Braga Investment & Advisory, LLC v. Musa Yenni ( 2023 )

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
BRAGA INVESTMENT & ADVISORY, )
LLC, )
)
Plaintiff, )
)
v. ) C.A. No. 2019-0408-PAF
)
MUSA YENNI, YENNI INCOME )
OPPORTUNITIES FUND I, L.P., STEVEN )
FELLER P.E., LLC, )
)
Defendants. )
MEMORANDUM OPINION
Date Submitted: February 8, 2023
Date Decided: May 31, 2023
Blake Rohrbacher, Andrew L. Milam, RICHARDS, LAYTON & FINGER, P.A.,
Wilmington, Delaware; David Lackowitz, Alexandra Kolod, MOSES & SINGER
LLP, New York, New York; Attorneys for Plaintiff Braga Investment & Advisory,
LLC.
Julia B. Klein, KLEIN LLC, Wilmington, Delaware; Justin S. Stern, FRIGON
MAHER & STERN LLP, New York, New York; Attorneys for Defendants Musa
Yenni, Yenni Income Opportunities Fund I, L.P.
Francis G.X. Pileggi, Cheneise V. Wright, LEWIS BRISBOIS BISGAARD &
SMITH LLP, Wilmington, Delaware; Attorneys for Steven Feller P.E., LLC.
FIORAVANTI, Vice Chancellor
In 2016, Braga Investment & Advisory, LLC (“Braga Investment” or
Plaintiff”) invested $700,000 to acquire a 23.3% membership interest in Steven
Feller P.E., LLC (the “Company” or “Newco”), as part of a transaction in which the
Company acquired the business of Steven Feller P.E., PL. Yenni Income
Opportunities Fund, I, L.P. (the “Fund”) and its managing partner, Musa Yenni
(“Yenni”), engineered the deal. The Fund owned a majority of the Company’s
membership interests and became the Company’s managing member.
Among the materials that Braga Investment received in due diligence was an
unsigned, proposed form of the Company’s limited liability company agreement,
which is referred to as the operating agreement. Braga Investment knew that the
proposed operating agreement would be revised before the closing of the transaction.
Braga Investment even received one of the invoices from the lawyers who prepared
those revisions, and it paid the bill. After that, Braga Investment executed and
returned a signature page to the operating agreement. Before executing and
returning the signature page, Braga Investment never asked to see the final operating
agreement.1
1
The trial testimony is cited as “Tr.”; deposition testimony is cited as “Dep.”; trial exhibits
are cited as “JX”; stipulated facts in the pre-trial order are cited as “PTO”; and references
to the docket are cited as “Dkt.,” with each followed by the relevant section, page,
paragraph, exhibit, or docket number. The trial record includes over 71 exhibits, live trial
testimony from 3 witnesses, and 9 deposition transcripts.
As part of the terms of its investment in the Company, Braga Investment also
entered into a separate agreement with the Fund. In that agreement, Braga
Investment acknowledged that it was a passive investor and gave the Fund an
irrevocable power of attorney, allowing it to “vote [Braga Investment’s] equity
interest in [the Company] . . . at all meetings of equity holders and for any other
purpose equity owners are called to vote or consent.” 2
After disputes later arose between Braga Investment and the Fund, the Fund
sought to amend the operating agreement in connection with a potential debt
refinancing in May 2019. In that process, Braga Investment discerned that the
existing operating agreement materially differed in certain respects from the
proposed form of the operating agreement that it first received in 2016. On May 31,
2019, the Company and its members adopted an amended operating agreement, with
the Fund signing on behalf of Braga Investment under the irrevocable power of
attorney.
In this action, Braga Investment alleges that the Fund and Yenni fraudulently
induced Braga Investment to invest in the Company in 2016 and that they breached
the operating agreement by purporting to amend it twice without Braga Investment’s
authorization. Braga Investment seeks rescission and a return of its original
2
JX 5 (“Co-Investment Agreement”) § 5.
2
investment or, alternatively, damages and an order declaring that the form of
operating agreement that it first received in August 2016 is the Company’s “valid
and effective” operating agreement.
In this post-trial decision, the court concludes that Braga Investment failed to
establish its claims. Accordingly, judgment is entered in favor of the defendants.
The defendants’ application for an award of its attorneys’ fees and expenses,
however, is denied.
I. BACKGROUND
The following recitation reflects the facts as the court finds them after trial.
A. The Players
The Fund is a Delaware limited partnership and private equity fund.3 Musa
Yenni is the Fund’s managing partner. 4 The Fund created the Company in October
2015 to facilitate the acquisition of the assets that made up the business of Steven
Feller P.E., PL (“Oldco”),5 an engineering firm owned by Steven Feller and Louise
Feller (together, the “Sellers”). 6 On or about November 16, 2015, the Fund entered
3
PTO ¶ 14; Tr. 292:3–5 (Yenni).
4
PTO ¶ 15.
5
See JX 18 YENNI0046682; Tr. 293:12–294:4 (Yenni).
6
Tr. 73:13–15 (Ricardo); id. 16:8–16:l5 (Ricardo); PTO ¶ 17.
3
into a Membership Interest Purchase Agreement (the “Purchase Agreement”) with
the Sellers and Oldco. 7 The transaction did not close until ten months later.8
Braga Investment is a Delaware limited liability company headquartered in
New York, New York. 9 Ricardo Braga has served as Braga Investment’s managing
member since 2011. Ricardo Braga’s son, Rodrigo Braga, has served as a director
and member of Braga Investment since 2015. 10
In August 2016, the Fund presented Braga Investment with an opportunity to
invest in the Company. 11 At this point, the transaction contemplated by the Purchase
Agreement had not yet closed. Braga Investment expressed interest in the
opportunity and began due diligence.12 On August 26, 2016, Yenni sent an email to
Braga Investment attaching a copy of the Purchase Agreement. The text of the email
stated in pertinent part:
Here is the definitive purchase agreement we executed with the Seller
in November both with and without all its exhibits. The purchase
agreement without the exhibits has the signatures of the parties. Please
note that Section 9 of the Operating Agreement (Exhibit D) addresses
the issues of transfer of shares for all members. We could specify in
7
PTO ¶ 17.
8
Id.
9
Id. ¶ 13.
10
Tr. 5:13–22 (Ricardo); id. 8:1 (Ricardo); id. 250:19–21 (Rodrigo). For clarity, this
opinion refers to Ricardo Braga and Rodrigo Braga by their first names. No familiarity or
disrespect is intended.
11
PTO ¶ 18.
12
Tr. 297:24–298:6 (Yenni).
4
our operating agreement that we would abide by this Exhibit D. We
look forward to our likely partnership.13
The operating agreement attached as Exhibit D to the Purchase Agreement
(the “2015 OA” or “2015 Operating Agreement”) 14 was unsigned and undated.
Unsurprisingly, the 2015 OA did not refer to Braga Investment, which only arrived
on the scene in August 2016, ten months after the Fund, Sellers, and Oldco had
executed the Purchase Agreement. Thus, there was no signature block for Braga
Investment to sign on the 2015 OA’s signature page.15 Schedule A to 2015 OA
(“2015 Schedule A”), which set out the members and managers of the Company’s
capital accounts, had blanks where the dollar amount of the capital account should
have been and did not provide a line for Braga Investment.16 It did, however, provide
lines for the Fund and Oldco.17
B. The Co-Investment Agreement
After receiving the August 26, 2016, email, Braga Investment began
conducting due diligence. On September 2, 2016, Braga Investment and the Fund
held a due diligence conference call. Ricardo created a seven-page list of talking
13
JX 2 at BRAGA00011046. The parties understood that the lowercase “operating
agreement” refers to a separate agreement between the Fund and Braga Investment that
would come to be known as the Co-Investment Agreement. Tr. 13:5–20 (Ricardo).
14
JX 2 at BRAGA00011047.
15
Id. at BRAGA00011249–50.
16
Id. at BRAGA00011256.
17
Id.
5
points for the conference call. One point stated, “Management fees schedule has to
be amended in operating agreement to match requirements by lenders.”18 Another
bullet point stated: “Outline of operating agreements, included in current one or just
between us and Yenni Fund[.] Might go against operating agreements.” 19 Ricardo
and Yenni also discussed Braga Investment’s desire for a seat on the Company’s
board of managers (the “Board”).20 The Fund declined that request but offered to
give Braga Investment board observer rights.
Following the conference call, the Fund made various changes to a co-
investment agreement (the “Co-Investment Agreement”).21 In an email enclosing
the revised Co-Investment Agreement, Yenni stated, “Thank you for our call today.
Please find attached a redlined copy of our agreement reflecting the changes we
agreed to and a pdf copy with my signature. Ricardo: please sign and email back to
us today.”22 Ricardo signed and returned the executed Co-Investment Agreement
later that day.23
18
JX 3 at BRAGA00000956; Tr. 102:14–103:5 (Ricardo).
19
JX 3 at BRAGA00000957.
20
Tr. 19:11–20:12 (Ricardo).
21
JX 4 at BRAGA00034050.
22
Id.
23
Id.
6
The Co-Investment Agreement provided that Braga Investment would
purchase 23.3% of the equity of Newco for $700,000.24 It also contained a
representation that Braga Investment entered into the agreement on an informed
basis stating that:
[Braga Investment] reviewed with its counsel, or has had the
opportunity to do so, the diligence material made available to it by
Newco and the Managing Investor and the [Membership Interest
Purchase Agreement dated as of November 16, 2015 (the “PA”)] and
has agreed to enter into a so-called Joinder Agreement pursuant to
which it shall be deemed to be a Buyer under the PA and will be entitled
to all of the rights and subject to all of the obligations described in the
PA, including but not limited to the Operating Agreement of Newco
and the other Exhibits referenced therein.25
The Co-Investment Agreement also recites that:
[Braga Investment] intends to be a passive investor in Newco but shall
be granted Board of Managers (“Board”) observer rights in which
capacity it shall receive copies of all Board packages prepared for
Board members concurrent with receipt thereof by all Board members
and shall be reimbursed all travel and related expenses in accordance
with Company policy. 26
Reflecting the passive nature of Braga Investment’s investment, the Co-
Investment Agreement also granted the Fund “the right to vote [Braga Investment’s]
equity interest in Newco for so long as it own[ed] any equity interest in Newco” and
24
Co-Investment Agreement § 1.
25
Id. § 3. In the representations and warranties section of the Co-Investment Agreement,
Braga Investment further represented that “It has had the opportunity to consult with
advisors of its choice before making this investment.” Id § 7.
26
Id. § 4.
7
provided that the grant would “constitute an irrevocable power of attorney to do so
at all meetings of equity holders and for any other purpose equity owners [were]
called to vote or consent.”27 Braga Investment also represented in the Co-Investment
Agreement that “It has the financial wherewithal to make [the] investment, is a
sophisticated investor experienced in making such investments[,] and can afford the
total loss of its investment.” 28
C. Braga Executes Signature Pages to the Operating Agreement
In addition to bringing Braga Investment into the deal, Yenni and the Fund
were also negotiating revisions to some of the transaction documents, including the
2015 OA, to reflect changed deal terms. 29 Ricardo chose not to participate in these
negotiations. 30
To that end, on September 6, 2016, Yenni emailed lawyers at Dickinson
Wright PLLC (“Dickinson Wright”) regarding the Co-Investment Agreement and
the Company’s need for a revised operating agreement. Dickinson Wright
represented Fifth Third Bank, which served as one of the Company’s lenders.31 Clint
27
Id. § 5.
28
Id. § 7. Braga Investment also represented that it “is an accredited investor as that term
is defined under the Securities Act of 1933, as amended, and the rules promulgated by the
Securities and Exchange Commission.” Id.
29
PTO ¶ 27.
30
Tr. 126:1–127:24 (Ricardo).
31
Id. 114:20–115:9 (Ricardo).
8
Gage of Dickinson Wright emailed Yenni stating, “The Co-Investment Agreement,
subject to the revision re: the wire receipt, looks fine. 32 The email also indicated
that the Dickinson Wright lawyers would “review the revised Operating Agreement
upon receipt” from the Fund’s lawyers at Dentons US LLP (“Dentons”).”33 Yenni
forwarded this email chain to Ricardo and Rodrigo, giving them general wiring
instructions for their investment and updates on the possible need to further update
the Co-Investment Agreement.34 Ricardo understood from the email chain, and
“many other factors,” that the Company’s operating agreement would need to be
revised.35 That same day, Braga Investment signed an amendment to the Co-
Investment Agreement which clarified that Braga Investment would be wiring its
$700,000 investment to counsel for Fifth Third Bank, not Newco as originally
planned. 36 On September 8, 2016, Ricardo signed the joinder agreement (the
“Joinder Agreement”) contemplated by the Co-Investment Agreement.37 The
Joinder Agreement provided that Braga Investment would be made a party to the
Purchase Agreement and have all the rights and obligations of a “Buyer” as defined
32
JX 6 at BRAGA00023949.
33
Id.
34
Id.
35
Tr. 115:1–116:24 (Ricardo).
36
JX 7 at BRAGA00034698.
37
JX 8 at BRAGA00028963.
9
by the Purchase Agreement. 38 Yenni countersigned the Joinder Agreement on behalf
of the Company at or around the September 19, 2016, closing date. 39
1. The Dentons Invoice
On September 12, 2016, Dentons sent an invoice to Yenni for its work in
revising documents to facilitate Braga Investment’s participation in the deal,
including the operating agreement.40 The invoice is dated September 9, 2016, and
contained two time entries for services performed on September 6 and 7, 2016.41
The first narrative explained:
Prepare letter agreement on a rush basis for Co-Investor to wire
$700,000 to Newco or Fifth Third Bank and describe rights and
obligations thereunder; review e-mail correspondence with counsel for
the bank, Dickinson Wright; amend Co-Investment Agreement to
provide for wire into attorney trust account; series of e-mails with Musa
regarding wire and timing.42
The second narrative stated:
Prepare revisions for Newco Operating Agreement to provide for
capital account for Co-Investor, Board Advisory seat, Membership
interest and power of attorney regarding voting agreement; review
same with Musa and make revisions; review provisions of Purchase
Agreement permitting co-investment; prepare Joinder Agreement for
Co-Investor to be deemed a Buyer under the Purchase agreement; make
revisions after Musa comments; call with Sellers’ counsel regarding
Co-Investor and non-dilution of Steve Feller indirect 20% ownership
38
Id.
39
PTO ¶ 25.
40
JX 9 at BRAGA00016939.
41
Id.
42
Id.
10
and brief conference with tax department re: opening capital account
amounts. 43
Yenni forwarded the invoice to Ricardo and Rodrigo and asked them to pay
it.44 Rodrigo and Ricardo discussed the invoice. 45 As a result of these discussions,
Ricardo understood that the invoice reflected that the lawyers had made changes to
the 2015 Operating Agreement.46 Braga Investment unsuccessfully tried to convince
Yenni to pay half of the bill.47 Conceding its obligation to pay, Braga Investment
made payment in full to Dentons on September 14, 2016. 48
The work described by the September 9, 2016, Dentons invoice reflected only
part of the total changes to the operating agreement. On September 12, 2016,
Dentons sent an email to Yenni about open issues and the desire to collect signature
pages in advance of closing. 49 The email attached signature pages for Yenni and the
Fund, which Yenni executed and returned within the next hour. 50 The email also
43
Id.
44
Id. at BRAGA00016939; Tr. 315:24–316:4 (Yenni).
45
Tr. 124:1–16 (Ricardo).
46
Id. 121:20–122:8 (Ricardo).
47
Id. 262:15–51 (Rodrigo).
48
PTO ¶ 28; JX 16 at BRAGA00011620.
49
JX 13 at BRAGA00021648–49.
50
Id. at BRAGA00021652.
11
noted an open issue concerning the operating agreement.51 Minutes later, Dentons
sent Yenni another email attaching a signature page packet for Braga, which
included signature pages for the operating agreement and a written consent related
to Oldco’s profit sharing plan. 52 Recognizing that there were outstanding issues with
the operating agreement, the Dentons email stated: “We will need to receive Braga’s
signatures on these, though I note he should receive a final copy of the operating
agreement he is signing when it is finished.” 53
The next morning, September 13, 2016, Yenni forwarded the September 12
Denton’s email containing the signature packet to Ricardo, copying Rodrigo and
several Dentons lawyers, asking Braga Investment to sign and return the signature
pages “by no later than tomorrow.”54 The attached signature page for the operating
agreement differed from the form attached as Exhibit D to the Purchase Agreement,
as it included a signature block for Braga Investment.55
On the afternoon of September 13, Dentons sent an email to Yenni indicating
that its “negotiations with the lenders have led to a change to the signature page of
51
Id. at BRAGA00021649 (“We will need additional signature(s) from you and any other
mangers to a couple documents once you settle the operating agreement issue with Steve
Feller.”).
52
JX 12 at BRAGA00030296.
53
Id.
54
Id.
55
Compare id. at BRAGA00030299, with JX 2 at BRAGA00011249.
12
the operating agreement being necessary. Please see attached. You and Braga will
have to sign where applicable.” 56 Later that day, Yenni forwarded the email to
Ricardo, writing: “I believe this will be the last page you need to sign before our
close scheduled this Thursday.”57
The new signature page contained additional signature blocks. Specifically,
it added a signature block manifesting the signatories’ consent to changes in Section
4.15 of the operating agreement, pertaining to Yenni Income Opportunities Fund
GP, LLC’s annual management fees.58 Yenni’s forwarding email also included a
string of his communications with Dentons over the last two days, including emails
that reflected the existence of the “manager issue” between Yenni and Steven Feller
in the operating agreement, the fact that the issue had since been resolved, and the
need to execute revised signature pages as a result of the negotiations with the
lender.59 Ricardo acknowledged receiving and likely reading this email chain, but
he did not ask questions about it. 60
On the afternoon of September 13, 2016, Ricardo executed and returned to
Yenni the signature pages to the operating agreement, including the signature block
56
JX 13 at BRAGA00021645.
57
Id.
58
Id. at BRAGA00021652.
59
Id. at BRAGA00021645-49.
60
Tr. 132:1–135:24 (Ricardo).
13
consenting to the changes in Section 4.15 of the operating agreement. 61 Ricardo did
not inquire about any of the revisions generally or to Section 4.15 specifically, even
after receiving notice of the change to Section 4.15.62 Braga Investment also did not
request a copy of the final version of the operating agreement before executing and
returning the signature pages.
Shortly after Yenni sent the final, revised signature pages to Braga Investment
on September 13, a Dentons lawyer forwarded an email to Yenni attaching a revised
operating agreement and describing some of the changes.63 The email also included
a redline reflecting changes from a prior draft.64 Among the changes were revisions
to Yenni’s voting and appointment authority. The following reflects revisions to
two pertinent provisions in Section 3.1(b) (the “Contested Provisions”):
(i) Yenni Income Opportunities Fund 1, L.P. (“"Yenni"”) (or other
investors as Yenni may designate), shall have the right to appoint four
(4) members of the Board; the initial membersmember of the Board
appointed by Yenni shall be Musa Yenni and Gregory Floyd who, in
lieu of Yenni appointing any of the three (3) vacancies on the Board,
shall have a supermajority vote for the purpose of calling all
meetings, being counted toward a quorum at all meetings,
consenting to all actions, and voting on all measures brought before
the Board. Yenni (or other investors as Yenni Fund may designate),
61
JX 14 at BRAGA00031712–15.
62
Tr. 137:1–138:14 (Ricardo). Ricardo testified that he did not check because “I trust my
partner at this time.” Id. 138:10–11 (Ricardo). Yenni and the Fund did not send a revised
operating agreement along with the signature page or at any point before the Closing, nor
did Braga Investment request one before Closing. PTO ¶ 30.
63
JX 11 at YENNI0050204.
64
Id.
14
may remove, recall and replace such members of the Board at will as it
shall determine and shall always have the right to appoint four (4)
members of the Board for so long as Yenni (or other investors as Yenni
may designate) or their respective Affiliates is a controlling member of
the Company. In addition, Yenni shall have the right to invite
(and/or remove) up to four (4) Board observers to any and all
meetings of the Board who shall be entitled to receive Board
packages at the same time as Board members. The initial Board
observers so appointed are Parul Dubey, Ben Godbout, Wayne
Kalayjian and Ricardo Braga; and
(ii) Steven Feller shall become and remain a member of the Board of
Managers for so long as Steven Feller is employed by the Company;
provided, that, if Steven Feller shall no longer be a member of the
Board, Yenni (or other investors as Yenni may designate) shall have
the right to appoint all of the members of the Board. 65
The Contested Provisions were not in the 2015 OA.66 On September 14, Dentons
sent another clean and redline version of the operating agreement to counsel for Fifth
Third Bank with additional changes to section 4.15 and asked for confirmation that
the changes were acceptable.67 Yenni was copied on this email; Braga Investment
was not.
Braga Investment’s signature page was affixed to the final revised version of
the operating agreement that was later included in the closing binder. 68 The parties
refer to this version of the operating agreement as the 2016 Operating Agreement
65
Id. at YENNI0050247–48. Bold formatting reflects additions while strike-through
formatting reflects deletions.
66
Compare id. at YENNI0050247–48, with JX 2 at BRAGA00011228–29.
67
JX 15 at YENNI0050848.
68
PTO ¶ 32.
15
(the “2016 Operating Agreement” or the “2016 OA”). Braga Investment did not see
the 2016 Operating Agreement before May 15, 2019.69
D. The Closing and Post-Closing Events
On September 19, 2016, the transaction closed (the “Closing”). 70 Ricardo
participated in the closing call, which included a discussion of the material terms of
the transaction.71 On October 3, 2016, Rodrigo wrote to Parul Dubey of the Fund
requesting the Closing documents, including the “final signed version of the
Purchase Agreement by all parties.”72
Dubey did not transmit to Braga Investment the final signed version of the
Purchase Agreement or its exhibits in response to Rodrigo’s email. Rather, on
October 21, 2016, Dubey sent Ricardo and Rodrigo a link to electronic data rooms
that purported to contain “important shared files,” the documents Rodrigo Braga had
requested, and a marketing folder to be used for consolidating marketing materials.73
At some point, Yenni discontinued the data room. 74
69
Tr. 49:8–9 (Ricardo).
70
Id. 314:1–3 (Yenni).
71
Id. 146:11–15 (Ricardo).
72
PTO ¶ 34. Specifically, Rodrigo noted that they were missing “Final signed versions of
both debt notes[;] Final signed version of the Purchase Agreement by all parties[;] Final
signed version of the Joinder Agreement by all parties[;] Board observer agreements[; and]
Any option pool contracts or warrants currently granted.” JX 20.
73
JX 21 at YENNI0009846–47; Tr. 292:19–22 (Yenni).
74
Tr. 245:7–12 (Rodrigo).
16
The only documentary evidence of the contents of the data room is a
screenshot of an automated email sent from the data room service provider to Yenni.
The screenshot reflects that Dubey uploaded documents to the data room on October
21, 2016. 75 The titles of these documents indicate that they were from November
2015, not September 2016. 76 For example, one document was titled “YENNI AND
FELLER PURCHASE AGREEMENT WITH ALL EXHIBITS 23NOV2015.pdf.”77
The two other documents visible from this screenshot also had November 2015 dates
in their titles.78
The Company held its first Board meeting on October 24, 2016.79 Braga
Investment attended the meeting as a Board observer.80 At the meeting, the Board,
consisting of Yenni and Steven Feller, ratified all matters related to the transaction
for the Company without objection, including ratification of Steven Feller’s
selection as President and Board member and Yenni’s selection as “Chair” of the
75
JX 22 at YENNI0010537.
76
Id. (“YENNI AND FELLER SIGNATURE PAGE OF PURCHASE AGREEMENT
WITH FELLERS’ SIGNATURES 22NOV2015.pdf”); id. (“YENNI AND FELLER
SIGNATURE PAGE OF PURCHASE AGREEMENT WITH YENNI’S SIGNATURE
22NOV2015.pdf”).
77
Id.
78
Id.
79
PTO ¶ 36.
80
Id.
17
Board. 81 The Company’s decision to retain Ricardo, Kalayjian, Dubey, and Godbout
as Board observers was also ratified.82 Braga Investment has since attended and
participated in every Company Board meeting, except for the January 2017 meeting,
from which it was disinvited by the Board. 83 From the Closing until April 2021,
there had been only two Company Board managers: Yenni and Steven Feller.84
E. The First Action
On May 22, 2017, Braga Investment filed a complaint (the “Main Lawsuit”)
against the Fund. See Braga Inv. & Advisory, LLC v. Yenni Income Opportunities
Fund I, L.P., 2020 WL 3042236, at *1 (Del. Ch. June 8, 2020). In the Main Lawsuit,
Braga Investment alleged that the Fund breached the Purchase Agreement by
agreeing to amend its terms shortly before the Closing to exclude certain assets from
being transferred to Newco. Id. Braga Investment also alleged that the Fund
breached the Co-Investment Agreement by depriving Braga of its rights as a Board
observer to receive “board packages.” Id.In a post-trial opinion, the court entered judgment in favor of the Fund and
against Braga. Id. at *19. The court concluded that the “Joinder Agreement’s
purported modification to add Braga as a party to the Purchase Agreement [was]
81
Id.
82
Id.
83
Id.
84
Id.
18
facially invalid” because the Joinder Agreement was not signed by any of the parties
that were required to effect an amendment to the Purchase Agreement. Id. at *9.
Because Braga was not properly joined as a signatory to the Purchase Agreement,
the Fund and the Sellers were permitted to amend the list of excluded assets to the
Purchase Agreement without Braga’s review or approval. Id. at *1. The court also
determined that the Fund did not breach Braga’s contractual right to receive “Board
packages” under the Co-Investment Agreement. Id. at *16–19.
F. The Second Action
In September 2017, Yenni sought advancement for the Fund’s legal fees to
defend the Main Lawsuit.85 Yenni retained Delaware counsel on behalf of the
Company to render an opinion on the Fund’s entitlement to advancement under the
terms of the Company’s operating agreement. In the process of preparing its opinion
(the “Advancement Opinion”), counsel examined the unsigned 2015 OA, not the
2016 OA.86
On February 9, 2018, Braga Investment filed an action seeking declaratory
judgment and injunctive relief to prevent the Fund from receiving indemnification
or advancement (the “Second Action” and together with the Main Lawsuit, the
PTO ¶ 39; Braga Investment & Advisory, LLC v. Musa Yenni, C.A. No. 2018-0093-
85
LWW Dkt. 1 ¶ 28 (Del. Ch. Feb. 9, 2018).
86
PTO ¶ 39.
19
“Related Actions”).87 Plaintiff attached the unsigned 2015 OA to its complaint.88
The case proceeded for months without the Fund or the Company raising any issue
concerning the validity of the 2015 OA.89
It appears that the Company and Yenni were not focused on the issue in the
context of the Second Action because the substantive language in the
indemnification and advancement provisions were the same in both the 2015 OA
and 2016 OA. 90 Yenni realized the discrepancy in October 2018 and asked Dentons
to send him an electronic version of the 2016 OA. In his email to counsel, Yenni
wrote that the discrepancy “created a problem in our lawsuits against Braga; the
older version was filed in DE courts by the plaintiffs and we did not realize that until
recently! We are trying to rectify that.” 91
Most troubling is the fact that neither Yenni nor his counsel sought to correct
the record at that time. It was only months later, when the dispute arose over the
proposed amendment to the operating agreement in May 2019 that Plaintiff learned
87
Id. ¶ 40; Braga Investment, C.A. No. 2018-0093-LWW Dkt. 1.
88
Braga Investment, C.A. No. 2018-0093-LWW Dkt. 1 Ex. A.
89
PTO ¶ 41. On September 28, 2018, the court denied Braga Investment’s motion for
judgment on the pleadings. Braga Investment, C.A. No. 2018-0093-LWW Dkt. 84. The
Second Action is currently stayed but is subject to potential dismissal for prolonged
inactivity. Id. Dkts. 88 & 94.
90
JX 2 at BRAGA00011230–31; JX 11 at YENNI0050211.
91
JX 47.
20
of the issue—and only then by conducting its own redline comparison of the
proposed amendment against the 2015 OA. Defendants conduct was irresponsible,
and perhaps worse. But, as will be explained, this post-closing conduct does not
establish that the 2015 OA was the Company’s operating agreement, or that
Defendants fraudulently induced Plaintiff to enter into the Co-Investment
Agreement.
G. Braga Investment Seeks a Larger Role
On January 25, 2018, Braga Investment, through its counsel, circulated to the
Company, its Board, its Board observers, and its lenders, a proposed term sheet for
Braga Investment to make a capital injection in the Company in return for, among
other things, Braga Investment’s right to appoint a Board member and that its
consent be required for any change to the Company’s corporate and organizational
documents.92 Yenni rejected Braga’s proposal. 93
H. The Fund Engineers the Adoption of a Further Amended
Operating Agreement in 2019
On May 12, 2019, Yenni emailed both Ricardo and Steven Feller about a
potential refinancing of the Company’s debt. Yenni indicated that the refinancing
“requires an amendment to [the Company’s] operating agreement and your
92
Id. at BRAGA00026102.
93
Tr. 215:16–216:4 (Ricardo).
21
signatures.”94 The next day, Yenni sent Ricardo a draft amended operating
agreement along with a redline.95 The redline highlighted changes between the
proposed amended agreement and the 2016 Operating Agreement.96
When Ricardo reviewed the redline, he realized that it did not reflect all the
differences between the newly proposed operating agreement and the 2015 OA,
which was the only version that he possessed. On May 14, 2019, Ricardo sent an
email to Yenni, copying Steven Feller, accusing Yenni of bad faith and complaining
that the redline did not capture what Ricardo perceived to be changes to Article 3 of
the operating agreement.97 Yenni replied that “Article 3 was not amended at all”
and accused Ricardo of making “false accusations.”98
Ricardo responded to Yenni, copying Steven Feller, the other Board
observers, and others, insisting that “the redline version [Yenni] sent out does not
reflect the full changes made to the operating agreement.” 99 Ricardo attached a
redline comparison of the proposed amended operating agreement against the 2015
94
PTO ¶ 42; JX 48 at YENNIOA0001103.
95
PTO ¶ 44; JX 49 at YENNIOA0003719.
96
PTO ¶ 45.
97
Id. ¶ 46; JX 50 at YENNIOA0000904–05.
98
JX 51 at YENNIOA0001090.
99
PTO ¶ 48; JX 52 at YENNIOA0002426.
22
Operating Agreement. 100 He also noted that Braga Investment had not approved the
proposed amended operating agreement.101
On May 15, 2019, Yenni sent an email stating that he had confirmed with
counsel that Yenni’s original redline used the final executed version of the
Company’s operating agreement.102 He attached a final execution version of the
2016 OA, which included Braga Investment’s signature page. 103
The Company proceeded to effect the amendments in a “First Amended and
Restated Operating Agreement of Steven Feller P.E., LLC” signed by all of the
managers and members of the Company (the “2019 OA”). 104 Steven Feller signed
in his capacity as a manager of the Company and as president of member Steven
Feller P.E., PL. 105 Yenni signed in his capacity as a manager of the Company and
on behalf of the Company as its executive chairman.106 Midwest Mezzanine Fund
V, LP, and Midwest Mezzanine Fund V SBIC, LP signed as preferred unit
holders. 107 Yenni also signed as the authorized signatory for Braga Investment,
100
Id. at YENNIOA0002430.
101
Id. at YENNIOA0002426.
102
PTO ¶ 49; JX 53 at YENNIOA0003154.
103
PTO ¶ 49; JX 53 at YENNIOA0003185–87.
104
JX 55 at YENNIOA0001184–6.
105
Id. at YENNIOA00011185.
106
Id. at YENNIOA00011184.
107
Id. at YENNIOA00011186.
23
relying on the power of attorney in the Co-Investment Agreement.108 The Company
has been operating under the 2019 Operating Agreement since May 31, 2019.109
In April 2021, Steven Feller was terminated as a Company employee, thereby
disqualifying him as a manager. 110 Since that time, Yenni has been the sole manager
on the Company’s Board. 111 Under the 2019 OA, Section 3.1 of that agreement
provides Yenni the right to appoint members to the Board, but Yenni has thus far
declined to exercise that right.112
I. This Action
On May 31, 2019, Braga Investment filed this action against Yenni and the
Fund, seeking an order declaring that the 2015 OA was the “valid and effective
operating agreement for the Company” and that the 2016 OA was not. Plaintiff also
asserted a claim for breach of contract, alleging that the 2015 OA had been
purportedly amended by attaching Braga Investment’s signature page to the 2016
OA without having obtained Braga Investment’s approval under Section 11.1 of the
2015 OA.
108
Id. at YENNIOA00011184.
109
Tr. 220:13–22 (Ricardo).
110
PTO ¶ 52.
111
Id.
112
JX 55 at YENNIOA0001157.
24
On February 25, 2020, this court denied Defendants’ motion to dismiss this
action. 113 Defendants later moved for summary judgment, and Plaintiff moved to
amend and supplement the complaint to add parties and claims relating to the
adoption of the 2019 OA.114 On May 28, 2021, the court denied Defendants’ motion
for summary judgment and granted Plaintiff’s motion to file a supplemental
amended complaint (the “Amended Complaint”). 115 The Amended Complaint
asserts three counts. Count I seeks an order declaring that the 2015 OA is the valid
and effective operating agreement for the Company and that the 2016 OA and 2019
OA are not.116 Count II is a breach of contract claim alleging that Yenni and the
Fund breached Section 11.1 of the 2015 Operating Agreement by affixing Braga
Investment’s signature page to the 2016 Operating Agreement. 117 Count III alleges
the Defendants fraudulently induced Braga Investment into becoming a member of
the Company by representing that the 2015 OA was the Company’s operative
operating agreement while concealing the differences between the 2015 OA and the
2016 OA.118
113
Dkt. 23.
114
Dkts. 31, 65, 122.
115
Dkt. 95.
116
Dkt. 96 ¶ 39.
117
Id. ¶ 44–45.
Id. ¶ 57. The Amended Complaint added the other members of the Company (Oldco,
118
Midwest Mezzanine Fund V, LP, and Midwest Mezzanine Fund V SBIC, LP) as
25
On November 15, 2021, Plaintiff and Defendants cross-moved for summary
judgment.119 The court denied both motions on April 12, 2022. 120 The court held a
two-day trial on October 12 and 14, 2022.121
Plaintiff seeks an order rescinding the Co-Investment Agreement, compelling
the Defendants to return to Braga Investment its $700,000 investment, plus
management payments made under the Co-Investment Agreement.122 In the
alternative, Plaintiff seeks damages and an order declaring the 2015 OA as the
Company’s operating agreement. 123 Defendants seek judgment in their favor and an
award of their attorneys’ fees and expenses under the terms of the Co-Investment
Agreement. 124
II. ANALYSIS
To succeed at trial, Plaintiff must prove each element of its breach of contract
claims against each Defendant by a preponderance of the evidence. OptimisCorp.
defendants in response to Defendants’ argument that they were necessary parties. Plaintiff
later agreed to dismiss them from the action after determining that they no longer owned
membership interests in the Company. Dkt. 155.
119
Dkts. 122–23.
120
Dkts. 149–51.
121
Dkt. 163.
122
PTO ¶ 61.
123
Id.
124
Id. ¶ 58; Tr. 404:7–15 (Ricardo); see Co-Investment Agreement § 6 (“Co-Investor
agrees to pay the expenses related to this Co-Investment Agreement.”).
26
v. Waite, 2015 WL 5147038, at *55 (Del. Ch. Aug. 26, 2015), aff’d, 137 A.3d 970(Del. 2016). This standard also applies to Plaintiff’s claim for fraudulent
inducement. See In re IBP, Inc. S’holders Litig., 789 A.2d 14, 54 (Del. Ch. 2001);
Stone & Paper Invs., LLC v. Blanch, 2021 WL 3240373, at *26 n.320 (Del. Ch. July
30, 2021). ‘“Proof by a preponderance of the evidence means proof that something
is more likely than not. It means that certain evidence, when compared to the
evidence opposed to it, has the more convincing force and makes you believe that
something is more likely true than not.”’ Agilent Techs., Inc. v. Kirkland, 2010 WL
610725, at *13 (Del. Ch. Feb. 18, 2010) (quoting Del. Express Shuttle, Inc. v. Older,
2002 WL 31458243, at *17 (Del. Ch. Oct. 23, 2002)).
A. Fraudulent Inducement
In Count III, Plaintiff alleges Defendants fraudulently induced it into
becoming a member of the Company by representing that the 2015 OA was the
Company’s operating agreement.125 Plaintiff claims Defendants’ conduct entitles
Plaintiff to recission. “‘If a party’s manifestation of assent is induced by either a
fraudulent or a material misrepresentation by the other party upon which the
recipient is justified in relying, the contract is voidable by the recipient.’” Lynch v.
Gonzalez, 2020 WL 4381604, at *35 (Del. Ch. July 31, 2020) (quoting Restatement
(Second) of Contracts § 164 (1981)), aff’d, 253 A.3d 556 (Del. 2021)).
125
Pl.’s Opening Br. 23 (Dkt. 168).
27
To prevail on a claim of fraudulent inducement, the plaintiff must prove:
1) a false representation, usually one of fact, made by the defendant; 2)
the defendant’s knowledge or belief that the representation was false,
or was made with reckless indifference to the truth; 3) an intent to
induce the plaintiff to act or to refrain from acting; [and] 4) the
plaintiff’s action or inaction taken in justifiable reliance upon the
representation . . . .
Lord v. Souder, 748 A.2d 393, 402 (Del. 2000); accord Standard Gen. L.P. v.
Charney, 2017 WL 6498063, at *12 (Del. Ch. Dec. 19, 2017), aff’d, 195 A.3d 16(Del. 2018). Plaintiff frames its fraud claim as one of misrepresentation and
omission. “[F]raud does not consist merely of overt misrepresentations, but may
also occur through deliberate concealment of material facts, or by silence in the face
of a duty to speak.” Martin v. Med-Dev Corp., 2015 WL 6472597, at *10 (Del. Ch.
Oct. 27, 2015).
1. Did Defendants Make False Representations of Fact?
Plaintiff presents its fraud claim as being grounded in two misrepresentations
and one omission. As to each alleged misrepresentation and omission, Plaintiff
claims that Defendants represented that the 2015 OA was or would be the final
operating agreement.
First, Plaintiff points to an August 26, 2016, email from Yenni to Braga
Investments attaching the Purchase Agreement. That email stated, in its entirety:
Here is the definitive purchase agreement we executed with the Seller
in November both with and without all exhibits. The purchase
agreement without the exhibits has the signatures of the parties. Please
28
note that Section 9 of the Operating Agreement (Exhibit D) addresses
the issues of transfer of shares for all members. We could specify in
our operating agreement that we would abide by this Exhibit D. We
look forward to our likely partnership.126
At the time Yenni made this statement, the 2015 Operating Agreement had
yet to be executed.127 Yenni stated that they could specify that they would abide by
the attached Exhibit D in the Co-Investment Agreement, but Yenni did not say that
the attached Exhibit D would be the final operating agreement at closing. Plaintiff’s
assertion that Yenni’s email represented that Exhibit D to the Purchase Agreement
would be the final operating agreement is belied by the terms of Exhibit D itself.
The operating agreement attached as Exhibit D to the Purchase Agreement
was not final. The Purchase Agreement referred to Exhibit D as the “proposed
operating agreement.” 128 Exhibit D was unsigned, and there is no evidence that it
had been signed in that form.129 It also made no reference to Braga Investment; yet
there is no dispute that changes were necessary to reflect Plaintiff’s investment.130
The August 26 email from Yenni to Braga Investment was not a false statement of
fact.
126
JX 2 at BRAGA00011046.
127
Tr. 83:20–84:1 (Ricardo).
128
JX 2 at BRAGA00011177.
129
Id. at BRAGA00011249–50.
130
Id. at BRAGA00011177; Tr. 83:20–84:1 (Ricardo).
29
Next, Plaintiff points to the Co-Investment Agreement, which Braga
Investment executed on September 2, 2016. Plaintiff asserts that Section 3 of that
agreement represented that Exhibit D to the Purchase Agreement would be the final
version of the Company’s operating agreement at closing. Section 3 is titled
“JOINDER,” and states, in its entirety:
Co-Investor has reviewed with its counsel, or has had the opportunity
to do so, the diligence material made available to it by Newco and the
Managing Investor and the [Purchase Agreement] and has agreed to
enter into a so-called Joinder Agreement pursuant to which it shall be
deemed to be a Buyer under the [Purchase Agreement] and will be
entitled to all of the rights and subject to all of the obligations described
in the [Purchase Agreement], including but not limited to the Operating
Agreement of [the Company] and the other Exhibits referenced
therein.131
This sentence contemplates that Braga Investment will enter into a Joinder
Agreement, and under that agreement Braga Investment will be subject to the rights
and obligations in the Purchase Agreement, including the “Operating Agreement . . .
referenced therein.”132 The joinder paragraph of the Co-Investment Agreement
refers to the form of operating agreement attached as Exhibit D to the Purchase
Agreement. Exhibit D was, as explained above, a proposed operating agreement.133
Neither the joinder paragraph of the Co-Investment Agreement, nor the Purchase
131
Co-Investment Agreement § 3.
132
Id.
133
JX 2 at BRAGA00011177.
30
Agreement indicated that Exhibit D to the Purchase Agreement would be the final
operating agreement. Read in context, the joinder paragraph of the Co-Investment
Agreement represented that Plaintiff and the Company would enter into a Joinder
Agreement, which in turn would give Plaintiff all of the rights associated with being
a buyer under the Purchase Agreement. The final link in this chain of agreements is
the Purchase Agreement. As previously explained, Exhibit D to the Purchase
Agreement was only an unsigned, proposed operating agreement. 134 Thus, the Co-
Investment Agreement did not represent that the final operating agreement would be
the 2015 OA.135
Plaintiff frames the last misrepresentation as a form of omission, claiming that
Defendants did not provide Plaintiff with a copy of the 2016 OA before seeking
Braga Investment’s signature. This argument reflects a slight pivot from Plaintiff’s
other arguments, as it focuses on Defendants’ conduct leading up to Plaintiff’s
134
Id.
135
Braga Investment and the Company entered into the Joinder Agreement six days later,
on September 8, 2016. JX 8. That agreement did not explicitly mention the operating
agreement that was attached as Exhibit D to the Purchase Agreement. Instead, it states, in
pertinent part, that Braga Investment “shall have all of the rights and obligations of a
‘Buyer’ [under the Purchase Agreement] as if it had executed the Purchase Agreement.”
Id. In the Main Action, the court determined that the Joinder Agreement was invalid
because it had not been executed by all the parties to the Purchase Agreement. Braga Inv.,
2020 WL 3042236, at *9. Again, Exhibit D was identified only as a proposed operating
agreement that was negotiated in November 2015, long before Braga Investment emerged
on the scene. It did not govern the Company before the closing of the transaction in
September 2016. Tr. 300:3–6 (Yenni).
31
delivery of the executed signature pages to the operating agreement on September
12, 2016.136 This argument fails, as it is merely a reformulation of the first two
alleged misrepresentations as an omission.
In an arm’s length setting like the negotiation of the Co-Investment
Agreement and the execution of the operating agreement between Plaintiff and
Defendants, the Defendants had no affirmative duty to speak. Airborne Health, Inc.
v. Squid Soap, LP, 2010 WL 2836391, at *9 (Del. Ch. July 20, 2010). An affirmative
duty to speak arises where there is a “fiduciary or other similar relation of trust and
confidence between the parties.” Prairie Cap. III, L.P. v. Double E Hldg., Corp.,
132 A.3d 35, 52 (Del. Ch. 2015). Plaintiff does not argue that Defendants owed a
fiduciary duty or had some other similar relationship with Braga Investment giving
rise to an affirmative duty to speak.
It is true, however, that “if a party in an arms’ length negotiation chooses to
speak, then it cannot lie. . . . And once the party speaks, it also cannot do so partially
or obliquely such that what the party conveys becomes misleading.” Prairie Cap.,
132 A.3d at 52. Plaintiff invokes this principle to argue that once Defendants spoke
on the issue of the operating agreement generally, they had a “duty to disclose the
2016 OA and all differences between it and the 2015 OA.”137 Plaintiff’s omission
136
See Pl.’s Opening Br. 28.
137
Pl.’s Reply Br. 8–9 (Dkt. 171).
32
argument essentially recasts the first two arguments of misrepresentation into one of
omission. See Prairie Cap., 132 A.3d at 52 (“[A]ny misrepresentation can be re-
framed for pleading purposes as an omission.”).
Defendants did not represent that the 2015 OA was going to be the final
operating agreement for the Company at or before closing. Exhibit D was a proposed
form of the operating agreement.138 To the extent Defendants owed any duty to
Plaintiff concerning the terms of the final operating agreement, they owed a duty not
to misrepresent, conceal, or lie about what would be in the final version. In the days
leading up to Plaintiff’s execution of the signature page of the operating agreement,
Defendants informed Plaintiff that the operating agreement was being revised.139
Indeed, before Braga Investment signed the agreement, it saw an invoice from
Dentons reflecting that the operating agreement had been revised.140 Defendants
represented that there were revisions to the operating agreement. At no time did the
Defendants represent that the operating agreement contained the same terms as the
2015 OA. Nor did they represent that only certain provisions would be changed.
Thus, Defendants did not lie to Braga Investment about the changes to the operating
138
JX 2 at BRAGA00011177.
139
JX 12 at BRAGA00030296.
140
JX 9 at BRAGA00016939.
33
agreement or make representations that would mislead Plaintiff into believing that
the final terms would be the same as in the 2015 OA. 141
2. Plaintiff’s Reliance on Any Representations Indicating that
the 2015 OA Was the Final, Effective Operating Agreement
Was Not Reasonable.
Even if Defendants had represented that the 2015 OA would be the final
operating agreement for the Company, any reliance on those representations was not
reasonable. Braga Investment knew that the 2015 OA would be revised before
closing and would not be the final operating agreement, yet it never asked to see the
final version before executing and returning the signature pages to the agreement.
“Fraudulent inducement is not available as a defense when one had the opportunity
to read the contract and by doing so could have discovered the misrepresentation.”
Carrow v. Arnold, 2006 WL 3289582, at *11 (Del. Ch. Oct. 31, 2006) (citing 17A
Am. Jur. 2d Contracts § 214 (2006)), aff’d, 933 A.2d 1249 (Del. 2007).
141
For these reasons, Plaintiff’s reliance on Narrowstep, Inc. v. Onstream Media Corp.,
2010 WL 5422405 (Del. Ch. Dec. 22, 2010), is misplaced. In that case, the court held, on
a motion to dismiss, that the plaintiff successfully pleaded the false statement element of
its fraud claims. Id. at *12 (“Narrowstep alleges that Onstream made several false
representations with respect to its communicated desire to close a merger with Narrowstep
in an expeditious manner.”). In so holding, the court observed that the complaint
“sufficiently describe[d] the details” of an alleged misappropriation scheme, which in turn
indicated that the false representations were made intentionally. Id. Here, the Plaintiff has
not met its evidentiary burden to show that Defendants made a false representation that the
2015 OA would be the final version of the operating agreement.
34
All concerned parties knew on August 26, 2016, that the 2015 OA was not the
final operating agreement. Braga Investment knew from the outset and up to the
date that it executed and returned its signature page that changes to the operating
agreement were necessary and had been made.
Braga Investment’s notes, prepared in anticipation of its September 2, 2016,
pre-investment call with Yenni, indicated that changes to the operating agreement
would be discussed on the call. 142 Ricardo Braga knew when he executed the Co-
Investment Agreement on September 2, 2016, that the 2015 OA was not the final
version. 143 Thus, Braga Investment could not have reasonably relied on any
representation on or before that date that the proposed operating agreement attached
as Exhibit D to the Purchase Agreement would be the final version.
Plaintiff’s return of the executed signature pages to the operating agreement
on September 13, 2016, without having reviewed the agreement, further
142
See JX 3 at BRAGA00000957 (“Outline of operating agreements, included in current
one or just between Fund. Might go against operating agreements.”). Braga Investment’s
notes also reflected that governance would be discussed, including Plaintiff’s desire “to
have a board seat.” Id.
143
Tr. 33:9–13 (Ricardo) (Q: “And you were aware that certain other changes needed to
be made to the 2015 OA to reflect the terms of the deal; correct? A: Yes, I was expecting
changes to reflect the co-investment.”); id. 94:23–94:6 (Ricardo) (recognizing that the
operating agreement needed to be revised to provide for board observers); id. 100:18–
101:16 (Ricardo) (acknowledging based on his notes of September 2, 2016 that the
management fee schedule in the 2015 OA needed to be revised to satisfy the lenders); id.
108:11–109:2 (Ricardo) (acknowledging that the 2015 OA did not yet accurately reflect
the capitalization of the Company so as to include Braga Investment’s ownership).
35
demonstrates unreasonable reliance. Ricardo knew that Dentons had made changes
to the operating agreement before Plaintiff signed and returned the signature page.144
Indeed, on September 14, 2016, Plaintiff saw the Dentons invoice reflecting that
Dentons had made changes to the operating agreement. 145 Not only did Plaintiff see
that invoice, but it also discussed the invoice with Yenni and then paid the invoice
in full.146 Plaintiff also knew, before executing and returning the signature pages to
the operating agreement, that the agreement had been revised due to the resolution
of the “manager issue” between Yenni and Steven Feller and the issues with Fifth
Third Bank.147
Plaintiff’s fraudulent inducement argument boils down to an assertion that
Defendants’ failure to provide Braga Investment with a copy of the 2016 OA when
seeking Braga Investment’s signature page constituted a misrepresentation or
omission sufficient to give rise to fraudulent inducement. The court finds that
Defendants did not conceal or misrepresent the terms or revisions of the operating
144
Tr. 116:2–7 (Ricardo).
145
Id. 124:20–126:5 (Ricardo). Braga Investment also knew from other emails on
September 6, 2016, and “based on many other factors” that the operating agreement was
being revised. Id. 115:1–116:24 (Ricardo).
146
Id.; JX 16; PTO ¶ 28.
147
JX 13; Tr. 132:12–134:7 (Ricardo); see also JX 12 at BRAGA00030296 (reproducing
a September 12, 2016, email forwarded to Plaintiff on September 13, indicating the
operating agreement had not been finalized).
36
agreement.148 Rather, Braga Investment knew that the agreement would be, and
was, revised up until it executed and returned its signature pages. 149 Under these
circumstances, Braga Investment, a sophisticated investor, cannot rely on its own
failure to request and read the final version of the operating agreement as grounds to
rescind the Co-Investment Agreement or to invalidate the 2016 Operating
Agreement. See Scion Breckenridge Managing Member, LLC v. ASB Allegiance
Real Estate Fund, 68 A.3d 665, 676–77 (Del. 2013) (“[A] failure to read bars a party
from seeking to avoid or rescind a contract.”). 150
148
As noted above, the Defendants behaved less than admirably when they learned that the
wrong version of the operating agreement had been relied upon in the Second Action.
Nevertheless, the court does not find that the Defendants sought to conceal the 2016 OA
from the Plaintiff.
149
JX 16; PTO ¶ 28.
150
See also Parke Bancorp Inc. v. 659 Chestnut LLC, 217 A.3d 701, 711 (Del. 2019)
(“When an experienced party does not bother to read what he knows will be the binding
agreement, a court must be exceedingly careful before allowing him to escape the
consequences of that agreement, lest the court undercut the reliability of all written
contracts, a reliability critical to their important role in facilitating useful commercial
relations.”); Graham v. State Farm Mut. Auto. Ins. Co., 565 A.2d 908, 913 (Del. 1989)
(“[A] party’s failure to read a contract [cannot] justify its avoidance.”); W. Willow–Bay Ct.,
LLC v. Robino–Bay Ct. Plaza, LLC, 2009 WL 3247992, at *4 n.19 (Del. Ch. Oct. 6,
2009) (“‘[F]ailure to read a contract provides no defense against enforcement of its
provisions where the mistake sought to be avoided is unilateral and could have been
deterred by the simple, prudent act of reading the contract.’” (quoting 27 Williston on
Contracts § 70.113 (4th ed. 2009))), aff’d, 985 A.2d 391 (Del. 2009) (TABLE); Patel v.
Dimple, Inc., 2007 WL 2353155, at *11 n.22 (Del. Ch. Aug. 16, 2007) (“A party’s failure
to read a contract does not justify its avoidance.”); Moore v. O’Connor, 2006 WL 2442027,
at *4 (Del. Super. Aug. 23, 2006) (“Even if [defendant] was, in fact, unaware of the effect
his initials on the June 30, 2006 agreement would have regarding the good will payment,
he is still responsible for the contents of the writing to which he assented. One of the basic
tenets of contract law is that a party is responsible for the terms of a contract they sign,
even if unaware of the terms.”); UBEO Hldgs., LLC v. Drakulic, 2021 WL 1716966, at *10
37
Braga Investment could have protected its interest by refusing to execute and
return the signature page, or alternatively, demanding that the signature pages be
held in escrow until Plaintiff had an opportunity to review the final version. It chose
neither path. Ultimately, Braga Investment’s predicament is one of its own making
and could easily have been avoided. The court will not unwind a transaction due to
a sophisticated party’s decision to sign an agreement without having read it.
(Del. Ch. Apr. 30, 2021) (“[I]f a party to a contract could use her failure to read a contract
as a way to circumvent her obligations, contracts would not be worth the paper on which
they are written.” (quotations omitted)); Harrington Raceway, Inc. v. Vautrin, 2001 WL
1456873, at *3 (Del. Super. Aug. 31, 2001) (“[T]he Court cannot protect business people
who decide to sign contracts . . . without reading them.”); TP Gp.–CI, Inc. v. Vetecnik,
2016 WL 5864030, at *1 (D. Del. Oct. 6, 2016) (“The law is well settled . . . that failure to
read a contract does not excuse performance.”); Hollinger Int’l v. Black, 844 A.2d 1022,
1065–66 n.95 (Del. Ch. 2004) (“Succinctly put, a party will not be heard to complain that
he has been defrauded when it is his own evident lack of due care which is responsible for
his predicament.”). Other jurisdictions are in accord. See, e.g., Dasz, Inc. v. Meritocracy
Ventures, Ltd., 969 N.Y.S.2d 653, 655 (N.Y. App. Div. 2013) (“[A] signer’s duty to read
and understand that which it signed is not diminished merely because [the signer] was
provided with only a signature page.” (second alteration in original) (quoting Vulcan Power
Co. v. Munson, 932 N.Y.S.2d 68, 69 (N.Y. App. Div. 2011))); McBroom v. Child, 392 P.3d
835, 842 (Utah 2016) (holding that the plaintiff’s duty to inquire into the terms of her
agreement was not diminished because she only received the signature page as that page
was clearly not a self-contained document); Parks v. Parks, 2013 WL 4478189, at *4 (Ohio
Ct. App. Aug. 14, 2013) (“[I]f appellants had questions of what they were signing they
could have refused to sign it; or alternatively, they could have asked to see the entire
document before they signed it.”); Allied Office Supplies Inc. v. Lewandowski, 261 F. Supp.
2d 107, 112–13 (D. Conn. 2003) (explaining the general rule that a person who signs a
written contract has a duty to read it and that the general rule “presupposes either that the
alleged breaching party was provided with the entirety of the allegedly breached agreement
. . . or that because the signature pages made explicit reference to an agreement, defendants
were put under a derivative duty of inquiry into the contents of the referenced writing”
(applying Connecticut law)); Friedman v. Fife, 262 A.D.2d 167, 168 (N.Y. App. Div.
1999) (“Plaintiff will not be heard to claim that he received only a signature page for the
stock restriction agreement, since he was bound to know and read what he signed.”).
38
Because Plaintiff did not prove the first two elements of its fraud claim, the
court need not address the other elements, including whether Plaintiff has established
a right to rescind the Co-Investment Agreement.
B. Breach of Contract
Plaintiff sought to prove two claims for breach of contract relating to the
adoption and amendment of the Company’s operating agreement. First, Braga
Investment contends that Defendants breached Section 11.1 of the 2015 OA by
failing to obtain Plaintiff’s approval to adopt the 2016 OA. Second Braga
Investment maintains that Defendants breached the 2015 OA when it signed Braga
Investment’s signature to the 2019 OA using the power of attorney in the Co-
Investment Agreement.
Under Delaware law, Plaintiff must establish the following to succeed on a
breach of contract claim: “(1) the existence of a contract, whether express or
implied; (2) breach of one or more of the contract’s obligations; and (3) damages
resulting from the breach.” GEICO Gen. Ins. Co. v. Green, 276 A.3d 462, at *5
(Del. 2022) (TABLE).
39
1. Plaintiff Did Not Prove a Breach of the Amendment
Provision of the 2015 OA.
Section 11.1 of the 2015 OA provides that it “may be amended only upon
unanimous approval of all Members.”151 Under Delaware law, only parties to a
contract and intended third-party beneficiaries have standing to sue for breach of the
contract. Arkansas Tchr. Ret. Sys. v. Alon USA Energy, Inc., 2019 WL 2714331, at
*10 (Del. Ch. June 28, 2019). The 2015 OA was never signed or implemented by
the members of the Company.152 But even if it had been, the Plaintiff was never a
party or third-party beneficiary of the 2015 Operating Agreement. Plaintiff became
a member of the Company “post-closing.” 153 Closing occurred on September 19,
2016, the date of the 2016 OA.154 Thus, Plaintiff lacks standing to assert any claims
under the 2015 OA.
Recognizing its lack of standing to assert a direct breach of contract claim
under the 2015 OA, Plaintiff argues that “based on Defendants’ intentional
concealment of the 2016 OA, they are estopped from asserting its existence.”155
Plaintiff did not satisfy the high burden necessary to support this theory.
151
JX 2 at BRAGA00011246.
152
Tr. 300:3–6 (Yenni).
153
PTO ¶ 26.
154
JX 18 at YENNI0046682.
155
Pl.’s Opening Br. 30.
40
“[E]stoppel may arise when a party by his conduct intentionally or
unintentionally leads another, in reliance upon that conduct, to change position to
his detriment.” Wilson v. Am. Ins. Co., 209 A.2d 902, 903–04 (Del. 1965). The
party claiming estoppel must demonstrate that: “(i) they lacked knowledge or the
means of obtaining knowledge of the truth of the facts in question; (ii) they
reasonably relied on the conduct of the party against whom estoppel is claimed; and
(iii) they suffered a prejudicial change of position as a result of their reliance.”
Nevins v. Bryan, 885 A.2d 233, 249 (Del. Ch. 2005), aff’d, 884 A.2d 512 (Del. 2005).
“Regardless of the form of the action, the burden of proof of estoppel rests upon the
party asserting it. Furthermore, equitable estoppel must be proven by clear and
convincing evidence . . . .” Id.As discussed above, Braga Investment did not lack the means of obtaining the
terms of the 2016 OA before it became a member of the Company. Defendants did
not conceal the terms of the 2016 OA. Rather, Plaintiff did not ask to see it before
executing and delivering its signature page. Plaintiff also cannot argue that it could
reasonably rely on Defendants’ conduct as a representation that there would be no
material changes to the 2015 Operating Agreement.156 Braga Investment knew when
it signed the Co-Investment Agreement that there were going to be changes to the
156
Yenni testified that he kept Braga Investment informed of negotiations over the
Operating Agreement in numerous phone calls. Tr. 310:4–312:24 (Yenni).
41
operating agreement, and it knew changes had been made up to the time it returned
its executed signature page. Thus, Plaintiff has fallen far short of presenting clear
and convincing evidence that it lacked the means of learning that the 2015 OA would
not be the final operating agreement or that it could reasonably rely on Defendants’
conduct as indicating otherwise. 157 Accordingly, Defendants are not estopped to
assert the existence of the 2016 Operating Agreement. Plaintiff’s claim for breach
of the 2015 Operating Agreement fails for a lack of standing.158 Accordingly, as of
the Closing, the 2016 OA was the Company’s duly approved operating agreement.
2. Plaintiff Did Not Establish that the Adoption of the 2019 OA
Breached the Operating Agreement.
Plaintiff contends that the adoption of the 2019 OA breached Section 11.1 of
the operating agreement, which requires “unanimous approval of all Members” for
157
Plaintiff’s reliance on Nevins is misplaced. In Nevins, the court found, after trial, that
the plaintiff was estopped to contest the appointment of directors that he held out as board
members after having executed a written consent appointing them. Nevins, 885 A.2d at
249. Although the consent was determined to be defective, the appointed directors had no
reason to question its validity and it was reasonable for the new directors to rely on the
plaintiff’s assertions that they were valid directors. Id. at 249–50. Here, by contrast,
Defendants did not affirmatively represent to Plaintiff that the unexecuted 2015 OA was
or would be the final version of the Company’s operating agreement. The confusion over
the valid operating agreement that arose in the Second Action does not make it reasonable
for Plaintiff to assume that the 2015 OA was the operative agreement, particularly when
Plaintiff knew that it had been under revision before closing and declined to request a copy
before executing the signature pages to the 2016 OA.
158
Braga Investment’s requested alternative relief for an order declaring the 2015 OA as
the Company’s “valid and effective” operating agreement fails for same reason. PTO ¶ 61.
The 2015 Operating Agreement was an unsigned, undated, proposed operating agreement
that was never implemented. Tr. 300:3–6 (Yenni).
42
any amendment.159 Plaintiff maintains that it did not approve the amendment, and
the Fund’s signing the amendment on behalf of Braga Investment under the
purported authority of the power of attorney in the Co-Investment Agreement was
invalid.
The 2019 OA is dated May 31, 2019. 160 Steven Feller signed in his capacity
as a manager of the Company and as president of member Steven Feller P.E., PL.
Yenni signed in his capacity as a manager of the Company and on behalf of the
Company as its executive chairman. Midwest Mezzanine Fund V, LP, and Midwest
Mezzanine Fund V SBIC, LP signed as preferred unit holders. 161 Yenni also signed
the 2019 OA on Braga Investment’s behalf, as its “authorized signatory.” 162
The power of attorney gives the Fund: “The right to vote [Braga
Investment’s] equity interest in [the Company] at all meetings of equity holders and
for any other purpose equity owners are called to vote or consent.” 163 This broad,
open-ended language reflects the parties’ agreement that the Fund has an irrevocable
proxy to vote Braga Investment’s equity interest in the Company. See Eliason v.
This provision is the same in the 2015 OA and 2016 OA. See 2015 OA § 11.1; 2016
159
OA § 11.1.
160
JX 55 at YENNIOA0001155.
161
PTO ¶ 50.
162
Id. ¶ 51; JX 55 at YENNIOA0001184.
163
JX 55 at YENNIOA0001184.
43
Englehart, 733 A.2d 944, 946 (Del. 1999) (“A proxy is evidence of an agent’s
authority to vote shares owned by another.” (citations omitted)). Plaintiff does not
contest the validity of the power of attorney or the irrevocable authority that it gives
to the Fund to vote Braga Investment’s membership interest in the Company.164
Rather, Plaintiff argues that it does not extend to amending the operating agreement,
which requires unanimous member approval. 165
Powers of attorney are construed following the standard rules for the
interpretation of written instruments. Realty Growth Inv. v. Council of Unit Owners,
453 A.2d 450, 454 (Del. 1982); see also Daniel v. Hawkins, 289 A.3d 631, 645 (Del.
2022) (interpreting an irrevocable proxy). “When interpreting a contract, the role of
a court is to effectuate the parties’ intent.” Lorillard Tobacco Co. v. Am. Legacy
Found., 903 A.2d 728, 739 (Del. 2006). “If a writing is plain and clear on its face,
i.e., its language conveys an unmistakable meaning, the writing itself is the sole
source for gaining an understanding of intent.” City Investing Co. Liquidating Tr. v.
Cont’l Cas. Co., 624 A.2d 1191, 1198 (Del. 1993). When the language of a “contract
is clear and unequivocal, a party will be bound by its plain meaning because creating
164
Tr. 23:6–14 (Ricardo) (“[W]e gave power of attorney for the Fund to vote our equity
interest. . . . We agreed with that at this time because if you look [at the ownership interests
of the members], we are going to be minority, so meaning that any vote we are going to
end up, regardless, we want to approve, approve getting our -- our approval being lost.”).
165
Pl.’s Opening Br. 29, 34–35.
44
an ambiguity where none exists could, in effect, create a new contract with rights,
liabilities and duties to which the parties had not assented.” Hallowell v. State Farm
Mut. Auto. Ins. Co., 443 A.2d 925, 926 (Del. 1982). “The presumption that the
parties are bound by the language of the agreement they negotiated applies with even
greater force when the parties are sophisticated entities that have engaged in arms-
length negotiations.” W. Willow-Bay Ct., LLC, 2007 WL 3317551, at *9.
Powers of attorney and irrevocable proxies are “strictly construed.” Daniel,
289 A.3d at 645; see Dorman v. Plummer, 2001 WL 32645, at *6 (Del. Ch. Jan. 9,
2001) (“Powers of attorney[, however,] are construed narrowly in favor of the
principal.”). Therefore, any ambiguity will be construed against the Fund. Daniel,
289 A.3d at 645 (“Where the irrevocable proxy is ambiguous, the ambiguity will be
construed against the rights of the proxy holder.”).
Plaintiff argues the Fund’s authority under the power of attorney “only applies
to votes taken at member meetings and consents obtained in lieu of member
meetings. It does not allow [the Fund] to sign agreements delineating Braga
Investment’s rights and entitlements on Braga Investment’s behalf.”166 The
distinction that Plaintiff draws is not found in the Co-Investment Agreement. The
Fund’s authority under the power of attorney is not limited to votes taken at a
166
Post-Trial Arg. Tr. 25:5–13; id. 24:14–28 (Dkt. 174); see also see also Pl.’s Reply Br.
22 (“[T]he power of attorney applies only to votes taken at member meetings and consents
obtained in lieu of member meetings.”).
45
meeting of the members or written consents in lieu of a meeting. It extends to “any
other purpose equity owners are called to vote or consent.” 167 Consent means
“agreement, approval, or permission regarding some act or purpose.” Black’s Law
Dictionary 11th ed. 2019); see also Merriam-Webster Dictionary (defining consent
as “to give assent or approval”).168 Plaintiff’s interpretation of the power of attorney
as applying only to member meetings or formal written consents in lieu of a meeting
is an overly cramped construction that asks the court to supply words that do not
appear in the contract. See Murfey v. WHC Ventures, LLC, 236 A.3d 337, 356 (Del.
2020) (“[I]t is axiomatic that courts cannot rewrite contracts or supply omitted
provisions.”).169
The operating agreement may be amended “upon unanimous approval of the
Members.”170 The 2019 Amendment was a matter upon which the members were
asked to approve. The Fund’s signature on the 2019 OA on behalf of Braga
167
Co-Investment Agreement § 5.
168
Consent, Merriam-Webster, https://www.merriam-webster.com/dictionary/consent
(last visited May 27, 2023).
169
Plaintiff does not take issue with any of the amended terms added in 2019 that were not
already in the 2016 OA. Rather, it objects to Section 3.1, which is unchanged from the
2016 OA. Plaintiff argues that allowing the power of attorney to extend to amendments to
the operating agreement would theoretically allow the Fund to eliminate Plaintiff’s
ownership interest. Pl.’s Opening Br. 35. But that issue is not before the court, and
Defendants admit that any exercise of the power of attorney would be subject to “the
fiduciary duties imposed on LLC managers as well as agents exercising a power of
attorney, to which Yenni attested.” Defs.’ Ans. Br. 58 (Dkt. 170).
170
Co-Investment Agreement § 5.
46
Investment was a manifestation of the consent authority granted under the Co-
Investment Agreement to approve the amendment.
Finally, Braga Investment argues that Yenni knew it could not use the power
of attorney to effect an amendment to the operating agreement because he stated that
Plaintiff’s approval was required. 171 Yenni’s request for member signatures to
amend the operating agreement does not change the unambiguous language of the
contract, which is an issue of law for the court to decide. As Chancellor Bouchard
noted in the Main Action when presented with a similar argument concerning the
interpretation of the Joinder Agreement: “The legal effect of the Joinder Agreement,
however, is an issue for the court to decide irrespective of whatever subjective belief
the Fund or Braga may have had about its meaning.” Braga Inv., 2020 WL 3042236,
at *10. Yenni’s request for member signatures to amend the operating agreement
does not alter the plain meaning of the power of attorney. Accordingly, Plaintiff has
failed to meet its burden to invalidate the 2019 OA.
C. Defendants’ Request for Attorney’s Fees
Defendants seek an order compelling Plaintiff to pay Defendants’ attorneys’
fees. Under the American Rule and Delaware law, litigants are ordinarily
responsible for their own litigation expenses. Mahani v. Edix Media Grp., Inc., 925
A.2d 242, 245 (Del. 2007). There is an exception to the general rule when a contract
171
Pl.’s Opening Br. 34; JX 48 at YENNIOA0001101.
47
contains an express fee-shifting provision. Id. Defendants claim entitlement to their
fees and expenses under one sentence in Section 6 of the Co-Investment Agreement,
which states: “Co-Investor agrees to pay the expenses related to this Co-Investment
Agreement.” 172 In the Main Action between these parties, the court denied the
Fund’s application for attorneys’ fees under this provision. Chancellor Bouchard
denied the request because the Fund had not been raised before entry of the final
judgment. Nevertheless, the Chancellor observed that this provision:
does not even mention attorneys’ fees and, on its face, does not appear
to be a fee-shifting provision. Rather, the provision appears in a section
of the agreement describing the “economics” of the investment Braga
made through the Fund (i.e., that Braga would pay the Fund annual fees
and a success fee) and provides simply that: “Co-Investor agrees to pay
the expenses related to this co-investment. 173
Defendants are not entitled to an award of attorneys’ fees and expenses under
the quoted language from Section 6 of the Co-Investment Agreement. “A fee-
shifting provision must be a clear and unequivocal agreement triggered by a dispute
over a party’s failure to fulfill obligations under the contract. It must include specific
language, such as any reference to prevailing parties, a hallmark term of fee-shifting
provisions.” Murfey v. WHC Ventures, LLC, 2022 WL 214741, at *2 (Del. Ch. Jan.
172
Co-Investment Agreement § 6.
173
Braga Inv. & Advisory, LLC v. Yenni Income Opportunities Fund I, L.P., 2020 WL
5416516, at *3 (Del. Ch. Sept. 8, 2020).
48
25, 2022) (cleaned up). Section 6 of the Co-Investment Agreement contains none
of the aforementioned language.
Defendants’ reliance on SIGA Technologies, Inc. v. PharmAhtene, Inc., 67
A.3d 330 (Del. 2013), is misplaced. In that case, the Delaware Supreme Court
affirmed the trial court’s awarding of attorneys’ fees based on the construction of
two separate provisions of the contract. One provision required SIGA to pay all
costs and other expenses incurred by PharmAthene in connection with its
performance of the agreement. The second required SIGA to “defend, indemnify,
and hold harmless PharmAthene from expenses of whatever kind or nature,
(including, without limitation, counsel and consultant fees and expenses) that in any
way relate to SIGA’s breach of any covenants.” Id. at 352 n.108 (cleaned up).
Unlike in PharmAthene, the Co-Investment Agreement does not make any
reference to Braga Investment having to indemnify, defend, or hold the Fund
harmless, nor does it mention litigation or fee-shifting. And unlike in PharmAthene,
the Co-Investment Agreement does not mention any right to attorneys’ fees in the
event of a breach of the agreement. Nor is there any claim in this case that Braga
Investment has breached the Co-Investment Agreement.
Section 6 of the Co-Investment Agreement is not a clear and unequivocal fee-
shifting provision. Accordingly, Defendants’ application for attorneys’ fees is
denied.
49
III. CONCLUSION
For the foregoing reasons, Plaintiff has failed to prove its claims. Judgment
is entered in favor of Defendants. Defendants’ claim for attorneys’ fees is denied.
50