Brandin v. Gottlieb
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IN THE COURT OF CHANCERY 01; THE STATE OF DELAWARE -ii: :-;; t, ,; L IN AND FOR NEW CASTLE COUNTY JILL F. BRANDIN and the JILL F. BRANDIN REVOCABLE TRIJST, Plaintiffs, V. ) > > > Civil Action No. 14819 STEPHEN P, GOTTLIEB, Defendant, ARGENT MARINE SERVICES, INC., a > Delaware corporation, ARGENT CHARTERING I, ) INC., a Delaware corporation, and ARGENT > CHARTERING II, INC., a Delaware corporation, ) No-rninal Defendar ts. ) MEMORANDUM OPINION Date Submitted: June 6, 2000 Date Decided: July 13, 2000 Peter .J. Walsh, Jr., Esquire, Michael A. Pittenger, Esquire, John M. Seaman, Esquire, of POTTER ANDERSON & CORROON, Wilmington, Delaware, Attorneys; for Plaintiffs. Samuel A. Nolen, Esquire, o-f RICHARDS, LAYTON & FINGER, Wilmington, Delaware: OF COUNSEL: Douglas H. Flaum, Esquire, of FRIED, FRANK, HARRIS. SHRIVER &. JACOBSON, New York, New York, Attorneys for all Defendants including Stephen P. Gottlieb, Pro Se. STRINE., Vice Chancellor This post-trial opinion addresses a number of claims brought by plaint.ff Jill F. Brandin ( Jill ) against her former business partner, defendant Stephen P, Gottlieb ( Stephen ) regarding his management of Argert Marine Services, Inc. ( AM!: ). Stephen owns two thirds of AMS s stock Jill owns the remairrder. In 1995, Stephen effectively ousted Jill from her management positions at AMS and essentially replaced her with his brother, Jay Gottlieb ( Jay ). The ensuing litigation pursuant to 8 Del. C. 5 225 resulted in a settlement agreement under which Jill gave up her role in AMS s management in exchange for substantial contractual protections against selfdealing and nepotism on Stephenns Ipart. Before the ink was dry on the peace treaty, Stephen and Jill were at legal war again over alleged violations of the Settlement Agreement and breaches of fiduciary duty by Stephen. In particular, Jill alleged that Stephen had violated the agreement by entering into sweetheart contracts with his brother Jay and by shifting onto the books of AMS certain expenditures that Stephen himself was required to pay. 1 use irst names for the reason that there are at least three Gottliebs mentioned m this opinion and bixause the parties used first Inames In thclr trial testimony. Moreover, the use of first names captures the once close - but now quite damaged -relationships at issue in the case. In this opinion, I, in major part, grant Jill the relief she requests by setting aslde a maior contract between AZ/IS and Jay Gottlieb, and by ordering a restoration to AMS of other contractually improper expenditures. Because Jill has prevailed on her contractual claims, 1 need not reach her claims that Stephen s conduct also breaclied his fiduciary duties. As a consequence of her status as the prevailing party, I also award Jill reasonable attorn:ys fees and expenses pursuant to the Settlement Agreement s feeshifting provision. I. ;General Factual Background A. Jill And-Stenhen m! A Business To Own - And Operate Two Lia.Natural Gas Tankers -~ During the late 1980s Stephen and Jill were principals in Argent Group, a Cnancial advisory firm the,y had both helped form that specialize in leveraged lease and project financing with a focus on maritime projects. During the late 198Os, Shell Elermuda (Overseas) Ltd. ( Shell ) want e d to purchase two liquefied natural gas ( LNG ) ships, the ARZEW and the SOUTHERN. Then as now., Shell was the dominant player in the intern:rtio.?al LNG market. But Shell facsd an obstacle to purchasing the vessels: they had been built with federal maritime subsidies. Under thenexistlrlg law, it was required that Americ;.m taxpayer-subsidized vessels be o~med by an American entity and operakd under a U.S. flag. Shell did not fit that bill. Stephen came up wirh a solution to the problem. He and Jill would form an American entity, Argent Marine Services, Inc. ( AMS ), that would own and operate the ships under lengthy time charters with Shell that gave Shell substantial control over the use and disposition of the ships (the Time Charters or Charters ). In accordance with their function as a proxy for a direct purchase of the ships by Shell, the Time Charters required Shel-I to pay hire, which included not a nly fees to AMS and its affiliates but er.ough to cover the debt incurred by AMS in purchasing the ships. IJs Ing this structure, Gottlieb negc tiated and drafted the Time Charters with Shell. As Gottlieb -- who had been head of Cadwalader, Wickersham & Taft s Leveraged leasing and project finance group before forming Argent Group ~~ stated at trial: 1 haId practiced for (close to sixteen years, drafting time charters and doing these types of transactions. . . . You can assume that I was an expert, and am an expert, in drafting leveraged lease charters, and that these charters are such charters. . . . The original Charters ran for twenty years commencing from 1Vovember 1990. the date of the vessels delivery. At the end of the 20-year Tr. at 3637 Charter ~~ or sooner if the ships were MO longer required by applicable law to be ~loczmented under the luws of the IJnited StateF3 --- Shell could purchase the ships for their fair market value plus the cost of paying off any outstanding debt still owed on the ships. The parties refer to this option as the Fair Market Value Option. At trial, Stephen Gottlieb explained why Shell vvarted the Fair Market Value Option: Because Shell on day one wanted these ships and couldn t have them, they wanted an option in the original charter so that when -- if and when you could get reflagging, they would have a window in which they could exercise the option.J Shell had another option under the Charters that allowed it to declare the ships obsolete ten years into the Charters. In that event, Shell would pay off the debt on the ships, and AMS would be entitled to the present value of a portion of the hire (due it for the remaining ten years of the Charters plus the ships scrap valuie. The parties call this the Economic Obsolescence Clause. Stephen and 5111 stood to gain from this arrangement in two primary vvays. First, the Charters provided for the payment of substantial hire to AMS as owner and operator in exchange for Shell s use of the ships. This hire included sums that AMS would1 turn over to its affiliate, Argent Marine JF, 4, j 14; JE 9, 5 14 (cmphasls added). I r. at 720. 4 Operations ( AMO ), which had the direct responsibility for maintaining, refuibishing, and operating the ships. Second, AMS would the benefit if Shell exercised the Fair Market Value Option at a favorable price. And even uncle-r the Economic Obsolescence ClausI.:, AMS would receive the present value Iof a lucrative stream of hire payments that far exceeded AMS s investment in the ships plus their scrap value, which in itself would be in excess of several million dollars. To consummate the Charters, Stephen and Jill formed AMS and AMO. As to AMS, Stephen Gottlieb owned two thirds of the stock, and Jill owned the rest. As to ATvIO, the record is unclear but suggests that they controlled that company, that Stephen owned a majority 01 shares, that Jill had a :ninority block., and that some of the company s employees were also cut in on the equity. Stephen and Jill shared management responsibilities at AMS. Stephe] was the Chief Executive Officer and President. Jill held the title of Vice President and Treasurer. For most of its (early history, Stephen and Jill comprised the entire board of AMS. 13. Shell And AMS I&z+@iate A Fixed Price -___Purchase ODtm(>n The Ships After the Time Charters were executed, AMS --- through AM0 began performing the extensive wor k necessary to put the SOUTHERN and 5 the Ali%E(W into service in. the LNG trade. But that work was halted in July 1993 when Shell instructed AMS to place the ships in deep lay-up. Despite this adverse development .:egarding the likelihood that the ship would sail in the near future, Shell had not lost interest in the ships. Even though Shell had no current us,e for the ships, it approached AMS in the spring of 1994 in order to negotiate an option to purchase the ships at a fixed price. According to Stephen, the ships were then dirt cheap versus a new .burld, which would have been $250 million . . . With Jill s help, Stephen negotiated an amendment to each of the charters. The amendment gave Shell an option to buy each ship for $96.4 million between January I 0 and December 3 1, 200 1 (the Fixed Price Purchase <Option ). If Shell exercised this Option, the Charters would terminate and Shell would have no further commitment to AMS or AMO. After accounting for debt, AMS would yj eld net profits of approximately S70 million if Shell used the Option to buy each ship. In exchange fo r granting the Fixed Price Purchase Option, AMS obtained a four-year extension of the Eccmnomic Obsolescence Clause, which prevented Shell from declaring the ships obsolete until August 2004. C. Stephen And Jill Have A Fallinp Out ---. In April 1995, Stephen took action that effectively ended his alliance with Jill. That month he elected his own brother, Jay Ciottlieb, to AMS s board of directors, an action that clearly signaled his intent to control AMS in the future. This move and other actions impelled Jill to bring suit against Stephen in this court (the 19 95 Litigation ). After trial, Vice Chancellor Balick ruled iagainst Jill on her claim regarding the appropriate composition of the AMS board. Shortly thereafter, Stephen and Jill began negotiating a settlement agreement. On August 15, 1995, those negotiations culminated in the execution of a final settlement agreement ( the Settlement Agreement or Agreement ), the: terms of which are critical to the resolution of the currert dispute between Stephen and Jill. D. The Terms Of Tl&Settlement Agreement -___The basic concept behind the Settlement Agreement is deceptively simple. For his part, Stephen got Jill s resignation as an officer, director, and employee of AMS and its affiliate companies. He also got Jill s agreement not to participate in the management of those companies as well as her relinquishment of her shares in Ah40 and another AMS affiliate, Argent Marine Management, Inc, ( AMM ). For her part, Jill got the right to continue to share in the value of the hire generated by the Charters, including a share of the hire due to AMO. Jill also obtained significant restrictions on Stephen s discretion to manage AMS. E. The Hin- Due To Jill IJnder The Settlement -4greement L-___-. IJnder the Settlement Agreement, Jill was to receive one third of the cash flow of AMS after the payment of its permissible expenses, which were strictly defined by the Agreement. Moreover, in exchange for giving up her interest in AMO, Jill obtained ,a provision in the Settlement A:,;reement requiring that a contract between AMS and A.MO be amended so as to ensure that AMS would recei\,e so-called interim hire within the meaning of s 8(a)(iii) of the Charters. According to the agreement of the parties, this interim hire was to be transferred to AMS from AM0 on a monthly basis. Through this transfer, Jill would benefit because Iof her right to one third of AMS s net cash Ilo\> s. F. The-Managerund Expense Restrictions Jill Negotiated To Protect Her Cash Flow From AMS Jill sought to protect her distribution stream from AMS by negotiating strict lirn: ts on AMS s scope of business and its ability to incur expenses. AIU~~I ai that time had a dif ferent name. 8 Because these limits are critical to resolving this case, I will now describe them in some detail. 1. AMS Was Required Toocus Its Business Solely &n The ARZEW m:The SOUTHERN Jill negotiated a strict limitation on the permissible activities of AMS. IJnder 4 8.1 (c) of the Settlement Agreement, AMS was prohibited from the conduct of any significant business activty . . outside the business of owning, chartering, refurbishing, laying up, improving, maintaining or operating the vessels now owned by AMS . . . . As Stephen put it, the Agreement made [P&IS] a special .purpose corporation, so that this corporation basically could do busmess only with these two ships. If I wanted to do anything else., I had to go do it with another vehicle. 2. The Eznse Limitations Imposed On AMS 13~ The Settlement Agreement -.~ Under the Settlement Agreement, .Jill negotiated to limit AMS s expenses to only three categories. The permissible expenses consisted of: ( 1) the payments on Iexisting loans made to AMS by Jill and Stephen; (2) the payment of a management fee to AMbl for the management of AMS; and (3) necessary expenses as defined in the Agreement. The second and third of thle:se limitations are at issue in this case. At rial, Jill explained that she war ted these limitations in order to protect her cash flow. As she put it at trial, the income was relatively certain from Shell. The only way that Steve could get money out to disadv,antage me was, through the payment of these kinds of expenses. I wantled to be sure there was a cap on these expenses. I wanted to be sure there was a cap on these expenses and they were very clear as to what could or could not be spent out of the company. The key expense limitations are contained in 5 8.4 of the Settlement Agreement. That section caps the amourlt of rnoney AMS will pay to Stephen to manage the business. It does so by providing for the payment of a variable management fee to AMM (the Management Fee ), out of which AMR4 must cover the overhead costs necessary for AMS to function. AMM may keep any excess not necessary for that purpose but is responsible for paying those costs even if the Management Fee is less than is required. Thus $ 8.4.2(iv) of the Agreement expressly prohibits AMS from paying its own general overhead costs other than as expressly contemplated in the Agreement. ___. * Tr. at 17. See U/SO tr. at 699 (Stephen testifying regardmg his understanding that the agreement IIn-iltetl ,lis ability to go out and through expenses run out the mcome ). 10 The Settlement Agreement otherwise limits AMS to paying for neC~3Sary expenses., which includ e any reasonable fees and expenses incurred by AMS in connection with the conduct of the business of owning, chartering, refurbishing, laying up, improving, maintaining, operating or selling the Vessels . . .I But even as to necessary expenses, the Agreement has further limitations. In addition to the prohibition on general overhead costs, two other limitations are important here. First, 5 8.4.2 of the Agreement provides .that necessary expenses cannot be paid to or on behalf of Stephen. Second, the Related Persons Provision of that section of the Agrecmclt prohibits the payment of exp:nses to Stephen s brother Jay and other identified persons related to Stephen unless the following conditions are satisfied: (a) said payments are made only pursuant to a written contract, entered into prior to the performance of services, that is fully disclosed to JIFB [-Jill] by the earlier of 30 days after execution of the c ontract or the d,ate services are to commence under the contract and that is certified by SPG [Stephen] in writing as being in compliance with this subsection 8.4.2., (b) the Related Person providing such services is objectively qualified to provide the services described in the written contract, (c) the fee compen sation (other than tk!e reimbursement of reasonable, documented out-of-pocket expenses incurred after the execution of the contract providing for the provision of services which relate to the provision of such services and are not 11 disproportionate to the goals sought to be achieved by the contract) is on a contingent basis so that after payment of the contingent fee, the stockholders of AMS, in their capacity as such, shall be no worse off than had such contingent fee and cost reirnbursement not been paid, i.e., that either the income of AMS shall increase and the residual value of the Vessels shall not be adversely affected by an amount greater than the present value of such :increase or that the value of their investment in AMS, taken as a whole, shall have increased, nrzd @,, the total compensations paid to sdi Related Person represents faiv value Jh the services rendered (with fair value meaning value within the range of what would be paid to an independent third party, negotiating at arms length, providing equivalent services). G. Il_e_ace Break&Do)n/n Immediatelv By February of 1996#, Jill and Stephen were back in this court. Jill brought suit alleging, among other things, that Stephen had breached the Settlemect Agreement by causing AMS lo make improper payments to himself or entities he controlled and by causing AMS to enter into improper contracts with 1J.S. Capital, a one-man investment banking firm operated by Jay Gottlieb, and with Argent Group, Stephen s former firm at which his brother Marty Gottlieb was a partner. Those claims were either resolved by Vice Chancellor Balick in a summary judgment decision or have been mooted by subsequent events. Later in this opinion, I address the partie.1; arguments regarding what, if any, attonxys fees are payable as a result of lhese claims. For now I mention 12 them only to make clear that Jill and Stephen have been in litigation against each other continuously since February of 1996. II. Jill s Current Claims AndStephen s Coun&erclaims Given the unwieldy number and nature of the claims currently at issue, I intend to set forth my findings of fact and conclusions of law as to each claim sequentially. For her part, Jil:. has presses the following claims: l Stephen improperly caused .4MS to enter into a 1997 contract with Jay Gottlieb s firm U.S. Capital (the 1997 U.S. Capital Agreement ). According to Jill, the 1997 U.S. Capital Agreement violates the Settlement Agreement s limitation on expenses paid to persons related to Stephen (the U.S. Capital Claim ) and constitutes, a breach of fiduciary duty. l Stephen refused to provide Jill with copies of documents due her under the temls of the Settlement Agreement (the Document Access Claim ). Jill contends that Stephen s refusal to give her copies of the documents was not excused by any prior breach on her part of the confidentiality provisions of the Settlement Agreement. m Stephen caused AMS to make certain modest payments that fall within the Settlement A.greement s definition of prohibited general (overhead expenses or related party payments (the General Overhead Claims ). CD Stephen failed to ensure that AMS received the proper amount of interim hire from An40 (ihe Interim Hire Claim ). cm Stephen caused AMS to pay for all his legal expenses in defending this action (the L.egal Fees Claim ). Jill contends that this constitutes an improper expense on behalf of Stephen and is therefore prohibited by the Settlement Agreem ent. 13 For his part, Stephen has asserted by way of affirmative defense that Jill violated the confdentiality provisions of the Settlement Agreement by discus.sing aspects of the 1995 Litigation with Stephen s e-x-wife, Shannon Such. According to Stephen, Jill provided Such with information that caused her to come to Delaware to l ook at the file in the 1995 Litigation and to later sue Stephen for fraud in connection with their divorce settlement. Stephen claims that he was subsequently justified in limiting Jill s access to infilrmation about AIMS because of the seriousness of this prior breach. I will address Stephen s affirmative defense at the same time I address Jill s Document Access Claim. Finally, both Jill and Stephen make claims based on a provision of the Settlement Agreement that provides for the prevailing party in litigation between them to recover his or her attorneys fees and litigation expenses. I will resolve this issue after addressing all of the other issues in the case. III. I,e!zal Analysis A. Jill s Challenge To Thea 7 U.S. Caaital Agreement Jill s U.S. Capital Claim is the most substantial of her claims from a monetary standpoint. Under the 1997 U.S. Capital Agreernent, U.S. Capital and its sole owner, Jay Gottlieb, stand to receive $3.8 million when Shell 14 buys the SOUTHER~N and the ARZEW in 2001, as AMS now has the right to make S#hell do. As noted earlier, Shell had approached AMS in the Spring of 1994 seeking an option to buy the vessels at fixed price because they were dirt cheap. In exchange for certain concessions, Shell obtained the Fixed Price Purchase Option, which gave i.t the right to buy each vessel for $94.4 million in 2001. After Jill s and Stephen s falling out, Stephen brought his brother Jay into Ihe business as a virtual partner. Stephen had Jay elected to the AMS Board. In that capacity, two of Jay s initial acts were to vote in favor of subsfantial bonuses for Stephen without conferring with Jill, who was at that time the third director of the company. When Jill left AMS as an officer, Jay GottliEb stepped in as interim Treasurer but did not receive compensation due to the Related Persons Provision of the Settlement Agreement. When Jill left AMS, Jay was Iseeking work and needed income. His previous managerial role at a metal can manufacturing firm had ended and there IS no evidence in the -record that he (or his business, .U.S. Capital) had other Immediate prospects. 1 1.. at 733.-34. 15 In 1996, Steph.en brought Jay on board at AMM and AM0 for remuneration of$200,000 rhat year. By lhe end of 1996, Jay had become President of AMO, and his salary was increased. In years 1997-l 999, Jay s annual compensation frorn AMM and AM0 averaged well over $250,000. In hi,5 capacity as President of AMO, Jay was responsible for running the entity charged with rnaintaining and refurbishing the vessels. But according to %phcn, Jay s work was nowhere near full time. When Stephen. brought Jay into AM/IS, AMM, and AMO, Jay had virtually no maritime experience, and in particular, no experience in the LNG shipping market. Before coming to AMS, Jay s most substantial experience had been as a manager of a manufacturer of metal cans, although he did get some limited maritime experience dealing with that company s barge operations. His firm, U.S. Capital, was basically a one-man show formed to make equity investments in companies that Jay would help operale. 13efore its to-be-detailed involvement with AMS, U.S. Capital had only performed investment advisory services for one client looking to make an acquisition in the gaming industry. 16 Had Stephen merely hired Jay for a substantial salary at AMM and AMO. Jill would have no legal basis to complain. But Stephen did not stop there. 1. aeephen Hires-L-Cauital mnd Other Uses For The Vessels U S. Even Though They Were Already Obligated To Shell Under Long-Term Time Charters -~ In January 1996, Stephen retained U.S. Capital to find alternative ernployment for the vessels ( the 1 996 1J.S. Capital Contract or the According to the Contract, Shell was giving less attention to shipping activities, and Stephen had been contacted by Shell about scrapping the vessels if employment for them was not found by the end of 1998. Stephen therefore wanted to explore other options for the vessels. Under the Contract, Jay was to (devote: a substantial portion of his time to identifying a transactio-n to supplant the Time Charters with Shell. His compensation was to be five percent of the net consideration paid to AMS in any alternative I JE 102. at JRO01585. 1 note, however. that Shell could not scrap the vessels untd 2004 and that it would have been 1rratlonz.l for Shell to scrap vessels it could control until 2010 If a viable economic use could bc found for them. 1 also note that just a year or so before this, Shell secured the Fixed Price Purchas z Option because the vessels were, according to Stephen, a bargam. transaction and was to be wholly contingent on the consummation of such an alternative transaction.15 It is quite obvious that no other LNG firm in the world would have retained Jay for this assignment. He was a total unknown in the maritime industry, and there are investment banks and ship brokerage firms that have expertise in the LNG sector of that industry. Rather, Jay was hired because he was Stephen s brother, because Stephen was already paying him a fulltime salary for work at AMM and AMO, and because Stephen trusted him. Abser t the first of tbzse 6z:tors --~ Jay s status as Stephen s brother -- it is unlikely that the other two would have existed. U.S. Capital was not selected through any process resembling a true market search for the best firm to do the -iob. Stephen s testimony on this subject is confusing and ultimately unpersuasive. While he essentially admitied at trial that there were firms with more experience than Jay in the rnaritime industry, Stephen basically conceded that he made little effort to inquk into their p0tentia.l interest in the assignment or the terms on which they would undertake it. In this regard, Stephen claims to have contacted Lazard Freres and Merrill Lynch and come away convinced that they did not ------ -__~_ Ii JE 102, at JB001587 (statmg that compensation for Jay s serwces would equal five percent of rhe compensation paid (net of related expenses) .md five percent of any charter hire or other reycnues payable .. both of which fees wer .: subject to certain conditions). 18 have a strong capability in .the shipping arena and that they would not do the work on a purely contingent basis. Likewise, although Stephen admitted that there are firms that specialize in finding employment for vessels, he testified that he did not hire any of them because he needed an investment banking capability. For several reasons, L conclude that Stephen s testimony that he actual y considered other firms cannot be credited. First, had he been seriously interested in getting the best deal, Stephen had the maritime contacts to do a survey of the relevant firms and make a meanitngful inquiry into their capacity and willingness to perform the assignment. His contention that he made calls to Lazard and Merrill and became convinced that they did not Ihave the necessary horse power might be more persuasive if Jay had better credentials. But given Jay s overall lack of experience, it is hard to imagine that Lazard and Merrill - or other firms ~~ were not worth a closer look. Second, even though Stephen could have hired any non-Related Person on a non-contingent basis, Stephen eschewed any consideration of that option. As will become even clearer later, Stephen uses the Related Person Provision as a, justification for his actions by applying the following ------------. l r. at 821. 19 circular logic, which I paraphrase as follows: Because qualified, experienced firms would not work for a contingency and vvould want some guaranteed compensation if no deal panned out, I ruled them out. Because U.S. Capital was a Related Person, I could not pay it a fixed fee or a reasonable hourly rate. Therefore, I hired U.S. Capital on a pure rive percent contingency. Third, Stephen s rationale for hiring Jay was also premised on an advantage he had already bestowed upon Jay. That is, Stephen had already commanded Jay s tirne by hiring hirn at lZMM and AMO. Because Jay was already a director of AMS, it was consistent with Stephen s obvious goal of making Jay a junior partner in the business to bring him in with an upside on the AMS end of things. Fourth, Stephen s failure to consider ship brokers because they were not investment bankers is also less than compelling, given that Jay s firm did not do classic investment banking work and because, as is discussed below, Jay farmed out all the serious financial analysis required by his contractual responsibilities. Basically, what Jay did was look for opportunities to employ the vessels, a task a full-time ship brokerage fiml was far better equipped to do than Jay. And insofar as Stephen was relying upon Jay s 20 ability to structure deals, the evidence supports a finding that Stephen himself was far better equipped to structure a deal involving these vessels than ,J,ay. Is Finally, my perception of Stephen is that he is a sophisticated, careful businessman. He would not have engaged a non-family member with so little relevant experience without conducting a more aggressive and thoro ugh market check. As to the fees due Jay under the 19196 U.S. Capital Contract, there similarly do not appear to have been any hard-fought fee negotiations betwelzn Jay and Stephen. It is not quite clear how the five percent figure was reached, but it vvas, and the AMS board ~~ consisting of Stephen, Jay, and Stephen s sots David Gottlieb ~~ approved the contract. Jay then went off to earn his contingent payment, which was an improbable assignment at best. Under the Time Charters, Shell had the absolute right to control the destiny Iof the vessels and could preclude them from being used by anyone else. Stephen knew that Shell had a policy against allowing its own vessels to participate in non-Shell projects. __----. . l r. at 822. .-2t trial. Stephen gave a ~;ery cogent and len:;thp narratwe presentation regarding the Time C hartert;, the economic ratlonale foor them, and how 1 hey worked. Moreover, his confident demcan~)r. relevant experience, and obvious knowledge of the relevant issues belies his claim that he was less suted to do these tasks than Jay. Because Shell is probably the most savvy player in the world LNG market as well as one of the largest, it was also quite doubtful that Jay woul d stumble upon a use for the ships that Shell did not already have wind of, and even if he did, Shell. had the contractual ability to extract most, if not all, the added value from AMS if such an opportunity came to pass. Nonetheless, Stephen was apparently unnerved by Shell s references to scrapping the vessels and by their la:y-up status, and he evidently believed it impon.ant to keep AMS s options open. A-t the same time Stephen had Jay .:)ursuing the alternative use strategy, Stephen himself e-mbarked on a more important and logical task: seeking legislation that would allow AM!3 to reflag the vessels. 1 briefly discuss what each did next. 2. Jay Comes l,l~ Empty A&r the 1996 U.S. Capital C ontract was executed, .Jay set about doing a market survey of the LNG industry. He then made contacts with a number of industry players who had possible uses for the vessels. Building upo n these leads. Jay pitched various ideas, usually centering upon the idea of a joint venture bevween an industry player and his and his brother s I0 1.1.. at 8 16 (Stephen s explanation of Shell s positmn in the industry) 22 companies. Jay appears to have relied upon Argent Group to perform the financial analyses that supported his proposals. Llndoubtedly, .Jay became more knowledgeable in the LNG industry during this period. This is not surprising, because Jay is an intelligent and experienced businessman (even though he did not have extensive knowledge of the maritime industry) and his brother Stephen had allowed him to invest all of lis professional time working in the LNG industry on behalf of AMS, AMM, and AMO. Despite all of Jay s efforts, however, none of the deals he proposed came loft: One obvious reason for this is the fact that She].I controlled the ships under the Charters and soon reiterated to the Gottliebs that it had no interest in having other companies use them. Shell bluntly told AMS to take the for sale sign off the ships. Significantly, many of the transactions that Jay pitched went beyond the permissible limits of AMS s business under the Settlement Agreement. Rathcl- than being limited to the ARZEW and the SOUTJXERN, the transactions Jay proposed were designed to enable AMM and AM0 to expand their operations in the LNG sector. Thus Jay s proposals were presented on behalf of At-gent Marine Companies , a set of companies comprised of Stephen s LNG entities, rather than AMS. Although under the 23 1996 IJ.S. Capital Contract, AMS was to foot the bill for Jay s success, Jay admitted at trial that: Q. Did you know that the business of AMS was, by contract limited to owning and operating the Arzew and Southern? A. . [N]one of the kinds of transactions that I ve talked about here today in ary way, shape or form required to be successful the involvement of AMS as a corporation, or the use of AMS as a corporation I . . . Q. Well, when you were meeting with these people, did you have an understanding as to what the settlement agreement meant, whether it limited itself or limited the business of AMS to owning and operating the Arzew and Southern? A. I m sure I did. Q. But you were also talking joint ventures and acquisitions with these entities. Were you not? A. But that had no relation to AMS.20 Although Jay and Stephen had a rather awkward disagreement about this issue at the time of trial, both apparently now agree that the 1996 U.S. Capila.1 Contract is dead. As I will soon discuss, however, this contract is Stephen s primary justification for his decision to sign the 1997 U.S. Capital Agreement. fr. at 1034-45: see u/so 1.1 . at 840 (Stephen :; acknowledgement that Jay \vas also pitching the serv,ces of AMO). 24 3. With -Shell s H&Stephen Succeeds In His Refl,@ing Initiative During this same period, Stephen sought -- with Shell s assistance and support --- congressional permission to reflag the vessels at a date earlier than the law would otherwise permit. This effort rna de perfect economic sense for AMS -- and Shell. After 211, the only reason for AMS s existence was Shell s legal inability to own and operate vessels that had been built with subsidies from U.S. taxpayers. If Congress would allow the vessels to be reflagged, then the vessels would become much more viable to operate. Under a foreign flag, the costs of operating the vessels would decrease by roughly $3 million per year per vessel. In 1996, Stephen and Shell succeeded in having Congress add to the Coast Guard s annual authorization bill a rider enabling AM.7 to reflag the ARZF.\ and the SOUTHERN. This eventuality greatly increased the chances that Shell would exercise its Fixed Price Purchase Option and buy the vessels outright in 2001 . l As Stephen s own expert testified, the best Whet iel ii made sense for American taxpayers IS ;I question for others to consider. ? Although :Stephen testlficd that the vessels could have been reflagged by 1998.1999, see tr. al 684 ( In 98. 99. basxally you would have the first opportunity under U.S. law to attempt to ref lag them. ), Stephen mentioned that other nilerests sometImes prevent that. lo!. Given the substanilal erfort Stephen devoted to gettmg the ability to reflag earher and Shell s involvement m that effort, I consider it a significant achievement and motivating factor. Moreover, Stephen gave little explanation of the precise nature of the a ther interests that potentially hindered 25 way for Shell to take full advantage of the cost savings that could be achieved ay reflagging was to control the ownership and operation of the vessels. Of course, this had been Shell s goal from the beginning. The success of the r&lagging initiative was followed by a renewed interest by She11 in activating the ve:ssels. By July 1997, Stephen had become aware that Shell had signed a long-term sub-time charter for the use of the SOUTHERN. Stephen also believed that Shell would soon reactivate the AR%E:W as well. That same month, the AMS board fcjrmally voted to reflag the vessels in the Marshall Islands. and the vessels were officially reflagged on August 1, 1997. The record is clear that neither AMS nor U.S. Capital had any role in finding a Jse for the ;SOUTHERN. :Shell itself found that use. 4. Stephen Bootstraps Them.96 U.S. Capital Contract Into The -___- 1997 U.S.Capital Agreement Stephen s next move is the most controversial one. Having reflagged the vessels, knowing that Shell had identified specific uses for them, and having realized that Shell had wanted to 1:)uy the vessels for itself all along, Stephen sensed the opportunity to extend the Time Charters or improve their terms. Even better, Stephen wanted to convert the Fixed Price Purchase rcllaggl lg. and no doubt specific congressional approval cut through many possible admm.strati\;e obstacles. 26 Option into an obligation on the part of Shell to purchase the vessels. That is, Stlz,?hen wanted to turn Shell s option into AMS s put by renegotiating the Time Charters Of Icourse, the negotiation of time charters is Stephen s stock-in-trade. IIe had structured the original Time Charters with Shell and had also negoliated the Fixed Price Purchase Option. Despite this, Stephen undertook to hire Jay to spearhead this effort unde-r a contract that provided for Jay to receive two percent of the total value #of any resulting transaction, i.e., total purchase price of the vessels upon any sale or total present value Iof charter hire or equivalent payments under any charter. 23 In simpler terms, because this 2% figure equals 5% of AMS s net, the Agre ement gave Jay approximately 5% of the profits to AMS in the event that the Fixed Price Purchase Option became a put -- or 3.8 million. Ln this regard., the 1997 U .S. Capital Agreement essentially mirrors the earlier 1996 U.S. Capita-l Cor,tract.2 IJnder the 1997 U.S. Capital Agreement, Jay was to: 1. negotiate zmd have clocurnented with SBOL [Shell] or one or more of its affiliates or subcharters, new bareboat or time charter parties with respect IO each of the SOUTHERN and ----- JfI 129, at 2. SW note 15, .su,wtr. showing that Jay was to recei\re 5% of the consideration net of related expcw,~s recewed by AiVlS under the 1998 U.S. Capital Contract. In any event, this case does not turn on this issue. 27 ARZEW such that (A) the cash flow to AMS is significantly increased over what it is on the date hereof and/or (B) the duration of the charter parties is extended beyond 20 10, thereby enabling the Company to qualify and realize upon the residual values of the vessels; and/or 2. negotiate and have clocurnented with SBOL [Shell] or one or more of its affiliates an early buy-out of one or both vessels so that SBOL s [Shell s] current optiom to purchase are converted to oblig&ons on the part of SBOL [Shell], an affiliate or a subchar,ter to do ~0.~~ The 1997 U.S. Capital Agreement itself acknowledges that Shell had a strong int erest in using the vessels on a long-term basis: SBOL [Shell] and its affiliates have endeavored to find long-term employment for the Vessels within one or another of the Shell LNGi projects. These efforts on the part of SBOL [Shell] have resulted in the lixing of a long-term sub-time charter on the SOUTHERN which will bring it into service sornetime in c.alendar year 2000, should the project for which the vessel is intended proceed. We also understand that SBOL [Shell] is currently in negotiations to fix a second long-term sub-time charter with respec:t to the ARZEW. Service under that sub-time charter would commence sometime between 2000 and 2003. 6 . . . At trial, Stephen gave two explana.tions for his decision to hire Jay to do a task that Stephen himself was better equipped to do. The first reason was that Stephen was too busy himself. This explanation was not ,terribly credible, however, given that Stephen was ------ ---_ .Jli 129, at 2 (smphasls tn original) JE 129, at 1 (emphasis added). 28 unable to persuasively explain what else he was doing at the time. By July 1997, he no longer had to spend substantial time on the reflagging initiative. Given Stephen s expertise in time charter negotiations and his long-standing relationship with Shell, it is difficult to see why his involvement in this critical task did not rank high on his managerial priority list. Indeed, as things turn out, he attended most of l;he l~:y meetings with Shell regarding the renegotiation oft he charters. By conirast, Stephen contended, it took far less than Jay s full energies to manage AMO, even though managing AM0 is mclre time-consuming than managing fiMS. Yet Stephen (a selfproclaimed expert in this area who had once managed a major law firm s lever;a;sed leasing and project finance department) was somehow too busy to attend to the key issue confronting AMS and had to rely on Jay, who, one would have thought, had even less time. Stephen s second reason is the plausible and convincing one; namely, that he hired Jay because he felt responsible to Jay because Jay received no compensation under the 1996 U.S. Capital Contract. As Sl.ephen testified when ;Isked why he did not consider other sources of expertise: THE CO1JRT: h-1 97, when that came around, you never - you just had already mentally X d out Argent Group as a possibility? THE WITNESS: No, I felt Jay had done a lot of work in 96. He surfaced three or four deals which he will tell you 29 about when he iarrives. Those deals were the things that gave us a seat at the table with Shell, because for the first time we could say, It isn t true that there isn t business for these ships. There is a lot of business out there for these ships, we think, in th!e right set of circumstances. And it was, under those circumstances that in 1997, when this turned to a negotiation with Shell, I felt that I couldn t, with Jay or any other party, say, Well, thank you very much for what you have done up to this point, Jay. I m now going to bring somebody else in to do this. * * * But in any event, the real answer to your question is I wouldn t have done that to U.S. Capital. . .27 It bears pausing upon this explanation for several reasons. As an initial and critical ma.tter, it is important to note how Stephen has converted the suppo,sedly contingent 1996 U.S. Capital Contract into an entitlement on U.S. Capital s part to another contract. If the 1996 U.S. Capital Contract was truly contingent, then lJ.S. Capital took the risk that no transaction would occur. Had U.S. Capital not been owned by Jay, I strongly doubt that Stephen would have felt the same moral obligation toward that firm. * ----- ------. Tr. at 437.38: .sre CI/.SO tr. at 825.-26 (acknowledgmg having felt a moral obligation to Jay). : Ln f&II-ness. Stephen also claims that Jay s \\ork under the 1996 U.S. C apltal Contract made Jay umquely quaIlfled to renegotiate the Time Charter. Defs. Post-Trial Reply Br. at 13. But Stephen also argues that It is irrelevant that .Jay had no relevant experience before the 1996 lJ.S. Caprtal Contract was slgned. Id. at 13 n.6. By this reasoning, Stephen s (now unchallengeable as moot) initial decision to hire his mexper~cnccd brotl-er becomes hisJustification for considering only his brother to handle ihe 1997 work. This argument is an inventive, if ultimately unpersuasive, attempt to ~ustlfy nepotistic behavior. 30 This consideration is especially relevant in light of the absence of any connection between the work 1J.S. Capital had done under the 1996 U.S. Capi,tal Contract and the favorable prospects for turning the Fixed Price Purchase Option into a put. The key factors in that regard appear to have been the reflagging and the fact that Shell had found long-terms uses for the vessels on its olvn. Although Stephen contends that Jay s attempt to find other ruses for the ships shook things; up and got Shell focused on the vessels, that contention has little fo-rce in view of the strong evidence that Shell wanted to control the vessels all along, never had any genuine intention of allowing any other company to use them, knew more about potential uses for the vessels than Jay could ever hope to discover, and acted promptly to deploy and gain more control over them once the reflagging initiative succeeded. Similarly, the method by which Stephen set the fee lacks any indicia of a genune arms-length approach. According to Stephen, he based the two percent fee on two factors. First, he considered Stephen s previous market survey in connection with the 1996 U.S. Capital Contract. But, as I conclttded earlier, Stephen did not perform a genuine market search before signing the 1996 U.S. Capital Contract. Moreover, the tasks to be accomplished in 1997 were quite di-Fferent, consisting entirely of 31 renegotiating the Charters with Shell. This, however, was an area in which Jay had no previous experience. 9 One might think that AIMS s change in focus ~ from investigating the possibility of deploying the vessels with otlher companies to hammering out a better deal with Shell - would open the door to consideration of other professionals for a set fee or on an hourly rate basis. There is no evidence that Stephen explored these options The second factor Stephen relied on was the advice of the mergers and acqusitions partner at Fried, Frank, Harris, Shriver & Jacobsen who had negotiated the Settlement Agreement. That lawyer opined that the two percent was a figure in line with what n-,ajor investment banks or bo utique tirms would charge and that the fee was fair because it was entirely contingent.3 This attorney based his advice on the assumption that U.S. Capital would be providing financial advice rather than just renegotiating the Time Charters with Shell. Furthermore, while this advice provided Stephen with some basis for setting the compensation, the Fried, Frank lawyer appears to have treated IJ.S. Capital as ifit were a full-fledged investment bank that would bring a ----__ ___. I See Lr. at 9X8-89 (Jay conceding that U.S. Capital had never previously carned a fee for negoti,Itmg a charter and had never been rctamcd to negotiate a charter other than in connection \vith Argent Group or AM13). I r. at 850. < Goltkn Dep. at 177-80. 32 wea1r.h of expertise alnd talent to bear on the deal. Without belittling Jay s skills, IJS. Capital is not one of the premier investment banks in the United States. It is a one-man operation that had performed financial advisory servilzzs for only one previous client. Nor does it appear that Stephen s Fried, Frank advisor was aware of the precise nature of the work to be done, whether LJ.S. Capital would do all of that vvork itself, or the extent of the risk that a transaction would not be consummated with Shell. Yet relying upon thelie two factors., Stephen supposedly negotiated the two1 percent fee at arms-length with .Jay. 5. &q and SteghenNetrotiate With SM Jay soon got to work on the effort IO convert the Fixed Price Purchase Option to a put. But he was not on al sole mission. On September 1, 1997, Jay wrote to Shell with a proposal to replace the current time charter arrangements, including the single fixed price purchase option . . for the ARZEW and SOUTHERN. Jay enclosed cash flow analyses with the proposal, which also included the possible option of a so-called U.K. tax lease. The financial analyses and U.K. tax lease portions of the propoisal, however, were rot prepared by Jay, the investment banker whose fee was pegged to that of Wall Street firms. Rather, those i .IE 130. at 00007. 33 analyses were prepared by Argent Group, Stephen s former maritime investment advisory firm, which appears to have been serving at that time on an Xormal basis as supplemental financial advisors to AMS. Jay also got advice on strategic issues fi-om Argent Group. In November of 199 7, Jay met with Shell. He was accompanied by Stephen and their brother, Marty Gottlieb, of Argent Group. Shell later rejected the specific proposals advanced at that meeting but appears to have been willing to consider modifying the Charters. On March 3, 1998, Shell sent Stephen formal notice that it was reactivating the SOUTHERN, having orally advised AMS of that fact much earlier. Stephen and Jay met with Shell representatives a rnonth later. At or around that time, Stephen and Jay must have gotten a strong sense that Shell was interested in restructuring the Charters, given that Shell agreed to pay for additional advisors to help AMS in the process of that effort. On June 1) 1998, Stephen formally retained Argent (Group as financiai advisor to AMS in connection with efforts by [U.S. Capital] to effect a restructuring . . . . The agreement between the two firms set forth the responsibilities of Argent Group, in its capacity as financial advisor, as follo~~s: __--__ -. li .Il: 130. 34 u conduct qu.anti tative analyses of various Restructuring options; u assist in structuring, anakyzing and/or implementing a crossborder financing and/or a foreign sales corporation structure; a analyze various bareboat and time charter alternatives with the objective of maximizing the net economic benefit to AMS; e analyze and prepare formal presentations relating to the economic benefits to AM S and Shell of various alternatives as compared to current time charter arrangements; 0 identify and quantify the tax characteristics of various alternatives together with the impact thereof to AMS and Shell; e identify and recommend approaches to compensate/eliminate/minimize adverse tax consequences from various alternatives; 0 evaluate and identify financing requirements and preferred financing structures for various alternatives; and 0 prepare risk profiles and supporting defenses for achieving acceptable tax treatment for each of AMS and ShelL3 IJnder its agreernent with AMS, Argent Group was to receive $300 an hour plus expenses. Shell agreed to reimburse AMS for all of these costs. Aside from help from Argent Group, Jay had assistance from two respected law firms. The first, Gilmartin, Poster & Shafto: a firm 35 specializing in maritime law, handled all the key drafting on AMS s behalf. The second, the Fried, Frank firm, provided tax advice. As it did with Argent (31.OLLP, Shell reimbursed the costs for these advisors. 5 In addition to this substantial assistance, Jay was supervised by Stephen, an expert in time charter negotiations who attended and participated in the key meetings with Shell. Alrnost two mlonths after Argent Croup s formal retention, Shell and AMS struck a deal on a Restated Charter for the SOUTHERN. The Restated Charter ir. effect ends the Charter in 200 1 . At that time, Shell must exercise the Fixed Price Purchase Option or, failing that, will be deemed to have terminated the Charter and must pay the same amount as i-fit exercised the optior , approximately $96.4 million. In (exchange for this agreement, Shell obtained concessions8 from AM0 that increased Shell s ab-ility to control the reactivation and operation of the vessel before 2001. In May 1999, !Shell notified A.MS in writing that the ARZEW should be reactivated. Jay t%llowe:d up with Shell as Vice Chairman of ANIS and asked that Shell consider renegotiating tl-,e ARZEW s Charter.36 On October 5, 1999, that charter renegotiation was accomplished on terms essentially L~ltimately. Jay was the only AMS adwsor whose fee Shell refused to pay. l r. at 434 I5 JFI 102. 36 identical to those in the SOUTHERN s Charter, except for the provision of higher payments to AMO, the firm of which Jay is President. The record regarding what Jay in fact did in connection with the renegotiation of the Charters is not v~oluminous. Aside from one Powerpoint presentation, substantial portions of which were prepared by Argent Group, there is little in the way ol written analysis prepared by Jay. Although Jay contends that he performed such analyses, the fairer reading of the record is that whenever there was any number-crunching or sophisticated analysis to be performed, it was done by someone else at Argent Group, AMO, or at the law firms advising AMS. In essence, Jay appears to have operated solely as a negotiator who jawboned Shell as a method of encouraging them to renegotiate the Charters. These efforts appear to have involved some correspondence, a number of phone Cal s, and some face-to-face meetings at which Stephen played an important role. Malting it all the more difficult to sort out are the facts that Jay had other important reasons to spealc with Shell on a regular basis on account o F his work at AM0 and that Jay kept no records of the time he spent working under the contract. 37 The crucial factor that Jay brought to the table, in his own estimation, was his ability to gra:sp the ineffable strategic reasons Shell had to convert the Fixed Price Purchase Option to al put. If the strategic reasons were the obvious ones -- that Shell wanted the ships all along, that the Fixed Price Purchase Option price was substantially less than the price of building comparable vessels, that Shell could operate the vessels more cheaply once reflagged, and that Shell was willing to algree to buy them so long as Shell could exert more control over their operations until the purchase date ~ then he strategic reasons were certaimy known to Stephen, and he did not have to pa.y Jay handsomely to identify them. After all, Stephen was the one who 1came up with th e complicated charter arrangement that enabled Shell to effcclively control thle vessels in the first place. At irial, Jay could not identify any other non-obvious rationale for Shell s decision. Jay simply could not verbalize a less evident strategic motivation of Shell s that he had discerned and used as a lever to get the deal. Furthermore, il: is implausible that Shell did what it did because Jay s efforts led it to believ:e that there were uses for the vessels. As Stephen admitted, Shell knew more about the LNG market than anyone and had 1 r. at 963-64: ic2 . at 107Ci (Jay refemng to hltnsclf as the strategic analyst and deal guy ) 38 found uses for the vessels without AMS :; assistance. And although no one should underestimate the significance of persistence, Shell s contractual and rnarket pclwer gave it no incentive to do a deal with AMS simply because Jay and Stephen were yammering at it. Stephen s expert witness conceded as much, testifying that there would have to be an explicable, rational economic reason for Shell to do the deal. 6. Conclusions Of Law ---. Regarding The 1997u.S: Capital Agreeme& Jill claims that the 1997 U.S. Capital Agreement is invalid because it fails to comply with the Related Persons Provision of the Settlement Agreement and because it was a self-interested transaction. Thus she contends that Stephen has failed to satisfy his burden of demonstrating that the Agreement was entirely fair to AMS. Jill s contract claim centers on the fact that the Settlement Agreement generally forbids AMS from entering into a contract with Jay or any entity he controls. Under 5 8.4.2(d) of the Settlement Agreement, AMS may only make payments to Jay if: (d) the total compensation paid to such Related Person re p kn [i.e., Jay] res t, st an value for the services rendered f (with fair value meaning value within the range of what nould be paid to an independent third party, negotiating at arms length, providing equivalent services). 39 Although the parties joust about whether Jill relies upon other subsections of the Related Persons Provision, they do agree that Jill has focused her aim largely on subsection (d). In that regard, Jill contends that no rational businessman who was himself an expert in time charter negotiaticlns would have offered 1J.S. Capital two percent of the total transaction value of converting the Fixed Price Purchase Option into a put in exch:ange for U.S. Capital s willingness to negotiate with Shell, particularly when that businessman had the expert assistance of an investment advisor and two law firms to supplement his own expertise. For his part, Stephen contend!< thal he made a good faith business judgment to hire Jay., that Jay obtained a beneficial outcome, and that there is no evidence that the conlTact rate was out of line with what other firms would have charged for equivalent s,ervices. For several reasons, 1 concludle that Jill has proven that the 1997 U.S. Capital Agreement does not comply witkl subsection (d) of the Settlement Agreement s Related Person Provision. In so concluding, I begin with my understanding of the central purpose of the Related Person Provision: namely, that Related Persons would only be retained by AMS when their I do not reach any of Jill s arguments rcgartiing tte other subsectmns 40 retennon was on terms that would have made economic sense to a neutral businessperson uninfluenced by family bias. In my view, Stephen s approa ch to the retention of 1J.S. Capital subverted that purpose. Indeed, he turned the restrictions in the Related Persons Provision into a justification for violating the Provision. For example, he essentially failed to consider hiring other more qualified firms on thfz basis that they would not work on a purely contingent basis. As a result, he disabled AMS from using far more experienced and expert advisors who might have provided services for an hourly rate that would not, in the end, have cost AMS nearly as muc ,r. Of course, Stephen justifies his decision on the basis that he did not want AMS to pay fees in the event that no transaction came to pass. But he never treated the 1996 U.S. Capital Contract as the pure contingency contract it supposedly was. If business reasons motivated .him to use a contingency approach in that contract, why did business reasons not lead him to seal-ch for the most effective, least expensive way to achieve the much Inarrower and less risky task ofrenegotiating the Time Charters in 1997 after it was clear that Shell had a long-term interest in the vessels? The reason is obvious. Jay was Stephen s brother, and Stephen did not treat Jay like an arms-length contractor. Stephen therefore turned the contingent 1996 41 Contract ---- under which .Jay performed ziervices for Stephen s other companies as well as AMS - into a moral entitlement and an excuse for Stephen s failure to consider more qualified contractors in 1997. It is inconceivable that a disinterested businessperson would have proceeded as Stephen did. No other LNG tirrn would have engaged Jay in the first instance. Certainly, no other LNG firm would have engaged Jay at the rate Stephen did with the understanding that Jay would rely on another financial advisory firm to provide the necessary financial analyses. Unlike Jill, I d o not take the view that Stephen was required to do all the negotiating with Shell himself. Nonetheless, it is a factor in my determination that Stephen holds himself out as an expert in time charter negotiations and that Stephen was the person with the preexisting relationship vvith Shell and the more sophisticated understanding of the LNG market. Though Stephen attempts to downplay his financial expertise, he was the one who structured the original deal, negotiated the Fixed Price Purchase IOption, and founded Argent Group. Given that these vessels were ------ ---. At trial, JI 1 dud not press~ a claim that Jay WBS not objectively qualified as defined in subsectton (b) of :he Related Persons Provision. Nonetheless, it bears notmg that Jay was only objecttvely quailtied in the most literal sense. It is true that he vl.cas a businessperson with financial expetxxlce. But to the extent that WC arc in an age m whtch somewhat greater speciallratron is typical ofprofesstonals. the decision to retam Jay appears to have been decidedly old-fashioned. h dwnterested dectsionmaker would have hned a competent professional wth scnne actual crpertlznce m the marttnne mdustr-y, particularly the LNG market. 42 the only aspect of AWIS s business, that the reflagging initiative was complete, that Stephen had the relevant expertise and contacts, and that Stephen had other qualified advisors to assist him, why did he need to bring Jay i-nto the picture to renegotiate the Time Charters? Again, the reason seems to be that Jay was his brother and Stephen did not want to cut him out. 32 It is true, as Stephen contends, that the record is sparse regarding what market rates were for services equivalent to what Jay provided. This sparseness does not disentitle Jill to a judgment in her favor. One of the major reasons for the lack of evidence of market compar-ables is that Stephen did not seriously consider other professionals to perform the services Jay rendzrecl. Another reason is that it is clifficult to value the price one would pay l)r the inexperienced owner of a one-man firm (who was already being paid over $250,000 a year by related entities) to negotiate with Shell -- with the assistance and supervision of a boss who is an expert in such negotiations ~~ with the aid of a much more experienced Financial advisory Gnn performing all needed. analytical work - and with the support of two law lirms performing the key drafting and legal analysis. The ~~cason cannot bc that Jay brought fmanclal c~pertlse Stephen did not possess. For one thmg, Stephen was fully competent to grasp the flnanclal xsues at stake. Most important, Argcnt GI.OLI~ was doing the key financial analyses. not Jay. 43 What evidence exists suggests that there would have been a substantial discount in any fee that Jay could command as a result of such heavy reliance on others. Stephen s contention (through his own testimony and that of his expert) that Jay should receive a fee comparable to an invest1ner.t bank is undercut by the fact that investment banks would be expected to do the work that Argent Group and AM0 employees did for Jay. Moreover, the testimony of Stephen s expert, who is an officer at a leading ship b*okt:rage f irm, supports the conclusion that expert brokers knowledgeable about the shipping industry could be engag,ed at a rate less than what Jay received under the I997 U.S. Capital Agreement. Finally, the fact that Argent Group was retained for a $300 hourly rate suggests that AMS 1cou.d have obtained services equivalent (more likely, superior) to what Jay provided on a far more economical basis. 3 Although such an arrangement may have required AMS to .oay out of pocket,14 Stephen s failure to zive any consideration to this option is baffling, as I mentioned earlier, in view of the relatively narrow task at hand and Shell s demonstrated and long-standing interest in owning the vessels outright. .4ccording to Stephen, he pays Jay a salary at AM vl and AM0 based on a hourly rate of $250 IO S300. Two thirds of S3.8 million would gi\c Jay a contingency premium far in excess of that ra1.e. Indeed, as the plamtlff points out. the Argent Group worked at $300 an hour and thcrcfor: would have had to put in over 12,000 hour< to earn a $3.8 mllllon fee. - Or pc<hap:; not. given that Shell appeared to be so Interested in doing the deal as to pay reasonable hourly txtcs for experienced advwxs retained by AMS. 44 For all of these reasons, I conclude that the 1997 I.J.S. Capital Agreement does not icompl,y with subseclion (d) and therel-ore violates the Related Persons Provision of the Settlement Agreement. In addition, I reject Ste-phen s request that I modify that Agreement to set a rate of compensation thal would be fair. There is nothing in the record that would enable me to tailor isuch a fee, in view of the unusual nature of Jay s arrangement, Jay s inability to keep time recor,ds, and the fact that he failed to keep his work for AM0 and AMS distinct. In that regard, however, I note that if Stephen merely pays his attributed two-thirds responsibility under the Agreement, he will more than adequately compensate Jay for Jay s time and effort. 5 On the other hand, the remedy for this breach should be set after further input from the parries. Given Jay s absence as a formal party, it may be th;at the proper remedy is to require Stephen to indemnify AMS for one third of the amount due Jay rather than to void the 1997 U.S. Capital Agrelz mcnt. 4.1, .wpK. l hat ~vould provide Jay with more than Stephen s alternative suggestion that I reduce the -4greement rate from 2% to I %, an amount paid to Stephen s expert for services in an an,llogous context. i see note 45 7. Because Jill Has Prev& On Her Contract Claim, 1 Do Not-Reach Her BrewIf Fiduciary Duty Claim Jill also claims that the 1997 U.S. (Capital Agreement is a self-dealing contract and that Stephen has not met his burden of showing that the contract is fair. Stephen claims that Jill is estopped from raising this claim because the Settlement Agreement states tha-t Jill may not bring a claim for mismanagement unless that claim rests on a violation of the specific terms of the Settlement Agreement, in this instance, the Related Persons Provision. The parties competing positions raise a nice question of Delaware law, namely, whether a stockholder in a closely-held corporation that is not clesigrated as such under the Delaware General Corporation Law can agree to lim t her ability to press .a breach Iof fiduciary duty claim against the directors of the corporation? Stephen says yes, emphasizing that Delaware corporation law favors uncoerced, private ordering, which is what occurred here. Jill says no, arguing that a stockholder may never waive her right to asserl a claim for breach of the fiduciary duty of loyalty. I leave that question for another case, however. With respect to Jill s fiduciary duty claim, I note merely tlhat if it is later found upon appeal that Jill dltl not prove a breach of the Settlement Agreement and that Jill does 46 have the right to challenge the 1997 U.S. Capital Agreement as a fiduciary duty breach, it is clear to me that Stephen has not met his burden of showing that the Agreement was fair to AMS. B. Did Jill s Material Breach om.3 of the SettlerlEnt Agreement Excuse Stephen s F&e To Complv Wi& __~The Literal -___- Terms ol 3 of the Agreement? The next issue in the case is unusual in the sense that it involves an admitted breach of the literal terms of the Settlement Agreement by Stephen. In the late summer of 1998, Stephen stopped delivering to Jill information she was due under 9 8.3 of the Agreeement. In lieu of delivering her the information, he made the information available for Jill to inspect, but not copy, at a location near Jill s home in Incline Village, Nevada. Stephen also provided copies of the information to Jill s litigation attorneys, under the condition that they not give Jill copies. Stephen s conduct in this regard forms the basis of Jill s Document Access Claim Stephen contends that his refusal to deliver the reyu-ired documents was a legitimate exercise in self-protection justified by Jill s breach of 5 7(c) of the Setlzlement Agreement. Section $ 7(c) states in relevant part: Each of SPG [Stephen] and .JFB [Jill] shall hold in confidence and not directly or indirectly- disclose any of the documents filed with the court or o therwise produced (including any memoranda sent to SPG [Stephen], JFB [Jill], or their attorneys) in connection with the Action [i.e., 1995 Litigation] between Stephen and Jill], except that either rnay provide 47 information or documents in response to a valid subpoena or a request from a. governmental agency, including a taxing authorit:y. 7 In blatant violation of this provision, Stephen claims, Jill informed Stephen s ex-wife Shannon Such that Such s name was written all over the record in the 1995 Litigation.@ .Jill told this to Such in September 1997 during a phone call that Such initiated for reasons having nothing to do with the 1995 Litigation. Although Jill s attorneys have mounted a valiant defense of her conduct, the record is clear that Jill breached 3 7(c) in a material way. In the 1995 Litigation, Jill asserted that Stephen tried to hide from Such facts concerning the value of the Time Charters to AMS and AM0 in 1992, which was the period during which Stephen and Such were negotiating a divorce agreement. By informing :Such that her name was all over the record of the 1995 Litigation, Jill had to know tha.t Such would likely be impelled to go to Delaware and to review the record. That is in fact what happened. Acting on this tip, Such went to Delaware and spent a good deal of time reviewing - JE. 1. 4 i (c) (emphasis added). l-r. at 5 12. 13. ) G~vc:rl the timing of J111 :j September 1997 dlscusslon wth Such in relation to the divorce settlement and Jill s written agreement not to Idisclose the 1995 Litigation, it 1s obv-ious that J111 cannol be reyrded as a selfless whistleblower. 4x the record.. As a result of information she learned from doing so, Such fonned the view that Stephen duped her into agreeing to the economic terms of their divorce agreement and commenced litigation against him in July 1998 to reopen it. NOI: only did Jill obviously direct Such to Delaware, Jill also had lengthy phone conversations with Such shortly before and after Such s visit this court. Jill s discussions with Such continued afterward. Although Such and Jill had been friends betfore they began discussing the record in the 1995 Litigation, their contact had been quite sporadic and, indeed, neither had spoken w.th the other for a long time befbre their September 1997 conxrsation. While I generally credit Such s testimony, including her assertion that Jill MXS carefill to limit her comments regarding the record in the 1995 Litigalion, I find it implausible that .Jill ~~ having given Such the match, the lighter fluid, and pointed her toward the charcoal briquettes ~ was able to fend off Such and provide no usefLl1 information. Put simply, I find that Jill either (1) affirmatively provided Such with information giving her reason to suspect that Stephen had not treated her fairly in the divorce; or (2) reacted to Such s questions in such a manner as to assure Such that Jill s testimony 49 would buttress any cl-aim b:y Such that Stephen had low-balled his financial worth in the divorce discussions. Obviously, I am no clairvoyant, and the only parties to these comersations (Jill and Such) deny that this inference is justified. Nonetheless, the pattern of phone calls? a lengthy memorandum Such wrote in January of 1998 in which she repeatedly states the issues on which Jill wil I testif:y, and a rudimentary understanding of human nature buttress my conclusiox This is not to say that I believe that Jill acted as the litigation consul tan.: Stephen plortra:ys her to be. It is my sense that Jill tried to be quite careful in what she said; nonetheless, the fact that Jill ~ who by her own admission blurted . . . out the fact that Such might find the record of the 1995 Litigation useful ~ unleashed a chain of events that compromised her ability to remain entirely silent as to the documents filed with the court or otherwise produced in connection with the 1995 Litigation. Without belaboring the matter further, it is clear that Jill indirectly disclosed these docuxlents to Such and thu:s violated $ 7(c) of the Settlement Agreement. This violation has caused injury to Stephen. The lawsuit Such filed in New York contains very serious and painful allegations. Regrettably, the --_---~ JE 135. ~12.3. -. 1-r. it 238. 50 suit. was commenced at a time when the relations between Such and Stephen had reached a less contentious stage, a benefit not only to t.hem but, perhaps more importantly, to their daughter. It cannot be that the resumption of hostility kletween their daughter s parents has aided her, or her relationship with Z,tephen. It is equally clear that Jill s violation of I$ 7(c) was a but for cause of Such s suit against Stephen. Su<:h as much as conceded that at trial. The question t hat arises from these findings is whether Jill s material violation (of 5 7(c) of the Settlement Agreement precludes Jill from pressing her claim regarding Stephen s breach of I$ 8.3. For her part, Jill asserts that her violation of 5 7(c) was more technical than sJbsi.antive and that it cannot excuse Stephen s disregard for her rights under $ 8.3. Jill also argues that, to the extent that Stephen was attempting to LLSIZ 4 7(c) of the Settlement Agreement to conceal evidetnce that he committed fraud agamst Such, his affirmative defense is barred as a matter of public 2olicy. By contrast, Stephen claims that his modest response of requiring Jill to inspect but not receive or make copies of the information to which she \vas entitled was a legitimate resort to self-help j2 justified by Jill s Def:,. Post-trial Br. at 8. See l<ESTATEMENT OF THE LAW (SECOND) CONTRACTS, Rules .4!1~1 PGcq~les, Ch. 10 ~ Performance and Non-Performance (198 1) ( [Clontracting parties ordmarily bargain for perfomlance rather than for a lawsuit. It is therefore generally fairer to give the InJured party. to the extent It IS possible, the righI to suspend his own performance and 51 material violation of his contractual rights under #7(c). He further contends that her breach precludes her from going after him for a breach of a closely related provision of the Settlement Agreement and that she dirtied her hands in a manner that disentitles her to relief from this court of equity. There is no elegant way to clean up this food-fight. But the just result seems relatively clear. Jill materially breached a 7(c). Her breach was no minor slip-up, but a major breach that subjected Stephen to harm. Because Jill committed a prior material breach, she is in no position to argue thar Stephen s refusal to perform his obligations under # 8.3 in a literal manner should be condemned by th-is court. As a general rule the party first guilty of a material breach of contract cannot complain if the other party subsequently refuses to perform. Given the narrowly tailored response of ulttmat~ely to refuse it and, if the other party s non-performance is notjusttfied, to clatm damages ibr total breach of contract. ). lfutl.sor~ v D & V. Meson Contmctors. Del. Super., 252 .4.2d 166> 170 (1969); see also Chumicon 11. Healtlitrust, Jtrc.-Hospital Co., IIel. Ch.. 735 A.2d 912, 923 11.38 (1999), @d, 748 A.2d 407 (2000): cJ Eustcv-rz Elcc. & Hwting, Inc. 11. Pike Creek Pro~&s.siot~cd Center, Del. Super., CA. Nos. 85L-AP-21, 851.-MY-l, 85C-MR-79. lctt. op., 1987 LVL 9610, at 4, O FIara, .I. (Apr 7. 1987) ( If the plaintiff has committed a material breach he cannot complain in the nonbreachtng party subsequently refuses to perform. The converse of this principal is that a slight breach by ale party, while giving rtse to an action for damages, will not necessarily terminate the obhgat ons of the injured .party to perform under the contract. ) (citi?zgHwkon, 252 A.2d at 170); Rl~STATEMENT (SECOND) OF CONTRACTS S 240. at 22 1 (198 1) ( 1 f the perfomrances to be exchanged under an exchange of promises can b,.: apportioned into corresponding pairs OF part performances so that the parts of each pair are properly regarded as agreed equtvalents, a party s performance of hts part of such a pair has the same effect on the other s duties to render perfot-mance of the agreed equivalent as It wnuld h>vc if only that pair of performances had been pt-omrsmzd. ). 52 Stephen to Jill s breach, this doctrine supports a reksal to accord Jill any retroxtix relief or a declaration tha.t Stephen s response was unjustifiable.5 Although contractual non-performance is usually not favored, I see no basis to condemn Stephen for his reaction, especially because he shaped an approach to disclosure that gave Jill sufficient access to the information to which she was entitled in order to proteci her substantive rights. Having I also reJect Jill s argument that her breach of 3 7(c) of the Agreement \+as excused because Stcphcn allc::cdly dlsparagcd her to Such and thus breached $7(c) himself and that her victory on certair contract claims earlier in this litigation dlsquahflcs Stephen from complam[ing] that LZI~~ ol J11l s actions after October 1995 constitute a vlolahon of any provisIon of the Settlement Agxcmcnt. 1 1, s Reply Br. at 36 (emphasis In original). 4s to the first issue, while Stephen s remarks to Such may have been inappropriate, they \\ere made in a personal setting and were of a personal nature. They hardly caused material harm: and I have httle doubt that J111 made similar remarks about Stephen 1.0 her personal fnends. With respect to the larger argument, 5,111 concedes that the question of whether a prior breach 1s sufficiently Important to excuse non-.performance by the other party is one of degree and is determined by \\elghmg the consequerccs of court-sanctioned non-performance. /kstern Elm. & Heating, Itie. v. Pike Creek Pmfessimul C enfer, Del. Super., CA. Nos. 85L-AP21, 85L-MY-l. 85C-MR-79, 1987 WI. 9610. at *J, IO Hara. J. (Apr. 7, 1987) ((jwtiMg4 (1ORBl.V ON CONTRACTS $ 946, at 809 (1967)), aff t/, Del. Supr., 540 A.2d 1088 (1988). Wherea< Stephen s modified method ofcomplymg with 4 8.3 was tailored precxely to J~ll s breach of3 7(c), Jill argues that Stephen s prior breach of a Settlement Agreement - one she Jill seeks 10 cnforcc m a scruplulously literal manner ~ Ixcuses her non-performance of the Settlement Agreement as a whole. .hll s argument in this regard rests on the notion that in the comnwclal xcontcst a shove in the chest may Justifiably be answered by deadly force, which is a proposiilon I do not accept. Nor is it eqmtablt for Jill to receive, as she will, monetary compcnsatlon for Stephen s breaches at the same time she claims for herself the right to violate the Agrccmcnt with lmpumty. Cyf .&let& & Co. 1:. Smithlclir~e Reeclram Pliarnzaceutica1.s Co., Del. Ch , C.A. No. 15443.NC, 1999 WL 669354. at *5 1, Chandler, C. (Aug. 5, 1999) ( Ifevery breach of contract automatically invoked the unclean hands doctrme, then any non-breaching party to a breached contract would have the effectwe ability to act inequitably against the breaching party with lmpumty (even as late as 20 years after the breach). Any future complaint by the breaching party would be barred by the doctrme of unclean hands. This is not a sound rule of law, and [the court] refuses to recognize such a policy. ). For !snmlar reasons, I reJect Stephen s mirror argument that Jill s breach of 4 7(c) dl!,ablcb her li-om asscrtmg (1~1 of her contract claims. 53 reached this conclusion through the application of contracl. law principles, I wi 11 not address Stephen s unclean hands defense. While I find thlat Stephen s method of complying with 5 8.3 was permi!;sible in view of Jill s behavior, I agree with Jill that her time in the informational penalty box must at some point come to an end. That time is now, and Stephen should resume compliance with 5 8.3 upon the entry of the order implementing this opinion. Ralher than continued nonperformance, Stephen should seek relief Ihr any future violation of 3 7(c) from this court, which traditionally makes itself available to decide such matters promptly. In coming to this conclusion, I rely upon my (perhaps optimistic) perception from trial that Jill generally recognizes the importance of compliance with the Settlernent Agrlzement, the reality that her economic interests mostly coincide with Stephen s, and the consequent irrationality of her doing anything to harm AMS as an entity, if not Stephen as a person. Jill s public policy argument, like the larger question of what monetary damages Jill may owe to Stephen, can be left for another time and to another proceeding in which Step:hen has sought affirmative relief. If Such is unsuccessful in her action to reopen her divorce settlement and her -----__ 54 claim:; are found to l.ack merit, it is possible that Jill could be responsible for substantial damages (e.g., Stephen s litigation fees and expenses in that proceeding). On the other hand, if Stephen is founded to have engaged in fraud aga lnst Such, the law may well bar him from receiving any indemnification or other damages from Jill. But for now, Stephen is only entitled to a finding that Jill s material breach of $ 7(c) of Settlernent Agreement rendered precludes her from insisting on strict enforcement of the letter of 4 8.3 of the Settlement Agreement. C. Did Stephen Violate The :m:ment Agreement By AMS To -__- Pav ForGeneral Overhead? As noted previously, the Settlement Agreement prohibits AMS from spending money to cover its genera.1 overhead costs . . . . j Rather, Stephen was responsible for paying for overhead out of the Management Fee AMh4 receives under the Settlement Agreement. This arrangement puts the burden on Stephen to decide whether expenditures were sufficiently worthwhile to justify cutting into his profits from the Management Fee. I I7A AM. JUR2D Cor~rcrcts $ 292, at 290-91 (1991) ( A contract \vill generally be held void and unenforceable where the object of the parties 1s to perpetrate a fraud upon a third person or upon the public. ) - JE 1, c$ X.4.2(iv). 55 Jill contends that Stephen has caused AMS to pay the following costs, which in her view constitute general overhead costs: (1) corporate franchise taxes for .4MS; (2) business license fees: (3) fees paid to AMS s registered agent; and (4) bank fees in connection with a cash management account ( *C&IA ). She admits that these claims amount to chump change but asserts them, she says, out of fear that if she does not draw the line when Stephen has taken the metaphorical inch, he will soon take a mile. Thus 1 undertake to answer questions better raised in .an accounting course. I start with the pertinent contractual language, which is general overhzad costs. While the Settlement Agreement does not define overhead f&her, the term is commonly defined as [blusiness expenses (such as rent, utilities, or support-staff salaries) that cannot be allocated to a parti cular product or service; fixed or ordinary operating costs. 5S Although the application of the term overhead to specific categories is an exercise of some difficulty for a non-,accountant, the term is an ordinary one, and resort to extrinsic evidence to determine its meaning is unnecessary.5 - BRYAN 12. GARUER, ED.. A ItIANDBOOK 01; BUSINESS TERMS 434 (1999). . I? g., Ci~c~,lel H~lo j/zg Cw~. v. Roves, Del. Supr., 603 A.2d 818, 824 (I 992). But to the extent that sllc h ewdcnce could be considered appropriate 111 this Instance, the lawyer who assisted Stepkn In crafting the Settlement Agreement testified in his deposition that the term means the cost of running AMS, whether 11 s office space, utiltties; secretaries. Golden Dep. at 77. Thus Stephlzn s contention that the broad term used In tht contract was intended to mean the specific expenses listed on a particular document prepared by .I111 listing Key Real Expenses is not only advancizd through an Improper (and unconwncmg) affirmative use of Stephen s own deposition 56 Turning to the application of that definition, I have little difficulty in cone-luding that the fi-anchise taxes, .business license fees, and registered agem fees constitute general overhead that should have been paid by AMM, not AMS. These expenses fit within the category of administrative expenses of doing business tha.t are not attributable to the production of particular services or products ;and thus fall within l.he commonly understood meaning of o\ erhead.6 This conclusion is buttressed by case law applying statutory definitions of the term overhead to taxes and business licenses as well as by the classic dictionary definition. I arrive at the same conclusion with respect to the CMA fees, but with more uncertainty. In one sense it is obvil:)us that bank account fees are ___- -. - testimony, it is also undercut by the fact that Stephen s own counsel believed that the Agreement should 3e construed m keeping with the common understanding of overhead. Had the parties wlshell to lunit that term to cover only the Key Real Expenses, they knew how to do so. And llad the partles implicitly intended the term s meanmg to be limited in this manner, one would cxpec :Stcphen s laL\ycr to have remembered it. BLt\l: K S LAW DICTIONAR I 1129 (7 jed. 19 39) (definmg overhead costs as overhead as [blusmcss (expenses (such as rent, utilltles. or support-staff salaries) that cannot be allocated to a particular product or service: fixed or ordinary operating costs ). 18 Del. C 3 ~ 702(c)(5)(b) (definmg general overhead expenses of insurers as including all _-/ taxes oi this State and of the Umted States , ). !;ee also Ct &ern U~zizion Fin. Sen.s., Inc. I . ijur/n ci #,jlp., 25 Cal. Rptr. 2d 341, 345 11.6 (Cal. App 1993) (applymg state statutory deflmtion of o\zrhcad expense Including all types of licenses. taxes , ); MERRIAM-WEBSTER COl-I.EIGIAI E DICTIONARY ONLINE (2000) (d&nmg overhead as business expense (as rent, lnsurarce, or heatmg) not chargeable to particular part of the work product ); C. P. S fICKWY & R. L. WEI L. FINA.NCIAL ACC OUUTING: AN INTRODUCTION TO CO1\1( EPTS. METHODS, AND IJSES G-66 (8l etl. 1997) (defining overhead costs as [a]ny cost no directly associated with the productic n or sale of identlflable goods and services: sometnncs called burden or IndIrect costs frequently limited to manufacturing overhead ) (emphases clmitted); WEBSTER S NEW WORLD DICTIONARY (1976, (overhead defined as . the gclcral, continumg costs of runnmg a business. as of rent, maintenance, taxes. . ). 57 general overhead; it is unthinkable that a business of any size can operate without such an account, and in this case the account is as necessary to the overall operation of AMS as an office. On the other hand, the bank fees charged on the CMA account can in many ways be seen as a cost directly attributable to producing a particular benefit ~ higher interest payments for AMS --~ much like the standard fees charged on a mutual Fund account. Indeed, AMS cannot receive the higher interest proceeds it has earned from the CMA account without paying the increased fees that go with it. As a result, one can sympathize with Stephen when he argues that it is unfair that he (through AMM) should pay all of the fees yet only get 1.~0 thirds of the benefit generated thereby. If forced to do so, Stephen might well be incentivized to simply scrap the CMA account and let AMS s money languish in a fee- and interest-free account. Rut this qualm aside., it is clear that the maintenance of a bank account is necessary for the overall functioning or AMS as a business (like the maintenance of a mailing address or office) and that the CMA fees fit within the standard definition of overhead. Stephen agreed to cover overhead (costs and thus put. himself in the posit-ion of choosing which overhead costs to avoid (thereby increasing his yield, if any, from the Management Fee) and which overhead expenses it made bus~~ss sense to incur (recognizing that he would bear the entire cost). As a result, I find for Jill on this issue. C. Did 1Stephen Violate-. Settlement Agreement By Refusinri To A&; The Interim Hire Due AMSmInflation? Given the degree of animus between Stephen and Jill, it is perhaps unsurprising that they would both argue that an issue was decided by Vice Chancellclr Balick earlier in the litigiation and is therefore law of the case but disagree about how the issue was decided. The issue they both believe was decided vvas whether the interim hire that. was required to be paid to AMS under 8 8.1 (b) of the Agreement had1 to be adjusted for inflation on an annual basis. The reader need not be bothered with the precise definition of interim hire; suffice to say that it is a payment that Shell would make to AM0 unless it or another affiliate of AMS was managing the vessels. fis an economic . Jill and Stephen also do battle over his decision to have AMS pay certam mterest payments to .AMO. Before Jill left AMS, she had arranged with Shell for it to pay certain amounts of charter hire directly to AMO, even though AM0 was AMS s subcontractor. After she left, Stephen changec this practice. apparently for personal tax planning reasons. See JE 108. Although Jill no lon;;c:r challenges this change in payment practice, she does assert that AMS is forbidden under $ X.4.2 of the Settlement Agreement to pay inierest to AM0 and should be deciared to have no future right to do so. In the absence of any showing by Stephen that AMS has some legal obligaril)n to pay Interest to AMO, I conclude that Jill is correct. To the extent that AM0 is a mere subcontractor and that Stephen has (as he argues) smlply reformed AMS s practices to conform to the Tune Charters, there is no legitnnate business reason for pI.VS s management to pay Interest to AM0 when it has no obligation to do so. Most profit-maximizing busmesses would take any interest on the float for themselves. Under the Settlement Agreement, Stephen does 1101 have the flexibility to be beneficent to AM0 with AMS s money. 59 arrangement, AM0 had paid an amount in lieu of interirn hire to AMS durir g several of the years before the Settlement Agreement. Under the Settlement Agreement, Stephen agreed to ensure that AM0 would amend its management agreement with AMS so that AMS would continue to receive payments equal to interim hire as calculated in the Time Charters, regardless of whether Shell was paying it or not. The Time Charters provided that interim hire shall be adjusted on each anniversary of the Date of Delivery [of the vessels] by the percentage in crease in that year s Consumer Price Index . . . . @ The dispute at this stage is over whether the interim hire was to be adjusted for inflation annually. Stephen argues that an inflation adjustment was fo be made only during the years in which such interim hire was actlually paid by Shell in coanection with the Charters. Contrarily, Jill claims that the rate of interim hire was to be adjusted for inflation regardless of whether Shell was in fact paying such hire. The purpose of including the interim hire provision in the Settlement Agreement was, according to Jill, to compensa.te her for relinquishing her interest in AM0 and losing her control over whether AM0 paid interim hire to fiMS. Thus she claims that she bargained for an inflation-adjusted stream of payments. I JI 3. 3 8(a)(ili); JE 9, $ ,3(a)(G) 60 Earlier in the litigation, Jill won a summary judgment motion before Vice Chancellor Bali& OYI the issue of interim hire. At that time, she claimed that Stephen was paying her an amount of interim hire that did not cornply with the contract. Stephen countered that what he was paying ~ an amount pizgged to what AM0 had been paying AMS in lieu of interim hire ~~ was actually higher than the amount of interim hire as calculated under the Time Charters. Vice Chancellor Balick held as follows: Be that as it may, [Jill] is entitled to have the Ma.nagement Agreement comply with the terms of the Settlement Agreement. J He then entered summary judgment for Jill on this claim. The prior briefing makes clear thal Jill sought a declaration that the Settlement Agreement required Stephen to amend the AMO-AMS management agreem,ent in a manner that contemplates annual inflation of the payment from AMO. Moreover, Jill presented evidence that Shell, the other par1.y to the Time Charters, prlovided an annual notice indicating what interim hire would be if it were pay.able, an amount that reflected an annual inflation adjustment. She also pointed out that 5 8.4.1 of the Settlement Agreement recognizes that interim hire payments would be adjusted for Rwndin v. Goulieh. Del. Ch., CA. No. 141119, mem. op. at 12, Balick, V.C. (Sept. 18, 1998) , Dk.. 54. at 47; .see dso Dkt. 7 1. at 42-45. 61 inflati on. Stephen countered with his I m paying more, no harm, no foul argument. After examining the briefs submitted to Vice Chancellor Balick, I am convinced that he resolved the inflation i,:;sue in favor of Jill and ordered that she vJas e:?titled to interim hire payments in accordance with the Settlement Agreement, regardless of whether such payments were lower than those that Stephen actually paid. The inflation issuse was at the center of the summary *judgment dispute, and Vice Chancellor B alick resolved that dispute in favor of Jill. His ruling is therefore law of the case. Moreover, -it comports with the most reasonable reading of the contract, because Stephen s argument that the interim hire payments would not be adjusted during periods when such payments were not made makes no economic sense, derives no support from the language of the Time Charters, and is at odds with the only relevant extrinsic evidence on the subject. Thus I uphold Jill s view of what interim hire is due. The parties shall collaborate and agree: on the adjustments necessary to ensure that interim hire was plaid in accordance with the Settlement Agreemem from its inception. This means that any overpayments made by Ah40 must be credited to it, in accordance with the intent behind Vice Chancellor Balick s prior ruling. 62 D. Did Stephen Violate-: Settlement Agreement By Havine AMS Pay&His Legal Expenses? Under a 8.4.2 (of the Settlement Agreement, AMS is forbidden to incur expenses paid to or on behalf of Stephen. Yet AMS has borne virtually all of Stephen s litigation expenses in this case,66 even though the amended complaint seeks no damages from AMS as an entity and is entirely premised on Stephen s alleged failure to abide by his contractual and fiduciary duties. Stephen s main defense to this claim was premised on his assertion that he was representing himselfpro se a-td merely coordinating his efforts with the two major 1a.w firms representing AMS as an entity. It is difficult to capture the right word to ascribe to this defense; silly is the charitable one I choose. A review of thle docket reveals that the Richards, Layton and Fried, Frank firms were clearly representing Stephen personally earlier in the litigation. Since his claimed pro se status, they have continued to do the same but under the implausible guise thai they are not in fact his personal counsel. At no point has Stephen filed a separate brief on ;an issue6 or taken The only exception is that Stephen, perhaps sensing the weakness of his entitlement, has rcccntly begun bearing his own expenses. Shortly before issuance of this opmion, Stephen filed a letter separate from his counsel, who had already filed one on hi!; behalf regardmg the issue at stake. 63 a divergent viewpoint from company counsel. That is because it is wholly evident that company counsel have been acting as his personal counsel all along. At trial, this defense fell apart as a result of Stephen s admirable candor regarding the fact that the Richards, Layton and Fried, Frank law firms were in indeed representing him as to all the claims against him concening actions he took in his capacity as an officer and director of AMS. In other words, they were representing him as to all claims asserted in this case. Stephen also admitted that if he breached his contractual or fiduciary duties then AMS could not pay his fees: I m not trying to be ~ I m not trying to be cagey. The concept is a difficult concept to grasp. If you look at this agreement, I ve signed it in my individual capacity. To the extent that there is a breach of the agreement by me as an individual, I m certainly not entitled to have legal fees paid. To the extent that the - there is a breach by the company, and that breach occurred because of my behavior, I think that I would have to say, in those circumstances, that I would be responsible and the company shouldn t - shouldn t reimburse me. We haven t sought indemnij ication here, because [the Settlement A.greement] says that a necessary expense ~ which is what that indemnification payment would have to be ~ cannot be paid me or on my behalf. So it s my view that I cannot be indemnified by the companiesGs I * Tr. at 340.-41 64 As a result of these admissions, Stephen s post-trial brief concedes that a great deal of the expenses AM S has incurred on his -behalf should be repaid bui contends that A.MS has properly paid some of defendants legal fees. Stephen bases this contention on his view that sorne of Jill s claims implicate AMS s corporate policies or practices or its relationships with third parties. As a result, Stephen contends, AMS as an entity has a legitimate: interest in defending the claims. I reject this argument. Initially, it is clear that Jill seeks relief for misclonduct by Stephen and seeks damages only from him and not from AMS as an entity. While it is true that some of her claims implicate the way AMS does business, they do so only insofar as is necessary to ensure that Stephen does not shift unnecessary expenses onto AMS or force it to bear the costs of contracts, between itself and Stephen s relatives (these being the third party contracts at stake). Jill s characterization of AMS as a nominal defendani in the complaint is apt, and it is clear that almost all the legal work done in this case by Richards, Layton and Fried, Frank was devoted to convincing the court that Stephen had not violated his contractual or liduciary duties. Del s, Post-Trial Dr. at 43. 65 Relatedly, to the extent that AMS needed representation, it was entitled to independent representation. It was of no value to the entity to be represented in the litigation. by counsel who were representing Stephen and therefilre unable to advance arguments contrary to his personal interests. While Stephen argues that -this case is not a formally derivative suit, it has many of the attributes of one (and indeed, several of the claims raised by Jill in fact seek to redress injur,y to AMS and are thus derivative in nature). In derivative suits brought in this court, the corporation typically has separate coun:icl who plays a far less active and expensive role than counsel for the defendant-directors. What Stephen -has done is to conflate the role of company and personal counsel and then use his pretextual pro se status as an excuse not to pay his own way. That course of conduct is prohibited by the Settlement Agreement. Moreover. 1 decline to grant Stephen s request that I allow AMS to bear #some of the freight because it was entitled to have counsel to represent it as an entity. If independent counsel had been retained fc)r AMS in the first place? thal. retention might not have violated the Settlement Agreement. But I see no basis to pay Stephen s lawyers on the fictive premise that they acted as independent advisors to the company when they in fact represented 66 Stephen personally and pursued his litigation agenda without a single instance chf deviation. Finally, my reading of the Settlement Agreement is bolstered by 5 11.8 of that Agreernent, which provides for the payment of litigation expenses to the prevailing party in any litigation concerning compliance with the Agreement. That .provision indicates how the parties wished to deal with the issue of litigation expenses over disputes like this and supports the conclusion that the p,ayment of Step:hen s; litigation expenses breached 5 8.4.:!. 0 El. Is Jill Entitled To All Or :jome Of Her LitiPat,n Expenses As - The Prevailing, Par&? Section 11 .X of the Settlement Agreement states in relevant part that [t]he party prevailing in any action., suit or proceeding shall be entitled to receive from the losing party prompt reimbursement of all reasonable legal fees and disbursements incurred by the prevailing party in connection with Isec,ltrse 1 reach this conclusion on contractual grounds, 1 do not address Jill s argument that AMS s interested board of dtrectors mrproperly adv..mccd lrtigatton expcnscs to Stephen without complying in any manner nith 8 I)el.. 4 145 and that Stcphcn has been unable to demonstrate that the hoard s decrsron to advance such expenses ~sas farr. IIurw~s v. .4ttar, Del. Ch., CA. No. 15134. nem. op. 1997 WL, 55957, Chandler, V .C. (Jan. 30, 1997) (granting preliminary InJunctron agamst advancement where Interested board advanced fees to itself and could not prove that Its acttons in so domg were fair); Active i sset Recoverer, Inc. v. Real Estate Asset Rccov~~:~~ Service.r, /nc.. IM. Ch., CA. No. 15,478, 1999 WL 743479, Strme, V.C. (Sept. 10, 1999) (where corporate general partner paid Its own htigation expenses out of limited partnership funds, failed to employ procedures akm to those under 8 Del. C. 3 145, and could not prove its decrston vcas farr. court ordered repayment of the expenses). 6: such actiq suit or proceed.ing. In this case, it is clear that if there can only be ant: prevailing party, the:n Jill is i-t. In the present litigation, Jill has sulzceeded on a variety of important claims, ha.ving prevailed in her previous Isummary judgment motion before Vice Chancellor Balick and having won most of the claims she pressed at trial. Moreover, w-hi le Jil I has raised some claims that did not reach a final determination on the merits, most of those claims were mooted by Stephen s own lzonduct and, at lleast with respect to one claim (Jill s challenge of a contract with Argent Group), might not have been pressed had Stephen been timely in explaining that Shell was to pay for the contract. And though some of the claims were for miniscule dollar amounts, Stephen s failure to gain .Jill s trust makes her desire for to the letter compliance by Stephen more understandable. As a result, the only difficult issue I confront now is whether the parties, intended 5 11.8 to be an all or not:ling clause or to be susceptible to a more balanced, claim-by-claim apphcation. As noted earlier, Jill s breach of 5 7(c) was a material one, and Stephen prevailed on that aspect of this dispute, which involved a good deal of litigation effort 011 both sides. ----___ 7 In thi:: regard, Jill appears to be correct that before the FIxed Price Purchase Option became a put, AMS could have been adversely affected by thiz; contract because it could have affected what AILIS \rould recel+e as fair market value after Shell paid off the debt on the ships (which was to Include :he payments to hrgent Group). 68 Stephen therefore argues that $ 11.8 should be equitably applied and that any fee award to Jill should be adjusted to account for her loss on a major issue. 13~ contrast, Jill arguies that the court must select a prevailing party and that once it does so, it is clear that that party, per 5 11.8, is entitled to all of its reasonable legal fees and disbursements incurred in . . . connection with such action, suit or proceeding. The parties do not support their arguments with parol evidence that provicies any sense of what the parties to the Settlement Agreement actually intended. Rather, both parties rely on case law that is not directly on point. For his part, Stephen cites cases from this court emphasizing the court s broad flex.ibility in shaping an appropriate fee award where a benefit has been achieved in coll,orate litigation. Such case law, of course, does little to help me interpret how 5 11.8 of the .4grei=ment should be interpreted and applied. Jill gets closer to the mark by citing cases addressing who is a prevailing party under the procedural rules commonly used in American courts, including this one. Under this case law, a party like Jill, who has prevailed on most of her claims, is approx-iately deemed a prevailing party, and the court may award costs to her. Yet under such rules of procedure, such as Court of Chancery Rule 54, the court typically retains the discretion not to shift costs or to split costs in an equitable fashion. 3 Furthermore, the determination to shift costs is far less significant than a decision to shift fees. In view of the traditional discretion conferred upon &his court and a court of equity s natural tendency to avoid stark rulings where justice seems to require more nuance, one hesitates to take the approach that $ 11.8 requires the payment of all of the fees to a party that has prevailed on most of its claims but who has also committed a serious breach of contract herself. G T&IIM v. Keene c o/p.; Del. Supr., 616 A.2d 827, 829 (1992); WRIGHT, MILLER & KANE, I~ L:DERAL PRACTICE AND PROCEDURE S 266 7. at 212 (1998) (hereinafter WRIGHT & MIL.LIIR ) ( A party who is only partially successf~~l also can be deemed a prevailing party. Conse~qiuently, a claimant who has obtamed some relief usually will be regarded as the prevailing party e\ en though he has not sustained all his claims. ); Dews Corp. 1 . Gw~erul Motors Corp. 494 F.Supp. 1369, 1390 (DDel. 1980) ( A prevailmg party is the party which, although it might not su:;t.un all of its claims, receives a favorable judgment. ), ufl tf, 667 F.Zd 347 (3d Cir. 19X1), cert. gr-clnred, 456 U.S. 988 (1982) a/rti cer/. derjied, 456 U.S. 990 (1982); reh g derried, 474 U.S. 890 (193s); Sir Spct~l~~, Im:. I;. L & P Gmphics, Inc. 957 F.2d 1033, 1040..41 (2d Cu. 1992) (declai-i rg party who recovered greater relief on the contract as prevailmg party); rl/ise v. IkM wr. , 373 F.2d 306, 307 (3d Cir. 1967) (plaintiffs secured a net recovery, therefore it was perfectly clear that the plaintiffs are the prevailing parties in this litigation , ); Wayne Point c o. 11. C ~ll/i re~~ A~~~~.tr~zerlts c?f .&~cwco Islurzrl. Ix, 7.39 So.2d 1259, 1260 (Fla. Disk Ct. App. 1999) (prevailmg party is Yhe party prevailing on the sigmficant issues in this litigation ); h oher-1.~ I . :Cil ndiga/l, 92 1 F.2d 104 7, 1058 (10 Clr. 1990) (district court s decision to award costs to the party that prevailed on the \rast majority of issues and on the issues truly contested at trial \vas not an abuse ofdiscretion ). cert. rle/jieri, 505 U.S. 1218 (1992). >a Ct. ( Il. R. 54(d); WRLGHT & MILI-ER $ 2667, al 212.19; id 5 2668. at 228.30. 70 Rut that hesitation must give way 1.0 the court s duty to give effect to the most reasonable reading of the Settlement Agreemerk 7 And given the sophistication of the attorneys and clients who were involved in drafting the Settlemert Agreement, it is difficult to see the inequity in giving the words of thl; cortract their ordinary meaning. When that approach to 5 11.8 is taken, Jill s reading of the contract emerges as the preferable one. Having chosen the common term prevailing party, the parties can be presumed to have intended that that term would be applied by the court as it has tradiConally done so, And under any traditional application of the term, Jill s pred.ominance in the litigation entitles her to that appellation. Similarly., the parties chose in 5 1 1.8 to grant the prevailing party in any md 07i, suit, or-proceeding relating to this Agreement . . 011 of its reasonable legal fees and disbursements incurred in . . connection with such IZctiOli, suit 07 proceeding. That is., the parties eschewed a claim-by-claim approach by failing to insert any language in the contract that would authorize the court to exercise discretion to award less than all the SW, ~ .g., ,lieq~ v. Plliludelphlu, Del. Ct. k. & .A.pp, 9 A. 405, 407 (1 h87) ( One leading principle of construction 1:; to carry out the intenttot-. of the authors of or parties to the instrument or agreemert. so far as It can be done wthout infringing on any law of supenor binding force. ): Pi~rllips Ilotue Bzriltier-s, Irrc. v. li-melerr Itaurmce Co., Del. Supr., 700 A.2d 127, 129 ( if the relevant contract language IS clear and unambiguous, courts must give the language its plain nieamng ). ~ Kove:r, 603 A.2d at 824 ( When construlng a contract, and unless a contrary intent appears. we ~111 gr~e \vclrds their ordmary meanmg. ) (cltatlon omitted). 71 prevailing party s fees in a case where the prevailing party had achieved a less than full victory. As a result, Jill is entitled to all of her reasonable attorneys fees and expenses incurred in connection with this action. F. Is Jill Entitled Tmnple Or Compound Pre-Judgment Interest? A financially s,ophisticated reader from another state might well find it amusing that Delaware, of all states, has a judicial system that devotes so much attention to an issue that the financial markets of this nation have long ago decided in favor of compound interest. Indeed, in the face of banking industry trends that judges of this state can literally see right outside the windows of their chambers, Delaware courts have traditionally disfavored the pmctice of compounding interest . . . .7 78 In accordance with that "' SW Adva~~cedILled., Inc 11. AI&VI Medical ,!$mews, htc., CA. No. 87-3059, 1990 WL 39261, at *.Gkc!j (E.:I.Pa. Mar. 30, 1990) (Kelly, D.J.:I (enforcing a contract provision that made clear that the party vvl-o obtained the (however modestly) greater relief was entitled to recover Its fees from the other party). For thts reason, I reject Stephen s argument that Jill s breach of 5 7(c) permits mc to mvol~ the unclean hands recovery of fees as I o her unsuccessful Document Access Claim. I!kcaus~~ the parties m this case negottated a provision that contemplates the determination of the txevailing party who ~111 recetvc payment for all of her reasonable litigation expenses, it would drsresxct then contract to deny Jill her full fees on a theory of unclean hands. By denying Jill her expense:; as to the Informational Claims due to her breach of $ 7(c), I would, in effect, be tgnonn,: the fact that the parttes rejcctcd a claim-by-claim approach to fee shifting. For an excellent discussion of a major portion of ihe debate. see Chancellor Chandler s wellreasoned de&ton in Onti v. Integw Bardc, Del. Ch.. 751 A.2d 904, 926-29 (1999). -lc Sw~r~~u (:~rp I:. 7i~utts IV'brld Aidir7rs, Inc.. Del. !Gupr., 540 .4.2d 403, 4 10 (1988), cert. itelried, X8 II.:;. 853 (1988). 72 distaste, Delaware s legal rate of interest statute, 6 Del. C. 8 2301(a), has been interpreted as providing for simple interest only.79 In this case, Stephen argues that because Jill has asked for prejudgment interest pegged to the statutory rate, albeit on a compounded basis, 1 have no discretion to award compound interest. Jill, by contrast, stresses this court s flexibility to set a fair rate of pre-judgment interest and the illogic of perpetuating a slavish devotion to an outmoded approach. In support of her argument, she cites the Chancellor s recent Onti decision, the logic of which commends itself to me: The rule or practice of awarding simple interest, in this day and age? has nothing to commend it ~ except that is has always been done that way in the past. And on that score, I side with Holmes: It is revolting to have no better reason for a rule of law than that so it was laid down in the time of Henry IV. It is still more revolting if the grounds upon which it was laid down have vanished long since, and the rule simply persists from blind imitation of the past. In Delaware, no rule of simple interest (exists in the General Corporation Law and, to the extent a rule has developed in our case law, it is time to put an end to it. The grounds for the rule of simple interest are at best the inability of a prudent investor to receive compound interest and are at worst a blind adherence to the past.sO I JVeirllwrger- 1-j. CioP, Inc., Del. Ch., 5 17 A.2d 653. 657 (1986) (citing Pnpendiclc v Robert Bosch C~mVl, Del. Super., CA. No. 562-1977, shp op. at 5, Christie, J. (Aug. 4, 1981)), ufcl, Del. Supr., 450 A.2d 894 (1982); Hogg I . W ulkw, CA. No. 9090, lett. op. at 5 n.1, Chandler, V.C. (JLne 30, 1993). Of//i 1 . li%yz Brrrrk, 75 I h.2d at 929 (citation omitted). 73 In considering this issue, I am cognizant of the need for a consistent application of a state statute. Having for so long been construed as provic.ing for a simple interest calculation, 6 Del. C. Q 2301 should not be reinterpreted by the j udicixry as calling for compound interest. Any reinterpretal:ion of the statute at this stage should come from the legitimate authority, the General Assembly. Even 11:s~ desirable would be a judicial revision of the statute that would implicitly write into the Delaware Code a judicial ri,ght to determine on a case-by-case basis whether the statute should be interprlzted as calling for simple or cornpound interest. Thus if the question before me were whether 5 2301 provides for compound interest, 1 would answer no and. rule for Stephen on this issue. But, as 1 see it: that is not the relevant question. Rather, the question is whether this court has the discretion to set a fair rate of pre-judgment interest on a compound basis. As our Supreme Court has stated, a court of equity has; broad discretion., subject 110 principles of fairness, in fixing the rate [of pre-judgment interest] to be applied. . . . In the Court of Chancery the legal rate is a mere guide, not the infkxible rule. In view of the market realities, Jill s financial sophistication, Stephen s multiple breaches of duty., and the probability that Stephen earned 74 more 1 han the legal mte of interest on the moneys he owes to Jill, fairness dictates that the pre-judgment interest awarded to Jill be compounded. Admiitedly, an award of compounded interest tied to the legal rate will quite likely be inadequate to compensate Jill for missing the opportunity to invest the fLnds due her in one of the nation s longest-running bull markets, but it is a fair proxy for the injury caused to her, and I therefore grant Jill s request for an award of pre-judgment interest using that approach.s3 In s o ruling, I necessarily reject Stephen s argument that I do not have the discretion to determine the appropriate rate of interest in this case. He contends that this dispute is a simple breach of contract case and that equity should therefore follow the law. In support of this argument, he cites this court s decision in Ametkm General Corp. v. Contiraevd Airlines Corp. 84 In that case, it was held that where a damages claim in a breach of contract . Yet an award of pre-Judgment Interest at the legal rate on a compounded basis still results in far less of a return than .I111 could have achieved through a relatwely conservative approach to investmg the moneys. had she rcccived them in a tmlely manner. According to Stephen, the fiveyear annuah.<cd rctum on c basket of 368 balanced or hybrid mutual funds was 13.68%. Jill claims that the average 1s even hgher for this category. In either event, it 1s clear that an Investor would not have been required to assume extreme risk m order to obtain a rate of return higher than tl-c legal rate, even when that rate IS compounded. In this regard, I decline Stephen s attempt to have me Sscus upon his borrowing rate rather than the rate necessary to ensure that Jill is ?alrly compensated for her inablllty to use the money [due her] during the period in question. I.~tri~~~wl Cq Studm, Im v. Jimcis I. DuPont Kr ,Co., Del. Supr., 334 A.2d 216, 222 (1975). hi Kelatedly, I construe thi:, C ourt s discretion to seltct a rate of interest higher than the statutory rate as i lcluding the lesser authority to award compoundmg. In this case, If the award turns on the compounding issue; I alternatively award Jill the statutory rate plus one and one half percent, which I:. less than she would likely have eamed. SW n. 82, sllpra. x-I Del. S,upr.. 622 A.2d 1 (1 992), uff rt, Del. Supr., 620 A.2d 856 (1992). 75 action \vas legal, rather than equitable, in nature, the statutory rate should be applied. 5 As a general matter, it makes sense for the Court of Chancery to apply the slztutory rate where the damage case before it is identical to a claim that could have been brought in Superior Court were there no need for this court to decide other equitable issues. In this case, however, the rote application of the statutory rate would ignore tbz realities of the relationship between Stephen and Jill. In order to avoid resol\;ing a novel question of Delaware corporate law unnecessarily, I decided this case on contractual grounds. Nonetheless, Stephen is Jill s fiduciary alld has day-to-day control over a corporation in which Jill owns a major stake. His multiple breaches of his contractual duties to Jill were undertaken in his capacity as her fiduciary, were invariably to hi,s personal financial or familial benefit and to Jill s detriment, and could easily be recast as breaches of his duty of loyalty. Each element of the monetary dama,ges 1 have awarded consists of funds that & Id., ,512 A.2d at 14. I Cj: i?.l.?.ssocintes, Inc. v. Ilealth Pqol-s Orguniz~rfion Limited Parttlership, HPA, Inc., Del. C h.. C.A. No. 16873, mem. op., 1999 LVL. 550350, it *lo, Jacobs, V.CZ. (July 16, 1999) (Tonduct by an entity that occupies a fiduciary posltlon may form the basis of both a contra-t and a breach of fiduciary duty clami. ): U~i wxtnl Studios, Inc. v. Viucorn Inc., Del. CYh., 705 A 2d 579, 600 (1997) (same conduct held to constitute both a breach of conduct and breach of the liducl.xy duty of loyalty). 76 Stephen diverted to his advantage and that ~ but for his breach of his obligatiors to Jill -- would have been kept by AMS and paid out to Jill. As a result, I am reluctant to conclnde that Jill s rights or this court s remedial powers hinge on an exercise in claim labeling. Even if Jill contracted away her right to sue Stephen except in those instances in which his actions as fiduciary breached his contractual duties to her, it is implausible that she thereby impliedly waived her right to have this court of equity exercise its historical powers to shape a fitting remedy in those instances where she had clearly bargained for the right to seek redress here.s8 Put simply, even if Stephen validly narrowed his fiduciary duties to those specified in the contract,s he did not thereby obtain immunity from being responsib-le to Jill for a complete remedy in the event that he breached those narrower duties. . C/T 45 AM, JIJK.21~ ?j 6;!. at 74 (2d ed. 1999) ( Compound Interest is chargeable against fiduciai-ies, not for the purpose of punishing tElem for intentional wrongdomg, but rather to carry into cffcct the prmciplc cnt orced by courts of Iequity that a fiduciary IS not permitted to profit from the unauthorized use of funds in his custody or to reach the profits realized thereby. ). Agreement 3 1 I .8 ( Venue for any action to enforce the provisions of this Agreement shall be exclusive m the Court of Chancery of the State of Dclaware . ). I Thus is a question I see no need to resolve ) Cl: Rollins Etr~~irmmentnl Sen~icz~, IITC. 1:. I~S,~/l,~ hrdlatries, I/K., Del. Supr., 426 A.2d 1363. 1367 (1 180) (noting that the Superior Court had on at least one occasion awarded higher than the legal rate of mtcrcst and assummg it was because that case involved issues of an equitable overtone ) (c,itiag E. I. tluf ont de ~L~e~~mws V Delmw~n Power h Ligh/ Co., Del. Super., 302 ( .A 1977. Iett. op., O IIara. J. (July 8, 1980)). 77 Likewise, post-judgment interest will be awarded to Jill on the full amount of the judgment, including that part comprised of pre-judgment interest, for the following reasons. Without an award of post-judgment interest on the full award, the obvious purpose of awarding pre-judgment interest --- to ensure that Kll is fillly compensated for the loss of the time value of her money -~- would be undercut. Simply by delaying the payment of the final judgment, Stephen could chip away at the real value of Jill s recovery and diminish his obligation to her. It is difficult, as a matter of economics or fairness, to conceive oft he utility of an approach that would do other than attempt. to guarantee that Jill will, at the time of payment, receive from Stephen the real economic value of the final judgment on the date it is first entered.93 I Sto/,e & c o., IX. V. Silwrstei~, Del. Supr., No. 298, 1998, order at 15, Walsh: J. (Apr. 1, 1999) (requiri ~g the articulation of exphcit grounds, for awarding interest on the entirety of a J udgme lt) Of course. the purpose of awarding post-judgmeni interest would also not be fully served I I rccogmz: that there are cases in which the Court of Chancery s refusal to award postjudgment mlerest on the full amount of a judgment has been upheld as \vithin its discretion. Morw\cr, the practice of awarding post-Judgment Interest on a full award that is partially compri>.ed ofpre-judgment Interest has been seen as interest on mterest akin to compound Inter-ec,t E.g., SUIPINW c or,o, 540 A.2d at 410: Wc% i~lhe~gw, 517 A.2d at 657. Yet no case has squarely he1t.l that this court may not award post-judgment interest on the 1.~11 award. And none of the c.lses touchmg on this Issue have focused on the considerations that the failure to apply post-Judgment Interest to t ?e full award creates a disincentive for prompt payment ofjudgments, defeats the purpose ofthc Ipl-e-judg,mcnt interest award, and results in an erosion of the real cconomIc value of the judgment. 78 IV. Conclusion In view of the number of claims, ii is imprudent at this time to make any attempt at a precise calculation of the amount of the judgment. Rather, it seems preferable filr the parties to meet and to try to reach accord on the form of a final order. To that end, the parties shall confer and attempt to negotiate an agreed-upon final order and report back to me within fourteen days of the date of this opinion. In the absence of precise agreement, the parties shall present their positions on tht:: outstanding issues that still divide them, their view of the appropriate language to deal with those issues, and agreed-upon text addressing the issues on which they have come to a meer.ing of the mind:s. 79
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