Bay Center Apartments Owner, LLC v. Emery Bay PKI, LLC

Bay Center Apartments Owner, LLC (Bay Center) (plaintiff) and Emery Bay PKI, LLC (PKI) (defendant) were co-venturers in a condominium development project (the Project). Bay Center and PKI formed a third LLC, Emery Bay Member, LLC (Emery Bay) (defendant). The LLC agreement for Emery Bay (the LLC Agreement) made PKI the managing member, stating that PKI alone “shall manage and conduct” Emery Bay’s business. Responsibility for managing the Project was governed by a separate agreement, the Development Management Agreement (DMA). PKI designated one of its affiliates, Emery Bay ETI, LLC (ETI) (defendant), to be the party bound by the DMA. The Emery Bay LLC Agreement, however, expressly granted PKI the power and authority to “cause the Development Manager to perform its obligations under the DMA,” or if the Development Manager failed to do so, to cause the services to be performed at no additional cost. The LLC Agreement also addressed fiduciary duties. In separate paragraphs it stated both that the members shall have the same duties to each other as provided in the Delaware LLC Act, and that each member “shall owe no duty of any kind” to Emery Bay or the other members other than the duties imposed by the LLC Agreement. PKI and ETI were both controlled by Alfred Nevis (defendant).The Project ran into serious financial trouble almost immediately and ultimately failed. According to Bay Center, Nevis and his entities grossly mismanaged the Project and sought to benefit themselves at the Project’s expense. Bay Center sued Nevis, Emery Bay, PKI, and ETI, alleging breach of the LLC Agreement. Since the LLC Agreement gave PKI the authority to cause ETI to perform under the DMA, Bay Center argued that PKI was obliged to ensure performance. In addition to breach of contract, Bay Center also sued for breach of the implied covenant of good faith and fair dealing, and breach of PKI’s fiduciary duty. Nevis, PKI, ETI, and Emery Bay moved to dismiss the claims of breach of the implied covenant and breach of fiduciary duty.