LEO INVESTMENTS HONG KONG LIMITED v. TOMALES BAY CAPITAL ANDURIL III, L.P., TOMALES BAY CAPITAL ANDURIL III GP, LLC, and IQBALJIT KAHLON
CONSOLIDATED No. 415, 2025 No. 428, 2025
IN THE SUPREME COURT OF THE STATE OF DELAWARE
Decided: July 10, 2026
Submitted: April 15, 2026; Court Below: Court of Chancery of the State of Delaware; C.A. No. 2022-0175
Upon appeal from the Court of Chancery of the State of Delaware. AFFIRMED in part and REVERSED in part.
Charlotte K. Newell, Esquire (argued), Eamon P. Joyce, Esquire, and Tyler J. Domino, Esquire, SIDLEY AUSTIN LLP, New York, New York; A. Thompson Bayliss, Esquire, and Adam K. Schulman, Esquire, ABRAMS & BAYLISS LLP, Wilmington, Delaware, for Plaintiff-Appellant/Cross-Appellee Leo Investments Hong Kong Limited.
LEGROW, Justice:
Leo Investments Hong Kong Limited‘s (“Leo Group“) investment in Tomales Bay Capital Anduril III, L.P. (“the Fund“) was short-lived and rocky. The Fund‘s principal admitted the publicly traded Chinese company as a limited partner, knowing that SpaceX had a preference against China-based investors and against public disclosure of investments in SpaceX. Before admitting Leo Group to the Fund, the parties negotiated the terms of Leo Group‘s required public disclosure of the investment. Leo Group disclosed its investment consistent with those terms and issued a press release. The press release attracted media coverage.
When SpaceX learned of the investment through a news article, it expressed its strong disapproval to the Fund‘s principal. The principal panicked, blamed Leo Group for the media attention, and did not tell SpaceX that he had approved the
Leo Group sued the Fund, its General Partner, and the principal, alleging breach of the Limited Partnership Agreement (“LPA“) and breach of fiduciary duties. After trial, the Vice Chancellor found only that the principal had breached his “duty of candor,” awarding the company $1 in nominal damages and nearly $16 million in attorneys’ fees.
Both parties appealed. Leo Group argues that the court erred by finding that the business judgment rule applied and that the defendants did not violate the Subscription Agreement‘s forum-selection provision by filing other litigation in California. The principal and related entities contend that the court erred in finding a breach of the “duty of candor” and in awarding Leo Group its requested attorneys’ fees.
We reverse the Court of Chancery regarding the availability of fee-shifting under these circumstances. As to the court‘s other holdings challenged on appeal, we affirm.
A. Factual Background
Before June 12, 2026, Space Exploration Technologies Corp. (“SpaceX“) was a privately held company.2 SpaceX maintained a right of first refusal (“ROFR“) in any shares a holder sought to sell. SpaceX was known to be selective about its investors, and it worked with a limited number of intermediaries to assemble would-be investors into funds that then purchased SpaceX shares. Out of concern that the presence of certain foreign investors could hamper its competitiveness for contracts with the United States government, SpaceX preferred not to have investors based in certain countries, including the People‘s Republic of China. But SpaceX permitted investment from China-based investors in the past when the investment was made through intermediate entities based in other countries or Hong Kong.3
SpaceX also preferred not to be surprised by an investor publicly disclosing their investment in SpaceX, but the company permitted investors to disclose a SpaceX investment when the disclosure was required by law.4 SpaceX expected its
Iqbaljit Kahlon formed Tomales Bay Capital, L.P. (“TBC“) to create funds to invest in late-stage technology companies like SpaceX. By 2021, Kahlon had become one of SpaceX‘s few trusted intermediaries. In that year, Kahlon had the opportunity to acquire SpaceX shares owned by a fund controlled by Suhail Rizvi.6 Kahlon established the Fund in a bid to acquire the Rizvi shares, which were valued at $528 million. The Fund is managed by the General Partner, and Kahlon is the General Partner‘s managing member.
Kahlon asked Gulf Asia Venture Group (“Gulf Asia“) to help find investors for the Fund. If approved by Kahlon, TBC admitted investors to the Fund as limited partners through an LPA. Typically, the LPA restricted limited partners from disclosing any information about the partnership and contained strict pre-conditions before a limited partner could make any legally required disclosure.7
Gulf Asia identified Leo Group, a publicly traded corporation in China, as a potential investor.8 Kahlon was aware of SpaceX‘s sensitivity toward investments
Kahlon began negotiating investment terms with Leo Group. The parties discussed Leo Group‘s disclosure obligations at length before ultimately agreeing that a regulatory disclosure with minimal information would be acceptable.11 Kahlon was initially hesitant about Leo Group naming SpaceX in the announcement because of SpaceX‘s preferences, but Kahlon ultimately agreed that identifying SpaceX as the Fund‘s targeted investment would be okay if it was required for regulatory compliance.12 The parties negotiated a side letter permitting Leo Group
The parties signed all required documents, including the LPA and Side Letter, on November 15, 2021. As was his standard practice, Kahlon did not discuss Leo Group‘s investment with SpaceX before admitting Leo Group into the Fund; he “did not anticipate any problems with Leo Group‘s investment” and believed Leo Group‘s indirect investment would be “acceptable.”13
Later that day, Leo Group filed its disclosure with the SZSE. Without Kahlon‘s knowledge, Leo Group paired the disclosure with an announcement promoting its SpaceX investment, which covered the same information contained in the required disclosure. “The announcement drew considerable media attention” with “articles generat[ing] millions of views.”14 When Kahlon saw a news article regarding the investment, he feared that the media attention would damage “his own relationship with SpaceX.”15
In response, Kahlon requested that Leo Group “contain the media attention” in hopes that “SpaceX would not find out.”16 Leo Group agreed to work with the press and take down the articles. Kahlon still did not notify SpaceX about Leo
On November 19, SpaceX‘s CFO, Bret Johnsen, sent Kahlon an email asking about Leo Group‘s investment and linking one of the media articles that followed Leo Group‘s disclosure. Kahlon immediately called Johnsen. During the call, Johnsen voiced several concerns, in particular that “the investment could trigger review by the Committee on Foreign Investment in the United States” and disadvantage SpaceX in bidding for government contracts.18 Kahlon did not disclose any of his discussions with Leo Group or tell Johnsen that he had approved the public disclosure. At the conclusion of the call, Johnsen informed Kahlon that the Fund would not be allowed to invest in SpaceX if Leo Group remained a limited partner. Kahlon “did not think there was any possibility that Johnsen would change his mind” about Leo Group‘s participation in the Fund.19
After the call, Kahlon acted promptly to remove Leo Group from the Fund, moving quickly because the initial closing for the Fund was to begin in ten days and
The next day, Kahlon, Gulf Asia, and Leo Group convened on a video conference. Leo Group opposed its removal from the Fund, but its opposition fell on deaf ears. Kahlon insisted on Leo Group‘s removal, and he forwarded a proposed letter agreement that called for Leo Group to acknowledge that its removal was necessary and to abide by a post-removal confidentiality provision. Leo Group objected to the confidentiality obligation and suggested that it would be better if the Fund would “continue to work with us and maintain active communication with SpaceX to help retain our LP share.”21 Kahlon was not persuaded to change course, and he invoked the withdrawal provision in the Fund‘s LPA. Hours later, he informed Johnsen that Leo Group was out of the Fund and allowed Johnsen to conclude that Leo Group was the “bad actor.”22
The next day, Leo Group‘s attorneys emailed Kahlon, contending that the forced withdrawal violated the LPA and asking for justification for the action. Kahlon responded that Leo Group‘s continued participation would “result in a significant and adverse delay to the proposed deal we had discussed and therefore we had to exercise our rights under the LPA for a unilateral withdrawal.”25 Leo Group‘s attorneys asked for supporting evidence; Kahlon did not respond.
On December 13, 2021, SpaceX exercised its ROFR on the Rizvi shares, stating that Elon Musk, SpaceX‘s founder, wanted to purchase them. Musk purchased the vast majority of the Rizvi shares, but a small number, which Kahlon purchased for a different fund, were released to Kahlon four days later.26 Five
B. Procedural History
In February 2022, Leo Group sued Kahlon, the General Partner, and the Fund in the Court of Chancery for breaches of fiduciary duty and breaches of the LPA.28
At the summary judgment stage, the court granted partial summary judgment sua sponte in favor of Leo Group, holding that Leo Group‘s “agreed-upon disclosures in Exhibit A to the Side Letter[,] to the extent the disclosures were required by law[,]” were permitted under the parties’ agreements.29 Before trial, the court partially granted both parties’ motions in limine asserting competing spoliation-of-evidence claims. After finding that both parties had spoliated some evidence, the court held that Kahlon would face a heightened “clear and convincing evidence” standard for any issues on which he bore the burden of proof. The court also barred Leo Group from presenting evidence about its drafting of the media announcements and its discussions with public relations firms about the investment because Kahlon was “deprived of [] the back and forth between the PR folks and
After a three-day trial, the court held that Leo Group failed to prove that Kahlon breached his duties of care and loyalty; the court concluded that Leo Group “failed to rebut any of the presumptions of the business judgment rule” and that Kahlon‘s actions were “plainly rational” and “perhaps the only choice available.”31 The court went on to hold in the alternative that even if entire fairness applied, Kahlon would prevail.32 The court, however, ruled sua sponte that Kahlon breached his “duty of candor” in his discussions with Leo Group surrounding the forced withdrawal. The court awarded Leo Group nominal damages of $1 because it did not prove “reliance or any causally related harm” with respect to that breach.33
The court also held that Kahlon did not breach the LPA. It made findings regarding Kahlon‘s compliance with the withdrawal provision, efforts provision, timing requirements, and forum-selection provision. Leo Group only challenged the forum-selection ruling on appeal. Regarding fees and expenses, the court ruled that
II. STANDARD OF REVIEW
We review questions of law, including whether the Court of Chancery applied the correct standard of review and issues of contract interpretation, de novo.34 We review factual findings for clear error35 and fee awards for abuse of discretion.36
III. ANALYSIS
A. The Court of Chancery did not err in holding that the business judgment rule applied.
The court held that Leo Group failed to rebut the presumption of the business judgment rule, concluding that Leo Group did not prove that the defendants breached their duties of loyalty or care.37 On appeal, Leo Group contends that the Court of
To frame the inquiry, we first distinguish when Kahlon owed a duty to the Fund as a whole from when he owed one to Leo Group alone. Here, the parties agree. As a fiduciary, Kahlon owed a duty “to the [p]artnership for the benefit of all
1. Duty of Loyalty
Regarding its duty of loyalty claim, Leo Group reasons that the Court of Chancery erred by finding no conflict of interest or bad faith because the court exclusively focused on Kahlon‘s actions after the November 19 call with Johnsen. Leo Group contends that if the court had broadened its lens to consider Kahlon‘s earlier lies and omissions to SpaceX and Leo Group, the court necessarily would have concluded that Kahlon acted disloyally to promote his own self-interest. Even with Kahlon‘s earlier conduct in mind, however, the court did not err in holding that Leo Group failed to prove a breach of the duty of loyalty.
To establish that Kahlon acted disloyally, Leo Group sought to prove that Kahlon prioritized his personal relationship with SpaceX over the Fund‘s interests
Before the call with Johnsen, Kahlon did not breach his duty of loyalty. First, Leo Group does not allege that Kahlon made any misrepresentations when asking Leo Group to contain the media attention around its investment. Second, Kahlon was not acting in his own self-interest by not previewing Leo Group‘s investment or disclosure obligations with SpaceX. Leo Group‘s belief that Kahlon could have avoided the fallout by immediately informing SpaceX about the investment does not demonstrate that Kahlon‘s failure to do so was disloyal. It was not Kahlon‘s practice to discuss prospective investors with SpaceX, and he “believed that having Leo Group as an indirect investor would be acceptable.”43 And by asking Leo Group to contain the media response, Kahlon acted within the Fund‘s best interest by taking immediate steps to reduce any backlash.
During the call with Johnsen, Kahlon blamed Leo Group for the media attention, refrained from mentioning his own involvement, and did not defend Leo Group. Leo Group insists, correctly, that Kahlon‘s actions there served his self-
Importantly, Kahlon owed a duty to the Fund as a whole during his communications with Johnsen. He was required to advance the Fund‘s best interest, which prevented Kahlon from prioritizing an interest that was “not shared by the [limited partners] generally.”46 The court explicitly found that “Kahlon believed—
The incomplete story that Kahlon told Johnsen—that is, his failure to vigorously defend Leo Group or take responsibility for his role in the problem—also does not warrant a finding of bad faith. To support its bad-faith theory, Leo Group cites In re Mindbody, Inc. Stockholder Litigation, Gantler v. Stephens, and Paron Capital Management, LLC v. Crombie.49 But in each of those cases, the fiduciary‘s misrepresentations served personal motives at odds with—if not directly contrary to—the interests of the stockholders or members, and the misrepresentations harmed the company or its owners.50 Not so here. Kahlon‘s omissions in his
We also agree with the Court of Chancery‘s finding that Kahlon did not act disloyally in taking steps to cause Leo Group‘s withdrawal after the call with Johnsen. The court held that after the November 19 call, Kahlon used the LPA to force Leo Group‘s withdrawal from the Fund.52 Leo Group did not dispute that conclusion on appeal, arguing instead that Kahlon‘s compliance with a contractual provision could not shield Kahlon from his earlier disloyal conduct.53 Because we have concluded that Kahlon‘s earlier conduct did not violate his duty of loyalty, we agree with the court‘s unchallenged contractual analysis. Throughout, Kahlon acted
2. Duty of Care
Leo Group also argues that the General Partner breached its duty of care, asserting that the Court of Chancery committed the same framing errors discussed above. “In the duty of care context[,] gross negligence has been defined as ‘reckless indifference to or a deliberate disregard of the whole body of stockholders or actions which are without the bounds of reason.‘”54 We agree with the Court of Chancery that Leo Group did not carry its burden of proof.
On appeal, Leo Group relies on the court‘s statement that “Kahlon was to blame for not going to Johnsen earlier” to preview Leo Group‘s investment or blunt the effect of the disclosure.55 But blame does not equate to gross negligence, and we do not impose liability with the benefit of hindsight.56 The facts in the record do not support Leo Group‘s contention that the General Partner acted with reckless indifference to the Fund by not previewing Leo Group‘s investment to Johnsen.
Next, Leo Group argues that Kahlon‘s understanding of the parties’ agreement was grossly negligent, contending that Kahlon had a flawed understanding of the agreed-upon disclosure and the advance-notice provision. First, Leo Group states that the Court of Chancery should have found gross negligence based on its earlier finding that Kahlon‘s interpretation of how the Side Letter interacted with the LPA was “so unreasonable as to be frivolous.”59 The court‘s finding about Kahlon‘s
Leo Group also asserts that the court erred by requiring Leo Group to prove causation. Leo Group points to the court‘s comments that “Leo Group did not make a convincing case that sharing [additional] information would have changed Johnsen‘s mind[,] [and] [t]he press coverage about Leo Group‘s involvement would exist regardless.”63 Leo Group argues that these comments show that the Court of Chancery improperly required it to prove causation to rebut the business judgment
Without a finding of breach, the Court of Chancery concluded that the business judgment rule applied and that Kahlon‘s decision to remove Leo Group using the withdrawal provision was “plainly rational.”65 Those conclusions were not based on any error of law and were supported by the record. Accordingly, we affirm the court‘s holding that Leo Group did not rebut the business judgment rule‘s presumption. We therefore need not reach Leo Group‘s appeal of the court‘s alternative entire-fairness analysis.
B. Kahlon did not breach the Subscription Agreement‘s forum-selection provision.
Leo Group separately contends that the Court of Chancery erred in its interpretation of the Subscription Agreement‘s forum-selection clause.66 The court
On appeal, Leo Group maintains that the forum-selection provision is bilateral, binding both parties to sue in Delaware on any claims relating to the Subscription Agreement,68 and that Kahlon‘s breach of that provision entitles Leo Group to damages in the form of the legal fees it incurred in the California action. In response, Kahlon endorses the court‘s interpretation and notes that “it is entirely unclear that this Court (or the trial court) can or should award damages [in this scenario.]”69
The relevant portion of the forum-selection provision states:
To the maximum extent not prohibited by applicable law, any action or proceeding brought by the Subscriber against the General Partner or the Management Company (or their respective direct or indirect owners, officers, directors, managers, agents or employees in their capacity as such, or in any related capacity) or the Partnership, or relating in any way to the Subscription Documents or any other Offering Materials, shall be brought and enforced in the courts of the State of Delaware or
(to the fullest extent subject matter jurisdiction exists therefore) of the United States District Court for the District of Delaware . . . .70
The Court of Chancery interpreted that provision as applying to “any action or proceeding brought by the Subscriber” (1) “against the General Partner or the Management Company . . . or the Partnership, or” (2) “relating in any way to the Subscription Documents or any other Offering Materials . . . .”71
Leo Group asserts that this reading cannot be correct and insists the provision should be read as follows: “any action or proceeding” (1) “brought by the Subscriber against the General Partner or the Management Company . . . or the Partnership, or” (2) “relating in any way to the Subscription Documents or any other Offering Materials . . . .”72 Even if Leo Group‘s reading was plausible when read in isolation, it cannot be squared with the rest of the paragraph, including the consent-to-jurisdiction, venue, and jury-trial clauses.
Immediately following the above-quoted forum-selection clause, the remainder of the subsection reads:
[T]o the extent not prohibited by applicable law, the Subscriber irrevocably submits to the non-exclusive jurisdiction of such courts in respect of any action or proceeding between it and the General Partner or the Management Company (or their respective direct or indirect owners, officers, directors, managers, agents or employees in their capacity as such, or in any related capacity) or the Partnership, or
relating in any way to the Subscription Documents or any other Offering Materials. The Subscriber irrevocably waives, to the fullest extent not prohibited by applicable law, any objection that it may now or hereafter have to the laying of venue of any such action or proceeding in the courts of the State of Delaware or the United States District Court for the District of Delaware and any claim that any such action or proceeding brought in either court has been brought in an inconvenient forum. THE SUBSCRIBER AND THE GENERAL PARTNER, ON BEHALF OF ITSELF AND THE PARTNERSHIP, IRREVOCABLY WAIVE, TO THE FULLEST EXTENT NOT PROHIBITED BY APPLICABLE LAW, ANY RIGHT TO A JURY TRIAL IN CONNECTION WITH ANY ACTION OR PROCEEDING BY OR AGAINST THE GENERAL PARTNER OR THE MANAGEMENT COMPANY (OR THEIR RESPECTIVE DIRECT OR INDIRECT OWNERS, OFFICERS, DIRECTORS, MANAGERS, AGENTS OR EMPLOYEES IN THEIR CAPACITY AS SUCH, OR IN ANY RELATED CAPACITY) OR THE PARTNERSHIP, OR IN ANY WAY RELATING TO THE SUBSCRIPTION DOCUMENTS OR ANY OTHER OFFERING MATERIALS.73
Read as a whole, the first three sentences of this subsection refer exclusively to the subscriber—limiting where the subscriber may sue, establishing the subscriber‘s consent to jurisdiction in Delaware, and waiving the subscriber‘s objection to venue.74 The final sentence, in contrast, is bilateral, expressly providing that both the subscriber and the General Partner waive any right to a jury trial. The difference in language between the first three sentences and the last permits only one reasonable interpretation: the forum-selection provision is unilateral, binding only Leo Group.
C. The Court of Chancery did not err in awarding Leo Group nominal damages.
On cross-appeal, Kahlon challenges the Court of Chancery‘s holding that he breached his “duty of candor” when communicating with Leo Group.77 The court held sua sponte that Kahlon failed to communicate honestly with Leo Group after the phone call with Johnsen. Based on that holding, the court awarded Leo Group $1 in nominal damages after finding that Leo Group failed “to prove reliance or any
In Dohmen v. Goodman, we explained that “a director‘s specific disclosure obligations are defined by the context in which the director communicates, as are the remedies available when a director fails to meet his obligations.”80 We identified two distinct contexts in which a communication occurs: (i) a communication associated with a request for stockholder action, and (ii) a communication not associated with a request for stockholder action.81 In the latter context, the fiduciary duty of disclosure “does not apply,” but a director “must still deal honestly with
It is this latter context that applies to Kahlon‘s communications with Leo Group and in which the Court of Chancery found a breach of Kahlon‘s duty to speak honestly when communicating with individual investors. The Court of Chancery held that, “[w]hen Kahlon chose to speak to Leo Group in these settings, he took on a duty to speak honestly and completely. He could not engage in partial or misleading disclosures. By speaking falsely and partially, Kahlon failed to comply with his duty of candor.”84
To state a claim in this context—unlike a duty of disclosure claim—Leo Group must prove that Kahlon knowingly disclosed false information.85 That scienter requirement distinguishes innocent or negligent disclosures from those that are intentionally misleading.86 The court did not expressly address scienter. Nevertheless, the court‘s post-trial factual findings support the conclusion that Kahlon knowingly disclosed false—or at least intentionally misleading—information to Leo Group after the Johnsen phone call, including the letters that
Having identified a breach of Kahlon‘s duty of loyalty, the court found that Leo Group could not establish the remaining elements that Dohmen requires to award compensatory damages.88 The court therefore awarded $1 in nominal damages after finding that Leo Group failed “to prove reliance or any causally related harm.”89 Although Leo Group failed to establish that it was entitled to compensatory damages, it was within the trial court‘s broad discretion to award $1 in nominal damages “simply for the purpose of declaring an infraction of [Leo Group‘s] rights and the commission of a wrong.”90
The court awarded Leo Group the full amount of its requested fees, totaling $15,828,174.05, based on its finding that Kahlon breached his “duty of candor.”91 On cross-appeal, Kahlon contends that the court erred in awarding attorneys’ fees to Leo Group because the fee-shifting award was based on the faulty breach of the “duty of candor” finding. We conclude that the Court of Chancery‘s fee award, which was based on our decision in William Penn Partnership v. Saliba, must be reversed.
In awarding attorneys’ fees, Delaware follows the “American Rule,” which holds litigants responsible for their own costs.92 The American Rule, however, has “limited equitable exceptions,” including when a party acts in “bad faith” during the litigation.93
The Court of Chancery primarily based the fee award on its conclusion that “a beneficiary can recover expenses from a fiduciary when it would be ‘unfair and inequitable for [the beneficiary] to shoulder the costs of litigation arising out of
Although both Kahlon and the Saliba fiduciaries breached their duties, that is where the cases’ similarities begin and end. In Saliba, the Court of Chancery held that the fiduciaries acted in their own self-interest by orchestrating the sale of the company‘s sole asset to themselves on favorable terms, all while misrepresenting or concealing material information that thwarted the other members’ efforts to buy the
Here, by contrast, the court held that Leo Group “did not succeed in a meaningful way on any of its claims for breach of fiduciary duty,” finding that Leo Group prevailed only on the “candor” claim that the court raised sua sponte.102 Despite finding that Leo Group failed to carry its burden, and after concluding in the alternative that the challenged conduct was entirely fair, the court awarded Leo Group all of the fees it incurred in the unsuccessful litigation. Although we do not condone Kahlon‘s misrepresentations to Leo Group after the call with Johnsen, Leo Group‘s failure to prove causation or damages associated with that breach distinguishes this case from the unusual facts in Saliba. Accordingly, the court‘s decision to award attorneys’ fees under Saliba for Kahlon‘s pre-litigation conduct
At bottom, Leo Group prevailed on a single issue raised sua sponte by the court, resulting in an award of nominal damages. This single finding in favor of Leo Group does not warrant a fee award of nearly $16 million to compensate Leo Group for litigating a case that it lost on almost every issue. Accordingly, we reverse the Court of Chancery‘s judgment awarding Leo Group attorneys’ fees and expenses.
IV. CONCLUSION
For the foregoing reasons, the judgment of the Court of Chancery is AFFIRMED in part and REVERSED in part.
Notes
Opening Br. Ex. A (Post-Trial Op. at 16 n.71).Technically, the investor was plaintiff Leo Investments Hong Kong Limited, a limited liability company organized under the laws of Hong Kong (the “Investment Vehicle“). The Investment Vehicle is an indirect, wholly owned subsidiary of Leo Group. Although the distinctions between Leo Group and the Investment Vehicle remain important for many reasons, they are not critical to this case. This decision refers for simplicity to Leo Group.