In re Oxbow Carbon LLC Unitholder Litigation ( 2018 )

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
IN RE OXBOW CARBON LLC ) C.A. No. 12447-VCL
UNITHOLDER LITIGATION )
MEMORANDUM OPINION
Date Submitted: June 14, 2018
Date Decided: August 1, 2018
Kenneth J. Nachbar, Thomas W. Briggs, Jr., Richard Li, MORRIS, NICHOLS, ARSHT &
TUNNELL LLP, Wilmington, Delaware; R. Robert Popeo, Michael S. Gardener, Breton
Leone-Quick, MINTZ, LEVIN, COHN, FERRIS, GLOVSKY & POPEO, P.C., Boston,
Massachusetts; Attorneys for Oxbow Carbon LLC.
Stephen C. Norman, Jaclyn C. Levy, Daniyal M. Iqbal, POTTER ANDERSON &
CORROON LLP, Wilmington, Delaware; David B. Hennes, C. Thomas Brown, Adam M.
Harris, Elizabeth D. Johnston, ROPES & GRAY LLP, New York, New York; Attorneys
for Oxbow Carbon & Minerals Holdings, Inc., Ingraham Investments LLC, Oxbow Carbon
Investment Company LLC, and William I. Koch.
Kevin G. Abrams, Michael A. Barlow, April M. Ferraro, ABRAMS & BAYLISS LLP,
Wilmington, Delaware; Brock E. Czeschin, Matthew D. Perri, Sarah A. Galetta,
RICHARDS, LAYTON & FINGER, P.A., Wilmington, Delaware; Michael B. Carlinsky,
Chad Johnson, Jennifer Barrett, Silpa Maruri, QUINN EMANUEL URQUHART &
SULLIVAN, LLP, New York, New York; Attorneys for Crestview-Oxbow Acquisition,
LLC, Crestview-Oxbow (ERISA) Acquisition, LLC, Crestview Partners, L.P., Crestview
Partners GP, L.P., Crestview Advisors, L.L.C., Robert J. Hurst, and Barry S. Volpert.
J. Clayton Athey, John G. Day, PRICKETT, JONES & ELLIOTT, P.A., Wilmington,
Delaware; Dale C. Christensen, Jr., Michael B. Weitman, SEWARD & KISSEL LLP, New
York, New York; Attorneys for Load Line Capital LLC.
LASTER, V.C.
In a lengthy post-trial ruling,1 I held that the Koch Parties breached the Reasonable
Efforts Clause in Oxbow’s LLC Agreement by seeking to disrupt, derail, and delay an Exit
Sale.2 I found that “[b]ut for Koch’s actions, Oxbow would have entered into a deal with
ArcLight, and the Minority Members would have received at least the value of the ArcLight
Offer.”3 I further determined that if an Exit Sale did not satisfy the 1.5x Clause for the
Small Holders, then the Minority Members could force Oxbow, Oxbow Holdings, and
Oxbow’s other members to engage in an Exit Sale by providing additional consideration
to the Small Holders through a Seller Top Off.
The parties’ post-trial briefing focused predominantly on breach and only minimally
on remedy. The Post-Trial Ruling therefore directed the parties to provide supplemental
briefing on an appropriate remedy. They complied, and a hearing was held.
This decision awards a multi-part remedy. The first component is a decree of
specific performance. Pursuant to that decree, the parties shall complete the Exit Sale
process that the Minority Members initiated. Because the resulting undertaking will be
complex, and because the parties have demonstrated their ability to disagree on matters
1
In re Oxbow Carbon LLC Unitholder Litig., 2018 WL 818760 (Del. Ch. Feb. 12,
2018) (the “Post-Trial Ruling”).
2
That sentence, this paragraph, and the balance of this decision use a slew of defined
terms drawn from the Post-Trial Ruling. This decision employs those terms in accordance
with the meanings provided in the Post-Trial Ruling.
3
Post-Trial Ruling, 2018 WL 818760, at *69.
1
large and small, a court-appointed monitor will oversee the parties’ compliance with the
Exit Sale Right.
The second component is a potential award of compensatory damages related to the
Exit Sale transaction price. During the events giving rise to this litigation, the Minority
Members secured an actionable Exit Sale in the form of the ArcLight Offer. The record
establishes that a transaction with ArcLight could have closed by September 30, 2016. But
for the Koch Parties’ breach, the Minority Members would have secured the value of the
ArcLight Offer at that time. An award of specific performance that merely orders the Koch
Parties to perform under the LLC Agreement would not address the loss of the ArcLight
Offer. It would result in a do-over for the Koch Parties. Throughout the Exit Sale process,
the Koch Parties sought to delay any Exit Sale. An award of specific performance framed
as a do-over would give them what they sought.
In my view, a complete remedy for the Koch Parties’ breach must take into account
the lost value of the ArcLight Offer, including the lost time value of not receiving the
consideration by September 30, 2016. It is possible that a resumed Exit Sale process may
produce a transaction generating greater value for the Minority Members, even on a time-
adjusted basis. If so, then no additional compensatory remedy is warranted for lost
transaction value. But if not, then the Minority Members will receive an award of
compensatory damages equal to the difference between the value of the Exit Sale that the
process generates and the time-adjusted value of the ArcLight Offer.
The third component is an award of damages equal to the Minority Members’ pro
rata share of (i) the expenses that Koch caused Oxbow to incur for Mintz Levin and (ii)
2
any duplicative amounts that Oxbow must spend on its advisors for the resumed Exit Sale
process. Koch originally hired Mintz Levin as his personal counsel, and he used the firm
to resist the Minority Members’ efforts to generate an Exit Sale. Soon after hiring Mintz
Levin, Koch realigned the firm as Oxbow’s counsel. In this role, Mintz Levin continued to
serve Koch’s interests, but Oxbow bore the expense. As result, the Minority Members
indirectly bore one-third of the estimated $50 million that Oxbow paid to Mintz Levin.
Mintz Levin’s efforts on Koch’s behalf were an integral part of the breach of the
Reasonable Efforts Clause. An Exit Sale will not enable the Minority Members to recoup
their share of the amounts paid to Mintz Levin, because a buyer will pay for Oxbow as it
is, without giving any credit for sunk costs. Although a suit to recover Mintz Levin’s fees
typically would be asserted derivatively, the dispute over Oxbow functionally has two
sides, and the allocation of proceeds and expenses between the two sides is a zero-sum
game. Because of the connection between the payments to Mintz Levin and the breach of
the Reasonable Efforts Clause, the Minority Members can recover their share of those
amounts as damages in this proceeding.
A similar analysis applies to amounts that Oxbow paid to its advisors—Goldman
and Cravath—that were wasted due to the Koch Parties’ breach of the Reasonable Efforts
Clause. Some of the work that these advisors performed will have value in the resumed
Exit Sale process, but some of its benefits will be lost, and the advisors will have to perform
the same tasks again. The losses from having to pay for work twice flow directly from the
Koch Parties’ breach and will not be recaptured in an Exit Sale. For the Minority Members
to be made whole, a remedial award must include their pro rata share of those amounts.
3
Finally, the Minority Members will receive pre- and post-judgment interest on any
award of compensatory damages. They will also receive an award of costs as the prevailing
parties.
I. LEGAL ANALYSIS
The Court of Chancery “has broad latitude to exercise its equitable powers to craft
a remedy.”4 The court’s remedial powers “are complete to fashion any form of equitable
and monetary relief as may be appropriate” and “to grant such other relief as the facts of a
particular case may dictate.”5 The court is not limited to choosing among the specific
proposals advanced by the parties; instead, “this Court frequently has relied on its own
remedial discretion to fashion a different remedy than what the parties may have requested
4
Hogg v. Walker, 622 A.2d 648, 654 (Del. 1993); accord Berger v. Pubco Corp.,
976 A.2d 132, 139 (Del. 2009) (“[T]he Court of Chancery has broad discretion to craft an
appropriate remedy . . . , the propriety of a court-ordered remedy is ordinarily reviewed for
abuse of discretion.”); Reserves Dev. LLC v. Severn Sav. Bank, FSB, 961 A.2d 521, 525
(Del. 2008) (“The Court of Chancery has broad discretion to fashion equitable relief.”).
5
Weinberger v. UOP, Inc., 457 A.2d 701,714 (Del. 1983); accord Whittington v.
Dragon Gp. L.L.C., 2011 WL 1457455, at *15 (Del. Ch. Apr. 15, 2011) (“This Court, as a
court of equity, has broad discretion to form an appropriate remedy for a particular
wrong.”); Cantor Fitzgerald, L.P. v. Cantor, 2011 WL 536911, at *3 (Del. Ch. May 11,
2001) (“[T]his ‘Court, fortunately, has broad discretion to tailor remedies to suit the
situation as it exists.’” (quoting Andresen v. Bucalo, 1984 WL 8205, at *4 (Del. Ch. Mar.
14, 1984))); McGovern v. Gen. Hldg., Inc., 2006 WL 1468850, at *24 (Del. Ch. May 18,
2006) (Strine, V.C.) (“The Supreme Court has emphasized the capacious remedial
discretion of this court to address inequity.”). See generally Swann v. Charlotte-
Mecklenburg Bd. of Educ., 402 U.S. 1, 15 (1971) (“Once a right and a violation have been
shown, the scope of a district court’s equitable powers to remedy past wrongs is broad, for
breadth and flexibility are inherent in equitable remedies.”).
4
when the circumstances so require.”6 Put more poetically, the “protean power of equity”
allows a court to “fashion appropriate relief,” and a court “will, in shaping appropriate
relief, not be limited by the relief requested by the plaintiff.”7 Consequently, “once a right
to relief in Chancery has been determined to exist . . . [the court can] shape and adjust the
precise relief to be granted so as to enforce particular rights and liabilities legitimately
connected with the subject matter of the action.”8 For a proven breach of contract, the Court
of Chancery has “the discretion to award any form of legal and/or equitable relief and is
not limited to awarding contract damages for breach of the agreement.”9
The power to grant factually tailored remedies designed to provide complete redress
represents “the fundamental purpose of an equity court”10 and “closely comports with the
6
PharmAthene, Inc. v. SIGA Techs., Inc., 2011 WL 6392906, at *2 (Del. Ch. Dec.
16, 2011).
7
Tex. Instruments Inc. v. Tandy Corp., 1992 WL 103772, at *6 (Del. Ch. May 12,
1992) (Allen, C.).
8
Wilmont Homes, Inc. v. Weiler, 202 A.2d 576, 580 (Del. 1964).
9
Gotham P’rs, L.P. v. Hallwood Realty P’rs, L.P., 817 A.2d 160, 176 (Del. 2002);
see also, e.g., Eureka VIII LLC v. Niagara Falls Hldgs. LLC, 899 A.2d 95, 113-115 (Del.
Ch. 2006) (Strine, V.C.) (crafting equitable remedy for breach of LLC agreement); Haley
v. Talcott, 864 A.2d 86, 98 (Del. Ch. 2004) (Strine, V.C.) (holding that contractual exit
remedy in LLC agreement was not reasonable and awarding sale as equitable remedy).
10
William T. Quillen & Michael Hanrahan, A Short History of the Delaware Court
of Chancery—1792-1992, 18 Del. J. Corp. L. 819, 820 (1993) (describing the need “to
provide relief suited to the circumstances when no adequate remedy is available at law” as
the “fundamental purpose of an equity court”); see also Schoon v. Smith, 953 A.2d 196,
204-05 (Del. 2008) (“[T]he Chancellor always has had, and always must have, a certain
power and freedom of action, not possessed by the courts of law, of adapting the doctrines
which he administers. He can extend those doctrines to new relations, and shape his
remedies to new circumstances, if the relations and circumstances come within the
principles of equity, where a court of law in analogous cases would be powerless to give
5
historical foundations of Chancery jurisdiction.”11 The Court of Chancery of the State of
Delaware traces its jurisdictional lineage to the High Court of Chancery of Great Britain at
the time of the separation of the colonies.12 In the mother country, before the advent of
equity, the English courts used forms of action, also known as common law writs, under
which the available remedial rights were strictly tied to individual forms. If a case did not
fit within the form, then “the injured party was without any ordinary legal remedy, and his
only mode of redress was by an application made directly to the King.”13 As the font of
authority in a monarchial system, the king could deploy the coercive power of the state to
provide relief in a given case. In practice, the king “referred such petitions to his chancellor
for action.”14
any relief.” (quoting 1 John Norton Pomeroy, Equity Jurisprudence § 60, at 78 (5th ed.
1941))
11
Taylor v. Jones, 2006 WL 1510437, at *5 (Del. Ch. May 25, 2006).
12
DuPont v. DuPont, 85 A.2d 724, 727 (Del. 1951) (“[T]he general equity
jurisdiction of the Court of Chancery . . . is defined as all the general equity jurisdiction of
the High Court of Chancery of Great Britain as it existed prior to the separation of the
colonies, subject to the proviso . . . to the effect that the Chancellor shall not hear and
determine any cause where a sufficient remedy exists at law.”).
13
1 Pomeroy, supra, § 21, at 28.
14
1 Dan B. Dobbs, Dobbs Law of Remedies § 2.2, at 69 (2d ed. 1993); see also
Henry L. McClintock, Handbook of the Principles of Equity § 2, at 3 (2d ed. 1948) (“The
power of the chancellor as an equity judge and his jurisdiction to give relief in those cases
where the ordinary forms of the common law were not adequate to meet the case were both
derived from the prerogative of the king to administer justice between his subjects
unfettered by the restrictions of ordinary procedure.”).
6
Through the chancellor’s exercise of his discretion to solve the challenges of
particular cases, the system of equity developed.15 “Having arisen largely to compensate
for the common law’s inability to provide full, fair, and just relief in all instances, equity
has evolved as a broad and flexible concept, designed to employ judicial principles and
tools creatively so as to effect justice in any given circumstance.” 16
Equitable remedies . . . are distinguished by their flexibility, their unlimited
variety, their adaptability to circumstances, and the natural rules which
govern their use. There is in fact no limit to their variety and application; the
court of equity has the power of devising its remedy and reshaping it so as to
fit the changing circumstances of every case and the complex relations of all
the parties.17
“It cannot be said too forcefully that the general powers of the Court of Chancery refers to
that complete system of equity as administered by the High Court of Chancery of Great
Britain . . . .”18 “[T]hree successive [Delaware] Constitutions—1792, 1832 and 1897—
intended ‘to establish for the benefit of the people of the state a tribunal to administer the
remedies and principles of equity’ and the Constitutional provision establishing the Court
15
See 1 Dobbs, supra, § 2.2, at 66-74; 1 Joseph Story, Commentaries on Equity
Jurisprudence ¶ 43, at 39-40 (13th ed. 2000).
16
Donald J. Wolfe, Jr. & Michael A. Pittinger, Corporate and Commercial Practice
in the Delaware Court of Chancery § 12.01[a], at 12-2 (2017); see also Taylor, 2006 WL
1510437, at *5 (citing this court’s “historical readiness to adapt to the circumstances of
each case and craft appropriate remedies, in contrast to the perhaps more rigid application
of law in jurisdictions without similar traditions” (footnote omitted)).
17
Pomeroy, supra, § 109, at 141; accord PharmAthene, 2011 WL 6392906, at *3
n.30.
18
Glanding v. Indus. Tr. Co., 45 A.2d 553, 558 (Del. 1945).
7
of Chancery was a ‘guarantee to the people of the State that equitable remedies will at all
times be available for their protection.’”19
A. Specific Performance
The primary component of the remedy warranted by the facts of this case is a decree
of specific performance. That decree will direct the parties to resume and complete the Exit
Sale process.
“A claim for specific performance is a specialized request for a mandatory
injunction, requiring a party to perform its contractual duties.”20 Its purpose “is to place the
aggrieved party in the position that it would have been in but for the breach.”21 “[S]pecific
performance is a matter of grace that rests in the sound discretion of the court.” 22 Its
proponent “must prove by clear and convincing evidence that he or she is entitled to
specific performance and that he or she has no adequate legal remedy. A party seeking
specific performance must establish that (1) a valid contact exists, (2) he is ready, willing,
and able to perform, and (3) that the balance of equities tips in favor of the party seeking
performance.”23
19
Quillen & Hanrahan, supra, at 849 (quoting DuPont, 85 A.2d at 729).
20
Certainteed Corp. v. Celotex Corp., 2005 WL 217032, at *6 (Del. Ch. Jan. 24,
2005) (Strine, V.C.).
21
Moore Bus. Forms, Inc. v. Cordant Hldgs. Corp., 1998 WL 71836, at *9 (Del.
Ch. Feb. 4, 1998).
22
Peden v. Gray, 2005 WL 2622746, at *3 (Del. Oct. 14, 2005) (TABLE).
23
Osborn ex rel. Osborn v. Kemp, 991 A.2d 1153, 1158 (Del. 2010) (footnotes
omitted).
8
The first two requirements are easily met. The Exit Sale Right is a valid and
specifically enforceable provision in the LLC Agreement, which is a valid and specifically
enforceable contract, and the Minority Members are ready, willing, and able to perform
under its terms.
The third requirement—that the balance of the equities favors an order of specific
performance—is also met. This requirement “reflect[s] the traditional concern of a court
of equity that its special processes not be used in a way that unjustifiably increases human
suffering.”24 When balancing the equities, the court “must be convinced that specific
enforcement of a validly formed contract would [not] cause even greater harm than it would
prevent.”25
The Minority Members bargained for the right to exit their investment after seven
years, without a minority discount.26 By breaching the Reasonable Efforts Clause, the Koch
Parties deprived them of this right.27 Absent an Exit Sale, deriving a legal remedy measured
in dollars will be difficult. As the Post-Trial Ruling observed, an award of compensatory
24
Morabito v. Harris, 2002 WL 550117, at *2 (Del. Ch. Mar. 26, 2002) (internal
quotation marks omitted) (quoting Bernard Pers. Consultants, Inc. v. Mazarella, 1990 WL
124969, at *3 (Del. Ch. Aug. 28, 1990) (Allen, C.)).
25
Osborn, 991 A.2d at 1161 (alteration in original) (internal quotation marks
omitted) (quoting Szambelak v. Tsipouras, 2007 WL 4179315, at *7 (Del. Ch. Nov. 19,
2007)).
26
Post-Trial Ruling, 2018 WL 818760, at *66-67.
27
See CC Fin. LLC v. Wireless Props., LLC, 2012 WL 4862337, at *9 (Del. Ch.
Oct. 1, 2012) (finding balance of equities favored specific performance in part because
“equity respects the freedom to contract and teaches that parties should receive the benefit
of their bargain through specific performance”).
9
damages could be keyed off the value of the ArcLight Offer, but also would have to take
into account that the Minority Members retain their units. To calculate damages, the court
would have to ascribe a value to those units and award the delta between that and what the
Minority Members would have received if an Exit Sale had closed on the terms implied by
the ArcLight Offer.
Because Oxbow is a private company, determining a point value for the Minority
Members’ units could be difficult. In this case, the determination would need to reflect the
fact that without an Exit Sale, the Minority Members will be trapped in an minority
investment with a hostile controller who has demonstrated his antagonism to and disregard
for their interests. The award also would need to incorporate some offset for the imperfect
substitute of a possible future sale of their minority position.28 The parties could try to fill
in these blanks with expert testimony, but the answers would uncertain and constrained by
the inherent limits of human knowledge and insight.29
A decree of specific performance that results in an Exit Sale addresses directly the
harm that the Minority Members otherwise would suffer from losing their right to exit by
28
See Post-Trial Ruling, 2018 WL 818760, at *67 (noting that the ability of the
Minority Members to transfer their units under Section 6 of the LLC Agreement “is not a
viable substitute for an Exit Sale” because “it contemplates a minority investor transaction
that would carry a minority discount” and that the buyer “would pay less for other reasons”
as well).
29
See Dell, Inc. v. Magnetar Glob. Event Driven Master Fund Ltd., 177 A.3d 1, 24
(Del. 2017) (casting doubt on the reliability of “an expert witness who caters her valuation
to the litigation imperatives of a well-heeled client.”); id. at 35 (cautioning against “the
hazards that always come when a law-trained judge is forced to make a point estimate of
fair value based on widely divergent partisan expert testimony”).
10
that means. It also provides a market-tested input for any additional calculation of
transaction-related compensatory damages. And it has the benefit of enabling two warring
factions to go their separate ways. Under the circumstances, a decree of specific
performance is “decisively preferable to a vague and imprecise damages remedy that
cannot adequately remedy the injury.”30
The Koch Parties contend that a decree of specific performance can only order a
party to comply with a specific contractual provision as written, without any discretion for
the court to tailor the decree to the facts of the case. Building on this premise, they argue
that the decree must enforce the Exit Sale Right as a whole, meaning that the parties must
start from the beginning, as if the Minority Members were exercising the Exit Sale Right
for the first time. Consequently, as the Koch Parties see it, any Exit Sale must satisfy “all
the conditions for such a sale, including that such bid equals or exceeds the current fair
market value of Oxbow, which should be re-determined to reflect current market
conditions.”31
30
In re IBP, Inc. S’holders Litig., 789 A.2d 14, 84 (Del. Ch. 2001) (Stine, V.C.);
see Corkscrew Mining Ventures, Ltd. v. Preferred Real Estate Invs., Inc., 2011 WL 704470,
at *7 (Del. Ch. Feb. 28, 2011) (holding that “the balance of the equities favors specific
performance because the Securities represent a minority interest in a privately held limited
liability company, and the restriction on their transfer precludes Corkscrew from selling
the Securities in any other market”); see also Collins v. Am. Int’l Gp., Inc., 1998 WL
227889, at *6 (Del. Ch.) (holding that specific performance was appropriate “where the
assessment of money damages is impracticable”), aff’d, 719 A.2d 947 (Del. 1998);
McClintock, supra, § 60, at 149 (noting the availability of specific performance where “the
damages cannot be adequately ascertained”).
31
Answering Br. Regarding Remedy at 1.
11
Forcing the parties to go back to the beginning would involve a multitude of steps
before any sale process could begin.
 First, the Minority Members would secure an opinion as to the Fair Market Value
of their units and submit a demand to have Oxbow purchase their units at that price.
 Second, Oxbow would determine whether to accept that valuation or not. If it
declined, Oxbow would retain an investment bank of its own and have that bank
generate an opinion as to Fair Market Value.
 Third, if the two valuations were within 10% of each other, then Fair Market Value
would be the average of the two. If the two valuations differed by more than 10%,
then the two banks would select a third bank.
 Fourth, if necessary the new bank would prepare a valuation, and Fair Market Value
would be the median of the three valuations.
 Fifth, once Fair Market Value had been determined, Oxbow would decide whether
to purchase the Minority Members’ units at that price.
 Sixth, if Oxbow did not purchase the Minority Members’ units for Fair Market
Value, then that figure would become the hurdle for the FMV Clause.
 Seventh, after Oxbow had failed to purchase the Minority Members’ units, then the
Minority Members could cause Oxbow to begin pursuing an Exit Sale.32
The first time around, accomplishing these steps took approximately five months and
provided fertile ground for machinations and disputes.
Consistent with their desire for a restart, Koch Parties also believe that Oxbow must
select an entirely new financial advisor and entirely new counsel. The Koch Parties believe
that Oxbow should not use Goldman or Cravath because after the positions those firms
took during the interrupted sale process and this litigation, working with them would be
difficult.
32
See generally Post-Trial Ruling, 2018 WL 818760, at *31-33.
12
Conceptually, the Koch Parties’ position imbues the remedial decree of specific
performance with the brittle stiffness of the old, common law writs. By arguing that an
equitable decree can only enforce the entirety of a contractual provision as written, without
any tailoring to the facts of the case, they adopt a view fundamentally inconsistent with the
essence of equitable remedies: “their flexibility, their unlimited variety, their adaptability
to circumstances, and the natural rules which govern their use.”33 To restate, equity is “a
broad and flexible concept, designed to employ judicial principles and tools creatively so
as to effect justice in any given circumstance.”34
On the facts, the Koch Parties’ approach to specific performance would turn lemons
(having been found to have breached the Reasonable Efforts Clause) into lemonade (a
complete do-over). The Koch Parties breached the Reasonable Efforts Clause because they
wanted to “obstruct [and] derail” or “delay” the Exit Sale process.35 The decree they
propose would reward them for their breach by wiping the slate clean and telling everyone
to start over, thereby giving the Koch Parties the benefit of a multiyear delay.
The decree of specific performance that this decision adopts is a remedial decree
intended to address the Koch Parties’ breach of the Reasonable Efforts Clause. It seeks to
put the Minority Members in at least the same position as they would have been in if the
33
Pomeroy, supra, § 109, at 141; accord PharmAthene, 2011 WL 6392906, at *3
n.30.
34
Wolfe & Pittenger, supra, § 12.01[a], at 12-2.
35
JX 2068 at DEF-EPJ_00021726.
13
Koch Parties had not breached and the parties had completed an Exit Sale in accordance
with the terms of the ArcLight Offer. The decree therefore calls for the resumption and
continuation of the Exit Sale process at the decisive point of breach: the Koch Parties’
successful frustration of the otherwise actionable ArcLight Offer after Oxbow received it
on May 27, 2016. The decree does not wipe the slate clean and call for a complete do-over.
It instructs the parties to resume the Exit Sale process as the state of play existed at that
point.36
One consequence of this ruling is that Oxbow shall continue to use Goldman and
Cravath as its advisors in connection with the Exit Sale process. This aspect of the ruling
confers the additional benefits of enabling Oxbow to benefit from the expertise and
knowledge that Goldman and Cravath developed, avoiding the additional cost required to
bring new advisors up to speed, and sidestepping potential complications that could arise
from Goldman’s contingent compensation arrangement if a new banker came onboard and
completed the assignment.
36
Because this decision refers to the frustration of the ArcLight Offer as the
“decisive point of breach,” the Koch Parties may construe it as exonerating their prior
conduct. That is not the intent. This decision seeks to craft a remedy for the Koch Parties’
breach as adjudicated in the Post-Trial Ruling. In making a finding of breach, the Post-
Trial Ruling cited conduct by the Koch Parties that pre-dated the receipt of the ArcLight
Offer. See Post-Trial Ruling, 2018 WL 818760, at *67-69. It remains the case that the Koch
Parties’ conduct throughout the Exit Sale process contributed to the finding of breach, but
ArcLight nevertheless came forward with the ArcLight Offer. Because the ArcLight Offer
was actionable, it provides a real-world basis for constructing a remedy. The point in time
at which the ArcLight Offer emerged therefore also becomes the logical starting point for
crafting the remedy. Doing so does not excuse the Koch Parties’ earlier conduct.
14
Another consequence of this ruling is that the terms for compliance with the FMV
Clause shall remain at the value that was established at the time of breach. To satisfy the
FMV Clause, the Exit Sale must result in consideration of at least $2.65 billion, equating
to at least $169 per unit.37 Consistent with the Post-Trial Ruling’s determination regarding
the implied covenant, if the process generates an Exit Sale that clears the FMV Clause,
then the Minority Members can satisfy the 1.5x Clause through a Seller Top Off.
The Koch Parties have argued that the FMV Clause figure is stale and must be
updated, but that would give them the do-over that they do not deserve. Moreover, the
Koch Parties only have the opportunity to argue now that the FMV Clause hurdle is stale
because they breached the Reasonable Efforts Clause two years ago and prevented a
transaction based on the ArcLight Offer from closing. To the extent that the FMV Clause
hurdle is stale, the Koch Parties brought that situation on themselves. To update the FMV
Clause hurdle now would enable the Koch Parties to benefit from their breach and penalize
the Minority Members.
The parties shall begin preparing Oxbow for an Exit Sale as soon as reasonably
possible. The Exit Sale should be completed no more than one year from final judgment
(including the completion of any appeals), subject to reasonable requests to extend the
process for good cause shown.
37
See Post-Trial Ruling, 2018 WL 818760, at *34.
15
B. The Appointment Of A Monitor
An additional component of the primary remedy warranted by the facts of this case
is the appointment of a monitor to supervise the parties’ compliance with the decree of
specific performance. The Post-Trial Ruling suggested that it might be appropriate to
appoint a receiver with the authority to carry out the Exit Sale process. The Minority
Members embraced this proposal; the Koch Parties resisted it. At this stage in the
proceedings, I believe a monitor is a better solution.
When determining whether to award specific performance, a court of equity must
take into account the complexity of the task that the parties will be directed to undertake.38
Chancellor Allen once dismissed a claim seeking specific performance of an obligation to
use best efforts to obtain regulatory approval for a merger, observing that
the remedy of specific enforcement of a contractual obligation to proceed in
good faith, while available in appropriate instances, is unavailable where the
contract sued upon relates to a future, evolving complex commercial
transaction and any attempt to specifically enforce a right to good faith best
efforts would necessarily involve either an order of such vague generality as
38
Restatement (Second) of Contracts § 366 (Am. Law Inst. 1981), Westlaw
(database updated June 2018) (“A promise will not be specifically enforced if the character
and magnitude of the performance would impose on the court burdens in enforcement or
supervision that are disproportionate to the advantages to be gained from enforcement and
to the harm to be suffered from its denial.”); accord 71 Am. Jur. 2d Specific Performance
§ 111, Westlaw (database updated May 2018); 3 Dobbs, supra, § 12.8(3), at 207; see 25
Richard A. Lord, Williston on Contracts § 67:22 (4th ed.), Westlaw (database updated May
2018) (comparing historical rule that equity lacked jurisdiction to issue a decree of specific
performance when the factual situation was too complex with modern approach); see also
N. Del. Indus. Dev. Corp. v. E.W. Bliss Co., 245 A.2d 431, 433 (Del. Ch. July 9, 1968) (“It
is not that a court of equity is without jurisdiction in a proper case to order the completion
of an expressly designed and largely completed construction project, particularly where the
undertaking to construct is tied in with a contract for the sale of land and the construction
in question is largely finished.”).
16
to give little or no specific direction to the person or entity subject to the
order or would involve the court in the detailed administration of an ongoing,
complex transaction.39
In other circumstances, this court has held that the facts warranted a decree of specific
performance that directed the parties to complete an acquisition.40
Courts of equity have tools at their disposal to mitigate the problem of supervising
a complex remedy. One proven tool is to appoint an agent of the court to provide assistance.
In his treatise on equity jurisprudence, Professor Pomeroy discusses the power of a court
to appoint a receiver “after judgment” in order “to carry into effect a special decree, which
could not otherwise be efficiently executed by ordinary process.” 41 In a treatise focusing
on receivers, Professor Clark recognizes that a receiver can be appointed “after judgment .
. . either for the purpose of carrying the judgment into effect, or for the preservation of the
property until judgment shall be executed.”42 In his treatise on remedies, Professor Dobbs
39
Carteret Bancorp, Inc. v. Home Gp., Inc., 1988 WL 3010, at *1 (Del. Ch. Jan. 13,
1988) (Allen, C.); see also Wholesale Janitor Supply Co., Inc. v. Diamond Motor Sports,
Inc., 1979 WL 6167, at *1 (Del. Ch. Mar. 1, 1979) (“[I]t would appear that plaintiff does
not have the absolute right to seek specific performance of the lease here in issue because
such form of relief would, in effect, constitute specific performance of a building contract
which a court of equity should not generally have to supervise.”).
40
See IBP, 789 A.2d at 82-83.
41
4 Pomeroy, supra, § 1335, at 931.
42
1 Ralph Ewing Clark, The Law and Practice of Receivers § 240, at 349 (3d ed.
1959).
17
observes that “a master might be appointed to monitor the execution of and compliance
with a complex decree and report to the court if the defendant fails to comply.”43
Federal courts have long exercised this authority. In 1920, the United States
Supreme Court held that “[c]ourts have . . . inherent power to provide themselves with
appropriate instruments required for the performance of their duties.”44 That inherent
power was subsequently codified in Federal Rule of Civil Procedure 53, which governs the
appointment of masters.45 The rule empowers the courts to appoint a master to “address . .
43
1 Dobbs, supra, § 1.4, at 20; see also 3 Dobbs, supra, § 12.8(3), at 209 (“[I]f
supervision really is required, it may sometimes be delegated to a master, receiver, or
arbitrator, whose charges would be paid for by the parties.”); Wayne D. Brazil, Special
Masters in Complex Cases: Extending the Judiciary or Reshaping Adjudication?, 53 U.
Chi. L. Rev. 394, 414 (1987) (“Masters have long been used to monitor compliance with
injunctions or to administer funds.”); Ellen E. Deason, Managing the Managerial Expert,
1998 U. Ill. L. Rev. 341, 352 (1998) (“After a finding of liability, masters are often
appointed at the remedial stage of complex cases to aid in formulating the decree, assist
the court in implementing it, and monitor compliance. In fact, these new roles are
reportedly now more commonplace than traditional references to masters.” (footnote
omitted)); Veronica Root, Modern-Day Monitorships, 33 Yale J. on Reg. 109, 116-17
(2016) (“One type of posttrial matter with which court-appointed agents assisted courts
was to ensure that parties complied with a court’s order of specific performance.”).
In re Peterson, 253 U.S. 300, 312 (1920); see also id. at 309-10 (“New devices
44
may be used to adapt the ancient institution to present needs and to make of it an efficient
instrument in the administration of justice.”). See generally Wayne D. Brazil, Referring
Discovery Tasks to Special Masters: Is Rule 53 a Source of Authority and Restrictions?,
1983 Am. B. Found. Res. J. 143, 176 (1983).
45
See Irving R. Kaufman, Masters in the Federal Courts: Rule 53, 58 Colum. L.
Rev. 452, 462 (1958) (“[R]ule 53 was intended merely as a codification of pre-existing
procedures, and it may be assumed that references sanctioned by long usage and practice
in the federal courts were not intended to be forever foreclosed by the rule.”); Elizabeth
Montgomery, Comment, Force and Will: An Exploration of the Use of Special Maters to
Implement Judicial Decrees, 52 U. Colo. L. Rev. 105, 111 (1980) (“[Rule 53] embodies
the case law that was established by the Supreme Court in Ex Parte Peterson.”).
18
. post-trial matters that cannot be effectively and timely addressed by an available district
judge or magistrate judge of the district.”46 The federal courts have construed the rule to
supplement, rather than displace, their inherent authority to appoint officers to aid in the
enforcement of judgments.47
The federal courts have deployed this authority broadly in what scholars have called
institutional reform litigation.48 In these cases, the courts “sought to reform constitutional
46
Fed. R. Civ. P. 53(a)(1)(C); see also 9C Arthur R. Miller, Federal Practice &
Procedure § 2602.1 (3d ed.), Westlaw (database updated April 2018) (discussing reliance
on the rule “when a complex decree requires administration or complex policing,
particularly when a party has proved resistant or intransigent or special skills are needed”).
47
See, e.g., Ruiz v. Estelle, 679 F.2d 1115, 1161 (5th Cir.) (“[R]ule 53 does not
terminate or modify the district court’s inherent equitable power to appoint a person,
whatever be his title, to assist it in administering a remedy.”), amended and vacated in
other part, 688 F.2d 266 (5th Cir. 1982); Schwimmer v. United States, 232 F.2d 855, 865
(8th Cir. 1956) (“Beyond the provisions of Rule 53 . . . for appointing and making
references to Masters, a Federal District Court has ‘the inherent power to supply itself with
this instrument for the administration of justice when deemed by it essential.’” (quoting
Peterson, 253 U.S. at 312)); Hellebust v. Brownback, 824 F. Supp. 1524, 1528 (D. Kan.
1993) (“Although this court appoints a receiver under its inherent equitable powers, it is
guided by the provisions of Rule 53 . . . .”); N.Y. State Ass’n for Retarded Children, Inc. v.
Carey, 551 F. Supp. 1165, 1178-79 (E.D.N.Y. 1982) (noting that “[t]he court has always
had the equity power to fashion the relief necessary to protect its judgment against future
violations” and that it “need not rely solely on Rule 53 for its equity power to provide itself
with the appropriate instrument to enforce its decree.”), rev’d in part, aff’d in relevant part,
706 F.2d 956 (2d Cir. 1983).
48
See generally Curtis J. Berger, Away from the Court House and Into the Field:
The Odyssey of a Special Master, 78 Colum. L. Rev. 707 (1978); Robert E. Buckholz, Jr.
et al., The Remedial Process in Institutional Reform Litigation, 78 Colum. L. Rev. 784
(1978); Vincent M. Nathan, The Use of Masters in Institutional Reform Litigation, 10 U.
Tol. L. Rev. 419 (1979); Note, Implementation Problems in Institutional Reform Litigation,
91 Harv. L. Rev. 428 (1977). Much of the authority dates from the latter part of the
twentieth century. For more recent examples, see United States v. City of New York, 2011
WL 4639832, at *16 (E.D.N.Y. Oct. 5, 2011) (issuing Draft Remedial Order to desegregate
New York City Fire Department including appointing monitor to “take primary
19
and statutory defects in the structures and practices of various social institutions,” 49 such
as schools,50 prisons,51 and mental health institutions.52 Confronted with difficult and
responsibility for leading the parties through the specific remedial steps” and giving the
monitor “the duty and the authority to proactively audit and investigate the City’s
compliance with the terms”); John B. v. Menke, 176 F. Supp. 2d 786, 807-08 (M.D. Tenn.
2001) (noting that “[t]he use of a special master to ensure compliance with a court’s
remedial order is well-established” and appointing “under its inherent equitable authority”
a “special master to facilitate the implementation of an [Early Periodic Screening,
Diagnosis and Treatment]-compliant State Medicaid plan”).
49
Buckholz et al., supra, at 788.
50
See, e.g., Reed v. Rhodes, 635 F.2d 556, 558 (6th Cir. 1980) (affirming
appointment of “desegregation administrator” as remedy for civil contempt of
desegregation injunction against school); Morgan v. McDonough, 540 F.2d 527, 533 (1st
Cir. 1976) (affirming appointment of receiver to compel desegregation of school, noting
that “[r]emedial devices should be effective and relief prompt,” “receiverships are and have
for years been a familiar equitable mechanism,” and “[m]asters have been used extensively
to formulate plans and recommendations”).
51
See, e.g., Gates v. Collier, 501 F.2d 1291, 1321 (5th Cir. 1974) (noting district
court “found it necessary to establish the office of federal court monitor to check all the
phases of prison administration, management and operation of Parchman and to determine
the degree of compliance with provisions of its order dated October 20, 1972”); Morales
Feliciano v. Romero Barcelo, 672 F. Supp. 591, 623 (D.P.R. 1986) (appointing “court
monitor” to oversee enforcement of injunction and noting that “[t]he appointment of agents
to supervise the implementation of remedial decrees in institutional reform litigation
involving prisons and jails is well precedented”).
52
See, e.g., Gary W. v. Louisiana, 601 F.2d 240, 244-45 (5th Cir. 1979) (affirming
appointment of special master to monitor compliance with prior court order); Carey, 551
F. Supp. at 1180 (determining defendants were not in compliance with consent judgment
and appointing special master “as a tool by which [the court] may monitor and enforce the
state’s performance of its obligations”). See generally Michael S. Lottman, Enforcement
of Judicial Decrees: Now Comes the Hard Part, 1 Mental Disability L. Rep. 69 (1976).
20
ongoing remedial challenges, the courts developed oversight mechanisms “grounded on
recognized equitable powers of the courts,” such as receivers, custodians, and monitors.53
Courts that have incorporated oversight mechanisms into their remedial decrees
have cited many factors to justify their use. One major factor is the existence of a
“polycentric problem that cannot easily be resolved through a traditional courtroom-bound
adjudicative process.”54 Another factor is a significant risk of noncompliance.55
53
Buckholz et al., supra, at 789; see also Jaroslawa Zelinsky Johnson, Comment,
Equitable Remedies: An Analysis of Judicial Utilization of Neoreceiverships to Implement
Large Scale Institutional Change, 1976 Wis. L. Rev. 1161, 1175 (1976) (tracking the rise
of the “neoreceivership,” defined as “an extra-judicial court officer appointed with broad,
flexible duties to formulate remedies and implement decrees protecting constitutional
rights”).
54
Hart v. Cmty. Sch. Bd. of Brooklyn, 383 F. Supp. 699, 766 (E.D.N.Y. 1974), aff’d,
512 F.2d 37 (2d Cir. 1975); accord Carey, 706 F.2d at 963; Hellebust, 824 F. Supp. at
1528; see also City of New York, 2011 WL 4639832, at *16 (“A court monitor is necessary
because the court lacks the time and resources to perform the supervisory tasks necessary
to ensure that the City carries out its obligations under the Draft Remedial Order in good
faith and with reasonable diligence. District courts have frequently made use of court-
appointed monitors and other masters in similarly large and complex civil rights litigations
where ensuring a large organization’s or municipality’s compliance with the court’s orders
would be too time-consuming or difficult for the court to undertake without assistance.”).
See generally 1 Dobbs, supra, § 2.8(1), at 189-91.
55
See, e.g., Ruiz, 679 F.2d at 1160 (listing myriad reasons court below cited in
support of appointing special master including “the difficulty of superintending . . .
implementation” and the “record of intransigence” and concluding that “the court was not
required to await the failure or refusal of [the defendant] to comply with the decree before
appointing an agent to implement it” because “[n]oncompliance may constitute one
‘exceptional condition’ under rule 53, but it is not exclusive” (footnote omitted)); Gary W.,
601 F.2d at 245 (affirming appointment of special master where “proceedings have now
been pending for over four years and a significant number of the children involved still
have not been accorded the relief ordered”); Morgan, 540 F.2d at 533 (“The more usual
remedies [such as] contempt proceedings and further injunctions were plainly not very
promising, as they invited further confrontation and delay; and when the usual remedies
are inadequate, a court of equity is justified, particularly in aid of an outstanding injunction,
21
Both factors are present in this case. The sale of a company like Oxbow is inherently
a “polycentric problem” requiring concerted efforts from principals, advisors, and market
participants. Absent the aid of a court-appointed agent, it will be difficult for the court to
remain informed about developments, much less properly oversee compliance with its
orders. Equally important, given the parties’ behavior to date, there is reason to believe that
they will clash on many issues and seek to acquire advantages whenever possible. That was
true during the events giving rise to this litigation, it was true during this litigation, and it
almost certainly will be true after this litigation. Having overseen this case for two years,
addressed a plethora of disputes, presided over the trial, and heard the principals testify
firsthand, I am convinced that disputes are likely to arise and to require ongoing judicial
involvement during the remedial phase. Although I hope to be disappointed in this
prediction and for the parties to have the satisfaction of proving me wrong, at this point I
believe it is necessary to put in place a mechanism to help the parties solve their polycentric
problem and minimize the number of disputes.
An oversight remedy is therefore warranted. The next question is what form should
it take. “Court appointed agents are identified by a variety of terms—monitor, master,
master hearing officer, human rights committee, ombudsman, administrator, advisory
in turning to less common ones, such as a receivership, to get the job done.”); Morales
Feliciano, 672 F. Supp. at 622 (“The record of intransigence and lengthy noncompliance
by defendants constitutes an ‘exceptional condition’ within the meaning of Rule 53(b)
authorizing the appointment of a Court Monitor.”); John B., 176 F. Supp. at 807 (“The
Court may appoint a special master for a variety of reasons, including the ‘problems
associated with compliance with the district court order.’” (quoting United States v.
Suquamish Indian Tribe, 901 F.2d 772, 775 (9th Cir. 1990)).
22
committee.”56 Unfortunately, these titles lack inherent meaning or well-understood
characteristics, such that “[t]erminological confusion is compounded by functional
confusion.”57 For present purposes, the critical question is not what the role is called, but
the nature of the charge and the powers it carries.
One possibility would be to empower a court-appointed agent to take control of
Oxbow and carry out the Exit Sale process.58 Although it is tempting to preempt the
problem of future disputes by putting a neutral person in charge, I do not believe there is
56
Montgomery, supra, at 105.
57
Buckholz et al., supra, at 827.
58
This charge would fall within the traditional role of a receiver or custodian. See
Clark, supra, § 235, at 346-47 (“Where a court of chancery obtains jurisdiction of the
subject-matter of a suit it will retain jurisdiction until complete justice has been done
between the parties, and such jurisdiction is frequently exercised after final decree by the
appointment of a receiver.” (footnote omitted)); Pomeroy, supra, § 1335, at 931 (discussing
“cases in which a receiver is appointed after judgment for the purpose of carrying the
[court’s] decree into effect”); see also Clark, supra, § 11(a), at 13 (describing a receiver as
“an officer of the court [appointed] to receive, collect, care for, administer, and dispose of
the property or the fruits of the property of another or others brought under the orders of
court by the institution of a proper action or actions”). Delaware jurisprudence generally
uses the term “custodian” when the appointment involves a solvent corporation and the
court-appointed agent is not charged with winding up the corporation’s affairs and selling
off its assets. Otherwise, the distinction between receiver and custodian does not appear to
be substantive. See 8 Del. C. § 226 (providing that a custodian has “all the powers and title
of a receiver . . . but the authority of a custodian is to continue the business of the
corporation and not to liquidate its affairs and distribute its assets”); see also In re Shawe
& Elting LLC, 2015 WL 4874733, at *1, *9 (Del. Ch. Aug. 13, 2015) (appointing a
custodian to “sell the Company with a view toward maintaining the business as a going
concern and maximizing value for the stockholders” where “the state of management of
the corporation has devolved into one of complete dysfunction . . . resulting in irretrievable
deadlocks over significant matters”), aff’d sub nom. Shawe v. Elting, 157 A.3d 152 (Del.
2017).
23
need (yet) to go that far. The LLC Agreement contemplates that both the Minority
Members and the Board will cooperate to effectuate an Exit Sale.59 They should be given
a chance to do so.
A less intrusive possibility involves appointing an officer of the court empowered
to monitor compliance with the court’s order, but not to enforce the order directly.60 “The
monitor’s role is to report on the defendant’s compliance with the decree and on the
achievement of the decree’s goals.”61 Rather than making a report and recommendation to
the court, the monitor typically makes recommendations to the parties and “resort[s] to
59
See Dkt. 142 ¶¶ 24-32.
60
Traditionally, this was one possible role for a master. See 1 Dobbs, supra, § 2.8(1),
at 190; 3 Dobbs, supra, § 12.8(3), at 207-10. In this jurisdiction, however, the concept of
a master has become associated with a decision-making function comparable to a federal
magistrate judge, which is another traditional role that a master could fulfill. To that end,
the Court of Chancery Rules specify procedures for the use of masters that are
predominantly tailored to the referral of a discreet question for decision, with the master
providing the court with a report containing a recommended answer. See Ct. Ch. R. 136,
144. The rules empower masters to issue subpoenas for persons and records, Ct. Ch. R.
137, and require that proceedings before them be transcribed for purposes of review, Ct.
Ch. R. 138. Parties can take exception to the master’s report and recommendation, which
the court reviews de novo. DiGiacobbe v. Sestak, 743 A.2d 180, 184 (Del. 1999). The rules
do contemplate one less decisional, more active role for a master: Rule 81 empowers the
court to appoint a master to oversee corporate elections. See Ct. Ch. R. 81(2) (empowering
the Court of Chancery to “appoint a Master to hold such election not less than 20 days after
the Master’s appointment at a time and place to be fixed by the Court, or by said Master as
the Court shall order, any provision of the charter or bylaws of the corporation to the
contrary notwithstanding”).
61
Buckholz et al., supra, at 828; see also Montgomery, supra, at 106 (“The main
purpose of a monitor is to investigate a defendant’s activities and report to the court
regarding his compliance with the court order.”).
24
court enforcement only when these overtures have failed.”62 “Monitors normally have no
enforcement powers; their role is to observe a defendant’s activities and to elicit
cooperation in settling technical problems which would otherwise require judicial hearing
and decision.”63
In my view, appointing a monitor is the best option under these circumstances. The
monitor will supervise the parties’ compliance with the decree of specific performance.
The monitor will not have decisional authority of its own and will not have the power to
compel the parties to take a particular course of action. The monitor is encouraged to
evaluate the parties’ conduct objectively, provide suggestions, and facilitate the resolution
of disputes. If the monitor believes that the parties are not complying with the court’s order
and the monitor’s efforts to persuade have failed, the monitor will be free to communicate
with the court. Depending on the content of the report, the court may take action.
To fulfill this role, the monitor will have expansive informational rights. The
monitor will have access to any books and records of Oxbow that the monitor believes in
subjective good faith are helpful to fulfilling the monitorship role. The monitor may seek
summary determinations from the court to enforce these informational rights, which are at
least as broad as the rights afforded a director under Section 220(d) of the Delaware
General Corporation Law.64 In addition, the parties shall copy the monitor in real time on
62
Note, Monitors: A New Equitable Remedy?, 70 Yale L.J. 103, 113 (1960).
63
Montgomery, supra, at 106 (footnote omitted).
64
See 8 Del. C. § 220(d) (“Any director shall have the right to examine the
corporation’s stock ledger, a list of its stockholders and its other books and records for a
25
all written communications relating to the Exit Sale unless the monitor requests otherwise.
The parties also shall allow the monitor to participate in any other communication relating
to the Exit Sale, whether in-person, telephonic, or otherwise.
The monitor will provide the court with monthly status reports and may submit
reports more frequently if warranted. If the parties have a dispute, then they will present
the dispute to the monitor in the first instance so that the monitor can attempt to facilitate
a resolution. If those efforts are unsuccessful, then the parties may present their concern to
the court by motion. Briefing will not proceed unless the monitor confirms that the parties
consulted with the monitor beforehand. After briefing, the monitor will provide the court
with a recommendation regarding the proper outcome.
An important question when appointing any court-appointed agent is who will bear
the expense. Because the breach of the Reasonable Efforts Clause necessitated the decree
of specific performance and the appointment of the monitor, Oxbow Holdings will bear
that burden.
purpose reasonably related to the director’s position as a director.”); Intrieri v. Avatex
Corp., 1998 WL 326608, at *1 (Del. Ch. June 12, 1998) (“[A] sitting director is entitled to
unfettered access to the books and records of the corporation for which he sits and certainly
is entitled to receive whatever the other directors are given.”); Holdgreiwe v. Nostalgia
Network, Inc., 1993 WL 144604, at *3 (Del. Ch. Apr. 29, 1993) (Allen, C.) (“A director of
a Delaware corporation has the right to inspect corporate books and records; that right is
correlative with his duty to protect and preserve the corporation. He is a fiduciary and in
order to meet his obligation as such he must have access to the books and records; indeed
he often has a duty to consult them.” (quoting Henshaw v. Am. Cement Corp., 252 A.2d
125, 128 (Del. Ch. 1969))).
26
Additional proposed terms for the monitor’s appointment are set forth in the form
of order included in this decision as Appendix A. Any order appointing the monitor will
be filed only after receiving comments from the parties and the individual selected as the
monitor. If the parties cannot agree on a candidate, then the Koch Parties and the Minority
Members shall each submit names of three disinterested and independent individuals who
are qualified and willing to serve. The submissions shall include the candidates’
qualifications. Within ten days after submission, the Koch Parties may submit objections
to any of the Minority Members’ proposed candidates and vice versa. The court will then
make a determination.
C. Compensatory Damages Based On The ArcLight Offer
A secondary and contingent component of the remedy is an award of compensatory
damages related to the transaction value of the ArcLight Offer. If the decree of specific
performance generates an Exit Sale that provides the Minority Members with greater
consideration than the time-adjusted value of the ArcLight Offer, then this element of
compensatory damages will not be warranted. If not, then an award of compensatory
damages based on the lost value of the ArcLight Offer is necessary to make the Minority
Members whole.
As stated previously, in an action for breach of contract, “the Court of Chancery has
the discretion to award any form of legal and/or equitable relief and is not limited to
awarding contract damages for breach of the agreement.”65 “Equity may, when its
65
Gotham P’rs, 817 A.2d at 176; accord Eureka VIII, 899 A.2d at 107.
27
jurisdiction is invoked to obtain specific performance of a contract, award damages or
pecuniary compensation along with specific performance when the decree as awarded does
not give complete and full relief.”66 “This is an outgrowth of the doctrine that a court of
equity, having once assumed jurisdiction on equitable grounds, will adjudicate all matters
properly presented by and actually involved in the case.”67
The Koch Parties view any award of compensatory damages as inconsistent with
and foreclosed by the decree of specific performance. They perceive an award of damages
and a decree of specific performance to be exclusive alternatives yielding an “either/or”
proposition for the court. That approach conflicts with the flexible nature of equitable
remedies and the court’s ability to tailor its remedy to the facts.68 It also conflicts with the
role of equity in providing complete relief. “A fundamental principle of equity is . . . that
if equity has and takes jurisdiction of a cause, it will give relief in a manner to settle the
controversy for all time, even though in so doing it must necessarily award relief not
66
Mills v. Gosling Creek, Inc., 1993 WL 485901, at *3 (Del. Super. Oct. 6, 1993).
67
Tri State Mall Assocs. v. A.A.R. Realty Corp., 298 A.2d 368, 371 (Del. Ch. 1972).
68
See Wolfe & Pittenger, supra, § 12.01[a], at 12-2 (“Having arisen largely to
compensate for the common law’s inability to provide full, fair, and just relief in all
instances, equity has evolved as a broad and flexible concept, designed to employ judicial
principles and tools creatively so as to effect justice in any given circumstance.”); Pomeroy,
supra, § 109, at 141 (“Equitable remedies . . . are distinguished by their flexibility, their
unlimited variety, their adaptability to circumstances, and the natural rules which govern
their use. There is in fact no limit to their variety and application . . . .”).
28
necessarily of purely equitable nature.”69 In other words, “when equity obtains jurisdiction
over some portion of the controversy it will . . . give complete and final relief.”70
In this case, the Koch Parties not only breached the Reasonable Efforts Clause, but
did so in a way that caused the loss of the ArcLight Offer. If the Koch Parties had breached
the Reasonable Efforts Clause at a time when no actionable transaction had been obtained,
then only a decree of specific performance requiring compliance with the Exit Sale Right
would be warranted, and there would be no need to go further. Here, however, the Minority
Members had obtained an actionable transaction in the form of the ArcLight Offer, and the
Koch Parties’ breach deprived the Minority Members of the benefits of that offer.
Consequently, an award of compensatory damages is necessary if the decree of specific
performance does not generate value for the Minority Members that both equals or exceeds
what they would have received under the ArcLight Offer and compensates them for the
lost time value. Without this additional remedial component, the Minority members would
not be made whole.
69
Tull v. Turek, 147 A.2d 658, 664 (Del. 1958).
70
Wilmont Homes, 202 A.2d at 580; accord 1 Pomeroy, supra, § 231, at 410
(“[W]here a court of equity has obtained jurisdiction over some portion or features of a
controversy, it may, and will in general, proceed to . . . award complete relief, although the
rights of the parties are strictly legal, and the final remedy granted is of the kind which
might be conferred by a court of law.”); Wolfe & Pittenger, supra, § 12.10[b][1], at 12-119
(“It is well settled that when the Court of Chancery obtains jurisdiction over a controversy,
it will decide the entire matter, and give complete relief.” (citing Naughty Monkey LLC v.
Marinemax Ne. LLC, 2010 WL 5545409 (Del. Ch. Dec. 23, 2010)). This principle is most
often invoked when rejecting challenges to equitable jurisdiction, but its availability for
that purpose early in the litigation implies that the power exists for purposes of crafting
remedies at the end of the litigation.
29
The Koch Parties also argue that the ArcLight Offer cannot be used as a baseline
for damages because the Minority Members never offered to facilitate closing by paying a
Seller Top Off. According to the Koch Parties, the Minority Members’ failure to make this
offer means that the ArcLight Offer was not actionable. In my view, this argument is
another effort to turn lemons (losing at trial on the Seller Top Off issue) into lemonade (an
argument foreclosing a damages remedy). When the ArcLight Offer was received, the
parties disagreed about how to interpret the LLC Agreement, with both sides advancing
different interpretations. Those competing interpretations led to this litigation and the
eventual issuance of the Post-Trial Ruling, which authorized a Seller Top Off. If the
Minority Members had anticipated this ruling, they doubtless would have offered a Seller
Top Off, as they are now prepared to do. At the time, the Minority Members suggested a
Seller Top Off as part of a compromise, but the Koch Parties insisted on the Highest
Amount Theory as part of their effort to avoid any Exit Sale. 71 If the Koch Parties had
cooperated, as required by the Reasonable Efforts Clause, the parties likely would have
reached agreement on a compromise and a transaction could have closed.
The Koch Parties also contend that the value of the ArcLight Offer must be reduced
to account for the $27 million that the Minority Members would have paid to the Small
Holders as part of the Seller Top Off. The proper measure of compensatory damages for
the loss of the ArcLight Offer is the difference between what the Minority Members would
have received in 2016, adjusted to reflect lost time value, and what they will receive in a
71
See Post-Trial Ruling, 2018 WL 818760, at *64-66.
30
future sale. This proposition can be reduced to the following formula: (adjusted ArcLight
Offer price – 2016 Seller Top Off) – (sale price in Exit Sale resulting from decree – Seller
Top Off in that sale).
The Koch Parties further contend that any award of compensatory damages must
account for distributions that the Minority Members have received since the date when a
sale pursuant to the ArcLight Offer would have closed. I agree.72 If a sale based on the
ArcLight Offer had closed, the Minority Members would not have received the subsequent
distributions. As a result, they should not receive both the benefit of the distributions and
damages based on the amount of the ArcLight Offer. The value of the distributions must
be backed out. The distributions also reduce the amount necessary to satisfy the 1.5x Clause
for the Small Holders and thus must be taken into account when determining the cost of a
future Seller Top Off. These adjustments require present-value calculations to account for
the time-value of money and ensure that the ArcLight Offer, the distributions, and the Exit
Sale are valued using equivalent units. Those calculations can best be accomplished after
an Exit Sale has been achieved.
D. Compensatory Damages For Expenses From The Frustrated Exit Sale
The Minority Members seek an additional award of compensatory damages equal
to their share of (i) the amounts Oxbow paid to Mintz Levin and (ii) any duplicative
72
See Henkel Corp. v. Innovative Brands Hldgs., LLC, 2013 WL 396245, at *6 (Del.
Ch. Jan. 31, 2013) (“Were it not for IBH’s failure to close on the Agreement, IBH would
have gained possession of the Business and obtained any income it generated during the
Interim Period. Henkel’s reasonable expectations are limited to any revenues generated by
the Business until the date it would have sold the Business to IBH under the Agreement.”).
31
amounts that must be paid to Goldman or Cravath. In my view, both resulted from the
breach of the Reasonable Efforts Clause and should be awarded as compensatory damages.
The Minority Members argue that Mintz Levin acted as Koch’s de facto personal
counsel and took the lead in the efforts to delay, obstruct, and derail the Exit Sale. They
contend that Koch caused Oxbow to hire Mintz Levin for the self-interested purpose of
shifting one-third of the expense onto the Minority Members. Because the Minority
Members own approximately one-third of Oxbow’s interests while Koch and his family
members indirectly own approximately two-thirds,73 causing Oxbow to pay for Mintz
Levin meant that the Minority Members were paying one-third of the bill. The amount is
not trivial: The Minority Members estimate that Koch has caused Oxbow to pay Mintz
Levin approximately $50 million. The Minority Members further explain, with the support
of an expert affidavit, that they will not be able to recapture the resulting value loss in an
Exit Sale. A buyer will pay for Oxbow as it is, depleted by the approximately $50 million
spent on Mintz Levin, resulting in the Minority Members receiving approximately $16.7
million less than they would have received if Koch had paid for Mintz Levin himself.
Implicit in the Minority Members’ argument is the view that Company counsel should not
have taken sides in this control dispute. As in a derivative action that has survived a motion
to dismiss pursuant to Court of Chancery Rule 23.1, or a dispute over the outcome of an
election of directors under Section 225 of the Delaware General Corporation Law, Oxbow
and its counsel should not have been picking sides.
73
See Post-Trial Ruling, 2018 WL 818760, at *64.
32
In response, the Koch Parties argue that the Minority Members are seeking a form
of fee shifting that would contravene the American Rule. Under that rule, American courts
generally do not include litigation expenses, including attorneys’ fees, in a damages
award.74 But in a typical fee-shifting case, a party seeks to recover its own litigation
expenses from the other side. The Minority Members are not arguing that their own
litigation expenses should be part of their recovery. They are seeking to recover litigation
expenses incurred by Oxbow which, because of how Koch arranged the representation,
resulted in damages suffered by the Minority Members. To my mind, that is a form of
damages that a compensatory award can remedy.
Next, the Koch Parties contend that any effort to recover the value of a portion of
Mintz Levin’s fees is a classic derivative claim that has not been asserted in this action.
Payments made to Mintz Levin indeed can and typically would be conceptualized formally
as an injury to Oxbow that would be subject to recovery in a derivative action. 75 But there
are two reasons to depart from that characterization here. First, there are some cases,
typically involving closely held entities, in which “the relationships among the parties may
be so simple and the circumstances so clear-cut that the distinction between direct and
74
See, e.g., McNeil v. McNeil, 798 A.2d 503, 514 (Del. 2002) (“The American rule,
which is of general application, requires each side to bear the cost of its attorney’s fees.”);
Goodrich v. E.F. Hutton Gp., Inc., 681 A.2d 1039, 1044 (Del. 1996) (“Pursuant to the
American Rule, prevailing litigants are responsible for the payment of their own attorney’s
fees.” (footnote omitted)).
75
See El Paso Pipeline GP Co., L.L.C. v. Brinckerhoff, 152 A.3d 1248 (Del. 2016).
33
derivative claims becomes irrelevant.”76 This is one of those cases. The dispute pits the
Minority Members on the one side against Koch, his family members, and their affiliates
on the other side. The dispute is two sided and zero sum (at least in terms of the Mintz
Levin expenses). There is also no need to require the filing of a separate derivative action
to ensure that the doctrine of demand futility can protect the Board’s ability to determine
the fate of a Company asset. The record evidence in this case established that Koch controls
the Board and frequently acts unilaterally, rendering demand futile.77
A second reason to disregard the derivative characterization is that Oxbow suffered
the harm in connection with its sale, albeit as part of a sale process that was frustrated
prematurely and will now be resumed by judicial decree. The doctrine of Parnes v. Bally
Entertainment Corp.,78 therefore permits a direct characterization. As the plaintiffs did in
Parnes, the Minority Members argue that the harm to Oxbow means that they will receive
insufficient value in the Exit Sale. The Parnes court treated that type of harm as direct. In
this case, the direct characterization seems all the more apt because the harm flows from
the Koch Parties’ breach of a contractual right benefitting the Minority Members.79
76
In re Cencom Cable Income P’rs, L.P., 2000 WL 130629, at *3 (Del. Ch. Jan. 27,
2000); accord Anglo Am. Sec. Fund, L.P. v. S.R. Glob. Int’l Fund, L.P., 829 A.2d 143, 150
(Del. Ch. 2003).
77
See White v. Panic, 783 A.2d 543, 551 n.24 (Del. 2001); Aronson v. Lewis, 473
A.2d 805, 816-17 (Del. 1984) (subsequent history omitted).
78
722 A.2d 1243, 1245-46 (Del. 1999).
79
I recognize that the Delaware Supreme Court has held that when the contractual
right appears in the constitutive document of an entity, as here, the contractual nature of
the claim does not affect its proper characterization as direct versus derivative. See El Paso,
34
In this case, the evidence established that Koch originally interviewed and retained
Mintz Levin as his personal counsel. Koch previously had used in-house Company counsel
to analyze his rights, but both Oxbow’s then-General Counsel, Michael McAuliffe, and
one of Koch’s key advisors at the time, Christine O’Donnell, recommended that Koch
retain separate counsel to advise him personally. 80 In May 2015, after considering several
firms, Koch selected Mintz Levin. The firm’s primary task was to evaluate the situation
Koch faced and advise him on what was in his best interest.81 Consistent with Mintz
Levin’s role as Koch’s personal counsel, the firm’s engagement letter described the firm
as representing Koch and his wife “in connection with your stock ownership of [Oxbow
Holdings and Oxbow] as well as estate planning matters.”82
After taking on the engagement, Mintz Levin nominally slid into the role of
Company counsel. In August 2015, Koch and Mintz Levin modified the firm’s engagement
letter so that Mintz Levin represented Oxbow.83 No satisfactory explanation was ever
provided for this shift. I personally believe Koch wanted Oxbow’s counsel to be loyal to
152 A.3d at 1257-62. As Professor Manesh has noted, the fact that an investor’s ability to
enforce contractual rights under an operating agreement can be re-characterized as a
derivative claim belonging to an entity and consequently foreclosed by equitable standing
doctrines is one among a baker’s-dozen reasons why LLCs are not wholly contractual and
only partially creatures of contract. See Mohsen Manesh, Creatures of Contract: A Half-
Truth About LLCs, 42 Del. J. Corp. L. 391, 445-46 (2018).
80
See Post-Trial Ruling, 2018 WL 818760, at *28-31.
81
Id. at *28-29.
82
JX 1045.
83
JX 1311.
35
him, liked the idea that Mintz Levin would be in a position to run Oxbow’s internal
investigations into Koch’s perceived adversaries, and understood that the Minority
Members would effectively pay one-third of Mintz Levin’s fees. Koch added Ropes &
Gray to the team as his personal counsel, but Mintz Levin took the lead, with Ropes &
Gray in a secondary role.
Although Mintz Levin nominally represented Oxbow, the firm’s loyalties ran to
Koch. When the lawyers at the firm analyzed issues, developed strategies, and
recommended actions for Oxbow to take, they did so based on what was best for Koch.
Likewise, Koch viewed Mintz Levin as one of his agents in the fight against the Minority
Members. During a meeting of the directors appointed by Oxbow Holdings in January
2016, Koch demanded that Oxbow and its counsel work to “obstruct,” “derail,” and “delay”
the Exit Sale process.84 Shortly after the meeting, Koch asked both Ropes & Gray and
Mintz Levin to “[d]evise a lawsuit” or “devise something on [the Exit Sale]” to avoid
having to sell Oxbow.85 Both firms analyzed various options, and together they identified
over a dozen different strategies.86 Mintz Levin eventually developed the Highest Amount
Theory that became one of the focal points of this litigation.87 Mintz Levin generated this
theory while preparing a letter that was “nominally prepared on behalf of Oxbow and
84
JX 2068 at DEF-EPJ_00021726.
85
Koch Tr. 1085-86; see also JX 2224 at Mintz_0005152.
86
See, e.g., Post-Trial Ruling, 2018 WL 818760, at *34-35.
87
See id. at *41-42
36
directed to the member-level participants in the Exit Sale process,” but which “in substance
. . . raised objections to the ArcLight offer that served Koch’s interests.”88
During this litigation, because he controlled Oxbow, Koch caused Mintz Levin to
take positions against the Minority Members. As Company counsel, Mintz Levin took the
laboring oar in the litigation, effectively working on Koch’s behalf.
In my view, under these circumstances, a court of equity can address the realities of
this two-sided dispute, look past the derivative characterization, and award the Minority
Members their proportionate share of the amounts paid to Mintz Levin. For Koch, causing
Oxbow to retain Mintz Levin was a simple and straightforward means of forcing the
Minority Members to bear one third of an expense that Koch himself should have born.
That harm flowed directly from and was inextricably tied to the breach of the Reasonable
Efforts Clause. But for Koch’s personal desire to oppose an Exit Sale, Oxbow never would
have needed to hire Mintz Levin. The Minority Members are therefore entitled to
compensatory damages equal to their proportionate share of any amounts paid by or on
behalf of Oxbow to Mintz Levin.
The Minority Members also seek to recover any duplicative amounts that Oxbow
incurs to compensate Goldman and Cravath for the resumed Exit Sale. Unlike with the
Mintz Levin expenses, the Minority Members are not arguing that Oxbow wrongfully
incurred amounts for Goldman and Cravath. They are arguing that Oxbow properly paid
those advisors, but then Koch wrongfully deprived Oxbow of the value of their services by
88
Id. at *41.
37
frustrating the Exit Sale process. It seems likely that some of the value of Goldman and
Cravath’s prior work was lost when Koch frustrated the Exit Sale, that Goldman and
Cravath will have to redo some of the work, and that the resulting duplicative payments
will harm Oxbow. As with the Mintz Levin expenses, the Minority Members will not
recoup their share of this lost value through an Exit Sale.
At present, it is not clear that there will be any duplicative work. If, however, the
Minority Members can show that Oxbow incurred duplicative expenses, then the harm will
flow directly from Koch’s breach of the Reasonable Efforts Clause. In this two-sided
dispute involving a sale process, I believe that the award of damages to the Minority
Members can and should include the Minority Members’ proportionate share of any
duplicative amounts paid to Goldman and Cravath.
E. Interest and Costs
Prejudgment interest in Delaware cases is awarded as a matter of right.89 Subject to
the court’s discretion, a party is also entitled to post-judgment interest until the date of
payment on an amount that includes both the amount of the judgment and the amount of
prejudgment interest.90 Unless the parties have specified another rate by contract or the
court determines that a different rate is warranted by the equities, the statutory rate serves
89
Brandywine Smyrna, Inc. v. Millennium Builders, LLC, 34 A.3d 482, 485-86 (Del.
2011).
90
Beard Research, Inc. v. Kates, 8 A.3d 573, 620-21 (Del. Ch. 2010).
38
as a guide.91 The court has discretion to award compound interest, which is warranted
here.92 The court also has discretion to select a compounding interval, which in this case
will be quarterly.93 The rate will fluctuate with changes in the underlying legal rate.94
In a breach of contract case, interest runs from the date “when the effects of the
breach would have first manifested themselves.”95 For purposes of calculating prejudgment
interest on any transactional damages, the applicable date is the date on which the Minority
Members would have received their proceeds from the Exit Sale contemplated by the
91
See 6 Del. C. § 2301(a) (establishing legal rate); Summa Corp. v. Trans World
Airlines, Inc., 540 A.2d 403, 409 (Del. 1988) (“While the legal rate of interest has
historically been the benchmark for pre-judgment interest, a court of equity has broad
discretion, subject to principles of fairness, in fixing the rate to be applied. In the Court of
Chancery the legal rate is a mere guide, not an inflexible rule.” (citations omitted)).
92
See Brandin v. Gottlieb, 2000 WL 1005954, at *28-30 (Del. Ch. July 13, 2000)
(Strine, V.C.) (explaining rationale for awarding compound interest instead of simple
interest); accord ONTI, Inc. v. Integra Bank, 751 A.2d 904, 929 (Del. Ch. 1999); see also
Smith v. Nu-West Indus., 2001 WL 50206, at *1 (Del. Ch. Jan. 12, 2001) (following
Brandin). But see Branin v. Stein Roe Inv. Counsel, LLC, 2015 WL 4710321, at *8 (Del.
Ch. July 31, 2015) (adhering to precedent construing 6 Del. C. § 2301 as permitting only
simple interest).
93
See Taylor v. Am. Specialty Retailing Gp., Inc., 2003 WL 21753752, at *13 (Del.
Ch. July 25, 2003) (applying quarterly compounding interval when awarding interest based
on the legal rate “due to the fact that the legal rate of interest most nearly resembles a return
on a bond, which typically compounds quarterly”); accord One Va. Ave. Condo. Ass’n of
Owners v. Reed, 2005 WL 1924195, at *15 (Del. Ch. Aug. 8, 2005). But see Charles K.
Korsmo & Minor Myers, Interest in Appraisal, 42 J. Corp. L. 109, 129-30 (2016)
(questioning validity of comparison between legal rate and bonds).
94
See Levey v. Brownstone Asset Mgmt., LP, 2014 WL 4290192, at *1 (Del. Ch.
Aug. 29, 2014) (explaining rationale for fluctuating rate).
BTG Int’l Inc. v. Wellstat Therapeutics Corp., 2018 WL 2966941, at *1 (Del. June
95
11, 2018) (TABLE).
39
ArcLight Offer. Oxbow’s advisors believed that a transaction on the terms set forth in the
ArcLight Offer could have closed by August 2016.96 The Minority Members’ expert used
September 30, 2016 as the closing date for such a transaction.97 The Koch Parties’ expert
did not take issue with that date.98 This decision therefore adopts it.
In addition to interest, the Minority Members are awarded costs. “Except when
express provision therefor is made either in a statute or in these Rules, costs shall be
allowed as of course to the prevailing party unless the Court otherwise directs.”99 Although
there were many issues and sub-issues in this case, the basic question was whether Oxbow
had to be sold. The Minority Members prevailed on that overarching issue and therefore
are the prevailing parties in the case.
II. CONCLUSION
The Minority Members are awarded the relief described in this decision. The parties
shall take steps to select a monitor. Once an individual has been selected, the monitor will
provide comments to the parties on the proposed form of order. If the monitor and the
parties cannot agree, then they may submit competing forms of order. Once the resumed
Exit Sale process is complete, further proceedings will be necessary to determine specific
amounts for the awards of compensatory damages, interest, and costs.
96
Post-Trial Ruling, 2018 WL 818760, at *68-69.
97
See JX 2992 ¶ 17 n.33.
98
See Dkt. 1227.
99
Ct. Ch. R. 54(d).
40
APPENDIX A
ORDER APPOINTING MONITOR
1. APPOINTMENT OF MONITOR: _______________ of _______________
(the “Firm”) is appointed Monitor with the powers and duties specified in this Order. The
Monitor shall have authority, but shall not be required, to petition this court for instructions
at any time or from time to time. The Monitor may seek to modify the terms of this Order,
including by seeking supplemental authority under this Order, for good cause shown.
2. ACCEPTANCE AND TERM OF APPOINTMENT: The Monitor shall file
in this court a written acceptance of this appointment. The Monitor shall serve at the
pleasure of the court, and the provisions of this Order shall remain in effect pending further
order of the court.
3. AUTHORITY: The Monitor has the power and authority necessary to fulfill
the charge set forth in this Order. The Monitor’s specific authority is defined as follows:
(a) The Monitor has authority to communicate with the parties jointly or
separately. The Monitor has authority to consult with the court ex parte (without the
participation of the parties).
(b) The Monitor has authority to convene meetings of the parties. Unless
the Monitor determines otherwise, the parties shall (i) include the Monitor on any
correspondence, including by email, relating to the Exit Sale and (ii) include the Monitor
in any meetings regarding the Exit Sale, whether conducted in-person, telephonically, or
otherwise.
(c) The Monitor has authority to make recommendations to the parties
regarding the Exit Sale.
1
(d) If the parties have a dispute, they shall present it in the first instance
to the monitor, who shall attempt to facilitate a resolution. Once the monitor has determined
that those efforts have been unsuccessful, then the parties may apply to the court. The
monitor shall certify to the court that the parties complied with this requirement.
(e) The Monitor has authority to file written recommendations to the
court in connection with any dispute relating to the Exit Sale raised with the court by the
parties.
4. INFORMATIONAL RIGHTS: Oxbow shall provide the Monitor with any
books and records of Oxbow that the monitor believes in subjective good faith would be
helpful in fulling the charge set forth in this Order.
5. REPORTING TO THE COURT: Within thirty days of appointment, the
Monitor shall provide a report to the court and the parties concerning a proposed plan of
sale. Thereafter, the Monitor shall provide a report to the court at least every thirty days
concerning the progress of the Monitor’s efforts. Such reports may be filed under seal, in
which case they shall be made available only to the court, the parties, and their counsel.
6. COMPENSATION OF THE MONITOR: Oxbow Holdings shall pay the
compensation and expenses of the Monitor. The Monitor may bill at the Monitor’s
customary hourly rates. The Monitor may make use of individuals within the Firm, who
shall be paid at their customary hourly rates. The Monitor shall petition the court on a
monthly basis for approval of compensation and reimbursement of expenses with copies
of the amounts sought sent to counsel for the parties. All fees and expenses approved by
the court shall be paid promptly by Oxbow Holdings. In the event of non-payment, all fees
2
and expenses approved by the court shall be paid by the Company, subject to a right of
subrogation against Oxbow Holdings. Payment of the fees and expenses of the Monitor
shall have priority over all other obligations, payments, and distributions of the Company.
7. CONSULTATION WITH CONSTITUENCIES: The Monitor may consult
with Oxbow’s constituencies, including managers, members, officers, unitholders,
creditors, employees, customers, and suppliers, with respect to the performance by the
Monitor of the Monitor’s duties, but shall not be subject to the direction or control of any
such constituency and shall not be required to take any course of action that any such
constituency may favor or disfavor.
8. COOPERATION: The appointment of the Monitor is binding upon the
managers, officers, employees, agents, and unitholders of Oxbow, who shall cooperate
with the Monitor in the performance of the Monitor’s duties. No party to this action, and
no other person acting or purporting to act as a manager, member, officer, employee, agent,
or unitholder of Oxbow, shall institute any proceeding in any forum other than this court
challenging any action, recommendation, or decision by the Monitor.
9. EXCULPATION, INDEMNIFICATION, AND ADVANCEMENT: The
Monitor shall have no liability to Oxbow, its unitholders, or any other person for actions
taken in good faith pursuant to this Order. The Monitor shall be entitled to all protection,
limitation from liability, and immunity available at law or in equity to a manager of Oxbow
including, without limitation, all protection, limitation from liability, and immunity
provided by the provisions of the LLC Agreement and applicable law. The Monitor shall
be entitled to indemnification from the parties for any losses arising by reason of or in
3
connection with the Monitor’s designation as Monitor for Oxbow unless the Monitor acted
in subjective bad faith. The priority of the obligation to indemnify the Monitor shall be (i)
Oxbow Holdings, (ii) the Company, and (iii) the Minority Members. Expenses, including
attorneys’ fees, incurred by the Monitor in defending any civil, criminal, administrative, or
investigative action, suit, or proceeding arising by reason of or in connection with the
Monitor’s designation as Monitor for Oxbow, or the performance of the Monitor’s duties
hereunder, shall be paid by Oxbow Holdings monthly in advance of the final disposition
of such action, suit, or proceeding subject to the repayment of such amount if it shall be
ultimately determined by this court that the Monitor is not entitled to be indemnified by
Oxbow under applicable Delaware law. In the event of non-payment by Oxbow Holdings,
advancements shall be provided by the Company, subject to a right of subrogation against
Oxbow Holdings. Payment of the fees and expenses of the Monitor shall have priority over
all other obligations, payments, and distributions of the Company.
10. STANDARD OF REVIEW FOR THE MONITOR’S ACTIONS: All actions
of the Monitor shall be presumed to have been made on an informed basis, in good faith,
and in the honest belief that such actions taken were in the best interests of the Company.
Vice Chancellor
Dated:
4