5/10/18 8:45 AM CT l Author: Meg Spisich
The PEVC Committee is sponsoring a Breaking News Program on the recent Miller v. HCP (VC Glasscock Feb 1, 2018) case. The panel will be moderated by Jon Gworek of Morse, Barnes-Brown & Pendleton, P.C., and will feature panelists Brad Davey and David DiDonato of Potter Anderson & Corroon LLP. The Miller v. HCP case involved the sale of a limited liability company in a transaction that yielded an amount of consideration sufficient to cover certain controlling investors’ liquidation preference while leaving little leftover for the other equityholders lower on the distribution waterfall. At issue in the case was whether the board had an obligation to run an open-market sales process or auction to maximize value for the company. The limited liability company agreement waived all fiduciary duties of the managers. As noted in numerous cases, however, the implied covenant of good faith and fair dealing inheres in every limited liability company agreement governed by Delaware law and is not subject to waiver. The court examines whether the implied covenant imposed an affirmative duty on the board to run a competitive sales process in order to maximize value. The case is an important illustration of the different outcomes that can result in the use of the LLC structure over the corporate structure, and offers drafting lessons for practitioners in light of the ever-present implied covenant of good faith and fair dealing.