Buck v. Viking Holding Management Company, LLC ( 2024 )

IN THE SUPERIOR COURT OF THE STATE OF DELAWARE
MICHAEL BUCK, )
)
Plaintiff, )
) C.A. No. N20C-08-249 MAA CCLD
v. )
)
VIKING HOLDING )
MANAGEMENT COMPANY LLC, )
)
Defendant. )
Submitted: June 14, 2024
Decided: September 30, 2024
POST-TRIAL MEMORANDUM OPINION
John M. LaRosa, Esquire, of LAROSA & ASSOCIATES LLC, Wilmington,
Delaware, and Lawrence P. Schaefer, Esquire, Bert Black, Esquire, Mack H. Reed,
Esquire, Timothy S. Christensen, Esquire (Argued), and Anne C. Bolgert, Esquire,
(Argued) of SCHAEFER HALLEEN, LLC, Minneapolis, Minnesota, Attorneys for
Plaintiff.
Peter H. Kyle, Esquire (Argued), John L. Reed, Esquire, and Daniel P. Klusman,
Esquire, of DLA PIPER, LLP, Wilmington, Delaware, Attorneys for Defendant.
Adams, J.
1
I. INTRODUCTION
This is a breach of contract action arising from plaintiff Michael Buck’s
termination from Novus Media, LLC (“Novus”). Prior to Buck’s termination, he
held a membership interest (“Units”) in Defendant Viking Holding Management
Company (“Defendant” or “Holdco”) and served as the Chief Financial Officer of
Holdco’s subsidiary, Novus.
In April 2020, Buck’s employment at Novus was terminated. After Buck’s
termination, Holdco exercised a repurchase option for Buck’s Units for $0. Holdco
argues that pursuant to Holdco’s Limited Liability Company Agreement (the
“Holdco LLC Agreement” or the “Agreement”), Buck is entitled to $0 for his Units
because Buck was terminated for Cause, as defined by the Agreement. Buck argues
the reasons for his termination were manufactured by Holdco, and therefore he is
entitled to the Fair Market Value of his interest at the time Holdco initiated the
repurchase. For reasons discussed herein, the Court finds that certain of the reasons
for Buck’s termination were manufactured by Holdco and the remaining reasons for
Buck’s termination do not meet the definition of Cause. Judgment is therefore
entered in favor of Buck, and Buck is entitled to the Fair Market Value of his Units.
2
II. FACTS1
A. The Parties
Holdco controls Novus. Holdco owns 80% membership of an intermediary
company known as Viking Parent LLC (“Viking Parent”).2 The remaining 20%
membership of Viking Parent is held by nonparty Omnicom Media Group
(“Omnicom”).3 Viking Parent owns 100% membership of Novus.4
Buck served as Chief Financial Officer of Novus (and its predecessor entity,
Novus Media Inc.) from February 2016 until his termination on April 17, 2020.5
Prior to his termination, Buck held 100 Class B Holdco non-voting membership
Units.6 Buck received these Units for no cost, and the Units fully vested on April
12, 2020.7
B. The Restructuring
Prior to Buck’s employment, Novus Media Inc. transitioned from one
financial system, Mercury, to another, Microsoft AX, in August 2015.8 Novus
1
In this section, the Court largely relies upon language from the “Relevant Facts” section of its
February 15, 2024, Memorandum Opinion denying cross motions for summary judgment. (D.I.
234) [hereinafter “Mem. Order Den. Summ. J.”]. The adopted language discusses relevant facts
supported by the record after trial. Additional relevant factual findings are incorporated into the
Analysis Section of this decision.
2
Pretrial Stipulation and Proposed Order at 5 (D.I. 256) [hereinafter “Pretrial Stip.”].
3
Id.
4
Id.
5
Id. at 4, 13.
6
Id. at 5.
7
Id. at 11.
8
Id. at 4
3
Media, Inc. underwent a restructuring in April 2017.9 Novus Media, Inc. became
Novus Media LLC. Viking Parent became the new 100% owner. Buck received
Units in Viking Parent’s owner, Holdco, as part of this restructuring.
C. Holdco’s Repurchase Option
The Agreement provides the terms that govern Buck’s membership interest.10
Section 9.10(a) provides Holdco held the right to repurchase Buck’s Units when his
employment at Novus ended.11 Under Section 9.10(b) of the Agreement, if Buck
was terminated for Cause, as defined by the Agreement, Holdco could repurchase
Buck’s Units for the lower of the cost Buck paid – in this case, $0 – and the fair
market value of the Units.12 If Buck’s employment was terminated without
satisfying the Cause definition in the Agreement, Holdco could only repurchase
Buck’s Units for the fair market value at the time of the closing date set for the
repurchase.13
The Agreement defines the mechanics for a repurchase, including the method
of notifying the Unitholder and setting a closing date for the repurchase, in the
remainder of Section 9.10.14
9
Id. at 3.
10
Id. at 5.
11
Id.
12
Id. at 6.
13
Id.
14
JX 18 at § 9.10.
4
D. Reconciliation Issues at Novus
After changing financial systems in 2015, Novus experienced continuing
issues resulting from its conversion to Microsoft AX.15 As a result of data
reconciliation issues, Novus’ finance department established a new clearing account
to house unreconciled accounts or activity (the “AMR Account”).16
During Buck’s tenure as CFO, in April 2017, Viking Parent and Novus entered
into a loan agreement with Citibank.17 In April 2020, prior to Buck’s termination,
Novus made the final payment on the loan, discharging it.18
Auditing firm Grant Thornton audited Novus’ 2017 and 2018 financial
information.19 In April 2018, Novus received Grant Thornton’s 2017 audit
findings.20 Novus “passed” the 2017 audit, receiving an unqualified opinion.21
One year later, in April 2019, Grant Thornton received an anonymous
Whistleblower Letter (the “Whistleblower Letter”), identifying weaknesses in the
15
Transcript of Bench Trial Proceedings, April 16, 2024, at 186:18-23 (D.I. 277) [hereinafter “Tr.
Apr. 16”].
16
Id; Transcript of Bench Trial Proceedings, April 16, 2024, at 14:5-19 [hereinafter “Tr. Apr. 15”];
Tr. Apr. 16 at 239:17-242:17.
17
Tr. Apr. 15 at 46:11-47:19; JX2.
18
Tr. Apr. 15 at 46:11-47:19; JX2.
19
Pretrial Stip., at 11-12.
20
Id. at 11.
21
Tr. Apr. 15 at 187:6; Transcript of Bench Trial Proceedings, April 17, 2024, at 42:8-10
[hereinafter “Tr. Apr. 17”]; Pl. Michael Buck’s Post Trial Opening Br. & Answering Br. to Def.
Viking Holding Management Company LLC’s Post-Trial Opening Br. at 16-17 (D.I. 279)
[hereinafter “Buck Post-Trial Opening”].
5
Novus finance department.22 Novus hired Thompson Coburn to investigate the
allegations of the Whistleblower Letter.23
Thompson Coburn investigated the conduct contained in the Whistleblower
Letter by performing interviews of eight current and former Novus finance
department employees, including Buck.24 Thompson Coburn also reviewed Novus
records, corporate structure documents, email communications with contractors, and
human resources records including exit interviews and exit surveys.25 Thompson
Coburn submitted an investigation report to Novus on November 25, 2019.26
Thompson Coburn found:
• a year-end 2017 $1.7 million write-off, and several days later in 2018,
reversal, on Novus’ books were “potentially fraudulent.” Thompson Coburn,
however, did “not uncover sufficient evidence to prove intentional
wrongdoing or fraud;”27
• an employee left Novus due to “ethical” concerns relating to Novus’
accounting practices. Buck’s failure to notify the Novus Board of Directors
“may constitute a breach of [his] fiduciary duties[.]”28
As part of their investigative process, Thompson Colburn hired Ernst & Young
to provide further analysis of the Whistleblower Letter. Specifically, Ernst & Young
investigated “potential issues with involving [sic] historical revenue, expenses,
22
Pretrial Stip. at 12; JX 24.
23
Id.
24
JX 27.
25
Id.
26
Pretrial Stip. at 12.
27
JX 27 at 3.
28
Id. at 4.
6
accounts payable, credit card clearing accounts, accounts receivable and
reconciliation accounting procedures” discussed in the April 2019 anonymous
Whistleblower Letter.29 On November 25, 2019, Ernst & Young submitted a report
to Thompson Coburn regarding its findings.30 Ernst & Young found that Novus was
“unable to determine the nature and purpose of certain underlying transactions
recorded to the Accrued Media Research (“AMR”) Account.”31 Ernst & Young also
found “two year-end write-offs and one subsequent reversal accounting entries made
without explanation,” that “certain email correspondence was indicative of potential
pressure to meet financial targets at year-end 2017,” that Buck had approved manual
journal entries in Novus’ books, and that “an approximate $3.3 million gain [would]
be realized in the 2019 financial statements as a result of the clean-up of Bad Data.”32
Ernst & Young later submitted an addendum to their report on December 20,
2019.33 In the December 20 addendum, Ernst & Young corrected an inaccuracy
regarding their previous observation: that they found “two year-end write-offs and
one subsequent reversal accounting entries made without explanation.”34 Further
documentation provided to Ernst & Young demonstrated that the write-offs caused
a temporary gain on Novus’ income statements, but were each offset by an equivalent
29
JX 28 at 2.
30
Pretrial Stip. at 12.
31
JX 28 at 5.
32
Id. at 6-7.
33
Pretrial Stip. at 12.
34
JX 35, at 6.
7
decrease to income posted the same day as the corresponding gain.35 Because of the
offsets, the impact on Novus’ 2017 and 2018 income statements caused by the write-
offs discussed in the Thompson Coburn and Ernst & Young reports was $0.36
Just seven days after Ernst & Young’s December 20 addendum, Novus hired
accounting firm FGMK, LLC to provide further analysis into the Novus finance
department’s issues.37 FGMK “focused on defining the nature of the problem [with
Novus’ finance department] and a recommended path forward.”38
FGMK visited Novus in January 2020.39 Among the findings gathered from
its onsite visit to Novus, FGMK noted that “current practices” were “not typical
accounting” practices and have “likely led to the need for large material journal
entries at year end.”40 FGMK further indicated that the change from one financial
system to another was the “root cause” for the need to create the AMR Account.41
In addition, FGMK reported the “AMR situation” demonstrated “a lack of
institutional control,” and “[t]here appears to be no defined plan to resolve the AMR
situation, nor has there been since it first emerged in 2015.”42 FGMK further found
35
JX 35 at 8-10.
36
Id.at 10.
37
Tr. Apr. 15 at 214:23-216:9; Viking Holding Management Company LLC’s Opening Post-Trial
Br. at 22 (D.I. 278) [hereinafter “Holdco Post-Trial Opening”]; JX 44.
38
JX 38 at 2.
39
JX 44 at 1.
40
Id. at 2.
41
Id.
42
Id. at 3-4.
8
that the “current CFO” did not have the “requisite skills” to lead the finance team at
Novus.43 FGMK, in its final assessment submitted in March 2020, recommended
that Novus fire Buck and hire a new CFO immediately.44
On April 1, 2020, Grant Thornton issued its Consolidated Financial
Statements and Report of Independent Certified Public Accountants.45 Even after
the Whistleblower Letter led Grant Thornton to revisit its 2017 and 2018 audits,
Novus passed both audits with an unqualified opinion.46
E. David Murphy Terminates Buck
On April 17, 2020, Novus Chief Executive Officer David Murphy (“Murphy”)
terminated Buck.47 During the termination phone call, Murphy followed a script that
outlined reasons for Buck’s termination (the “Termination Script” or “Script”).48 On
his Script, Murphy noted Buck was being terminated for Cause as outlined in the
Holdco LLC Agreement.49 Murphy alleged Buck was guilty of gross negligence and
willful misconduct, and provided several specific reasons for Buck’s termination:
• inability to provide the Strategic Planning necessary for long term
improvements in [Buck’s] Department’s performance
• ineffective Finance and Accounting Team Management
43
Id. at 4.
44
Holdco Post-Trial Opening at 23; JX 56 at Slide 76.
45
Pretrial Stip. at 12; JX 70.
46
JX 70 at NOVUS02244; Tr. Apr. 15 at 60:10; Transcript of Bench Trial Proceedings, April 17,
2024, at 42:8-10 [hereinafter “Tr. Apr. 17”]; Buck Post-Trial Opening at 16-17.
47
Pretrial Stip. at 13.
48
JX 77.
49
Id.
9
• the inability to execute the proper management of the Accounting and
General Ledger operations
• the lack of appropriate Financial Oversight and Control measures
• significant gaps in [Buck’s] oversight of the Financial Analysis,
Budgeting and Forecasting functions50
By letter dated June 17, 2020 (the “Lorenc Letter”),51 Thompson Colburn attorney
Susan Lorenc, outside counsel for Novus, provided further reasons to support Buck’s
for Cause termination:
• An anonymous whistleblower letter received in April 2019 by Grant
Thornton, Novus’ independent auditors, noted that “an unqualified
opinion on the financial statements should not be issued for 2018 fiscal
year.” This letter alleged numerous accounting and financial problems,
including that Mr. Buck approved entries to “bury part of the
[unreconciled accounts] problem,” vendors are paid duplicate times
(“Novus is out the $$, is clueless and has no idea what that $$ amount
represents”) and “Michael Buck is not engaged in the detail.”
• As part of the Thompson Coburn independent investigation, which
grew out this anonymous whistleblower complaint, the report noted:
“We also learned that at least two people informed CFO Michael Buck
that Ms. Lee [former employee] reportedly left Novus Media due to
ethical concerns about Novus Media’s financials and audit practices.
According to information developed in our investigation, Mr. Buck
failed to notify the Board of Directors or anyone within Novus. Mr.
Buck’s failure to notify the Board, in additional to his claim that he was
unaware of the $1.7 million write-off and reversal in 2017 until we
confronted him with in in October 2019, raise significant concerns
about Mr. Buck’s diligence and competence. These actions may also
constitute a breach of Mr. Buck’s fiduciary duties as an officer of
Novus.” (Emphasis supplied.)
• EY, who was hired by Thompson Coburn to provide accounting
expertise, stated in their initial report: “Mr. Buck stated during his
50
Id.
51
The Lorenc Letter and Termination Scropt contain numerous typographical errors. The Court
did not attempt to correct these errors and instead copied the Lorenc Letter and Termination Script
into this opinion as they were written.
10
interviews that he did not approve manual journal entries and had no
knowledge of the write-offs and reversals impacting the AMR account;
however, EY identified three instances in which he was emailed journal
entry support and was asked for his approval to make the entry, which
he gave over email.” This lack of knowledge is very troubling and
inconsistent with CFO standards.
• Further EY noted to Murphy that they believed he was in the bottom
quartile of CFOs they have encountered, inconsistent with others acting
as a CFO.
• The investigation revealed that Mr. Buck would often assign junior
accounting people, often consultants and not employees, to functions
inconsistent with their experience and role.
• FGMK, one of the largest accounting firms in Chicago, was hired to
conduct an examination of the Novus Finance Department and provide
additional resources to correct identified weaknesses.
• FGMK noted substantially failures of leadership and operations in the
2019/202 NetSuite ERP implementation project.
• FGMK identified substantial and wide ranging [sic] organizational
deficiencies across all areas of Novus’s Finance Department’s
operations. The lowest rating of AD HOC, was given to the vast
majority “Finance Processes” due to lack of metrics and/or
improvement mechanisms. The area of Risk and Controls received
similarly low ratings. Again contrary to existing finance department
standards.
• FGMK findings correlate with Novus senior executive observations
shared and discussed with Mr. Buck regarding his complete lack of
strategic and operational planning around projects both large and small,
again conflicting with senior leadership standards.
• In each of the 2017 and 2018, GT management reports noted a “material
weakness” in internal controls, the most severe warning an audit firm
can provide.
• GT noted that Novus’ financial controls rank in the bottom 5% of all
companies they audited. They expressed a lack of confidence in Mr.
Buck’s ability to manage the finance team and deliver satisfactory level
of management oversight and control practices.
• GT informed Mr. Murphy that if Mr. Buck continued in the CFO role,
GT would terminate the relationship and would not conduct any further
audits because of his lack of competence in overseeing the preparation
of the financial statements.
11
• FGMK analysis stated that the AMR project clearly demonstrated the
Finance Department’s lack of institutional control and was not
prioritized properly given the material impact on the accuracy of the
financial statements.
• A historical analysis of Novus turnover and exit interviews clearly
establishes the consistent and long term [sic] pattern of hands off,
uninvolved CFO behavior by Mr. Buck. Establishing Mr. Buck as an
executive who is dangerously uninterested and disconnected from day
to day [sic] operations as well as major critical initiatives, gross
negligence of his duties and obligations to Novus and its interest
holders.52
On April 22, 2020, Buck received the Redemption Agreement, Separation
Agreement, and General Release (the “Separation Agreement”) from Novus.53 The
Separation Agreement provided the terms for Buck’s termination.54 On May 15,
2020, counsel at Thompson Coburn sent Buck a letter informing him that Holdco
would repurchase Buck’s Units for the cost he paid, $0, pursuant to Section 9.10 of
the Agreement.55
II. RELEVANT PROCEDURAL HISTORY
Buck filed his Complaint on August 27, 2020, alleging three counts: (I)
Breach of Contract, against Defendants Holdco, Viking Parent, and Novus; (II) In
the Alternative, Breach of the Implied Covenant of Good Faith and Fair Dealing,
against Defendants Holdco, Viking Parent, and Novus; and (III) In the Alternative,
52
JX 81.
53
JX 78.
54
Id.
55
JX 80.
12
Tortious Interference with Contractual Relations, against Defendant Novus.56 On
October 12, 2020, Defendants filed a Motion to Dismiss.57 On February 22, 2021,
the Court dismissed the Complaint in its entirety, dismissing Buck’s Counts I and II
with prejudice, and Count III without prejudice, leaving Holdco as the sole defendant
in this action.58
On April 1, 2021, Buck filed his First Amended Complaint against Holdco
alleging one count for breach of contract.59 On May 18, 2021, Holdco moved to
dismiss pursuant to Superior Court Civil Rule 12(b)(6).60 On September 3, 2021,
the Court denied the motion citing the rule’s minimal pleading standard. 61 On
September 27, 2021, Holdco filed its Answer to the Amended Complaint.62
On August 23, 2022, Buck filed a motion to compel Holdco to Respond to
Buck’s First Set of Interrogatories and Requests for Production of Documents.63 On
October 6, 2022, the Court held oral argument on the motion and most notably
clarified that this action is one for breach of contract, not wrongful termination.64
56
D.I. 1.
57
D.I. 2.
58
D.I. 23.
59
D.I. 24.
60
D.I. 27.
61
D.I. 35.
62
D.I. 39.
63
D.I. 53.
64
Buck v. Viking Hldg. Mgmt. Co., N20C-08-249 AML CCLD (Del. Super. Oct. 6, 2022);
D.I. 62 [hereinafter “MTC Tr.”]. The Court stated:
[T]he claim that the court allowed to survive . . . was that Mr. Murphy or Novus
manufactured the reasons for Mr. Buck’s termination; that is, he had reasons other
than those stated in the June 17th letter. He wanted to terminate him for one reason,
13
On May 11, 2023, the case was reassigned to Judge Adams after now-Justice
LeGrow was appointed to the Supreme Court of Delaware.65
On November 15, 2023, both parties filed motions for summary judgment.66
On February 15, 2024, the Court denied both motions for summary judgment and
denied three of the parties’ Daubert motions.67
Motions in limine continued to be filed by both parties in anticipation of trial.
On April 11, 2024, the Court held a pre-trial conference ruling on all pending pre-
trial motions.68 On April 12, 2024, the Court issued a Letter Opinion clarifying the
burden of proof at trial, indicating:
Defendant bears the burden of proof that Plaintiff was fired ‘for Cause’
as it is defined in the Agreement. If the Court finds that there was no
Cause, Plaintiff has the burden to prove damages. Plaintiff also has the
burden to present evidence that the reasons cited by Defendant were
manufactured after the fact.69
and he manufactured reasons to do so. And that the reasons that are stated in the
June 17th letter were not the reasons that Novus actually terminated Mr. Buck.
There’s a breach of contract dispute about, once we know what the reasons
for Mr. Buck’s termination are, given the definition of ‘Cause’ under the LLC
agreement. Certainly that claim exists. But that claim is pretty narrow and really
is focused on—it’s really a contractual interpretation question at that point.
Id. at 29:17–30:9.
65
D.I. 84.
66
D.I. 124, 125. The parties also filed several motions in limine and Daubert motions
concurrently with briefing on the summary judgment motions.
67
Mem. Order Den. Summ. J.
68
D.I. 268. During post-trial briefing, Buck did not renew his objection to the Lorenc
Letter. Buck renewed his objection to the FGMK Report and certain Grant Thornton
evidence, but the Court is either excluding such evidence or otherwise not relying on it for
purposes of the Cause definition. As such, the Court need not address Buck’s continuing
objections.
69
D.I. 266, at 2 [hereinafter “Letter Op.”].
14
The Court held a three-day bench trial from April 15 through April 17, 2024.
Defendant filed its Opening Post-Trial Brief on May 3, 2024.70 Buck filed his
Opening Brief and Answering Brief to Defendant on May 17, 2024.71 On May 31,
2024, Defendant filed its Reply Brief and Answering Brief.72 On June 7, 2024, Buck
filed his Reply Brief and Answering Brief.73 The Court heard post-trial oral
argument on June 14, 2024.74
III. ANALYSIS
A. Standard of Review for a Post-Trial Opinion
1. The Burden of Proof
In a civil trial, a party bears the burden of proving its claims by a
preponderance of the evidence.75 Proof by a preponderance of the evidence means
“proof that something is more likely than not.”76 If the evidence presented by the
parties “is inconsistent, and the opposing weight of the evidence is evenly balanced,
70
D.I. 275.
71
Buck Post-Trial Opening. Given that both parties had burdens of proof at trial, the Court
allowed each side to submit an Opening Brief for the issues on which they had a burden.
72
D.I. 280 [hereinafter “Holdco Post-Trial Answer”].
73
D.I. 282 [hereinafter “Buck Post-Trial Reply”].
74
D.I. 284.
75
See, e.g., Navient Sols., LLC v. BPG Off. P’rs XIII Iron Hill LLC, 2023 WL 3120644, at
*10 (Del. Super. Apr. 27, 2023).
76
Feenix Payment Sys., LLC v. Blum, 2024 WL 2768386, at *10 (Del. Super. May 29,
2024).
15
then ‘the party seeking to present a preponderance of the evidence has failed to meet
its burden.’”77
For a breach of contract claim, the burden ordinarily falls on the plaintiff
asserting the breach.78 In this case, the Court shifted the burden to accommodate the
unique circumstances of the parties.79 Parties can choose to allocate the burden of
proof in a contract; failure to do so results in the Court applying common law
principles of allocation.80 Absent such a contractual provision here, the Court
determined that Buck had the burden to prove that the Cause reasons listed in the
Lorenc Letter and Termination Script were manufactured. If Buck failed to meet his
burden on any of the reasons, Holdco had the burden of establishing Cause existed
under the Agreement to avoid its obligation to repurchase Buck’s shares at Fair
Market Value. If Holdco failed to meet its burden, Buck then had the burden to
prove, by a preponderance of the evidence, his damages for Holdco’s breach.
Despite this unusual burden shift, the Court notes the Supreme Court of
Delaware has reinforced that whether a court decides to burden shift or not only
77
Interim Healthcare, Inc. v. Spherion Corp., 884 A.2d 513, 545 (Del. Super. 2005)
(quoting Eskridge v. Voshell, 593 A.2d 589 (TABLE), 1991 WL 78471, at *3 (Del. 1991)).
78
Mullin v. Ascetta, 2021 WL 4272063, at *2 (Del. Super. Sept. 20, 2021) (citing McCoy
v. Cox, 2007 WL 1677536, at*6–7 (Del. Super. June 11, 2007)).
79
Letter Op.
80
AB Stable VIII LLC v. Maps Hotels & Resorts One LLC, 2020 WL 7024929, at *48 (Del.
Ch. Nov. 30, 2020).
16
makes a difference where the evidence is balanced; the burden is irrelevant if the
evidence is “so overwhelming” for one side.81
2. The Judge as the Fact Finder
In a bench trial, the judge is the fact finder82 and “must assess the credibility
of each witness and determine the weight given to the testimony.”83 To reach a
verdict on the issues, the Court considers all exhibits, live and deposition witnesses,
the parties’ arguments, and the applicable Delaware law.84 The Court can consider
“each witness’s means of knowledge; strength of memory; opportunity to observe;
how reasonable or unreasonable the testimony is; whether it is consistent or
inconsistent; whether it has been contradicted; the witnesses’ biases, prejudices, or
interests; the witnesses’ manner or demeanor on the witness stand; and all
circumstances that according to the evidence, could affect the credibility of the
testimony.”85 After reviewing all the evidence presented, the court in its discretion
as the fact finder is “free to accept or reject any and or all sworn testimony.”86
81
Ams. Mining Corp. v. Theriault, 51 A.3d 1213, 1242–43 (Del. 2012).
82
See, e.g., Shallcross Mortg. Co. v. Ewing, 2024 WL 3738713 at *1 (Del. Super. Aug. 9,
2024) (citing Torres v. Bishop, 2021 WL 6053870, at *4 (Del. Super. Dec. 21, 2021)).
83
Williams v. Bay City, Inc., 2009 WL 5852851, at *1 (Del. Super. Dec. 23, 2009) (internal
citations omitted).
84
Outbox Sys., Inc. v. Trimble, Inc., 2024 WL 1886089, at *7 (Del. Super. Apr. 30, 2024).
85
Zenith Energy Terminals Joliet Hldgs. LLC v. CenterPoint Props. Tr., 2024 WL 3570165,
at *3 (Del. Super. July 29, 2024) (citing Super. Ct. Civ. Pattern Jury Instruction 23.9).
86
Pardo v. State, 160 A.3d 1136, 1150 (Del. 2017).
17
When considering testimony from expert witnesses, “the Court may consider
the expert’s qualifications, the reasons for the expert’s opinions, and the reliability
of the information supporting the expert’s opinions,” as well as all considerations for
weighing a lay witness’s testimony.87
B. The Court finds that some of the reasons for Buck’s termination were
manufactured or otherwise excluded based on the law of the case.
1. Relevant Prior Rulings Governing the Scope of the Issues
The scope of the issues at this trial have been a point of contention between
the parties since the beginning of this action. Buck maintains the allegations against
him for his work performance are inaccurate. The Court, however, was not asked
by the sole claim in this case to determine whether Buck was good at his job; the
Court was asked to interpret a contract.
This point of clarification arose as part of Buck’s motion to compel in 2022,
wherein Buck sought to access certain third-party discovery including entities
retained by Defendant to complete audits.88 There, the Court noted “[Buck] and
[Holdco] have a different understanding of what needs to be determined in this
case.”89 Buck emphasized that, even if the merits of the allegations against Buck
were not at issue, Buck had alleged, and intended to pursue allegations that Holdco
87
MRPC Christiana LLC v. Crown Bank, 2017 WL 6606587, at *7 (Del. Super. Dec. 26,
2017).
88
Motion to Compel Defendant to Respond to Plaintiff’s First Sets of Interrogatories and
Requests for Production of Documents (D.I. 53).
89
MTC Tr. 22:15–17.
18
had “come up with reasons [to] rely upon to terminate Mr. Buck for Cause and divest
him of his units.”90
During the motion to compel hearing, the Court clarified that any evidence as
to whether or not Buck was appropriately fired would better proceed under an un-
alleged wrongful termination claim, not a breach of contract claim.91 Because only
the breach of contract claim survived the motion to dismiss, the Court limited the
discovery to the claim as pled: whether: “Mr. Murphy or Novus manufactured the
reasons for Buck’s termination; that is, he had reasons other than those stated in the
June 17th letter.”92 If the reasons were not manufactured, then the only remaining
issue for the Court is to determine whether the reasons provided for Buck’s
termination meet the definition of Cause under the Agreement.93
During the summary judgment phase of this action, Holdco took a similarly
narrow stance, arguing the reasons for Buck’s termination were articulated in the
Lorenc Letter. 94
90
Id. at 26:19–21.
91
Id. at 27:17–28:4.
92
Id. at 29:20-23. The Court therefore narrowed the scope of discovery and did not permit
“an open sesame to a subpoena directed to every firm that Novus retained, Grant Thornton,
Ernst & Young,” but was “really a question of Novus and whether Novus was
manufacturing the reasons.” Id. at 30:12-16.
93
MTC Tr. 31:4–8.
94
Defendant Viking Management Company Opening Br. in Support of its Mot. for Summ. J. SJ at
3 (“the undisputed facts establish that: (i) the reasons outlined in the June 17 Letter, and used by
Holdco to conduct its “Cause” analysis, were the actual reasons for Buck’s termination by Novus
and were not manufactured by Holdco; and (ii) Holdco acted in good faith in making its
determination that those reasons satisfy the definition of “Cause.”); Id. at 20 (“Murphy, Holdco’s
manager and the CEO of Novus, further confirmed at deposition that the reasons identified in the
19
During the pre-trial conference on April 11, 2024, the Court handled related
issues. Buck moved to (1) exclude evidence outside the four corners of the Lorenc
Letter;95 (2) to exclude evidence related to Grant Thornton;96 and (3) to exclude
evidence related to FGMK.97
Defendant moved to (1) preclude evidence or argument relating to “wrongful
termination” issues;98 (2) preclude evidence or argument challenging the reasons for
Buck’s termination by non-party Novus, as outlined in the Lorenc Letter and detailed
in the supporting independent reports;99 (3) to exclude expert testimony from Buck
himself;100 and (4) to exclude valuation opinions and testimony of Ralph Koch.101
The Court granted the motion to exclude Buck as an expert in his own trial102
and granted the motion to exclude Koch’s belatedly produced valuation opinions and
testimony.103 The Court denied all other pre-trial motions, reserving the issues for
objections at trial, and argument in post-trial briefing.104 Throughout the pre-trial
hearing, the parties continued to struggle with the proper scope of the issues; in
June 17 Letter, which were just a summary of the independent reports identified above, were
indeed the reasons for Buck’s termination and his subsequent finding of ‘Cause’”) (D.I. 125)
[hereinafter “Viking MSJ Opening”].
95
D.I. 221.
96
D.I. 222 [hereinafter “MTE Grant Thornton”].
97
D.I. 223.
98
D.I. 216.
99
D.I. 217.
100
D.I. 220.
101
D.I. 250.
102
D.I. 261.
103
D.I. 257.
104
D.I. 258, 259, 260, 262, 263, 264.
20
particular how evidence would be used, and for what purpose, i.e., whether
something was being offered for its truth, or for some other purpose. The Court
reinforced the prior motion to compel ruling, and noted issues of evidence are better
addressed at trial in a bench trial, where the Court can more fully consider the context
and manner in which evidence is presented.105
The Court made a final clarification on the scope of proof in its Letter Opinion
on the burden of proof allocation on April 12, 2024, stating in relevant part:
As a final point of clarification before trial, this Court notes that
requiring Plaintiff to have the burden would improperly impose a
burden to prove a negative. The “negative” in this case would be the
reasons Defendant asserts as the reasons for the termination do not
constitute “for Cause” as it is defined by the Agreement. The
“negative” is not that Plaintiff was otherwise a good employee and that
the reasons Defendant asserts lack veracity. This is a breach of contract
case—asking the Court to interpret the definition of “for Cause” as it
applies to Defendant’s reasons—not a wrongful termination case
determining whether or not Defendant’s reasons are an accurate
depiction of Plaintiff’s performance.106
With that procedural posture and contextual backdrop, the Court now considers the
merits of the claims and proof from trial.
105
See, e.g., Beard Rsch., Inc. v. Kates, 2009 WL 7409282, at *6 (Del. Ch. Mar. 31, 2009)
(“[A]lthough it is critical in a jury trial for a court to exercise its gatekeeper function in
advance of allowing an expert to testify, the importance of addressing issues raised under
Daubert and Rule 702 before an expert testifies is more attenuated in a bench trial. . . . In
large part because this is a bench trial, I consider it more prudent to hear the evidence at
trial and consider the damages theory and Defendant’s criticisms of it in the context of the
full record. Moreover, it will be more efficient to consider the reliability of the expert’s
methodology after trial, because by then the Court will have had the benefit of hearing both
sides’ experts address the complex damages issues presented[.]”).
106
Letter Op. at 2 (internal citations omitted) (emphasis in original).
21
2. Reasons one and four from Holdco’s Opening Post-Trial Brief, along
with the FGMK Report were “Manufactured” and therefore excluded.
The Lorenc Letter has been at center stage of this action since its inception.
As part of the Court’s ruling during the pre-trial conference, the Court held it would
be “unlikely for [the Court] to allow other evidence that’s not been in the Lorenc
Letter to be something that meets the definition of Cause.”107 Given the history of
this case and Defendant’s focus on the Lorenc Letter as evidence of Cause for Buck’s
termination, the only evidence the Court will consider are the issues raised in the
Lorenc Letter and evidence that can reasonably be tied to it. Although Holdco did
not previously mention the Termination Script as support for its Cause
determination, Buck does not dispute that Script also contained the alleged reasons
for Buck’s termination. Buck maintains the reasons in the Script were
manufactured.108
The Court now turns to the merits of Buck’s claim regarding manufacturing.
By the time of post-trial briefing, Holdco narrowed its focus to just six reasons
regarding Buck’s termination for Cause:
1. Buck acted recklessly with respect to the AMR Account;
2. Buck failed to inform Murphy of the AMR issues;
3. Buck’s Conduct with respect to Mai Lee;
107
Pretrial Conference Transcript at 22:8-11, Apr. 11, 2024.
108
Buck Post-Trial Opening at 2.
22
4. Buck misrepresented the issues to the Company’s lender, Citibank;
5. Buck hid his AMR Account practice and underlying reconciliation
issues from the Company’s auditors;
6. The AMR issues were material and caused a material misstatement of
Novus’ 2017 Annual and Interim Financial Statements.
Buck argues that each of these reasons are manufactured, and the Court should not
consider any of them for purposes of Cause.109 The Court appreciates that the Lorenc
Letter is a document devoid of context and, at trial, the parties would necessarily
need to assist the fact finder with understanding the circumstances surrounding each
stated reason. At trial, however, much of the evidence presented by Holdco included
evidence well outside of the scope of the Lorenc Letter (or the Termination Script).
As described below, the Court will not consider this evidence because the law of the
case is that Holdco is limited to the issues raised in the Lorenc Letter and those
reasonably inferred from it.
3. The Court will not consider points two and four from Holdco’s Post-
Trial Brief or the FGMK Report for the determination of cause.
The Court finds, by a preponderance of the evidence, that reasons two (Buck
failed to inform Murphy of the AMR issues), four (regarding Citibank) and the
FGMK Report are manufactured. The Court will not consider them for purposes of
the Cause determination.
109
Buck Post-Trial Opening at 28, 31, 33, 38, 39, 42.
23
After having relied on the Lorenc Letter and Termination Script throughout
this action as a basis for opposing third party discovery and in support of summary
judgment Holdco cannot now argue that other reasons – not at all discussed or
reasonably incorporated into the points made in the Lorenc Letter or the Termination
Script from Murphy – were the reasons for Buck’s termination.
First, during Murphy’s cross examination at trial, Murphy, the CEO of Novus
and Manager of Holdco, admitted that issue two, regarding Buck’s purported failure
to inform Murphy of the AMR issues, was not in the Lorenc Letter or Termination
Script:
Q. And you’ve talked about Mr. Buck not informing you about the
AMR issue. Yes or no, was that mentioned in the script or the letter?
A. No.110
Holdco’s counsel did not redirect Murphy about this issue. Holdco also did not rebut
Buck’s argument that this issue was manufactured in its post-trial briefing. Given
these concessions by Holdco, the Court will not consider Buck’s failure to inform
Murphy of the AMR issue for purposes of the Cause determination.
Second, the Court agrees with Buck that the Citibank issue is a litigation-
driven argument in an attempt to fit Buck’s termination within the definition of
Cause. In an apparent recognition of this, Holdco does not dispute this point in its
110
Tr. Apr. 16 at 17:19-22.
24
Post-Trial Reply Brief. Therefore, the Court will not consider the Citibank issue for
purposes of the Cause determination.
This is not to say, however, that because the Court is permitting a reason from
the Lorenc Letter to be considered for the Cause determination, that each part of that
bullet point will be considered. The Court will consider reasons one, three, five and
six only to the extent Holdco has provided some evidence in their post-trial briefing
regarding the point.111
Third, Buck has proven, by a preponderance of the evidence, that the FGMK
report was manufactured and will not be considered by the Court as evidence of
Cause. Among other reasons, the Court notes the following regarding the FGMK
report:
• Novus engaged FGMK seven days after Ernst & Young issued its
addendum, where Ernst & Young stated that the AMR Account
resulted in a $0 impact to Novus’ 2017 and 2018 income statements,112
suggesting that Novus (and Murphy) were unhappy with that
conclusion;
111
For example, Lee is referenced by name in the Lorenc Letter regarding her purported ethical
concerns, but not regarding Buck’s assignment of Lee to the 2017 audit. Although Buck argues
that Lee’s assignment to the 2017 audit was “manufactured,” the Court determines that the “junior
accounting people” assigned “to functions inconsistent with their experience and role” includes
Lee.
112
Tr. Apr. 16 at 49:11-17; JX 35 at 6, 10.
25
• The FGMK Report was issued on January 17, 2020, only twenty days
after Novus engaged FGMK;
• Murphy labeled the report “Key Evidence” in his own
contemporaneous handwritten notes;113
• During direct examination at trial, Murphy testified that “[o]nce that
whistleblower letter arrived, we were on a -- a train to a conclusion;”114
• Novus subsequently engaged FGMK on another project and eventually
became Novus’ financial auditor;115 and
• Holdco’s Post-Trial Opening Brief Argument Section barely touches
upon the FGMK report to support the “Cause” determination.116
113
JX 44 at NOVUS01177. During Murphy’s cross examination, Murphy did not testify credibly
about why he put the words “Key Evidence” on this report. In response to questioning as to why
Murphy labeled the FGMK Report as “Key Evidence,” but not other documents, Murphy testified,
“I can give you my guess of why. Because I’ve got huge binders piled in the office of all these
third-party investigations. This is an email. It’s not a bound document. It’s in a series of emails.
It might have been discovered – I don’t recall exactly. It might have been discovered in the Ernst
& Young search. And when you’re reading through hundreds of documents, you’re putting a pile
here ‘meaningless,’ and a pile here, ‘important.’ That would be my likely behavior to this.” Tr.
Apr. 16 at 64:3-14. First, the FGMK Report is not an email, or a series of emails. It is just that –
a report. Second, Murphy’s refusal to answer the question being asked only bolsters Buck’s
argument that the FGMK Report was manufactured.
114
Tr. Apr. 15 at 231:14-15.
115
Tr. Apr. 16 at 64:20-66:18.
116
The Court notes that while Defendants’ Post-Trial Opening Brief devotes an entire fact section
to the FGMK report, the Argument only makes two citations, in passing, regarding the FGMK
report. See Holdco Post-Trial Opening at 35 (“one of FGMK’s action plans was to build out
Novus’s internal controls”); Id. at 48 (“considering FGMK’s 2018 letter, JX_44, to show a material
monthly transaction volume in the AMR Account”). Although Buck pointed this fact out in his
Opening Brief, Holdco made just one reference to the FGMK Report in its Reply Brief. (“Trial
confirmed Thompson Coburn (and EY, FGMK and Grant Thornton)’s conclusions.”) Holdco Post-
Trial Answer at 33. For these reasons, the Court need not consider Buck’s continuing objection to
the FGMK Report because the Court is not relying upon it in its analysis.
26
The Court, therefore, finds that the FGMK report was “manufactured” and will not
consider it for the definition of Cause.
C. Holdco did not prove by a preponderance of the evidence that Holdco
terminated Buck for Cause.
1. Standard for Cause
The Agreement defines Cause as:
(i) a Service Unitholder’s material breach of any of the terms or
representations contained in this Agreement or any Employment
Agreement to which such Service Unitholder and the LLC, the Parent
Company or the Operating Company are a party; (ii) such Service
Unitholder’s conviction of, or guilty plea or no contest plea to, any
felony or criminal charge involving moral turpitude or that could
reasonably be expected to have a significant adverse effect on the
business or affairs of the LLC; (iii) such Service Unitholder’s
substantial and repeated failure, after written notice from the LLC, to
perform duties (or refrain from actions) as reasonably directed by the
LLC, the Parent Company or the Operating Company; (iv) such Service
Unitholder’s gross negligence, willful misconduct or breach of
fiduciary duty with respect to any of the LLC, the Parent Company, the
Operating Company and their Subsidiaries or their business relations
that results (or could reasonably be expected to result) in a significant
adverse effect on the business or affairs of the LLC, the Parent
Company or the Operating Company; or (v) such Service Unitholder's
commission of any material act of dishonesty, fraud, theft or
embezzlement, or breach of fiduciary duty, against the LLC, the Parent
Company, the Operating Company and their Subsidiaries or their
business relations that results (or could reasonably be expected to
result) in a significant adverse effect on the business or affairs of the
LLC, the Parent Company or the Operating Company.117
117
Am. Compl. Ex. A: Membership Agreement, Art. I [hereinafter “Agreement”].
27
The Court must determine, based on a preponderance of the evidence, whether
Holdco’s reasons for terminating Buck constituted “Cause” as defined above. Only
the provisions (iii), (iv) and (v) of the Cause definition are at issue in this litigation.
Delaware law on contract interpretation is well-established. Delaware
adheres to the objective theory of contracts, “i.e., a contract’s construction should be
that which would be understood by an objective, reasonable third party.”118 When a
contract is clear and unambiguous, a court will “give effect to the plain-meaning of
the contract’s terms and provisions.”119 To do so, the court will “construe the
agreement as a whole, giving effect to all the provisions therein.”120 The
interpretation must not “render any terms ‘meaningless or illusory.’”121
A contract is ambiguous where “the provisions in controversy are reasonably
or fairly susceptible to different interpretations.”122 If there is ambiguity the court
will “look beyond the language of the contract to ascertain the parties’ intentions.”123
118
Salamone v. Gorman, 106 A.3d 354, 367–68 (Del. 2014) (quoting Osborn ex rel. Osborn v.
Kemp, 991 A.2d 1153, 1159 (Del. 2010)) (internal quotation marks omitted).
119
Osborn ex rel. Osborn v. Kemp, 991 A.2d 1153, 1159–60 (Del. 2010) (citing Rhone-Poulenc
Basic Chem. Co. v. Am. Motorists Ins. Co., 616 A.2d 1192, 1195 (Del. 1992)).
120
GMG Cap. Inves., LLC v. Athenian Venture P’rs I, L.P., 36 A.3d 776, 779 (Del. 2012) (quoting
E.I. du Pont de Nemours & Co. v. Shell Oil Co., 498 A.2d 1108, 1113 (Del. 1985)) (internal
quotation marks omitted).
121
Manti Hldgs., LLC v. Authentix Acq. Co., 261 A.3d 1199, 1208 (Del. 2021) (quoting Osborn,
991 A.2d at 1159).
122
Kuhn Constr., Inc. v. Diamond State Port Corp., 990 A.2d 393, 397 (Del. 2010) (quoting
Vanderbilt Income & growth Assoc., LLC v. Arvida/JMB Mgrs., Inc., 691 A.2d 609, 613 (Del.
1996) (internal quotation marks omitted).
123
In re Viking Pump, Inc., 148 A.3d 633, 648 (Del. 2016) (quoting Eagle Indus., Inc. v. DeVilbiss
Health Care, Inc., 702 A.2d 1228, 1232 (Del. 1997)) (internal quotation marks omitted).
28
If the contract 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.”124 “When a term’s definition is not altered or has no ‘gloss’
in the [relevant] industry it should be construed in accordance with its ordinary
dictionary meaning.”125
2. Buck’s actions do not constitute gross negligence or a breach of his
fiduciary duties.
a. Case Law regarding Fiduciary Duties in Delaware
The terms “gross negligence,” “willful misconduct,” or “breach of fiduciary
duty” are not defined terms in the Agreement.126 The Court will thus apply their
plain meaning as defined by Delaware law.
“Gross negligence” is the “‘extreme departure from the ordinary state of care’
that signifies more than ordinary inadvertence or inattention.’”127 It is “conduct that
constitutes reckless indifference or actions that are without the bounds of reason.”128
To assess gross negligence, the court looks at “the reasonableness of a defendant’s
124
Holifield v. XRI Inves. Hldgs., LLC, 304 A.3d 896, 924 (Del. 2023) (quoting City Investing Co.
Liquidating Tr. v. Cont’l Cas. Co., 624 A.2d 1191, 1198 (Del. 1993)) (internal quotation marks
omitted).
125
Lorillard Tobacco Co. v. Am. Legacy Found., 903 A.2d 728, 740 (Del. 2006) (quoting USA
Cable v. World Wrestling Fed’n. Entm’t, Inc., 766 A.2d 462, 474 (Del. 2000)) (internal quotation
marks omitted).
126
See generally Agreement, art. I.
127
Hecksher v. Fairwinds Baptist Church, Inc., 115 A.3d 1187, 1199 (Del. 2015) (quoting Brown
v. United Water Del., Inc., 3 A.3d 272, 276 (Del. 2010); Jardel Co. v. Hughes, 523 A.2d 518, 530
(Del. 1987)).
128
McPadden v. Sidhu, 964 A.2d 1262, 1274 (Del. Ch. 2008).
29
actions given the conditions at that time and not whether hindsight would shed more
light upon whether any conditions could have served as red flags.”129 Gross
negligence has been described by the Delaware Supreme Court as the “functional
equivalent” of criminal negligence, “which is defined as the failure to perceive a risk
of harm of such a nature and degree that the failure to perceive it constitutes a gross
deviation from the standard of conduct a reasonable person would observe.”130
Finding gross negligence is a “necessarily fact-specific” endeavor.131
“Willful misconduct” is often used in the longer “willful and wanton
misconduct” so for these purposes, the Court will consider case law using both
phrases. “Willful and wanton misconduct is analogous to the conscious indifference
or disregard for the rights of others and has commonly been referred to as the ‘I don’t
care’ attitude.”132 Whether conduct amounts to either gross negligence or willful or
wanton conduct is a question for the fact finder.133
129
Greenfield as Next Friend for Ford v. Miles, 211 A.3d 1087, 1101 (Del. 2019) (citing McCaffrey
v. City of Wilm., 133 A.3d 536, 550 (Del. 2016)).
130
Brown v. United Water Del., Inc., 2010 WL 2052373, at *4 (Del. Super. May 20, 2010) (citing
Jardel v. Hughes, 523 A.2d 518, 530 (Del. 1987)).
131
Zucker v. Hassell, 2016 WL 7011351, at *7 (Del. Ch. Nov. 2016) (citing Espinoza on behalf of
JPMorgan Chase & Co. v. Dimon, 124 A.3d 33, 36 (Del. 2015)). Whether conduct amounts to
gross negligence is a question for the fact-finder. Brown v. United Water Del., Inc., 2010 WL
2052373, at *4 (Del. Super. May 20, 2010) (citing Estate of Alberta Rae v. Murphy, 2006 WL
1067277, at *3 (Del. Super. Apr. 19, 2006)).
132
Bristow v. Nemours Found., 2023 WL 4994093, at *6 (Del. Super. July 24, 2023) (quoting
Armstrong v. A.I. Dupont Hosp. for Children, 60 A.3d 414, 418 (Del. Super. 2012)) (internal
quotation marks omitted).
133
Brown v. United Water Del., Inc., 2010 WL 2052373, at *4 (Del. Super. May 20, 2010) (citing
Estate of Alberta, 2006 WL 1067277, at *3).
30
Delaware law on breach of fiduciary duties is extensive and complex. For the
purposes of this case, the Court will only provide a very brief overview of the
fiduciary duties disputed by the parties: the duty of loyalty and the duty of care.134
Fiduciary duties “under Delaware law are ‘unremitting,’ meaning that they are
always operative, but their application is context-dependent, meaning that the ‘exact
course of conduct that must be charted to properly discharge that responsibility will
change in the specific context of the action the [fiduciary] is taking[.]”135
The duty of loyalty is broad.136 It “mandates that the best interest of the
corporation and its shareholders takes precedence over any interest possessed by a
director, officer or controlling shareholder and not shared by the stockholders
generally.”137 The duty requires the fiduciary to “subjectively seek to maximize the
value of the [company] for the benefit of its stockholders.”138 Breaches of the duty
are found where in “cases involving self dealing [sic] or where a fiduciary puts
personal interests ahead of the interests of its beneficiary.”139
134
Holdco Post-Trial Opening at 30–31; Buck Post-Trial Opening at 18–22.
135
In re Columbia Pipeline Grp., Inc. Merger Litig., 299 A.3d 393, 453 (Del. Ch. June 30, 2023)
(citing Malone v. Brincat, 722 A.2d 5, 10 (Del. 1998)).
136
Gantler v. Stephens, 965 A.2d 695, 713 n.52 (Del. 2009) (quoting Solomon v. Armstrong, 747
A.2d 1098, 1145–15 (Del. Ch. 1999), aff’d, 746 A.2d 277 (TABLE) (Del. 2000)).
137
Metro Storage Int’l LLC v. Harron, 275 A.3d 810, 842 (Del. Ch. 2022) (quoting Cede & Co. v.
Technicolor, Inc., 634 A.2d 345, 361 (Del. 1993)) (internal quotation marks omitted).
138
McRitchie v. Zuckerberg, 315 A.3d 518, 544 (Del. Ch. Apr. 30, 2024).
139
In re Orchard Enters., Inc. S’holder Litig., 88 A.3d 1, 38 (Del. Ch. 2014) (citing Strassburger
v. Earley, 752 A.2d 557, 581 (Del. Ch. 2000)).
31
The duty of loyalty encompasses the duty of good faith.140 To act in good
faith “[r]equires that the fiduciary subjectively believe that the course of action is in
the best interests of the corporation and its stockholders.”141 One may violate the
duty of good faith if the fiduciary action “with a purpose other than that of advancing
the best interests of the corporation, where the fiduciary acts with the intent to violate
applicable positive law, or where the fiduciary intentionally fails to act in the face of
a known duty to act, demonstrating a conscious disregard for his duties.”142
b. Buck did not act grossly negligent with respect to his practices
with the AMR Account
Holdco’s main argument regarding Cause arises out of Buck’s treatment of
the AMR Account. This argument is most reasonably attributed to the portion of the
Lorenc Letter stating:
[Mr. Buck’s] claim that he was unaware of the $1.7 million write-off
and reversal in 2017 until we confronted him with [it] in October 2019,
raise significant concerns about Mr. Buck’s diligence and competence.
These actions may also constitute a breach of Mr. Buck’s fiduciary
duties as an officer of Novus.143
140
See, e.g., Stone ex rel. AmSouth Bancorporation v. Ritter, 911 A.2d 362, 369–70 (Del. 2006)
(quoting Guttman v. Huang, 823 A.2d 492, 506 n.34 (Del. Ch. 2003) (“The failure to act in good
faith may result in liability because the requirement to act in good faith ‘is a subsidiary element[,]’
i.e., a condition, ‘of the fundamental duty of loyalty.’”).
141
In re Columbia Pipeline, 299 A.3d at 455 (Del. Ch. 2023) (citing United Food & Com. Workers
Union v. Zuckerberg, 250 A.3d 862, 895 (Del. Ch. 2020), aff’d, 262 A.3d 1034 (Del. 2021)).
142
In re Walt Disney Co. Deriv. Litig., 906 A.2d 27, 67 (Del. 2006) (quoting In re Walt Disney Co.
Deriv. Litig., 907 A.2d 693, 756 (Del. Ch. Aug. 9, 2005)) (internal quotation marks omitted). The
duty of disclosure is not relevant to the assertions here. Therefore, the Court will not address this
duty.
143
JX 81 at 2 (emphasis in original).
32
While the Lorenc Letter references that Buck’s actions “may also constitute a breach
of Mr. Buck’s fiduciary duties,” the only argument Holdco makes in its briefing is
Buck “acted recklessly” in directing the AMR Account practices.144 The Court
interprets this as “gross negligence” because acting “recklessly” is not a defined term
in the Cause definition.
At trial, Buck testified he directed the use of the AMR Account to aggregate
and net unreconciled balances.145 According to Holdco, this evidences that Buck
acted recklessly because of his oversight of this account and alleged attempt to
“distance himself from the Company’s reconciliation issues.”146
Holdco does not argue that Buck acted out of self-interest or engaged in self-
dealing. Rather, Holdco argues that Buck’s alleged mishandling of the AMR
Account was “grossly negligent.”147 Although Holdco spends nearly eight pages in
its Opening and Answering/Reply Post-Trial briefs arguing Buck’s actions in
144
Holdco also argues that Buck’s alleged failure to implement written controls constitutes a
breach of his fiduciary duties. See Holdco Post-Trial Answer at 8-9. This is a litigation driven
argument. It does not appear in the termination script and is not reasonably incorporated into the
Lorenc Letter. Therefore, the Court will not consider this as part of its analysis. In any event, this
would not change the Court’s analysis. As Dykstra credibly testified at trial, Novus had procedures
in place, even if not in writing. Dykstra notes that having unwritten procedures is not unusual for
a company the size of Novus. Tr. Apr. 15 at 77:13-23.
145
Tr. Apr. 16 at 240:1-4. The Court notes that Defendant, in its post-trial briefing, relies upon
deposition testimony of witnesses who testified at trial. If a deponent testifies at trial, the Court
will rely only upon trial testimony. Of course, a witnesses’ s credibility can be challenged through
deposition testimony, but it is not appropriate to rely upon deposition testimony as affirmative
evidence when the witness testifies live at trial.
146
Holdco Post-Trial Opening at 31-35; Holdco Post-Trial Answer at 15-18.
147
Holdco Post-Trial Opening at 31.
33
overseeing the AMR Account practices were “grossly negligent,”148 Holdco
provides no case law to support such a bold claim. This is not surprising; the Court
is likewise unable to find a case with similar factual circumstances where an officer
is found to have acted with gross negligence.
The Court must look at Buck’s conduct at the time of his termination, and not
a litigation-driven strategy employed to meet the definition of Cause.149 The
evidence at trial demonstrated that Buck, as CFO, delegated appropriate personnel
(including hiring outside consultants) to resolve the overall reconciliation issue,
regularly met with controllers (including Dykstra), and resolved this issue by
2018.150 Although Holdco spent a significant amount of time at trial regarding the
Grant Thornton audits, especially in light of the Whistleblower Letter, at the end of
the day, this proved nothing, certainly not gross negligence. Grant Thornton never
issued anything other than unqualified audits with respect to the 2018 financials,
even after receiving the Whistleblower Letter and performing an investigation into
the AMR Account. The Court finds it unlikely that Grant Thornton, a major
international accounting firm, would risk its professional reputation by not looking
148
Holdco Post-Trial Opening at 31-35; Holdco Post-Trial Answer at 15-18.
149
The Court notes most of the evidence at trial regarding the AMR Account was not included in
the Lorenc Letter or the Termination Script. Given the importance of this issue, the Court will
consider the evidence related to Buck’s treatment of the AMR Account; Cause still does not exist.
150
Buck Post-Trial Opening at 28-29.
34
into the issue completely or by issuing an unqualified audit if one was not
deserved.151
Although Defendant’s expert, Schulman, testified that Buck’s actions with the
AMR Account was outside the bounds of reason and an “extreme departure from the
standards and expectations as CFO in Buck’s position,”152 the Court does not credit
Schulman’s testimony on this topic. While the Court does not doubt Schulman’s
qualifications, he was the only witness at trial to testify to this point.153 The Court
credits the testimony of Buck and Buck’s experts, Mark Roberts and Ralph Koch,
who testified credibly regarding Buck’s handling of the AMR Account.154 Roberts
noted that controllers – those in Dykstra’s position – often want any sum on a
company’s books “immediately resolved,” but that resolving everything
immediately is not necessarily the right thing to do.155 Roberts also testified that the
use of a clearing account such as the AMR Account works when a finance
department is faced with the reconciliation issues Novus faced, and that he had used
151
See Spotlighting the Nation’s Top 500 CPA Firms, INSIDE Public Accounting,
https://insidepublicaccounting.com/ipa-top-500-firms/ (last visited Sept. 30, 2024) (listing Grant
Thornton as the seventh largest accounting firm in the United States).
152
Tr. Apr. 17 at 119:5-9.
153
The Court also notes that this testimony comes close to providing an opinion on the ultimate
outcome of the case, to which the Court needs no assistance. Dykstra, Novus’ current Controller,
took issue with respect to the fact that the AMR Account did not take the 2017 unreconciled
balances into income, but refused to state that Buck’s actions were “outside the bounds of reason.”
Tr. Apr. 15 at 13:13-16; 27:15-20; 79:1-19; 105:8-106:6.
154
Tr. Apr. 17 at 40:13-41:14; 65:9-66:10; 166:8-167:22.
155
Tr. Apr. 17 at 40:13-41:14.
35
such an account to solve similar problems before.156 Koch testified that Buck’s use
of a clearing account was “exactly the right kind of thing to figure out what’s the
magnitude of [Novus’] problem,” as well as how to resolve it.157
For these reasons, the Court finds that Holdco failed to prove, by a
preponderance of the evidence, that Buck’s practices with respect to the AMR
Account were a gross deviation from the standard of conduct a reasonable person,
and Holdco fails to meet the definition of Cause for this point.
c. Buck did not breach his fiduciary duty of loyalty with respect to
Grant Thornton.
Holdco’s argument regarding Grant Thornton arises out of the following from
the Lorenc Letter:
An anonymous whistleblower letter received in April 2019 by Grant
Thornton, Novus’ independent auditors, noted that “an unqualified
opinion on the financial statement should not be issued for the 2018
fiscal year.” This letter alleges numerous accounting and financial
problems, including that Mr. Buck approved entries to “bury part of
the [unreconciled accounts] problem,” vendors are paid duplicate
times (“Novus is out the $$, is clueless and has no idea what the $$
amount represents”) and “Michael Buck is not engaged in the detail.”158
156
Tr. Apr. 17 at 65:9-66:10.
157
Tr. Apr. 17 at 166:8-167:22.
158
JX. 81 at 2 (emphasis added). Buck argues that the “dishonesty” issue was raised for the first
time at trial, the Court disagrees. While true that Holdco appeared to be relying on a new prong
of the Cause definition (“Such Unitholder’s commission of any material act of dishonesty, . . .”),
Holdco, it is post-trial briefing, abandoned this argument and instead focused on the breach of
fiduciary duty prong for Cause.
36
Although much of Holdco’s time at trial focused on Buck’s use of the AMR Account
(and whether it was proper to do so), the Court will only consider the following
language from the Lorenc Letter for the Cause determination: “Mr. Buck approved
entries to ‘bury part of the [unreconciled accounts] problem.’” Holdco argues in its
post-trial briefing that such actions amount to a breach of Buck’s fiduciary duty of
loyalty, citing Hampshire Group, Ltd. v. Kuttner.159
In Kuttner, two officers and employees of Hampshire Group, Ltd., Charles
Clayton and Roger Clark, approved tuition payments to Columbia University as
donations, when in fact they were tuition payments made on behalf of Hampshire’s
CEO, Ludwig Kuttner.160 Clayton also knowingly caused the corporation to
reimburse employees of a corporate subsidiary, Item-Eyes, Inc., and participated in
an improper program “whereby sweaters without market value were doled out to
particular employees, who gave them to charities and took personal tax deductions
for the donation.”161 As CFO, Clayton certified Hampshire’s annual reports with the
SEC during the relevant time period, and Clark, as Principal Accounting Officer,
signed sub-certifications.162 The Court of Chancery held although none of the
matters resulted in a “purposeful overstatement of Hampshire’s earnings,” the
159
Holdco Post-Trial Opening at 41-46.
160
Hampshire Group, Ltd. v. Kuttner, 2010 WL 2739995, at *3 (Del. Ch. July 12, 2010).
161
Id. at *2.
162
Id. at *33.
37
“conscious misstatement of the corporation’s books and records” amounted to a
“breach of the fiduciary duty of loyalty. . . to sign certifications or sub-certifications
without disclosing to the Audit Committee what they knew about those issues.”163
The issue the Court faces is that the Whistleblower Letter is hearsay; no one
at trial could say with certainty the identity of its author. While multiple witnesses
(including the parties’ experts) testified at trial regarding Buck’s use of the AMR
Account, no one other than Buck has first-hand knowledge of whether he did (or did
not) approve entries to “bury” the AMR Account problem.
The Court is hesitant to find a breach of a CFO’s duty of loyalty based entirely
on a hearsay document.164 The Court will therefore consider some context from trial
regarding Buck’s use of the AMR Account and discussions with Grant Thornton.
During trial, Buck testified credibly that Grant Thornton received a trial balance165
in 2017,166 and Grant Thornton had access to all accounts in Novus’ systems.167
163
Id. at *34. The Court further stated that “when a corporate officer is aware of financial
misreporting that involves high-level management and that has evaded the corporation’s auditors,
and nonetheless certifies that he is not aware of any material weakness in the company’s internal
controls, he is making a false statement and failing to bring material information to the board, in
breach of his duty of loyalty.” Id.
164
Again, the Court acknowledges the Whistleblower Letter is not being offered for the truth of
the matter asserted. Out of all of the potentially hearsay documents, however, the Whistleblower
Letter is the most difficult to ignore, given the anonymity of its author.
165
A trial balance is a “listing of all of the accounts that a company has on its books.” Tr. Apr. 17
at 9:14-15.
166
Id. at 9:16-10:2.
167
Id.
38
Koch,168 Buck’s professional standards expert, also testified credibly about what
Grant Thornton would have had access to:
Q. And what’s your opinion of this allegation that somehow this AMR
account or clearing account was concealed from [Grant Thornton] and
they didn’t know about it?
A. I can’t imagine how they would not know about it. Because at the
beginning of their audit, they would have asked for the trial balance.
And I mentioned before, this is the first time this company is reporting
as a standalone enterprise. They going to give a lot of scrutiny to the
first year balance sheet, to make sure that their opening balances are
correct. So there’s no way they would not have known about it.”169
Similarly, Roberts, Buck’s job performance expert, testified:
Q. So focusing on the 2017 Grant Thornton audit have you seen any
documentation or heard any testimony that indicates Mr. Buck hid
information from Grant Thornton?
A. No.
Q. Even about that AMR account?
A. No, it would be very difficult. It would be nearly impossible for
him to hide it.
Q. And was there anything about the information provided by Grant
Thornton that indicated that he provided all of the information?
A. Yes. [intentionally omitted remainder of response]
***
A. Sometimes this comes as a letter. Sometimes it comes as a
presentation like this. One of the requirements in an audit - - and these
are part of the SAS standard, a standard audit practice, that you have to
have access - - that the CFO has to give you the access you request.
And the data that you request. And if one of the reasons for a qualified
opinion or perhaps even for the CPA audit firm to resign from the
engagement would be if the management - - like anywhere in the
organization, not just with the CFO - - i[t] refuses to allow the audit
team to access the information that they think they need to validate the
168
Koch has a B.S. in accounting, a M.S. with distinction and two concentrations, is a licensed
CPA and a chartered financial analyst. Tr. Apr. 17 at 34:4-9.
169
Tr. Apr. 17 at 175:6-20.
39
internal control processes or to substantiate balances, that would be a
very severe problem and that would be noted in the columns they have
responded to here.170
During trial, Buck – the only person at trial who could testify to the issue of what
information Grant Thornton received – testified credibly that Grant Thornton was
provided access to all of the information concerning the AMR Account.171 Buck
further testified that while he did not personally have discussions with Grant
Thornton about how the AMR Account was being used, Grant Thornton received a
copy of Novus’ trial balance and general ledger and “[t]hey see every single account
in it.”172 Thus, unlike in Kuttner, there is no evidence of a “conscious misstatement”
of Novus’s books and records.
For these reasons, the Court finds that Holdco did not prove, by a
preponderance of the evidence that Buck intentionally deceived Grant Thornton
regarding the use of the AMR Account.173 Therefore, the Court does not find that
170
Tr. Apr. 17 at 61:11-62:23.
171
Tr. Apr. 16 at 305:18-20.
172
Id. at 305:21-306:4. See also JX 33 at HOLDCO-217 (email chain between Buck and Murphy,
where Buck confirms Grant Thornton was “aware” of the AMR Account). Holdco attempts to
discredit Buck by inappropriately citing to his deposition testimony about who informed Grant
Thornton about the use of the AMR Account. Holdco Post-Trial Opening at 41. When a witness
is available at trial, it is inappropriate to rely on the witness’ deposition testimony. Holdco then
tries to point out Buck’s equivocal response regarding Buck’s discussions with Grant Thornton.
Id. at 42. The Court does not discredit Buck’s testimony at trial based on his inability to say who,
exactly, had discussions with Grant Thornton about the AMR Account. As of the trial date, those
discussions would have occurred approximately six years ago. The Court would be more surprised
(and skeptical) if Buck was able to recall every single detail regarding the Grant Thornton audit.
173
The Court notes that Holdco also references a reclassification chart from the E&Y Addendum
regarding the use of the AMR Account. Holdco Post-Trial Answer at 30. Puzzlingly, Holdco did
not question Buck about this chart at trial, and only questioned its expert, Schulman, about the
40
Buck breached his fiduciary duty of loyalty in connection with the Grant Thornton
issue, and Holdco did not meet its burden regarding Cause.
d. Buck did not act grossly negligent or breach his fiduciary duties
with respect to Mai Lee.
Holdco argues Cause exists with respect to Mai Lee (“Lee”) for two reasons:
(1) Buck acted “outside the bounds of reason” and “ignored red flags” with Lee’s
departure and tasked Lee “with managing Novus’s very first audit following the
transaction with Omnicom;”174 and (2) “Buck’s failure to report Lee’s concerns, and
his election to ‘investigate himself’ instead, irrefutably constitutes a breach of his
fiduciary duties of loyalty oversight and care.”175 Neither argument meets the
definition of Cause.
For someone who took center stage at the trial in this action, Lee was notably
absent – Lee was not deposed, never responded to requests to be interviewed by
chart. Tr. Apr. 17 at 89:1-94:5. In any event, without more context regarding the chart or hearing
from Buck about it, the Court does not give this chart much weight in its analysis.
174
Holdco Post-Trial Opening at 37. While Buck argues that “the Court must disregard Holdco’s
argument that Buck acted outside the bounds of reason by assigning Lee to manage Novus’s audit
because this reason is manufactured,” (Buck Post-Trial Opening at 33), the Court disagrees. The
Lorenc Letter discusses assigning “junior accounting people, often consultants and not employees,
to functions inconsistent with their experience and role,” and this argument reasonably flows from
that point. JX 81 at 2. The Court similarly does not put much weight into Dykstra’s testimony
regarding this point. While Dykstra testified that Grant Thornton seemed “surprised” when he told
them about the AMR Account, much of his testimony concerned what Grant Thornton would have
done in response to receiving the information about the AMR Account (assuming Grant Thornton
did not already know about its existence). Tr. Apr. 15 at 30:3-32:3. Again, the only person (or
entity) that could actually testify about this is Grant Thornton – and Grant Thornton did not appear
in this case at trial.
175
Holdco Post-Trial Opening at 38.
41
Thompson Colburn, and could not be compelled to testify at trial. Thus, the Court
is left with testimony from other individuals within Novus about conversations they
had with Lee, or conversations between other individuals about Lee.176
Holdco’s first argument, that Buck acted “outside the bounds of reason,” is
measured by the gross negligence standard.177 The Court will review the
reasonableness of Buck’s conduct at the time of his actions without the benefit of
hindsight. Thus, the Court must determine, at the time Buck assigned Lee to Novus’
audit in December 2017, it was a gross deviation from the standard of conduct a
reasonable person would observe. The Court will ask the same with respect to
Buck’s alleged failure to report Lee’s concerns about Company’s accounting
practices to Murphy.
The Court finds that Buck’s decision to assign Lee to the audit in December
2017 did not amount to gross negligence. Holdco, in its Post-Trial Opening Brief
states, without legal support, “Buck recklessly dumped on Lee handling Novus’ first
audit after just six weeks…without written internal controls.”178 This unsupported
statement does not come close to meeting the burden of proving gross negligence by
a preponderance of the evidence at trial. Holdco’s failure to cite any case law is
176
While no objection was made at trial regarding Lee’s statements, the Court notes that most, if
not all, of the testimony about what Lee said or did likely constitutes hearsay. Nonetheless, the
Court will consider it for purposes of the merits of this case.
177
See infra n. 128.
178
Holdco Post-Trial Opening at 49.
42
telling. Buck’s actions in assigning Lee, an accounting professional with her CPA,
to the Company’s 2017 audit was not reckless (or even negligent). Lee served as
assistant controller at Novus from November 2017 to July 2018.179 Lee’s
qualifications (which presumably led to her hiring), made her the obvious choice to
handle the audit.
In addition to not citing any case law to support this proposition, Holdco does
not provide any guidance to the Court that assigning a certified public accountant to
an audit is a gross deviation from the standard of care. The only testimony at trial
supporting this is Holdco’s expert, Schulman, who testified as follows regarding
Buck’s assignment of the audit to Lee:
[Buck] was not as involved in the audit that I think he should have been.
In fact, he assigned an assistant, a new assistant controller, to be in
charge of that audit. And it was very complex because it was the first
year of the audit.180
Instead of providing the Court with guidance on what Buck should have done with
the audit or who he should have assigned to the audit, this statement proves nothing.
Rather, the evidence at trial showed that it was not “outside the bounds of reason”
for Buck to assign Lee to the audit.181 Novus’ current controller, Dykstra, testified
179
Tr. Apr. 16 at 231:20-232:9; 272:6-13.
180
Tr. Apr. 17 at 86:18-23.
181
On this point, the Court ponders the following: To whom should have Novus assigned to the
audit? An individual in human resources with no accounting background? A salesperson who has
never seen a balance sheet in her life? Holdco’s argument on this point does not make sense.
43
it is “for sure” common for assistant controllers to work closely with auditors. 182
Buck’s expert, Koch, testified credibly that Lee was “the right level to deal with the
auditors and the audit process.”183 Koch further testified “it was reasonable and
prudent to ask an assistant controller with a few weeks of experience with managing.
. . that first time audit process,” because Lee “was experienced and the testimony in
this courtroom was that she was competent.”184
Along these same lines, Buck did not breach his fiduciary duties or ignore red
flags in connection with Lee’s departure. Holdco claims Buck’s failure to report
Lee’s purported concerns to Murphy along with Buck’s “investigation” of Lee’s
departure breached his fiduciary duties. Again, Defendant fails to cite any case law
to support this assertion. Holdco argues Buck’s failure to report Lee’s concerns to
Murphy breached his “fiduciary duties of loyalty, oversight and care.”185 Holdco
further insinuates that “of course” Lee would not disclose, to Buck, her purported
ethical concerns about Buck to him.186
182
Tr. Apr. 15 at 52:14-23.
183
Tr. Apr. 17 at 193:8-17.
184
Id.
185
Holdco Post-Trial Opening at 38. While Holdco discusses the case law regarding fiduciary
duties generally in its argument section, it does not specifically tie any case law to this assertion.
186
Holdco cited two cases in its Reply Brief on this point, but the Court finds that it has waived
this argument by not including it in its Opening Brief. Even so, these cases, A & J Cap., Inc. v. L.
Off. of Krug, 2019 WL 367176, at *11 n.128 (Del. Ch. Jan. 29, 2019) and Metro Storage Int’l LLC
v. Harron, 275 A.3d 810 (Del. Ch. 2022) do not further Holdco’s argument. Holdco cites Krug for
the proposition that “Krug could supplement his for-cause basis for removal with additional
evidence or causes for termination discovered after removal.” This quote leaves out the important
caveat that the Court stated next that Krug “still was obliged to demonstrate that A & J had engaged
in conduct, or failed to engage in conduct, at the time of removal that would satisfy the standards
44
Buck testified credibly at trial regarding the conversation he had with Lee
regarding her departure.187 The Court also notes that Lee, in her exit interview with
Novus, did not cite any ethical concerns as a reason for her departure.188 The only
evidence at trial presented regarding Lee’s ethical concerns arose out of an interview
with Nadine Callahan during the Thompson Colburn investigation.189 Lee did not
respond to requests to be interviewed by Thompson Colburn.190 This “second” or
“third” hand information from Ms. Callahan (who also did not testify at trial) hardly
can serve as a basis for a claim for the breach of the fiduciary duty of loyalty or
care.191 Therefore, the Court finds that Buck did not breach his fiduciary duties with
Lee and Holdco does not meet the definition of Cause in the Agreement for this
point.
for removal as laid out in the operative agreements.” In any event, this quote merely lays out the
standard for gross negligence but does nothing to support Holdco’s argument regarding Lee. In
Metro Storage, the Court discussed the “after-acquired evidence” doctrine. This is the first time
Holdco raises this argument, and it is therefore waived. Even if the Court were to consider this
argument, Novus’s only argument in support of this point is the conclusionary sentence that “Buck
does not get to benefit from his faithlessness towards Novus and Holdco.” This proves nothing.
187
Tr. Apr. 16 at 234:13-235:12.
188
Tr. Apr. 16 at 39:18-41:13; Compare JX 15 with JX 27 at HOLDCO109.
189
JX 27 at HOLDCO116, Tr. Apr. 16 at 269:4-271:18. Holdco’s expert, Schulman, testified Buck
“can’t investigate [his] own department. You can’t investigate yourself. It’s absurd to me.” Tr.
Apr. 17 at 121:14-19. The Court does not credit Schulman on this point; his suggestion that Buck
should have told these concerns to Murphy merely puppets Holdco’s accusations and does not
support a breach of fiduciary duty finding.
190
JX 27 at HOLDCO109-HOLDCO110.
191
D.R.E. 805 (hearsay within hearsay is admissible only if each layer conforms with an exception
to the rule against hearsay); See, e.g. Williams v. United Parcel Serv. of Am., Inc., 2017 WL
10620619 at *4 (Del. Super. Nov. 9, 2017) (concluding that plaintiff could not rely on hearsay
within hearsay).
45
e. Buck did not breach his fiduciary duties in connection with the
2017 annual and interim financial statements.
Holdco’s final argument in support of its termination of Buck for Cause is that
“[t]here can be no reasonable dispute that the reconciliation issues obscured in the
AMR Account were material to Novus.192 The Court struggles to understand how
Defendant attempts to tie this issue to the Cause definition or how Buck breached
his fiduciary duties to the Company. The Court also notes that no Company auditor
ever found that the Company’s financials were misstated; this was solely the opinion
of the Company’s current Controller, Dykstra.193 The Court therefore does not find
that this meets the definition of Cause.
3. Holdco did not demonstrate that Holdco provided Buck notice of
Buck’s duties to him
The Holdco Agreement defines Cause to include: “such Service Unitholder’s
substantial and repeated failure, after written notice from the LLC, to perform duties
(or refrain from actions) as reasonably directed by the LLC, the Parent Company, or
the Operating Company.”194 The “LLC” is defined as “Viking Holding Management
Company, LLC.”
Holdco argues it meets this definition of Cause because Murphy, in his
capacity as Manager of Holdco, provided Buck with a directive during his 2018
192
Holdco Post-Trial Opening at 47.
193
Tr. Apr. 15 at 58:2-59:13; JX 70.
194
JX 18 at 2-3.
46
performance review.195 In support thereof, Holdco cites two documents as evidence
of a “written notice” from Holdco: a 2017 performance review from Novus196 and
PowerPoint with handwritten notes (from Murphy) titled “CFO Roles and
Responsibilities 2017 Evaluation Form.”197 Holdco does not dispute that these are
Novus documents, but argues this distinction does not matter because “Murphy at
all relevant times acted as Novus’ CEO and Manager of Holdco,”198 and because
“[t]here is no Viking Holding Company paperwork, letterhead, or anything.”199
The Court does not find that either of these documents are written notice from
Holdco. “Delaware public policy disfavors disregarding the separate legal existence
of business entities.”200 Perhaps just as powerfully,
The courts of this State hold freedom of contract in high—some might
say, reverential—regard. Only ‘a strong showing that dishonoring [a]
contract is required to vindicate a public policy interest even stronger
than freedom of contract’ will induce our courts to ignore unambiguous
contractual undertakings.”201
Here, Holdco argues both that the Court should enforce the Agreement’s terms
for the Cause definition but ignore the provision within the Cause definition
195
Tr. Apr. 15 at 176:20-179:13; Tr. Apr. 16 at 105:7-109:9.
196
JX 8.
197
JX 9.
198
Holdco Post-Trial Opening at 52 (emphasis in original).
199
Tr. Apr. 16 at 108:17-18.
200
Manichaean Cap., LLC v. Exela Techs., Inc., 251 A.3d 694, 706 (Del. Ch. 2021) (internal
citations and quotations omitted).
201
Cantor Fitzgerald, L.P. v. Ainslie, 312 A.3d 674, 676-77 (Del. 2024) (quoting ev3, Inc. v. Lesh,
103 A.3d 179, 181 n.2 (Del. 2014)).
47
requiring “written notice from the LLC.” The Court declines to do so and will
enforce the Agreement as written. Holdco never provided Buck written notice of his
duties; therefore, Holdco did not meet its burden at trial regarding his provision of
the Cause definition.202
D. Buck Proved his Damages Claim by a Preponderance of the Evidence.
All elements of a claim must be proven by a preponderance of the evidence,
including the plaintiff’s damages.203 The most common way to prove damages,
especially in cases where the court has to determine fair market value, is to provide
a damages expert to testify on the proper framework for a valuation analysis.204 A
party, however, can also direct the court to other evidence, including documentary
evidence to demonstrate damages205 or can consider fact witnesses testimony.”206
202
The Court further notes that, in the Summary Judgment opinion, the Court expressed skepticism
about the performance reviews being “written notice” at all. Mem. Order Den. Summ. J. at 16.
(“Based on the record, the 2018 performance review may have been just that—a performance
review.”). Holdco did not provide any evidence at trial to change the Court’s mind that Buck’s
performance reviews with Novus were just that—performance reviews.
203
See, e.g., Outbox Sys., Inc. v. Trimble, Inc., 2024 WL 1886089, at *14 (Del. Super. Apr.
30, 2024) (quoting Beard Rsch., Inc. v. Kates, 8 A.3d 573, 613 (Del. Ch. Apr. 23, 2010)).
204
See e.g., In re Rural Metro Corp., 88 A.3d 54, 107 (Del. Ch. Mar. 7, 2014) (finding the valuation
expert provided “persuasive evidence of fair value and adopts it as the general framework for the
valuation analysis”).
205
See e.g., Beard Rsch., Inc. v. Kates, 8 A.3d 573, 612 (Del. Ch. 23, 2010) (relying on company
reports presented by both sides); NetApp Inc. v. Cinelli, 2023 WL 4925910, at *20 (Del. Ch. Aug.
2, 2023) (noting “each position is supported by an expert opinion”).
206
Empire Fin’l Servs., Inc. v. Bank of New York (Del.), 945 A.2d 1167 (TABLE), 2008 WL
727036, at *2 (Del. 2008) (affirming a decision to exclude an expert witness, and noting even
without the expert, other evidence at trial supports the other sides’ damages argument).
48
In complex cases with valuation issues, the Court is often guided by the “battle
of the experts,” where each side provides a damages expert (with a corresponding
expert report), and that expert testifies at trial and is subject to cross examination.207
That being said, “[t]he law does not require certainty in the award of damages.208
“[S]o long as a plaintiff provides a reasonable method to calculate damages, the risk
that such cannot be determined with mathematical certitude falls on the wrongdoer,
not the wronged.”209 The Court, however, “when acting as the fact finder . . . may
not set damages based on mere ‘speculation or conjecture’ where the plaintiff fails
to adequately prove damages.”210
1. The Standard for FMV under the Agreement
The Agreement defines “Fair Market Value” as “with respect to any asset or
equity interest, its fair market value determined according to Article XIII.”211
Section 9.10(b) clarifies that the “Fair Market Value of any Unit for purposes of this
Section 9.10 shall be determined as of the closing date set forth in the Repurchase
207
See, e.g., Maverick Therapeutics, Inc. v. Harpoon Therapeutics, Inc., 2021 WL 1592473, at *1
(Del. Ch. Apr. 23, 2021) (noting that each side’s expert provided conflicting conclusions).
208
Reis v. Hazelett Strip-Casting Corp., 28 A.3d 442, 466 (Del. Ch. Jan. 21, 2011) (quoting Red
Sail Easter Ltd. P’rs v. Radio City Music Hall Prods., Inc., 1992 WL 251380, at *7 (Del. Ch. Sept.
29, 1992)) (internal quotation marks omitted).
209
Maverick Therapeutics, Inc. v. Harpoon Therapeutics, Inc., 2021 WL 1592473, at *10 (Del.
Ch. Apr. 23, 2021) (quoting Great Hill Equity P’rs IV, LP v. SIG Growth Equity Fund I, LLLP,
2020 WL 948513, at *20 (Del. Ch. Feb. 27, 2020) (internal quotation marks omitted).
210
Beard Research, Inc. v. Kates, 8 A.3d 573, 613 (Del. Ch. Apr. 23, 2010) (quoting Medek v.
Medek, 2009 WL 2005365, at *12 n. 78 (Del. Ch. July 1, 2009)).
211
Agreement, art. I.
49
Notice delivered pursuant to Section 9.10(c).”212 Article XIII details how to value
units, noting:
The “Fair Market Value” of each Unit shall be the fair value of each
such Unit determined by the Board in good faith based on the portion
of the Total Equity Value to which each such Unit would be entitled as
of the date of valuation; provided, however that in the case of any Class
B Units or Class C Units being repurchased pursuant to the Repurchase
Option, the Fair Market Value of all Units owned by such Service
Unitholder shall only include the Fair Market Value of those Units
which have had restrictions lapse pursuant to Section 3.9 . [sic]213
Article I defines “Total Equity Value,” as used in the Fair Market Value calculation,
as follows:
“Total Equity Value” means the aggregate proceeds which would be
received by the Unitholders if: (i) the assets of the LLC214 were sold at
their Fair Market Value, (ii) the LLC satisfied and paid in full all of its
obligations and liabilities (including all Taxes, costs and expenses
incurred in connection with such transaction and any reserves
established by the Board for contingent liabilities) and (iii) such net sale
proceeds were then distributed in accordance with Section 12.2(c), all
as determined by the Board in good faith.215
As referenced in the definition of Total Equity Value, Section 12.2(c) provides for
the distribution of sales proceeds:
Distribution of Liquidation Assets. As soon as the Liquidation FMV
and the proper amounts of Distributions have been determined in
accordance with Section 12.2(b) above, the liquidators shall promptly
distribute the Liquidation Assets to the holders of Units in accordance
with Section 4.1(c) above. In making such distributions, the liquidators
212
Agreement § 9.10(b) (emphasis in original).
213
Agreement, art. XIII (emphasis in original).
214
The “LLC” is defined in the Agreement as Viking Holding Management LLC (referred to in
this opinion as “Holdco.”).
215
Agreement, art. I.
50
shall allocate each type of Liquidation Assets (i.e., cash or cash
equivalents, preferred or common equity securities, etc.) among the
Unitholders ratably based upon the aggregate amounts to be distributed
with respect to the Units held by each such holder; provided that the
liquidators may allocate each type of Liquidation Assets so as to give
effect to and take into account the relative priorities of the different
Units pursuant to Article IV; provided further that, in the event that any
securities are part of the Liquidation Assets, each Unitholder that is not
an “accredited investor” as such term is defined under the Securities
Act may, in the sole discretion of the Board, receive, and hereby agrees
to accept, in lieu of such securities, cash consideration with an
equivalent value to such securities as determined by the Board. Any
non-cash Liquidation Assets will first be written up or down to their
Fair Market Value, thus creating Profit or Loss (if any), which shall be
allocated in accordance with Sections 4.2 and 4.3. The distribution of
cash and/or property to a Unitholder in accordance with the provisions
of this Section 12.2 constitutes a complete return to the Unitholder of
its Capital Contributions and a complete distribution to the Unitholder
of its interest in the LLC and all the LLC property and constitutes a
compromise to which all Unitholders have consented within the
meaning of the Delaware Act. To the extent that a Unitholder returns
funds to the LLC, it has no claim against any other Unitholder for those
funds.216
The above clause refers to “Liquidation FMV” and “Liquidation Assets,” as defined
in Section 12.2(b):
Determination Liquidation Assets. As promptly as practicable after
dissolution, the liquidators shall (i) determine the Fair Market Value
(the “Liquidation FMV”) of the LLC’s remaining assets (the
“Liquidation Assets”) in accordance with Article XIII hereof, (ii)
determine the amounts to be distributed to each Unitholder in
accordance with Section 12.2(c), and (iii) deliver to each Unitholder a
statement (the “Liquidation Statement”) setting forth the Liquidation
FMV and the amounts and recipients of such Distributions, which
Liquidation Statement shall be final and binding on all Unitholders.217
216
Agreement, § 12.2(c) (emphasis in original).
217
Agreement, § 12.2(b) (emphasis in original).
51
2. Keath’s report provides guidance to the Court regarding Fair Market
Value, but the Court does not credit his opinion in its entirety.
Holdco was the only party to submit a damages expert report in this action. Holdco’s
damages expert, M. Travis Keath, completed an expert report in which he
determined the value of Buck’s 100 Class B Holdco Membership Units.218 Keath
described the contents of his expert report in his testimony at trial.219 Keath, in his
expert report, analyzed the fair market value of Buck’s 100 Class B Units assuming
termination without Cause and determined the value to be $5,334,288220:
218
Agreement, § 12.2(b) (emphasis in original).
219
Tr. Apr. 17 at 224:16-306:22.
220
JX 99 at 19.
52
Keath alternatively calculated damages assuming Buck’s tax distributions of $2.08
million were treated as advances, as Holdco argues is required by Agreement. After
doing so, Keath’s revised calculation amounted to $3,250,000221:
Buck failed to present an expert valuation to support his requested damage
award.222 In Buck’s post-trial briefing, Buck agrees with much of Keath’s valuation
methodology. 223 Three main points of contention remain for the Court to decide:
(1) Keath’s use of midpoints of certain ranges provided in April 1, 2020 Houlihan
Lokey Valuation;224 (2) Keath’s $12 million deduction with respect to Omnicom’s
initial capital contribution; and (3) Keath’s deductions for tax distributions to Buck.
221
JX 99 at 21.
222
Holdco argues Buck was required to have an expert to challenge any of Keath’s determination,
and, without one, the Court cannot consider any of Buck’s challenges to Keath’s Fair Market Value
determination. Holdco Post-Trial Answer at 42. While such expert would have been helpful to
the Court, the Court does not need the help of an expert to read the Agreement and determine the
requirements for Fair Market Value.
223
D.I. 279, at 52. “Plaintiff does not dispute the legitimacy of many of the inputs utilized in the
April 1, 2020 Valuation, and subsequently by Mr. Keath.” As Buck noted, Keath made four main
changes from the April 1, 2020 Valuation in arriving at his conclusion as to the Fair Market Value
of Buck’s units. Buck does not challenge Keath’s disregard of Class C Unitholders’ profit interest
or his application of a 2.2% transaction cost.
224
After Buck’s termination, on August 6, 2020, Houlihan Lokey finalized another valuation
analysis on August 6, 2020, with an effective date of April 1, 2020 (“April 1, 2020 Valuation”). JX
82. At the time of Buck’s termination, Holdco had only formally assessed the Fair Market Value
of units of Holdco on one prior occasion, a January 1, 2019 valuation analysis published on July
17, 2019. JX 25.
53
As noted in the second figure above, when Keath made these adjustments, Keath
found the Fair Market Value of Buck’s units to be $3,253,585. The Court reviews
each of Buck’s challenges in turn.
3. Keath’s Use of Midpoint Ranges Was Appropriate.
Buck challenges Keath’s use of the midpoint ($36 million) of the range
provided in the April 1, 2020 Valuation for the Implied Enterprise Value ($32 to $40
million).225 Buck argues the “gross revenue projections were significantly less for
the April 1, 2020 Valuation in comparison to the previous valuations, despite those
previous valuations occurring just 15 months (January 1, 2019 Valuation) and 5
months (November 1, 2019 Valuation), earlier.”226 In challenging Keath’s use of the
midpoint, Buck largely relies upon his own experience in working for Novus on
April 1, 2020, the effective date of the April 1, 2020 Valuation, and his familiarity
225
Buck Post-Trial Opening at 54.
226
Buck Post-Trial Opening at 55. Keath’s expert report notes the purpose for Houlihan Lokey’s
Valuation Analysis as of April 1, 2020. JX 99 at ¶37 (quoting JX 82 at NOVUS0017 “We
understand that our conclusions may (i) be used to assist the Company in connection with its
evaluation of the possible repurchase of Class B units in accordance with the Viking Limited
Liability Company Agreement (the “Transaction”) and (ii) serve as a valuation basis for tax and
financial reporting purposes in connection with a potential grant of Class C profit participation
interests of the Company.”). See also JX 54 at HOLDCO-274 (“We understand that our
conclusions may (i) be used to assist the Company in connection with its evaluation of the possible
repurchase of Class B units (the “Transaction”) and (ii) serve as a valuation basis for tax and
financial reporting purposes in connection with a potential grant of profit participation interests in
the Company. This Report may not be used for any other purpose.”); JX 25 at NOVUS-0147 (“We
understand that our conclusions may serve as a valuation basis for tax reporting purposes in
connection with certain grants of Class C Units of the Company. This Report may not be used for
any other purpose.”).
54
with Novus’s projections at the time.227 Thus, Buck argues, the most appropriate
Implied Enterprise value is the high point of the stated range of the April 1, 2020
Valuation, or $40 million.
The Court finds Buck did not meet his burden in rebutting Keath’s use of the
midpoint range. The Court does not believe, as Holdco argues, Buck was
“masquerading an expert” in offering his testimony regarding the value of Holdco.228
Rather, the Court does not credit Buck’s argument regarding using the high point of
the valuation because he provides no other support for his assertion, other than his
own “say so.” If Buck had retained his own affirmative damages expert, such expert
could have provided sufficient evidence to the Court regarding why the Court should
accept the high point of the valuation or provided a different valuation altogether.
He did not. The Court, after weighing the credibility of Keath, finds that Keath
reasonably used the midpoint based on an “effort to favor neither Mr. Buck nor the
Company.”229
4. Keath improperly deducted the $12 million Omnicom initial capital in
arriving at the Fair Market Value of Buck’s Units.
Buck argues that Holdco’s deduction of the $12 million initial capital from
Omnicom is not supported by the Agreement because: (1) such a deduction is
referenced in an amendment to the Viking Parent LLC Agreement, not the Holdco
227
Buck Post-Trial Opening at 55.
228
Holdco Post-Trial Answer at 43.
229
Tr. Apr. 17 at 254:6-8.
55
Agreement; and (2) even if the Viking Parent LLC Agreement applied, such
deduction would only applies upon an actual dissolution and appointment of a
liquidating trustee.230
The Court finds, through the proper reading of the Agreement, that Keath
properly considered a liquidation event for determination of Fair Market Value, but
that Keath improperly deducted the $12 million Omnicom initial capital.
First, the definition of Fair Market Value is governed by Article VIII of the
Agreement. The definition of Fair Market Value expressly includes Total Equity
Value, a defined term in the Agreement. Thus, the Court must consider the definition
of Total Equity Value, which contemplates a valuation as if there were a liquidation
event in accordance with Agreement Section 12.2(c).
Buck’s interpretation of the Agreement reads out the language of Total Equity
Value within the definition of Fair Market Value in the Agreement. The Court
declines this invitation. Rather, the Court interprets this provision as merely a
mechanism for valuation, not that a liquidation event had to actually occur to
determine Total Equity Value.
Second, the Court finds Keath improperly deducted the $12 million Omnicom
initial capital. Again, Total Equity Value is defined as “the aggregate proceeds which
would be received by the Unitholders if: (i) the assets of the LLC were sold at their
230
Buck Post-Trial Opening at 58.
56
Fair Market Value, (ii) the LLC satisfied and paid in full all of its obligations and
liabilities.” The LLC is defined as Holdco. The only support Holdco (and Keath)
provide for a deduction of the $12 million initial capital is from the Viking Parent
LLC Agreement, not the Holdco Agreement.231
Keath acknowledges the April 2020 Houlihan Lokey report did not account
for the Omnicom $12 million but argues this is “an apparent oversight.”232 In doing
so, Keath cites to the Viking Parent LLC Agreement, Section 9.2, regarding
Liquidation of Viking Parent LLC:
Section 9.2 Liquidation. Upon dissolution of the Company,233 the
Managers shall appoint a Manager as liquidating trustee, who shall
immediately commence to wind up the Company’s affairs; provided,
however, that a reasonable time shall be allowed for the orderly
liquidation of the assets of the Company and the satisfaction of
liabilities to creditors so as to enable the Members to minimize the
normal losses attendant upon a liquidation. The liquidating trustee shall
first make payment or provision for all debts and liabilities of the
Company, if determined to be necessary under the circumstances by the
Managers. The proceeds of liquidation shall be distributed, as realized,
in the manner provided in the Act, in accordance with the positive
balances in the Capital Accounts of the Members; provided that Seller
Member shall receive first, to the extent of all amounts otherwise
distributable to the Members, an amount equal to the Seller Member’s
Initial Capital Account Balance (as defined in Section 13. l)…234
231
See JX 99 (citing “Viking Parent LLC Agreement” as support for the $12 million deduction).
232
JX 99 at ¶30.
233
“Company” is defined as Viking Parent LLC.
234
JX 3 at § 9.2.
57
The “Seller Member” is identified as Omnicom in the Viking Parent LLC Agreement
and identifies the $12 million in Omnicom’s initial account balance.235
Neither Holdco nor Keath cite to any provision of the Agreement for its
support, nor could they. The $12 million initial capital is an obligation or liability
of Viking Parent LLC, not Holdco.236 Holdco’s citation to Anthony Pyka’s237
deposition testimony is also not helpful; when Pyka testified as to the deduction of
the $12 million, Pyka was also referring to the provisions in the Viking Parent LLC
Agreement, not the Holdco Agreement.238
Holdco relies upon Section 12.2’s good faith language to save the day the
Court likewise rejects this argument. The April 2020 Houlihan Lokey Report sat
unchanged for over three years, including during the pendency of this litigation. The
first time Holdco determined the $12 million Omnicom initial capital should be
deducted was in Keath’s expert report, prepared in anticipation for trial.239 If
Holdco’s board (consisting solely of Murphy)240 believed in good faith that the April
235
JX 3 at HOLDCO-983, HOLDCO-1022.
236
Even Keath testified at trial that the initial capital is not a “debt,” but rather it is similar to
preferred stock. Tr. Apr. 17 at 297:9-12.
237
Pyka, an employee at Grant Thornton, is responsible for maintaining Holdco’s capital accounts.
JX 93 at 7:3-7.
238
JX 93 at 54:15-58:15.
239
Although Murphy testified at trial that “error” regarding $12 million was discovered after
Buck’s termination (Tr. Apr. 15 at 258:21-22), Holdco provides no other evidence regarding this
statement. The Court does not credit Murphy’s self-serving statement on this issue.
240
Tr. Apr. 15 at 156:18-20.
58
2020 Houlihan Lokey report was incorrect, a change should have been made prior
to August 2023.241
5. Buck’s tax distributions are not deductible from the Fair Market Value.
From 2017 through 2020, Buck received four tax distributions totaling
$2,080,703.242 Holdco argues, based on Section 4.1(a) of the Agreement, that these
tax distributions must be deducted from the Fair Market Value Calculation.
Again, the Court looks to the plain and unambiguous terms of the Agreement
as guidance. Total Equity Value, as defined by the Agreement, provides:
[T]he aggregate proceeds which would be received by the Unitholders
if: (i) the assets of the LLC were sold at their Fair Market Value, (ii) the
LLC satisfied and paid in full all of its obligations and liabilities
(including all Taxes, costs and expenses incurred in connection with
such transaction and any reserves established by the Board for
continent liabilities) and (iii) such net sale proceeds were then
distributed in accordance with Section 12.2(c), all as determined by the
Board in good faith.243
Section 12.2(c) provides, in relevant part:
Distribution of Liquidation Assets. As soon as the Liquidation FMV
and the proper amounts of Distributions have been determined in
accordance with Section 12.2(b) above, the liquidators shall promptly
distribute the Liquidation Assets to the holders of Units in accordance
with Section 4.1(c) above. In making such distributions, the liquidators
shall allocate each type of Liquidation Assets (i.e., cash or cash
equivalents, preferred or common equity securities, etc.) among the
241
Because the Court finds that the $12 million Omnicom Initial Capital was improperly deducted,
Buck’s argument regarding his entitlement to the value of his capital accounts is moot. See Buck
Post-Trial Reply at 17-19.
242
JX 99 at 20.
243
JX 18 at Art. I, Definitions (emphasis added).
59
Unitholders ratably based upon the aggregate amounts to be distributed
with respect to the Units held by each such holder; provided that the
liquidators may allocate each type of Liquidation Assets so as to give
effect to and take into account the relative priorities of the different
Units pursuant to Article IV. . .244
Section 4.1(c) provides:
Distributions of Sale Proceeds and Liquidation Assets. Except as
otherwise set forth in Section 4.1(a), the Board shall distribute the Sale
Proceeds and, pursuant to Section 12.2(c), the liquidators shall
distribute the Liquidation Assets, in each case, to the holders of Class
A Units, Class B Units and Class C Units ratably among such holders
based upon the proportion that the number of Class A Units, Class B
Units and Class C Units are held by each such holder immediately prior
to such Distribution bears to the aggregate number of Class A Units,
Class B Units and Class C Units then outstanding; provided, however,
that the holders of Class C Units subject to a Participation Threshold
shall not be entitled to receive any distributions pursuant to this Section
4.1(c) in respect of their Class C Units unless and until the aggregate
distributions by the LLC in respect of all Units entitled to distributions
pursuant to this Section 4.1(c) (other than distributions in respect of
Class C Units with higher Participation Thresholds) from the date of
the issuance of such Units equal the Participation Threshold applicable
to such Units. After the holder of all other Units have received
distributions pursuant to this Section 4.1(c) equal to the applicable
Participation Threshold, such holders of Class C Units subject to the
applicable Participation Threshold shall be entitled to receive
distributions in accordance with this Section 4.1(c) without regard to
this proviso.245
Finally, Section 4.1(a) provides:
Tax Distributions. Subject to the second sentence of this Section 4.1(a),
the LLC may, in the Board’s discretion, distribute to each Unitholder
within 30 days after the end of each Fiscal Quarter an amount in cash
(a “Tax Distribution”) which in the good faith judgment of the Board
244
JX 18 (emphasis added).
245
JX 18 at § 4.1(c).
60
equals the product of (i) the taxable income of the LLC estimated to be
allocated to such Unitholder during such Fiscal Quarter (and taking into
account, in the Board’s discretion, such Unitholder’s allocable share of
any taxable losses that may be realized by the LLC after such Fiscal
Quarter) reduced by the taxable loss of the LLC for all prior Fiscal
Quarters allocated to such Unitholder and not previously taken into
account for purposes of this Section 4.1(a); multiplied by (ii) the greater
of (A) 40% or (B) the combined maximum federal, state and local
income Tax rate to which any Unitholder (or its owners) may be subject
to tax (including any Medicare Tax imposed under Section 1411 of the
Code) and taking into account the deductibility of state and municipal
income tax for federal income tax purposes) for such period (making
an appropriate adjustment for any rate changes that take place during
such period). Tax Distributions shall be made ratably among the
Unitholders based on the portion of the net Taxable Income of the LLC
for such Fiscal Quarter estimated to be allocated to each such
Unitholder. Distributions made pursuant to Section 4.1(b) or Section
4.1(c) shall serve to discharge the LLC’s obligations under this Section
4.1(a) to the extent such Distributions are actually paid. No Tax
Distribution shall be made to any Unitholder with respect to a Fiscal
Quarter or Fiscal Year (1) in which a Sale Transaction is consummated
and the Sale Proceeds are distributed to the Members in accordance
with Section 4.1(c) or (2) the LLC is liquidated in accordance with
Article XII and the Liquidation Assets are distributed to the Members
in accordance with Section 12.2(c). Notwithstanding anything herein to
the contrary, (x) no Tax Distribution pursuant to this Section 4.1(a) shall
reduce the Participation Threshold and (y) the amount of Tax
Distributions received by a Member pursuant to this Section 4.1(a)
shall be treated as an advance on amounts otherwise distributable
under Section 4.1(b) and Section 4.1(c).246
In a nutshell, Holdco argues that, because Buck already received his tax
distributions (“as an advance”) pursuant to Section 4.1(a), this amount must be
deducted from Fair Market Value. Holdco’s argument is based on a misreading of
246
Id. at § 4.1(a)(emphasis added).
61
Sections 4.1 and 12.2 of the Agreement. Section 4.1(a) is not referenced in any
provision regarding how to calculate Fair Market Value; rather, Section 4.1(a) is only
referenced in Section 12.2(c) when referring to the procedure by which sale proceeds
will be distributed. As the first sentence of Section 12.2(c) indicates, only after the
“Liquidation FMV” is determined does Section 4.1(c) regarding distributions apply.
Here, the Court is tasked solely with determining Fair Market Value, and thus need
not reach the provisions of Section 4.1.
Keath’s expert report recognizes this exact circumstance. Notably, Keath does
not independently state that the tax distributions should be deducted from the Fair
Market Value, and, in his initial valuation of Fair Market Value, Keath does not make
a deduction for tax distributions.247 Keath only incorporates an “Alternative
Economic Damages Calculation” after acknowledging “Holdco has requested that I
perform an alternative calculation of damages reflecting the deduction of the
cumulative tax distributions received by Mr. Buck.”248 During trial, Keath testified
he had no opinion regarding the treatment of Buck’s tax distributions, but only
performed the analysis because he understood there was a “legal dispute” about it,
and refused to state, one way or the other, whether he believed the taxes should be
deducted.249
247
JX 99 at Figure 7.
248
JX 99 at ¶ 47.
249
Tr. Apr. 17 at 263:2-266:13.
62
Pyka, when provided with the chart of each Unitholder’s capital account at his
deposition, confirmed this to be the case:
Q. Okay, and so essentially as of 12/31/2018, this spreadsheet reflects
that the fair market value of Viking Holding Management Company
was 48 million and change?
A. At this moment in time, that’s correct.
Q. And so in the event of a liquidation at that moment in time, can you
describe to me what Michael Buck would be entitled to based on this?
A. Yeah. If the company sold at that moment in time for 48 million,
Michael Buck would presumably be entitled to the $8 million in the
capital account.
Q. And can you – do we need to account for the tax distributions or
anything like that, or is that total, or are there deductions that would be
– need to be made as well?
A. I believe the 48 million assumes that now that’s the equity value,
so that assumes that all – that’s what’s left after all creditor’s expenses
and all that other stuff.
Q. Sure. Because we’ve already deducted those tax distributions;
correct?
A. That’s right. They are advances, so they’re already – they’ve
already reduced the capital when they left.
Q. And his equity, essentially.
A. Yes.
Q. Okay, So is it fair to say if there as a dissolution or – you know, they
sold all their assets as of 12/31/18, that Michael Buck would have been
titled to about $8 million?
A. Based on that value, yes.250
The Court holds, pursuant to the Agreement, that Buck’s tax distributions are
not deductible from Fair Market Value. When the provisions referenced above are
read together, the determination of Fair Market Value is based on the Total Equity
Value of each Unit as of the date of valuation (here, April 1, 2020). Likewise, Total
250
JX 93 at 78:2-79:23, referencing JX 113.
63
Equity Value makes no reference of tax distributions,251 only Holdco’s obligations
and liabilities, including taxes in connection with the transaction i.e., the liquidation,
not personal not tax distributions.
IV. CONCLUSION
The Court finds as follows:
1. Buck proved, by a preponderance of the evidence, that reasons
two and four from Holdco’s Opening Brief, along with the FGMK
Report, were manufactured and the Court did not consider those reasons
for the determination of Cause pursuant to the Agreement;
2. Holdco failed to prove by a preponderance of the evidence that
the remaining reasons in Holdco’s Opening Brief met the definition of
Cause;
3. Keath appropriately used the midpoint of $36,000 from the
Houlihan Lokey Report for his Fair Market Value analysis;
4. The $12 million Omnicom Initial Capital should not be included
in the Fair Market Value Analysis;
5. Buck’s tax distributions should not be deducted from Fair Market
Value;
251
In fact, the only taxes referenced in Total Equity Value are those in connection with the
transaction – the actual liquidation itself. – i.e., the Liquidation – not taxes previously paid to the
Unitholder.
64
6. Holdco shall pay Buck, pursuant to Agreement Section 9.10(d)
through by check or wire transfer within thirty days of the Court’s final
order;252 and
7. Buck is entitled to pre-judgment interest at the statutory rate.
If there are any open issues not addressed or mooted by this post-trial opinion,
the parties shall notify the Court by letter within five days. The Court otherwise
instructs Buck to prepare a form of order consistent with this opinion and file it with
the Court within twenty days of this decision. If Holdco disputes this form of order,
it should notify the Court by letter within five days of filing.
IT IS SO ORDERED.
252
Although Holdco argues it would have “elected” to pay Buck through a subordinated note
pursuant to Section 9.10(d), Holdco does not get to choose its own remedy due to its breach of the
Agreement.
65