Delaware Court Clarifies Limitations and Tolling of Fiduciary Duty Claims During Arbitration

Last month, the Delaware Court of Chancery clarified critical aspects of the statute of limitations and tolling doctrines in breach of fiduciary duty claims through its ruling in ETC Northeast Field Services, LLC v. Muse (“Muse”). C.A. No. 2023-0249-MTZ (Del. Ch. May 31, 2024). The Muse case emphasizes the importance of timeliness and awareness in legal claims, particularly in the context of fiduciary duties and contractual agreements after a related arbitration.

A statute of limitations is a legal doctrine that sets the maximum time after an event within which legal proceedings can be initiated for a specific type of legal claim. In Delaware, the statute of limitations for a breach of a fiduciary duty claim is 3 years.

Tolling refers to the doctrine that one can temporarily suspend or extend the statute of limitations period under certain circumstances. Under Delaware law, there are three circumstances when tolling is acceptable:

• Inherently Unknowable Injury: When the injury could not have been discovered despite reasonable diligence.
• Fraudulent Concealment: When the defendant hides the facts necessary to bring the claim.
• Equitable Tolling: When the plaintiff was prevented from asserting their rights due to extraordinary circumstances.

In Muse, the plaintiff, a gas gatherer who had entered into a gathering agreement with a gas producer, sought to bring a breach of fiduciary duty claims against its former officers and the producer in a Delaware Chancery Court. This followed arbitration proceedings where a final award to the gas producer resolved related issues regarding a breach of the gathering agreement. Defendants asserted a defense of laches, which bars claims when unreasonably delayed to the prejudice of the opposing party. The Chancery Court affirmed the defendant’s laches defense and dismissed the case, ruling that the breach of fiduciary duty claim in Chancery Court would constitute an impermissible challenge to the final arbitration award.

The Chancery Court rejected plaintiff’s tolling argument explaining that “notice” restricts the application of tolling doctrines, barring a party from invoking the tolling argument if the plaintiff was “was objectively aware, or should have been aware, of facts giving rise to the wrong.” Here, the parties had entered into a contract (the gathering agreement) prior to the breach of fiduciary claim. Furthermore, as the creation of a contract requires assent to clear contractual terms, the plaintiff was on notice of the terms agreed upon. Thus, the Chancery court reasoned that plaintiff was therefore precluded from asserting the breach of fiduciary duty claim after the contractual claims had been resolved in the arbitration.

To read the entire Court of Chancery Opinion for ETC Northeast Field Services, LLC v. Muse, click here.

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