A recent Court of Chancery case discusses the difference between pleading the knowledge element in complaints asserting claims for tortious interference with contract and aiding and abetting breach of fiduciary duty.
In Atlantic NWI, LLC v. The Carlyle Group Inc., et al., C.A. No. 2021-0944-SG (Del. Ch. Oct. 28, 2022), Plaintiff and another entity, “REDCO,” formed a joint venture to identify and develop commercial real estate investments. The joint venture agreement imposed exclusivity, confidentiality, and fiduciary obligations on REDCO. Plaintiff later sued REDCO after learning that it was competing with the joint venture by sourcing real estate opportunities to competitors, including one of the Defendants. After settling with REDCO, Plaintiff sued Defendants for tortious interference with contract, and aiding and abetting breach of fiduciary duty. Defendants moved to dismiss. This discusses the Court’s decision on the motion to dismiss.
First, the Court assessed Plaintiff’s tortious interference claim, which has five elements: (1) the existence of a contract, (2) that the defendant knew about, (3) an intentional act by defendant that is a significant factor in causing the breach of that contract, (4) without justification, (5) which causes injury. The Court explained that at the pleading stage “a plaintiff’s allegations that the defendant acted with a specific state of mind, such as knowledge, need only be averred generally.” The Court concluded that three sources plead in the complaint, taken together, supported a reasonable inference that Defendants knew of the joint venture and the agreement’s restrictions. They were (i) Defendants’ monitoring of information on Plaintiff and its parent company as competitors; (ii) similar restrictions among joint venturers are industry common practice; and (iii) information sent to one of the Defendants when the joint venture sought investors to participate in a recapitalization opportunity. Therefore, the Court denied Defendants’ motion as to Plaintiff’s tortious interference claim.
The Court then assessed Plaintiff’s claim for aiding and abetting breach of fiduciary duty. The elements for aiding and abetting breach of fiduciary duty are: (1) a fiduciary relationship existed, (2) the fiduciary breached its duty, (3) the non-fiduciary defendant knowingly participated in that breach, and (4) damages to the plaintiff resulted from the concerted actions of the defendant and the fiduciary. The Court explained that the knowledge element of such a claim requires a pleading of scienter, which meant “specific facts that support an inference that Defendants knew of REDCO’s specific fiduciary duties and participated in their breach.” The Court concluded that the complaint in Atlantic NWI failed to plead scienter because it did not adequately plead that Defendants had knowledge of the fiduciary duties in question. Therefore, the Court granted Defendants’ motion as to Plaintiff’s aiding and abetting claim.