JD Holdings, L.L.C. v. Dowdy
| Decision Date | 01 October 2014 |
| Docket Number | C.A. No. 7480-VCL |
| Parties | JD HOLDINGS, L.L.C., JONESBORO FUNDING LLC, and EASTGATE FUNDING LLC, Plaintiffs, v. JACQUELINE A. DOWDY, as Trustee of THE REVOCABLE TRUST OF JOHN Q. HAMMONS, DATED DECEMBER 28, 1989, AS AMENDED AND RESTATED; JACQUELINE A. DOWDY, as the Personal Representative of the JOHN Q. HAMMONS ESTATE; GREGGORY D. GROVES, as Trustee of THE REVOCABLE TRUST OF JOHN Q. HAMMONS, DATED DECEMBER 28, 1989, AS AMENDED AND RESTATED; THE REVOCABLE TRUST OF JOHN Q. HAMMONS, DATED DECEMBER 28, 1989, AS AMENDED AND RESTATED; HAMMONS OF NEW MEXICO, LLC; HAMMONS OF FRISCO, LLC; HAMMONS OF COLORADO, LLC; HAMMONS OF ARKANSAS, LLC; HAMMONS OF SOUTH CAROLINA, LLC; CITY CENTRE HOTEL CORPORATION; HAMMONS OF HUNTSVILLE, LLC; HAMMONS OF OKLAHOMA CITY, LLC; HAMMONS OF LINCOLN, LLC; HAMMONS OF FRANKLIN, LLC; HAMMONS OF RICHARDSON, LLC; RICHARDSON HAMMONS, LP; JOHN Q. HAMMONS CENTER, LLC; CHATEAU LAKE, LLC; JQH - EAST PEORIA DEVELOPMENT, LLC; JOHN Q. HAMMONS FALL 2006, LLC; JQH - FT. SMITH DEVELOPMENT, LLC; JQH - GLENDALE, AZ DEVELOPMENT, LLC; JQH - KANSAS CITY DEVELOPMENT, LLC; JQH - LA VISTA III, DEVELOPMENT, LLC; JQH - LA VISTA CONFERENCE CENTER DEVELOPMENT, LLC; JQH - MURFREESBORO, DEVELOPMENT, LLC; JQH - NORMAN DEVELOPMENT, LLC; JQH - NORMAL DEVELOPMENT, LLC; JQH - OKLAHOMA CITY BRICKTOWN DEVELOPMENT, LLC; JQH - ROGERS CONVENTION CENTER DEVELOPMENT, LLC; JQH - SAN MARCOS DEVELOPMENT, LLC; HAMMONS OF SOUIX FALLS, LLC; HAMMONS OF TULSA, LLC; JQH - LA VISTA CY DEVELOPMENT, LLC; JQH - ALLEN DEVELOPMENT, LLC; and JQH - CONCORD DEVELOPMENT, LLC, Defendants. JACQUELINE A. DOWDY, as Trustee of THE REVOCABLE TRUST OF JOHN Q. HAMMONS, DATED DECEMBER 28, 1989, AS AMENDED AND RESTATED; JACQUELINE A. DOWDY, as the Personal Representative of the JOHN Q. HAMMONS ESTATE; GREGGORY D. GROVES, as Trustee of THE REVOCABLE TRUST OF JOHN Q. HAMMONS, DATED DECEMBER 28, 1989, AS AMENDED AND RESTATED; THE REVOCABLE TRUST OF JOHN Q. HAMMONS, DATED DECEMBER 28, 1989, AS AMENDED AND RESTATED; HAMMONS OF NEW MEXICO, LLC; HAMMONS OF FRISCO, LLC; HAMMONS OF COLORADO, LLC; HAMMONS OF ARKANSAS, LLC; HAMMONS OF SOUTH CAROLINA, LLC; CITY CENTRE HOTEL CORPORATION; HAMMONS OF HUNTSVILLE, LLC; HAMMONS OF OKLAHOMA CITY, LLC; HAMMONS OF LINCOLN, LLC; HAMMONS OF FRANKLIN, LLC; HAMMONS OF RICHARDSON, LLC; RICHARDSON HAMMONS, LP; JOHN Q. HAMMONS CENTER, LLC; CHATEAU LAKE, LLC; JQH - EAST PEORIA DEVELOPMENT, LLC; JOHN Q. HAMMONS FALL 2006, LLC; JQH - FT. SMITH DEVELOPMENT, LLC; JQH - GLENDALE, AZ DEVELOPMENT, LLC; JQH - KANSAS CITY DEVELOPMENT, LLC; JQH - LA VISTA III, DEVELOPMENT, LLC; JQH - LA VISTA CONFERENCE CENTER DEVELOPMENT, LLC; JQH - MURFREESBORO, DEVELOPMENT, LLC; JQH - NORMAN DEVELOPMENT, LLC; JQH - NORMAL DEVELOPMENT, LLC; JQH -OKLAHOMA CITY BRICKTOWN DEVELOPMENT, LLC; JQH - ROGERS CONVENTION CENTER DEVELOPMENT, LLC; JQH - SAN MARCOS DEVELOPMENT, LLC; HAMMONS OF SOUIX FALLS, LLC; HAMMONS OF TULSA, LLC; JQH - LA VISTA CY DEVELOPMENT, LLC; JQH - ALLEN DEVELOPMENT, LLC; JQH - CONCORD DEVELOPMENT, LLC, Counterclaims Plaintiffs, v. JD HOLDINGS, L.L.C., Counterclaim Defendant, and ATRIUM HOTELS, LP., and ATRIUM GP, LLC, Third-Party Defendants. |
| Court | Court of Chancery of Delaware |
David J. Teklits, Kevin M. Coen, MORRIS, NICHOLS, ARSHT & TUNNEL LLP, Wilmington, Delaware; Scott A. Edelman, Alan J. Stone, Jed M. Schwartz, MILBANK, TWEED, HADLEY & McCLOY LLP, New York, New York; Attorneys for Plaintiffs JD Holdings, L.L.C., Jonesboro Funding, LLC, and Eastgate Funding, LLC, Counterclaim Defendant JD Holdings, L.L.C., and Third Party Defendants Atrium, Hotels, LP, and Atrium GP, LLC.
Shannon Larner Brainard, Richard R. Wier, Jr., MARSHALL DENNEHY WARNER COLEMAN & GOGGIN, Wilmington, Delaware; Janene Marasciullo, WILSON ELSER MOSKOWITZ EDELMAN & DICKER LLP, New York, New York; Attorneys for Defendants, Counterclaim Plaintiffs, and Third Party Plaintiffs Jacqueline A. Dowdy and
Greggory D. Groves as Trustees of the Revocable Trust of John Q. Hammons, Dated December 28, 1989, As Amended and Restated.
Blake Rohrbacher, Thomas A. Beck, Susan M. Hannigan, RICHARDS, LAYTON & FINGERS, P.A., Wilmington, Delaware; C. Vincent Maloney, Jonathan R. Buck, Jade D. Lambert, PERKINS COEI LLP, Chicago, Illinois; Attorneys for All Defendants, Counterclaim Plaintiffs, and Third Party Plaintiffs Other Than Jacqueline A. Dowdy and Greggory D. Groves as Trustees of the Revocable Trust of John Q. Hammons, Dated December 28, 1989, As Amended and Restated.
In 2005, hotel-entrepreneur John Q. Hammons entered into a complex transaction involving a public company he controlled, various private entities that he also controlled, and a third party investor (the "2005 Transaction"). In the 2005 Transaction, the public stockholders received cash and Hammons received assorted consideration that included a short-term loan of $25 million, a long-term loan of $275 million, and a preferred equity interest in the privately held post-transaction entity. This structure allowed Hammons to exit from the public markets, obtain a degree of liquidity, and avoid a deemed sale that would trigger capital gains taxes.
Hammons's counterparties in the 2005 Transaction were entities affiliated with Jonathan Eilian. Eilian emerged with operational control of the post-transaction entity and ownership of all of its common equity. Eilian and Hammons also entered into an agreement that gave Eilian a right of first refusal and various other rights regarding hotels that Hammons had developed and owned through separate entities that were not part of the 2005 Transaction, or which the parties anticipated that Hammons would develop and own outside of the post-transaction entity after the 2005 Transaction closed (the "ROFR Agreement" or "RA").
The plaintiffs in this action are entities affiliated with Eilian. The defendants are predominantly entities that were affiliated with Hammons. The plaintiffs originally filed suit to resolve certain disputes over the ROFR Agreement. During the pendency of the case, Hammons passed away. The ROFR Agreement addresses the parties' obligations upon Hammons's death, but the parties could not agree on its requirements. The plaintiffs then amended their complaint to seek a determination that the ROFRAgreement imposes an affirmative obligation on Hammons's estate, a trust Hammons created, and the entities Hammons controlled to sell the hotels covered by the ROFR Agreement for cash within two years of Hammons death, subject to Eilian's right of first refusal. The defendants contend that the ROFR Agreement does not create any affirmative obligation to sell and, if it did, would be void under the rule against perpetuities. These are the principal claims; the parties have raised other issues and arguments.
The parties have cross-moved for judgment on the pleadings as to certain counts of the complaint and counterclaims. As to Count X of the Complaint, which seeks a declaration that the ROFR Agreement applies to property interests owned by three specific entities, the plaintiffs' motion for judgment on the pleadings is denied. As to the other counts at issue, judgment is granted in favor of the plaintiffs and against the defendants.
Because the parties have cross-moved for judgment on the pleadings, the facts are drawn from the operative pleadings and the documents incorporated by reference. When evaluating each movant's motion, the facts are viewed in the light most favorable to the non-movant. The background facts are largely undisputed, although the parties disagree about their implications.
Additional facts are drawn from decisions in prior litigation in this court. After the announcement of the 2005 Transaction, stockholder plaintiffs challenged the deal. They argued that Hammons breached his fiduciary duties as a controlling stockholder bystructuring the 2005 Transaction to secure personal benefits for himself, and they contended that Eilian's acquiring entities aided and abetted Hammons's breaches of duty. Hammons was the principal defendant in that case, and Eilian participated actively. The litigation generated a summary judgment opinion, In re John Q. Hammons Hotels Inc. S'holder Litig., 2009 WL 3165613 (Del. Ch. Oct. 2, 2009) [hereinafter the "Summary Judgment Opinion" or "SJ Op."], and a post-trial opinion, In re John Q. Hammons Hotels Inc. S'holder Litig., 2011 WL 227634 (Del. Ch. Jan. 14, 2011) [hereinafter the "Post-Trial Opinion" or "PT Op."]. The Summary Judgment Opinion included a thorough discussion of the events leading up to the 2005 Transaction and its terms, and the Post-Trial Opinion incorporated that discussion by reference and adopted its contents as post-trial findings of fact. See id. at *2 ( ) (footnote omitted). This decision relies on the findings of fact made in the Post-Trial Opinion, although it cites to the Summary Judgment Opinion for the details of those findings.
In 1994, Hammons formed a Delaware corporation called John Q. Hammons Hotels, Inc. Because shares issued by this entity traded publicly, this decision refers to it as the "Public Hotel Company." It had two classes of common stock: Class A shares with one vote per share, and Class B shares with fifty votes per share. The Class A shares were issued to the public. The Class B shares were privately held. Through arevocable trust created by Hammons under a trust agreement dated December 28, 1989 (the "JQH Trust"), Hammons owned approximately 5% of the Class A shares and all of the Class B shares. These combined holdings gave Hammons control over nearly 76% of the Public Hotel Company's outstanding voting power. Hammons served as Chairman and CEO of the Public Hotel Company.
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