Albert Manwaring IV. Covenant Not to Sue for Loyalty Breaches in an Agreement Among Stockholders May Operate Within the Space for Fiduciary Tailoring
In New Enterprise Associates 14. v. Rich, the Delaware Court of Chancery ruled that a covenant not to sue for breach of fiduciary duties in connection with the exercise of a drag-along provision to approve a merger or sale contained in a voting agreement among sophisticated stockholders in a Delaware general corporation was not facially invalid.
July 19, 2023 at 09:00 AM
4 minute read
The fiduciary duty of loyalty may be modified or eliminated in the LLC context, where freedom of contract is paramount. For corporations governed by the Delaware General Corporation Law (DGCL), however, many Delaware practitioners understood that the duty of loyalty was sacrosanct, and, unlike voting rights, appraisal rights, or the right to sell shares, could not be waived, limited, or barred in advance by parties in an agreement or otherwise. In New Enterprise Associates 14. v. Rich, C.A. No. 2022-0406-JTL (Del. Ch. May 2, 2023), the Delaware Court of Chancery ruled that a covenant not to sue for breach of fiduciary duties in connection with the exercise of a drag-along provision to approve a merger or sale contained in a voting agreement among sophisticated stockholders in a Delaware general corporation was not facially invalid.
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