Chancery Court Interprets Contractual Provisions, the Elimination of Fiduciary Duties and Standard to be Applied for Self-Dealing Transactions under LLC Agreement
By Nicholas I. Froio and Rachel Cheasty Sanders
In CelestialRX Investments, LLC and Krittika Life Sciences, LLC v. Krivulka, et al., C.A. No. 11733-VCG (Del. Ch. Jan. 31, 2017), the Delaware Court of Chancery addressed two preliminary issues before it on motions for partial summary judgment filed by the various defendants. The plaintiffs include CelestialRX Investments, LLC (“CelestialRX”), one of three members of the Delaware limited liability company Akrimax Pharmaceuticals, LLC (“Akrimax”). The defendants include Leonard Mazur and Joseph J. Krivulka (“Krivulka”), the two other members of Akrimax, along with various entities Krivulka controls or in which he has invested. These entities entered into a number of transactions with Akrimax, these transactions being at the heart of this dispute. The Court first considered whether a release agreement dated July 1, 2013 (“Release Agreement”) barred CelestialRX from bringing causes of actions against the defendants which occurred prior to the release. After applying rules of contract interpretation, the Court, in dismissing the motion for partial summary judgment, held that the plaintiff was not a “Releasing Party” as defined in the Release Agreement and thus had not released any claims existing as of July 1, 2013. The Court next considered the extent to which the LLC Agreement of Akrimax and its July 1, 2013 amendment (“Amendment No. 7”) limited or modified fiduciary duties of the members, directors or managers of Akrimax, and what standard of care applied under the LLC Agreement in the context of conflicted transactions.