Weather Underground, Incorporated v. Navigation Catalyst Systems, Incorporated et al

Filing 186

APPENDIX re: 178 MOTION for Summary Judgment filed by Epic Media Group, Incorporated. by Epic Media Group, Incorporated (Attachments: # 1 Exhibit 1, # 2 Exhibit 2, # 3 Exhibit 3, # 4 Exhibit 4, # 5 Exhibit 5, # 6 Exhibit 6, # 7 Exhibit 7, # 8 Exhibit 8, # 9 Exhibit 9, # 10 Exhibit 10, # 11 Exhibit 11, # 12 Exhibit 12, # 13 Exhibit 13) (Delgado, William)

Exhibit 13

Page 1
752 A.2d 1175
(Cite as: 752 A.2d 1175)

unable to establish fiduciary duty at trial.
Court of Chancery of Delaware,
New Castle County.
Ron WALLACE, Brian Matthews, David J. Lerner
and Fred N. Roberts, derivatively on behalf of
CENCOM CABLE INCOME PARTNERS II, L.P.,
Plaintiffs,
v.
Howard L. WOOD, Barry L. Babcock, Jerald L.
Kent, Theodore W. Browne, II, Cencom Properties
II, Inc., CC II Holdings, Inc., Cencome Partners,
Inc., Cencom Cable Entertainment, Inc., Charter
Communications, Inc., Charter Communications II,
L.P., Charter Communications, L.P. and CC Cable,
Inc., Defendants,
and
Cencom Cable Income Partners II, L.P., Nominal
Defendant.
C.A. No. 15731.
Submitted: Sept. 14, 1999.
Decided: Oct. 12, 1999.
Limited partners in partnership formed to acquire and operate cable television systems sued corporate general partner, partner's parent and affiliated corporations, and officers of general partner,
asserting claims arising from alleged breaches of fiduciary duty. Defendants moved for judgment on
the pleadings. The Chancery Court, New Castle
County, Steele, Vice Chancellor, held that: (1) allegations that parent and affiliate corporations, and
officers, had used corporate partner to enrich themselves at expense of partners, stated claim for
breach of fiduciary duty; (2) limited partners could
not state claim for tortious interference with partnership agreement; (3) limited partners failed to allege facts sufficient to pierce corporate veil; (4)
limited partners stated claim for aiding and abetting
breach of fiduciary duty by partnership and general
partner; and (5) limited partners could pursue apparently inconsistent breach of fiduciary duty and
aiding and abetting claims, since they could prove

Motion granted in part and denied in part.
West Headnotes
[1] Pleading 302

350(7)

302 Pleading
302XVI Motions
302k342 Judgment on Pleadings
302k350 Application and Proceedings
Thereon
302k350(3) Hearing, Determination,
and Relief
302k350(7) k. Scope of inquiry;
questions to be determined. Most Cited Cases
In ruling on motion for judgment on the pleadings, as in evaluating any motion to dismiss, court
must assume the truthfulness of all well-pleaded,
nonconclusory allegations found in the complaint,
and extend the benefit of all reasonable inferences
that can be drawn from the pleading to the nonmovant. Chancery Court Rule 12(c).
[2] Pleading 302

345(1.4)

302 Pleading
302XVI Motions
302k342 Judgment on Pleadings
302k345 Insufficient Cause of Action or
Defense
302k345(1.4) k. Complaint, declaration, petition or statement of claim. Most Cited
Cases
To award judgment on the pleadings in favor of
the defendant, court must find that plaintiff has
either utterly failed to plead facts supporting an element of the claim or that under no reasonable interpretation of the facts alleged in the complaint, including reasonable inferences, could plaintiff state
a claim for which relief might be granted. Chancery
Court Rule 12(c).
[3] Pleading 302

350(8)

© 2011 Thomson Reuters. No Claim to Orig. US Gov. Works.

Page 2
752 A.2d 1175
(Cite as: 752 A.2d 1175)

302 Pleading
302XVI Motions
302k342 Judgment on Pleadings
302k350 Application and Proceedings
Thereon
302k350(3) Hearing, Determination,
and Relief
302k350(8) k. Matters considered.
Most Cited Cases
Notwithstanding permissive pleading standard,
court is free to disregard mere conclusory allegations made without specific allegations of fact to
support them in ruling on motion for judgment on
the pleadings. Chancery Court Rule 12(c).
[4] Contracts 95

188

95 Contracts
95II Construction and Operation
95II(B) Parties
95k188 k. Duties and liabilities of third
persons. Most Cited Cases
A general principle of contract law is that only
a party to a contract may be sued for breach of that
contract.
[5] Corporations and Business Organizations
101
1960
101 Corporations and Business Organizations
101VII Directors, Officers, and Agents
101VII(E) Liability for Corporate Debts and
Acts
101k1959 Contracts and Guaranties
101k1960 k. In general. Most Cited
Cases
(Formerly 101k306)
Officers of a corporation are not liable on corporate contracts as long as they do not purport to
bind themselves individually.
[6] Partnership 289

353

289 Partnership
289VIII Limited Partnership
289k353 k. Members in general. Most Cited

Cases
Partnership 289

366

289 Partnership
289VIII Limited Partnership
289k366 k. Relation between partners in general. Most Cited Cases
General partner of a limited partnership owes
direct fiduciary duties to the partnership and to its
limited partners.
[7] Partnership 289

366

289 Partnership
289VIII Limited Partnership
289k366 k. Relation between partners in general. Most Cited Cases
Under certain circumstances, directors of a corporate general partner may owe fiduciary duties to
the partnership and to the limited partners, which
include the duty not to use control over the partnership's property to advantage the corporate director
at the expense of the partnership.
[8] Partnership 289

370

289 Partnership
289VIII Limited Partnership
289k370 k. Actions between partners. Most
Cited Cases
Allegations by limited partners in partnership
formed to acquire and operate cable television systems that parent corporations of corporate general
partner, general partner's affiliates, and officers of
general partner had, after promising limited partners a relatively stable investment, engaged in
wrongful self-interested acts which converted partnership into a speculative, highly leveraged investment, as part of scheme to utilize partnership assets
they controlled to enrich themselves at expense of
limited partners, stated claim against parent and affiliate corporations, and officers, for breach of fiduciary duty.
[9] Torts 379

212

© 2011 Thomson Reuters. No Claim to Orig. US Gov. Works.

Page 3
752 A.2d 1175
(Cite as: 752 A.2d 1175)

379 Torts
379III Tortious Interference
379III(B) Business or Contractual Relations
379III(B)1 In General
379k212 k. Contracts. Most Cited
Cases
(Formerly 379k12)
To state claim for tortious interference with a
contract, plaintiff must plead facts demonstrating
(1) a valid contract, (2) about which defendant had
knowledge, (3) an intentional act by defendant that
was a significant factor in causing breach of contract, (4) done without justification, and (5) which
caused injury.
[10] Labor and Employment 231H

911

231H Labor and Employment
231HIX Interference with the Employment Relationship
231Hk911 k. Persons liable in general. Most
Cited Cases
(Formerly 379k12)
Employees acting within the scope of their employment are identified with the employer himself,
so that they may ordinarily advise the employer to
breach his own contract without themselves incurring liability in tort.
[11] Torts 379

242

379 Torts
379III Tortious Interference
379III(B) Business or Contractual Relations
379III(B)2 Particular Cases
379k242 k. Contracts in general. Most
Cited Cases
(Formerly 379k12)
Limited partners in partnership formed to acquire and operate cable television systems failed to
allege that officers of corporate general partner had
exceeded the scope of their authority to direct general partner's business decision-making when they
allegedly induced general partner to breach partnership agreement for self-interested reasons adverse
to the interests of partnership, as required to state

claim against officers for tortious interference with
partnership agreement.
[12] Torts 379

242

379 Torts
379III Tortious Interference
379III(B) Business or Contractual Relations
379III(B)2 Particular Cases
379k242 k. Contracts in general. Most
Cited Cases
(Formerly 379k12)
Parent corporations of limited partnership's
corporate general partner, and partner's affiliates,
could not tortiously interfere with general partner's
performance of partnership agreement.
[13] Torts 379

223

379 Torts
379III Tortious Interference
379III(B) Business or Contractual Relations
379III(B)1 In General
379k223 k. Employees and agents;
corporate entities. Most Cited Cases
(Formerly 379k12)
Just as an entity cannot be liable for tortiously
interfering with the performance of its own contract, a parent corporation cannot be liable for interfering with the performance of a wholly owned subsidiary.
[14] Corporations and Business Organizations
101
1044
101 Corporations and Business Organizations
101II Disregarding Corporate Entity; Piercing
Corporate Veil
101k1042 Factors Considered
101k1044 k. Domination or control by
shareholder. Most Cited Cases
(Formerly 101k1.4(1))
Degree of control required to pierce the veil is
exclusive domination and control by principal, to
the point that corporation no longer has legal or independent significance of its own.

© 2011 Thomson Reuters. No Claim to Orig. US Gov. Works.

Page 4
752 A.2d 1175
(Cite as: 752 A.2d 1175)

[15] Corporations and Business Organizations
101
1038
101 Corporations and Business Organizations
101II Disregarding Corporate Entity; Piercing
Corporate Veil
101k1035 Reasons and Justifications
101k1038 k. Fraud or illegal acts in general. Most Cited Cases
(Formerly 101k1.4(4))
Piercing the corporate veil under the alter ego
theory requires that the corporate structure cause
fraud or similar injustice, and effectively, the corporation must be a sham and exist for no other purpose than as a vehicle for fraud.
[16] Corporations and Business Organizations
101
1085(1)
101 Corporations and Business Organizations
101II Disregarding Corporate Entity; Piercing
Corporate Veil
101k1079 Actions to Pierce Corporate Veil
101k1085 Pleading
101k1085(1) k. In general. Most Cited
Cases
(Formerly 101k1.7(1))
Limited partners in partnership formed to acquire and operate cable television systems, who alleged only that purpose of corporate general partner
was to manage and operate partnership, failed to
plead facts sufficient to pierce corporate veil and
hold general partner's parent corporation liable for
breach of fiduciary duty, based on allegedly wrongful self-interested acts by general partner's parent
corporations.
[17] Fraud 184

30

184 Fraud
184I Deception Constituting Fraud, and Liability Therefor
184k30 k. Persons liable. Most Cited Cases
To show that non-fiduciary defendants aided
and abetted a breach of fiduciary duty, plaintiff
must establish (1) the existence of a fiduciary rela-

tionship, (2) a breach of the fiduciary's duty, (3) a
knowing participation in the breach by the nonfiduciary defendants, and (4) resulting damages.
[18] Partnership 289

370

289 Partnership
289VIII Limited Partnership
289k370 k. Actions between partners. Most
Cited Cases
Allegations by limited partners in partnership
formed to acquire and operate cable television systems that there was a fiduciary relationship between
limited partners and corporate general partner, and
that general partner's parent corporations, affiliated
corporations, and officers had assisted general partner in committing numerous breaches of fiduciary
duty through wrongful actions which cost limited
partners millions of dollars in lost value, fees, use
of money, and partnership opportunities, while generating millions in fees to parent and affiliated corporations and officers, stated claims against parent
and affiliated corporations and officers for aiding
and abetting breach of fiduciary duty by general
partner.
[19] Election of Remedies 143

3(1)

143 Election of Remedies
143k3 Inconsistency of Alternative Remedies
143k3(1) k. In general. Most Cited Cases
Limited partner in partnership formed to acquire and operate cable television systems, who had
stated valid claim against corporate general partner's parent corporations, affiliated corporations,
and officers for breach of fiduciary duty, would
also be able to pursue apparently inconsistent
claims that those defendants had aided and abetted
general partner's breach of fiduciary duty, as limited partners could prove unable to establish requisite control necessary to establish the existence of a
fiduciary relationship owed by parents, affiliates,
and officers.
*1177 Pamela S. Tikellis, James C. Strum and
Robert J. Kriner, Jr. of Chimicles, Jacobsen &

© 2011 Thomson Reuters. No Claim to Orig. US Gov. Works.

Page 5
752 A.2d 1175
(Cite as: 752 A.2d 1175)

Tikellis, Wilmington, Delaware. Of Counsel:
Lawrence P. Kolker and Gregory M. Nespole of
Wolf Haldenstein Adler Freeman & Herz, New
York, New York; Michael E. Criden of Hanzman
Criden Korge & Chaykin, Miami, Florida; Lynda J.
Grant of Goodkind Labaton Rudoff & Sucharow,
New York, New York.
Daniel A. Dreisbach and Michael D. Allen of
Richards, Layton & Finger, Wilmington, Delaware.
Of Counsel: Stephen B. Higgins, Linda Carroll Reisner and Thompson Coburn, St. Louis, Missouri,
for Defendants.
*1178 OPINION
STEELE, Vice Chancellor.
I. Issues Presented
Can holders of units in a Limited Partnership
state a cognizable claim for breach of fiduciary duties against parent corporations of the Limited Partnership's corporate general partner, affiliates of that
corporate general partner, and officers of that corporate general partner?
Officers, affiliates and parents of a general
partner, may owe fiduciary duties to limited partners if those entities control the partnership's property. Clearly, those duties, when owed, may not be
breached in a manner that harms the partnership.
I find plaintiffs have alleged sufficient facts
which, if true, state a claim that defendants used
their virtually unchecked control of the Partnership
in order to enhance their self-interest at the expense
of the Partnership. Therefore, I find that plaintiffs
have stated a claim for breach of fiduciary duties
owed by the defendant Officers, Affiliates and Parents.
Where the Limited Partners do state a cognizable claim for breach of fiduciary duty, may they
also pursue apparently inconsistent claims that
those same entities are non-fiduciaries who aided
and abetted the General Partner's breach of fiduciary duty and who tortiously interfered with the

Partnership Agreement?
In their opposition to Defendant's Motion for
Judgment on the Pleadings, plaintiffs also creatively allege that the Officers, Affiliates and Parents
aided and abetted the General Partner's breaches of
fiduciary duty, and that the Officers, Affiliates and
Parents tortiously interfered with the Partnership
FN1
Agreement.
Plaintiffs presumably advance
these claims, which are inherently inconsistent with
their primary claim, hoping to secure a fall-back
position against the Officers, Affiliates and Parents
in the event the primary breach of fiduciary duty
claim is dismissed. Nevertheless, the plaintiffs
plead facts which, if true, support the requisite elements for aiding and abetting. I conclude, therefore,
that plaintiffs' aiding and abetting claim survives
defendants' motion to dismiss. However, I dismiss
plaintiffs' tortious interference claim as plaintiffs
fail to allege facts that, even if accepted as true,
support this claim.
FN1. Plaintiffs did not plead these causes
of action in their Complaint, and, if necessary, ask for leave to amend. I grant leave
to amend to add the aiding and abetting
claim but not the claim for tortious interference with the Agreement. See Footnote
10.
II. Background
Cencom Cable Income Partners II, L.P. was
formed in 1987 to acquire, own and operate existing cable television systems. Response to the Limited Partnership offerings was less than enthusiastic
as only 90,915 of the 250,000 available units were
sold. As a result, limited funds were available for
the planned acquisition of cable systems. A provision in the Partnership Agreement exacerbated this
shortfall by prohibiting indebtedness for acquisitions in excess of 20% of the funds raised by the
sale of Units.
Plaintiffs allege that the General Partner as
well as the Officers, Parents, and Affiliates concocted a plan to circumvent this prohibition and to

© 2011 Thomson Reuters. No Claim to Orig. US Gov. Works.

Page 6
752 A.2d 1175
(Cite as: 752 A.2d 1175)

continue to make acquisitions. The plan contemplated that the Officers and Parents create other entities (the Affiliates) and use these entities, *1179
which were primarily owned and funded by the
Partnership, to acquire leverage, which would then
be used to make the acquisitions. These acquisitions generated sizable fees for the defendants. In
contrast, plaintiffs claim to be facing what appears
to be a loss of 12.1% to 17.6% on their initial inFN2
vestment.
FN2. Am. Compl., para. 22.
Plaintiffs also plead the following noteworthy
facts. Three of the four Officers are also directors
of the General Partner. The fourth of the four Officers is the General Counsel and Secretary for the
General Partner. All of the General Partner's stock
is owned by a Parent defendant, and all of that Parent defendant's stock is owned by another Parent
defendant. This second Parent defendant is owned
and controlled by the Officers.
III. Plaintiff's Contentions
In this derivative action, the Limited Partners
contend that the defendants breached fiduciary and
contractual duties owed to the Partnership and Limited Partners. More specifically, the Limited Partners claim that the defendants used Partnership
funds to establish business entities, then wrongfully
used these entities to circumvent a provision in the
Partnership Agreement forbidding the Partnership
from incurring debt in excess of twenty percent
(20%) of the gross proceeds of the Partnership's
public offering. Defendants' unremarkable motivation to engage in this behavior was, according to
plaintiffs, financial. The defendants used the additional leverage to purchase cable systems and in the
process generated fees for themselves. Plaintiffs argue these acquisitions were exorbitantly overpriced, made for purely self-interested reasons, and
were adverse to the interests of the Limited Partnership.
Plaintiffs aver that the Officers, Affiliates and
Parents aided and abetted the General Partner in

wrongfully circumventing provisions of the partnership agreement, and tortiously interfered with the
performance of the partnership. Plaintiffs further
contend that the defendants usurped business opportunities available to the Limited Partnership.
Defendants counter by arguing that the defendants, excepting the General Partner, owe no fiduciary duty to the Partnership or the Limited Partners. Defendants further argue the Officers could
only be liable for tortious interference if the allegedly interfering action exceeded the scope of
their authority. Likewise, defendants claim
plaintiffs failed to plead facts sufficient to show the
Affiliates or Parents were “interfering parties”, or
intervened maliciously or in bad faith to injure
plaintiffs. In their reply brief, however, defendants,
for reasons unknown to me, fail to address
plaintiffs' aiding and abetting claim.
IV. Analysis
A. Standards applicable to Defendants' Motion
for Judgment on the Pleadings
[1][2][3] Defendants move for judgment on the
pleadings pursuant to Court of Chancery Rule(h)(2)
which permits a party to present a motion to dismiss for failure to state a claim upon which relief
can by granted by motion for judgment on the
pleadings pursuant to Chancery Court Rule 12(c).
FN3
As in evaluating any motion to dismiss, I must
assume the truthfulness of all well-pleaded, nonconclusory allegations found in the Complaint and
extend the benefit of all reasonable inferences that
can be drawn from the pleading to the non-movant.
FN4
To award judgment on the pleadings in favor
of the defendants, I must find that plaintiffs have
either utterly *1180 failed to plead facts supporting
FN5
an element of the claim
or that under no reasonable interpretation of the facts alleged in the
Complaint (including reasonable inferences) could
plaintiff state a claim for which relief might be
FN6
granted.
Notwithstanding Delaware's permissive pleading standard, I am free to disregard
mere conclusory allegations made without specific
FN7
allegations of fact to support them.
With this

© 2011 Thomson Reuters. No Claim to Orig. US Gov. Works.

Page 7
752 A.2d 1175
(Cite as: 752 A.2d 1175)

standard in mind, I examine plaintiffs' allegations.
FN3. Kahn v. Roberts, Del. Ch., C.A. No.
12324, Hartnett, V.C., slip op. at 5, 1994
WL 70118 (Feb. 28, 1994).
FN4. Loudon v. Archer-Daniels-Midland
Co., Del.Supr., 700 A.2d 135, 140 (1997).
FN5. Cincinnati Bell Cellular Sys. Co. v.
Ameritech Mobile Phone Serv. of Cincinnati, Inc., Del. Ch., C.A. No. 13389, mem.
op., Chandler, V.C., 1996 WL 506906, at
*2 (Sept. 3, 1996), 1996 Del. Ch. LEXIS
116, at *6, (“when the non-moving party
has the ultimate burden of proof on its
claims, this Court may grant summary
judgment if the moving party can demonstrate a complete failure of proof on an essential element of a claim.”) [*4]
FN6. Delaware State Troopers Lodge v.
O'Rourke, Del. Ch., 403 A.2d 1109, 1110
(1979) (“A complaint should not be dismissed upon such a motion unless it appears to a certainty that under no set of
facts which could be proved to support the
claim would the plaintiff be entitled to relief.”); Desert Equities, Inc. v. Morgan
Stanley Leveraged Equity Fund, II, L.P.,
Del.Supr., 624 A.2d 1199, 1205 (1993)
(“A motion for judgment on the pleadings may be granted only when no material issue of fact exists and the movant
is entitled to judgment as a matter of
law”).
FN7. Wolf v. Assaf, Del. Ch., C.A. No.
15339, mem. op., Steele, V.C., 1998 WL
326662, at *1 (June 16, 1998), 1998 Del.
Ch. LEXIS 101, at *3-4.
B. Can the Officers, Parents and Affiliates be liable for Breach of Contract if they were not
Parties to the Partnership Agreement?
[4][5] The only defendant who is a party to the

Partnership Agreement is the General Partner. This
fact is not disputed. It is a general principle of contract law that only a party to a contract may be sued
FN8
for breach of that contract.
Indeed, Delaware
law clearly holds that officers of a corporation are
not liable on corporate contracts as long as they do
FN9
not purport to bind themselves individually.
In
their reply brief, plaintiffs effectively abandon their
breach of contract claim against the Officers, Affiliates and Parents, choosing instead to assert a torFN10
tious interference claim.
Not surprisingly, I
dismiss any claim for breach of contract against the
Officers, Parents and Affiliates.
FN8. Crabtree v. Tristar Automotive
Group, Inc., 776 F.Supp. 155, 166
(S.D.N.Y.1991).
FN9. Brown v. Colonial Chevrolet Co.,
Del.Super., 249 A.2d 439, 441 (1968).
FN10. Apparently, plaintiffs now want me
to treat Count I of their Complaint, titled
“Breach of Contract”, as the vehicle for a
tortious interference claim against the Officers, Affiliates, and Parents. In the alternative, plaintiffs request leave to amend
their complaint. Although Court of Chancery rules generally allow liberal amendment of pleadings, I will not allow
plaintiffs to amend and add a separate
count for tortious interference because, as I
later explain, the amendment would be futile.
C. Does Plaintiff State a Cognizable Claim that
the Officers, Parents and Affiliates owe Fiduciary Duties to the Limited Partnership and its
Limited Partners?
[6][7] Unquestionably, the general partner of a
limited partnership owes direct fiduciary duties to
FN11
the partnership and to its limited partners.
Chancellor Allen, by analogizing to fiduciary duties
under trust law, extended this principle in In re
USACafes, L.P. Litigation (“In re USACafes”)
FN12
, finding that, under certain circumstances,

© 2011 Thomson Reuters. No Claim to Orig. US Gov. Works.

Page 8
752 A.2d 1175
(Cite as: 752 A.2d 1175)

directors of a corporate general partner likewise
may owe fiduciary duties to the partnership and to
the limited partners. Chancellor Allen did not attempt to delineate the full extent of these duties, but
they must surely entail “the duty not to use control
over the partnership's property to advantage the
corporate director at the expense of the partnerFN13
ship.”*1181
This case requires that I examine
the parameters of the fiduciary duties articulated by
Chancellor Allen and apply them to the facts
pleaded here by plaintiffs.
FN11. Boxer v. Husky Oil Co., Del. Ch.,
429 A.2d 995, 997 (1981).
FN12. Del. Ch., 600 A.2d 43 (1991).
FN13. Id. at 49.
Chancellor Allen examined a complaint which
alleged that the director defendants dominated and
controlled the affairs of the limited partnership;
failed to negotiate in good faith to enhance unitholders' values; agreed to sell all of the Limited
Partnership's assets to a third party for an unfair
price because the third party offered the director defendants a personal financial windfall; and participated in diverting partnership assets for their own
FN14
benefit.
This complaint, Chancellor Allen
concluded, did allege “facts which if true establish
that the director defendants have breached fiduciary
obligations imposed upon them as directors of a
Delaware corporation or have participated in a
breach of such duties by the General Partner.”
FN15
FN14. Id. at 49-50.
FN15. Id. at 50.
[8] Plaintiffs make similar allegations here
against the Officers, Affiliates and Parents. They
allege that the General Partner “and those who own
and/or control it personally participated in the
FN16
wrongs complained of.”
Plaintiffs repeatedly,
in detail, and in a nonconclusory manner allege defendants personally caused the Limited Partnership

to enter into self-interested transactions adverse to
FN17
the interests of the Limited Partners.
Plaintiffs claim they were promised a relatively
stable investment, but without their knowledge or
consent, defendants engaged in wrongful selfinterested acts which converted the Limited Partnership into a highly speculative, highly leveraged
FN18
investment.
Plaintiffs specifically aver that
the defendants circumvented the Partnership's debt
limitations by creating one of the Affiliate defendants, which was 84% owned by the Partnership but
without debt limitations; and then used this Affiliate to make acquisitions in order to generate manFN19
agement fees.
Plaintiffs further contend that
defendants, on two separate occasions, usurped
business opportunities available to the Limited
FN20
Partnership.
FN16. Am. Compl., para. 20.
FN17. Am. Compl., paras. 23, 51, 52, 59.
FN18. Am. Compl., paras. 23-27, 44,
50-52. In detail, plaintiffs state,
“[A defendant Affiliate] promptly established a $48 million line of credit with
certain banks. Upon information and belief, [the General Partner's] equity was
used as collateral for this line of credit.
[The defendant Affiliate] then proceeded
to make acquisitions totaling $70.13 million of which $40.2 million, or more
than half of the funds used, were borrowed. Moreover, that $40.2 million of
borrowed funds represented 126% of the
$31.75 million in cash invested in [that
Affiliate]. Thus, although the defendants
promised the Limited Partners in the Offering Prospectus that ‘[t]he General
Partner does not intend that the Partnerships will be highly leveraged,’ defendants created an acquisition vehicle with
partnership funds which was highly
leveraged, which would divert Partnership funds from acquisitions already

© 2011 Thomson Reuters. No Claim to Orig. US Gov. Works.

Page 9
752 A.2d 1175
(Cite as: 752 A.2d 1175)

made by the Partnership, which would
bring defendants millions of dollars in
additional fees, which would deplete the
Partnership's investment, thereby dramatically reducing the ultimate distribution to the Limited Partners, and which
would leave the defendants with the
ownership of valuable assets whose cash
flow they would not have to share with
any Limited Partners.”
Am. Compl., para., 51(emphasis in original).
FN19. Am. Compl., paras. 23, 30-32.
FN20. Am. Compl., para. 60.
Plaintiffs allege defendants breached their fiduciary duty by manipulating an appraisal process for
personal gain at the expense of the Limited PartFN21
ners.
Defendants subverted the appraisal process mandated by the Partnership Agreement by
backdating the appraisal dates and making capital
improvements to the systems*1182 after those
FN22
dates, according to Plaintiffs.
FN21. Am. Compl., paras. 23, 40, 73, 75,
80.

precedent in this Court extending fiduciary duties
FN23
to similarly situated defendants.
FN23. See Barbieri v. Swing-N-Slide
Corp., Del. Ch., Steele, V.C ., C.A. No.
14239, slip op. at 7-8, 1997 WL 55956
(Jan. 29, 1997) (holding “fiduciary duties
may be imputed to a separate entity formed
and controlled by fiduciaries for the purpose of engaging in a transaction with an
entity to whom those duties are owed”);
James-River Pennington, Inc., v. CRSS
Capital, Inc., Del. Ch., Steele, V.C., C.A.
No. 13870, slip op. at 22-23, 1995 WL
106554 (March 6, 1995) (holding the duty
of loyalty is owed by corporation to partnership because corporation controls the
general partner); In re Boston Celtics L.P.
Litigation, Del. Ch., Steele, V.C., C.A. No.
16511, mem. op. at 9, 1999 WL 641902
(stating “it is well settled that, unless limited by the limited partnership agreement,
the general partner of a Delaware limited
partnership and the directors of a corporate
General Partner who control the partnership, like directors of a Delaware corporation, have the fiduciary duty to manage the
partnership in the partnership's interests
and the interests of the limited partners”).

FN22. Am. Compl., paras. 73-82.
In sum, plaintiffs allege adequate specific facts
to support their claim that the Officers, Affiliates
and Parents utilized Partnership assets which they
controlled to enrich themselves at the expense of
the Limited Partners.
Defendants urge me to distinguish the facts
pled in this case from those pled in In re USACafes.
I, however, cannot find any notable or meaningful
distinction. The addition of the Parents' and Affiliates' as defendants may, arguably, be a minor distinction. Plaintiffs detail sufficiently the Parents
and Affiliates control of the affairs of the Partnership including the creation of and distribution of
Partnership assets for their own benefit. There is

D. Do Plaintiffs State a Claim for Tortious Interference with the Limited Partnership Agreement?
[9] Plaintiffs allege that the Officers, Affiliates
and Parents tortiously interfered with the Partnership Agreement causing the Limited Partners economic harm. To state a claim for tortious interference with a contract, plaintiffs must plead facts
demonstrating (1) a valid contract, (2) about which
the defendants have knowledge, (3) an intentional
act by defendants that is a significant factor in causing the breach of the Partnership Agreement, (4)
done without justification, and (5) which causes inFN24
jury.
Plaintiffs sufficiently plead the existence
of a valid contract (the Partnership Agreement), and

© 2011 Thomson Reuters. No Claim to Orig. US Gov. Works.

Page 10
752 A.2d 1175
(Cite as: 752 A.2d 1175)

knowledge of that contract by defendants. Plaintiffs
also sufficiently plead that defendants committed
intentional acts that were significant factors in
causing the alleged breaches of fiduciary duty.
FN25
By way of specific factual averments,
plaintiffs allege defendants induced the General
Partner to breach the Partnership Agreement for
self-interested reasons adverse to the interests of
FN26
the Partnership without justification.
Finally,
plaintiffs plead a detailed listing of alleged damFN27
ages.
FN24. Boyer v. Wilmington Materials,
Inc., Del. Ch., C.A. No. 12549, Allen, C.,
slip op. at 23, 1997 WL 382979 (June 27,
1997).
FN25. Am. Compl., paras. 23, 24, 26, 27,
28, 29, 31, 32.
FN26. Am. Compl., paras. 23, 24.
FN27. Am. Compl., paras. 88-97.
[10] However, the Officers could only be liable
for tortious interference with their own company's
contract if they exceeded the scope of their authority. “[E]mployees acting within the scope of their
employment are identified with the defendant himself so that they may ordinarily advise the defendant to breach his own contract without themselves
FN28
incurring liability in tort.”
“This rationale is
particularly compelling when applied to corporate
officers as ‘their freedom of action directed toward
corporate purposes should *1183 not be curtailed
FN29
by fear of personal liability.’ ”
FN28. W. PAGE KEETON ET AL.,
PROSSER AND KEETON ON THE LAW
OF TORTS § 129, at 990 (5th ed.1984).
FN29. Young v. West Coast Indus. Relations Assoc., Inc., 763 F.Supp. 64, 77
(D.Del.1991), quoting Steranko v. Inforex,
Inc., 5 Mass.App.Ct. 253, 362 N.E.2d 222,
235 (1977). See also Shearin v. E.F. Hutton Group, Inc., Del. Ch., 652 A.2d 578,

589 (1994) (stating directors cannot be
held personally liable for inducing a
breach of contract by their corporations
when they act within their role).
[11] Defendants also argue that plaintiffs fail to
allege specific facts concerning the Officers' supposed interference with the Partnership Agreement.
While I disagree with defendants' assertion that
plaintiffs fail to allege specific facts as to the Officers' role in the alleged breach of the Partnership
Agreement, I fail to find a specific allegation that
the Officers exceeded the scope of their authority to
act on behalf of the General Partner. Merely stating
that the Officers controlled the General Partner fails
to support a claim of tortious interference. If the
facts pleaded are taken as true, I do not doubt that
the Officers controlled the General Partner.
However, while plaintiffs allege with sufficient
specificity that the Officers used this control for
self-interested reasons adverse to the Partnership's
interests (thereby allegedly breaching their fiduciary duty to the Limited Partners and the Limited
Partnership), plaintiffs do not allege that the Officers exceeded the scope of their authority to direct
the General Partner's business decision making
when they committed these self-interested acts.
[12][13] As for the Affiliates and Parents,
“there can be no non-contractual liability to the affiliated corporation” for tortious interference unless
plaintiffs plead and prove that: (1) the Affiliates
and Parents were “interfering part[ies],” and (2) the
Affiliates and Parents interfered “not to achieve
permissible financial goals but sought maliciously
FN30
or in bad faith to injure plaintiffs.”
It is not
unfair to regard a parent and its wholly owned subsidiary as a single economic unit. Beginning with
that premise, courts have reasoned that just as an
entity cannot be liable for interfering with the performance of its own contract, a parent cannot be liable for interfering with the performance of a
FN31
wholly owned subsidiary.
As for affiliates,
Chancellor Allen has opined, “the relationship
among wholly owned affiliates with a common par-

© 2011 Thomson Reuters. No Claim to Orig. US Gov. Works.

Page 11
752 A.2d 1175
(Cite as: 752 A.2d 1175)

ent is no different, insofar as is relevant here, than
that between a parent and a subsidiary. Such entities share the commonality of economic interests
which underlay the creation of an interference privFN32
ilege.”
That same reasoning applies here.
FN30. Shearin, 652 A.2d at 591.
FN31. See, e.g., American Medical International, Inc. v. Giurintano, Tex.App., 821
S.W.2d 331 (1991) (holding that antitrust
immunity of parent for conspiring to restrain trade with subsidiary is applicable to
claim for interference with contract).
FN32. Shearin, 652 A.2d at 591-92 n. 14.
Allegations, even when taken as true, that the
Officers utilized the Parents and Affiliates to complete self-interested transactions to the detriment of
the Partnership are not sufficient to meet the elements required to hold the Officers, Affiliates and
Parents liable for tortious interference with a contract. Accordingly, defendants' motion to dismiss
plaintiffs' tortious interference claim is granted.
E. Do Plaintiffs State a Claim for “Piercing the
Corporate Veil” of the General Partner?
[14] “Persuading a Delaware court to disregard
FN33
the corporate entity is a difficult task.”
In order to state a cognizable claim to pierce the corporate veil of the General Partner, plaintiffs must allege facts that, if taken as true, demonstrate the Officers' and/or the Parents' complete domination and
FN34
control of the General *1184 Partner.
The degree of control required to pierce the veil is
“exclusive domination and control ... to the point
that [the General Partner] no longer ha[s] legal or
FN35
independent significance of [its] own.”
FN33. Harco Nat. Ins. Co. v. Green
Farms, Del. Ch., C.A. No. 1131, Hartnett,
V.C., slip op. at 9-10, 1989 WL 110537
(Sept. 19, 1989).
FN34. Mobil Oil Corp. v. Linear Films,
Inc., 718 F.Supp. 260, 271 (D.Del.1989).

FN35. Hart Holding Co. v. Drexel
Burnham Lambert, Inc., Del. Ch., C.A. No.
11514, Allen, C., slip op. at 26, 1992 WL
127567 (May 28, 1992).
[15][16] Piercing the corporate veil under the
alter ego theory “requires that the corporate strucFN36
ture cause fraud or similar injustice.”
Effectively, the corporation must be a sham and exist for
no other purpose than as a vehicle for fraud.
Plaintiffs merely state that the purpose of the General Partner is to manage and operate the Partnership. Plaintiffs have not stated sufficient facts that
if true would justify disregarding the corporate
form of the General Partner. Therefore, I grant defendant's motion to dismiss plaintiffs' claim to
pierce the corporate veil of the General Partner.
FN36. Outokumpu Eng'g Enter., Inc. v.
Kvaerner Enviropower, Inc., Del.Supr.,
685 A.2d 724, 729 (1996).
F. Do Plaintiffs State a Claim for Aiding and
Abetting?
[17][18] In order to show that the Officers, Affiliates and Parents aided and abetted the General
Partner's breach of its fiduciary duties, the plaintiffs
must plead facts that if true would demonstrate (1)
the existence of a fiduciary relationship, (2) a
breach of the fiduciary's duty, (3) a knowing participation in the breach by the non-fiduciary defendFN37
ant and (4) resulting damages to plaintiffs.
Plaintiffs plead, and defendants do not dispute, the
existence of a fiduciary relationship between the
General Partner and the Limited Partners. Plaintiffs
also plead that the General Partner committed numerous breaches of fiduciary duty resulting in economic damage to plaintiffs. Specifically, the Limited Partners claim that the defendants' wrongful
actions cost the Limited Partners millions of dollars
in lost value, fees, use of money and Partnership
opportunities while generating millions in fees to
defendants and enabling them to acquire the Partnership's assets at improperly depressed prices.
FN38

© 2011 Thomson Reuters. No Claim to Orig. US Gov. Works.

Page 12
752 A.2d 1175
(Cite as: 752 A.2d 1175)

FN37. Nebenzahl v. Miller, Del. Ch., C.A.
No. 13206, Steele, V.C ., mem. op. at 16,
1996 WL 494913 (Aug. 26, 1996, corrected Aug. 29, 1999); In re Santa Fe Pacific
Corp. Shareholder Litig., Del.Supr., 669
A.2d 59, 72 (1995) (citing Weinberger v.
Rio Grande Industries, Inc., Del. Ch., 519
A.2d 116, 131 (1986)).

aiding and abetting claim is denied.
Del.Ch.,1999.
Wallace ex rel. Cencom Cable Income Partners II,
Inc., L.P. v. Wood
752 A.2d 1175
END OF DOCUMENT

FN38. Am. Compl., paras. 83-87.
[19] This claim, which on its face assumes the
officers,
parents
and
affiliates
to
be
“non-fiduciaries,” seems inconsistent with plaintiffs
primary argument that each defendant owes fiduciary duties to the Limited Partners. Nonetheless, I
will not dismiss plaintiffs' aiding and abetting claim
as I may later decide, after discovery or at trial, that
plaintiffs cannot prove the pleaded requisite control
necessary to establish the existence of a fiduciary
relationship between each defendant and the LimFN39
ited Partnership and/or the Limited Partners.
Therefore, plaintiffs may continue to pursue the inconsistent, conflicting, aiding and abetting claim if
they so choose. The defendants' motion to dismiss
the aiding and abetting claim is denied.
FN39. The relationship between the claim
that the defendants owed fiduciary duties
which they breached and the claim that
they, in the alternative, aided and abetted
the General Partner's (that they allegedly
controlled) breaches of fiduciary duty interests me, in theory, but it appears to me
to be a distinction more readily and carefully addressed after fact finding rather
than by pre-trial dispositive motion.
V. Conclusion
For the foregoing reasons defendants' motion to
dismiss is granted as to the contract claim against
the Officers, Affiliates and Parents, the tortious interference claim, and the claim to pierce the General *1185 Partner's corporate veil. Defendants' motion to dismiss the breach of fiduciary duty claims
against the Officers, Affiliates and Parents, and the

© 2011 Thomson Reuters. No Claim to Orig. US Gov. Works.