Monday, October 30, 2017
North Carolina Court Addresses a Poorly Drafted Complaint,
But Makes a Few Errors of its Own
In a recent decision from the North Carolina business Court, it considered (and rejected) a poorly researched and crafted complaint. Largely on lack of jurisdiction grounds. However, in doing so, the court made some suggestions as to the application of derivative action law that are not clearly the law. Azure Dolphin, LLC v. Barton, 2017 NCBC 88, 2017 WL 4400223 (N.C.B.C. Oct. 2, 2017).
Jean-Pierre Boespflug (“Boespflug”) and Justin Baron (“Barton”) had over the years accumulated a significant real estate portfolio held in a variety of formats and business vehicles. Typically Barton contributed management efforts and Boespflug contributed capital. Azure Dolphin was a vehicle through which Boespflug held interest in various ventures.
In April 2011, Boespflug communicated to Barton that he could no longer personally guarantee loans on the various properties. In response, as alleged in the lawsuit, Barton took action to remove Boespflug/Azure Dolphin from the various properties, converted the equity to promissory notes, treated Boespflug’s interest as no longer having voting rights, and unilaterally amended the operating agreements controlling the individual properties to be “considerably more favorable to” Barton. Opinion, ¶ 12.
Significant portions of the complaint were dismissed because the North Carolina court did not have personal jurisdiction over the named defendant; these defendants were business entities organized and having principal places of business outside of North Carolina.
With respect to one defendant, JPB Holdings, while its incorporation in California had been contemplated, it was never completed. Under North Carolina law it could not be sued as it did not exist as a corporation.
Claims for the judicial dissolution of entities created outside of North Carolina on the basis that:
This Court has held that “[j]udicial dissolution of entities created under, and granted substantial contractual freedom by, the laws of one state should be accomplished by a decree of a court of that state.” Camacho v. McCallum, 2016 NCBC LEXIS 81, at *13–14 (N.C. Super. Ct. Oct. 25, 2016). Courts in other jurisdictions have consistently reached the same conclusion. See, e.g., In re Raharney Capital, LLC v. Capital Stack LLC, 25 N.Y.S.3d 217, 217–18 (N.Y. App. Div. 2016) (holding that New York courts lack jurisdiction to dissolve Delaware LLC); Young v. JCR Petroleum, Inc., 423 S.E.2d 889, 892 (W.Va. 1992) (“The existence of a corporation cannot be terminated except by some act of the sovereign power by which it was created.”); Mills v. Anderson, 214 N.W. 221, 223 (Mich. 1927) (“It is textbook law that the courts of one State cannot dissolve a corporation created by another State.”). Opinion ¶ 37
As for two North Carolina organized LLCs, Boespflug’s application for judicial dissolution was denied for lack of standing. While he had been a member of each, he pledged those interests to his attorneys. When they foreclosed on the pledge he ceased to be a member. Under the North Carolina LLC Act, only a member has standing to move for judicial dissolution. As to this point the Court cited N.C. § 57D-3-02; a reference to § 57D-3-02(a)(3) might have been more on point.
With respect to Boespflug’s efforts to have Barton removed as the manager of the entities over whom the court had jurisdiction, the court found (on questionable reasoning expanded upon below) that removal of a manager may be granted only in a derivative, and not in a direct, action.
Efforts to have the Barton-amended operating agreements set aside were dismissed as not all parties thereto were not before the court
The Court concludes that the absent members of the Investment Entities are necessary parties under section 1–260. The purpose of Plaintiffs’ claim is to invalidate the Investment Entities’ operating agreements and to alter their memberships. Yet each of the Investment Entities has one or more members or owners who are parties to its operating agreement but are not parties to this litigation. Any declaration invalidating an operating agreement or altering the LLC’s membership under the operating agreement would, “as a practical matter,” adversely affect the rights of these members. N.C. Monroe Constr. Co. v. Guilford County Bd. of Educ., 278 N.C. 633, 640, 180 S.E.2d 818, 822 (1971) (holding that a contracting party “is a necessary party in a proceeding to declare its contract ... invalid”). Accordingly, this Court cannot “properly determine the validity of” the operating agreements without making each member “a party to the proceeding.” Id.; see also Window World of St. Louis, Inc. v. Window World, Inc., 2015 NCBC LEXIS 79, at *15 (N.C. Super. Ct. Aug. 10, 2015). Opinion ¶ 53, citations to record deleted.
Last, claims for breach of fiduciary duty were sismissed because, under the North Carolina LLC Act, a manager’s fiduciary duties were for the benefit of the company and not for each individual member.
As mentioned above, the decisions reference to corporate law vis-à-vis the removal of a director is at minimum questionable. Specifically:
“Managers of limited liability companies are similar to directors of a corporation.” Kaplan v. O.K. Techs., L.L.C., 196 N.C. App. 469, 474, 675 S.E.2d 133, 137 (2009). [How are managers of an LLC similar to corporate directors? The former derive their authority from the statute and often are in place before the corporation has shareholders. The manager of an LLC comes into that position by contract and has the authority determined by contract.] North Carolina law is clear that a corporate director owes a fiduciary duty to the company [Why is this relevant to LLC? The LLC act defines the obligations of a manager, so why not use the LLC statute as the basis of your legal argument? The business corporation act is not applicable to LLCs, and it does not serve as a “gap-filler” for the LLC Act. See N.C. § 57D-2-30(e). More importantly, the applicable provision in the LLC statute is only a default provision, requiring the judge to determine what the operating agreement says about manager duties, what they are and to whom they are owed and who may bring a claim for their violation], and an action to remove a director for mismanagement is properly raised by the corporation, not by individual shareholders. See, e.g., Gwaltney v. Gwaltney, 2017 NCBC LEXIS 11, at *17 (N.C. Super. Ct. Feb. 8, 2017); Greene v. Shoemaker, 1998 NCBC LEXIS 4, at *5, 8, 13–16 (N.C. Super. Ct. Sept. 24, 1998). [Perhaps true in the context of a corporation, but this is an action involving an LLC.] For the same reason [application of corporate law to LLCs is unsupported (and unsupportable?)] an action to remove a manager of an LLC is derivative in nature and must be asserted by or on behalf of the LLC, rather than by an individual member. See, e.g., Kroupa v. Garbus, 583 F. Supp. 2d 949, 953 (N.D. Ill. 2008) (applying Delaware law); Mich II Holdings LLC v. Schron, 2011 N.Y. Misc. LEXIS 7182, at *11 (N.Y. Sup. Ct. June 16, 2011) (under New York law, claim for removal of manager is “a claim of the corporation”); see also Freeman v. Premium Natural Beef, LLC, 2013 U.S. Dist. LEXIS 138797, at *17 (W.D. Okla. Sept. 27, 2013). [No, an action to remove a manager is not governed by corporate law, it is governed by the LLC statute that defers to the LLC’s operating agreement. N.C. § 57D-2-30(a). Therefore, such a blanket statement is dead wrong. Who has the right to remove the Manager is determined by the operating agreement.]
“Corporification” is the term oft-employed to describe the incorporation (pun intended) of concepts of corporate law into LLCs. The topic is considered generally at Borden, Hurt and Rutledge, It’s a Bird, It’s a Plane, No, It’s a Board-Managed LLC!, Business Law Today (March 2017); SteveFrost and Kelley Bender, Adopting Corporate Terms in an LLC Agreement, or “Be Careful What You Ask For: You Might Get It!!”, J. Passthrough Entities, Jan-Feb. 2017 at 17 and Steven G. Frost, Things You Thought You Knew About Delaware Law, But Maybe Don’t … Recent Delaware Partnership and LLC Case Law, J. Passthrough Entities, May-June 2013 at 25. To date, “corporification” seems to come in two flavors. In the first, having examined an operating agreement and found that it utilized “corporate” concepts such as a “board” or a “president,” the court utilizes related concepts of corporate law in order to apply those provisions. This is the analytic path employed in Obeid v. Hogan, No. 11900-V CL, 2016 BL 185285 (Del. Ch. June 10, 2016) and Richardson v. Kellar, 2016 NCBC 60, 2016 WL 4165887 (Sup. Ct. N.C. Aug. 2, 2016). Cases such as these caution against the inclusion of corporate concepts and terms absent careful consideration of what additional law may follow from doing so and either knowingly accept that possibility or in the alternative the careful limitation of the application of that additional law.
This Azure Dolphin case is of the second flavor, one which is likely more destructive to the development of LLC law. In this case the judge in effect treated the law of business corporations as being normative. Then, drawing various analogies between LLCs and corporations (e.g., managers of an LLC are like corporate directors), applied corporate law to the dispute. There are several flaws built into this system. First, it assumes the analogies are accurate. In fact often then are not. Looking specifically at Azure Dolphin, the managers of an LLC are not equivalent to the directors of a corporation. The former derive their authority from the terms of the unique operating agreement of a particular LLC. It is no more possible to say “managers have the authority to do x, y and z” than it is to say that “the price of widgets ranges from a to b.” Under most LLC acts the only mandatory effect of electing that the LLC have managers is that the members, qua members, cease to have apparent agency authority to act on the LLC’s behalf. See, e.g.., KRS § 275.135(2)(a). In contrast, directors of a corporation derive their authority not from a contract or a delegation from the shareholders (directors are not the shareholders’ agents) but rather from the corporate statute. See generally Rutledge, Let’s Stop Describing LLCs as “Hybrids,” J. Passthrough Entities (Sept./Oct. 2014) at 29.
The Azure Dolphin court, in analogizing to corporate law to determine the path by which a manager could be removed, failed to apply either the LLC’s operating agreement or the North Carolina LLC Act (which would have directed the court to the operating agreement). Other courts should not make the same error.
Friday, October 27, 2017
New York Court Addresses Action by Written Consent in LLC, Breach of Contract Versus Breach of Fiduciary Duty
New York Court Addresses Action by Written Consent in LLC, Breach of Contract Versus Breach of Fiduciary Duty
In a quite short decision issued from New York, the court provided some useful guidance with respect to both member action by written consent and distinguishing claims for breach of fiduciary duty from claims for breach of contract. Schindler v. Rothfeld, 153 A.D.3d 436, 60 N.Y.S.3d 125, 2017 N.Y. Slip Op. 06145 (App. Div. 1st August 15, 2017.
This short decision does not fully recite the factual background, but clearly the interpersonal relationship among the members of the LLC and the manager had broken down. When the manager was removed from that position, he objected that the removal was invalid as it was done without a formal meeting of the members with prior notice. The court rejected the manager’s claim on the basis that the operating agreement provided that “any action that might be taken at a meeting could be taken by informal action where, as here, a majority of the members agreed to take it, and that notice of the decision to take an informal action was not required to waive the meeting requirement.”
The court did allow to proceed a claim against one of the members that she failed to satisfy the obligation, undertaken in the operating agreement, to “devote her full-time services exclusively to the company,” indicating that these allegations “state a cause of action for breach of contract.” While that claim was allowed to proceed forward, the court rejected the claim that that same conduct constituted a breach of fiduciary duty as the fiduciary duty claims were “premised upon the allegations underlying part of the breach of contract counterclaims.”
Erasmus — Prince of the Humanist
Today is the anniversary of the birth of Erasmus of Rotterdam, the Prince of the Humanist. Erasmus devoted his career and his mastery of Latin and Greek to translating and commenting upon sacred texts including a new translation of the New Testament and non-sacred literature such as the writings of Seneca. Along the way he wrote the Colloquies and the Adages, social commentary such as the Praise of Folly and on the need for internal reform of church practices including the Julius Exclusus. He wrote a “paraphrase” of the New Testament (far longer in paraphrase than was the original text) that under Edward VI (in English translation) was required to be in every English church. The future Queen Mary I (Mary Tudor) translated a portion of the Paraphrases into English. The Paraphrases feature in the third of the Kingsbridge novels of Ken Follett, the recently released Pillar of Fire.
He and Sir Thomas More were the best of friends, and the Praise of Folly was written while he was staying with More.
It’s not that I think a lot of Erasmus, it’s just that I have copies of his portrait hanging in both my house and my office.
In at least the first episode of The Orville, behind the captain in his office are some bookshelves – one of the books is The Cloister and the Hearth. This novel is an imagined account of the lives of Erasmus’ parents.
While we are sure that October 28 is the date of his birth, we are not sure of the year. Strong cases can be made for 1466 and 1469.
Thursday, October 26, 2017
Many partnerships, particularly the real estate development and oil and gas industries, are intentionally formed with written partnership agreements and full understanding amongst the participants as to what are the rights and obligations as partners. There are as well inadvertent partnerships. “Partnership” is a relationship that exist if the statutory definition of what is a partnership is satisfied. Hence, persons can be in a partnership without either knowing that they are partners or, in certain cases, even if they have said they don’t want to be partners. The flipside of that coin is that, even if you say you are partners, if you don’t meet the legal definition of what is a “partnership,” then no partnership comes into existence. It was this latter rule that was recently considered by a New York Court. Hammond v. Smith, 2017 NY Slip Op. 05337, 151 A.D.3D 1896 (App. Div. Fourth June 30, 2017, corrected Aug. 2, 2017).
A partnership is defined at section 6(1) of the Uniform Partnership Agreement as “an association of two or more persons to carry on as co-owners a business for profit.” Section 7 of the UPA goes on to define a number of relationships or features thereof that do not give rise to a partnership. In this instance, the plaintiff alleged that the defendant had breached an oral partnership agreement, the aim of the partnership being to develop and market a lithographic tool. The trial court granted summary judgment, finding that no partnership existed. That determination would be affirmed by the Appellate Division. In that there was no partnership agreement, the court looked: “(1) the parties’ intent, whether express or implied; (2) whether there was joint control and management of the business; (3) whether the parties shared both profits and losses; and (4) whether the parties combined their property, skill or knowledge.” From there, making factual assessments based upon evidence including depositions and affidavits, the court found, notwithstanding the fact that the parties had referred to one another as partners, determined that the necessary elements of a partnership are missing. Citing both UrbanAmerica, L.P. II v. Carl Williams Group, LLC, 95 A.D. 3D 642, 644 (2012) and Kyle v. Ford, 184 A.D.2D 1036, 1036-1037 (1990), it specifically noted that “calling an organization a partnership does not make it one.”
Peter Mahler, in his blog New York Business Divorce, has as well reviewed this decision, that review in a posting on October 23 titled Calling an Organization a Partnership Doesn’t Make it One, But Not Calling it a Partnership Doesn’t Make it Not One. Got It? HERE IS A LINKto that posting.
Wednesday, October 25, 2017
LLC Restricted to Penalty Detailed in Operating Agreement to Apply Upon Failure to Meet Capital Contribution Obligation
LLC Restricted to Penalty Detailed in Operating Agreement to Apply Upon Failure to Meet Capital Contribution Obligation
It is not at all atypical for LLC operating agreements to provide that, from time to time, that members may be required to contribute additional capital to the venture. It is likewise not atypical for one or more members to fail to satisfy those obligations. Anticipating that circumstance, it is incumbent that the operating agreement address what happens upon such a default, including how those funds may be otherwise raised and the consequences to the defaulting number. In a recent case out of the North Carolina Business Court, the court held that where the operating agreement identified either of a pair consequences to a member defaulting upon an additional capital contribution obligation, the company could not otherwise address the default. Chisum v. Compagna, 2017 NCBC 61, 2017 WL 3113414 (N.C.B.C. July 20, 2017).
Chisum was a member in Judges Road Industrial Park, LLC (“Judges Road”), the other members being Rocco Compagna and Richard Compagna (collectively “Compagna”). The operating agreement for Judges Road provided that, from time to time, the members would make additional capital contributions when determined that such were needed by the Managers. That determination by the Managers required, in effect, approval of a majority in interest of the members. Initially, Chisum held 35% of the interest in Judges Road. Over time, there were certain reassignments in the ownership of the company, ultimately reducing, it would seem, Chisum’s interest in the company to 16.66%. The operating agreement went on to detail the consequences of any failure to contribute additional capital, pursuant to which the other members were allowed to contribute the missing funds to the company or, in the alternative, loan them to the company. If treated as a capital contribution, the contributing members pro rata portion of the company would increase. It came to pass that an additional capital contribution of $100,000 was to be made, of which Chisum was to pay $16,666.66. When Chisum did not meet this capital contribution, Compagna satisfied it in full, and asserted that in consequence Chisum’s interest in the company was reduced to zero. Chisum objected, asserting that, under the operating agreement, he was at most subject to dilution, but not termination as a member.
Parsing the operating agreement, particularly section 8.1(b) thereof, and as well considering the method of valuation to be applied upon the proposed transfer of a membership interest, the court concluded:
This Court has thoroughly considered the language of section 8.1(b) of the Operating Agreement and concludes that it is unambiguous and does not permit a member’s Membership Interest to be diluted to zero, or extinguished, by his failure to contribute capital in response to a capital call. The unambiguous language of the Operating Agreement provides that a contributing member making a Capital Contribution for a non-contributing member is credited with one additional Capital Unit for each $1,000,000 of “Additional Capital” contributed. Each member’s Membership Interest is then adjusted by dividing the member’s aggregate Capital Units by the new total aggregate number of Capital Units held by all members. As a result, the contributing member’s Membership Interest proportionally increases, the non-contributing member’s Membership Interest proportionally decreases. Since the non-contributing member is not required to sell his Capital Units to the contributing member, the non-contributing member’s Membership Interest can be proportionally reduced in relation to the total number of Capital Units outstanding, but can never be reduced to 0.
With respect to the ability, in a Kentucky organized LLC, to define the consequences of any failure to contribute additional capital or otherwise satisfy obligation undertaken in the operating agreements, see KRS § 275.003(2).
Pennsylvania Supreme Court Issues a Truly Bizarre Opinion on the Obligation of Good Faith and Fair Dealing in Limited Partnership Agreements
Pennsylvania Supreme Court Issues a Truly Bizarre Opinion on the Obligation of Good Faith and Fair Dealing in Limited Partnership Agreements
Within every contract there exist a non-waivable obligation of good faith and fair dealing. If you don’t believe me, believe the Restatement (2nd) of Contracts, which at section 205 provides:
Every contract imposes upon each party a duty of good faith and fair dealing in its performance and enforcement.
That said, in a recent, and fairly described as truly bizarre, decision from the Pennsylvania Supreme Court, it held that no obligation of good faith and fair dealing arose in an agreement of limited partnership. Hanaway v. Parkersburg Group, No. 55 MAP 2016, __A.3d___, 2017 WL 3600580 (Pa. Aug. 22, 2017).
The Hanaways, plaintiffs in this action, were among the limited partners of Sadsbury Associates, L.P., a Pennsylvania limited partnership of which T. R. White, Inc. (“White”) served as the general partner. The Sadsbury limited partnership was a financial success. In light of that history, the same participants organized the Parksburg limited partnership, largely devoted to the organization of a housing development. There was transferred to Parksburg an option owned by White for what was referred to as the “Davis Tract.” The subdivision plat as well included an adjacent quarry, owned by the Hanaways and for which Parksburg held an option. The agreement of limited partnership gave White broad discretion with respect to its management and as well imposed ongoing capital contribution obligations upon the limited partners.
Sometime after Parksburg began the planning effort with respect to the subdivision, the Hanaways advised Parksburg that the option to acquire the quarry had expired and would not be renewed, and as well that they refused to contribute additional capital to the project. These actions by the Hanaways led other limited partners to be unwilling to contribute additional capital, and the project stalled. White informed the Hanaways that the Davis Tract would be sold, as well as the option for an adjacent tract upon which an option was held, for appraised fair market value to a newly formed limited partnership, Park Mansion Partners (“PMP”). White served as the general partner of PMP, and its limited partners were those persons who had been limited partners in Parksburg, with the exception of the Hanaways. Some two years later, the Hanaways would file suit, alleging the sale of the properties to PMP for less than adequate consideration and below fair market value, all “as part of the scheme to eliminate the Hanaways’ ownership interests.” 2017 WL 3600580, *3. In response to a motion for partial summary judgment based upon the failure by the Hanaways to identify a specific term of the Parksburg limited partnership agreement that had been breached, they contended that White had breached the implied covenant of good faith and fair dealing. The trial court granted partial summary judgment, holding, inter alia, that the broad discretion afforded White in the agreement of limited partnership could not be overridden by the implied covenant of good faith and fair dealing. An intermediate court of appeals would reverse, holding that the discharge of the contractually granted rights remained subject to the implied covenant of good faith and fair dealing, and on that basis reversed the trial court. Hanaway v. Parksburg Group, L.P., 132 A.3d 461 (Pa. Super. 2015). In doing so, that intermediate court of appeals both adopted the Restatement (2nd) of Contracts section 205 and, as characterized by the Pennsylvania Supreme Court:
Perceived no reason to treat limited partnership agreements differently than any other type of contract. The majority also opined that the Hanaway’s breach of the covenant of good faith and fair dealing claim was a breach of contract action, not an independent action for breach of a duty of good faith. 2017 WL 3600580, *3.
The Pennsylvania Supreme Court would reverse that determination, holding in effect that the obligation of good faith and fair dealing does not apply and limited partnership agreements save those organized under Pennsylvania’s new (2016) Limited Partnership Act, it expressly providing for the obligation of good faith and fair dealing. There is underlying political aspect of this determination. At the intermediate court of appeals, then Judge Donahue, since transitioned to the Pennsylvania Supreme Court, had in a dissenting opinion stated that the implied covenant of good faith and fair dealing does not apply in limited partnerships because they are “creatures of the legislature.” That are “governed, first and foremost” by the Limited Partnership Act. 2017 WL 3600580, *4, quoting Hanaway, 132 A.3d at 477. This decision of the Pennsylvania Supreme Court would for all interests and purposes adopt that dissent.
As described by the Pennsylvania Supreme Court:
We granted allocatur to consider whether the implied covenant of good faith and fair dealing applies to all limited partnership agreements formed in Pennsylvania, and, if so, whether the implied duty of good faith and prayer dealing can override the express terms of a limited partnership agreement. 2017 WL 3600580, *4.
I n response thereto, White adopted the reasoning espoused by Donahue at the intermediate appellate level, “emphasizing that limited partnership agreements are unique and ill-suited for application of the implied covenant of good faith and fair dealing because they are governed by statute.” 2017 WL 3600580 *5. He pointed out as well that under the Uniform Limited Partnership Act (2001), adopted in Pennsylvania in 2016, there is an express incorporation into the statute of the contractual obligation of good faith and fair dealing, characterizing this as a “drastic change” and reasoning that the obligation of good faith and fair dealing “did not exist at the time that the parties formed Parkburg and entered into a limited partnership agreement.” Id. In contrast, the Hanaways argued that the implied covenant applies in all contracts, including limited partnership agreements.
IMHO, the Pennsylvania Supreme Court could have easily resolved this dispute without making any further examination of the obligation of good faith and fair dealing. Specifically, it could have held, as a factual matter, that the actions undertaken by White in the reorganization of the then failing Parksburg limited partnership fell within the general partners authority and/or that the plaintiffs had failed to adequately plead how White’s actions constituted a breach of the limited partnership agreement. Had the court done so, the Hanaway opinion would have been entirely uninteresting. Unfortunately, that is not the way it went down.
The Pennsylvania Supreme Court would hold that, except with respect to limited partnerships organized under the Uniform Limited Partnership Act as adopted in Pennsylvania in 2016, the implied covenant of good faith and prayer dealing does not apply with respect to limited partnership agreements. After stating that “The Hanaways had the opportunity to bargain for specific protections without having to rely upon implicit concepts.” (2017 WL 3600580, *8), a statement that can only be made if one entirely ignores the purpose of the implied covenant, the court went on to hold that, under the applicable Limited Partnership Act “there was no duty of good faith applicable to limited partnership agreements formed pursuant to PRULPA.” 2017 WL 3600580, *9.
This decision was joined in by three members of the six person court. Justice Donahue, who participated in the decision at the intermediate appellate level, did not participate. There was a dissenting opinion by two of the sitting justices, an opinion which would have found that the contractual obligation of good faith and fair dealing applies to any contract, and that the failure to reference the obligation in the prior limited partnership act in no manner abrogated its existence. From there, the dissent would have suggested a focus upon “whether the implied covenant of good faith and fair dealing may impose duties that are inconsistent with the duties imposed by the express terms of a limited partnership agreement,” suggesting that:
It is illogical to conclude that, had the limited partners considered this issue at the time of forming the limited partnership, the limited partners would have authorized Parksburg (sic - White), as the general partner, to exercise its discretion in bad faith to the detriment of either the Partnership or the limited partners.
This is, at minimum, a disturbing decision. First, for a state supreme court to suggest that because limited partnership agreements are created pursuant to statute that the obligation of good faith and fair dealing is somehow inapplicable is simply nonsensical. Under that paradigm, to what degree of statutory involvement is necessary in order to abrogate the application of section 205 of the Restatement (2nd) of Contracts and the implied covenant? Partnership agreements are heavily influenced by statute. LLC operating agreements are heavily influenced by statute. Stockholder buy/sale-restriction agreements are heavily influenced by statute. Security agreements are heavily influenced by statute. The list goes on. Is the implied covenant inapplicable in all of them?
At least one member of the Pennsylvania bar has suggested that this decision is not that important because, with the application of the new Pennsylvania limited partnership act to existing limited partnerships, they will all become subject to the new law’s express incorporation of the implied covenant of good faith and fair dealing. I can’t accept that. First, with respect to all of those legacy limited partnerships, the implied covenant of good faith and fair dealing will not apply retroactively to conduct and actions that accrued prior to the drag-in effective date. Second, only a minority of the states have adopted the Uniform Limited Partnership Act (2001). Litigants in other states, seeking to avoid the application of the implied covenant of good faith and fair dealing, are going to cite this decision of the Pennsylvania Supreme Court in support of the notion that the covenant is somehow inapplicable. Hopefully those foreign courts will undertake an appropriate analysis and an appreciation that the implied covenant exist in every contract, and its reference in the Uniform Limited Partnership Act (2001) is primarily in order to make clear that it cannot be waived in an agreement, but the terms of its application may be explained.
All in all, this is just a bizarre decision.
Saint Crispin’s Day and the Battle of Agincourt
Today is the anniversary of the Battle of Agincourt, taking place in 1415 (602 years ago) between the forces of France and her various allies and the invading English forces under the command of King Henry V. Shakespeare, by having his character Henry V repeatedly refer to the day of the battle as St. Crispin’s Day, otherwise saved this obscure saint from being lost, save for experts in hagiography, to the mist of history.
Agincourt was the third of a trio of famous battles in the course of the 100 Years War; the other two were Crecy (1346) and Poitiers (1356). The English won all three of these battles. In the end they lost the war. If you should want a comprehensive review of the 100 Years War, the four volume treatment by Jonathan Sumption (The Hundred Years War I – Trial by Battle; The Hundred Years War II – Trial by Fire; The Hundred Years War III – Divided Houses; and The Hundred Years War IV – Cursed Kings) is authoritative.
The English forces, likely numbering in the range of 7,000, were compelled to do battle with a numerically superior French force likely numbering in excess of 20,000. All else being equal, the English force should have expected to be annihilated. As is typical in the case of significant historical events, however, all things were not equal. The French and their allies were disorganized, and overall command of the battlefield was never achieved. Rather, individual nobles led their own contingents forward in a disorganized and sometimes conflicting manner. The terrain favored the English in several ways. The French “artillery,” crossbowmen (largely Pisan mercenaries) were not effectively deployed, and they had the unenviable task of shooting uphill. That same terrain required the French forces, both mounted and on foot, to attack uphill over a recently plowed field that, consequent to the recent rain, was more mud than dirt. The French knights and men at arms, slogging their way uphill, were a “target rich environment” for the rain of arrows let loose by the English longbows; assuming Henry’s forces numbered 7,000, likely 5,800 were longbowmen, each releasing four to six arrows a minute.
Another factor was that the very size of the French force worked to its disadvantage in that those behind continued pressing forward, hoping for their moment of glory, even while those at the front were being slaughtered. It was not quite the situation suffered by the Romans at the hands of Hannibal at Cannae, but then likely it was not hugely better.
While comparative casualty figures are effectively impossible to ascertain, it is clear that the French were badly mauled with significantly more casualties than the English. Further, a significant number of French nobles fell in contrast to only two English nobles. Also, a significant number of French knights who has been captured in anticipation of being ransomed were executed. The validity of the execution order, given by Henry V, is to this day debated.
For an excellent review of the battle, see Juliet Barker's Agincourt.
As invented by Shakespeare in Henry V, Scene iii, the St. Crispin’s Day speech would immortalize Henry V:
WESTMORELAND. O that we now had here
But one ten thousand of those men in England
That do no work to-day!
KING. What’s he that wishes so?
My cousin, Westmoreland? No, my fair cousin;
If we are mark’d to die, we are enow
To do our country loss; and if to live,
The fewer men, the greater share of honour.
God’s will! I pray thee, wish not one man more.
By Jove, I am not covetous for gold,
Nor care I who doth feed upon my cost;
It yearns me not if men my garments wear;
Such outward things dwell not in my desires.
But if it be a sin to covet honour,
I am the most offending soul alive.
No, faith, my coz, wish not a man from England.
God’s peace! I would not lose so great an honour
As one man more methinks would share from me
For the best hope I have. O, do not wish one more!
Rather proclaim it, Westmoreland, through my host,
That he which hath no stomach to this fight,
Let him depart; his passport shall be made,
And crowns for convoy put into his purse;
We would not die in that man’s company
That fears his fellowship to die with us.
This day is call’d the feast of Crispian.
He that outlives this day, and comes safe home,
Will stand a tip-toe when this day is nam’d,
And rouse him at the name of Crispian.
He that shall live this day, and see old age,
Will yearly on the vigil feast his neighbours,
And say “To-morrow is Saint Crispian.”
Then will he strip his sleeve and show his scars,
And say “These wounds I had on Crispin's day.”
Old men forget; yet all shall be forgot,
But he’ll remember, with advantages,
What feats he did that day. Then shall our names,
Familiar in his mouth as household words-
Harry the King, Bedford and Exeter,
Warwick and Talbot, Salisbury and Gloucester-
Be in their flowing cups freshly rememb’red.
This story shall the good man teach his son;
And Crispin Crispian shall ne’er go by,
From this day to the ending of the world,
But we in it shall be remembered-
We few, we happy few, we band of brothers;
For he to-day that sheds his blood with me
Shall be my brother; be he ne’er so vile,
This day shall gentle his condition;
And gentlemen in England now-a-bed
Shall think themselves accurs’d they were not here,
And hold their manhoods cheap whiles any speaks
That fought with us upon Saint Crispin’s day.
HERE IS A LINK to Kenneth Branagh’s masterful rendition.
Today is also the anniversary of the storied “Charge of the Light Brigade” in the Crimean War (1854). That particular engagement was, for the English forces, significantly less successful.