                           COURT OF CHANCERY
                                 OF THE
                           STATE OF DELAWARE

 JOHN W. NOBLE                                            417 SOUTH STATE STREET
VICE CHANCELLOR                                           DOVER, DELAWARE 19901
                                                         TELEPHONE: (302) 739-4397
                                                         FACSIMILE: (302) 739-6179

                                  July 31, 2015



Jennifer L. Dering, Esquire                Christopher Viceconte, Esquire
Archer & Greiner, P.C.                     Gibbons P.C.
300 Delaware Avenue, Suite 1370            1000 N. West Street, Suite 1200
Wilmington, DE 19801                       Wilmington, DE 19801

      Re:     Ross Holding and Management Company v.
              Advance Realty Group, LLC
              C.A. No. 4113-VCN
              Date Submitted: April 16, 2015

Dear Counsel:

      At the conclusion of its post-trial memorandum opinion, the Court, perhaps

out of an excessive abundance of caution, invited briefing on two issues: “first,

whether Plaintiffs were harmed by the Board’s layering of FARS’s and ARD’s

loans on top of their units and, second, the question of attorneys’ fees and

expenses.”1




1
  Ross Hldg. & Mgmt. Co. v. Advance Realty Gp., LLC (“Ross II”), 2014
WL 4374261, at *39 (Del. Ch. Sept. 4, 2014). The Court presumes familiarity
with Ross II.
Ross Holding and Management Company, et al. v.
Advance Realty Group, LLC
C.A. No. 4113-VCN
July 31, 2015
Page 2

                                         ***

The “Layering”

      The Court expressed concern about preferential loans that may have

benefited FARS and ACP as part of the Reorganization. The Court speculated that

the “most sensible remedy may be to unwind these preferential loans and set

Plaintiffs, FARS, and ACP shoulder-to-shoulder in ARG.”2               The Court also

recognized that such an effort might not accomplish anything because the interests

are (and are likely to remain) without value.

      The Plaintiffs responded by seeking an order to require the Defendants to

disgorge $5 million (or Plaintiffs’ proportionate share) in cash from interest

payments made on the contested loans.3 Such damages would go “directly to

Plaintiffs and not to ARG.”4 Their focus seems to be on finding a way to provide a

meaningful remedy, that is, something of value. That would be more appealing


2
  Id. at *35.
3
  Plaintiffs used $5 million in their brief, but the precise amount is not critical here.
Plaintiffs held 11.52 percent of ARG’s units after the reorganization; they state that
their proportionate share of that $5 million would be $576,000. Pls.’ Post-Trial
Supplemental Mem. of Law. (“Pls.’ Mem.”) 12.
4
  Id. at 12 n.3.
Ross Holding and Management Company, et al. v.
Advance Realty Group, LLC
C.A. No. 4113-VCN
July 31, 2015
Page 3

than unwinding preferential loan arrangements which seemingly would merely

reallocate worthless obligations. They turn their attention to the interest paid

because of their perspective that there was a wrongful extraction of funds from

ARG and that it is a remedy that would carry the possibility of some benefit for

them.

        In contrast, the Defendants reiterate that the Reorganization nominally

benefited the Plaintiffs and, thus, no relief is warranted. Despite that assertion,

they have offered reassignment of $1,952,400 of FARS and ACP’s senior debt to

Plaintiffs to resolve the dispute. That assignment “would give Plaintiffs $25 of

senior debt for each unit of equity, a deal tantamount to that given to FARS and

putting Plaintiffs shoulder-to-shoulder with FARS and ACP.”5

        The decline in the real estate market imposed a harsh price on the parties.

The Reorganization, however, occurred shortly before the effects were felt.




5
 Defs.’ Supplemental Post-Trial Mem. Addressing Whether Pls. Were Harmed By
Board’s Layering of FARS’s and ARD’s Loans on Top of Their Units and
Question of Att’ys’ Fees and Expenses 3. Perhaps it should be noted that the
Defendants do not oppose Plaintiffs retaining their equity. Id. at 8 n.2.
Ross Holding and Management Company, et al. v.
Advance Realty Group, LLC
C.A. No. 4113-VCN
July 31, 2015
Page 4

Whether the real estate professionals on both sides recognized the impending

deterioration is uncertain.

      If the Reorganization caused actual damage to the Plaintiffs, they would be

entitled to recover damages measured as of the time of the Reorganization, even if

their interests would have become worthless not long thereafter.           The proper

comparison in this context is between the impact of the Reorganization and what

would have happened if the Reorganization had not occurred. It does not involve

assessment of hypothetical restructuring that the Court might prefer. Under either

capital structure—before the Reorganization or after the Reorganization—there

were entitlements, including those of certain Defendants, to the $5 million in

interest payments that came ahead of the Plaintiffs.          With or without the

Reorganization, the Plaintiffs would not have shared in the $5 million. Thus, they

cannot point to any damages actually suffered because of the interest payments.

      Nevertheless, Defendants have offered to place Plaintiffs “shoulder-to-

shoulder” with FARS and ACP with respect to certain loans involving ARG. That

is an opportunity that Plaintiffs should be able to pursue, if they so choose, and the

Court is prepared to include their preference in the implementing order.
Ross Holding and Management Company, et al. v.
Advance Realty Group, LLC
C.A. No. 4113-VCN
July 31, 2015
Page 5

                                       ***

Attorneys’ Fees

      On the question of fees, Defendants argue at the outset that Plaintiffs can no

longer ask for fees because of law of the case, waiver, and judicial estoppel. The

Amended Verified Complaint, in its Demand for Relief, asked for “[a]ttorneys’

fees and costs,” among other remedies.6 Defendants later moved for summary

judgment on “the Plaintiffs’ claims for attorneys’ fees and costs because

[Plaintiffs] have not demonstrated any basis for fee shifting.”7 In their opposition

brief, Plaintiffs stated, “Defendants have moved for summary judgment as to

discrete parts of Plaintiffs’ Amended Complaint, including the demand for

attorneys’ fees in their ad damnum clause and their prayer for punitive damages.

Plaintiffs concede both.”8 The Court subsequently dismissed the fees claims for




6
  Am. Verified Compl. 58.
7
   Ross Hldg. & Mgmt. Co. v. Advance Realty Gp., LLC (“Ross I”), 2013
WL 764688, at *1 (Del. Ch. Feb. 28, 2013, as revised, Mar. 7, 2013).
8
  Br. in Opp’n to Defs.’ Mot. for Partial Summ. J. 5.
Ross Holding and Management Company, et al. v.
Advance Realty Group, LLC
C.A. No. 4113-VCN
July 31, 2015
Page 6

lack of opposition.9 In the pre-trial stipulation, Plaintiffs asked for costs (but not

fees).10

       Plaintiffs do not deny waiver of a “statutory” claim for attorneys’ fees.11

Rather, they argue that the Court remains able to “exercise its equitable power . . .

to either award Plaintiffs their attorneys’ fees or compensatory damages in an

amount that takes into account Plaintiffs’ attorneys’ fees.”12 Under the American

Rule, “litigants in Delaware are generally responsible for paying their own counsel

fees.”13 Yet Plaintiffs cite cases such as SIGA Technologies, Inc. v. PharmAthene,

Inc.14 and Cantor Fitzgerald, L.P. v. Cantor15 to emphasize that—regardless of

their earlier concession—the Court can award attorneys’ fees through its power to

fashion an equitable remedy or as an approximation of damages.

9
  Ross I, 2013 WL 764688, at *1, *6.
10
   Revised Pre-Trial Stipulation and Order § IV.
11
   Pls.’ Mem. 9.
12
   Pls.’ Post-Trial Reply Supplemental Mem. of Law 7 n.2.
13
   Scion Breckenridge Managing Member, LLC v. ASB Allegiance Real Estate
Fund, 68 A.3d 665, 686 (Del. 2013).
14
   67 A.3d 330, 352 n.109 (Del. 2013) (“[W]e note [that] the Court of Chancery’s
power to award attorneys’ fees in an appropriate case stems not from the statutory
power to award costs embodied in 10 Del. C. § 5106, but rather from [its] inherent
equitable authority.”).
15
   2001 WL 536911, at *3 (Del. Ch. May 11, 2001).
Ross Holding and Management Company, et al. v.
Advance Realty Group, LLC
C.A. No. 4113-VCN
July 31, 2015
Page 7

      Although Defendants may have violated their duty of loyalty, engaging in

conduct that Delaware law discourages, Plaintiffs failed (without any effort to limit

the scope of the options they were abandoning) to attempt to preserve a basis to

pursue attorneys’ fees. Especially with a “nominally benefi[cial]”16 or accretive

transaction, the Court is not inclined to search out a way to circumvent the

Plaintiffs’ decision and commitment to forego attorneys’ fees.17 Thus, the Court

declines to award attorneys’ fees and expenses.

                                       ***

      Counsel are requested to submit an implementing form of order.18

                                             Very truly yours,

                                             /s/ John W. Noble

JWN/cap
cc: Tammy L. Mercer, Esquire
     Register in Chancery-K

16
   Ross II, 2014 WL 4374261, *39.
17
   Moreover, the Court is not convinced that the circumstances and consequences
at work here cry out for an effort to fashion some sort of equitable damages
remedy.
18
   The Court does not understand its decision to interfere with any of the concerns
expressed by the Intervenors. Letter from Tammy L. Mercer, Esq., Nov. 20, 2014.
The remedy for the “layering” does not directly affect ARG.
