Miller v. Brightstar Asia, Ltd.

21-2301 Miller v. Brightstar Asia, Ltd. In the United States Court of Appeals FOR THE SECOND CIRCUIT AUGUST TERM 2021 No. 21-2301 TYLER MILLER, Plaintiff-Appellant, v. BRIGHTSTAR ASIA, LTD., Defendant-Appellee. On Appeal from the United States District Court for the Southern District of New York ARGUED: APRIL 11, 2022 DECIDED: AUGUST 3, 2022 Before: KEARSE, SACK, and MENASHI, Circuit Judges. Plaintiff-Appellant Tyler Miller appeals the dismissal of his direct suit against Defendant-Appellee Brightstar Asia, Ltd. In connection with the sale of his company, Harvestar, to Brightstar Asia, Miller entered into a contract with Brightstar Asia, Harvestar, and his co-founder. The contract provided that conflicted transactions between Brightstar Asia and Harvestar must be on “terms no less favorable to” Harvestar than those of an arm’s-length transaction. It also provided that Miller would have options rights to sell Harvestar shares to—or to buy Harvestar shares from—Brightstar Asia. Miller alleged in his complaint that Brightstar Asia engaged in conflicted transactions that rendered his options rights worthless. Those actions, according to Miller, breached both the express terms of the contract and the implied covenant of good faith and fair dealing. The district court (Daniels, J.) dismissed his complaint for raising claims that could be brought only in a derivative suit. We agree that Miller can bring a claim for breach of the express conflicted-transactions provision only in a derivative suit. However, we hold that Miller may bring a direct suit for breach of the covenant of good faith and fair dealing because that covenant is based on his individual options rights. Accordingly, we AFFIRM in part and VACATE in part the district court’s judgment. PAUL J. KROG, Bulso PLC, Brentwood, TN, for Plaintiff- Appellant. PETER C. SALES (Frankie N. Spero, Kristina A. Reliford, on the brief), Bradley Arant Boult Cummings LLP, Nashville, TN, for Defendant-Appellee. MENASHI, Circuit Judge: Tyler Miller, the plaintiff-appellant in this case, and Omar Elmi formed Harvestar, a cellphone refurbishment company, in 2016. About two years later, they sold a controlling stake in Harvestar to 2 Brightstar Asia, Ltd., the defendant-appellee, and concurrently entered into a shareholders agreement with Brightstar Asia and Harvestar. That agreement included a contractual standard of conduct for conflicted transactions. It also granted call and put options to Miller and Elmi to buy and sell shares at prices that depended on such variables as the number of cellphones Harvestar refurbished, Harvestar’s indebtedness, and Harvestar’s earnings before interest and taxes (“EBIT”). According to Miller, Brightstar Asia violated the shareholders agreement when it mismanaged Harvestar such that Miller’s options rights lost all value. He filed a diversity action in federal district court alleging breach of the written terms of—and the implied covenant in—the shareholders agreement. The district court dismissed the case because, in the district court’s view, his claims could be brought only in a derivative action. That prompted this appeal. The district court was only partially correct. We agree with the district court that the contractual duty created by the conflicted- transactions provision is owed to Harvestar, and …

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