Kahn v. Portnoy

Delaware limited-liability company (LLC) TravelCenters of America, LLC (TA) (defendant) operated truck stops nationwide. Hospitality Properties Trust (HPT) (defendant) leased properties to TA. Barry Portnoy (defendant) was a director of both TA and HPT. In 2007, HPT acquired Petro Stopping Holdings, which owned truck-stop real estate, and TA acquired Petro Stopping Centers, which operated those truck stops. HPT leased the acquired property to TA. Alan Kahn (plaintiff), a TA shareholder, filed a derivative suit against Portnoy, the other TA directors (defendants), and TA. Kahn alleged that the directors breached their fiduciary duty to TA by approving the HPT-to-TA lease, because the lease required TA to pay allegedly above-market rents, which benefited Portnoy as an HPT director. TA’s LLC agreement stated that the company’s directors owed the same fiduciary duties as corporate directors under Delaware law, except as otherwise stated. The agreement included certain modifications to the default duty rules. One modification created a presumption that directors acted pursuant to their fiduciary duties even in interested transactions absent clear and convincing evidence to the contrary. In context, the provision could be understood two ways. The presumption could apply to all board decisions, even those in which a director had a conflict of interest. Alternatively, it could apply only to board decisions involving a shareholder conflict with the board or company. Adopting the first interpretation and also relying on an exculpatory provision insulating directors from personal liability when acting in good faith, TA and the directors moved to dismiss, arguing that Kahn had failed to state a viable claim.