In re Oxbow Carbon LLC
| Decision Date | 01 August 2018 |
| Docket Number | C.A. No. 12447-VCL |
| Parties | IN RE OXBOW CARBON LLC UNITHOLDER LITIGATION |
| Court | Court of Chancery of Delaware |
Kenneth J. Nachbar, Thomas W. Briggs, Jr., Richard Li, MORRIS, NICHOLS, ARSHT & TUNNELL LLP, Wilmington, Delaware; R. Robert Popeo, Michael S. Gardener, Breton Leone-Quick, MINTZ, LEVIN, COHN, FERRIS, GLOVSKY & POPEO, P.C., Boston, Massachusetts; Attorneys for Oxbow Carbon LLC.
Stephen C. Norman, Jaclyn C. Levy, Daniyal M. Iqbal, POTTER ANDERSON & CORROON LLP, Wilmington, Delaware; David B. Hennes, C. Thomas Brown, Adam M. Harris, Elizabeth D. Johnston, ROPES & GRAY LLP, New York, New York; Attorneys for Oxbow Carbon & Minerals Holdings, Inc., Ingraham Investments LLC, Oxbow Carbon Investment Company LLC, and William I. Koch.
Kevin G. Abrams, Michael A. Barlow, April M. Ferraro, ABRAMS & BAYLISS LLP, Wilmington, Delaware; Brock E. Czeschin, Matthew D. Perri, Sarah A. Galetta, RICHARDS, LAYTON & FINGER, P.A., Wilmington, Delaware; Michael B. Carlinsky, Chad Johnson, Jennifer Barrett, Silpa Maruri, QUINN EMANUEL URQUHART & SULLIVAN, LLP, New York, New York; Attorneys for Crestview-Oxbow Acquisition, LLC, Crestview-Oxbow (ERISA) Acquisition, LLC, Crestview Partners, L.P., Crestview Partners GP, L.P., Crestview Advisors, L.L.C., Robert J. Hurst, and Barry S. Volpert.
J. Clayton Athey, John G. Day, PRICKETT, JONES & ELLIOTT, P.A., Wilmington, Delaware; Dale C. Christensen, Jr., Michael B. Weitman, SEWARD & KISSEL LLP, New York, New York; Attorneys for Load Line Capital LLC.
LASTER, V.C.
In a lengthy post-trial ruling,1 I held that the Koch Parties breached the Reasonable Efforts Clause in Oxbow's LLC Agreement by seeking to disrupt, derail, and delay an Exit Sale.2 I found that "[b]ut for Koch's actions, Oxbow would have entered into a deal with ArcLight, and the Minority Members would have received at least the value of the ArcLight Offer."3 I further determined that if an Exit Sale did not satisfy the 1.5x Clause for the Small Holders, then the Minority Members could force Oxbow, Oxbow Holdings, and Oxbow's other members to engage in an Exit Sale by providing additional consideration to the Small Holders through a Seller Top Off.
The parties' post-trial briefing focused predominantly on breach and only minimally on remedy. The Post-Trial Ruling therefore directed the parties to provide supplemental briefing on an appropriate remedy. They complied, and a hearing was held.
This decision awards a multi-part remedy. The first component is a decree of specific performance. Pursuant to that decree, the parties shall complete the Exit Sale process that the Minority Members initiated. Because the resulting undertaking will be complex, and because the parties have demonstrated their ability to disagree on matters large and small, a court-appointed monitor will oversee the parties' compliance with the Exit Sale Right.
The second component is a potential award of compensatory damages related to the Exit Sale transaction price. During the events giving rise to this litigation, the Minority Members secured an actionable Exit Sale in the form of the ArcLight Offer. The record establishes that a transaction with ArcLight could have closed by September 30, 2016. But for the Koch Parties' breach, the Minority Members would have secured the value of the ArcLight Offer at that time. An award of specific performance that merely orders the Koch Parties to perform under the LLC Agreement would not address the loss of the ArcLight Offer. It would result in a do-over for the Koch Parties. Throughout the Exit Sale process, the Koch Parties sought to delay any Exit Sale. An award of specific performance framed as a do-over would give them what they sought.
In my view, a complete remedy for the Koch Parties' breach must take into account the lost value of the ArcLight Offer, including the lost time value of not receiving the consideration by September 30, 2016. It is possible that a resumed Exit Sale process may produce a transaction generating greater value for the Minority Members, even on a time-adjusted basis. If so, then no additional compensatory remedy is warranted for lost transaction value. But if not, then the Minority Members will receive an award of compensatory damages equal to the difference between the value of the Exit Sale that the process generates and the time-adjusted value of the ArcLight Offer.
The third component is an award of damages equal to the Minority Members' pro rata share of (i) the expenses that Koch caused Oxbow to incur for Mintz Levin and (ii) any duplicative amounts that Oxbow must spend on its advisors for the resumed Exit Sale process. Koch originally hired Mintz Levin as his personal counsel, and he used the firm to resist the Minority Members' efforts to generate an Exit Sale. Soon after hiring Mintz Levin, Koch realigned the firm as Oxbow's counsel. In this role, Mintz Levin continued to serve Koch's interests, but Oxbow bore the expense. As result, the Minority Members indirectly bore one-third of the estimated $50 million that Oxbow paid to Mintz Levin. Mintz Levin's efforts on Koch's behalf were an integral part of the breach of the Reasonable Efforts Clause. An Exit Sale will not enable the Minority Members to recoup their share of the amounts paid to Mintz Levin, because a buyer will pay for Oxbow as it is, without giving any credit for sunk costs. Although a suit to recover Mintz Levin's fees typically would be asserted derivatively, the dispute over Oxbow functionally has two sides, and the allocation of proceeds and expenses between the two sides is a zero-sum game. Because of the connection between the payments to Mintz Levin and the breach of the Reasonable Efforts Clause, the Minority Members can recover their share of those amounts as damages in this proceeding.
A similar analysis applies to amounts that Oxbow paid to its advisors—Goldman and Cravath—that were wasted due to the Koch Parties' breach of the Reasonable Efforts Clause. Some of the work that these advisors performed will have value in the resumed Exit Sale process, but some of its benefits will be lost, and the advisors will have to perform the same tasks again. The losses from having to pay for work twice flow directly from the Koch Parties' breach and will not be recaptured in an Exit Sale. For the Minority Members to be made whole, a remedial award must include their pro rata share of those amounts.
Finally, the Minority Members will receive pre- and post-judgment interest on any award of compensatory damages. They will also receive an award of costs as the prevailing parties.
The Court of Chancery "has broad latitude to exercise its equitable powers to craft a remedy."4 The court's remedial powers "are complete to fashion any form of equitable and monetary relief as may be appropriate" and "to grant such other relief as the facts of a particular case may dictate."5 The court is not limited to choosing among the specific proposals advanced by the parties; instead, "this Court frequently has relied on its own remedial discretion to fashion a different remedy than what the parties may have requested when the circumstances so require."6 Put more poetically, the "protean power of equity" allows a court to "fashion appropriate relief," and a court "will, in shaping appropriate relief, not be limited by the relief requested by the plaintiff."7 Consequently, "once a right to relief in Chancery has been determined to exist . . . [the court can] shape and adjust the precise relief to be granted so as to enforce particular rights and liabilities legitimately connected with the subject matter of the action."8 For a proven breach of contract, the Court of Chancery has "the discretion to award any form of legal and/or equitable relief and is not limited to awarding contract damages for breach of the agreement."9
The power to grant factually tailored remedies designed to provide complete redress represents "the fundamental purpose of an equity court"10 and "closely comports with the historical foundations of Chancery jurisdiction."11 The Court of Chancery of the State of Delaware traces its jurisdictional lineage to the High Court of Chancery of Great Britain at the time of the separation of the colonies.12 In the mother country, before the advent of equity, the English courts used forms of action, also known as common law writs, under which the available remedial rights were strictly tied to individual forms. If a case did not fit within the form, then "the injured party was without any ordinary legal remedy, and his only mode of redress was by an application made directly to the King."13 As the font of authority in a monarchial system, the king could deploy the coercive power of the state to provide relief in a given case. In practice, the king "referred such petitions to his chancellor for action."14
Through the chancellor's exercise of his discretion to solve the challenges of particular cases, the system of equity developed.15 "Having arisen largely to compensate for the common law's inability to provide full, fair, and just relief in all instances, equity has evolved as a broad and flexible concept, designed to employ judicial principles and tools creatively so as to effect justice in any given circumstance."16
Equitable remedies . . . are distinguished by their flexibility, their unlimited variety, their adaptability to circumstances, and the natural rules which govern their use. There is in fact no limit to their variety and application; the court of equity has the power of devising its remedy and reshaping it so as to fit the changing circumstances of every case and the complex relations of all the parties.17
"It cannot be said too forcefully that the general powers of the Court of Chancery refers to that complete system of equity as administered by the High Court of Chancery of Great Britain . . . ."18 "[T]hree successive [Delaware] Constitut...
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