## Facts

- Lord Baltimore Capital Corporation (LBCC) was a closely held Delaware S corporation formed by members of the Thalheimer family.
- Susan M. Blaustein, individually and through family trusts, became a minority stockholder in 1999 and entered a Shareholders’ Agreement with other stockholders.
- The Shareholders’ Agreement restricted transfers that could endanger S-corporation status and included penalties for noncompliant transfers.
- The Agreement provided LBCC “may repurchase shares upon terms and conditions agreeable to the Company and the selling shareholder,” if approved by either (i) a majority of the seven-member board or (ii) holders of at least 70% of outstanding shares.
- Blaustein alleged a controlling-family director, Louis B. Thalheimer, orally promised that after ten years stockholders could exit at net asset value without discount or penalty, and that the promise was not reduced to writing to protect S-corporation status.
- After ten years, Blaustein sought a repurchase; negotiations failed, and she alleged LBCC would consider repurchase only at a steep discount.
- In July 2012, the board considered and rejected Blaustein’s repurchase proposals; she alleged a majority of the board was conflicted and acted to preserve family members’ tax-planning benefits.

## Issues

1. Whether Delaware fiduciary duty law requires directors of a closely held corporation to consider or effectuate a minority stockholder buyout, or to provide a non-conflicted process for deciding whether to repurchase, absent an express contractual buyout right.
2. Whether the implied covenant of good faith and fair dealing required the board to negotiate a reasonable repurchase price or to appoint an independent committee to evaluate Blaustein’s repurchase proposals, given the Agreement’s permissive and mutual-agreement repurchase language.

## Decision

- The Delaware Supreme Court affirmed the Court of Chancery’s denial of leave to amend on futility grounds.
- Delaware common law imposed no duty on LBCC’s directors to consider or complete a minority stockholder buyout, and no separate right to a non-conflicted repurchase decision existed absent contract or statute.
- The implied covenant did not require LBCC to negotiate a reasonable repurchase price or to use an independent committee because the Agreement made repurchase discretionary (“may”) and conditioned it on mutually agreeable terms and specified approvals.
- The proposed amended fiduciary-duty and implied-covenant claims failed as a matter of law under the governing contract terms and Delaware corporate law.

## Legal Principles

- Directors of a Delaware closely held corporation have no default fiduciary duty to provide liquidity or an exit to a minority stockholder, absent an express contractual or statutory buyout right.
- The implied covenant of good faith and fair dealing is a limited remedy that protects reasonable contractual expectations reflected in the parties’ written agreement; it cannot create new substantive rights or governance requirements not bargained for.
- When a stockholders’ agreement states the company “may” repurchase shares only on terms mutually agreeable to both sides and subject to specified approvals, courts will not use the implied covenant to convert that discretion into a duty to negotiate, to repurchase, or to implement an independent decision-making process.

## Conclusion

The court held that neither fiduciary duty principles nor the implied covenant supplied a minority stockholder with a right to a buyout, a duty to negotiate a fair repurchase price, or an obligation to create an independent process where the governing agreement made repurchase discretionary and contingent on mutual agreement and specified approvals.


Blaustein v. Lord Balt. Cap. Corp., 84 A.3d 954 (Del. 2014)