      IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

TERRAMAR RETAIL CENTERS, LLC,              )
                                           )
       Plaintiff,                          )
                                           )
       v.                                  )    C.A. No. 12875-VCL
                                           )
MARION #2-SEAPORT TRUST U/A/D              )
JUNE 21, 2002                              )
                                           )
       Defendant.                          )

                         MEMORANDUM OPINION

                         Date Submitted: March 26, 2019
                          Date Decided: May 22, 2019

Kenneth J. Nachbar, Lauren Neal Bennett, Coleen W. Hill, MORRIS, NICHOLS, ARSHT
& TUNNELL LLP, Wilmington, Delaware; Edward C. Walton, PROCOPIO, CORY,
HARGREAVES & SAVITCH LLP, San Diego, California; Attorneys for Plaintiff
Terramar Retail Centers, LLC.

Thad J. Bracegirdle, Andrea S. Brooks, WILKS, LUKOFF & BRACEGIRDLE, LLC; Ben
D. Whitwell, Melissa C. McLaughlin, VENABLE LLP, Los Angeles, CA; Attorneys for
Defendant Marion #2-Seaport Trust U/A/D June 21, 2002.

LASTER, V.C.
       This case concerns the dissolution of Seaport Village Operating Company, LLC (the

“Company”), a privately held, manager-managed Delaware limited liability company.

When the events giving rise to this litigation unfolded, the Company had three members:

(i) Terramar Retail Centers, LLC, (ii) Marion #2-Seaport Trust U/A/D June 21, 2002 (the

“Trust”), and (iii) San Diego Seaport Village, Ltd. (“Limited”). Terramar served as the

Company’s manager.

       The Company’s LLC agreement gave Terramar the right to exit by offering its

member interest to the other members. If the other members did not purchase Terramar’s

interest within six months, then Terramar could dissolve the Company. In a dissolution,

Terramar could sell “all of the property and assets of the Company . . . on such terms and

conditions as shall be determined by [Terramar] in its sole and absolute discretion.”

       In December 2015, Terramar exercised its exit right. The other members failed to

purchase Terramar’s interest, and Terramar exercised its dissolution right.

       The other members disputed whether Terramar had validly exercised its exit right.

Terramar responded by filing this action, in which it seeks a declaration that it may dissolve

the Company and unilaterally sell its assets to a third party. Terramar also seeks a

declaration that it has correctly determined the allocation of the sale proceeds.

       After filing this action, Terramar settled with Limited, purchased Limited’s member

interest, and dismissed Limited from the case. The litigation proceeded against the Trust.

This post-trial decision rules in favor of Terramar on all claims.
                           I.         FACTUAL BACKGROUND

       The facts are drawn from the record that the parties crafted during a two-day trial.

It consists of 350 exhibits, live testimony from four fact witnesses and two experts, and

lodged testimony in the form of twelve deposition transcripts. The parties also agreed to

thirty-seven stipulations of fact.1

       As the party seeking declaratory judgments, Terramar bore the burden of proving

the facts necessary to support its claims by a preponderance of the evidence. See, e.g., San

Antonio Fire & Police Pension Fund v. Amylin Pharms., Inc., 983 A.2d 304, 316 n.38 (Del.

Ch. 2009). At the same time, the Trust asserted affirmative defenses and bore the burden

of establishing any additional facts necessary to support them, again by a preponderance

of the evidence. See, e.g., Empls.’ Liab. Assurance Corp. v. Madric, 183 A.2d 182, 184

(Del. 1962). Although the competing burdens could complicate fact-finding in theory, the

reality is simpler. When the preponderance standard applies, “the burden becomes relevant

only when a judge is rooted on the fence post and thus in equipoise . . . .” In re S. Peru

Copper Corp. S’holder Deriv. Litig., 52 A.3d 761, 792 (Del. Ch. 2011) (Strine, C.), aff’d

sub nom. Ams. Mining Corp. v. Theriault, 51 A.3d 1213 (Del. 2012). In this case, the

evidence was not in equipoise, and the preponderance-of-the-evidence standard would




       1
         Citations in the form “PTO ¶ ––” refer to stipulated facts in the pre-trial order. Dkt.
146. Citations in the form “[Name] Tr.” refer to witness testimony from the trial transcript.
Citations in the form “[Name] Dep.” refer to witness testimony from a deposition
transcript. Citations in the form “JX –– at ––” refer to a trial exhibit with the page
designated by the last three digits of the control or JX number. If a trial exhibit used
paragraph numbers, then references are by paragraph.


                                               2
result in the same findings of fact regardless of which party bore the burden of proof.

A.     Seaport Village, Limited, and Cohen

       Seaport Village is a tourist attraction and specialty shopping center in San Diego,

California. The Port of San Diego owns the ground where Seaport Village sits. In 1978,

Limited leased the ground from the Port for a period of forty years (the “Seaport Lease”).

After securing the Seaport Lease, Limited and its affiliates developed Seaport Village.

       To finance the development, Limited borrowed $40 million from Yasuda Trust &

Banking Co. Ltd. In 1998, Limited defaulted on the Yasuda loan. For help with a

refinancing, Limited turned to non-party Michael A. Cohen and his real estate advisory

firm, M.A. Cohen & Company. At trial, Cohen carefully distinguished between himself

personally and his firm. For purposes of the facts underlying this case, the distinction is not

important. For simplicity, this decision refers simply to Cohen.

       With Cohen’s assistance, an affiliate of Limited—San Diego Seaport Lending Co.,

LLC (“Lending”)—bought the Yasuda loan for approximately $25 million. As

compensation for his services, Cohen received a 50% interest in the net cash flows from

Limited and Lending, plus a 50% interest in the net proceeds from any sale of those

companies. Through this structure, Cohen obtained the cash-flow rights associated with a

50% equity interest without taking a formal ownership stake.

B.     Terramar and the Company

       In 2002, Seaport Village needed more financing. Cohen and Limited approached

Terramar, a commercial real estate firm. At the time, Terramar was known as GMS Realty.

For simplicity, this opinion refers to the entity as “Terramar.”


                                              3
       As part of a larger restructuring of Seaport Village, the parties formed the Company.

The business and affairs of the Company are governed by its LLC agreement dated

September 1, 2002 (the “LLC Agreement”).

       In return for a 50% member interest, Limited subleased the land for Seaport Village

to the Company. Limited allocated half of its member interest to Cohen, consistent with

the effective split of the cash-flow rights from Limited and Lending. Cohen formed the

Trust to hold his 25% member interest. Although the Trust is a separate entity, Cohen

makes decisions for the Trust. Under the LLC Agreement, Cohen also received an

exclusive right to broker any future financing for the Company. See JX 3 § 5.4(b).

       In return for the other 50% member interest, Terramar contributed $7 million in

capital, guaranteed half of Lending’s outstanding loan, and took over the management of

Seaport Village. Terramar also became the Company’s manager, with “full, exclusive, and

complete discretion to manage and control the business affairs of the Company . . . .” Id. §

5.1(a). In this capacity, Terramar committed to seek to renew the Seaport Lease and to seek

a lease for an adjacent property called Old Police Headquarters (the “Headquarters Lease”),

which the parties planned to develop into a shopping center. The LLC Agreement referred

to the redevelopment of Old Police Headquarters as “Phase Two.”

       The LLC Agreement entitled Terramar to receive a priority return of 11.5% per

year on its initial capital contribution of $7 million (the “Terramar Priority Return”) if (i)

the Port failed to approve an extension of the Seaport Lease within thirty months after the

Company took possession of Seaport Village and (ii) the extension did not cover at least

twenty-five additional years. Id. § 4.1(c). If the Terramar Priority Return was triggered,


                                              4
then the Company could not make any pro rata distributions to its members until after the

Terramar Priority Return was paid. Id.

       The LLC Agreement allowed Terramar to make capital calls on the Company’s

members (including itself) if Terramar was unable to obtain third-party financing after “a

good faith effort.” Id. § 3.2(a). The LLC Agreement also gave Terramar the “sole

discretion” to cause the Company to obtain a loan from any member (a “Member Loan”),

subject to a maximum interest rate of 12%. Id. § 3.3.

       In the LLC Agreement, Terramar obtained the right to request that the other

members buy out its member interest at fair market value at any time after January 1, 2006

(the “Put Right”). Id. § 9.5. If the other members did not purchase Terramar’s interest

within six months, then Terramar could dissolve the Company and receive a contractually

determined payout (the “Dissolution Right”). Id. § 9.5(d). The LLC Agreement provided

that upon Terramar’s exercise of the Dissolution Right, “all of the property and assets of

the Company shall be sold on such terms and conditions as shall be determined by

[Terramar] in its sole and absolute discretion . . . .” Id.

       In a dissolution, the distribution of proceeds to the Company’s members would

depend on the applicable contractual waterfall. If Terramar exercised the Dissolution Right

after the Terramar Priority Return kicked in, then the waterfall called for distributions to

be made as follows:

      First, to repay any interest on any Member Loan;

      Second, to repay the principal of any Member Loan;

      Third, to pay any unpaid priority return of 12% per year on additional capital


                                                5
       contributions;

      Fourth, to the members in proportion to the members’ additional capital
       contributions, less any repayments;

      Fifth, to Terramar until the satisfaction of the Terramar Priority Return;

      Sixth, pro rata to the members other than Terramar, in an amount equal to the
       Terramar Priority Return; and

      Seventh, pro rata to the members based on their member interest.

Id. § 4.1(c).

C.     The 2010 Capital Call

       After the restructuring that brought Terramar into the picture, the Company obtained

a $25 million loan from Wells Fargo with a three-year term. On multiple occasions, Wells

Fargo agreed to extend the loan, but ultimately declined to extend it beyond 2010.

Beginning in 2008, the Company sought to refinance the loan.

       In 2010, rather than agreeing to extend the loan, Wells Fargo offered to provide a

new loan of $12–15 million, but Wells Fargo conditioned its proposal on receiving a

guarantee from Terramar for up to half of the loan amount. See JX 34. Other financing

sources offered less attractive terms. See JX 33. Terramar had no obligation to provide a

guarantee and declined to do so.

       On July 30, 2010, with bank financing unavailable, Terramar made a capital call on

the Company’s members. The Trust and Limited refused to participate. Terramar funded

the entire capital call, contributing $20,080,000.

D.     Terramar Seeks to Extend the Seaport Lease and Commences Phase Two.

       In 2003, 2007, and 2010, Terramar tried unsuccessfully to obtain an extension of



                                              6
the Seaport Lease. After striking out for a third time in 2010, Terramar asked the Port to

clarify its objectives for Seaport Village. In September 2011, the Port adopted seven

visioning goals for redeveloping the property. JX 47 at 1. Terramar responded with a

revised plan, and in December 2011, the Port adopted a resolution declaring Terramar’s

proposal “consistent with the [Port’s] visioning goals.” PTO ¶ 13.

       Around the same time, Terramar secured a forty-year Headquarters Lease and began

Phase Two—the redevelopment of Old Police Headquarters. In September 2012, the

Company retained Cohen to secure a construction loan for Phase Two.

E.     The Limited Action

       Meanwhile, in April 2012, Limited sued Terramar in the Superior Court of the State

of California for the County of San Diego, seeking the dissolution of the Company (the

“Limited Action”). Limited alleged that Terramar failed to diligently pursue an extension

of the Seaport Lease. Limited also alleged that Terramar provided financing to the

Company on unfair terms. The Trust was not a party to the Limited Action.

       The Limited Action moved forward in California until August 2013, when the

California court held that Limited’s claim for dissolution had to proceed in Delaware.

Limited promptly refiled its claims in this court.

       While the Limited Action was pending, Cohen secured a term sheet from Bank of

America, N.A. for a construction loan for Phase Two in the amount of $33.5 million. Bank

of America withdrew its offer in February 2013 after Limited and Terramar failed to

resolve the Limited Action through mediation. JX 62; see Cohen Tr. 269.

       In June 2013, Cohen secured another term sheet for a construction loan for Phase


                                              7
Two, again in the amount of $33.5 million, but this time from BMO Harris Bank N.A.

Unlike other financing sources, BMO offered to lend notwithstanding the pendency of the

Limited Action, as long as Terramar agreed to indemnify BMO for “any costs or losses”

resulting from the litigation. JX 70 at ‘072; see Cohen Tr. 332–33. Terramar had no

obligation to provide indemnification and declined. The BMO loan fell through.

      At this point, there was no third-party financing available to the Company, and

Terramar supplied the Company with Member Loans totaling $16.3 million. The Company

used the Member Loans and cash flows from Seaport Village to redevelop Old Police

Headquarters, expending a total of $46.5 million for construction.

      Old Police Headquarters opened for business in November 2013. Its tenants have

included the Cheesecake Factory, Sunglass Hut, and Starbucks.

F.    Renewed Financing Efforts

      In March 2014, the Company retained Cohen to help refinance the outstanding

Members Loans. Cohen contacted approximately two dozen lenders. Most were

uninterested, citing some combination of the Limited Action, the expiring Seaport Lease,

and the Company’s request for a non-recourse loan. One lender asked Terramar to

guarantee the loan, which Terramar declined to do.

      In July 2015, Cohen secured a term sheet from NorthStar Realty Finance for a loan

in the amount of $36.65 million on attractive terms. NorthStar insisted on modifications to




                                            8
the Headquarters Lease that the Port refused to accept, and the refinancing fell apart.2

G.     The Port Changes Its Mind.

       In June 2015, Terramar completed a long-term project to update its redevelopment

plan for Seaport Village. Terramar and Cohen believed that the updated proposal was even

better than the one the Port had endorsed in 2011.

       But the Port opted for a different path. The Board of Port Commissioners invited

Terramar to present its proposal at a hearing on October 6, 2015. Four days before the

hearing, the Port staff informed Terramar that they would recommend that the board reject

Terramar’s proposal. Terramar responded with a six-page rebuttal letter, which a Terramar

representative read into the record at the hearing. The board nevertheless decided not to

extend the Seaport Lease, and the board formally rescinded the visioning goals on which

Terramar’s proposal had relied. The Port instead endorsed a new vision to redevelop the

broader waterfront.

H.     The Trust Settles With Terramar.

       After Limited refiled the Limited Action in 2013, the Trust threatened to assert

similar claims against Terramar. See JX 68. In June 2014, Cohen offered to settle the

Trust’s claims for $2 million, but the parties could not agree on terms. JX 89; see JX 92.

       In August 2015, the Limited Action went to trial in this court. After trial, the Trust

and Terramar reached a settlement (the “Settlement Agreement”). See JX 138. In exchange




       2
           JX 173; Lee Tr. 446–50; see JX 141 at ‘407–09; JX 165; JX 168; JX 169.


                                             9
for a payment of $400,000 and a reciprocal release, Cohen released Terramar from all

claims relating to the Company that existed as of the Settlement Agreement’s effective date

of October 2, 2015. The release carved out a claim against Terramar for allocating phantom

income to the Trust, which had not been tried in the Limited Action. By settling, Cohen

made a tactical decision to release challenges that seemed likely to fail based on the trial

in the Limited Action, while preserving the untried claim.

       On November 9, 2015, this court rendered its post-trial decision in the Limited

Action, ruling in favor of Terramar on all claims. Seaport Village Ltd. v. Terramar Retail

Ctrs., LLC, C.A. No. 8841-VCL, at 85–101 (Del. Ch. Nov. 9, 2015) (TRANSCRIPT),

aff’d, 148 A.3d 1170, 2016 WL 5373085 (Del. Sept. 26, 2016) (ORDER).

I.     Terramar Exercises the Put Right.

       By the end of 2015, Terramar had decided that the Company was no longer an

attractive investment. See Zwieg Tr. 42, 55–67. Under Section 9.5 of the LLC Agreement,

Terramar could exercise the Put Right by sending “a notice . . . indicating to all other

Members and to the Company that [Terramar] desires to have its interest purchased by the

other Members of the Company.” This decision refers to that document as the “Terramar

Buy-Out Notice.”

       Section 9.5(a) specified that the Terramar Buy-Out Notice had to contain “a

statement of [Terramar’s] opinion” of the following two items:

                (i) the fair market value of the Company (the “Company Fair Market
       Value”) taking into account the fair market value of the Project [i.e., the
       Seaport Lease and the Headquarters Lease] (as determined, if necessary, in
       the manner set forth below) and all other assets of the Company, and all
       liabilities thereof, including the Yasuda Loan, and hypothetical sales


                                            10
       expenses of three percent (3%) of the gross value, and

              (ii) the amount (the “[Terramar] Purchase Price”) equal to

                     (A) the amount that would be distributed to [Terramar]
       pursuant to Section 4.1(b) and/or 4.1(c), as applicable, if a hypothetical cash
       sale of the assets of the Company subject to such liabilities resulted in net
       proceeds to the Company equal to the Company Fair Market Value, plus

                     (B) an amount equal to the value of the Percentage Fee Amount
       reasonably anticipated to be received by [Terramar] from and after the date
       of the [Terramar] Buy-Out Notice in accordance with the provisions of
       Section 4.8 hereof, which the parties hereto agree shall be equal to the
       average Percentage Fee Amount for the three consecutive twelve (12) month
       periods ending on the last day of the month immediately preceding the month
       in which the [Terramar] Buy-Out Notice is delivered by [Terramar], divided
       by the “cap rate” applied by the parties in determining the Company Fair
       Market Value (or if the parties cannot agree on a cap rate, the rate selected
       by the Appraiser (as described below), and if there is more than one
       Appraiser, the average cap rate selected by all Appraisers), plus

                    (C) would be paid [sic] to [Terramar] or its affiliates upon
       repayment of any loan to the Company by [Terramar] or its Affiliates.

JX 3 § 9.5(a) (formatting added). This decision uses “Company Fair Market Value” and

“Terramar Purchase Price” as defined in Section 9.5(a) of the LLC Agreement.

       On December 18, 2015, Terramar sent the Terramar Buy-Out Notice to Limited and

the Trust. The notice stated:

       The purpose of this letter is to advise you that pursuant to Section 9.5 of the
       [LLC Agreement], [Terramar] desires to have its membership interest in [the
       Company] purchased by [Limited] and [the Trust]. Pursuant to the terms of
       Section 9.5(a) of the [LLC Agreement], the following information is
       provided:

              1. The “Company Fair Market Value” is $42,932,927.

              2. The “[Terramar] Purchase Price” equals $55,445,552.

       Please refer to Section 9.5 of the [LLC Agreement] for the specific


                                             11
       requirements and time constraints it imposes.

JX 147. A key component of the Terramar Purchase Price was the amount that Terramar

would receive under the waterfall provisions in the LLC Agreement if the Company sold

all of its assets for an amount equal to Company Fair Market Value (the “Waterfall

Amount”).3 Terramar believed its waterfall priorities were greater than the Company Fair

Market Value. Terramar thus specified a Waterfall Amount equal to Company Fair Market

Value.4 Another key component of the Terramar Purchase Price was the balance on

Terramar’s Member Loans. Tracking the definition of the Terramar Purchase Price,

Terramar calculated a Terramar Purchase Price that equaled the Company Fair Market

Value plus the Terramar Member Loans. Pettit Tr. 401–05.

       Under Section 9.5(b) of the LLC Agreement, the Company Fair Market Value as

stated in the Terramar Buy-Out Notice would become the purchase price for the Put Right

“unless the other parties dispute in writing . . . such amount within ten (10) business days.”

On January 5 and 6, 2016, the Trust and Limited sent notices disputing Terramar’s opinion

of Company Fair Market Value.5




       3
         See JX 3 § 9.5(a) (defining the first input to the Terramar Purchase Price as “the
amount that would be distributed to [Terramar] pursuant to Section 4.1(b) and/or 4.1(c), as
applicable, if a hypothetical cash sale of the assets of the Company subject to such liabilities
resulted in net proceeds to the Company equal to the Company Fair Market Value”).
       4
           See Pettit Tr. 401–02; Taylor Tr. 470–71; JX 190; see also Cohen Tr. 356–57.

       PTO ¶ 24; JX 151; JX 152. Limited and the Trust also disagreed with Terramar’s
       5

assessment of the Terramar Purchase Price (and therefore the Waterfall Amount). The LLC
Agreement did not contain a mechanism for resolving that dispute.


                                              12
       The dispute notices triggered a contractual valuation procedure in which parties first

were obligated to negotiate “in good faith, [to] attempt to reach a mutually acceptable

Company Fair Market Value.” JX 3 § 9.5(c). If the parties could not agree within thirty

days, then Terramar would select one appraiser, the other members would select a second

appraiser, and the two appraisers would jointly select a third appraiser. Each appraiser

would “independently determine the fair market value of the Project and the other assets

of the Company, the amount of the liabilities of the Company, and the consequent

Company Fair Market Value.” Id. The Company Fair Market Value would be “the average

of the two closest appraisals.” Id.

       As part of its notice of dispute, the Trust asked for the calculations underlying

Terramar’s opinions on Company Fair Market Value and the Terramar Purchase Price. The

Trust also asked Terramar to “cooperate in providing information that may be disclosed to

potential purchasers on a confidential basis.” JX 151. The Trust’s letter explained that

       Mr. Cohen would like to discuss with someone at Terramar the most efficient
       way to obtain and prepare information that can be provided to potential
       buyers and achieve a sales price that is satisfactory to Terramar. In the event
       that Mr. Cohen is successful in identifying a buyer, please confirm that Mr.
       Cohen’s firm will receive the standard broker fee. Under Article 9.5,
       Company Fair Market Value assumes “sales expenses of three percent (3%)
       of the gross value” in connection with a sale to a willing buyer, so this should
       not be an issue.

Id. The Trust’s interest in running a third-party sale process ran contrary to the terms of the

Put Right, which contemplated the other members purchasing Terramar interest.

       Between January 11 and January 19, 2016, Terramar provided the Trust with the




                                              13
Company’s most recent financial statements, rent rolls, and leasing reports.6 On January

20, Terramar offered to provide more information if the Trust agreed to a non-disclosure

agreement (an “NDA”). The Trust never responded. Zwieg Tr. 63; see Cohen Tr. 248–49.

       After the Trust went silent, Terramar reasonably concluded that the Trust had

stopped participating in the buy-out negotiations. On February 4, 2016, the negotiation

period reached its contractual end date without any agreement on Company Fair Market

Value. At that point, Section 9.5(c) of the LLC Agreement gave the parties five business

days to select appraisers. Terramar and Limited appointed appraisers; the Trust did not

participate. The two party appraisers then jointly selected a third appraiser.

       Around this time, Cohen called Terramar’s CEO, Hugh Zwieg, to propose that the

Desert Troon Companies and the Trust purchase Terramar’s member interest. On February

9, 2016, Cohen emailed Zwieg to confirm that his buyer group actually wanted to purchase

the Company’s assets, not Terramar’s member interest. See JX 179. The next day, Terramar

rejected the proposal. Terramar’s outside counsel informed Cohen that Section 9.5 of the

LLC Agreement prohibited Terramar from selling the Company’s assets during the Put

Right process, which contemplated a sale of Terramar’s interest to the other members. If

the Trust wanted to purchase the Company’s assets, it could do so as part of the dissolution

phase, if the process went that far. JX 182.




       6
        JX 153; JX 156; JX 157; JX 159; see Cohen Tr. 352–53 (agreeing that Terramar
provided “substantial information” about the Company).


                                               14
J.     The Appraisals and the Determination of Company Fair Market Value

       On June 9, 2016, the appraisers completed their work. The three appraisers each

valued the Seaport Lease and the Headquarters Lease, with Terramar’s appraiser reaching

a valuation conclusion of $56,350,000, Limited’s appraiser reaching a valuation conclusion

of $56,800,000, and the jointly retained appraiser reaching a valuation conclusion of

$54,300,000.

       Using the appraisals, Terramar calculated Company Fair Market Value. Terramar

averaged the two closest appraisals to derive a value for the leases, added $2,233,967 to

account for the value of the Company’s non-lease assets (primarily cash and accounts

receivable), and deducted $1,255,680 from each appraisal, representing the value of the

liabilities other than the Terramar Member Loans. This calculation generated a figure of

$57,503,287. JX 231.

       By proceeding in this fashion, Terramar and the appraisers did not strictly comply

with Section 9.5(c) of the LLC Agreement. Section 9.5(c) anticipated that the appraisers

would “determine the fair market value of the Project and the other assets of the Company,

the amount of the liabilities of the Company, and the consequent Company Fair Market

Value,” with the average of the two closest appraisals establishing the Company Fair

Market Value. Instead, all three appraisers only valued the leases, suggesting that the

parties instructed their appraisers on this point. Terramar then used the average of the two

closest appraisals when making its own calculation. Terramar also excluded the Member

Loans when calculating Company Fair Market Value, resulting in a higher Company Fair

Market Value than the calculation otherwise would have generated.


                                            15
       The Trust, however, has not challenged these aspects of the process. The Trust

disputes Terramar’s initial opinion as to Company Fair Market Value in the Terramar Buy-

Out Notice, but not the subsequent calculation of Company Fair Market Value based on

the appraisals. The absence of any dispute on this point is likely explained by the following

fact: Using the appraisers’ valuations of the leases to calculate Company Fair Market Value

in accordance with Section 9.5(c) results in a number that is effectively the same as

Terramar’s initial opinion of Company Fair Market Value.

       The appraisers should have valued all of the Company’s assets and liabilities. It is

undisputed that the non-lease assets totaled $2,233,967, and the liabilities other than the

Terramar Member Loans totaled $1,255,680. Assuming $12,512,625 was owed on the

Terramar Member Loans, and taking the additional deduction specified in Section 9.5(a)

for hypothetical sales expenses equal to 3% of the gross value, the appraisers should have

reached the following figures for Company Fair Market Value: $43,058,143 (Terramar’s

appraiser), $43,494,643 (Limited’s appraiser), and $41,069,643 (the jointly selected

appraiser). Averaging the two closest figures yields a Company Fair Market Value of

$43,276,393. The Terramar Buy-Out Notice identified a Company Fair Market Value of

$42,932,927, or $343,466 less than (and within 1% of) what the appraisal process

generated.

       Ultimately, the failure to strictly follow Section 9.5(c) was immaterial. To purchase

Terramar’s member interest under the Put Right, the other members had to be willing to

pay the Terramar Purchase Price, which started with the Company Fair Market Value and

then added the value of the Member Loans. In round numbers, adding the Member Loans


                                             16
of approximately $12 million to the appraisal-based Company Fair Market Value of

approximately $43 million would yield a Terramar Purchase Price of approximately $55

million. By the time the appraisal process concluded in June 2016, it was evident that

Limited and the Trust would not buy Terramar’s interest at anything close to $55 million.

Cohen refused to disclose his upper bound, but testified at trial that he would have expected

to pay “a lot less” than $55 million. See Cohen Tr. 365.

       Anticipating that it would have to exercise the Dissolution Right, Terramar

proposed to sell the Company before the Dissolution Right ripened and to escrow the sale

proceeds until the parties resolved their disputes. JX 231 at 2; Zwieg Tr. 71–73. Cohen

refused. He insisted that Terramar agree in advance to share sale proceeds with the Trust.

Cohen Tr. 371–73.

       The parties ended up extending the buy-out period until November 9, 2016. JX 202.

That date came and went without the other members purchasing Terramar’s interest. As a

result, Terramar gained the ability under the Dissolution Right to “cause the dissolution of

the Company,” at which point “all of the property and assets of the Company shall be sold

on such terms and conditions as shall be determined by [Terramar] in its sole and absolute

discretion.” JX 3 § 9.5(d).

K.     Litigation and the Sale Process

       Because Limited and the Trust had raised objections to Terramar’s exercise of the

Put Right that remained unresolved, Terramar filed this action against Limited and the

Trust. In early December 2016, Zwieg met with Cohen and a representative of Limited, but

nothing was settled. See Zwieg Tr. 51–53; Zwieg Dep. 120–21. In January 2017, Limited


                                             17
sold its 25% member interest to Terramar for $1.3 million. JX 266. As a result, Terramar

and the Trust became the Company’s only remaining members, and Terramar stipulated to

the dismissal of Limited from this action with prejudice.

       In July 2017, the Trust sued Terramar in the Superior Court of the State of California

for the County of Los Angeles (the “California Action”). The Trust asserted claims for

breach of fiduciary duty, breach of the LLC Agreement, and breach of the implied covenant

of good faith and fair dealing. The Trust sought declarations that Terramar (i) may not sell

the Company’s assets without the Trust’s consent, (ii) invalidly purchased Limited’s

member interest, and (iii) is not entitled to the Terramar Priority Return. JX 310.

       In the first quarter of 2017, Terramar hired CBRE Group, Inc. to market the

Company’s assets. By September 2017, six parties had submitted bids. The high bidder

offered $42.5 million for the Headquarters Lease and $2.5 million for the Seaport Lease.

JX 287; Zwieg Tr. 91–94. But in November, Terramar terminated the sales process, citing

an interlocutory appeal pending in this case and the Trust’s request for a declaration in the

California Action that it could unilaterally block an asset sale. JX 296; see id. (citing

“further delay and uncertainty”); JX 297.

L.     The Litigation Continues.

       Meanwhile, the litigation in this court remained ongoing. In February 2017, the

Trust had moved to dismiss this action for lack of personal jurisdiction. After I denied the

Trust’s motion, the Trust moved for reargument. After I denied that motion, the Trust

sought to certify an interlocutory appeal. I granted the application, and the Delaware

Supreme Court accepted the appeal. By order dated April 20, 2018, the Delaware Supreme


                                             18
Court affirmed this court’s rulings on personal jurisdiction.

       While the motion to dismiss was pending, the parties did not move forward with

discovery. Even after the Delaware Supreme Court’s ruling, the Trust refused to answer or

agree to a case schedule. In May 2018, the Trust moved to dismiss a second time, claiming

that the doctrine of forum non conveniens required deference to the later-filed California

Action. Understandably perceiving the Trust’s motion as a delay tactic, Terramar sought

entry of a scheduling order. On June 14, 2018, I entered a scheduling order, without

prejudice to the Trust’s pending motion to dismiss. Trial was set for January 2019.

       In its motion to dismiss, the Trust asserted it was more efficient to proceed in

California, where the Trust had asserted wide-ranging claims against Terramar. The

amended complaint in the California Action contended that since October 2015, Terramar:

      induced the Trust to enter into the Settlement Agreement by failing to disclose that
       the Port would soon decline to extend the Seaport Lease;

      failed to take steps that could have resulted in an extension of the Seaport Lease;

      continued the Company’s high-interest indebtedness to Terramar by sabotaging the
       low-interest NorthStar refinancing;

      exercised the Put Right as a path to the Dissolution Right, circumventing a provision
       in the LLC Agreement that required 75% of the member interest to approve a large
       asset sale;

      prevented the Trust from accepting the put by refusing to negotiate price and
       insisting that the Trust and Limited jointly purchase Terramar’s interest;

      diverted Company assets to fund its purchase of Limited’s member interest; and

      attempted to force a liquidation of the Company’s assets on terms that unfairly
       allocate all of the proceeds to Terramar.

In June, the Trust filed its answer in this case and raised affirmative defenses that


                                             19
incorporated all but two of these allegations. The affirmative defenses did not contend that

Terramar wrongfully induced the Trust to enter into the Settlement Agreement or that

Terramar diverted Company assets to buy out Limited. See, e.g., Answer ¶ 17 (“Both

Terramar and the Cohen Trust have raised issues relating to the 2015 Settlement Agreement

and . . . those issues must be decided by the Superior Court of the State of California.”).

       In August 2018, I denied the Trust’s second motion to dismiss. As with its first

motion, the Trust moved for reargument. The Trust asked to exclude from this case aspects

of its affirmative defenses that it wished to litigate in California. Alternatively, the Trust

asked to postpone the trial.

       Meanwhile, the Trust engaged in self-help on its request for a postponement. The

scheduling order had set August 31, 2018, as the deadline for the parties to substantially

complete document production. By that point, the Trust had produced only 297 documents.

       In September 2018, I denied the Trust’s motion for reargument. Because of the

Trust’s opposition, Terramar did not take Cohen’s deposition until October 16, 2018. Only

then, after the deposition, did the Trust produce 98.4% of its documents—twenty-two times

what the Trust had produced by the substantial completion date.

       After its massive document production, the Trust changed its tune and moved for

leave to file all of its claims in the California Action as counterclaims in this case. In

December 2018, I denied leave to amend and awarded sanctions to Terramar, finding that

the Trust had used improper tactics “to create holdup value in the dissolution process” and

had “engaged in serial efforts to delay” the litigation pending in this court. Terramar Retail

Ctrs., LLC v. Marion #2-Seaport Tr. U/A/D June 21, 2002, 2018 WL 6331622, at *1, *15


                                             20
(Del. Ch. Dec. 4, 2018). The sanctions included an order excluding the belatedly produced

documents. The case proceeded to trial as scheduled.

                              II.      LEGAL ANALYSIS

       Terramar contends that it complied with the requirements in the LLC Agreement

for dissolving the Company, and it seeks to exercise its right to sell the Company’s assets.

Terramar contends that its proposed allocation of the sale proceeds complies with the LLC

Agreement.

       The Trust argues that Terramar breached the requirements in the LLC Agreement

for dissolving the Company. The Trust asserts that the Terramar Buy-Out Notice

misrepresented Terramar’s opinion of Company Fair Market Value and overstated the

Terramar Purchase Price. The Trust also contends that Terramar withheld financial

information necessary for the Trust to decide whether to buy Terramar’s member interest.

The Trust further argues that Terramar wrongfully insisted that the Trust and Limited

jointly purchase Terramar’s interest, refused to cooperate with the Trust’s capital source,

and negotiated with the Trust in bad faith.

       This decision rejects the Trust’s theories. Terramar complied with the requirements

of the LLC Agreement and is entitled to sell the Company’s assets to a third party.

       The parties also dispute how to allocate the proceeds from an asset sale. The Trust

concedes that based on the current state of the Company, Terramar has proposed the correct

allocation. The Trust instead posits that the allocation should rest on a counterfactual state

of affairs in which Terramar had operated and financed the Company differently between

2003 and 2017. According to the Trust, the counterfactual exercise is necessary because


                                              21
Terramar committed misconduct throughout the Company’s history. This decision rejects

those theories as well.

       With one exception, the Settlement Agreement released all of the Trust’s challenges

that arise from events that occurred before October 2, 2015. Challenges from that era are

also time-barred. The few timely challenges crumble under the weight of the evidence.

       Finally, the Trust broadly repackages its claims of wrongdoing under three other

headings. The first two invoke the doctrines of unclean hands and equitable estoppel, but

the assertions supporting those affirmative defenses have the same factual and legal

shortcomings as their original iterations. The third heading is the implied covenant of good

faith and fair dealing, but that doctrine has no role because the express terms of the contract

govern.

A.     Disputes Over the Contractual Dissolution Procedure

       Terramar contends that it complied with the contractual dissolution procedure set

forth in Section 9.5 of the LLC Agreement. The Trust argues that Terramar breached

Section 9.5 repeatedly. The Trust also recasts one of its contract arguments as a claim for

breach of the duty of disclosure.

       1.     Claims About Company Fair Market Value

       The Trust contends that Terramar intentionally overstated the Company Fair Market

Value in the Terramar Buy-Out Notice, thereby breaching the LLC Agreement and

Terramar’s duty of disclosure. As the Trust sees it, Terramar inflated the inputs to its

calculation of Company Fair Market Value so that it could name the highest possible

number as its Terramar Purchase Price.


                                              22
                     a.     Breach of Contract

       Section 9.5(a) of the LLC Agreement required the Terramar Buy-Out Notice to

contain a “statement of [Terramar’s] opinion of” the Company Fair Market Value and the

Terramar Purchase Price. The Terramar Buy-Out Notice specified a Company Fair Market

Value of $42,932,927 and a Terramar Purchase Price of $55,445,552. As of December 31,

2015, Terramar believed that its waterfall priorities totaled $55,774,743.03. See JX 190.

The Trust asserts that Terramar breached Section 9.5(a) because Terramar’s true opinion

of Company Fair Market Value was less than $31 million.

       The ideal starting point for analyzing the Trust’s challenge would be Terramar’s

underlying calculations, but Terramar invoked privilege for those documents and never

produced them.7 Despite the resulting gap in the evidentiary record, the evidence at trial

showed that the figures in the Terramar Buy-Out Notice were justified and reflected

Terramar’s actual belief.

       Section 9.5(a) of the LLC Agreement defined “Company Fair Market Value” as

       the fair market value of the Company . . . taking into account the fair market
       value of the Project [i.e., the Seaport Lease and the Headquarters Lease] . . .
       and all other assets of the Company, and all liabilities thereof, including the
       Yasuda Loan, and hypothetical sales expenses of three percent (3%) of the
       gross value . . . .

Tim Pettit, Terramar’s CFO, testified that Terramar adhered to this formulation when




       7
        See Dkt. 158 at 20 (Terramar’s counsel explaining that Terramar regarded the
documents as privileged because “we were in active litigation with Limited at the time”
and “decisions were made with advice of counsel and counsel was consulted at every step
of the way”).


                                             23
specifying a Company Fair Market Value of $42,932,927. He explained that the

Headquarters Lease and the Seaport Lease comprised the bulk of the Company’s asset

value, and Terramar valued them at approximately $56.8 million. Terramar’s Member

Loans comprised the bulk of the Company’s liabilities, and Terramar valued them at

approximately $12.5 million.8

      Pettit testified that Terramar valued the Headquarters Lease at $42.8 million after

consulting two third-party appraisals. In an appraisal dated October 2, 2015, Cushman &

Wakefield Western, Inc. valued the Headquarters Lease at $46.8 million as of August 2015

and at $52.2 million as of September 2018. JX 119 at ‘331. Terramar averaged the lower

Cushman figure with an earlier appraisal from August 2014, which Terramar updated to

reflect subsequent capital expenditures. See Pettit Dep. 68–69, 111–12; Pettit Tr. 400.

Terramar did not produce the 2014 appraisal, but Pettit’s testimony implied that it was in

the range of $38.8 million. If Terramar had wanted to maximize the Company Fair Market

Value, as the Trust contends, then it could have relied solely on the future valuation from

the Cushman appraisal and placed a value on the Headquarters Lease that was almost $10

million higher. That in turn would have increased the Company Fair Market Value.

Terramar instead used a lower, blended valuation.

      Pettit testified that Terramar valued the Seaport Lease at approximately $14 million

by applying a 15% discount rate to the expected net operating income over the lease’s




      8
          Pettit Tr. 399–401; see Pettit Dep. 69; Zwieg Tr. 58.


                                             24
remaining life of roughly 2.75 years. Pettit Tr. 400, 412. Pettit referenced projected net

operating income of $6.25–6.5 million annually. The documentary record did not support

those exact amounts, but it came close. In 2014, Seaport Village generated net operating

income of $5,593,777. In 2015, it was $5,637,400. For 2016, the Company projected

$6,124,296. JX 226 at ‘077.

       Based on an internal Terramar spreadsheet, the Trust contends that Terramar

actually thought the leases were worth approximately $12.2 million less than the figure

implied by the Terramar Buy-Out Notice. The spreadsheet, titled “Seaport

Waterfall_9.30.2018_Annual,” was created for settlement purposes and provided to

Terramar’s expert, but it contains data that once had a business purpose. In a tab titled “Sell

Today @ end of 2015,” the spreadsheet valued the Seaport Lease at $9,562,544 and the

Headquarters Lease at $34,996,133, or roughly $12.2 million lower than the value that

Pettit said Terramar placed on the leases. JX 317.

       At trial, no one could say when Terramar computed the figures in the “Sell Today”

tab. In February 2014, Terramar’s then-CFO emailed an earlier version of the tab to

Cohen.9 In 2015, someone updated the spreadsheet to reflect the Company’s 2014 audited



       9
         JX 73; see Pettit Tr. 409 (describing the “Sell Today” tab as “a further iteration of
the Wendy Godoy file from February 27, 2014”). See generally Pettit Dep. 13–31.
Terramar contends that the lease values in the “Sell Today” tab are unreliable because they
were hard-coded. Although it is true that the values were hard-coded, the value for the
Headquarters Lease matches what the calculation would be using a reasonable 7.5%
capitalization rate. The hard-coded value for the Seaport Lease matched a calculated value
reached in a different cell.



                                              25
financials.10 Pettit, who joined Terramar in April 2015, indicated that his team never used

the “Sell Today” tab in the ordinary course of business. See Pettit Tr. 409–10. Pettit also

testified that Terramar’s audited financials reported the asset values reflected in the

Terramar Buy-Out Notice,11 although the Company’s audited financials in fact used values

closer to the “Sell Today” tab’s. See JX 104; JX 212.

       The evidence on this question is close, but it tips in Terramar’s favor. Section 9.5(a)

of the LLC Agreement required that Terramar form an opinion of fair market value that

took specified elements into account. Pettit testified credibly that the Terramar Buy-Out

Notice reflected Terramar’s actual opinion of Company Fair Market Value. See Pettit Tr.

413. Even the Trust’s expert acknowledged the subjectivity of opinions about fair market

value. See McNiff Dep. 303–04.

       The Cushman appraisal validates the reasonableness of Terramar’s figure and

Pettit’s testimony. Northstar obtained the appraisal when considering a loan to the

Company. The appraisal valued the Headquarters Lease as of August 2015 at $46.8 million,

just $10 million less than the aggregate lease value implied by the Terramar Buy-Out




       10
          See Pettit Tr. 416 (“Q. Okay. So at least as of the time this was prepared, there
were actual numbers from financial statements that had been generated through 2014. Is
that right? A. That is correct. Q. So this was prepared sometime in 2015. Correct? A. Yes,
it was updated, as I think I testified to.”). Compare JX 104 at ‘534 (cash flows from audited
2014 financials), with JX 317 (“Sell Today” tab with overlapping figures).
       11
         Id. at 412–13; see id. at 412 (“Q. What were the values for Seaport Village and
OPH that Terramar reported in its financial statements in 2015? A. 42.8 and approximately
14 million.”).



                                             26
Notice ($56.8 million). Terramar in fact valued the Seaport Lease at $14 million,

suggesting that its overall valuation was conservative.12

       After Terramar issued the Terramar Buy-Out Notice, subsequent events

corroborated its opinion of Company Fair Market Value. Although later evidence cannot

prove what Terramar subjectively believed in December 2015, it can reinforce or undercut

the credibility of Terramar’s assertion.

       One source of subsequent evidence is the appraisal process, where the appraisers

generated the following figures for the leases:

        Appraiser                     Headquarters Seaport Lease           Total
                                         Lease
        Terramar’s Appraiser           $43,400,000  $12,950,000         $56,350,000
        Limited’s Appraiser            $44,300,000  $12,500,000         $56,800,000
        Joint Appraiser                $44,000,000  $10,300,000         $54,300,000
        Terramar Buy-Out Notice        $42,800,000  $14,000,000         $56,800,000

All of the appraisals cluster in the same range, with the lease value from the Terramar Buy-

Out Notice matching the valuation from Limited’s appraiser in a context where Limited’s

interests aligned with the Trust’s.

       Another source of subsequent evidence is the bids received in September 2017. One

year and nine months after the Terramar Buy-Out Notice, the high bidder valued the



       12
          The Trust contends that the Cushman appraisal made unrealistically high
assumptions regarding the net operating income and occupancy rate of Old Police
Headquarters. See Cohen Tr. 279–81. I intimate no view on this assertion. Market
participants were free to value the Headquarters Lease based on the assumptions they
deemed appropriate. For purposes of corroborating Terramar’s assessment of Company
Fair Market Value, it matters that a third-party lender negotiating at arm’s length paid for
and relied upon the Cushman appraisal.


                                            27
Headquarters Lease at $42.5 million, which is consistent with Terramar’s valuation.

Although the Trust questions the probative value of the bid because it was conditioned on

due diligence, the evidence persuades me that the bid was credible and probative of fair

value. See JX 287 (showing pattern of serious bidding involving increasing offers); JX 297

(showing high bidder’s dismay at Terramar’s cancellation of sale process).

       If the values from the appraisals or the later bidders had been dramatically lower

than Terramar’s figure, then it would have supported the Trust’s claim that Terramar

inflated its opinion of value. Instead, the values from the appraisals and the later bidders

corroborated Terramar’s opinion. The evidence also shows that if Terramar had wanted to

inflate its valuation, it could have easily done so by relying only on the Cushman appraisal.

On balance, the evidence supports Pettit’s testimony and shows that Terramar complied

with its contractual obligations by including its opinion of Company Fair Market Value in

the Terramar Buy-Out Notice. Terramar subjectively believed the value it specified, and

that value was reasonable.13



       13
           Even assuming that the Trust proved Terramar did not subjectively believe its
valuation, that finding would not lead to the do-over that the Trust wants. The Trust
contends that a do-over would be necessary because Section 9.5’s requirements are
conditions precedent to dissolution. The parties did not brief the law of conditions
precedent, so I am not in a position to assess this contention. But it bears noting that Section
9.5 contains a series of requirements, and it is not clear to me that strict compliance with
every one of them would be required. The critical input for exercising the Put Right was a
determination of Company Fair Market Value. The Terramar Buy-Out Notice was the
initial step towards establishing Company Fair Market Value, but it was not the definitive
step. Because of the possibility of disputes over Terramar’s valuation, the LLC Agreement
included the appraisal procedure. If Terramar had overstated its valuation, then the
corrective measure was for the parties to follow the appraisal procedure, as they did (with


                                              28
                    b.     Breach of Fiduciary Duty

      The Trust contends that Terramar breached its duty of disclosure by intentionally

overstating the Company Fair Market Value in the Terramar Buy-Out Notice. As the

Company’s managing member, Terramar owed a “fiduciary duty to disclose fully and fairly

all material information within [its] control when [seeking] action” from the other

members.14 Although there was conflicting evidence on this point, I have found that the

Terramar Buy-Out Notice accurately disclosed Terramar’s opinion of the Company Fair

Market Value. Terramar therefore committed no breach.

      2.     Claims About the Terramar Purchase Price

      Just as the Trust contends (incorrectly) that Terramar overstated the Company Fair

Market Value in the Terramar Buy-Out Notice, the Trust also contends that Terramar

overstated the Terramar Purchase Price. The Terramar Buy-Out Notice reflected a

Terramar Purchase Price of $55,445,552. That figure equals the Waterfall Amount plus the

amount owed on Terramar’s Member Loans. Pettit Tr. 401–04, 423–25.




the Trust declining to participate). That process established the Company Fair Market
Value. It thus seems unlikely to me that any overstatement in the Terramar Buy-Out Notice
would lead to a do-over. I also doubt that a do-over would follow because the evidence
shows that any counterfactual breach by Terramar was immaterial to Cohen. He was not
going to buy Terramar’s units at anything approaching the value that resulted from the
appraisal process.
      14
          See Stroud v. Grace, 606 A.2d 75, 84 (Del. 1992); Feeley v. NHAOCG, LLC, 62
A.3d 649, 662 (Del. Ch. 2012) (“Managers and managing members owe default fiduciary
duties; passive members do not.”); see also Malone v. Brincat, 722 A.2d 5, 14 (Del. 1998)
(“Delaware law also protects shareholders who receive false communications from
directors even in the absence of a request for shareholder action.”).


                                           29
       The Trust concedes the math, but argues that the Waterfall Amount would have

been lower if not for Terramar’s past mismanagement. But Terramar reached its opinion

based on the actual Waterfall Amount. Under the LLC Agreement, Terramar had no

obligation to adopt the Trust’s counterfactual view. The same is true as a matter of fiduciary

duty, where the Trust had no obligation to disclose a figure based on self-flagellation.

Terramar complied with its contractual obligations and fiduciary duties when giving its

opinion of the Terramar Purchase Price.

       3.     Claims About Bad Faith Negotiation

       Under Section 9.5(c) of the LLC Agreement, after a minority member disputes the

contents of the Terramar Buy-Out Notice, the parties “shall, in good faith, attempt to reach

a mutually acceptable Company Fair Market Value.” If the parties failed to reach

agreement within thirty days, then the appraisal procedure would begin. The Trust contends

that Terramar breached Section 9.5(c) by negotiating in bad faith.

              a.     Failure to Provide Information

       The Trust argues that Terramar negotiated in bad faith by failing to provide

information about the opinions in the Terramar Buy-Out Notice about Company Fair

Market Value and Terramar Purchase Price. In its notice of dispute, the Trust asked

Terramar to “provide details on the assumptions and calculations” underlying those

opinions. JX 151. The Trust argues that Terramar improperly withheld those details.

       Terramar offered to provide the information that the Trust requested, as long as the

Trust agreed to an NDA. Terramar sent Cohen a proposed NDA and asked for comments.

JX 160. Cohen didn’t respond. See Cohen Tr. 249 (admitting “it would have been a good


                                             30
idea” to respond). Once Cohen gave Terramar the silent treatment, Terramar had no reason

to do more.

       The Trust argues that Terramar showed it was not interested in dialogue by

proposing an NDA that was too restrictive. The Trust objects that Terramar’s proposal did

not allow Cohen to provide information to third parties, like Desert Troon, but that is

exactly why Terramar wanted an NDA. Cohen had raised red flags by asking to market the

Company’s assets to third parties, and Terramar correctly believed that the LLC Agreement

did not permit an asset sale or marketing to third parties before the dissolution stage. See

Zwieg Tr. 59–60; JX 182. If Cohen had been interested in using Desert Troon to finance a

joint purchase of Terramar’s member interest with Limited, then he should have engaged

with Terramar and marked up the NDA to permit that. Terramar’s NDA proposal did not

evidence bad faith.

       The Trust also has not explained why it needed the numbers underlying Terramar’s

estimates to be able to negotiate with Terramar. Commercial parties commonly negotiate

in good faith without sharing their underlying calculations. As the Trust’s expert admitted

at trial, Cohen possessed sufficient information to form an independent judgment about

Company Fair Market Value. McNiff Tr. 533–36; accord McNiff Dep. 304–05. Cohen was

an original recipient of the Cushman appraisal, and he had received financial statements

and supporting data in the ordinary course of business as the Company’s broker. 15 After




       15
            See JX 98; JX 106; JX 111; JX 141; JX 142; Cohen Tr. 354–56.


                                            31
receiving the notices of dispute, Terramar sent Cohen the Company’s current balance sheet

and income statement, as well as statements for Old Police Headquarters and Seaport

Village. JX 156. When updated statements became available, Terramar promptly sent those

too. JX 159. To help Cohen understand the Terramar Purchase Price, Terramar sent the

Trust a chart of its waterfall priorities. JX 190. Terramar’s expert noted that Cohen could

have determined Terramar’s waterfall priorities based on the Company’s audited financials

and a spreadsheet that Terramar provided. See JX 338. Cohen never asked for more details,

because he did not need them. See Cohen Tr. 377–78.

              b.     The Joint Purchase Requirement

       The Trust next contends that Terramar breached the LLC Agreement and acted in

bad faith by saying that it only would consider a joint offer by the Trust and Limited to

purchase Terramar’s member interest. Terramar did not commit a breach because it

correctly understood what the LLC Agreement required.

       Section 9.5 of the LLC Agreement states that “[a]t any time after January 1, 2006,

[Terramar] shall have the right to give a notice . . . indicating to all other Members and to

the Company that [Terramar] desires to have its interest purchased by the other Members

of the Company.” JX 3 § 9.5 (emphasis added). Under the provision’s plain language, the

Put Right calls for a purchase “by the other Members,” not by either the Trust or Limited.

       At post-trial argument, the Trust argued for the first time that “the use of the plural

‘Members’ in Section 9.5 cannot possibly be read to exclude the singular member” because

of Section 12.9 of the LLC Agreement, which states that “[w]henever the context may

require, . . . the singular form of nouns, pronouns and verbs shall include the plural and


                                             32
vice versa.” Dkt. 164 at 96 (citing JX 3 § 12.9). But the context of Section 9.5 does not

require that the word “Members” include the singular. It requires the opposite.

       The Put Right established a mechanism for the other members to buy out Terramar

while retaining their relative positions vis-à-vis each other. Before the exercise of the Put

Right, Terramar owned 50% of the member interest, and Limited and the Trust each owned

25%. After a joint purchase, Limited and the Trust would maintain their equal shares, with

each owning 50%. If the Put Right permitted either Limited or the Trust to purchase

Terramar’s interest, then that member would have a 75% stake and achieve control. And

how would Terramar decide which member got to buy its interest? The Put Right did not

contemplate an auction; it contemplated a sale at the Terramar Purchase Price. And that

price would be determined ultimately by three appraisers: one picked by Terramar, another

picked by the minority members, and a joint appraiser. The appraisal mechanism did not

contemplate the Trust and Limited picking separate appraisers; it contemplated them

participating jointly in a purchase process (although in this case the Trust declined to

participate). The plain meaning of the Put Right contemplated a joint purchase by Limited

and the Trust so as to maintain the status quo between them.

       Assuming for the sake of argument that the LLC Agreement allowed one minority

member to accept the put unilaterally, then Terramar nevertheless was justified in insisting

on a joint purchase. At the time, the Limited Action was still pending, and Limited had

shown its willingness to litigate against Terramar. If Terramar had sold to the Trust, then

Limited could have claimed that Terramar was breaching its fiduciary duties and the LLC

Agreement by giving the Trust preferential treatment. See, e.g., Zwieg Tr. 59–60, 66–67.


                                             33
Terramar legitimately declined to take that risk.

       In a related argument, the Trust contends that Terramar frustrated the Trust’s efforts

to purchase Terramar’s member interest “by refusing to consider the Trust’s expression of

interest with Desert Troon, the Trust’s capital source.” Dkt. 159 at 53–54. As a threshold

matter, Terramar had no obligation to accept a unilateral purchase by the Trust that

excluded Limited.

       Terramar was also justified in not considering a sale of assets to a third party, which

Cohen appeared to be brokering. In the Trust’s notice of dispute, Cohen suggested a sale

to a third party and asked for confirmation that he could earn a brokerage fee. See JX 151

(“In the event that Mr. Cohen is successful in identifying a buyer, please confirm that Mr.

Cohen’s firm will receive the standard broker fee.”). In its indication of interest dated

February 9, 2016, Desert Troon sought to buy the Company’s assets—the Seaport Lease

and the Headquarters Lease—rather than Terramar’s member interest.16 By this time, the

contractual appraisal process had begun, and Terramar correctly concluded that it could

not sell the Company’s assets until the dissolution phase. 17 After the Dissolution Right




       16
         JX 179. In early February 2019, Cohen mentioned the possibility of the Trust and
Desert Troon buying Terramar’s member interest. PTO ¶ 27. When Cohen followed up to
confirm his proposal, he clarified that Desert Troon and the Trust actually wanted to buy
the Company’s leases. JX 179.
       17
          JX 182. Compare JX 3 § 5.6(b), (c), with id. § 9.5(d). See Zwieg Tr. 59–60
(explaining concern that Limited would challenge any decision to engage “in an off-market
deal arrangement or marketing without permission to market property”).



                                             34
ripened in November 2016, Desert Troon did not make a bid. Six unrelated entities did.

Terramar again acted properly.

             c.     The Alleged Failure to Negotiate

      Finally, the Trust argues generally that Terramar failed to negotiate with Cohen.18

It takes two to tango: The obligation to negotiate in good faith applied to all members

equally.

      On balance, the predominant responsibility for any lack of negotiation rests with

Cohen rather than with Terramar. As the Trust’s expert conceded, Cohen could have

responded to the Terramar Buy-Out Notice with a counteroffer. He never did. When

Terramar sent the Trust an NDA, Cohen never responded. When the time came to select

appraisers, the Trust disengaged. By contrast, Limited commented on the NDA and

selected an appraiser. Limited also demanded more information about the Company’s

business. JX 162; JX 164.

      Later, when Terramar reminded Limited and the Trust that the six-month period to

buy its interest was about to expire, Limited challenged Terramar’s computation of time.

Evidencing its good faith, Terramar offered a five-month extension. See JX 202. The Trust




      18
          Based on isolated quotations from a motion Terramar filed in the California
Action, the Trust asserts that Terramar has taken “the unsupportable position that it was
not obligated to negotiate with the Trust and refused to do so.” Dkt. 159 at 49. A closer
review of the motion reveals that Terramar argued that (i) the Company Fair Market Value
was non-negotiable in the sense that it was an output generated by a contractual process,
and (ii) Terramar was not obligated to negotiate with Desert Troon. See id., Ex. C at 12–
15. Both statements are accurate.


                                           35
stayed out of the picture. When Terramar later suggested moving forward with a third-

party process, Cohen refused to agree unless Terramar committed in advance to allocate a

share of the proceeds to the Trust.

       If anyone failed to negotiate in good faith, it was Cohen. The record also

demonstrates that any negotiations over the Company Fair Market Value would not have

succeeded. The price gap between the parties’ positions was at least $12 million. Cohen

never would have agreed to buy Terramar’s member interest for an amount that he believed

exceeded the value of the entire Company, and Terramar never would have accepted the

substantial discount that Cohen admitted he was going to demand. See Cohen Tr. 365.

       Terramar complied with Section 9.5 of the LLC Agreement when it exercised the

Put Right and the Dissolution Right. Terramar is entitled to a declaration that it may

dissolve the Company and unilaterally sell its assets to a third party.

B.     Disputes Over the Waterfall Amount

       Section 4.1(c) of the LLC Agreement governs the waterfall distribution. Terramar’s

expert calculated that Terramar was owed $47,795,000 under the waterfall as of December

31, 2018. Taylor Tr. 479. The Trust does not dispute Terramar’s calculation as a matter of

accounting or math. Instead, the Trust contends that the court should adjust this figure

downward because Terramar breached its contractual obligations and fiduciary duties

while operating and financing the Company between 2003 and 2017. In light of the

Settlement Agreement that became effective on October 2, 2015, the Trust’s assertions fall

into two groups: pre-effective-date conduct and post-effective-date conduct.




                                             36
      1.      Pre-Settlement Conduct

      The Trust asserts that Terramar engaged in various misconduct before the

Settlement Agreement became effective on October 2, 2015. Its principal allegations are

as follows:

     Between 2003 and 2010, Terramar caused the Company to incur over $15 million
      in pre-development costs for Phase Two, even though the Company had not yet
      gained control of Old Police Headquarters. Most of the costs were excessive fees to
      Terramar. Instead of paying those fees, the Company should have paid down the
      Terramar Priority Return, which grew by 11.5% annually.

     In 2010 and 2012, Terramar made capital contributions and Member Loans to
      finance the Company’s operations. Terramar’s financing unfairly increased what it
      was owed under the waterfall. The Company should have used cheaper third-party
      financing instead.

     Terramar used an ineffective negotiating strategy with the Port. Instead of entering
      into the Headquarters Lease in 2012, it should have conditioned its acceptance of
      the Headquarters Lease on the Port extending the Seaport Lease. Before 2012,
      Terramar had failed for years to diligently pursue an extension.

Terramar contends that the Trust’s pre-settlement challenges were released, are now time-

barred, and have been waived based on how the Trust conducted itself in this litigation. In

my view, the challenges were released and are time-barred, so this decision does not reach

the question of waiver, which raises subtler issues involving how the case was pled and

subsequently unfolded.

              a.     The Release

      Terramar first argues that the Trust released any challenges based on pre-settlement

conduct. In the Settlement Agreement, the Trust released the “Cohen Claims.” Comprising

sixteen categories of alleged misconduct, the Cohen Claims included claims based on the

following assertions:


                                            37
      “Terramar did not manage the [Company] properly”;

      “Terramar managed the [Company] in a manner that was intended to benefit
       Terramar at the expense of [the Trust] and to the detriment of the [Company] as a
       whole”;

      “Fees paid to Terramar, payments of interest to Terramar, [and] repayment of
       member loans or payments constituting equity returns to Terramar have all been
       improper”;

      “Failing to use debt financing when refinancing existing debt and funding
       development”; and

      “Failing to take advantage of historic low rates available in the market through the
       period that Terramar instead made capital contributions.”

JX 130 at ‘970–71. The Trust agrees that its pre-settlement challenges to the Waterfall

Amount are Cohen Claims.

       Although the Trust released the Cohen Claims in the Settlement Agreement, the

Trust argues that it only released its ability to assert its claims offensively, not to raise them

as affirmative defenses. The Settlement Agreement is a contract governed by California

law. Id. ¶ 8. For “releases in civil actions,” California law “imputes to a person an intention

corresponding to the reasonable meaning of his words and acts.” Jefferson v. Cal. Dept. of

Youth Auth., 48 P.3d 423, 427 (Cal. 2002) (internal quotation marks omitted). “[C]ontract

principles apply when interpreting a release, and . . . normally the meaning of contract

language, including a release, is a legal question, not a factual question.”19 “Generally,




       19
         Solis v. Kirkwood Resort Co., 114 Cal. Rptr. 2d 265, 269 (Cal. Ct. App. 2001);
see Hess v. Ford Motor Co., 41 P.3d 46, 54 (Cal. 2002) (describing interpretation of release
as “a question of ordinary contract interpretation”); Cal. Civ. Code § 1636 (“A contract


                                               38
California law dictates that a release extinguishes any obligation covered by the release’s

terms, provided it has not been obtained by fraud, deception, misrepresentation, duress, or

undue influence.” Nelson v. Equifax Info. Servs., LLC, 522 F. Supp. 2d 1222, 1230 (C.D.

Cal. 2007) (internal quotation marks omitted).

       The release in the Settlement Agreement is broad and all encompassing. In it, the

Trust and Terramar

       generally release[d] and forever discharge[d] each other from any and all
       manner of claims, actions or causes of action, in law or in equity, suits, debts,
       liens, damages, losses, costs, attorneys’ fees or expenses, of any nature
       whatsoever, known or unknown, fixed or contingent, accrued or not yet
       accrued, including specifically, but not exclusively, and without limitation,
       those arising out of, in connection with, or in any way related to the Cohen
       Claims or Seaport Village through the date of this Agreement.

JX 130 ¶ 2.1. Although this language does not contain the word “defenses,” it encompasses

not only “claims,” “actions,” and “causes of action,” but also “suits,” “debts,” “liens,”

“damages,” “losses,” and “costs.”

       In my view, the plain language of the Settlement Agreement prevents Cohen from

using the Cohen Claims to shift value between Terramar and the Trust. By styling the

Cohen Claims as defenses in this action, the Trust seeks to do precisely that. According to

the Trust, its defenses operate to reduce Terramar’s financial recovery following any sale

of the Company’s assets. As a result of the reduction, Terramar will receive less, and the

Trust will receive more. Although its arguments are nominally titled defenses, the Trust is




must be so interpreted as to give effect to the mutual intention of the parties as it existed at
the time of contracting, so far as the same is ascertainable and lawful.”).


                                              39
seeking to shift value from Terramar to the Trust by imposing losses on Terramar and

generating additional money for the Trust. The release extinguished the Trust’s right to

seek to impose losses on Terramar and recover on its own behalf.

       The broader context for the Settlement Agreement reinforces this interpretation.

Terramar and the Trust executed the Settlement Agreement shortly after Limited had tried

similar claims against Terramar in the Limited Action. The Settlement Agreement released

all of the claims that Limited tried, but carved out the phantom-income claim that Limited

dropped before trial. One month later, this court ruled against Limited on the claims that

the Trust settled. The release bars the Trust from asserting its pre-settlement defenses.

              b.     Timeliness

       In addition to being released, the Trust’s pre-settlement challenges are time-barred.

The applicable limitations period is three years. See 10 Del. C. § 8106. The Trust filed its

answer and affirmative defenses in this case on June 28, 2018, rendering untimely any

disputes over conduct predating June 28, 2015.

       The Trust asserts that claims “are not subject to statutes of limitations” when raised

as affirmative defenses. Dkt. 159 at 25. That broad assertion is incorrect. Instead, a narrow

exception to the limitations period exists that permits a defendant to use the defense of

recoupment to resuscitate a time-barred claim and reduce the amount of damages that a

plaintiff recovers. See TIFD III-X LLC v. Fruehauf Prod. Co., 883 A.2d 854, 860 (Del. Ch.

2004) (Strine, V.C.) (“To the extent that a valid recoupment claim is asserted defensively,

it is not subject to statutes of limitations.”); 80 C.J.S. Set-off and Counterclaim § 2,

Westlaw (database updated Mar. 2019) (“Recoupment is a common-law, equitable doctrine


                                             40
that permits a defendant to assert a defensive claim aimed at reducing the amount of

damages recoverable by a plaintiff.” (footnote omitted)). A defendant cannot assert just

any claim against the plaintiff as a defense; time-barred claims can only be asserted for

recoupment “when they arise out of the same factually-related transaction as the plaintiff’s

claim.” Finger Lakes Capital P’rs, LLC v. Honeoye Lake Acq., LLC, 151 A.3d 450, 453

(Del. 2016). The defendant also must show that “the recoupment claim seeks the same type

of relief as is sought by the plaintiff” and that “the claim is purely a defensive set-off and

does not seek an affirmative recovery from the plaintiff.”20 “Both the primary damages

claim and a claim in recoupment must involve the same litigants.” 80 C.J.S. Set-off and

Counterclaim § 65 (Westlaw (database updated Mar. 2019). “Where the contract itself

contemplates the business to be transacted as discrete and independent units, even claims

predicated on a single contract will be ineligible for recoupment.”21

       The TIFD III-X decision is directly on point.22 There, a limited partner exercised its




       20
         80 C.J.S. Set-off and Counterclaim § 36, Westlaw (database updated Mar. 2019);
accord TIFD III-X, 883 A.2d at 859. See generally Finger Lakes, 151 A.3d at 453
(distinguishing recoupment from set-off).
       21
          Id. § 36; see id. (“[O]ne contract alone is not sufficient to establish a ‘single
transaction,’ for purposes of the requirement under the recoupment doctrine that
countervailing demands of parties arise from the same transaction, since separate
transactions may occur within the confines of the contract.”); TIFD III-X, 883 A.2d at 864.
       22
          At post-trial argument, the Trust argued that Terramar waived its limitations
argument and could not rely on TIFD III-X by not briefing these issues before its post-trial
reply brief. Dkt. 164 at 74–75. “The practice in the Court of Chancery is to find that an
issue not raised in post-trial briefing has been waived, even if it was properly raised pre-
trial.” Oxbow Carbon & Minerals Hldgs., Inc. v. Crestview-Oxbow Acq., LLC, 202 A.3d


                                             41
right to dissolve a partnership and sought a declaratory judgment against the general partner

establishing how the contractual waterfall operated. The general partner contended that the

limited partner reduced the partnership’s profits by breaching the partnership agreement

many years ago. The general partner sought a remedy adjusting the distribution calculation

to increase its share of the payout. Chief Justice Strine, then a Vice Chancellor, held that

the historical claims of breach were time-barred and rejected the general partner’s attempt

to raise them as a recoupment defense. He reasoned that the time-barred challenges asserted

breaches of provisions other than the distribution provision, foreclosing recoupment. 23 He

also explained that the policies underlying statutes of limitation called for foreclosing the




482, 502 n.77 (Del. 2019). Despite the general practice, “[t]he determination of whether
vel non an argument is waived is highly contextual and ultimately a matter within this
Court’s discretion . . . .” REJV5 AWH Orlando, LLC v. AWH Orlando Member, LLC, 2018
WL 1109650, at *4 (Del. Ch. Feb. 28, 2018); accord Cent. Mortg. Co v. Morgan Stanley
Mortg. Capital Hldgs. LLC, 2012 WL 3201139, at *14 n.112 (Del. Ch. Aug. 7, 2012)
(Strine, C.) (“Although, as a general matter, arguments not briefed are deemed waived, this
is a principle of discretion . . . .”). Terramar raised the statute of limitations issue in its pre-
trial brief and identified it in the pre-trial order. While it is true that Terramar’s post-trial
opening brief made only a passing reference to it, the Trust’s answering brief responded
and cited authorities for the proposition that a statute of limitations does not apply to
affirmative defenses. Terramar properly used its reply brief to reply to this argument. The
Trust and Terramar both engaged on the issue during post-trial argument.
       23
          See TIFD III-X, 883 A.2d at 863–64 (“To the extent that [the limited partner’s]
claims arise out of any ‘transaction’ at all, that transaction was the dispute between the
parties regarding the interpretation of [the distribution provision] and the ensuing decision
by [the limited partner] to dissolve the Partnership, a ‘transaction’ to which [the limited
partner’s] alleged past breaches of the Partnership Agreement are unrelated.”).



                                                42
general partner’s effort to resuscitate its claims.24

       In this case, the Trust cannot resuscitate its time-barred challenges as a recoupment

defense because the time-barred challenges do not arise out of the same transaction as the

claims that Terramar has asserted under Section 9.5 of the LLC Agreement. Terramar’s

claims relate to Terramar’s exercise of the Put Right and Dissolution Right. The Trust’s

challenges relate to historical events involving alleged breaches of other provisions of the

LLC Agreement. See Dkt. 159 at 8–9 (asserting breaches of Sections 2.6, 3.2, 4.1, 5.4, 5.6,

and 5.10 of the LLC Agreement). The Trust’s challenges are time-barred.25



       24
          See id. at 865 (“[I]t makes little sense as a matter of policy to interpret the
transactional nexus requirement so broadly as to permit a party to sit on its contractual
rights and wait until dissolution to assert its claims. By that time, much of the evidence
pertinent to those claims, such as testimony of employees involved in the relevant events
who have long-since left the enterprise, might be unavailable or less reliable, and the
plaintiff might be unable to mount a successful defense. Moreover, when a significant
amount of time passes after a dispute arises and no claim is ever filed against a party, that
party tends to assume that the dispute has been laid to rest.”).
       25
           The parties litigated as if the limitations bar applied to disputes arising more than
three years before the Trust filed its answer. Although no one raised it, another possibility
is that the limitations bar applies to disputes arising more than three years before Terramar
filed its complaint. See 10 Del. C. § 8120 (“This chapter shall apply to any debt alleged by
way of setoff or counterclaim on the part of a defendant. The time of limitation of such
debt shall be computed in like manner as if an action therefor had been commenced at the
time when the plaintiff’s action commenced.”). The extended limitations period would
apply if the Trust had asserted its defenses as a set-off. “Set-off is a mode of defense by
which the defendant acknowledges the justice of the plaintiff’s demand, but sets up a
defense of his own against the plaintiff, to counterbalance it either in whole or in part.”
Finger Lakes, 151 A.3d at 453 (quoting 1 Victor B. Wooley, Practice in Civil Actions and
Proceedings in the Law Courts of the State of Delaware § 492 (1906)). But see 80 C.J.S.
Set-off and Counterclaim § 3, Westlaw (database updated Mar. 2019) (“[Set-off] is the
right which exists between two parties, each of whom under an independent contract owes
an ascertained amount to the other, to set-off their respective debts by way of mutual


                                               43
       2.     Post-Settlement Conduct

       The Trust contends that after the effective date of the Settlement Agreement,

Terramar acted improperly by (i) abandoning its efforts to extend the Seaport Lease, (ii)

sabotaging negotiations with NorthStar, and (iii) collecting unauthorized fees from the

Company.

       In the factual background section of its post-trial answering brief, the Trust argues

that Terramar should have acted differently in October 2015 when the Port declined to

extend the Seaport Lease. According to the Trust, Terramar should at least have sought a

short-term lease extension. The record convinces me that the Port would not have

reconsidered its decision. See, e.g., JX 12 at 9 (Port policy allowing lease extension where

a proposal is “consistent with the [Port’s] vision for the future use of the property” and

meets additional criteria). The Port had just determined that Seaport Village’s continued

operation was inconsistent with the Port’s development goals. Before the Port’s decision

became final, Terramar submitted a rebuttal. The Port was unconvinced.

       The Trust also asserts that Terramar sabotaged the opportunity for a loan from

NorthStar that would have freed up “as much as $8 million” to pay towards the Terramar

Priority Return. See Cohen Tr. 272. The record shows that the discussions with NorthStar




deduction, so that in any action brought for the larger debt the residue only, after deduction,
may be recovered. . . . It is a claim for affirmative relief, rather than a defense.”). At post-
trial argument, the Trust indicated that it does not seek a set-off, rendering this issue moot.
See Dkt. 164 at 78 (“There’s never been any claim for recoupment or setoff asserted by the
Trust.”).


                                              44
fell apart when the Port refused to approve changes to the Headquarters Lease that

NorthStar wanted. Terramar tried to convince the Port, but the Port would not budge. E.g.,

JX 184; JX 187.

       The Trust finally asserts that Terramar breached an unspecified provision of the

LLC Agreement by collecting excessive compensation from the Company without

contractual authorization. Most of the amounts pre-dated the Settlement Agreement, so

those challenges were released and are time-barred.

       In making this argument, the Trust appears to be focusing on Section 5.4 of the LLC

Agreement, which required the Company to engage Terramar for leasing, property

management, accounting, construction, development, financing, contracting, and design

services. See JX 3 § 5.4(d). Section 5.4 specified that any contracts for these services could

only involve a “Market Fee,” defined elsewhere in the LLC Agreement as “the payment

that a Person would receive for the performance of particular services in California as

reasonably determined by [Terramar].” Id. § 1.36. Citing the Company’s audited financials,

the Trust notes that Terramar received $2,026,620 in leasing commissions between 2003

and 2017, including $71,260 in 2017. E.g., JX 302 at 13. The Trust objects that the audited

financials “do not explain whether [Terramar’s] commissions reflected market rates, were

paid pursuant to the required contracts, or why Terramar was paid leasing commissions

when the Company engaged [a third-party] leasing agent.” Dkt. 159 at 43. Absent some

initial reason to question these charges, Terramar was not obligated to parse the Company’s

audited financial statements and introduce evidence at trial to support these items to the

Trust’s satisfaction. The Trust’s objections to these amounts reflect conclusory speculation.


                                             45
       3.     The Finding Regarding the Waterfall Amount

       The Trust’s assertions about Terramar’s conduct do not warrant an adjustment to

the Waterfall Amount. Terramar is entitled to a declaration that it has correctly calculated

the allocation of the proceeds from the sale of the Company’s assets after a dissolution.

C.     Remaining Defenses

       Finally, the Trust recasts its general complaints about Terramar’s conduct under the

affirmative defenses of unclean hands and equitable estoppel. The Trust also asserts that

Terramar breached the implied covenant of good faith and fair dealing by exercising the

Dissolution Right without the consent of the other members. Through these defenses, the

Trust seeks to nullify Terramar’s entitlement to declaratory relief and obtain a do-over.

       First, the Trust contends that even if Terramar is entitled to declaratory relief under

the LLC Agreement, its claims should be barred under the doctrines of unclean hands and

equitable estoppel. For support, the Trust asserts that Terramar has engaged in a pattern of

wrongdoing throughout the Company’s existence. In other words, the equitable defenses

repackage the arguments that this decision has rejected.26 These equitable defenses fail for




       26
         The Trust asserts two examples of inequitable conduct that were not resolved
above. First, the Trust contends that Terramar acted wrongfully by allocating phantom
income to the Trust. The Trust has not explained this argument in a level of detail sufficient
for the court to consider it. The Settlement Agreement discusses the phantom-income
claim, which arises from Terramar’s allocation of income to the Trust for the 2012 tax year.
The phantom-income defense is therefore time-barred.

       Second, the Trust asserts that Terramar induced the Trust to enter into the Settlement
Agreement in October 2015 because it did not inform the Trust that the Port would soon
decline to extend the Seaport Lease. As discussed in the Factual Background, the Trust


                                             46
the same reason that the underlying arguments fail. Because the Trust’s assertions did not

justify lowering the Waterfall Amount, it follows that the same assertions do not justify

cutting off Terramar’s relief completely.

       The Trust also invokes the implied covenant of good faith and fair dealing. The

Trust points out that Section 5.6 of the LLC Agreement requires 75% of the member

interest to consent to a dissolution of the Company or a “sale or disposition of all or any

substantial portion” of its assets. JX 3 § 5.6(b), (c). The Trust believes that it violates the

implied covenant for Terramar to rely on the Dissolution Right instead of seeking minority

member consent under Section 5.6.

       Invoking the implied covenant “is a ‘cautious enterprise’ that ‘is best understood as

a way of implying terms in the agreement, whether employed to analyze unanticipated

developments or to fill gaps in the contract’s provisions.’” Oxbow, 202 A.3d at 507

(footnote omitted). “Delaware’s implied duty of good faith and fair dealing is not an

equitable remedy for rebalancing economic interests after events that could have been




excluded this argument from its answer, contending that it should be heard in the California
Action instead. Three months before trial, the Trust moved for leave to assert its challenge
to the Settlement Agreement as part of a counterclaim. Leave was denied. That
determination is the law of the case. See Frank G.W. v. Carol M.W., 457 A.2d 715, 718
(Del. 1983) (“[T]he doctrine of the law of the case normally requires that matters
previously ruled upon by the same court be put to rest.”); Zirn v. VLI Corp., 1994 WL
548938, at *2 (Del. Ch. Sept. 23, 1994) (Allen, C.) (“Once a matter has been addressed in
a procedurally appropriate way by a court, it is generally held to be the law of that case and
will not be disturbed by that court unless compelling reason to do so appears.”). Finally,
the release did not become effective until Terramar paid the settlement consideration on
January 4, 2016. JX 130 ¶¶ 1, 2.1; JX 150. By that point, the Trust knew the Seaport Lease
had not been extended, but it accepted the settlement funds anyway. Cohen Dep. 89.


                                              47
anticipated, but were not, that later adversely affected one party to a contract.” Nemec v.

Shrader, 991 A.2d 1120, 1128 (Del. 2010); see Allied Capital Corp. v. GC-Sun Hldgs.,

L.P., 910 A.2d 1020, 1032–33 (Del. Ch. 2006) (Strine, V.C.) (“[I]mplied covenant analysis

will only be applied when the contract is truly silent with respect to the matter at hand, and

only when the court finds that the expectations of the parties were so fundamental that it is

clear that they did not feel a need to negotiate about them.”). “The implied covenant will

not infer language that contradicts a clear exercise of an express contractual right.” Nemec,

991 A.2d at 1127; accord Kuroda v. SPJS Hldgs., L.L.C., 971 A.2d 872, 888 (Del. Ch.

2009) (“[T]he implied covenant cannot be invoked to override express provisions of a

contract.”).

       The Put Right and Dissolution Right have independent legal significance. See E.I.

du Pont de Nemours & Co. v. Shell Oil Co., 498 A.2d 1108, 1114 (Del. 1985) (citing “the

cardinal rule of contract construction that, where possible, a court should give effect to all

contract provisions”); see also 6 Del. C. § 18-1101(h). If Terramar could satisfy the

requirements of those provisions, then Terramar was entitled to invoke them without

violating Section 5.6.

D.     Fee-Shifting

       Section 12.12 of the LLC Agreement provides:

       If any action is brought by any party against another party, relating to or
       arising out of this Agreement, or the enforcement hereof, the prevailing party
       shall be entitled to recover from the other party reasonable attorneys’ fees,
       costs and expenses incurred in connection with the prosecution or defense of
       such action. . . .

As the prevailing party, Terramar is entitled to recover its expenses from the Trust. The


                                             48
term “expenses” refers collectively both to attorneys’ fees and amounts paid out of pocket

that might be referred to more traditionally and colloquially as expenses. See Meyers v.

Quiz-DIA LLC, 2018 WL 1363307, at *1 n.3 (Del. Ch. Mar. 16, 2018).

                                 III.      CONCLUSION

       Terramar and the Trust shall confer regarding the amount of Terramar’s expense

award. If the parties cannot agree on an amount, then Terramar shall file a motion supported

by a Rule 88 affidavit. If there are other outstanding issues that the court needs to address

before a final order can be entered, then the parties shall submit a joint letter within fourteen

days that identifies them and proposes a path to bring this case to a conclusion at the trial

level. Otherwise, the parties shall submit a form of order implementing the rulings in this

decision.




                                               49
