40 A.3d 839 | Del. Ch. | 2012
OPINION
I. Introduction
The manager of an LLC and his family acquired majority voting control over both classes of the LLC’s equity during the course of its operations and thereby held a veto over any strategic option. The LLC was an unusual one that held a long-term lease on a valuable property owned by the manager and his family. The leasehold allowed the LLC to operate a golf course on the property.
The LLC intended to act as a passive operator by subleasing the golf course for operation by a large golf management corporation. A lucrative sublease to that effect was entered in 1998. The golf management corporation, however, was purchased early in the term of the sublease
This did not make the manager upset. The LLC and its investors had invested heavily in the property, building on it a first-rate Robert Trent Jones, Jr. — designed golf course and a clubhouse. If the manager and his family could get rid of the investors in the LLC, they would have an improved property, which they had reason to believe could be more valuable as a residential community. Knowing that the golf management corporation would likely not renew its sublease, the manager failed to take any steps at all to find a new strategic option for the LLC that would protect the LLC’s investors. Thus, the manager did not search for a replacement management corporation, explore whether the LLC itself could manage the golf course profitably, or undertake to search for a buyer for the LLC. Indeed, when a credible buyer for the LLC came forward on its own and expressed a serious interest, the manager failed to provide that buyer with the due diligence that a motivated seller would typically provide to a possible buyer. Even worse, the manager did all it could to discourage a good bid, frustrating and misleading the interested buyer.
The manager then sought to exploit the opportunity provided by the buyer’s emergence to make low-ball bids to the other investors in the LLC on the basis of materially misleading information. Among other failures, the manager made an offer at $5.6 million for the LLC without telling the investors that the buyer had expressed a willingness to discuss a price north of $6 million. The minority investors refused the manager’s offer. When the minority investors asked the manager to go back and negotiate a higher price with the potential buyer, the manager refused.
This refusal reflected the reality that the manager and his family were never willing to sell the LLC. Nor did they desire to find a strategic option for the LLC that would allow it to operate profitably for the benefit of the minority investors. The manager and his family wanted to be rid of the minority investors, whom they had come to regard as troublesome bothers.
Using the coming expiration of the golf management corporation’s sublease as leverage, the manager eventually conducted a sham auction to sell the LLC. The auction had all the look and feel of a distress sale, but without any of the cheap nostalgic charm of the old unclaimed freight tv commercials. Ridiculous postage stamp-sized ads were published and unsolicited junk mail was sent out. Absent was any serious marketing to a targeted group of golf course operators by a responsible, mature, respected broker on the basis of solid due diligence materials. No effort was made to provide interested buyers with a basis to assume the existing debt position of the LLC if they met certain borrower responsibility criteria. Instead, interested buyers were told that they would have to secure the bank’s consent but were given an unrealistic amount of time to do so. Worst of all, interested buyers could take no comfort in the fact that the manager — who controlled the majority of the voting power of the LLC— was committed to selling the LLC to the highest bidder, as the bidding materials made clear that the manager was also planning to bid and at the same time re
When the results of this incompetent marketing process were known and the auctioneer knew that no one other than the manager was going to bid, the auctioneer told the manager that fact. The manager then won with a bid of $50,000 in excess of the LLC’s debt, on which the manager was already a guarantor. Only $22,777 of the bid went to the minority investors. For his services in running this ineffective process, the auctioneer received a fee of $80,000, which was greater than the cash component of the winning bid. Despite now claiming that the LLC could not run a golf course profitably and pay off the mortgage on the property, the manager has run the course himself since the auction and is paying the debt.
A group of minority investors have sued for damages, arguing the manager breached his contractual and fiduciary duties through this course of conduct. The manager, after originally disclaiming that he owed a fiduciary duty of loyalty to the minority, now rests his defense on two primary grounds. The first is that the manager and his family were able to veto any option for the LLC as their right as members. As a result, they could properly use a chokehold over the LLC to pursue their own interests and the minority would have to five with the consequences of then-freedom of action. The second defense is that by the time of the auction, the LLC was valueless.
In this post-trial decision, I find for the plaintiffs. For reasons discussed in the opinion, I explain that the LLC agreement here does not displace the traditional duties of loyalty and care that are owed by managers of Delaware LLCs to their investors in the absence of a contractual provision waiving or modifying those duties. The Delaware Limited Liability Company Act (the “LLC Act”) explicitly applies equity as a default
The manager’s course of conduct here breaches both his contractual and fiduciary duties. Using his control over the LLC, the manager took steps to deliver the LLC to himself and his family on unfair terms. When the LLC had a good cushion of cash from the remaining years of the lease, it was in a good position to take the time needed to responsibly identify another strategic option to generate value for the LLC and all of its investors. Although the economy was weakening, the golf course was well-designed and located in a community that is a good one for the profitable operation of a golf course. With a minimally competent and loyal fiduciary at the helm, the LLC could have charted a course that would have delivered real value to its investors. Had the manager acted properly, for example, the buyer he rebuffed could have entered into a new lease or purchased the LLC on terms that would have at least gotten the LLC’s mi
The manager himself is the one who has created evidentiary doubt about the LLC’s value by failing to pursue any strategic option for the LLC in a timely fashion because he wished to squeeze out the minority investors. The manager’s defense that his voting power gave him a license to exploit the minority fundamentally misunderstands Delaware law. The manager was free not to vote his membership interest for a sale. But he was not free to create a situation of distress by failing to cause the LLC to explore its market alternatives and then to buy the LLC for a nominal price. The purpose of the duty of loyalty is in large measure to prevent the exploitation by a fiduciary of his self-interest to the disadvantage of the minority. The fair price requirement of that duty, which is incorporated in the LLC agreement here, makes sure that if the conflicted fiduciary engages in self-dealing, he pays a price that is as much as an arms-length purchaser would pay.
The manager is in no position to take refuge in uncertainties he himself created by his own breaches of duty. He himself is responsible for the distress sale conducted in 2009. Had he acted properly, the LLC could have secured a strategic alternative in 2007, when it was in a stronger position and the economy was too. A transaction at that time would have likely yielded proceeds for the minority of a return of their invested capital plus a 10% total return, an amount which reflects the reality that the manager’s desire to retain control of the LLC would have pushed up the pricing of the transaction due to his incentive to top any third-party bidder. I therefore enter a remedy to that effect, taking into account the distribution received by the plaintiffs at the auction, and add interest, compounded monthly at the legal rate, from that time period. Because the manager has made this litigation far more cumbersome and inefficient than it should have been by advancing certain frivolous arguments, I award the plaintiffs one-half of their reasonable attorneys’ fees and costs. This award is justified under the bad faith exception to the American Rule, and also ensures that the disloyal manager is not rewarded for making it unduly expensive for the minority investors to pursue their legitimate claims to redress his serious infidelity. I do not award full-fee shifting because I have not adopted all of the plaintiffs’ arguments and because the manager’s litigation conduct, while sanctionably disappointing, was not so egregious as to justify that result.
II. Basic Factual Background
For the sake of clarity, I will make many of the key factual determinations in the course of analyzing the claims. To provide a framework for that integrated analysis, I set forth some of the key foundational facts.
A. The Parties
The LLC in this case is Peconic Bay, LLC (“Peconic Bay” or the “Company”). The “Manager” of Peconic Bay is defendant Gatz Properties, LLC, an entity which is itself managed, controlled, and partially owned by defendant William Gatz. Because William Gatz as a person was the sole actor on behalf of Gatz Properties at all times, I typically refer to “his” actions or “him,” because that is what best tracks how things happened.
The plaintiffs in this case are certain minority investors in Peconic Bay: Auriga Capital Corporation, Paul Rooney, Hakan Sokmenseur, Don Kyle, Ivan Benjamin,
B. The Formation Of Peconic Bay
In 1997, Gatz, through Gatz Properties, and Carr, through Auriga, formed Peconic Bay for the purpose of holding a long-term leasehold in a property owned by the Gatz family (the “Property”). The idea was to develop a golf course on the Property, which was farmland in Long Island that had been in the Gatz family since the 1950s. Gatz came to this idea from reading a report authored by the National Golf Foundation predicting a boom in demand for golf courses in Long Island and opining that the area suffered a shortage of courses to meet current and future demand. He thus set out to raise cash for the construction of a golf course on the Property, and approached a local bank to gauge its interest in financing the project. The bank then referred Gatz to Carr, who had worked with the bank on a previous occasion to secure the financing for another golf course in Long Island. On this advice, Gatz reached out to Carr, and Carr agreed to commit Auriga to help finance and develop the course. Auriga agreed to assume responsibility for securing debt financing and raising additional equity, as well as overseeing the construction of the course, which would be named Long Island National Golf Course (the “Course”).
Financing was located and contracts were drafted to create the structures that would reflect the parties’ business dealings, including an entity — ie., Peconic Bay — in which the equity investors could hold capital. Peconic Bay took out a note worth approximately $6 million to finance the Course’s construction (the “Note”), which was collateralized by the Property. The Gatz family formed Gatz Properties to hold title to the Property, which was then leased to Peconic Bay under a “Ground Lease,” dated January 1,1998.
The Ground Lease set an initial term of 40 years, with a renewal option for two 10-year extensions, which were exercisable by Peconic Bay.
C. Peconic Bay’s Membership
Peconic Bay in turn was governed by an Amended and Restated Limited Liability Company Agreement (the “LLC Agree
From the inception, Gatz Properties controlled the Class A vote, as it held 85.07% of the Class A interests. The rest of the Class A interests were held by Auriga and Paul Rooney.
From the time the Class B shares were first issued in 1998 until 2001, the Class B interests were more diversely held. The Gatz family and their affiliates (together with Gatz Properties, the “Gatz Members”) held 39.6% of the Class B interests. The Minority Members, including non-party Hartnett, held 60.3%. But, in 2001, the Gatz Members acquired control of the Class B interests through questionable purchases of certain minority investors’ Class B shares.
Obtaining control of the Class B interests was important. Under the LLC Agreement, the Manager was forbidden from making a “major decision affecting the Company” without “Majority Approval,”
The LLC Agreement designated Gatz Properties as Manager. Gatz, as manager of Gatz Properties, was given the “power, on behalf of [Peconic Bay], to do all things necessary or convenient to carry out the day-to-day operation of the Company.”
The Manager’s limited operational role was attributable to Peconic Bay’s initial business model. Under the LLC Agreement, Peconic Bay was initially structured as a passive “black box”
D. Peconic Bay Subleases The Property To American Golf
To accomplish this business purpose, Carr brought in American Golf Corporation (“American Golf’), which was at the time one of the largest golf course operators in the country. On March 31, 1998, Peconic Bay entered into a sublease with American Golf (the “Sublease”).
Peconic Bay and American Golf had high expectations for the Course’s financial success. The Course was designed by a well-known golf course architect, Robert Trent Jones, Jr., and it was located in an affluent, rural part of Long Island that was described by Gatz’s defense expert as “an ideal location for an affordable upscale golf facility.”
The terms of the Sublease governing rent payments reflected this initial optimism. American Golf agreed to pay “Minimum Rent” according to a fixed schedule, starting at $700,000, and rising annually by $100,000 until leveling out at $1 million per year, beginning in 2003.
E. A Preview Of What Happened Next
This is where events took a turn for the worse. As I will discuss in more detail later, American Golf never operated the Course at a profit, and later let the Course fall into disrepair. Gatz knew in 2004 or latest 2005 that American Golf would exercise its early termination option in 2010, yet he did nothing to plan for American Golfs exit. Rather, Gatz made a series of decisions that placed Peconic Bay in an economically vulnerable position. Once Peconic Bay was in this vulnerable state, and in the midst of a down economy, Gatz decided to put Peconic Bay on the auction block without engaging a broker to market Peconic Bay to golf course managers or owners (the “Auction”). Gatz, on behalf of Gatz Properties, was the only bidder to show up. Knowing this fact before formulating his bid, Gatz purchased Peconic Bay for a nominal value over the debt, and merged Peconic Bay into Gatz Properties (the “Merger”). Gatz now operates the Course himself through a newly created entity wholly owned by Gatz Properties and seems to be paying the debt from the cash flow of the golf course operations.
The first amended verified complaint pleads five counts. Counts I, II and III are related. Counts I and II allege that Gatz Properties and Gatz, respectively, breached their fiduciary duties to Peconic Bay and the Minority Members. Count III alleges that Gatz Properties breached its contractual duties under the LLC Agreement.
For his part, Gatz maintains that he acted reasonably and in good faith throughout the entirety of events described by the Minority Members. Primarily, Gatz grounds his defense in the argument that Gatz Properties acquired Peconic Bay for a fair price because the assets of Peconic Bay were worth less than its debt and thus the entity was insolvent. Although by the end of the trial, Gatz admitted that he and his family were never interested in selling their membership interests, he seeks to use that fact as a defensive bulwark, contending that he and his family were entitled to vote their economic interest against selling Peconic Bay to a third-party buyer and to choke off the LLC’s pursuit of any other strategic options. Throughout much of the litigation, Gatz took the view that he either owed no fiduciary duties at all;
Now that we have covered the basic premise of the Minority Members’ claims and Gatz’s arguments in response, I will consider the provisions of the LLC Agreement that govern Gatz’s actions giving rise to this dispute, and assess the effect that those provisions have on the fiduciary duties owed by Gatz to the Minority Members.
IV. Analysis
A. What Duties Did Gatz Owe To The Members Of Peconic Bay?
At points in this litigation, Gatz has argued that his actions were not subject to any fiduciary duty analysis because the LLC Agreement of Peconic Bay displaced any role for the use of equitable principles in constraining the LLC’s Manager. As I next explain, that is not true.
The Delaware LLC Act starts with the explicit premise that “equity” governs any case not explicitly covered by the Act.
I discuss these general principles and their more specific application to this case next.
1. Default Fiduciary Duties Do Exist In The LLC Context
The Delaware LLC Act does not plainly state that the traditional fiduciary duties of loyalty and care apply by default as to managers or members of a limited liability company. In that respect, of course, the LLC Act is not different than the DGCL, which does not do that either. In fact, the absence of explicitness in the DGCL inspired the case of Schnell v. Chris-Craft.
The LLC Act is more explicit than the DGCL in making the equitable overlay mandatory. Specifically, § 18-1104 of the LLC Act provides that “[i]n any case not provided for in this chapter, the rules of law and equity ... shall govern.”
It seems obvious that, under traditional principles of equity, a manager of an LLC would qualify as a fiduciary of that LLC and its members. Under Delaware law, “[a] fiduciary relationship is a situation where one person reposes special trust in and reliance on the judgment of another or where a special duty exists on the part of one person to protect the interests of another.”
The manager of an LLC — which is in plain words a limited liability “company” having many of the features of a corporation — easily fits the definition of a fiduciary. The manager of an LLC has more
Thus, because the LLC Act provides for principles of equity to apply, because LLC managers are clearly fiduciaries, and because fiduciaries owe the fiduciary duties of loyalty and care, the LLC Act starts with the default that managers of LLCs owe enforceable fiduciary duties.
This reading of the LLC Act is confirmed by the Act’s own history. Before 2004, § 18-1101(c) of the LLC Act provided that fiduciary duties, to the extent they existed, could only be “expanded or restricted” by the LLC agreement.
If the equity backdrop I just discussed did not apply to LLCs, then the 2004 “Elimination Amendment” would have been logically done differently. Why is this so? Because the Amendment would have instead said something like: “The managers, members, and other persons of the LLC shall owe no duties of any kind to the LLC and its members except as set forth in this statute and the LLC agreement.”
Thus, our cases have to date come to the following place based on the statute. The statute incorporates equitable principles. Those principles view the manager of an LLC as a fiduciary and subject the manager as a default principle to the core fiduciary duties of loyalty and care. But, the statute allows the parties to an LLC agreement to entirely supplant those default principles or to modify them in part.
The common law fiduciary duties that were developed to address those who manage business entities were, as the implied covenant, an equitable gap-filler. If, rather than well thought out fiduciary duty principles, the implied covenant is to be used as the sole default principle of equity, then the risk is that the certainty of contract law itself will be undermined. The implied covenant has rightly been narrowly interpreted by our Supreme Court to apply only “when the express terms of the contract indicate that the parties would have agreed to the obligation had they negotiated the issue.”
The second problem is a related one, which is that a judicial eradication of the explicit equity overlay in the LLC Act could tend to erode our state’s credibility with investors in Delaware entities. To have told the investing public that the law of equity would apply if the LLC statute did not speak to the question at issue, and to have managers of LLCs easily qualify as fiduciaries under traditional and settled principles of equity law in Delaware, and then to say that LLC agreements could “expan[d] or restric[t] or eliminat[e]” these fiduciary duties, would lead any reasonable investor to conclude the following; the managers of the Delaware LLC in which I am investing owe me the fiduciary duties of loyalty and care except to the extent the agreement “expand[s],” “restricts],” or “eliminate[s]” these duties.
With that statement of the law in mind, let us turn to the relevant terms of Peconic Bay’s LLC Agreement.
2. The Relevant Provisions Of The LLC Agreement
I note at the outset that the Peconic Bay LLC Agreement contains no general provision stating that the only duties owed by the manager to the LLC and its investors are set forth in the Agreement itself. Thus, before taking into account the existence of an exculpatory provision, the LLC Agreement does not displace the traditional fiduciary duties of loyalty and care owed to the Company and its members by Gatz Properties
15. Neither the Manager nor any other Member shall be entitled to cause the Company to enter ... into any additional agreements with affiliates on terms and conditions which are less favorable to the Company than the terms and conditions of similar agreements which could be entered into with arms-length third parties, without the consent of a majority of the non-affiliated Members (such majority to be deemed to be the holders of 66-2/3% of all Interests which are not held by affiliates of the person or entity that would be a party to the proposed agreement).68
This court has interpreted similar contractual language supplying an “arm’s length terms and conditions” standard for reviewing self-dealing transactions, and has read it as imposing the equivalent of the substantive aspect of entire fairness review, commonly referred to as the “fair price” prong.
Importantly, however, entire fairness review’s procedural inquiry into “fair dealing” does not completely fall away, because the extent to which the process leading to the self-dealing either replicated or deviated from the behavior one would expect in an arms-length deal bears importantly on the price determination.
Because the terms of § 15 only apply to Affiliate Agreements, and because these terms address the duty owed by Gatz to the Minority Members as to Affiliate Agreements, they distill the traditional fiduciary duties as to the portion of the Minority Members’ claims that relates to the fairness of the Auction and Merger into a burden to prove the substantive fairness of the economic outcome. That is, § 15 distills the duty to prove the fairness of a self-dealing transaction to its economic essence.
The LLC Agreement does, however, contain an exculpatory provision, which is functionally akin to an exculpatory charter provision authorized by 8 Del. C. § 102(b)(7). In relevant part, § 16, governing “Exculpation and Indemnification,” reads as follows:
16. No Covered Person [defined to include “the Members, Manager and the officers, equity holders, partners and employees of each of the foregoing”] shall be liable to the Company, [or] any other Covered Person or any other person or entity who has an interest in the Company for any loss, damage or claim incurred by reason of any act or omission performed or omitted by such Covered Person in good faith, in connection with the formation of the Company or on behalf of the Company and in a manner reasonably believed to be within the scope of the authority conferred on such Covered Person by this Agreement, except that a Covered Person shall be liable for any such loss, damage or claim incurred by reason of such Covered Person’s gross negligence, willful misconduct or willful misrepresentation.74
Thus, by the terms of § 16, Gatz may escape monetary liability for a breach of his default fiduciary duties if he can prove that his fiduciary breach was not: (1) in bad faith, or the result of (2) gross negligence, (3) willful misconduct or (4) willful misrepresentation. Also, in order to fall within the terms of § 16, a Covered Person must first be acting “on behalf of the company” and “in a manner reasonably believed to be within the scope of authority conferred on [him] by [the LLC Agreement].”
Notably, the exculpation standard set forth in § 16 is both stronger and weaker than its corporate analogue in terms of limitation of liability. Whereas § 102(b)(7) authorizes a charter provision to exculpate a violation of the directors’ duty of care (i.e., gross negligence),
I now analyze the Minority Members’ claim that Gatz breached his fiduciary and contractual duties as the Manager of Pe-conic Bay. Specifically, I conclude that Gatz breached his fiduciary duties of loyalty and care, and the fair price requirement of § 15. He has not proven that these breaches are exculpated, and regardless of whether the Minority Members had the burden to prove his state of mind (which they do not), he acted in bad faith and with gross negligence. I detail the reasons for those conclusions now.
B. Did Gatz Breach His Contractual And Fiduciary Duties To The Minority Members?
The record convinces me that Gatz pursued a bad faith course of conduct to enrich himself and his family -without any regard for the interests of Peconic Bay or its Minority Members. His breaches may be summarized as follows: (1) failing to take any steps for five years to address in good faith the expected loss of American Golf as an operator; (2) turning away a responsible bidder which could have paid a price beneficial to the LLC and its investors in that capacity; (8) using the leverage obtained by his own loyalty breaches to play “hardball” with the Minority Members by making unfair offers on the basis of misleading disclosures; and (4) buying the LLC at an auction conducted on terms that were well-designed to deter any third-party buyer, and to deliver the LLC to Gatz at a distress sale price.
1. Gatz Fails To Act Loyally To Protect The LLC When It Becomes Clear That American Golf Will Terminate Its Sublease
a. Gatz Knows There Is Trouble With The American Golf Sublease
American Golf began operating the Course on September 20, 1999, and its financial performance was disappointing from the start. Although the Course generated revenue,
Gatz and the Minority Members agree that there were several factors that contributed to these financial losses. First, on the cost front, the Sublease required rent payments that were above-market and not in line with the revenue that the Course could generate under American Golfs management. Second, and more important, American Golfs management per-
To that end, at trial, both sides repeatedly referred to American Golf as a “demoralized operator.”
Given these results, Gatz admitted at trial that he knew by 2004 or 2005 that there was a “high likelihood” that American Golf would exercise its early termination right under the Sublease and walk away from the Course in 2010.
b. Gatz Does Not Act As A Responsible Fiduciary Would Have Acted
By the terms of the LLC Agreement, Gatz was charged with the obligation to manage the operations (i.e., the business) of Peconic Bay,
A responsible fiduciary acting on this basis would have searched for a replacement operator to take over American Golfs Sublease, assessed whether it could modify its business model to operate the Course profitably itself, or looked for a buyer to acquire Peconic Bay or its assets. Indeed, options like these were specifically contemplated by the LLC Agreement in the event that the American Golf Sublease was no longer in effect.
Gatz did none of these things. The record is devoid of any credible evidence suggesting that Gatz engaged in a serious or thoughtful effort to look for a replacement operator. There is no evidence that Gatz, in 2005, considered putting Peconic Bay on the market, which would have entailed hiring an appraiser to assess Peconic Bay’s value, putting together offering materials, or engaging a broker to start a search for strategic buyers who might be interested in acquiring the entity. Nor is there evidence that Gatz engaged in a serious analysis at the time to assess whether Peconic Bay could feasibly run the Course itself.
Rather, Gatz did two things in anticipation of American Golfs termination of the Sublease. First, he sat back and waited for the time on the Sublease to run. Second, he husbanded Peconic Bay’s cash surplus under a provision in § 11 of the LLC Agreement that allowed him to withhold from distribution to Peconic Bay’s members those funds that he “reasonably determine[d] [were] necessary to meet the Company’s present or future obligations,”
Gatz’s actions were inconsistent with those of someone whose duty it was to seek out ways to preserve value for Peconic Bay’s investors. Rather, they were consistent with those of someone who was hoping that that Peconic Bay would simply revert back to his family’s ownership once Peconic Bay’s primary source of revenue ran dry, without regard for the interests of the Minority Members.
What motivated Gatz to abandon his fiduciary helm? I conclude that there were two primary considerations driving Gatz’s actions. First, there were financial considerations. According to the terms of the Ground Lease, Gatz Properties as landlord to Peconic Bay was only entitled to Ground Lease Rent of 5% of the gross revenue generated from the operation of the Course. This was the Gatzes’ only source of income from the Property, other than as owners of Peconic Bay’s equity, and over the life of the Sublease, the Ground Lease Rent diminished from approximately $134,000 per year in 2003 to approximately $99,000 in 2008.
Also, in 2007 to 2008, Gatz came to believe that the Property was worth more vacant than encumbered with the Ground Lease and its restriction that the Property be used exclusively as a golf course. The bank involved in a 2007 refinancing of the Note hired an appraiser to assess the market value of the Property, which served as collateral to the Note. The bank asked the appraiser to value the Property under two scenarios; (1) unencumbered and available for development (“as vacant”); and (2) encumbered by the long-term lease limiting its use to a golf course (“as improved”).
The results of the Rogers & Taylor Appraisal, which were made known to Gatz by 2008 at the latest, reinforced what Gatz already had come to believe, which was that his family was better off unencumber-ing the Property from the long-term leasehold to Peconic Bay, which was not panning out financially under American Golfs management; getting rid of the Minority Members; and restoring the family’s fee simple ownership of the Property, as improved by Peconic Bays’ investment. That would allow the Gatz family to exploit the land either as a primarily residential community, or as a combination residential-golf course community.
Thus, Gatz wanted the clock on the Sublease to run for the selfish reason of placing Peconic Bay in a position of economic weakness, which he could later exploit for the exclusive financial benefit of himself and his family. By failing for five years to take any steps to preserve Peconic Bay’s viability, Gatz hoped to gain leverage to eliminate the Minority Members and restore the Property to his family’s sole ownership. That was fiduciary infidelity of a classic variety.
2. Gatz Rebuffs A Credible Buyer For Peconic Bay’s Leasehold
In August 2007, Matthew Galvin, on behalf of RDC Golf Group, Inc. (“RDC”) approached Gatz with an interest
[The Course] was a great facility. It was designed by a great architect. We felt that it could be improved from American Golfs operation... .We thought we could add value there and, as a tenant with time running out, [American Golf] [was] not committing the right resources and attention to it. So we felt we could improve it and that there would be an opportunity for us to grow the business there.102
So, Galvin contacted Gatz to express his willingness to engage in negotiations, and asked for basic due diligence to help him come up with an offer. Specifically, Galvin asked to review the Ground Lease, the Sublease, and American Golfs historical financials.
Despite Galvin’s willingness to enter into a confidentiality agreement, Gatz refused to provide Galvin even with this basic information, and instead demanded to see Galvin’s projections for the Course. Gal-vin told Gatz that, on a preliminary basis, he thought RDC could achieve annual gross revenues of $4 million on the Course. Gatz testified at trial that if RDC could achieve $4 million in gross revenues, then the Course would be worth $6 million to $8 million.
Upon Gatz’s insistence that he prove he was not on a “fishing expedition,”
Galvin nonetheless submitted a second letter of intent, upping his offer to $4.15 million. Strangely, Gatz once more put this underwater bid up for a vote when the Gatz family opposed it, and, not surprisingly, it was unanimously rejected by all Members.
Following the rejection of Galvin’s second letter of intent, on November 12, 2007 Carr suggested to Gatz that he go back to Galvin to see if RDC would agree to a deal at $6 million. But, Gatz told Galvin on December 14, 2007 that “no further discussions would be fruitful unless RDC is willing to discuss a price well north of $6 million.”
On January 22, 2008, Galvin reached out to Gatz once more, this time with the idea that RDC could take over the Sublease and operate the Course if American Golf exercised its early termination option in 2010 (the “Forward Lease Proposal”). In an email, Galvin set forth a list of proposed terms to guide negotiations. Galvin wrote that although the non-eeonomic terms of the Sublease could remain the same, RDC would want to renegotiate the rent terms and was prepared to offer a base rent plus a percentage rent to Gatz Properties as currently provided for in the Sublease. Galvin thought the Forward Lease Proposal would be attractive to Gatz because it would minimize the risk associated with Peconic Bay having to operate the Course itself and it would provide an assured source of rent if American Golf left. Gatz chose not to respond, even though he knew that the existing Sublease with American Golf was likely to end. After failing to hear back from Gatz, Galvin abandoned his effort to acquire or operate the Course. He was burned by this overall process and felt as if he were “being strung out [by Gatz] with no intention of having any good-faith interest in selling.”
At no point in his dealings with Galvin did Gatz act like a motivated seller. A motivated seller does not refuse to provide basic due diligence to a credible buyer. A motivated seller does not fend off a credible buyer or dissuade him from making an offer in excess of the debt. A motivated seller does not criticize a credible buyer because his financial projections are too optimistic, especially when, as here, that seller has a basis to believe that the current financial results are not truly representative of what could be achieved with proper management, and especially when the bidder has been denied standard due diligence by the seller itself. Gatz admitted that the Course’s revenues were declining because American Golf was a “demoralized operator” and letting the Course deteriorate.
Indeed, at trial Gatz admitted under questioning from his own counsel that he and his family were not interested in selling Peconic Bay’s leasehold to a third-party:
Q: Mr. Gatz, turning back to the discussions you had with Matt Galvin at RDC.... I think you’ve established this, but let’s be clear. Were you, being Gatz Properties, a seller in 2007?
A: No, we were not.
Q: Were you doing anything to solicit a sale of the property or to solicit offers for [Peconic Bay] or the underlying property?
A: No, I was not.
Q: Absent a Powerball ticket kind of offer, was your family going to vote in favor of any transaction for the sale of [Peconic Bay] or the underlying property?
A: No, they weren’t.115
In part, Gatz’s lack of interest in pursuing a sale was due to the favorable treatment accorded to the Class B Members under the distribution waterfall set forth by the terms of the LLC Agreement. Gatz would not have wanted to approve a transaction with a third-party bidder that would have delivered substantially more value pro rata to the Minority Members while leaving the Gatz family stuck with a leasehold on their Property for another two decades.
As a buyer, not a seller,
3. Gatz Uses Galvin’s Interest In Peeonic Bay To Play “Hardball” With The Minority Members And Attempt To Buy Them Out
At trial, Gatz revealed the true reason why he submitted Galvin’s bids of $3.75 million and $4.15 million to a vote of the full membership despite knowing that the proposals would not succeed because his family would vote no. He wanted to show the Minority Members “what a third-party person would value the company at.”
Gatz testified that his family would “probably not” approve a deal with RDC at $6 million.
On January 14, 2008, Gatz wrote to the Minority Members:
Negotiations with RDC have broken off with their best offer of $4.15 million being rejected. Offering a counterpro-posal of $6 million to RDC as Bill Carr suggested did not receive majority approval from the members. It has become apparent to me, that most of you (like Bill Carr) would have been satisfied with a cash out of the investment in [Peeonic Bay] at a price that a $6 million cash sales price to a third party would have yielded. I as well as other members aren’t interested in selling [Peeonic Bay’s] asset at $6 million but understand your desire to cash out and not wait on future developments.120
Gatz was not a willing seller at $6 million, but he was a willing buyer. In that same letter, Gatz offered to purchase the Minority Members’ interests for a “cash price equal to the amount which would be distributed for those interests as if [Peeonic Bay’s] asset sold for a cash price of $5.6 million as of today,” and he explained that “the results would be as if the sale were for more than $6 million,” because in a third-party sale, the purchaser would have
Gatz’s offer to the Minority Members contained incomplete and misleading information about the RDC negotiations. Specifically, Gatz failed to inform the Minority Members that Galvin had told Gatz that RDC “may have an interest north of $6 million,” and that he “may be able to get more aggressive” than his last bid of $4.15 million.
All but one of the Minority Members rejected Gatz’s offer. Carr explained at trial that he was willing to sell at $6 million to RDC only if the Gatz Members also had voted to sell at that price. That is, Carr believed that the value created by eliminating the leasehold position on the Property gave Gatz “a large incentive to top any [third-party] bid that could be generated.”
When Gatz’s initial buyout offer failed, he hired an appraiser for the purpose of justifying a lower buyout price.
On August 7, 2008, Gatz wrote to the Minority Members once more with a new buyout offer, this time trumpeting Hirsh’s appraisal to prove that “[Peconic Bay] has no value even after application of its [cash] reserves to its debt.”
Notably absent from the August 7 buyout letter was any mention of Galvin’s Forward Lease Proposal and Gatz’s rejection of it, which occurred after Gatz made his first buyout offer. But, the Minority Members were not willing to sell for 25 cents on the dollar. When the Minority Members did not respond favorably, Gatz and his family retained counsel at Blank Rome LLP to threaten the Minority Members with litigation if they continued to refuse his offers for their membership interests. Specifically, Gatz’s counsel wrote:
Under the provisions of the [LLC Agreement], the majority members have the right to vote out the minority members, so long as a fair price is paid for the interests of the minority members. Given the existing debt which [Peconic Bay] is obligated to repay, as well as the value determined by Golf Property Analysts, that value is, at best, zero. Thus, the offer to the minority members to pay substantially more than zero to acquire the interest of the minority members is more than fair ....
If the minority members are not willing to negotiate a resolution of the value of their interests in [Peconic Bay], the majority will have no choice but to file an appropriate action with the, Delaware Court of Chancery to establish such a price through the litigation process.135
4. Gatz Conducts A Sham Auction
Following this letter, Carr surmised to fellow Minority Member Don Kyle: “I think the final battle is looming.”
Nevertheless, Gatz set out to hire an auctioneer. To help with the search, he engaged Blank Rome, his personal legal advisors who had been representing him in his efforts to buy out the Minority Members, on behalf of Peconic Bay. This meant that Blank Rome was representing both the seller and the potential buyers (the Gatz family). With the assistance of his (conflicted) counsel, Gatz claims to have considered three different auction firms. The first two were reputable and had experience auctioning golf courses, but Gatz felt they were too “expensive.”
Hirsh stated in his 2008 appraisal that Gatz would need six to nine months to properly market Peconic Bay.
The due diligence package was not made available until at least July 16, 2009, only a month or so before the Auction. Potential bidders had to pay $850 to obtain the package.
The auction terms (the “Terms of Sale”) were made available in mid-July 2009 as well, and were based on a prior term sheet used by Maltz for a Chapter 7 liquidation sale. The Terms stated that Peconic Bay would be sold “as-is,” “where-is,” and “with all faults,” without any representations or warranties.
On the day of the Auction, Maltz told Gatz that their marketing campaign had not elicited any third-party interest, and that Gatz would be the only bidder. Upon hearing this news, Gatz did not suggest cancelling the Auction to rethink their marketing efforts, as a well-motivated fiduciary would have done. Nor did Maltz. Rather, Gatz finalized his bid in the absence of any competitive pressure, and purchased Peconic Bay for $50,000 in new cash and the assumption of Peconic Bay’s debt. This resulted in a $20,985 distribution to the Minority Members, which was funded by Peconic Bay’s own approximately $1.6 million in cash. Gatz assumed the rest of that cash as part of the follow-on Merger. Upon questioning by the court at trial, Gatz admitted that that had there been another bidder at the Auction, he “might have bid higher” than $50,000.
a. The Auction Did Not Satisfy §15 Of The LLC Agreement Or The Duty of Loyalty
Despite Gatz’s repeated efforts to convince me otherwise, I believe the Auction process used by Gatz was a bad faith sham. The process used was so far short of minimally responsible as to render Gatz’s continued defense of it frivolous and burdensome. At an earlier preliminary injunction hearing, I made a probabilistic determination to that effect, following the procedural rubric for such a motion, and encouraged Gatz to engage in a bona fide marketing effort.
First, the decision to auction Peconic Bay rather than engage a broker with a specialized knowledge of the golf course industry was telling, in a bad way. There was no need to create the appearance of a distress sale, in the difficult economic climate of 2009, when there was no economic exigency to do so. The cash cushion that Peconic Bay had allowed the time to properly market the Course, based on good materials, to a targeted list of potential buyers with demonstrated interest in the golf industry. This would have involved employing an experienced and credible broker or financial advisor, rather than a young employee of a bankruptcy sales house like Richard Maltz. Among the first targets for such an outreach would have been RDC. In making an appropriate decision for Peconic Bay, Gatz had to consider what was best for the entity, not himself. With money to pay the bills for three years, Peconic Bay’s interest was clearly best served by a real market check and consideration of all strategic alternatives. Only Gatz himself was served by a bankruptcy-like sale process, which is what he commissioned.
Gatz justifies his decision to pursue the Auction based on the proposition that Pe-conic Bay’s most valuable asset was its dwindling above-market rent payments from American Golf, and thus time was of the essence in getting it to market. I find this rationale unconvincing and litigation driven.
Gatz has argued throughout this litigation that Peconic Bay was worth less than its debt and thus any surplus over zero was a fair price, but I cannot accept this as true based on the record before me. Gatz himself is responsible for this evidentiary doubt. He fended off RDC, gave incomplete information to Hirsh, and did not promote a fair Auction process. Thus, I do not view the Auction process as gener
Thus, for all these reasons, I conclude that Gatz breached his fiduciary duty of loyalty and his fiduciary duty of care by: (1) his bad faith and grossly negligent refusal to explore any strategic alternatives for Peconic Bay from the period 2004-2005 forward when he knew that American Golf would terminate its lease; (2) his bad faith refusal to consider RDC’s interest in a purchase of Peconic Bay or a forward lease; (3) his bad faith conduct in presenting the Minority Members with misleading information about RDC’s interest and his own conduct in connection with his buyout offers in 2008; and (4) his bad faith and grossly negligent conduct in running a sham Auction process that delivered Peconic Bay to himself for $50,000. The results of this conduct left the Gatz family with fee simple ownership of the Property again, a Property that had been improved by millions of dollars of investments and now contained a clubhouse and first-class golf course. The Minority Members got $20,985.
Despite this, Gatz argues that he and his fellow defendant should not be held liable because even if they breached their fiduciary duties, they did not cause any economic harm because Peconic Bay was insolvent as of the time of the Auction.
I discuss that defense next in determining the appropriate remedy to award.
V. Damages
A. What Are The Damages That Gatz Owes ?
By the time of his post-trial briefs, Gatz’s defense was really one based on minimizing the damages he would owe. That defense melds with his defense based on § 15 of the LLC Agreement, which is that regardless of his misconduct, Gatz Properties in fact paid a fair price for
In support of that argument, Gatz points to testimony of Carr of Auriga. In that testimony, which was in response to questions from the court itself, Carr admitted that he considered bidding at the Auction, but did not because he could not come up with a model predicting positive returns high enough to meet his personal requirements.
Gatz also points to the reality that American Golf had never earned revenues at the Course that would allow it operate profitably and pay both the debt service on the Note and the Ground Lease Rent to Gatz Properties. Gatz also notes that American Golfs failures had left the Course in a compromised condition, and that the decline in the economy had hurt the golf industry in general, a factor injurious to Peconic Bay’s value. He sums it all up as a situation where an idea just did not pan out. That is, Peconic Bay was a well-intentioned idea, but the economics just did not work in an American economy that was weak and where the golf industry was contracting.
For the following reasons, I do not reach the same conclusion that Gatz does about whether he should suffer a damages award.
First of all, even assuming that the date of the Auction is the right measuring rod, which I do not think it is, Gatz’s contention that the Property had no positive value is not convincing. The fact that Carr would not stake his credibility -with investors on the line by funding a full purchase of Pe-conic Bay after having had the investors he procured receive no return of capital for ten years is not one that can be given much weight. None of the Minority Members was duty-bound to invest and Carr and Auriga are not golf course operators. Furthermore, the fact that Galvin of RDC did not bid was understandable based on the unfair Auction rules and the prior treatment he had received at Gatz’s hands. Galvin would have been sensible to have viewed the Auction as a ruse and not a fair chance for RDC to actually come away with Peconic Bay. RDC’s failure to bid thus does not persuade me that it could not have justified a bid above the debt owed by Peconic Bay.
Second, even as of the date of the Auction, the fundamentals of Peconic Bay were such as to make me conclude that an offer above the debt would have been economically justifiable. The Course is a first-rate one, in a community that is an attractive one in which to run a Golf Course profitably, and the lease on it held by Peconic Bay ran until 2088. The Minority Members’ presented a discounted cash flow analysis showing a value of Pe-conic Bay as of the date of the Auction of approximately $8.9 million.
Third, one cannot ignore Gatz’s own behavior as of the time of the Auction. He was still only a buyer and not a seller. And after the Auction, he has continued to run the Course and apparently managed to service the debt and apparently intends to continue in the golf course business.
Most important, however, is this factor. Gatz himself is responsible for the eviden-tiary uncertainty caused by his own disloyalty. It was his own selfishly motivated acts of mismanagement that led to the distress sale.
If he had acted properly, a liquidity event or some other sensible strategic alternative to the expiring American Golf Sublease would have been undertaken in 2007, when Galvin of RDC came on the scene. Gatz was the one who put Peconic Bay in a position of relative economic weakness by allowing the time on the Sublease to lapse and then choosing to put Peconic Bay on the auction block, and even then he chose an unduly rushed and compromised marketing process when there was time to do a professionally competent job. Given his own breaches of loyalty, the attendant uncertainties cut against Gatz, not against the victims of his infidelity.
Had Gatz dealt with Galvin with integrity in 2007, it seems probable that Peconic Bay could have been sold in a way that generated to the Minority Members a full return of their invested capital ($725,000)
Gatz, of course, had no duty to sell his interests. But the fact that he was not a seller does not mean that he had a free license to mismanage Peconic Bay so as to deliver it to himself for an unfair price.
With the context that a market test would have provided, Gatz and his family would have faced an incentive to pay a price that would restore to them the fee simple ownership of the Property they desired to achieve. That would have pushed them higher in bidding, instead of in the southward direction he pushed things by fending off RDC and giving the Minority Members misleading information.
Thus, I award $776,515 as of January 1, 2008, with pre-judgment interest at the statutory rate, compounded monthly, until the date of the final judgment.
B. A Partial Shifting Of Fees Is Warranted
Under the American Rule, each party is ordinarily responsible for its own litigation expenses.
The record is regrettably replete with behavior by Gatz and his counsel that made this case unduly expensive for the Minority Members to pursue. Rather than focus on only bona fide arguments, Gatz and his counsel simply splattered the record with a series of legally and factually implausible assertions. These range from arguments that he owed no fiduciary duties to the Minority Members;
VI. Conclusion
For all these reasons, I find for the Minority Members and will enter a final judgment for them. The Minority Members shall submit a conforming final judgment, upon notice as to form, within 20 days. That final judgment shall also dismiss with prejudice Gatz’s premature claim for indemnity, because, among other reasons, his behavior disqualifies him from receiving indemnification.
. 6 Del. C. § 18-1104.
. There is one minority investor, Bill Hart-nett, who is not a party to this dispute. Two additional minority investors, Robert Trent Jones, Jr. and Greenscape, Ltd., are not parties to this dispute but have assigned their litigation interests to Auriga. For the sake of clarity, I treat the plaintiffs as having acquired the membership interests of Jones and Greenscape.
. Carr is not a party to this dispute in his individual capacity but has been the key coordinating force for Auriga and the other plaintiffs.
. JX-1 (Lease Agreement between Gatz Properties and Peconic Bay (January 1, 1998)).
. JX-1 at §§ 1, 11(a).
. JX-1 § 20.01. A high-end daily fee public golf course is one that is open to the public, and that derives a substantial portion of its revenue from charging a fee per round of golf played, and from food and beverage income. By contrast, a private golf course is one that derives a significant portion of its revenue from monthly or yearly membership fees, and it usually charges less per round of golf played.
. JX-2 (Amended and Restated Limited Liability Company Agreement (January 1, 1998)).
. The transfers increased the Gatz Members' ownership to 52.8% of the Class B interests. Earlier in this litigation, Auriga challenged the validity of these share purchases under § 17 of the LLC Agreement, which governed transfers of interest. The Minority Members did not pursue this claim later in the litigation, perhaps realizing that they had not raised a challenge to the 2001 transfers in a timely manner. See Ps. Mot. to Dismiss Defs. Countercl. at 11-15.
. JX-2 § 7(c).
. Id. § 8(c).
. Id. § 7(c)(vii).
. Id. § 7(c)(v).
. Id. § 4.
. Id. § 7.
. Tr. 10 (Carr).
. See JX-2 § 11.
. JX-4 (Lease between Peconic Bay and American Golf (March 31, 1998)).
. JX-99 (Summary Appraisal Report by Laurence A. Hirsh (September 23, 2008)) at PBG0001514.
. JX-4 § 6.1.
. Id. § 6.4; JX-1 § 3(b).
. Compl. ¶¶ 53-58 (Count I); id. at ¶¶ 59-63 (Count II); id. at ¶¶ 64-70 (Count III). Also, Count IV alleges that Gatz Properties breached the implied covenant of good faith and fair dealing under the LLC Agreement, and Count V alleges that Gatz aided and abetted Gatz Properties’ breach of fiduciary duty to the extent that Gatz does not owe such duties directly. Id. at ¶¶ 71-76 (Count IV); id. at ¶¶ 77-81 (Count V).
. Id. ¶ 56.
. In addition to these central counts, the Minority Members bring claims related to Gatz’s alleged failure to distribute funds as "Available Cash” under § 11 of the LLC Agreement. E.g., id. ¶ 68 (Count III), ¶ 74 (Count IV).
. E.g., Defs. Ans. Br. in Opp'n to P. Mot. for Prelim. Injunction, at 20-22 (arguing that the LLC Agreement waived all fiduciary duties).
. E.g., Defs. Op. Pre-Tr. Br. at 9.
. E.g., id. at 26-29; Defs. Ans. Pre-Tr. Br. at 9-11.
. See 6 Del. C. § 18-1104.
. Compare 6 Del. C. § 18 — 1101(c), with 8 Del. C. § 102(b)(7).
. See, e.g., Douzinas v. Am. Bureau of Shipping, Inc., 888 A.2d 1146, 1149-50 (Del.Ch.2006).
. Schnell v. Chris-Craft Indus., Inc., 285 A.2d 437 (Del.1971).
. Schnell v. Chris-Craft Indus., Inc., 285 A.2d 430, 437 (Del.Ch.1971).
. Schnell, 285 A.2d at 439 (Del.1971).
. 6 Del. C. § 18-1104 (emphasis added).
.Section 18-1101(c) of the LLC Act provides: “To the extent that, at law or in equity, a member or manager or other person has duties (including fiduciary duties) to a limited liability company or to another member or manager or to another person that is a party to or is otherwise bound by a[n][LLC] agreement, the member’s or manager’s or other person’s duties may be expanded or restricted or eliminated by provisions in the [LLC] agreement; provided, that the [LLC] agreement may not eliminate the implied covenant of good faith and fair dealing.” 6 Del. C. § 18-1101(c) (emphasis added). Although § 18-1101(c) allows parties to an LLC agreement to contract out of owing fiduciary duties to one another, the fact that these duties can be contractually avoided suggests that they exist by default in the first place. When read together, the most logical reading of § 18-1104 and § 18-1101(c) that results is that if, i.e., "to the extent that,” equity would traditionally make a manager or member a fiduciary owing fiduciary duties, then that manager or member is a fiduciary, subject to the express right of the parties to contract out of those duties. By contrast, if a member or manager would not be considered a fiduciary owing circumstantially-relevant duties under traditional equitable principles, then the member or manager is immune from fiduciary liability, not because of the statute, but because equity itself would not consider the member or manager to have case-relevant fiduciary duties. The "to the extent that” language makes clear that the statute does not itself impose some broader scope of fiduciary coverage than traditional principles of equity.
. Metro Ambulance, Inc. v. E. Med. Billing, Inc., 1995 WL 409015, at *2 (Del.Ch. July 5, 1995) (citing Cheese Shop Int’l, Inc. v. Steele, 303 A.2d 689, 690 (Del.Ch.1973), rev’d on other grounds, 311 A.2d 870 (Del. 1973)); see also Lank v. Steiner, 213 A.2d 848, 852 (Del.Ch.1965), aff'd, 224 A.2d 242 (Del.1966); In re USACafes, L.P. Litig., 600 A.2d 43, 48 (Del.Ch.1991).
. See Metro Ambulance, 1995 WL 409015, at *3; McMahon v. New Castle Assocs., 532 A.2d 601, 604-05 (Del.Ch.1987).
. Wal-Mart Stores, Inc. v. AIG Life Ins. Co., 901 A.2d 106, 114 (Del.2006) (agreeing with the court below that "it is vitally important that the exacting standards of fiduciary duties not be extended to quotidian commercial relationships -") (citation omitted); McMahon, 532 A.2d at 605 (relationship between landlord and tenant was wholly contractual and not fiduciary); Prestancia Mgmt. Group, Inc. v. Va. Heritage Found., II LLC, 2005 WL 1364616, at *6 (Del.Ch. May 27, 2005) (real estate investment contract between Prestancia and the defendant "was a bargained-for commercial relationship between sophisticated parties ... that [did] not give rise to fiduciary duties.”); Metro Ambulance, 1995 WL 409015, at *2-3 (relationship established by two commercial contracts was not fiduciary).
. See Grace v. Morgan, 2004 WL 26858, at *2 (Del.Super. Jan. 6, 2004) (concluding that the manager of an LLC "had more than an arms-length, commercial relationship” with the LLC’s member when that member "placed a very particular and special trust in [the manager] in her position as [manager] to find and hire a competent architectural and engineering firm, to contribute meaningfully to the project plans, to oversee the planning and construction, and to ensure that goals as well as codes and specifications were met.”); see also Cantor Fitzgerald, L.P. v. Cantor, 2000 WL 307370, at *22 (Del.Ch. Mar. 13, 2000) (analyzing whether to impose fiduciary duties on limited partners who did not manage the business based on traditional fiduciary criteria, and finding that they did owe a duty based on the circumstances of the limited partnership’s business).
. See 6 Del. C. § 18-402. In this regard, managers of an LLC bear resemblance to directors of a corporation, who are charged with managing "the business and affairs” of the corporation. 8 Del. C. § 141(a).
. 6 Del. C. § 18 — 1101(c) (2003).
. Gotham Partners, L.P. v. Hallwood Realty Partners, L.P., 817 A.2d 160 (Del.2002).
. Id. at 168 ("[W]e note the historic cautionary approach of the courts of Delaware that efforts by a fiduciary to escape a fiduciary duty, whether by a corporate director or officer or other type of trustee, should be scrutinized searchingly.”) (citing cases).
. 74 Del. Laws ch. 265, § 15 (2004).
. 74 Del. Laws ch. 275, § 13 (2004).
. Id. § 14; see also id. at ch. 265, § 16 (amending DRULPA in same way).
. An agreement containing a provision with this language was analyzed in Fisk Ventures, LLC v. Segal, 2008 WL 1961156 (Del.Ch. May 7, 2008), and the court found it to waive all fiduciary duties except those that were contractually provided for. Id. at *9 (where the provision stated: "No Member shall have any
. 6 Del. C. § 18-1101(b).
. See Montclair v. Ramsdell, 107 U.S. 147, 152, 2 S.Ct. 391, 27 L.Ed. 431 (1883) (stating the basic principle of statutory interpretation that courts must "give effect, if possible, to every clause and word of a statute.... ”).
. Cf. Holder v. Hall, 512 U.S. 874, 920, 114 S.Ct. 2581, 129 L.Ed.2d 687 (1994) ("It is true that we generally will assume that reenactment of specific statutory language is intended to include a ‘settled judicial interpretation’ of that language.”) (citing Pierce v. Underwood, 487 U.S. 552, 567, 108 S.Ct. 2541, 101 L.Ed.2d 490 (1988)).
. 6 Del. C. § 18-1101(c); see also Bay Ctr. Apartments Owner, LLC v. Emery Bay PKI, LLC, 2009 WL 1124451, at *8 (Del.Ch. Apr. 20, 2009); Gerber v. Enter. Prods. Holdings, LLC, 2012 WL 34442, at *13 (Del.Ch. Jan. 6, 2012) ("Alternate entity legislation reflects the Legislature's decision to allow such ventures to be governed without the traditional fiduciary duties, if that is what the ... governing document provides for, and allows conduct that, in a different context, would be sanctioned.”).
. See, e.g., In re Atlas Energy Res., LLC, 2010 WL 4273122, at *12 (Del.Ch. Oct. 28, 2010); Fisk Ventures, 2008 WL 1961156, at *9.
. See, e.g., Related Westpac LLC v. JER Snowmass LLC, 2010 WL 2929708, at *8 (Del.Ch. July 23, 2010) (when parties to a contract "cover a particular subject in an express manner, their contractual choice governs and cannot be supplanted by the application of inconsistent fiduciary duty principles that might otherwise apply as a default.”). For cases addressing this principle in the limited partnership context, see generally Gotham Partners, L.P. v. Hallwood Realty Partners, L.P., 795 A.2d 1, 31 (Del.Ch.2001), aff'd in relevant part, 817 A.2d 160 (Del.2002); Gelfman v. Weeden Investors, L.P., 792 A.2d 977, 987 (Del.Ch.2001); Miller v. Am. Real Estate Partners, L.P., 2001 WL 1045643, at *8-9 (Del.Ch. Sept. 6, 2001).
. From my experience as a trial judge, I note that few LLC agreements contain an express, general provision that states what fiduciary duties are owed in the first instance. Rather, the agreements assume that such fiduciary duties are owed, and then they proceed to cut
. Nemec v. Shrader, 991 A .2d 1120, 1127 n. 20 (Del.2010) (citing Fitzgerald v. Cantor, 1998 WL 842316, at *1 (Del.Ch. Nov. 10, 1998)); see also Katz v. Oak Indus. Inc., 508 A.2d 873, 880 (Del.Ch.1986) (stating that the legal test for implying contractual obligations is whether it is "clear from what was expressly agreed upon that the parties who negotiated the express terms of the contract would have agreed to proscribe the act later complained of as a breach of the implied covenant of good faith — had they thought to negotiate with respect to that matter.’’).
. Nemec, 991 A.2d at 1125 (citation omitted).
. Allied Capital Corp. v. GC-Sun Holdings, 910 A.2d 1020, 1032-33 (Del.Ch.2006) ("[Urn-plied covenant analysis will only be applied when the contract is truly silent with respect to the matter at hand, and only when the court finds that the expectations of the parties were so fundamental that it is clear that they did not feel a need to negotiate about them.”); see also Related Westpac, 2010 WL 2929708, at *6 (citing authority on this point); 23 Willi-ston on Contracts § 63:22 (4th ed. 2002) ("As a general principle, there can be no breach of the implied promise or covenant of good faith and fair dealing where the contract expressly permits the actions being challenged, and the defendant acts in accordance with the express terms of the contract.”).
.See Airborne Health, Inc. v. Squid Soap, LP, 984 A.2d 126, 146 (Del.Ch.2009) ("The [implied covenant] ... operates only in that narrow band of cases where the contract as a whole speaks sufficiently to suggest an obligation and point to a result, but does not speak directly enough to provide an explicit answer. In the Venn diagram of contract cases, the area of overlap is quite small.”).
. See generally Stephen A. Radin, 1 The Business Judgment Rule 11-13 (6th ed.2009).
. If, to put it in implied covenant terms, the expectation that an LLC manager will act loyally and with due care is "so fundamental that it is clear that the [parties] [would] not feel a need to negotiate about [it],” Allied Capital, 910 A.2d at 1032-33, isn’t that another way of saying that the parties expected that the manager could only take contractually permissible (i.e., legal) action if he acted in compliance with his fiduciary duties, i.e., equitably? If we imply these equity duties in the guise of the contractual implied covenant, are we adding clarity or simply confusing things? I believe it would be the latter.
. In Vice Chancellor Noble’s well-reasoned decision in Gerber v. Enterprise Products Holdings, LLC, he explains convincingly why the concepts in the contractual term, the "implied covenant of good faith and fair dealing,” do not have the same meaning as when the terms good faith or fair dealing are used in defining the duty of loyalty owed by a corporate fiduciary. 2012 WL 34442, at *11 n. 46 (Del.Ch. Jan. 6, 2012); see also id. at *13 n. 58. To broaden the carefully constrained, albeit still important, contractual covenant to act as an equitable constraint on the broad managerial authority that an LLC agreement might vest in the manager would involve a transformation of its role that would seem to have little benefit (as it would involve judges reinventing an equitable overlay in the guise of contract rather than using one that has been carefully shaped by generations of experience) but great cost (as it would risk reducing the predictability of contract law by changing settled principles and entity law, by constraining the exercise of legal, i.e., contractual and statutory, action by managers not to understood principles of equity, but by a novel deployment of an implied covenant).
. 6 Del. C. § 18-1101(c).
. William Penn P’ship v. Saliba, 13 A.3d 749, 756 (Del.2011) (citing Bay Ctr. Apartments Owner, LLC v. Emery Bay PKI, LLC, 2009 WL 1124451, at *8 (Del.Ch. Apr. 20, 2009)).
. See Phillips v. Hove, 2011 WL 4404034, at *24 (Del.Ch. Sept. 22, 2011); In re Atlas Energy Res., LLC, 2010 WL 4273122, at *6-7 (Del. Ch. Oct. 28, 2010); Kelly v. Blum, 2010 WL 629850, at *10 (Del.Ch. Feb. 24, 2010); Bay Ctr. Apartments, 2009 WL 1124451, at *8; Metro Commc'n Corp. BVI v. Advanced Mobilecomm Techs. Inc., 854 A.2d 121, 153 (Del.Ch.2004); VGS, Inc. v. Castiel, 2000 WL 1277372, at *4-5 (Del.Ch. Aug. 31, 2000), aff'd, 781 A.2d 696 (Del.2001).
. Gotham Partners, L.P. v. Hallwood Realty Partners, L.P., 817 A.2d 160, 168, 170 (Del. 2002).
. Admittedly, the Supreme Court’s statement in William Penn is on its face simply an indication of what the parties agreed. See William Penn, 13 A.3d at 756. But William Penn also cited to this court’s decision in Bay Center Apartments, which embraced the same proposition. Id. at 756 n. 9 (citing Bay Ctr. Apartments, 2009 WL 1124451, at *8). Perhaps more importantly, the seeming import of William Penn is identical to the holding of the Supreme Court in the limited partnership context, which is analogous, as explained below. In Gotham Partners, the Supreme Court agreed with the holding of this court that, absent a contrary provision in the partnership agreement, "a general partner owes the traditional fiduciary duties of loyalty and care to the limited partnership and its partners.” Gotham Partners, 817 A.2d at 170. Gotham Partners inspired not only the amendment to DRULPA allowing expressly for the elimination of all fiduciary duties, but also the Elimination Amendment to the LLC Act. As noted, this supports the inference that the General Assembly believed both statutes were to be read against equitable principles of fiduciary duty. In the case of DRULPA, the default is, to be sure, to the Delaware Uniform Partnership Law, see 6 Del. C. § 17-1105, which is modeled off of the Uniform Partnership Act. And, the Uniform Partnership Act admittedly refers explicitly to partners having fiduciary duties, see 6 Del. C. § 1521 (specifying that a partner is "accountable as a fiduciary”). But, when the Court of Chancery first held that the general partner of a limited partnership had fiduciary duties, it relied as heavily on the common law equity decisions to that effect as it did on the Uniform Partnership Act, which was linked to the then-existing Delaware Uniform Limited Partnership Act through 6 Del. C. § 1709. See Boxer v. Husky Oil Co., 429 A.2d 995, 997 (Del.Ch.1981) ("The duty of the general partner in a limited partnership to exercise the utmost good faith, fairness, and loyalty is, therefore, required both by statute and common law.”) (citing 6 Del. C. § 1521 and Meinhard v. Salmon, 249 N.Y. 458, 164 N.E. 545 (N.Y.1928)). The Supreme Court's decision in Gotham Partners embraced the reasoning of Boxer, see Gotham Partners, 817 A.2d at 170 n. 30, as did a consistent line of Chancery cases, including the Chancery decisions in Gotham Partners itself, see, e.g., Gotham Partners, 2000 WL 1476663, at *10 (Del. Ch. Sept. 27, 2000); see also Wallace v. Wood, 752 A.2d 1175, 1180 (Del.Ch.1999); Sonet v. Timber Co., L.P., 722 A.2d 319, 322 (Del.Ch.1998). But the Uniform Partnership Act, as it existed at the time of Boxer, hardly specified the full contours of those duties, and was more an acknowledgement of the existence of those equitable duties than a creation of them in the first place. See 6 Del. C. § 1521 (former provision in Delaware Uniform Partnership Law); compare 6 Del. C. § 15-404 (Delaware Revised Uniform Partnership Act, the new version of the Delaware Uniform Partnership Law, specifying in more detail the fiduciary duties owed by a partner of a general partnership); but see 6 Del. C. §§ 17-1105, 17-403 (DRULPA provisions continuing to provide for default to the Delaware Uniform Partnership Law, 6 Del. C. § 1501, et seq., rather than the new Delaware Revised Uniform Partnership Act, codified at 6 Del. C. § 15-101, et seq.).
Of course, the differences in DRULPA and the LLC Act in terms of the default provisions are arguably still important, in that DRULPA would suggest that judges look initially to the fiduciary duties owed by partners of partnerships in equity, rather than corporate cases, to address whether the general partner of a limited partnership or other person whom equity would regard as owing fiduciary duties had enforceable duties in a particular context and the contours of those duties. By con
. See, e.g., Kelly, 2010 WL 629850, at *11; Atlas Energy Res., 2010 WL 4273122, at *7.
. I pause to note that the defendants have recently accepted the proposition that both Gatz Properties and Gatz, as the sole manager of Gatz Properties and, as a result, the person who exercised actual management authority over Peconic Bay, owe fiduciary duties to Peconic Bay and the Minority Members. See Defs. Ans. Pre-Tr. Br. at 4 n. 4. Because this is a point that is no longer contested by the parties, I do not dwell on it further other than to note that Gatz, the person, is clearly liable as a fiduciary under a line of Delaware cases beginning with In re USACafes, L.P. Litigation, 600 A.2d 43 (Del.Ch.1991), which arose in the context of a limited partnership with a corporate fiduciary, but which has evolved to stand for the principle that a human manager of an alternative entity itself charged with managing an alternative entity may owe fiduciary duties directly to the second entity if the human manager exercises control over that second entity’s assets. See Bay Ctr. Apartments, 2009 WL 1124451, at *9.
. JX-2 § 15 (emphasis added).
. See Gotham Partners, L.P. v. Hallwood Realty Partners, L.P., 795 A.2d 1, 27 (Del.Ch.2001), affd in relevant part, 817 A.2d 160 (Del.2002); Flight Options Int'l, Inc. v. Flight Options, LLC, 2005 WL 2335353, at *7-8 (Del. Ch. Sept. 20, 2005).
. JX-70 (Letter from Gatz’s Counsel to Members (August 29, 2008)) (“Under the provisions of the [LLC Agreement], the majority members have the right to vote out the minority members, so long as a fair price is paid for the interests of the minority members.") (emphasis added).
. See Flight Options, 2005 WL 2335353, at *7 n. 32 ("The notion of arms’ length terms and conditions conjures up an image of real negotiations — the process of give and take.... As a practical matter, the inquiry must be one of whether the price fairly reflects what would have been the outcome of an arms’ length negotiation. The reliability of a determination of price cannot be fairly assessed, at least in this context, without consideration of the process.") (emphasis added); see also Valeant Pharmaceuticals Int’l v. Jerney, 921 A.2d 732, 746 (Dd.Ch.2007) ("The two components of the entire fairness concept are not independent, but rather the fair dealing prong informs the court as to the fairness of the price obtained through that process.”).
.Gotham Partners, 795 A.2d at 27 (emphasis added) (where this court faced a similar provision that, in the limited partnership context,
. See, e.g., id. at 31-32.
. JX-2 § 16 (emphases added).
. Id.
. See 8 Del C. § 102(b)(7).
. For example, from 2003 to 2008, American Golf generated an average of $2.3 million in gross revenue. JX-124 (Long Island National Golf Course Financial Statements (December 31, 2008)) at PBG0002885-PBG0002912.
.Id. at PBG0002889.
. Tr. 408 (Gatz).
. Id. at 408 (Gatz). Gatz’s characterization of American Golf was supported at trial by Matthew Galvin of RDC Golf Group, Inc., who is a former employee of American Golf. Id. at 139-40 (Galvin) ("[American Golf] was acquired by an investment group that was not really in the business — it was more of a financial buyer ... [, and] they were not looking to reinvest and improve the properties and manage them for the long-term. They were just looking to stem any losses and exit.”).
. See id. at 407 (Gatz) ("Q. I think testimony in this case has been toward the end that everybody referred to them [American Golf] as a demoralized operator. Would you agree with that characterization? A. Yes.”); id. at 122 (Carr) (referring to American Golf as in a "demoralized condition”).
. Id. at 408-11 (Gatz) (describing American Golf's deferring of maintenance items and neglect of the condition of the course’s appearance); JX-64A (Gordon & Rees Letter to American Golf (August 4, 2008)) (describing maintenance issues).
. Tr. 411 (Gatz).
. JX-124 at PBG0002885-PBG0002912.
. Id. at PBG0002907, PBG0002885.
. Tr. 417 (Gatz).
. JX-2 § 7.
. Delaware law has long recognized that there is an affirmative aspect of the fiduciary duty of loyalty. A "corporate officer or director” has an obligation to "affirmatively ... protect the interests of the corporation committed to his charge_” Guth v. Loft, Inc., 5 A.2d 503, 510 (Del.1939); see also Mills Acquisition Co. v. Macmillan, Inc., 559 A.2d 1261, 1280 (Del.1989) (explaining that principles of fiduciary duty "demand that corporate fiduciaries ... affirmatively protect and defend those interests entrusted to them” and "[officers and directors must exert all reason
. See, e.g., Stone v. Ritter, 911 A.2d 362, 370 (Del.2006).
. Tr. 417 (Gatz).
. JX-2 § 4 ("Purposes”) (“The initial purposes of the Company shall be ... (v) to lease ... the Project to [American Golf] ..., or to such other golf course operator as shall be approved by Majority Approval of the Members, and (vi) to sell or otherwise dispose of the Project upon termination of the [American Golf] Lease (or such other lease as may be entered into with Majority Approval of the Members), or to re-lease or otherwise deal with the Project in such manner as may be determined by Majority Approval of the Members.”) (emphasis added).
. Id. § 11.
. See Tr. 506 (Gatz — Cross); see also XX-124.
. JX-97 (Rogers & Taylor Appraisal for Flushing Savings Bank (December 5, 2006)) at PBG0002965.
.Id. at PGB0003002.
. E.g., JX-38 (Email from Gatz to Minority Member Ivan M. Benjamin, Jr. (April 18, 2007)) ('‘I’ve been informed by representatives of American Golf Corporation that you have been in contact with them. As I’m the manager of Gatz Properties which in turn is the manager of [Peconic Bay], and as manager I’m the only representative of [Peconic Bay]. I ask that your representation/contact as otherwise must stop. If you refuse to do so then we will be forced to take appropriate actions.”).
. E.g., JX-64 (Email from Gatz to Carr (May 9, 2008)) ("Mr. Carr; [o]nce again, your ... letter contains nothing but baseless accusations and demands... .It appears that you disagree with any decision I make. That along with the continuing venom in each of your communications tells me your actions are based upon personal dislike rather than any proper business basis_”).
. In 2005, Auriga sued to remove Gatz as manager in a New York lawsuit. In 2006, Auriga instituted a books and records action in this court. Tr. 29 (Carr). In 2009, Auriga sued to preliminarily enjoin the Auction. When I denied Auriga’s motion and the Auction closed, Auriga, along with the rest of the Minority Members in this current action, pursued this suit seeking money damages in 2010.
. See Def. Post-Tr. Op. Br. at 7.
. JX-65 (Letter from Gatz to Peconic Bay Members (August 7, 2008)).
. See, e.g., Boyer v. Wilm. Materials, Inc., 754 A.2d 881, 899 (Del.Ch.1999) ("The duty to deal fairly requires the fiduciary ‘not to time or structure the transaction, or to manipulate the corporation’s value, so as to permit or facilitate the forced elimination of the minority stockholders at an unfair price.’ ”) (citing Sealy Mattress Co. of N.J., Inc. v. Sealy, Inc., 532 A.2d 1324, 1335 (Del.Ch.1987)).
. Tr. 139 (Galvin).
. Id. at 532 (Gatz — Cross).
. Id. at 147 (Galvin).
. JX-170 (Email Exchanges between Gatz and Galvin (various dates)) at RDC000031.
. See Tr. 155-56 (Galvin).
. JX-170 at RDC000018.
. Id.
. Id.
. Id. atRDCOOOOló.
. Tr. 171 (Galvin).
. Id. at 411 (Gatz).
. For example:
Gatz's explanation for why he would not give Galvin the requested due diligence information: Gatz "had given him the information in 2003” in connection with discussions the two had had about potentially turning the Course into a private course. Id. at 519 (Gatz — Cross).
Gatz's explanation for why he did not respond to Galvin’s inquiry related to the Forward Lease Proposal: "I waited for two weeks and figured if Mr. Galvin was serious, he would get in touch with me. I never heard from him, so I dropped it.” Id. at 570 (Gatz — Cross).
Gatz’s explanation for why he was not willing to confirm RDC’s financial ability to consummate a transaction with Peconic Bay with Morgan Stanley over the telephone rather than on written letterhead: because he was worried that "[a]nybody could have answered that phone and given me any information." Id. at 545 (Gatz — Cross).
. Id. at 458 (Gatz) ("My first reaction to [the Forward Lease Proposal] was, you know, these are discussion points only, to initiate a conversation. It wasn't on a letterhead. It wasn’t signed. There is no financial consideration here. So these were just discussion points.").
. Id. at 610 (Gatz).
. See id. at 450 (Gatz) ("Gatz Properties wanted to make a return on its investment too. And at $6 million, it wasn’t making any return on its investment. The Class Bs would have been basically ... made whole, and the Class A membership, where we owned the majority of the Class As, we were getting pennies on the dollar at best.”).
. Id. at 556-57 (Gatz-Cross) ("A. I wasn’t on the market. I wasn’t interested in selling. So I wasn't about to create a value for something that I don't know if everybody else [the Gatz Members] was willing to sell at. Q. [the court] You weren’t interested in selling, but you were interested in buying? A. Yes, I was.”); id. at 566 (Gatz — Cross) ("Q. The reason the majority voted against making a
. Id. at 445 (Gatz).
. Id. at 450 (Gatz).
. JX-50 (Letter from Gatz to Minority Members (January 14, 2008)) (emphasis added).
. Id.
. Including non-party Hartnett, Gatz offered the minority investors $784,405.
. JX-50.
. JX-170 at RDC000018, RDC000016.
. Tr. 32 (Carr).
. Id. (Carr)
. Id. at 33 (Carr).
. See id. at 462 (Gatz) ("Mr. Carr and I had been bickering about the value of the company for years. I wanted to settle it once and for all and see if Mr. Carr was right or myself was right, so I engaged Mr. Hirsh.").
. JX-99 at PBG0001494. Hirsh had sound credentials. But, Gatz withheld from him material information that was relevant to Hirsh's analysis. Thus, I am skeptical of his analysis, which was shaped largely on the basis of inputs from Gatz, who was trying to demonstrate that Peconic Bay had a low value.
. JX-170 at RDC000017.
. See Tr. 776 (Hirsh — Cross).
. JX-65. Compare Tr. 411 (Gatz) (admitting that American Golf's lack of maintenance and commitment to the Course was a negative factor for golfers’ willingness to play at Pe-conic Bay).
. Id.
. Id.
. JX-70 (emphasis added).
. Tr. 469 (Gatz).
. See, e.g., Allied Chem. & Dye Corp. v. Steel & Tube Co. of Am., 120 A. 486, 491 (Del.Ch.1923) ("The majority thus have the power in their hands to impose their will upon the minority in a matter of very vital concern to them. That the source of this power is found in a statute, supplies no reason for clothing it with a superior sanctity, or vesting it with the attributes of tyranny. When the power is sought to be used, therefore, it is competent for any one who conceives himself aggrieved thereby to invoke the processes of a court of equity for protection against its oppressive exercise. When examined by such a court, if it should appear that the power is used in such a way that it violates any of those fundamental principles which it is the special province of equity to assert and protect, its restraining processes will unhesitatingly issue.”); accord Boyer v. Wilm. Materials, Inc., 754 A.2d 881, 899 (Del.Ch.1999) (a fiduciary must make an "‘informed, deliberate judgment, in good faith,' that the transaction is fair and not a Vehicle for economic oppression.’") (citing Sealy Mattress Co. of N.J., Inc. v. Sealy, Inc., 532 A.2d 1324, 1335 (Del.Ch.1987)).
. JX-71 (Email from Carr to Don Kyle (September 4, 2008)).
. JX-72 (Letter from Gatz to Peconic Bay Members (December 8, 2008)).
. Tr. 479-80 (Gatz).
. Id. at 811 (Maltz — Cross).
. Maltz was a recent entrant to the workforce who joined his family’s firm after his college graduation. After listening to his trial testimony and observing his demeanor in court, I doubt whether he conveyed the appropriate level of gravitas, experience, knowledge or even ordinary seriousness that golf course operators or managers would expect from someone selling an expensive long-term leasehold in a golf course.
. Tr. 815 (Maltz — Cross).
. JX-99 at PBG0001542.
. Tr. 826 (Maltz — Cross).
. The due diligence materials were themselves less than optimal. Rather than being a well-organized set of materials designed to attract bids, they were a mess that included all kinds of information such as: (1) the final conclusions from Hirsh’s 2008 appraisal valuing Peconic Bay at less than its debt, see JX-168 (Auction Due Diligence Materials) at PBG0001608; (2) Gatz’s second buyout letter to the Minority Members stating that Peconic Bay was worthless, see id. at PBG0001906; (3) the "hardball” letter from Gatz’s counsel to the Minority Members, see id. at PBG0001910; (4) pleadings from prior litigation between Auriga and Gatz alleging that the Auction was a “sham” contrived to buy out the Minority Members, see id. at PBG0001732; and (5) Gatz’s communication to the Minority Members stating his intention to bid at the Auction, see id. at PBG0001899. It may be that this information had to be disclosed in a data room, but the overall package is again indicative of what a faithless fiduciary interested only in buying the assets himself would have generated, not a motivated fiduciary and advisor trying to do what was best for Peconic Bay.
. JX-10 (Terms and Conditions of Sale (August 18, 2009)) § 9.
. Galvin testified at trial that, although he eventually learned about the Auction from other sources, RDC was dissuaded from bidding in part because of the unreasonableness of the Terms of Sale. E.g., Tr. 172 (Galvin) ("[W]e felt that the auction terms would not have given us the due diligence we normally would have needed with the due diligence period and reps and warranties. So we did not bid on it... .Had it been, in my opinion, a bona fide auction like I’ve bid on elsewhere ... I would have been more eager to pursue it.... Q. [the court] Have you bid on auctions where it was as-is? A. Yes. I bought a golf course from the U.S. Customs Service where it was as-is, but there was a significant previous period of due diligence that was allowed.... [And] [y]ou're not bidding against the potential — the seller is not a potential competitor in the bid.”).
. See JX-10 § 4 (”[T]he term 'High Bid at Auction' means the amount of the bid received by the Auctioneer at the Sale Auction from a Qualifying Bidder in accordance with these Terms and Conditions of Sale that ... (ii) results in the repayment in full, or with the required consent of [the bank], the partial repayment and refinancing, rollover and/or assumption in full, of all of the Company’s outstanding indebtedness and related obligations ... ”) (emphasis added).
. See id. § 15.
. Tr. 621 (Gatz-Cross).
. Auriga Capital Corp. v. Gatz Props., LLC, C.A. 4390, at 82-83 (Sept. 18, 2009) (TRANSCRIPT).
. In response to litigation filed by Auriga to enjoin the Auction, Gatz re-engaged Hirsh in May 2009 for his opinion on the advisability of the Auction. Hirsh's only conclusion was that an auction would be the most "efficient” way to sell Peconic Bay "quickly”; he never opined on the fairness of its terms, the marketing process, or on the resulting price. JX-101 (Expert Report of Laurence A. Hirsh (May 16.2011)) at PBG000274. Notably, Hirsh also had a strong golf course brokerage business. Gatz did not choose to hire Hirsh as a broker to sell Peconic Bay.
. In his briefing, Gatz advances the argument that he is protected from liability under 6 Del. C. § 18-406 for his reliance on Maltz and Hirsh in deciding whether to pursue the Auction. 6 Del. C. § 18-406 provides, in relevant part, that a "manager ... of a limited liability company shall be fully protected in relying in good faith upon ... information, opinions, reports or statements presented by ... any other person as to matters the ... manager ... reasonably believes are within such other person's professional or expert competence.” (emphasis added). I cannot find that Gatz in good faith relied on either Maltz or Hirsh in his decisions related to the Auction. First, Hirsh was re-engaged in 2009, after the decision to auction Peconic Bay was made, and during pending litigation between Auriga and Gatz. Hirsh did not opine on the fairness of the Auction, and he was not asked to be involved in decisions related to how the Auction should be structured and marketed to ensure that Peconic Bay sold for its maximum value. I am also troubled that Hirsh took no offense when learning that Gatz had failed to provide him with material information relevant to his appraisal work, thus displaying the blinkered results-oriented, client-directed focus that generates skepticism about hired experts. Second, as to Maltz, I cannot find that Gatz in good faith relied on Maltz's "expert” advice. The most important reason is obvious. A fiduciary cannot select an unqualified advisor instead of a qualified one — as Gatz knowingly did — and then claim he was guided by his expert sherpa. See In re Del Monte Foods Co. S'holders Litig., 25 A.3d 813, 838 (Del.Ch.2011) (noting that directors may successfully invoke the analogous protections of 8 Del. C. § 141(e) when they have selected "qualified advisors chosen with reasonable care.”). Gatz and his counsel chose a jejune scion of a distress sale shop to conduct a market check for a unique asset. That Maltz did very little work for a nice sum of $80,000 would have been obvious to Gatz had he been acting with fidelity. Maltz did not keep records of important details and could not remember key events — such as who asked for the due diligence package or whether he reached out to any golf course owners or operators. Moreover, Gatz’s claim of "reliance" is undercut by his and his counsel’s full involvement in the development and approval of the marketing plan and the Terms of Sale. Gatz and his legal advisors- — -who helped shape his aggressive squeeze-out strategy— were pleased to have Peconic Bay sold as if bankruptcy was imminent, when it was not. Thus, for these reasons, Gatz is not entitled to claim protection under § 18-406 of the LLC Act. Bay sold as if bankruptcy was imminent, when it was not. Thus, for these reasons, Gatz is not entitled to claim protection under § 18-406 of the LLC Act.
. See Flight Options Int’l, Inc. v. Flight Options, LLC, 2005 WL 2335353, at *8 (Del. Ch. Sept. 20, 2005) (in a fiduciary duty action against a self-interested LLC manager, where the manager failed to conduct an adequate market test concerning the challenged transaction, the court noted that even though “[t]he [price] results may accurately reflect the market, ... the lack of coordination and process ... tends to undermine the results.”); Neal v. Alabama By—Prods. Corp., 1990 WL 109243, at *11 (Del.Ch. Aug. 1, 1990), aff'd, 588 A.2d 255 (Del.1991) ("If corporate fiduciaries engage in self-dealing and fix the merger price by procedures not calculated to yield a fair price, these facts should, and will, be considered in assessing the credibility of [their] valuation contentions.”).
. See Thorpe v. CERBCO, Inc., 1993 WL 443406, at *12 (Del.Ch. Oct. 29, 1993) ("[0]nce a breach of [fiduciary] duty is established, uncertainties in awarding damages are generally resolved against the wrongdoer.”) (citing Donovan v. Bierwirth, 754 F.2d 1049, 1056 (3d Cir.1985)); see also William Penn P’ship v. Saliba, 13 A.3d 749, 757-58 (Del. 2011) (conflicted LLC managers did not meet their burden of showing fair price, even when they had sold the LLC’s asset at a premium to its appraisal price, because their "manipulation of the sales process denied the [other LLC members] the benefit of knowing the price a fair bidding process might have brought.”).
. JX-2 § 15.
. Specifically, Carr testified that his own models showed positive returns of "10[%] or maybe lower,” but that he needed returns "in the 20s, if not higher” to justify the additional investment. Tr. 57-58 (Carr). As Gatz points out, Carr also testified that by the time of the Auction, he could not say it was likely that "the best golf investment banker in the world" could have found a buyer to bid an amount that would satisfy Peconic Bay’s debt and produce a surplus for the Minority Members. See id. at 68-69 (Carr) ("Q. [the court] [Y]ou have no reason to believe that the best banker in the world could have done anything ... A. I wouldn’t bet on it.").
.JX-100 (Expert Report of Holtz Ruben-stein Reminick (May 16, 2011)) at Ex. 5A.
. See William Penn, 13 A.3d at 758 (construing evidentiary uncertainty on the issue of fairness against the defendants where their breaches of their fiduciary duty of loyalty "prevented a fair and open process” and thus their "self interest in the transaction and their domination of the sales process tainted the entire transaction.”); Gentile v. Rossette, 2010 WL 2171613, at *11 (Del.Ch. May 28, 2010) (holding that uncertainties in determining the fair value of a company "may cut against the fiduciary who has not faithfully discharged his duties.”) (citing Eastman Kodak Co. of N.Y. v. S. Photo Materials Co., 273 U.S. 359, 379, 47 S.Ct. 400, 71 L.Ed. 684 (1927) ("[A] defendant whose wrongful conduct has rendered difficult the ascertainment of the precise damages suffered by the plaintiff is not entitled to complain that they cannot be measured with the same exactness and precision as would otherwise be possible.”)).
. See Reis v. Hazelett Strip-Casting Corp., 28 A.3d 442, 466 (Del.Ch.2011) (citation omitted); Hampshire Group, Ltd. v. Kuttner, 2010 WL 2739995, at *50 (Del.Ch. July 12, 2010); Thorpe v. CERBCO, Inc., 1993 WL 443406, at *12 (Del.Ch. Oct. 29, 1993); see also Harmon v. Lewis, 2010 WL 2682514, at *2 n. 4 (Del. Ch. June 30, 2010); see generally Donald J. Wolfe, Jr. & Michael A. Pittenger, Corporate & Commercial Practice in the Delaware Court of Chancery § 12.10[b][3] at 12-118 (2009).
. JX-170 at RDC000018.
. At trial, Galvin explained that RDC had a low rate of return requirement, and he could have justified paying $6 million to $8 million for Peconic Bay’s leasehold, assuming gross revenue projections of $4 million and net operating income projections of $600,000. See Tr. 208 (Galvin-Cross) ("If I bought [the leasehold] for 6 million, [and] I made 600,000 [in net operating income][,] ... it’s a 10 percent return for me right off the bat. And then I pay 5 percent of my gross revenues [as Ground Lease Rent to Gatz Properties] .... that deal works for me. It works at 7 million. It works at 8 million. It’s a good deal.”).
. JX-50.
. See Sealy Mattress Co. of New Jersey, Inc. v. Sealy, Inc., 532 A.2d 1324, 1335 (Del.Ch.1987) (majority stockholder seeking to "cash out" the minority stockholders "was obliged not to time or structure the transaction, or to manipulate the corporation's values, so as to permit or facilitate the forced elimination of the minority stockholders at an unfair price."); see also Thorpe v. CERBCO, Inc., 676 A.2d 436, 442 (Del.1996) (controlling stockholders' veto power over transactions did not eliminate their fiduciary duty of loyalty); Freedman v. Rest. Assocs. Indus., Inc., 1990 WL 135923, at *6 (Del.Ch. Sept. 21, 1990) (Allen, C.) ("Occasionally ... a director’s interests as a shareholder conflict with the company's interests. When such a conflict arises, the director must ignore her personal interests as a shareholder and attend to the corporation’s interests.”).
. In re First Boston, Inc. S'holders Litig., 1990 WL 78836, at *7 (Del.Ch. June 7, 1990) (Allen, C.) ("It is not sufficient for such directors [on a special committee] to achieve the best price that a fiduciary will pay if that price is not a fair price. Nor is sufficient to get a price that falls within a range of 'fair values’ somehow defined, if the fiduciary (or another) would pay more. The fiduciary’s best price may not be fair and the fiduciaries’ position may preclude the emerge of alternative transactions at a higher price.”).
. Damages resulting from a breach of the fiduciary duty of loyalty are liberally calculated. Thorpe, 676 A.2d at 444-45. And, although a damage award cannot be based on ''speculation” or "conjecture,” Acierno v. Goldstein, 2005 WL 3111993, at *6 (Del.Ch. Nov. 16, 2005) (citation omitted), as long as there is a responsible basis for an estimate of damages, "mathematical certainty” is not required. Bomarko, Inc. v. Int’l Telecharge, Inc., 794 A.2d 1161, 1184 (Del.Ch.1999), aff'd, 766 A.2d 437 (Del.2000).
. The Minority Members’ damages report indicates that a deal at $6.5 million, modeled off of Galvin’s letters of intent to acquire the Peconic Bay leasehold, would have produced proceeds to the Minority Members of $804,475, which would amount to a full return of the Minority Members’ capital contribution plus $79,475 in surplus.
The reasonableness of assuming a deal at $6.5 million is supported by the incentives Gatz had. If it was true that Gatz could match RDC and deliver cash to the Minority Members at a lower deal price by avoiding certain costs — such as closing costs and prepayment penalties on the Note — as his $5.6 million offer suggested, Gatz could have offered $6.5 million and delivered this level of cash to the Minority Members himself. On this point, the Minority Members' argument for a "premium” based on Gatz’s incentives has been fully considered by me. I take it into account by assuming a deal at the level I do, and by assuming that Gatz’s own desire to buy would have pushed RDC or him to pay a good deal north of $6 million.
Finally, I note one minor quibble. It may be that the Minority Members' damages expert, Philip Kanyuk, did not strictly follow the requirements of the distribution waterfall set forth by § ll(b)(ii) of the LLC Agreement in the event of a "Capital Transaction” or a "Liquidation.” Specifically, the terms of § 1 l(b)(ii) appear to call for a return of both the Class B and the Class A Members' capital accounts before the cash remainder is distributed pro-rata to all members. It appears that Kanyuk skipped over the steps of the waterfall that relate to the capital account balances of the Class B and Class A Members, and thus the damage award might be off by some tens of thousands from an award calculated under a strict adherence to the terms of the § 11 (b)(ii) waterfall. But, given Gatz’s failure to challenge this aspect of Kanyuk’s analysis or the Minority Members' contention that none of them received cash distributions over the period of their investment in Peconic Bay, I hew to Kanyuk’s analysis rather than improvise.
. $725,000 ' + $72,500-$20,985 $776,515.
. In shaping my remedy, I am not immune to the reality that there is an argument that the Minority Members should have simply taken Gatz’s supposed offer of $5.6 million in January 2008. But that offer did not come with full disclosure; it came on misleading disclosures and at a time when Gatz was not coming clean with the Minority Members about fending off RDC. Given Gatz's conduct, it is also dubious whether he ever meant to pay anything close to a full return of capital given his low-ball 25 cents on invested capital offer that came only eight months later. Had he acted as a fiduciary should have, Gatz could have come to a resolution with the Minority Members in 2007 that eliminated the need for litigation and left everyone with a liveable result. By his own lack of candor and fidelity, Gatz ended up enmeshing himself and the Minority Members in years of protracted litigation, to the detriment of their mental and economic health.
.In arriving at this remedy, I have properly taken into account the Minority Members' contract claims premised on Gatz’s failure to distribute Available Cash as defined by § 11 of the LLC Agreement. These claims are based on the notion that Peconic Bay did not need its cash on hand to address its immediate needs and that Gatz selfishly husbanded the cash to give himself and his family, and not Peconic Bay, a cushion to pay the debt on the Property. That is, the Minority Members say that Gatz never intended the cash to benefit Peconic Bay and its investors but only the Gatz family. This claim is notably not supported by any evidence that Gatz misappropriated funds. Although there are stray references to expenditures for automobiles, the Minority Members do not prove that Gatz misused funds other than by allegedly husbanding cash for the payment of debt and not returning it to investors. Furthermore, a genuinely faithful fiduciary could have husbanded cash for the proper purpose of making sure that Peconic Bay met its core legal obligations, including paying its debtholders. Most important, the damage award I fashion assumes a deal in the range of $6.5 million as of January 1, 2008 that allowed the Minority Members to benefit from the cash then on hand. Thus, to award more would risk a double recovery. My award also accounts for some of the important issues that would have had to have been addressed in finalizing a deal with RDC. I do not think it is realistic to assume that a buyer as of 2007 would have not acquired the remaining three years of lease payments (or have worked out on its own terms with American Golf on early withdrawal) such that this stream of cash would have been available to distribute to the Minority Members.
The problem here is that Gatz was not a faithful fiduciary, not his husbanding of cash considered in isolation from his broader, improper motivations. But by implementing a remedy tied to what Peconic Bay was worth in 2007, which I do, I rectify in a responsible way all of his serious breaches of duties.
. Tandycrafts, Inc. v. Initio Partners, 562 A.2d 1162, 1164 (1989).
. Barrows v. Bowen, 1994 WL 514868, at *1 (Del.Ch. Sept. 7, 1994).
. Nagy v. Bistricer, 770 A.2d 43, 64 (Del.Ch.2000).
. Arbitrium (Cayman Is.) Handels AG v. Johnston, 705 A.2d 225, 232 (Del.Ch.1997), aff'd, 720 A.2d 542 (Del.1998).
. See Beck v. Atl. Coast PLC, 868 A.2d 840, 851 (Del.Ch.2005).
. E.g., Defs. Ans. Br. in Opp’n to P. Mot. for Prelim. Injunction, at 20-22 (arguing that the LLC Agreement "unambiguously” waived all fiduciary duties).
. E.g., Defs. Op. Pre-Tr. Br. at 23-25 (arguing that Gatz relied on Maltz and Hirsh); id. at 23 (suggesting that Gatz relied on counsel); Defs. Op. Post-Tr. at 4 (arguing that Gatz "sought advice from professionals in the ... legal fields” yet never waiving the attorney-client privilege).
. E.g., Defs. Op. Pre-Tr. Br. at 27 (arguing that Auction process was fair).
. Compare Auriga Capital Corp. v. Gatz Props., LLC, C.A. 4390 (Del. Ch. Feb. 27, 2009) (TRANSCRIPT) ("Q. [the court] If the Gatz interests — have they committed to sell to the highest bidder? ... Are they reserving— are they going to — are they reserving any right to use their voting power to interfere with a third parties' purchase of the property? A. [Gatz’s counsel] The answer is no, Your Honor. Q. [the court] They are committed to that? A. Yes .... ”), with Tr. 566 (Gatz— Cross) (testifying that his family was not filter-ested in selling), and id. at 557 (Gatz — Cross) ("Q. [the court] You weren’t interested in selling, but you were interested in buying? A. Yes, I was.”), and id. at 621 (Gatz) ("I'm not saying [another bidder] would have won. I may have bid higher.”).
. Id. at 24 ("Q. [the court] Who did the responsiveness review? ... Did you get the hard drives and do them yourself or did you rely on Mr. Gatz? A. [Gatz’s counsel] I relied mainly on Mr. Gatz.").
. Id. at 22-23 (where Gatz counsel represented to the court that they "just did not have” the "vast majority” of the RDC emails, and that they might have been "deleted.”); id. at 528 (Gatz — Cross) ("I’m not saying that I did, but there is a possibility that after six, eight months, I may have gone through and actually deleted our conversations with Mr. Galvin.”).
. This court departs from the American Rule and may shift fees where the "underlying (prelitigation) conduct of the losing party was so egregious as to justify an award of attorneys’ fees as an element of damages." Arbitrium (Cayman Is.) Handels AG v. John
. The Minority Members’ counsel shall submit an affidavit setting forth this amount to Gatz within five days of this decision. Unless Gatz’s counsel fully produces their own billing records in full in support of an argument that the Minority Members' bills are too high, I shall consider the Minority Members' amount sought to be reasonable. In objecting to the amount of the fee, Gatz and his counsel should remember that it is more time-consuming to clean up the pizza thrown at a wall than it is to throw it.
