax remained at

30%—the same as his June 3, 2013 proposal.147 Laumas stated the “Members of

Akrimax consist of Joseph Krivulka (‘Krivulka’), Leonard Mazur (‘Mazur’) and

140
    Id.
141
    Id.
142
    Id.
143
    Eakins Aff. Ex. 41.
144
    Id.
145
    Id.
146
    Eakins Aff. Ex. 42.
147
    Id.
                                         25
Steve Laumas (‘Laumas’)”—omitting to identify the actual Member, CelestialRX,

owned by Laumas.148 Further, Laumas’ June 14 term sheet provided that, as part of

the settlement the “Mist [entities] will assign the NDAs and all intellectual property

to Akrimax with the right to takeback the assignment upon non-payment of royalties

subject to a cure period and arbitration.”149 Finally, Laumas’ June 14 term sheet

again provided for “[g]eneral releases amongst all members,”150 described in the

term sheet as Krivulka, Mazur, and Laumas.

       On June 18, 2013, Krivulka indicated via e-mail to Laumas that “the process

needs to move.”151 The next day, Krivulka emailed Laumas “Tick Tock. Tick

Tock.”152      The negotiation process continued—by June 25, 2013, the draft

Amendment No. 7 circulated by Krivulka indicated that Krivulka would be the

“Manager” of Akrimax, and that he would have “full, exclusive and complete

discretion” to manage the company subject to the “input” of the Board.153 Following

this draft, Laumas requested a few changes which Krivulka rejected on June 28,

2013.154 That same day, Krivulka pushed for final execution copies of the various

148
    Id.
149
    Id.
150
    Id.
151
    Zahler Aff. Ex. 53.
152
    Id.
153
    Zahler Aff. Ex. 55.
154
    Zahler Aff. Ex. 56.
                                         26
agreements155 and rejected Laumas’ pushback about how a company airplane was

being handled in the settlement.156

       Ultimately several agreements were executed on July 1, 2013. The Plaintiffs

assert the agreements were fraudulently induced via Krivulka’s representations that

he would use his best efforts to ensure that the royalties owed to Mist and other

entities were not defaulted on so that the products did not “snap back” or revert out

of Akrimax.157 Similarly, the Plaintiffs assert that Krivulka represented that he

would leverage Akrimax to help it acquire new products, and acquire additional

licenses.158 The Plaintiffs argue these were fraudulent representations that induced

Laumas to enter the settlement.159

              2. The Agreements

       Over a dozen documents were executed on July 1, 2013.160 Two of those

documents are the focus of this Memorandum Opinion—the Release Agreement and

Amendment No. 7’s fiduciary duty standard. Because a close discussion of those

documents’ text is necessary to this opinion they are addressed in detail infra.

155
    Zahler Aff. Ex. 57.
156
    Zahler Aff. Ex. 58.
157
    Zahler Aff. Ex. 62 Response No. 8.
158
    Id.
159
    Id.; Pls’ Answering Br. in Opposition to Krivulka Defs’ Motions 28–29.
160
    Compl. ¶ 73 (stating the agreement “comprised of some fourteen separate documents”); Pls’
Answering Br. in Opposition to Krivulka Defs’ Motions 28 (indicating there were sixteen
documents executed).
                                             27
However, a brief overview of the settlement is helpful to understanding the two

particular documents at issue here.

       I note that certain agreements, including Amendment No. 7, were

incorporated into a unanimous written consent of Akrimax’s Board, signed by

Laumas, Krivulka and Mazur, indicating that the agreements were “advisable and in

the best interest” of Akrimax.161 The Release Agreement was not included in the

unanimous written consent.162 In sum, the agreements called for certain drug rights

to be put back into Akrimax, or to undo the cancellation of certain rights, in exchange

for a revamped ownership structure, with Krivulka’s ownership and management

power increasing, and Akrimax paying higher royalty rates on the products returned

to Akrimax.

       One of the July 1, 2013 agreements, the Tirosint “Termination and Royalty

Agreement,”163 provided that Akrimax would terminate the earlier assignment to

Mist Pharmaceuticals of its rights to Tirosint.164 The drug was returned to Akrimax,

in exchange for Akrimax paying a 35% royalty on gross sales.165 However, if

Akrimax failed to pay these royalties, upon 45 days’ notice Mist Acquisition could

retake the rights to Tirosint.166 Similar agreements were signed for NitroMist and

161
    See Eakins Aff. Ex. 44.
162
    See id.
163
    See Eakins Aff. Ex. 46.
164
    See id. at Recitals.
165
    Id. at § 2.1
166
    Id. at §§ 3.1, 3.5.
                                          28
Primlev.167 Each permitted Akrimax to continue distributing those drugs at a royalty

rate of 30% of net sales.168

       There was some give and some get from both sides of the July 1, 2013

agreements. For example, a portion of the July 1, 2013 settlement required Laumas’

consulting entity, Krittika, to have its consulting fees or board fees paid off the top

of Akrimax’s payment waterfall.169 However, in exchange for having certain drug

rights put back into Akrimax and increasing his payment priority, Laumas made

several concessions including: allowing Krivulka’s stake in Akrimax to increase and

his to decrease,170 requiring Akrimax to pay higher royalty rates on drugs put back

into Akrimax, Krivulka becoming Akrimax’s Manager, and Laumas and Mazur

forfeiting their seats on Akrimax’s board.171 Further, as part of the transaction,

Laumas executed a Release Agreement releasing certain claims arising prior to the

settlement.172

       G. Post July 1, 2013 Settlement

       While post July-2013 events are not essential to this partial summary

judgment opinion, I note a number of the issues contested in this litigation occurred

in this time frame. However, because this decision only addresses the legal question

167
    See Eakins Aff. Exs. 47, 49.
168
    See Eakins Aff. Exs. 47 at §4.1, 49 at ¶ 4.
169
    Eakins Aff. Ex. 45 ¶ 10.
170
    See id. at Ex. A.
171
    See id. at ¶ 6.
172
    See Eakins Aff. Ex 51.
                                                  29
of what standard of care applied after July 1, 2013, a detailed discussion of those

events is not necessary here. It is sufficient to state that after the settlement, Krivulka

continued certain investment activities outside of Akrimax, including in, for

example, Cranford Therapeutics. Additionally, Akrimax defaulted on several of the

royalty payments it was obligated to make on drugs involved in the settlement in late

2013 and early 2014.173 Krivulka ultimately loaned Akrimax $1.3 million in March

2014,174 allegedly due to its low cash balance. The parties heavily dispute why cash

balances were low, why defaults occurred, and whether the payment waterfall was

properly complied with. It is Plaintiffs’ position that Krivulka “engineered” a

default, under which Akrimax’s rights to drugs reverted out of the company to

Krivulka related entities.175

       H. Procedural History

       Plaintiff CelestialRX filed a verified complaint on November 20, 2015

pleading twelve counts. A TRO hearing was held on November 24, 2015, and this

Court subsequently entered an order granting the TRO on December 3, 2015. The

parties then engaged in expedited discovery and on February 8, 2016, this Court

heard argument on CelestialRX’s motion for a preliminary injunction.

173
    See Compl. ¶¶ 107–08; Eakins Aff. Ex. 66.
174
    Eakins Aff. Ex. 65.
175
    Pls’ Answering Br. in Opposition to Krivulka Defs’ Motions 46 (arguing “[i]t is clear Krivulka
engineered the default”).
                                               30
CelestialRX’s request for a preliminary injunction was denied and I indicated to the

parties that, moving forward, two legal issues will need to be decided: first, the

effect, if any, of the July 1, 2013 Release Agreement, and second, the duties owed

under the LLC Agreement.176

       An Amended Complaint (the “Complaint”) was filed on March 8, 2016.177

The Complaint added several new parties—including a new Plaintiff, Krittika—as

well as four new counts. Further, it added the following Defendants: Donald Olsen,

JAK Investment Partners, Cranford Pharmaceuticals, Cranford Therapeutics,

Holmdel Pharmaceuticals, and Holmdel Therapeutics.

       On April 14, 2016, the Court granted a stipulated order governing the

proceedings on the two preliminary issues addressed in this Memorandum

Opinion.178 That order permitted discovery to be taken on the two preliminary issues

of the effect of the July 1, 2013 Release Agreement, and the duties provided by the

LLC Agreement.179 Each Defendant has moved to dismiss this action on various

grounds, including failure to state a claim, and lack of jurisdiction. I am reserving

on those motions.

176
    See Feb. 8, 2016 Oral Arg. Tr. 76:6–77:2.
177
    See Zahler Aff. Ex. 1.
178
    April 14, 2016 Scheduling Order for Proceedings Regarding Preliminary Issues.
179
    Id. at 3–4.
                                             31
       On July 19, 2016, the Krivulka Defendants moved for partial summary

judgment on the following two issues:

       (i) [whether] CelestialRX Investments, LLC’s claims relating to or
       arising from actions through and including July 1, 2013 [should be]
       barred and dismissed with prejudice, including entry of judgment
       against Plaintiffs on Count VIII [, the fraudulent inducement count,] of
       Plaintiffs’ First Amended Verified Complaint

       (ii) [whether] Akrimax Pharmaceuticals, LLC’s Second and Restated
       Limited Liability Company Agreement and the Seventh Amendment
       thereof (collectively, the ‘LLC Agreement’) eliminated fiduciary duties
       and Sections 8.01 and 8.02 of the LLC Agreement provide the
       applicable contractual burden of proof and/or persuasion for conflict
       transactions.180

The Mazur Defendants also moved for partial summary judgment on July 19, 2016

for the grounds set forth in its briefing.181 In briefing, the Mazur Defendants seek

partial summary judgment on the issue of the July 1, 2013 Release Agreement.182

Oral argument was held October 17, 2016 on all motions, however, the majority of

the hearing focused on these two preliminary issues.183 This Memorandum Opinion

addresses Defendants’ Motions for Partial Summary Judgment.

                            II. STANDARD OF REVIEW

       As discussed above, this Memorandum Opinion addresses two preliminary

issues raised by the partial summary judgment motions. The parties submit, and I

180
    Krivulka Defs’ Motion for Partial Summary Judgment.
181
    See Mazur Defs’ Motion for Partial Summary Judgment.
182
    See Mazur Defs’ Opening Br. 15–17.
183
    See Oct. 17, 2016 Oral Arg. Tr. 7–51, 74–117, 160–163.
                                             32
agree, that a decision on these two issues could clarify the issues in this litigation.

Thus I apply the traditional summary judgment analysis to these two issues,

reserving decision on the remaining case-dispositive motions.

       This Court may enter summary judgment when the record demonstrates that

“there is no genuine issue as to any material fact and that the moving party is entitled

to a judgment as a matter of law.”184 The summary judgment standard puts the initial

burden on the moving party to demonstrate the “absence of a material factual

dispute.”185 If the moving party satisfies its initial burden then “the burden shifts to

the nonmovant to present some specific, admissible evidence that there is a genuine

issue of fact for a trial.”186 At this point, the nonmoving party may not simply rest

on their pleadings, but must point to conflicting evidence in the record that creates a

genuine dispute of material fact. In reviewing a motion for summary judgment, the

facts and reasonable inferences drawn therefrom “must be viewed in the light most

favorable to the non-moving party.”187              However, the Court “will not, draw

unreasonable inferences in favor of the non-moving party.”188

184
    Del. Ch. Ct. R. 56(c).
185
    In re Transkaryotic Therapies, Inc., 954 A.2d 346, 356 (Del. Ch. 2008), as revised (June 24,
2008) (citation omitted).
186
    Id. (citation omitted).
187
    Enrique v. State Farm Mut. Auto. Ins. Co., 142 A.3d 506, 511 (Del. 2016) (citation omitted).
188
    Id. (citation omitted).
                                               33
                                     III. ANALYSIS

       In analyzing the Defendants’ Motions for Partial Summary Judgment, each of

which requires me to construe a contract, I am guided by our case law discussing

when summary judgment is appropriate in such a context. Generally, “[w]hen the

issue before the Court involves the interpretation of a contract, summary judgment

is appropriate only if the contract in question is unambiguous.” 189 Our Supreme

Court has explained that

       [t]his Court has long upheld awards of summary judgment in contract
       disputes where the language at issue is clear and unambiguous. In such
       cases, the parol evidence rule bars the admission of evidence from
       outside the contract's four corners to vary or contradict that
       unambiguous language. But, where reasonable minds could differ as to
       the contract's meaning, a factual dispute results and the fact-finder must
       consider admissible extrinsic evidence. In those cases, summary
       judgment is improper.190

Specifically, the Supreme Court has indicated that “in a dispute over the proper

interpretation of a contract, summary judgment may not be awarded if the language

is ambiguous and the moving party has failed to offer uncontested evidence as to the

proper interpretation.”191 I note this same standard applies to the construction of a

189
    United Rentals, Inc. v. RAM Holdings, Inc., 937 A.2d 810, 830 (Del. Ch. 2007).
190
    GMG Capital Investments, LLC v. Athenian Venture Partners I, L.P., 36 A.3d 776, 783 (Del.
2012) (citations omitted).
191
    Id. at 784.
                                             34
LLC agreement.192 Thus my analysis in interpreting the Release Agreement and the

fiduciary standard set by the LLC Agreement will proceed in light of this standard.

       A. The Release Agreement

       The Defendants seek partial summary judgment that the Plaintiff,

CelestialRX, has released all claims existing as of the date of execution of the

Release Agreement. The Defendants argue that the Release Agreement, signed by

Laumas individually, “is general and broad in scope” and released claims pre-dating

July 1, 2013, including a count for fraudulent inducement now brought in the present

action by Laumas’ wholly owned entity CelestialRX.193 The Plaintiffs argue that the

Release Agreement is clear that only Laumas’ individual claims were released, and

that CelestialRX and Krittika were not parties to the agreement and thus it is not

enforceable against them.          Further, the Plaintiffs allege the agreement was

fraudulently induced and therefore not enforceable under New York law. Because

192
    In re NextMedia Inv'rs, LLC, 2009 WL 1228665, at *3 (Del. Ch. May 6, 2009) (“In a dispute
requiring interpretation of a contract, summary judgment is appropriate only where the contract is
unambiguous. Ambiguity exists when the provisions in controversy are reasonably or fairly
susceptible of different interpretations or may have two or more different meanings. In other
words, to succeed on their motion for summary judgment, the petitioners must demonstrate that
their interpretation of the LLC Agreement is the only reasonable one.”) (citations and internal
quotations omitted). See Matthew v. Laudamiel, 2012 WL 2580572, at *5 (Del. Ch. June 29, 2012)
(applying traditional contract standard in reviewing motion for summary judgment when
interpreting an LLC agreement).
193
    Krivulka Defs’ Opening Br. 37.
                                               35
New York law governs this document, I first review that law and then apply it to the

terms of the Release Agreement.194

              1. New York Contract Law

       New York law provides that the “fundamental, neutral precept of contract

interpretation is that agreements are construed in accord with the parties' intent[, and

that t]he best evidence of what parties to a written agreement intend is what they say

in their writing.”195     “Thus, a written agreement that is complete, clear and

unambiguous on its face must be enforced according to the plain meaning of its

terms.”196 Under New York law, “[a]mbiguity in a contract arises when the contract,

read as a whole, fails to disclose its purpose and the parties' intent . . . , or when

specific language is susceptible of two reasonable interpretations.”197                Courts

applying New York law have recognized that “[a] contract is ambiguous when it

could suggest multiple meanings to a reasonable, objective reader familiar with the

context of the contract . . . the Court should take into account both the language of

the contract and the inferences that can be drawn from that language.”198 Similarly,

194
    Eakins Aff. Ex. 51 § 12.
195
    Innophos, Inc. v. Rhodia, S.A., 10 N.Y.3d 25, 29 (N.Y. 2008) (quoting Greenfield v. Philles
Records, Inc., 98 N.Y.2d 562, 569 (N.Y. 2002)) (alterations provided by New York Court of
Appeals in Rhodia).
196
    Greenfield, 98 N.Y.2d at 569 (citations omitted).
197
    Ellington v. EMI Music, Inc., 24 N.Y.3d 239, 244 (N.Y. 2014) (internal quotation marks and
citations omitted).
198
    Kobrand Corp. v. Abadia Retuerta S.A., 2012 WL 5851139, at *4 (S.D.N.Y. Nov. 19, 2012)
(citations omitted).
                                              36
New York law recognizes that a “contract should not be interpreted to produce a

result that is absurd, commercially unreasonable or contrary to the reasonable

expectations of the parties.”199 However, “[e]xtrinsic evidence of the parties' intent

may be considered only if the agreement is ambiguous, which is an issue of law for

the courts to decide.”200

       In Broyhill Furniture Industries, Inc. v. Hudson Furniture Galleries, LLC,201

the New York Appellate Division explained interpretation of a release under New

York law as follows:

       [a]s with contracts generally, the courts must look to the language of a
       release—the words used by the parties—to determine their intent,
       resorting to extrinsic evidence only when the court concludes as a
       matter of law that the contract is ambiguous. . . . The scope of a general
       release depends on the controversy being settled and the purpose for
       which the release is actually given . . . . However, if from the recitals
       therein or otherwise, it appears that the release is to be limited to only
       particular claims, demands or obligations, the instrument will be
       operative as to those matters alone.202

Regarding introductory portions of a contract, New York law recognizes that

“[a]lthough a statement in a ‘whereas’ clause may be useful in interpreting an

199
    Greenwich Capital Fin. Prod., Inc. v. Negrin, 903 N.Y.S.2d 346, 348 (N.Y. App. Div. 2010)
(internal quotation marks and citation omitted).
200
    Rhodia, S.A., 10 N.Y.3d at 29 (citation omitted).
201
    Broyhill Furniture Indus., Inc. v. Hudson Furniture Galleries, LLC 877 N.Y.S.2d 72 (N.Y.
App. Div. 2009).
202
    Id. at 74 (internal quotation marks and citations omitted) (emphasis added); See Consol. Edison,
Inc. v. Northeast Utilities, 332 F. Supp. 2d 639, 647 (S.D.N.Y. 2004) (applying New York law and
observing “it is well established that the scope of a release turns on the controversy being settled
and the purpose for which the release was actually given . . . .[but a] release may not be read to
cover matters which the parties did not desire or intend to dispose of”) (internal quotation marks
and citations omitted).
                                                37
ambiguous operative clause in a contract, it cannot create any right beyond those

arising from the operative terms of the document.”203 Similarly, “although recitals

in a contract cannot grant rights extending beyond those particularly described in the

agreement, they may be useful in construing the rights and obligations created by

the agreement.”204      Thus, under New York law, a recital may be helpful in

interpreting the scope of a release, but it cannot create a substantive right beyond the

express operative terms of the agreement. With this guidance, I turn to an analysis

of the Release Agreement’s terms.

              2. Who Released What?

       The Release Agreement was executed on July 1, 2013 as part of Akrimax’s

reorganization and settlement.205        The Release Agreement, in its introduction,

defines the term parties to mean Steve Laumas, Leonard Mazur, and Joseph Krivulka

(the “Parties”).206 I note that CelestialRX is not included as a “Party.” The recitals

to the Release Agreement indicate that “[t]he Parties, directly or indirectly, own one

hundred percent (100%) of the outstanding membership interests of Akrimax

Pharmaceuticals, LLC, a Delaware limited liability company (the ‘Company’)” and

203
    Grand Manor Health Related Facility, Inc. v. Hamilton Equities Inc., 885 N.Y.S.2d 255, 256
(N.Y. App. Div. 2009); See RSL Commc'ns, PLC v. Bildirici, 2010 WL 846551, at *4 (S.D.N.Y.
Mar. 5, 2010) (observing that under New York law, recitals, such as “whereas” clauses, “can be
used to clarify the meaning of an ambiguous contract, but cannot be used to modify or create
substantive rights not found in the contract's operative clauses”).
204
    In re FKF 3, LLC, 501 B.R. 491, 506 (S.D.N.Y. 2013).
205
    See Eakins Aff. Ex. 51.
206
    Id. at Introduction.
                                             38
that “[t]he Parties desire to fully and finally settle any and all disputes and

differences between them, both known and unknown, among themselves.”207

          Under the heading “AGREEMENT” in the first subheading titled “1. Release

of Claims,” the contract provides that:

          IN CONSIDERATION OF THE MUTUAL PROMISES SET FORTH
          IN THIS AGREEMENT AND OTHER GOOD AND VALUABLE
          CONSIDERATION, THE RECEIPT AND SUFFICIENCY
          WHEREOF IS HEREBY ACKNOWLEDGED BY THE PARTIES,
          THE PARTIES, AND THEIR PAST, PRESENT AND FUTURE
          AGENTS, EMPLOYEES, REPRESENTATIVES, ATTORNEYS,
          ESTATES, AND ASSIGNS (THE ‘RELEASING PARTIES’)
          HEREBY AGREE TO FULLY RELEASE AND DISCHARGE EACH
          OF THE OTHER PARTIES, AND EACH OF THEIR PAST,
          PRESENT AND FUTURE AGENTS, OFFICERS, DIRECTORS,
          SHAREHOLDERS, MEMBERS, PARTNERS, PARTNERSHIPS,
          EMPLOYEES, REPRESENTATIVES, ATTORNEYS, ESTATES,
          VENDORS, OWNERS, PARENTS, SUBSIDIARIES, AFFILIATES,
          SUCCESSORS AND ASSIGNS (THE ‘RELEASED PARTIES’)
          FROM ANY AND ALL ACTIONS, CAUSES OF ACTION, SUITS,
          DEBTS, DUES, SUMS OF MONEY, ACCOUNTS, RECKONINGS,
          BONDS,      BILLS,     COVENANTS,      CONTRACTS,
          CONTROVERSIES, AGREEMENTS, PROMISES, DAMAGES,
          JUDGMENTS,     EXECUTIONS,     DEMANDS,    CLAIMS,
          OBLIGATIONS, AND/OR LIABILITIES OF ANY KIND
          WHATSOEVER, KNOWN OR UNKNOWN, DIRECT OR
          CONSEQUENTIAL, THAT THE RELEASING PARTIES EVER
          HAD, NOW HAVE, OR MAY IN THE FUTURE HAVE. WITHOUT
          LIMITING THE FORGOING, THE RELEASES IN THIS
          PARAGRAPH INCLUDE, BUT ARE NOT IN ANY WAY LIMITED
          TO, THE RELEASING PARTIES’ FULL AND UNCONDITIONAL
          RELEASE AND DISCHARGE OF THE RELEASED PARTIES
          FROM ANY AND ALL CLAIMS RELATING TO, ARISING FROM,

207
      Id. at Recitals (emphasis added).
                                          39
       OR IN ANY WAY CONNECTED TO ANY ACTIONS TAKEN BY
       THE PARTIES IN CONNECTION WITH THE COMPANY.208

       The “Release of Claims” subheading of the Agreement, quoted above, defines

Releasing Parties, and Released Parties, but it also uses terms previously defined in

either the recitals (the Company), or in the introduction (the Parties).209 The Release

Agreement provides, at a subheading titled “4. Entire Agreement” that:

       [t]his is a ‘fully integrated’ agreement. This Agreement contains the
       entire agreement of the Parties with respect to its subject matter, and all
       prior oral or written agreements, contracts, negotiations,
       representations and discussions, if any, pertaining to this matter and the
       Parties hereto are merged into this Agreement. No party to this
       Agreement has made any oral or written representation other than those
       set forth in this Agreement, and no party has relied upon, or is entering
       into, this Agreement in reliance upon any representation other than
       those set forth in this Agreement.210

The Release Agreement was signed over each individual Parties’ name.211 The issue

before the Court on the Defendants’ Motion for Partial Summary Judgment is

whether CelestialRX is barred from bringing claims for pre-July 1, 2013 conduct by

the release.212

       “Parties” is a defined contractual term, specified to mean Mazur, Laumas, and

Krivulka. The Releasing Parties—those releasing their claims—are defined as “the

208
    Id. at § 1 (Capitalization in original).
209
    See id. I note that under New York law, a defined term in an introductory portion of a contract
may be considered to “assist in determining the proper construction of a contract.” Potter v.
Padilla, 38 N.Y.S.3d 372, 372 (N.Y. App. Div. 2016) (citations omitted).
210
    Eakins Aff. Ex. 51. § 4.
211
    Id. at Signature Blocks.
212
    The same analysis applies to the second Entity Plaintiff controlled by Laumas, Krittika.
                                                40
parties [Mazur, Lamas, and Krivulka], and their past, present and future agents,

employees, representatives, attorneys, estates, and assigns. . . .” 213 CelestialRX is

not an agent, employee, representative, attorney, estate or assign of Laumas. The

contract defines Released Parties—those being released—more broadly, however.

Released Parties includes the “other parties [Mazur, Lamas, and Krivulka], and each

of their past, present and future agents, officers, directors, shareholders, members,

partners, partnerships, employees, representatives, attorneys, estates, vendors,

owners, parents, subsidiaries, affiliates, successors and assigns”214                   I find the

language of the Release Agreement clear: CelestialRX is a Released Party, but not

a Releasing Party, as those terms are explicitly described; therefore, the Plaintiff

here, CelestialRX, did not release claims existing as of July 1, 2013.215

       The Defendants point out that the recitals to the contract express that Laumas,

along with the other named Parties, is an owner, direct or indirect, of Akrimax, and

that the named Parties expressed the desire to settle all claims, “known and unknown,

among themselves.”216 They argue that this precatory language is inconsistent with

213
    Id. at § 1.
214
    Id. (emphasis added). I note that “affiliates” is an undefined contractual term, but its ordinary
meaning would presumably include CelestialRX and Krittika.
215
    While it does not inform my decision here based on the unambiguous language of the Release
Agreement, I note that the signature block of the Release Agreement was signed over Laumas’
own name with no reference to CelestialRX, whereas other documents executed on July 1, 2013
clearly indicate when Laumas is signing on behalf of an entity. See Eakins Aff. Ex. 52 at Signature
Block; Eakins Aff. Ex. 45 at Signature Block.
216
    Eakins Aff. Ex. 51 at Recitals.
                                                41
a reading of the release as barring claims by Laumas, but not his entity, CelestialRX,

the direct Member of Akrimax. It is not clear to me that the intent expressed by the

language of the recitals is inconsistent with the contractual release. In any event, to

the extent the Defendants are correct, it is unhelpful to them; under New York law,

the recitals can be employed to help to interpret an ambiguous contract, or limit the

scope of an agreement, but not to vary the terms where no ambiguity exists or expand

the scope of an operative section.217 The individual Parties to the release entered a

contract that explicitly defined Releasing Parties more narrowly than Released

Parties; CelestialRX is included in the latter, not the former. The Defendants argue

vehemently that the intention of the parties at the time they entered the Release

Agreement, as reflected in the record, is contrary to this express language. They

point to much of the record evidence recited in the background section of this

Memorandum Opinion, highlighting the dispute over the Middlemen Entities that

had arisen among the Akrimax principals; and argue that, in light of that dispute, and

in light of the drafting history, it would be nonsensical, and contrary to all Parties’

subjective intent, to have excluded CelestialRX from the release. Perhaps so: the

argument may raise issues of reformation, but that issue is neither before me on the

current motion nor generally susceptible to summary judgment. Accordingly, the

217
   See Grand Manor Health Related Facility, Inc. v. Hamilton Equities Inc., 885 N.Y.S.2d 255,
256 (N.Y. App. Div. 2009); RSL Commc'ns, PLC v. Bildirici, 2010 WL 846551, at *4 (S.D.N.Y.
Mar. 5, 2010).
                                             42
Defendants’ Motion for Partial Summary Judgment that CelestialRX has released

claims existing as of July, 1, 2013, is denied.

       B. Duties Under the LLC Agreement

       The second prong of Defendants’ Motion for Partial Summary Judgment

seeks a judicial determination that Akrimax’s LLC Agreement together with

Amendment No. 7 thereto “eliminated fiduciary duties.”218                      Additionally,

Defendants seek partial summary judgment that “Sections 8.01 and 8.02 of the LLC

Agreement provide the applicable contractual burden of proof and/or persuasion for

conflict transactions.”219 Thus the Defendants seek a determination that even if

Amendment No. 7 did not eliminate fiduciary duties, and “some residual fiduciary

duties survived, Sections 8.01 and 8.02 of the LLC Agreement provide express

contractual standards for corporate opportunities and conflict transactions that

displaced whatever remaining fiduciary duty might otherwise apply.” 220                  The

Defendants’ assert that their position presents “two paths” to the same result.221

These provisions are analyzed in turn below. I note that I have taken the unusual

step of addressing this contractual standard before evidence of the behavior of the

parties is fully in the record, because I believe that addressing the Defendants’

218
    Krivulka Defs’ Motion for Partial Summary Judgment; Krivulka Defs’ Opening Br. 55.
219
    Krivulka Defs’ Motion for Partial Summary Judgment.
220
    Krivulka Defs’ Opening Br. 55.
221
    See Oct. 17, 2016 Oral Arg. Tr. 36:18–19 (“We have two paths to get there. These are paths
that both lead to the same result.”).
                                             43
motions in this fashion will clear some of the underbrush of this overgrown

litigation, and allow rational litigation (or settlement) decisions going forward. The

discussion below defines only duties applicable to the Defendants after July 1, 2013.

               1. Amendment No. 7

       Resolving the issues stated above requires interpretation of the fiduciary

duties provided by Akrimax’s LLC Agreement. Specifically, the parties dispute the

meaning of the language in Section 4.01(h)222 which was added by Amendment No.

7 on July 1, 2013, contemporaneously with the Release Agreement discussed above.

Under the Delaware Limited Liability Company Act (“LLC Act”) our Courts have

implied fiduciary duties to managers of an LLC, unless contractually waived.223 This

approach has been embodied in the LLC Act itself.224 In other words, the intention

of the parties to the agreement that fiduciary duties apply to managers is implied

where that agreement does not provide otherwise. The LLC Act is explicitly

contractarian, however, and permits the elimination of some, or all, fiduciary duties

for members, managers or others through a provision in an LLC agreement,

222
    I note that Delaware law applies to the interpretation of Amendment No. 7 and the LLC
Agreement. See Eakins Aff. Ex. 45 ¶ 16; Eakins Aff. Ex. 2 § 11.07.
223
    See Kelly v. Blum, 2010 WL 629850, at *10 n.69 (Del. Ch. Feb. 24, 2010) (collecting cases and
explaining interpretation); see also, Feeley v. NHAOCG, LLC, 62 A.3d 649, 661 (Del. Ch. 2012)
(“the Delaware Limited Liability Company Act . . . contemplates that equitable fiduciary duties
will apply by default to a manager or managing member of a Delaware LLC”).
224
    See H.B. 126, 147th Gen. Assemb. (Del. 2013) (amending 6 Del. C. § 18-1104 to provide the
following: “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.”).
                                                44
“provided, that the limited liability company agreement may not eliminate the

implied contractual covenant of good faith and fair dealing.”225 Similarly, in the

context of construing LLC agreements, this Court has recognized that "[a]lthough

fiduciary duties may be disclaimed, agreements' drafters must do so clearly, and

should not be incentivized to obfuscate or surprise investors by ambiguously

stripping away the protections investors would ordinarily receive.”226 Thus, this

Court has consistently found that removal of a manager’s default fiduciary duties

from an LLC agreement must be clear and unambiguous.227

       The parties dispute the extent to which Amendment No. 7’s language

removes, modifies, or alters fiduciary duties owed by Members, Managers, and

Officers of Akrimax. The battleground in this dispute centers around whether the

following language completely removes fiduciary duties—or removes fiduciary

duties except for subparts (i) and (ii):

       [n]otwithstanding anything to the contrary in this Agreement, neither
       the Manager nor any of the members of the Board of Directors nor any
       Member shall have any fiduciary duties to the Company or the
       Members or shall be personally liable to the Company or its Members
       for a breach of any duty that does not involve (i) an act or omission not
       in good faith or which involves intentional misconduct or a knowing
       violation of law; or (ii) a transaction from which such Manager, a

225
    6 Del. C. § 18-1101(c).
226
    Ross Holding & Mgmt. Co. v. Advance Realty Grp., LLC, 2014 WL 4374261, at *15 (Del. Ch.
Sept. 4, 2014).
227
    Feeley v. NHAOCG, LLC, 62 A.3d 649, 664 (Del. Ch. 2012) (“Drafters of an LLC agreement
‘must make their intent to eliminate fiduciary duties plain and unambiguous.’”) (quoting Bay Ctr.
Apartments Owner, LLC v. Emery Bay PKI, LLC, 2009 WL 1124451, at *9 (Del. Ch. Apr. 20,
2009)).
                                               45
       member of the Board of Directors, or Member derived an improper
       personal benefit.228

Each side asserts various textual arguments regarding the above language. Further,

in the alternative, the Krivulka Defendants argue that even if the above did not

eliminate all fiduciary duties, the LLC Agreement provides specific contractual

standards via Sections 8.01 and 8.02 to govern conflict transactions and corporate

opportunities, respectively.229

       Despite the linguistic, grammar and punctuation arguments each side

advances,230 I read this provision by what I view as its plain meaning in accordance

with Delaware law.231 I find that the plain language of 4.01(h) generally eliminates

common-law fiduciary duties except that it retains liability for intentional or illegal

misconduct and other bad faith actions, as well as for improper self-dealing.232

228
    Eakins Aff. Ex. 45 ¶ 6(h).
229
    See Krivulka Defs’ Opening Br. 58.
230
    Such arguments brought to my attention the existence of the “Purdue Owl,” which is apparently
a helpful tool for grammarians. See Oct. 17, 2016 Oral Arg. Tr. 111:13–23. I note that I am
cognizant of our case law that provides punctuation and grammar provide useful signposts. See
Paul v. Deloitte & Touche, LLP, 974 A.2d 140, 146 (Del. 2009) (resolving “a grammatical dispute”
in the interpretation of a contract).
231
    Eakins Aff. Ex. 45 ¶ 16 (indicating Delaware law governs the interpretation of the amendment);
Scion Breckenridge Managing Member, LLC v. ASB Allegiance Real Estate Fund, 68 A.3d 665,
683 (Del. 2013) (observing that under Delaware law, courts “interpret clear and unambiguous
contract terms according to their plain meaning”).
232
    The Plaintiffs have pled and asserted in briefing that all constituent documents of the July 1,
2013 agreements, including Amendment No. 7, were fraudulently induced and thus not
enforceable. See Pls’ Answering Br. in Opposition to Krivulka Defs’ Motions 70–71 (arguing
“Krivulka and/or Mazur fraudulently induced Laumas to enter into the Release Agreement (indeed,
all of the July 1, 2013 Agreements, including the 7th Amendment to the Operating Agreement)”);
Compl. at Count VIII. The issue of fraudulent inducement of Amendment No. 7 is reserved.
                                               46
Those duties are contractual in nature, but to the extent they employ undefined terms

such as “bad faith,” the common law fiduciary duties are instructive in supplying the

definition.

       Subparts (i) and (ii) of Section 4.01(h) provide that Managers, Members and

the Board are liable where they have acted in bad faith, or where they have engaged

in certain acts of self-dealing; that is, have engaged in transactions creating an

“improper personal benefit.”233 Interpreting, as I must, the contract as a whole, it

becomes clear that whether a conflicted transaction involves an “improper personal

benefit” must be assessed in light of Sections 8.01 and 8.02 of the LLC Agreement.

As discussed below, I find that together these provisions provide specific contractual

standards which govern conflict transactions and corporate opportunities.

              2. Sections 8.01 and 8.02

       Unfortunately, examination of liability here must involve an application of the

facts to the contractual language of these sections—unfortunately, because, as is all-

too-common in LLC agreements litigated in this Court (a self-selecting sample, I

acknowledge), the provisions here are poorly drafted. The text of the sections is as

follows:

       [Section 8.01 provides:] (a) [u]nless entered into in bad faith, no
       contract or transaction between the Company and one or more of its

233
    See Eakins Aff. Ex. 45 ¶ 6(h) (“(i) an act or omission not in good faith or which involves
intentional misconduct or a knowing violation of law; or (ii) a transaction from which such
Manager, a member of the Board of Directors, or Member derived an improper personal benefit”).
                                             47
          Members or any Indemnified Party, or between the Company and any
          other Person in which one or more of its Members or any Indemnified
          Party has a financial interest or is a director, manager or officer, shall
          be voidable solely for this reason if such contract or transaction is fair
          and reasonable to the Company as determined in good faith by the
          Manager; and no Member or Indemnified Party interested in such
          contract or transaction, because of such interest, shall be liable to the
          Company or to any other Person or organization for any loss or expense
          incurred by reason of such contract or transaction or shall be
          accountable for any gains or profit realized from such contract or
          transaction.234

          (b) [u]nless otherwise expressly provided herein, (i) whenever a
          conflict of interest exists or arises between the Company, its Members
          and/or the Indemnified Parties, or (ii) whenever this Agreement
          provides that any such Person shall act in a manner that is, or subject to
          Section 8.01(a) above, provide terms that are, fair and reasonable to the
          Company or any Member, such Person shall resolve such conflict of
          interest, taking such action or providing such terms, considering in each
          case the relative interest of each party (including its own interest) to
          such conflict, agreement, transaction or situation and the benefits and
          burdens relating to such interests, any customary or acceptable industry
          practices, and any applicable generally acceptable accounting practices
          or principles. In the absence of bad faith by the Member or Indemnified
          Party, as the case may be, the resolution, action or term so made, taken
          or provided by such Person shall not constitute a breach of this
          Agreement or any other agreement contemplated herein or of any duty
          or obligation of such Person at law or in equity or otherwise.235

          [Section 8.02 provides:] [n]othing in this Agreement shall be construed
          to prohibit any Director or any Member from engaging in or possessing
          an interest in another business venture of any nature, even if
          competitive with the Company; and neither the Company nor any other
          Member shall have any rights by virtue of this Agreement in or to any
          such venture or the income or profits derived therefrom. No Person
          solely by virtue of his or its status as a Director or Member of the
          Company, shall be prohibited from engaging in or possessing an

234
      Zahler Aff. Ex. 3 § 8.01(a).
235
      Id. at § 8.01(b).
                                             48
       interest in another business venture of any nature, even if competitive
       with the Company. Neither any Director nor any Member shall be
       obligated, by the provisions hereof or by their status as a Director or
       Member, to present any particular investment or business opportunity
       to the Company even if such opportunity is of a nature which could be
       taken by the Company. This Section 8.02 is not intended to waive or
       amend any restriction on competition, confidentiality[,] disclosure,
       solicitation, or other activities, which may be governed by applicable
       law, or included in an employment agreement, confidentiality or
       nondisclosure agreement, or any other contract between the Company
       and any Member or Manager, which restrictions shall in all such
       matters control.236

                     a. Section 8.02

       This section eschews the corporate opportunity doctrine, and permits

conflicted interests to be held by Directors and Members, unless provided otherwise

by separate contract. The requirements under which conflicted transactions are

permitted are set out in the safe-harbor provisions of Section 8.01, discussed below.

                     b. Section 8.01

       The safe harbor of Section 8.01(a) exists where a conflicted transaction

involving the Company and its Members or “any Indemnified Party”—a defined

term that includes officers and affiliates237—is (1) entered in the absence of bad faith,

and (2) the “Manager” (before July 1, 2013, collectively Mazur, Krivulka and

Laumas; thereafter Krivulka) determines—in good faith—that the transaction is

236
   Id. at § 8.02.
237
   See id. at Article I (defining “Indemnified Parties” stating it “shall mean the Manager, the
Directors, any Affiliate of the Directors and each Officer of the Company and their respective
successors and assigns, each in their capacity as such”).
                                              49
“fair and reasonable to the Company.”238 In such case, the conflicted party bears no

liability to the “Company or to any other Person” arising from the transaction.

        Section 8.01(b), as I read it, provides an alternative safe harbor. With respect

to conflicted transactions as defined in Section 8.01(a), the terms of which are

limited to those “fair and reasonable to the Company or any Member,” the conflicted

party who seeks a safe harbor under subsection (b) is charged with “resolv[ing] such

conflict” by “considering . . . the relative interest of each party (including its own

interest) to such . . . transaction or situation and the benefits and burdens relating to

such interests, any customary or acceptable industry practices, and [GAAP].”239

Where the conflicted party has acted in good faith, and makes the required resolution

of the conflict by a good-faith balancing of the factors above, he is insulated from

liability, since he is deemed not in “breach of this Agreement . . . or of any duty or

obligation . . . at law or in equity . . . .”240 Conflicted transactions not achieving one

of these safe harbors are, by contrast, transactions from which the party may be

shown to have derived an improper personal benefit under Section 4.01(h)(ii), in

breach of his duty under that section.

        The parties do not contend that the safe harbor of Section 8.01(a) applies here.

Therefore, the Defendants will be found not to have breached a duty under Section

238
    Id. at § 8.01(a).
239
    Id. at § 8.01(b).
240
    Id.
                                           50
4.01(h)(ii), and are insulated from liability under Section 8.01(b), where the

conflicted transaction was (1) entered in good faith,241 and (2) where the particular

Defendant subjectively determined that the transaction was fair and reasonable to

the Company and Members after the required good-faith balancing of interests. That

is the standard against which the challenged transactions (entered on or after July 1,

2013) shall be evaluated.          This specific contractual standard applies to all

Indemnified Parties, as defined in the LLC Agreement.242 I note that good faith—a

subjective standard, applies separately to both the transaction and to the conflicted

party’s analysis of whether it is “fair and reasonable.” I do, however, note that the

subjective good faith standard here must be read consistently with the purpose of

Sections 8.01 and 8.02, which is to permit conflicted transactions in certain

circumstances.243

241
    Our Supreme Court, when faced with an undefined good faith or bad faith provision in an
alternative entity situation has employed the following standard: “an action ‘so far beyond the
bounds of reasonable judgment that it seems essentially inexplicable on any ground other than
bad faith.’” DV Realty Advisors LLC v. Policemen's Annuity & Ben. Fund of Chicago, 75 A.3d
101, 110 (Del. 2013) (quoting Brinckerhoff v. Enbridge Energy Co., 67 A.3d 369, 373 (Del.
2013)).
242
    See Zahler Aff. Ex. 3 at Article I, § 8.01(b).
243
    See Related Westpac LLC v. JER Snowmass LLC, 2010 WL 2929708, at *8 (Del. Ch. July 23,
2010) (explaining that when parties to an alternative entity “cover a particular subject in an
express manner, their contractual choice governs and cannot be supplanted by the application of
inconsistent fiduciary duty principles that might otherwise apply as a default”).
                                              51
                             IV. CONCLUSION

      For the forgoing reasons, the Defendants’ Motions for Partial Summary

Judgment are GRANTED in part and DENIED in part. Specifically, the prong of

the motion regarding the release is DENIED. The prong of the motion interpreting

fiduciary duties owed by the governing documents is resolved consistent with the

discussion above. The parties should confer regarding the most efficient way to

move this matter forward in light of this Memorandum Opinion.

                                      52