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Miller v. HCP & Co.

Delaware Court of Chancery
2018 WL 656378 (2018)


Christopher Miller (plaintiff) founded Trumpet Search, LLC. HCP & Company (defendant) owned the vast majority of Trumpet’s Class D and Class E membership units. Under Trumpet’s operating agreement, Class E units were first in line for payment if Trumpet were sold, due a 200-percent return on their investment. Class D units were second in line for a 200-percent return payment. The effect of this provision was that in the event of a sale, HCP would reap most of the first $30 million in sale proceeds. The only requirement with respect to a sale was that any sale must be to a third party. HCP controlled four of Trumpet’s seven board seats, and any sale could be approved with a majority vote of the board. Also, in the operating agreement, Trumpet’s members and board members waived all fiduciary duties. Approximately seven months after the agreement was signed, the HCP board members stated that they planned to sell Trumpet to MTS Health Partners, L.P. for $31 million. HCP gave non-HCP board members five days to find an alternative offer. The non-HCP board members found another offer for $36 million, prompting MTS to increase its offer to $41 million. They also obtained a letter of interest valuating Trumpet at $50–$60 million. The board ultimately approved a sale to MTS at just under $43 million. Non-Class D and -Class E members received almost nothing in the transaction. Miller sued HCP, seeking a court order that the implied covenant of good faith and fair dealing required the Trumpet board to conduct an auction sale of Trumpet in order to maximize value for all Trumpet members. HCP moved to dismiss the complaint.

Rule of Law


Holding and Reasoning (Glasscock, J.)

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