Leo Investments Hong Kong Limited v. Tomales Bay Capital Anduril III, L.P.
C.A. No. 2022-0175-JTL
| Del. Ch. | Jun 30, 2025Background
- Tomales Bay Capital (GP: controlled by Iqbaljit Kahlon) formed a fund to buy a large block of SpaceX shares (the “Rizvi Shares”); Kahlon is the fund’s sole decisionmaker and historically a trusted intermediary for SpaceX deals.
- Leo Group (a Shenzhen‑listed company) negotiated a side letter permitting a narrowly defined, legally required public disclosure (Exhibit A) and wired $50 million to become an LP; Kirkland drafted the Side Letter that expressly carved out Exhibit A disclosures from the LP Confidentiality Provision.
- Leo Group posted the agreed disclosure to the Shenzhen Stock Exchange; Chinese press amplified the announcement and SpaceX’s CFO (Bret Johnsen) learned of the coverage and told Kahlon SpaceX would not permit the Fund to buy SpaceX shares if Leo remained an investor.
- Kahlon, worried SpaceX would block the transaction, invoked the LP Agreement’s Withdrawal Provision, forced Leo’s withdrawal, returned its $50M, and circulated termination communications that omitted or misstated material facts (including the Side Letter). Many ephemeral messages from Kahlon were lost; court sanctioned him by raising his proof burden to clear and convincing evidence.
- Leo sued for breach of fiduciary duty and breach of the LP Agreement; after trial the Court rejected all contract and most fiduciary claims but found Kahlon breached a duty of candor in communications with Leo and awarded nominal damages of $1.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether GP/controller breached fiduciary duties (disloyalty / bad faith / gross negligence) by forcing Leo out | Kahlon put his personal relationship with SpaceX and future deal flow ahead of the Fund and acted in bad faith / recklessly | Kahlon acted to preserve the Fund’s ability to acquire SpaceX shares; his interests were aligned with the Fund; business judgment rule applies | Court: plaintiff failed to rebut business‑judgment presumptions; decision was rational; even if entire‑fairness applied, conduct was fair — no fiduciary breach except for candor |
| Whether Kahlon breached duty of candor in communications with Leo | Kahlon misled Leo about the reason for withdrawal and concealed the Side Letter/authorized disclosure | Defendants say Leo suffered no reliance or causally related harm and the withdrawal was contractually authorized | Court: Kahlon breached duty of candor when speaking with Leo, but Leo proved no reliance/harm; award of nominal damages ($1) |
| Whether the Forced Withdrawal violated the LP Agreement (Withdrawal Prohibition vs exceptions) | Forcing withdrawal violated the Withdrawal Prohibition and GP failed to satisfy exceptions, reasonable‑judgment, and material‑adverse/delay predicates | GP had a reasonable judgment that Johnsen’s reaction made a significant adverse delay or material adverse effect likely; GP properly invoked the Withdrawal Provision and returned funds | Court: GP proved (by C&C evidence) subjective and objective reasonableness and both exception predicates; no breach and no causal harm to Leo |
| Whether GP breached other contractual obligations (Efforts/Timing) or forum clause by filing other suits | GP failed to use the cure/efforts process, violated timing rules, and breached a forum clause in a confidentiality stipulation | Efforts/Timing apply only when GP acts on a counsel opinion of regulatory risk; here SpaceX’s direct rejection required prompt action; confidentiality stipulation’s forum clause covers only disputes about that stipulation | Court: Efforts and Timing claims fail (no applicable opinion‑of‑counsel trigger and prompt action justified); forum‑selection claim fails — no breach |
Key Cases Cited
- Nemec v. Shrader, 991 A.2d 1120 (Del. 2010) (fiduciary duties run to the entity/collective interest; contractual rights can be exercised without owing duties to individual counterparty)
- In re Walt Disney Co. Deriv. Litig., 906 A.2d 27 (Del. 2006) (bad faith standard and scope of fiduciary duties)
- Weinberger v. UOP, Inc., 457 A.2d 701 (Del. 1983) (entire‑fairness test: fair dealing and fair price inquiry)
- In re USACafes, L.P. Litig., 600 A.2d 43 (Del. Ch. 1991) (human controllers of corporate general partners can owe fiduciary duties to the partnership)
- Trados II, In re Trados Inc. S’holder Litig., 73 A.3d 17 (Del. Ch. 2013) (distinguishing standards of conduct from standards of review in fiduciary‑duty analysis)