      IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

B&L CELLULAR, B&R CELLULAR, CELLULAR PLUS                    )
OF WATERLOO, INC., INNER-AD, INC., J&J CELCOM,               )
DENNIS P. SHEAHAN, KENNETH L. RAMSEY, and                    )
LOWELL E. FERGUSON,                                          )
                                                             )
      Plaintiffs,                                            )
                                                             )
      v.                                                     )   C.A. No. 7628-VCL
                                                             )
USCOC OF GREATER IOWA, LLC, as successor in                  )
interest to United States Cellular Operating Company of      )
Waterloo, and UNITED STATES CELLULAR                         )
CORPORATION,                                                 )
                                                             )
      Defendants.                                            )


                            MEMORANDUM OPINION

                          Date Submitted: December 5, 2014
                           Date Decided: December 8, 2014

Ronald A. Brown, Jr., Marcus E. Montejo, PRICKETT, JONES & ELLIOTT, P.A.,
Wilmington, DE; Attorneys for Plaintiffs B&L Cellular, B&R Cellular, Cellular Plus of
Waterloo, Inc., Inner-Ad, Inc., J&J Celcom, Dennis P. Sheahan, Kenneth L. Ramsey, and
Lowell E. Ferguson.

Gregory P. Williams, Lisa A. Schmidt, Thomas A. Uebler, RICHARDS, LAYTON &
FINGER, P.A., Wilmington, DE; Attorneys for Defendants USCOC of Greater Iowa,
LLC and United States Cellular Corporation.

LASTER, Vice Chancellor.
       The defendants used their majority control over a partnership to sell its assets to a

related party. Upon closing, the partnership dissolved, and its interest holders received

their pro rata share of the sale price. The plaintiffs proved at trial that the transaction was

not entirely fair to the minority. This decision awards them their pro rata share of the

difference between fair value and the price the partnership received.

                           I.     FACTUAL BACKGROUND

       Trial took place on September 22, 2014. The following facts were proven by a

preponderance of the evidence.

A.     The Partnership And U.S. Cellular

       In 1986, Waterloo/Cedar Falls CellTelCo Partnership (the “Partnership”) received

a license from the Federal Communications Commission (“FCC”) to operate a wireless

network in the Waterloo/Cedar Falls, Iowa Metropolitan Statistical Area (the “Waterloo

Market”). The Partnership is a general partnership operating under the laws of the District

of Columbia. The Partnership was governed by the Amended and Restated

Waterloo/Cedar Falls Celltelco Partnership General Partnership Agreement dated

November 16, 1990 (the “Partnership Agreement”).

       Defendant United States Cellular Corporation (“U.S. Cellular”) is a publicly

traded corporation that provides wireless communication services. In 1987, U.S. Cellular

began acquiring interests in the Partnership through an indirect wholly owned subsidiary,

defendant USCOC of Greater Iowa, LLC (“U.S. Cellular Sub”). U.S. Cellular Sub

eventually acquired a 93.0329% interest in the Partnership. The remaining 6.9671%

interest was held by the plaintiffs.

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       The Partnership offered cellular service to the public under the U.S. Cellular

brand. In addition to its FCC license, the Partnership owned a network of cellular towers

and other equipment that was used to operate a wireless communications network in the

Waterloo Market. The Partnership had no employees of its own; it contracted with U.S.

Cellular to operate its business and provide a variety other support services including

human resources, legal, marketing, customer service, information systems, network

engineering, accounting, management, and strategic planning.

B.     The Asset Sale

       On August 5, 2010, U.S. Cellular gave notice to the plaintiffs that the Partnership

was calling a special meeting on August 30. The notice stated that U.S. Cellular would

exercise its voting rights at the meeting to cause the Partnership to sell all of its assets to a

related party. After that, the Partnership would liquidate, and the partners would receive

their pro rata share of the cash paid by the related party for the Partnership’s assets (the

“Transaction”). U.S. Cellular provided the plaintiffs with a report from Bond & Pecaro, a

valuation firm, which appraised the Partnership’s assets at $68,221,500. U.S. Cellular

stated that it would acquire the Partnership’s assets for that price.

       The plaintiffs objected to the Transaction. Although U.S. Cellular responded to

their objections, it did not change the terms. At a special meeting on August 30, 2010,

U.S. Cellular voted its interest in favor of the Transaction. The plaintiffs voted against it.

The Transaction closed on September 1.




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                               II.    LEGAL ANALYSIS

       The plaintiffs advanced three claims at trial. First, they proved that U.S. Cellular

Sub technically breached the Partnership Agreement by sharing confidential information

belonging to the Partnership with Bond & Pecaro, without formal authorization, but they

suffered only nominal damages from this breach. Second, they argued in their pre-trial

briefs that that U.S. Cellular Sub breached the Partnership Agreement by competing with

the Partnership, but they waived that claim by not presenting evidence on it at trial. Third,

they proved that the defendants breached their fiduciary duties by approving a self-

dealing transaction that was not entirely fair to the Partnership. The plaintiffs suffered

damages in the amount of $2,095,058.

C.     Breach Of The Confidentiality Provision

       The plaintiffs claimed that the defendants violated Section 4.15(b) of the

Partnership Agreement when they gave Bond & Pecaro access to information for use in

appraising the value of the Partnership’s assets. Section 4.15(b) provides that confidential

information about the Partnership will “not to be disclosed to third persons except to the

extent approved by the Partners by Majority Vote.” JX 13. The defendants never obtained

a majority vote, although U.S. Cellular easily could have done so.

       “The elements for a claim of breach of contract under D.C. law [which governs the

Partnership Agreement] are: (1) a valid contract between the parties; (2) an obligation or

duty arising out of the contract; (3) a breach of that duty; and (4) damages caused by

breach.” Millennium Square Residential Ass'n v. 2200 M St. LLC, 952 F. Supp. 2d 234,

247 (D.D.C. 2013) (internal quotation marks omitted). The parties do not dispute that the

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Partnership Agreement was a valid contract giving rise to an obligation not to share

certain Partnership information.

       The defendants claim that they did not breach the prohibition on sharing

confidential information because the provision was aimed at “third parties that could

harm the Partnership competitively,” not an advisor such as Bond & Pecaro. Dkt. 49 at

12. “Unless there is ambiguity, Delaware courts interpret contract terms according to

their plain, ordinary meaning.” Alta Berkeley VI C.V. v. Omneon, Inc., 41 A.3d 381, 385

(Del. 2012). Where parties intend for confidential information to be available to financial

advisors, the contract typically references financial advisors explicitly. See Richard

Charnov & Helen Curtis, Confidentiality Agreements: A Very Close Look (Part 1 with

Sample Provisions), Prac. Law., August 2010, at 46. The Partnership Agreement did not

contain any carve-ins or carve-outs. Bond & Pecaro was a “third person” within the

meaning of Section 4.15(b), so defendants breached the Partnership Agreement by

providing Bond & Pecaro with confidential information.

       The plaintiffs sustained only nominal damages from defendants’ breach. Nominal

damages are appropriate where the plaintiff has not shown proof of actual injury. Henson

v. Prue, 810 A.2d 912, 916 (D.C. 2002). U.S. Cellular could have used its 93.0329%

interest in the Partnership to approve sharing information with Bond & Pecaro. There is

no evidence that the plaintiffs would have been able to alter the terms of the Transaction

if they had learned that U.S. Cellular had engaged Bond & Pecaro to value the

Partnership at an earlier date. The defendants’ breach therefore did not cause the

plaintiffs quantifiable damages.

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D.    Usurpation Of Corporate Opportunity

      In pre-trial briefing, the plaintiffs argued that the defendants usurped a corporate

opportunity by acquiring another broadband wireless license in the Waterloo Market

through King Street Wireless, L.P., and they proposed to amend their complaint to add

such a claim. The plaintiffs never amended the complaint, and they did not present

evidence in support of a corporate opportunity claim at trial. The corporate opportunity

claim is waived.

E.    Breach Of Fiduciary Duty

      The plaintiffs proved at trial that the defendants breached their fiduciary duties by

approving a self-dealing transaction that was not entirely fair to the Partnership. The

District of Columbia has adopted the Uniform Partnership Act, see D.C. Code § 29-101

et. seq., which provides that partners owe fiduciary duties of care and loyalty to the

partnership and to one another. Id. § 29-604.07(a). The description of the duty of loyalty

owed by a partner under District of Columbia law is virtually identical to the description

of the duty of loyalty owed by a partner under Delaware law. Compare D.C. Code § 29-

604.07(b), with 6 Del. C. § 15-404(b). This is unsurprising because both statutes are

modeled on the Uniform Partnership Act.

      Like Delaware, the District of Columbia uses the business judgment rule as the

default standard of review for fiduciary decisions. See, e.g., Armenian Assembly of Am.,

Inc. v. Cafesjian, 772 F. Supp. 2d 20, 104 (D.D.C. 2011) aff’d, 758 F.3d 265 (D.C. Cir.

2014). The business judgment rule does not apply if a plaintiff rebuts one of the

presumptions in the business judgment rule, such as by showing that the fiduciary “had a

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personal financial stake” in the matter. Id. “Where the business judgment rule does not

apply, D.C. courts apply a less deferential standard of reasonableness [under which] a

court may have to undertake a potentially wide-ranging, fact-intensive inquiry into both

substantive and procedural aspects of a decision.” Id (internal quotation marks omitted).

       District of Columbia law provides that the entire fairness of a transaction is an

affirmative defense to claim of self-dealing in the partnership context. D.C. Code §29-

604.07(i) (“It is a defense to a claim under subsection (b)(2) of this section and any

comparable claim in equity or at common law that the transaction was fair to the

partnership.”). As the parties invoking the affirmative defense, the defendants bore the

burden of proving entire fairness. See, e.g., May v. Washington, Virginia & Maryland

Coach Co., 197 A.2d 267, 268 (D.C. 1964). See also Mayflower Hotel S’holders

Protective Comm. v. Mayflower Hotel Corp., 193 F.2d 666, 670-71 (D.C. Cir. 1951)

(“[W]here a fiduciary obligation is involved . . . the burden rests upon the fiduciaries to

establish the entire fairness of the transaction.”).

       The defendants did not establish any procedural safeguards to ensure a fair

transaction. As discussed above, when the defendants shared Partnership information

with Bond & Pecaro, they did not obtain the necessary approval from the Partnership, and

they did not notify the plaintiffs. The defendants did not appoint an independent

representative to negotiate on plaintiffs’ behalf, nor did they condition the transaction on

a majority-of-the-minority vote. When the plaintiffs objected to the Transaction, the

defendants went forward without any modifications. The plaintiffs voted unanimously



                                               6
against the Transaction. Under the circumstances, the process the defendants followed

was not procedurally fair. See Armenian Assembly, 772 F. Supp. 2d at 104.

      The defendants also did not prove that the Transaction was substantively fair. See

D.C. Code §29-604.07(i). At trial, both parties introduced expert testimony on the issue

of valuation. The defendants relied on Carlyn R. Taylor of FTI Consulting. The plaintiffs

relied on Richard H. Pierce of FOCUS LLC. Both used the discounted cash flow method

(“DCF”) to value the Partnership’s assets. Taylor also conducted a comparable

companies analysis.

      A DCF model is a “standard” approach that can serve as an exclusive valuation

method when “used responsibly.” Andaloro v. PFPC Worldwide, Inc., 2005 WL 2045640

(Del. Ch. Aug. 19, 2005) (Strine, V.C.). Both DCF models were sufficiently reliable to

use as the exclusive method for determining fair value. The experts differed on certain

inputs, and by order dated October 20, 2014, the court directed Taylor to modify her

model to reflect the court’s rulings on which inputs should be used.

      The parties agreed on the resulting calculation with one exception. The court

ordered that the revised DCF use projected capital expenditures equal to 5.6% of revenue

for the years 2016-2020. The parties disagreed as to the appropriate measure for

revenues. Taylor used gross revenue; Pierce used revenues on a net intra-company

roaming basis. The court previously adopted Pierce’s methodology, so the correct

approach is capital expenditures calculated as a percentage of revenue on a net intra-

company roaming basis.

      The resulting valuation of the Partnership’s assets is $98,292,235.

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F.     Remedies

       The revised DCF valuation provided a basis for a sufficiently “responsible

estimate of [the] damages” suffered by the plaintiffs. Del. Exp. Shuttle, Inc. v. Older,

2002 WL 31458243, at *15 (Del. Ch. Oct. 23, 2002). The plaintiffs were entitled to their

pro rata share of $98,292,235. They only received their pro rata share of $68,221,500.

They suffered damages equal to 6.9671% of the difference in value of $30,070,735. The

plaintiffs are therefore awarded $2,095,058 plus nominal damages of $1 for the

defendants’ breach of the Partnership Agreement.

       The plaintiffs have asked the court to award them their expenses, including their

attorneys’ fees. This court has in certain cases “exercised its discretion and concluded

that . . . a finding that the transaction was not entirely fair may justify shifting certain of

the plaintiffs’ attorneys’ fees and costs to the defendants who breached their fiduciary

duties.” In re Nine Sys. Corp. S’holders Litig., 2014 WL 4383127, at *52 (Del. Ch. Sept.

4, 2014). In this case, the court does not believe that fee shifting is warranted.

                                  III.    CONCLUSION

       The plaintiffs are awarded damages of $2,095,059 plus pre- and post-judgment

interest from September 1, 2010, until the date of payment. Interest is set at the statutory

rate, compounded quarterly, taking into account any adjustments in the underlying

Federal Discount rate. As the prevailing parties, the plaintiffs are awarded costs.

Otherwise, each side will bear its own expenses, including attorneys’ fees. The parties

will submit a form of Final Judgment implementing this decision.



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