Court Opinion

ID: 8482729
Source: CourtListenerOpinion
Date Created: 2022-11-09 23:03:10.852069+00
Date Added: 2024-06-11T16:49:41.112129
License: Public Domain

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

IN RE P3 HEALTH GROUP                        )    Consol. C.A. No. 2021-0518-JTL
HOLDINGS, LLC                                )

 ORDER DENYING SAMEER MATHUR’S MOTION TO DISMISS COUNT XI

       1.     Hudson Vegas Investment SPV, LLC (“Hudson”) was a minority investor

in P3 Health Group Holdings, LLC (the “Company”). In this litigation, Hudson has

asserted various claims based on a transaction between the Company and a special

purpose acquisition company, commonly known as a SPAC.

       2.     The defendants filed a surfeit of motions to dismiss on various grounds,

including Rule 12(b)(6). The court has issued a decision addressing the breach of contract

claims that Hudson asserted. Dkt. 172 (the “Contract Opinion,” cited as “Contract Op.”).

The court also has issued a decision denying Mathur’s motion to dismiss for lack of

personal jurisdiction. Dkt. 168 (the “Mathur Opinion,” cited as “Mathur Op.”). This order

incorporates those decisions by reference.

       3.     In Count XI of its complaint, Hudson has asserted a claim against Sameer

Mathur for tortiously interfering with Hudson’s contractual rights.

       4.     Delaware has adopted the formulation of a claim for tortious interference

with contract that appears in the Restatement (Second) of Torts. WaveDivision Hldgs.,

LLC v. Highland Cap. Mgmt., L.P., 49 A.3d 1168, 1174 (Del. 2012); ASDI, Inc. v. Beard

Rsch., Inc., 11 A.3d 749, 751 (Del. 2010). Generally speaking, “[o]ne who intentionally

and improperly interferes with the performance of a contract . . . between another and a

third person by inducing or otherwise causing the third person not to perform the
contract, is subject to liability to the other.” Restatement (Second) of Torts § 766 (Am. L.

Inst. 1979), Westlaw, (database updated Oct. 2022). Reframed as elements, a plaintiff

must plead “(1) a contract, (2) about which defendant knew, and (3) an intentional act

that is a significant factor in causing the breach of such contract, (4) without justification,

(5) which causes injury.” Bhole, Inc. v. Shore Invs., Inc., 67 A.3d 444, 453 (Del. 2013)

(internal quotation marks omitted).

       5.     The Contract Opinion has found that Hudson stated claims for breach of

contract. See Contract Op. at 31, 41, 44, 60, 65, 74. It is reasonably conceivable that

Mathur knew about the LLC Agreement and Hudson’s contract rights.

       6.     As described in the Contract Opinion and in the Mathur Opinion, Hudson

alleges that Mathur caused the Company to take actions that breached Hudson’s rights

under the LLC Agreement. See id. at 71–73; Mathur Op. at 8–10. It is reasonably

conceivable that Mathur took those actions intentionally.

       7.     The final element is the issue of justification.

              a.     “The tort of interference with contractual relations is intended to

protect a promisee’s economic interest in the performance of a contract by making

actionable ‘improper’ intentional interference with the promisor’s performance.” Shearin

v. E.F. Hutton Gp., 652 A.2d 578, 589 (Del. Ch. 1994). “The adjective ‘improper’ is

critical. For participants in a competitive capitalist economy, some types of intentional

interference with contractual relations are a legitimate part of doing business.” NAMA

Hldgs., LLC v. Related WMC LLC, 2014 WL 6436647, at *26 (Del. Ch. Nov. 17, 2014).

“[C]laims for unfair competition and tortious interference must necessarily be balanced

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against a party’s legitimate right to compete.” Agilent Techs. v. Kirkland, 2009 WL

119865, at *8 (Del. Ch. Jan. 20, 2009). Determining when intentional interference

becomes improper requires a “complex normative judgment relating to justification”

based on the facts of the case and “an evaluation of many factors.” Shearin, 652 A.2d at

589 (internal quotation marks omitted).

              b.      The Delaware Supreme Court has adopted the factors identified in

Section 767 of the Restatement (Second) of Torts as considerations to weigh when

evaluating the existence of justification. WaveDivision, 49 A.3d at 1174. The factors are:

       (a) the nature of the actor’s conduct, (b) the actor’s motive, (c) the interests
       of the other with which the actor’s conduct interferes, (d) the interests
       sought to be advanced by the actor, (e) the social interests in protecting the
       freedom of action of the actor and the contractual interests of the other, (f)
       the proximity or remoteness of the actor’s conduct to the interference and
       (g) the relations between the parties.

Id. Weighing the seven factors identified in the Restatement requires the court to engage

in a fact-specific inquiry to determine whether the interference with contract is improper

under the particular circumstances of the case. See Restatement (Second) of Torts § 767

cmt. b (“[T]his branch of tort law has not developed a crystallized set of definite rules as

to the existence or non-existence of a privilege . . . . Since the determination of whether

an interference is improper is under the particular circumstances, it is an evaluation of

these factors for the precise facts of the case before the court.”).

              c.      This court has previously addressed the role the weighing of factors

plays in a claim for tortious interference with contract against a controller in Bandera

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Master Fund LP v. Boardwalk Pipeline P’rs, LP, 2019 WL 4927053 (Del. Ch. Oct. 7,

2019). This court in Bandera stated:

       When the defendant that a plaintiff has sued for tortious interference
       controls an entity that was a party to the contract, the weighing of factors
       becomes more complex because of the need to balance the important
       policies served by a claim for tortious interference with contract against the
       similarly important policies served by the corporate form.

Id. at *26. The Bandera decision explained further:

       A party who wishes to have a parent entity or other controller backstop the
       obligations of the controlled entity can do so by contract, either by making
       the parent a party to the agreement or by obtaining a guarantee. A party
       should not be able to use a claim of tortious interference with contract to
       reap the benefits of protections that it did not obtain at the bargaining table.

Id.

              d.     At the same time, Delaware’s respect for corporate separateness

means that Delaware maintains a role for tortious interference even when one entity

controls another. For example, Delaware law rejects the theory that “a parent and its

wholly owned subsidiaries constitute a single economic unit” such that “a parent cannot

be liable for interfering with the performance of a wholly owned subsidiary.” Shearin,

652 A.2d at 590; accord Allied Cap. Corp. v. GC-Sun Hldgs., L.P., 910 A.2d 1020, 1038

(Del. Ch. 2006). Delaware law instead balances “the significant economic interest of a

parent corporation in its subsidiary,” including the parent’s legitimate interest in

consulting with its subsidiary, against the subsidiary’s status as a separate entity and the

interests of third parties in their contractual relationships with the subsidiary. Shearin,

652 A.2d at 590. The result is a limited affiliate privilege that protects a parent

corporation that “pursues lawful action in the good faith pursuit of [the subsidiary’s]

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profit making activities.” Id. Recognizing a limited affiliate privilege is “consistent with

the traditional respect accorded to the corporate form by Delaware law . . . in that it does

not ignore that a parent and a subsidiary are separate entities. Rather, it recognizes that

the close economic relationship of related entities requires enhanced latitude in defining

what ‘improper’ interactions would be.” Id. at 590 n.13 (internal citation omitted).

              e.     Because these principles are grounded in the economic relationship

between a parent entity and its subsidiary, or among affiliated entities, they logically

apply to a claim asserting that the representative of the controlling member of an LLC

tortiously interfered with the entity’s LLC agreement by causing the entity to breach that

agreement.

              f.     Here, because of the fact-intensive nature of this inquiry, it is not

possible to determine at the pleading stage whether Mathur acted with justification when

he negotiated on behalf of the Company, made decisions on behalf of the Company, gave

instructions to the Company’s management and its advisors, withheld information from

the Hudson Managers, and otherwise took the actions described in the Mathur Opinion

that contributed to the breaches of contract described in the Contract Opinion. It is

reasonably conceivable that Mathur took at least some of these actions in a bad faith

attempt to push through a transaction that was favorable to Chicago Pacific and which

would serve Chicago Pacific’s goal of eliminating Hudson’s contractual veto rights.

       8.     Mathur argues that he acted as an agent of Chicago Pacific and therefore

cannot be held liable for tortious interference with contract unless he exceeded the scope

of his agency. For this proposition he relies on Goldman v. Pogo.com Inc., 2002 WL

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1358760, at *8 (Del Ch. June 14, 2002), In re CVR Ref., LP Unitholder Litig., 2020 WL

506680, at *18 (Del. Ch. Jan. 31, 2020), and OptimisCorp v. Waite, 2015 WL 5147038,

at *76 n.602 (Del. Ch. Aug. 26, 2015), aff’d, 137 A.3d 970 (Del. 2016). Mathur’s

argument is misplaced. Hudson is not arguing that Mathur induced a breach of Chicago

Pacific’s obligations. Hudson is arguing that Mathur induced a breach of the Company’s

obligations. Mathur had no official role or capacity with the Company that could entitle

him to invoke this doctrine.

       9.     Count XI states a claim on which relief can be granted against Mathur. His

motion to dismiss Count XI is DENIED.

                                                /s/ J. Travis Laster
                                                Vice Chancellor Laster
                                                November 9, 2022

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