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Kahn v. Portnoy

Delaware Court of Chancery
2008 WL 5197164 (2008)

Facts

Barry Portnoy (defendant) was a director of TravelCenters of America, LLC (TA) and Hospitality Properties Trust (HPT). HPT owned real property that it leased to TA to operate truck stops. In separate transactions, HPT acquired Petro Stopping Holdings, L.P., which owned truck stop real estate, and TA acquired Petro Stopping Centers, L.P. (Petro), which operated truck stops. HPT then leased the acquired real estate to TA. Alan Kahn (plaintiff), a shareholder of TA, brought suit, alleging that Portnoy breached his fiduciary duty to TA by approving the HPT-to-TA lease because the lease required TA to pay above-market rents to HPT, which benefitted Portnoy as an HPT director. TA’s LLC agreement adopted fiduciary duties from Delaware corporation law but then modified those duties. One such modification provided: “It shall be presumed that, in making its decision and notwithstanding that such decision may be interested, the Board of Directors acted properly and in accordance with its duties. . . .” Based on this provision, Portnoy filed a motion to dismiss for failure to state a claim. In deciding the motion, the court analyzed the LLC agreement’s language to determine whether the phrase “its decision” created the presumption of proper decision-making with respect to all the directors’ decisions, or only with respect to transactions presenting a conflict between a shareholder and the LLC or its board of directors, as opposed to transactions in which there was a conflict between the directors and the LLC.

Rule of Law

Issue

Holding and Reasoning (Chandler, J.)

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