In re Oxbow Carbon LLC Unitholder Litigation

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

IN RE OXBOW CARBON LLC ) C.A. No. 12447-VCL
UNITHOLDER LITIGATION )

MEMORANDUM OPINION

Date Submitted: November 20, 2017
Date Decided: February 12, 2018

Kenneth J. Nachbar, Thomas W. Briggs, Jr., Richard Li, MORRIS, NICHOLS, ARSHT &
TUNNELL LLP, Wilmington, Delaware; R. Robert Popeo, Michael S. Gardener, Breton
Leone-Quick, MINTZ, LEVIN, COHN, FERRIS, GLOVSKY & POPEO, P.C., Boston,
Massachusetts; Attorneys for Oxbow Carbon LLC.

Stephen C. Norman, Jaclyn C. Levy, Daniyal M. Iqbal, POTTER ANDERSON &
CORROON LLP, Wilmington, Delaware; David B. Hennes, C. Thomas Brown, Daniel V.
McCaughey, Adam M. Harris, Elizabeth D. Johnston, ROPES & GRAY LLP, New York,
New York; Attorneys for Oxbow Carbon & Minerals Holdings, Inc., Ingraham Investments
LLC, Oxbow Carbon Investment Company LLC, and William I. Koch.

Kevin G. Abrams, Michael A. Barlow, April M. Ferraro, ABRAMS & BAYLISS LLP,
Wilmington, Delaware; Michael B. Carlinsky, Chad Johnson, Jennifer Barrett, David
Elsberg, Silpa Maruri, QUINN EMANUEL URQUHART & SULLIVAN, LLP, New
York, New York; Attorneys for Crestview-Oxbow Acquisition, LLC, Crestview-Oxbow
(ERISA) Acquisition, LLC, Crestview Partners, L.P., Crestview Partners GP, L.P.,
Crestview Advisors, L.L.C., Robert J. Hurst, and Barry S. Volpert.

Brock E. Czeschin, Matthew D. Perri, Sarah A. Galetta, RICHARDS, LAYTON &
FINGER, P.A., Wilmington, Delaware; Attorneys for Crestview-Oxbow Acquisition, LLC,
Crestview-Oxbow (ERISA) Acquisition, LLC, Crestview Partners, L.P., Crestview Partners
GP, L.P., Crestview Advisors, L.L.C., Robert J. Hurst, and Barry S. Volpert.

J. Clayton Athey, John G. Day, PRICKETT, JONES & ELLIOTT, P.A., Wilmington,
Delaware; Dale C. Christensen, Jr., Michael B. Weitman, SEWARD & KISSEL LLP, New
York, New York; Attorneys for Load Line Capital LLC.

LASTER, V.C.
 This post-trial decision addresses whether Oxbow Carbon LLC (“Oxbow” or the

“Company”) must be sold. Two minority members, who together own approximately one-

third of Oxbow’s equity, contend that they have a contractual right under Oxbow’s limited

liability company agreement1 to force the Company to engage in an “Exit Sale.”2 The LLC

Agreement defines an “Exit Sale” as “a Transfer of all, but not less than all, of the then-

outstanding Equity Securities of the Company and/or all of the assets of the Company.” 3

The principal contractual dispute concerns language in the Exit Sale Right which states

that the exercising party “may not require any other Member to engage in such Exit Sale

unless the resulting proceeds to such Member (when combined with all prior distributions

to such Member) equal at least 1.5 times such Member’s aggregate Capital Contributions

through such date.”4

One reading of the 1.5x Clause is that if an Exit Sale does not satisfy its terms for a

particular member, then that member can choose to participate in the Exit Sale, but cannot

1
The operative LLC Agreement consists of the Third Amended and Restated
Limited Liability Company Agreement of Oxbow Carbon LLC plus six subsequent
amendments (collectively, the “LLC Agreement”). A complete set of these documents
appears at JX 2859. This decision uses the abbreviation “LLCA” when citing to the Third
Amended and Restated Limited Liability Company Agreement. It uses abbreviations such
as “First. Am.” and “Second Am.” when citing to the respective amendments.
2
This decision refers to this right as the “Exit Sale Right.”
3
This decision refers to the requirement that a member-level transaction involve
“all, but not less than all, of the then-outstanding Equity Securities of the Company” as the
“All Securities Clause.”
4
This decision refers to this aspect of the Exit Sale Right as the “1.5x Clause.”

1
be forced to sell. If the member does not choose to participate, then the member gets left

behind when the other members sell. This interpretation relies on the fact that the 1.5x

Clause speaks in terms of whether the exercising party can “require any other Member to

engage in such Exit Sale.”5

Another reading of the 1.5x Clause interprets the provision in light of the All

Securities Requirement. Under this reading, if the Exit Sale does not satisfy the 1.5x Clause

for any member, and that member chooses not to participate, then the Exit Sale cannot go

forward because it no longer would involve “all, but not less than all, of the then-

outstanding Equity Securities of the Company.” Under this reading, failing to satisfy the

1.5x Clause for a particular member enables the member to block the Exit Sale.6

A response to the Blocking Theory posits that if an Exit Sale does not satisfy the

1.5x Clause for certain members, then the Exit Sale should be able to go forward if those

members are topped off with additional funds sufficient to satisfy the 1.5x Clause.7 The

Top Off Theory comes in two variants. One is the “Waterfall Top Off,” in which the

transaction proceeds are used first to satisfy the 1.5x Clause, then the remaining proceeds

are distributed pro rata among all holders. The other is the “Seller Top Off,” in which the

5
Depending on context, this decision refers to this approach as the “Leave Behind
Theory,” “Leave Behind Option,” or “Leave Behind Interpretation.”
6
Depending on context, this decision refers to this approach as the “Blocking
Theory,” “Blocking Option,” or “Blocking Interpretation.”

This decision refers to this reading as the “Top Off Theory” or “Top Off Option.”
7

Sometimes it refers to the concept as a “Top Off.”

2
minority members who exercised the Exit Sale Right can provide additional consideration

to any members who need it to satisfy the 1.5x Clause.

A response to the Top Off Theory points out that under the LLC Agreement, an Exit

Sale must treat members equally by offering “the same terms and conditions” to each

member and allocating the proceeds “by assuming that the aggregate purchase price was

distributed” pro rata to all unitholders.8 Using the Top Off Theory violates the Equal

Treatment Requirements by providing different consideration to different members and

distributing proceeds contrary to a pro rata allocation. Incorporating the Equal Treatment

Requirements into the analysis means that all members must receive the same per unit

consideration in an Exit Sale. If the members need different amounts to satisfy the 1.5x

Clause, then the Equal Treatment Requirements mean that all members must receive the

highest amount necessary to satisfy the 1.5x Clause for any member.9

The Exit Sale Right specifies that the consideration generated by the Exit Sale must

exceed “Fair Market Value.”10 The LLC Agreement defines this concept as a valuation

determined “on a going concern basis, without any discount for lack of liquidity . . . or

minority interest.” The LLC Agreement establishes a contractual valuation process in

8
A complex set of provisions produce these results. This decision calls them the
“Equal Treatment Requirements.” This term includes the provisions governing
distributions, which this decision calls (unsurprisingly) the “Distribution Provisions.”
9
Depending on context, this decision refers to this reading as the “Highest Amount
Theory,” “Highest Amount Interpretation,” or “Highest Amount Option.”
10
This decision refer to this aspect of the Exit Sale Right as the “FMV Clause.”

3
which investment bankers determine Fair Market Value. In this case, the contractual

valuation process generated a Fair Market Value for Oxbow of $2.65 billion, which equated

to $169 per unit.11

The minority members in this case exercised the Exit Sale Right and secured a buyer

who made an offer that satisfied the FMV Clause. But if the consideration contemplated

by the offer was distributed pro rata, then the Exit Sale would not satisfy the 1.5x Clause

for two members who own 1.4% of the Company’s equity.12 The Small Holders invested

in the Company in 2011 and 2012 at a price of $300 per unit. Taking into account

distributions they have received to date, the Exit Sale would have to provide them with

$414 per unit to satisfy the 1.5x Clause. The other members already have received

sufficient distributions from Oxbow to satisfy the 1.5x Clause. The Company’s majority

member controls both of the Small Holders.

The majority member filed this lawsuit, invoking the Highest Amount Theory and

claiming that the minority members could not enforce the Exit Sale Right because the

proposed transaction did not generate proceeds of $414 per unit. The minority members

responded with the Leave Behind Theory, contending that they could force everyone else

to engage in the Exit Sale.

11
Under the LLC Agreement, the aggregate member interest of the Company is
divided into units.
12
Because they own such a small percentage of the Company’s equity, this decision
refers to them as the “Small Holders.”

4
 The parties filed cross-motions for summary judgment. I held that the plain language

of the LLC Agreement foreclosed the Leave Behind Interpretation and supported the

Highest Amount Interpretation. I recognized, however, that this reading produced a harsh

result by effectively blocking an Exit Sale, and I observed that the implied covenant of

good faith and fair dealing might have a role to play.

After the summary judgment ruling, the minority members amended their pleadings

to contend that the implied covenant warranted reading a Top Off Option into the LLC

Agreement. They appeared to prefer a Waterfall Top Off, which is economically superior

for them, but they seemed satisfied with a Seller Top Off. The minority members also

contended for the first time that the Small Holders had never been admitted as members.

The parties litigated the case through trial.

The record at trial demonstrated that the minority members knew about the

admission of the Small Holders in 2011 and 2012, but failed to challenge their admission

until 2016. Laches bars the minority members’ attempt to claim belatedly that the Small

Holders are not members.

The record at trial demonstrated that during the negotiations over the LLC

Agreement, the majority member revised the 1.5x Clause to implement a Blocking Option.

When read together with the Equal Treatment Requirements, the 1.5x Clause calls for

reading the LLC Agreement to implement the Highest Amount Interpretation.

The record at trial demonstrated that the original LLC Agreement intentionally left

open the terms on which Oxbow would admit new members, thereby leaving a gap. The

LLC Agreement empowers the board of directors (the “Board”) to fill that gap by

5
determining the terms and conditions on which the Company will admit new members. In

2011 and 2012, when the Company admitted the Small Holders, the Board did not fill the

gap. Oxbow largely failed to follow proper formalities, and Oxbow did not obtain

approvals that the LLC Agreement required. Consequently, a gap exists as to whether the

1.5x Clause covers the Small Holders.

The record at trial demonstrated that if the parties had addressed the issue in 2011

or 2012, when the Small Holders became members, then the majority member would not

have insisted on a Highest Amount Option, nor would the minority members have insisted

on a Leave Behind Option. It is possible that they would have agreed on using a Waterfall

Top Off to satisfy the 1.5x Clause for the Small Holders. The most likely result is that they

would have agreed to a Seller Top Off.

Issues of compelling fairness call for deploying the implied covenant to fill the gap

created when the Company admitted the Small Holders. Without it, the fortuitous

admission of the Small Holders guts the Exit Sale Right and enables the majority member

to defeat a commitment he made in 2007 and otherwise would have to fulfill. Until March

2016, the majority member and his counsel believed that the minority members could use

a Top Off to satisfy the 1.5x Clause for the Small Holders. Only at that point did the

majority member and his counsel stumble across the combination of provisions that leads

to the Highest Amount Interpretation. Although the Highest Amount Interpretation is the

only reading that gives effect to the LLC Agreement as a whole, it produces an extreme

and unforeseen result in this case because of the failure to address the Small Holders’ rights

when the Company admitted them as members in 2011 and 2012. It would be inequitable

6
for the majority member to benefit now from Oxbow’s failure to follow proper formalities

then. Under the circumstances, the implied covenant of good faith and fair dealing calls for

interpreting the Exit Sale Right to incorporate a Seller Top Off for the Small Holders.

Separately, the minority members proved at trial that the majority member breached

a requirement in the LLC Agreement to use reasonable efforts to support an Exit Sale.

Rather than using reasonable efforts, the majority member set out, in his own words, to

“obstruct,” “derail,” and “delay” an Exit Sale. He acted in accordance with these purposes,

ultimately firing a key executive and filing this lawsuit to scare off the buyer that the

minority members had found.

The transaction that the minority members had secured met the requirements for an

Exit Sale. Contrary to the majority member’s allegations, the minority members are not

guilty of unclean hands such that they should be deprived of their right to an Exit Sale.

The parties’ briefing focused predominantly on liability and only minimally on

remedies. This decision adjudicates the issues that the parties briefed but does not take the

next step of crafting a remedy. The parties shall provide supplemental briefing on an

appropriate remedy in accordance with this decision.

7
 I. FACTUAL BACKGROUND

Trial took place over six days. The record encompasses 4,379 exhibits, live

testimony from four fact witnesses, testimony by video deposition from ten fact witnesses,

testimony by lodged deposition from thirty-nine fact witnesses, and reports from eight

different experts.13 The parties reached agreement on eighty-three stipulations of fact. They

submitted strident pre- and post-trial briefs spanning 629 pages.

On many issues, the evidence conflicts, or the parties seek divergent inferences. The

witness testimony frequently complicates matters. The four trial witnesses were intelligent,

sophisticated, and savvy. They were thoroughly prepared, and they knew the documentary

record inside and out. Each was any effective advocate for his position, but it often seemed

that the position was shaping the testimony, rather than the testimony reflecting an

unvarnished recollection of events. The same was true, albeit to varying degrees, for many

witnesses who testified by deposition.

This problem is endemic to litigation. Human perception is fallible, and human

memory provides an imperfect channel for transmitting a noisy signal. The exigencies of

litigation create a high-pressure environment that affects recollection and presentation.

Although true to some degree in every case, the scope of the problem varies. In this bet-

the-company dispute involving a negotiation in 2007, the issuance of units in 2011 and

2012, and an exit process that began in 2013, the litigation environment had a profound

13
JX 2991 (Gompers); JX 2992 (Ferrell); JX 2995 (Henson); JX 2996 (Marcus); JX
2997 (McCarty); JX 2999 (Foster); JX 3001 (Jarrell); JX 3003 (Alfonso).

8
effect. This decision attempts to harmonize the evidence to the extent possible. Generally

speaking, contemporaneous documents have received the most weight.

A. Oxbow

Oxbow is a Delaware limited liability company with its principal place of business

in Florida.14 Oxbow was formed on January 18, 2005, and for a time was known as Oxbow

Mining Holdings, LLC. The LLC Agreement governs its internal affairs.

Oxbow’s primary business is the sourcing, production, marketing, and distribution

of refinery byproducts and solid carbon fuel, including fuel grade petroleum coke, calcined

petcoke, sulfur, and coal. Today, Oxbow is the leading third-party provider of marketing

and logistics services to the global petcoke market.15

William I. Koch controls Oxbow. In 1983, after receiving an undergraduate degree,

master’s degree, and Doctorate in Chemical Engineering from the Massachusetts Institute

of Technology, Koch founded what became the Oxbow group of companies.16 He currently

serves as Oxbow’s CEO and Chairman of its Board.17

14
PTO ¶ 1. This decision cites to the Pre-Trial Order as the “PTO.” All citations to
paragraphs in the Pre-Trial Order are to Section II, which contains the parties’ factual
stipulations.
15
Id. ¶ 18.
16
Koch Tr. 641-43.
17
PTO ¶ 5.

9
 Koch controls Oxbow through Oxbow Carbon & Minerals Holdings, Inc., which

owns a majority of Oxbow’s units.18 The documents often refer to this entity as OCMH.

Because it serves as a holding company, this decision calls it “Oxbow Holdings.” Koch

owns the majority of Oxbow Holdings and serves as its CEO and President.19

B. The 2007 Investment

The current dispute traces its roots to a transaction that occurred in May 2007. In

2006, Oxbow Holdings was considering two acquisitions.20 To finance them, Oxbow

Holdings explored a variety of alternatives.21 Oxbow Holdings had sufficient resources to

fund the acquisitions on its own, but business considerations made a private equity

financing attractive.22 Interest was high, with a number of private equity firms competing

to make a minority investment.23

18
Id. ¶ 2.
19
Id. ¶ 5.
20
See JX 2 (presentation summarizing transactions under consideration and
soliciting financing); JX 28 (confidential financing memorandum describing transactions
under consideration).
21
Koch Tr. 649-50.
22
JX 3 (email describing transactions and potential private equity role).
23
Hurst Tr. 58-59; Koch Tr. 650-51; see also JX 6 (referring to indications of
interest from multiple firms); JX 11 (confidential financing memorandum being sent to
multiple firms); JX 12 (referring to discussions with four firms).

10
 Crestview Partners, L.P. was one of the private equity firms,24 but it was a relatively

new player. A group of ex-partners from Goldman, Sachs & Co. founded Crestview in

2004, and the fund made its first investment in 2005.25 Crestview had no positions in energy

companies and was hoping an investment in Oxbow could diversify its portfolio.26

Robert J. Hurst and Barry S. Volpert were and remain principals of Crestview.27

Hurst received his undergraduate degree from Clark University and an MBA from The

Wharton School of the University of Pennsylvania.28 Before co-founding Crestview, he

worked at Goldman for thirty years, including as co-head of investment banking and as

Vice Chairman.29 Volpert received his undergraduate degree from Amherst College and a

JD/MBA from Harvard University.30 Before co-founding Crestview, he worked at

Goldman for almost two decades, including as co-Chief Operating Officer of its private

equity business.31

24
PTO ¶ 14.
25
Hurst Tr. 57-58.
26
Id. at 56-57.
27
PTO ¶¶ 16-17.
28
Hurst Tr. 60.
29
Id. at 6.
30
Volpert Tr. 341-42.
31
Id. at 342.

11
 Koch considered Crestview as a potential investor because of his social relationship

with Hurst.32 Koch also sent information about the potential investment to his friend John

Coumantaros, a wealthy shipping magnate.33

1. The ArcLight Term Sheet

After discussions with various investors, Oxbow Holdings determined that a private

equity firm named ArcLight Capital Partners LLC had provided the most attractive term

sheet.34 Negotiations moved forward on a transaction with ArcLight as the lead investor

and potentially one other, secondary investor.35 After exchanging multiple drafts, Oxbow

Holdings and ArcLight agreed on a non-binding term sheet.36

The term sheet addressed many points, but for purposes of this litigation, the

sections addressing exit rights loom largest. In general terms, the parties agreed on

scenarios in which each side could seek liquidity unilaterally. For Oxbow Holdings, that

32
See Hurst Tr. 56; Koch Tr. 652; see also JX 4 (noting that Koch proposed
Crestview and describing firm); JX 5 (letter from Crestview describing firm); JX 56 at
CRESTVIEW000116907 (Crestview internal memorandum stating that “[b]ased on a
personal relationship, Bill Koch approached Bob Hurst”).
33
See PTO ¶¶ 9, 22; JX 26 (email exchange within Coumantaros’s company
evaluating investment); Koch Tr. 666, 683.
34
See, e.g., JX 17 (email from ArcLight describing “proposed acquisition and equity
investment” as “attractive”); JX 18 (email from Koch to ArcLight: “We are very impressed
with what you have accomplished and the quality of your team”); JX 21 (ArcLight Letter
of Intent).
35
See JX 55 (email between Koch and banker discussing moving forward with
ArcLight and holding off on secondary investor “for the foreseeable future”).
36
JX 57.

12
right ripened after two years and gave Oxbow Holdings the ability to sell its units and drag

along the minority members. The term sheet framed the Drag-Along Right as follows:

Following the earlier of the second anniversary of the Closing Date or upon
the death of William I. Koch, in the event [Oxbow Holdings] proposes to sell
all of its Membership Interests in a transaction or series of related
transactions, [Oxbow Holdings] shall have the right to require all other
Members (including Arclight and Other Strategic/Financial Investor) to sell
their Membership Interests alongside [Oxbow Holdings] (provided,
ArcLight or Other Strategic/Financial Investor, as the case may be, shall only
be required to participate if the proceeds to such party from such sale (when
combined with prior distributions to such party) equal or exceed 2.5 times
the amount of its Equity Investment.37

By stating that “ArcLight or Other Strategic/Financial Investor, as the case may be, shall

only be required to participate” in a deal satisfying its return hurdle, the term sheet

incorporated a Leave Behind Option into the Drag-Along Right for the named investors.

ArcLight gained the right to offer its units to Oxbow after seven years. The term

sheet contemplated a “soft put,” meaning that Oxbow was not required to buy the units.38

If Oxbow failed to purchase them, however, then ArcLight could effectuate a whole-

company sale. The term sheet framed the Put as follows:

At the earlier of (i) the 7th anniversary of the Closing Date and (ii) the
resignation, retirement, death or other failure of William I. Koch to spend
substantially all of his for-profit professional time on the Company or
Gunnison Energy, ArcLight and Other Strategic/Financial Investor shall
each have the right to offer the Company the ability to purchase its

37
Id. at Oxbow_00164923. This decision refers to this concept as the “Drag-Along
Right.”
38
This decision refers to this concept as the “Put” or “Put Right.”

13
 Membership Interests at fair market value. The Company shall have up to
180 days to consummate such purchase.39

The term sheet backed up the Put with the Exit Sale Right: “If the Company declines to

purchase the offered Membership Interests at fair market value, ArcLight shall have a drag-

along right to enable the sale of 100% of the Company at a price greater than the fair market

value [of the Company].”40 This version of the Exit Sale Right did not contain any

limitations based on return hurdles, and it contemplated a sale involving all members.

2. Oxbow Holdings’ First Draft Of The LLC Agreement

On March 30, 2007, Oxbow Holdings sent ArcLight an initial draft of the

transaction documents, including a draft LLC Agreement. Article XIII, Section 9(a) of the

draft LLC Agreement framed the Drag-Along Right as follows:

Subject to the terms and conditions of this Section 9, following the earlier of
(i) the second anniversary of the Closing Date or (ii) the death of William I.
Koch, [Oxbow Holdings] may require all of the members to participate in a
Transfer of all, but not less than all, of the then-outstanding Equity Securities
of the Company and/or all of the assets of the Company to any Person(s) in
a bona fide arms’-length transaction or series of related transactions
(including by way of a purchase agreement, tender offer, merger or other
business combination transaction or otherwise) (an “Exit Sale”); provided,
that such Exit Sale must result in proceeds to ArcLight (when combined with
all prior distributions to ArcLight) equal to at least 2.5 times its aggregate
Capital Contributions as of such date.41

39
Id.
40
Id.
41
JX 58 art. XIII, § 9(a).

14
This provision defined the term “Exit Sale” as requiring a sale of “all, but not less than all,

of the then-outstanding Equity Securities of the Company and/or all of the assets of the

Company.” This was the source of the All Securities Clause. The Drag-Along Right picked

up ArcLight’s return hurdle of 2.5 times invested capital, but reframed it as a requirement

for an Exit Sale, rather than as an option for ArcLight to remain behind. The Leave Behind

Option had flipped into a Blocking Option.

Just as the initial version of Article XIII, Section 9(a) contained the progenitor of

the All Securities Clause, Article XIII, Section 9(b) included a predecessor to one of the

Equal Treatment Requirements. It stated, “Allocation of the aggregate purchase price

payable in an Exit Sale will be determined by assuming that the aggregate purchase price

was distributed to [Oxbow Holdings] and the remaining Members in accordance with

Article XI, Section 1 hereof.”42 This mechanism persisted into the final LLC Agreement

and calls for a pro rata distribution of the proceeds from an Exit Sale to all members.

Article XIII, Section 8 of the initial draft addressed the Put. Section 8(e) gave

ArcLight an Exit Sale Right if the Company did not buy its units. It stated:

If the Company rejects the Put Notice in writing or fails to respond to the Put
Notice within 180 calendar days of its receipt, ArcLight may require all of
the Members to engage in an Exit Sale, on the terms set forth in Section 9(b)
below, in which the aggregate consideration to be received by such Members
at the closing of such Exit Sale equal or exceed Fair Market Value.43

42
Id. art. XIII, § 9(b).
43
Id. art. XIII, § 8(e).

15
This initial version thus deployed the concept of an Exit Sale, required that “all of the

Members” engage in the Exit Sale, and only included the FMV Clause. It did not include

the 1.5x Clause.

3. Koch Expands The Capital Raise.

Meanwhile, Koch decided to expand the size of the capital raise so that Crestview,

Coumantaros, and members of Koch’s family could participate alongside ArcLight.44

Oxbow Holdings introduced ArcLight to Crestview, and they had discussions between

themselves about how to proceed.45

As its financial advisor, Oxbow Holdings was using Jim Freney, the managing

partner of Callisto Partners LLC, a boutique investment bank.46 On April 23, 2007, Freney

met with Crestview and Arclight. He described their proposal on exit rights as follows:

Both ArcLight and Crestview would have the ability to exercise their
respective put rights as currently contemplated, but Crestview would not
have the right to drag along ArcLight unless the proceeds from the sale (when
combined with prior distributions) equal or exceed 1.5 times the amount of
its initial investment.47

The private equity firms thus proposed that if Crestview initiated an Exit Sale, but ArcLight

would not receive 1.5 times its invested capital, then ArcLight could decline to participate

44
See JX 63 (email from banker to Koch transmitting proposed capital structures);
JX 67 (email from banker discussing steps to “maintain flexibility for Oxbow in terms of
structuring the optimal mix of private equity investors”).
45
JX 70.
46
See Koch Tr. 653, 725; Hurst Tr. 108, 300.
47
JX 72.

16
and remain behind. This was the first appearance of what became the 1.5x Clause. In

speaking with Oxbow’s attorneys, Freney described the overall response from the private

equity firms as “quite favorable” but noted that “Bill [Koch] has not opined on the

matter.”48

At the summary judgment stage, I was dubious that a minority member would want

to be left behind in an Exit Sale, because the minority member would be agreeing to remain

in an entity with an unknown future controller who might use its powers aggressively. The

record at trial, however, showed that ArcLight was bargaining for strong governance rights,

including a range of minority veto rights, and those rights would remain in place after an

Exit Sale. Those rights would enable ArcLight to protect itself against a new controller,

mitigating the risk of being left behind.

At the summary judgment stage, I was equally dubious that the other members

would want anyone to be left behind. It seemed to me that leaving investors behind would

depress the price that the other investors would receive for their interests, because a buyer

would have to deal with the remaining minority. Looking forward and reasoning back, the

other members would realize that they could receive more for their units if they could force

a sale of 100% of the Company and not leave anyone behind. The record at trial indicated

that Koch in fact viewed the matter this way. As the majority member, he either wanted an

Exit Sale involving 100% of the members, giving Oxbow Holdings and its affiliates their

48
Id.

17
best chance of the highest possible price, or no Exit Sale at all. Crestview had a different

preference. It wanted a path to liquidity. In an ideal world, Crestview would have preferred

to drag along all of the members, but having the ability to exit was more important. 49

Crestview’s preference ultimately was for an Exit Sale to happen, even if it had to happen

without ArcLight and hence potentially at a lower price.

On April 24, 2007, Oxbow Holdings circulated a revised version of the LLC

Agreement that addressed ArcLight and Crestview’s proposals.50 This version revised

Article XIII, Section 8 to give both ArcLight and Crestview an Exit Sale Right if Oxbow

did not satisfy the Put. The new language stated:

If (x) the Company rejects the Put Notice in writing or fails to respond to the
Put Notice within 180 calendar days of its receipt and (y) the Company has
no publicly traded equity, ArcLight or Crestview, as applicable, may
require all of the Members to engage in an Exit Sale, on the terms set forth
in Section 9(b) below, in which the aggregate consideration to be received
by such Members at the closing of such Exit Sale equal or exceed Fair Market
Value; provided, that Crestview may not require ArcLight to engage in
such Exit Sale if the resulting proceeds to ArcLight (when combined
with all prior distributions to ArcLight) do not equal at least 1.5 times
ArcLight’s aggregate Capital Contributions through such date.51

Consistent with what ArcLight and Crestview had told Freney, this language contemplated

a Leave Behind Option for ArcLight if Crestview exercised the Exit Sale Right. Oxbow

Holdings did not make any changes to other provisions in the LLC Agreement that the

49
Volpert Tr. 343-44, 517-18; see also Hurst Tr. 8-9.
50
JX 75.
51
JX 75 at OXBOW_LATHAM_00010531 (formatting in original; bold represents
added text)

18
concept of a partial Exit Sale would affect, such as changes to the All Securities Clause or

the Equal Treatment Requirements.

Days earlier, on April 22, 2007, Koch had decided to become personally involved

in negotiating the deal documents.52 On April 25, he revised the Exit Sale Right as follows:

If (x) the Company rejects the Put Notice in writing or fails to respond to the
Put Notice within 180 calendar days of its receipt and (y) the Company has
no publicly traded equity, ArcLight or Crestview, as applicable, may require
all of the Members to engage in an Exit Sale, on the terms set forth in Section
9(b) below, in which the aggregate consideration to be received by such
Members at the closing of such Exit Sale equal or exceed Fair Market Value;
provided, that neither ArcLight nor Crestview may not require the
Members ArcLight to engage in such Exit Sale unless if the resulting
proceeds to each Member Arclight (when combined with all prior
distributions to such Member ArcLight) do not equal at least 1.5 times such
Member’s ArcLight’s aggregate Capital Contributions through such date.53

Koch weighed in again that evening by giving the following instructions to Dave Clark, a

senior lawyer in the Oxbow legal department: “You should insert the words ‘any other’

and delete the word ‘the’ before the word ‘Members’ in Section 8(e) page 38 line 6 of

Section 8(e). It should read ‘neither ArcLight nor Crestview may require any member to

engage in such Exit Sale unless . . . .”54

After Koch’s revisions, the Exit Sale Right read as follows:

If (x) the Company rejects the Put Notice in writing or fails to respond to the
Put Notice within 180 calendar days of its receipt and (y) the Company has
no publicly traded equity, ArcLight or Crestview, as applicable, may require

52
See JX 71.
53
JX 74 at Oxbow_00368193 (formatting in original; bold text reflects additions;
strikethrough text reflects deletions).
54
JX 77.

19
 all of the members to engage in an Exit Sale, on the terms set forth in Section
9(b) below, in which the aggregate consideration to be received by such
Members at the closing of such Exit Sale equal or exceed Fair Market Value;
provided, that neither ArcLight nor Crestview may require any other Member
to engage in such Exit Sale unless the resulting proceeds to each Member
(when combined with all prior distributions to such Member) equal at least
1.5 times such Member’s aggregate Capital Contributions through such
date.55

To my eye, Koch’s revisions eliminated the Leave Behind Option and created a Blocking

Option.

At trial, Koch testified that he revised the Exit Sale Right to implement a Blocking

Option.56 Koch explained that his family members were becoming minority members and

that he wanted them to have the same minimum return protection as ArcLight and

Crestview, but he did not want them at risk of being left behind as minority members in a

successor company under new ownership. Unlike ArcLight and Crestview, who were

bargaining for strong governance rights, Koch’s family members were investing based on

his control over Oxbow, and they would not have enjoyed continuing minority protections

if a new controller took over. Koch cited his own past experience in litigation with two of

his brothers in which he and another brother spent nearly two decades trying to vindicate

their rights as minority investors. Based on that experience, Koch never wanted any of his

family members to have their personal wealth tied up in a company controlled by others.57

55
JX 76 at OXBOW_LATHAM_00013801.
56
Koch Tr. 656-63, 666-72; accord JX 2911 ¶ 11 (Koch affidavit).
57
Koch Tr. 656-63, 712-13 (describing “almost a religious fanaticism about getting
people treated equally based upon what I had been through”); accord JX 2911 ¶¶ 8-12.

20
Koch’s testimony was logical and credible. He either wanted the Exit Sale to involve

everyone or not to occur at all.

4. ArcLight Drops Out, and Crestview Moves Forward.

Koch met in person with ArcLight on April 26, 2007.58 After the meeting, ArcLight

dropped out because Koch refused to accept some of ArcLight’s governance demands.59

Crestview was willing to compromise, so they went forward. On April 27, Crestview

circulated comments on the draft LLC Agreement.60

Crestview proposed many changes, but did little with the provisions at issue in this

case. Crestview proposed stylistic revisions to the Drag-Along Right but made no

substantive changes, other than to replace “ArcLight” with “Crestview.” In a note written

in the margin of its markup, Crestview stressed that “Exit Sale must be on same terms for

all members.”61 Crestview wanted to ensure that Koch could not receive superior terms for

his control block; they wanted everyone to receive the same terms in an Exit Sale.

For the Exit Sale Right, Crestview proposed eliminating the FMV Clause, but did

not make any substantive changes to Koch’s rewrite of the 1.5x Clause:

If (x) the Company rejects the Put Notice in writing or fails to respond to the
Put Notice within 180 calendar days of its receipt and (y) the Company is
not has no Ppublicly Ttraded equity, ArcLight or Crestview, as applicable,
may require all of the members to engage in an Exit Sale, on the terms set

58
See JX 78.
59
Koch Tr. 672-73; accord JX 2911 ¶ 6.
60
JX 81.
61
JX 81 at Oxbow_0013512.

21
 forth in Section 9(b) below, in which the aggregate consideration to be
received by such Members at the closing of such Exit Sale equal or exceed
Fair Market Value; provided, that neither ArcLight nor Crestview may
require any other Member to engage in such Exit Sale unless the resulting
proceeds to each Member (when combined with all prior distributions to such
Member) equal at least 1.5 times such Member’s aggregate Capital
Contributions through such date.62

Crestview’s stylistic edits did not scan, since Crestview had eliminated the “neither . . .

nor” without adding a “not.”

Crestview proposed adding a new section (f) after Article XIII, Section (e). It stated:

If ArcLight or Crestview elects to require all of the Members to engage in an
Exit Sale pursuant to Section 8(e) above, at the request of ArcLight or
Crestview, as the case may be, the Company shall engage a nationally
recognized investment banking firm designated by ArcLight or Crestview to
initiate a process for the orderly sale of the Company. The Company agrees
to pay all fees and expenses of such investment bank, as well as one law firm
retained by ArcLight or Crestview, in connection with such Exit Sale. In such
event, each party hereto agrees to use its reasonable best efforts to take or
cause to be taken to do or cause to be done all things necessary or desirable
to effect such Exit Sale. Without limiting the generality of the foregoing,
each Member shall vote for, consent to and raise no objections against any
Exit Sale pursuant to this Section 8(f) and shall enter into customary
definitive agreements in connection therewith.63

The references to “all of the Members” and “each Member” evidence Crestview’s belief,

after Koch’s revisions, that if an Exit Sale took place, then all members would participate.

62
Id. (formatting in original; bold text represents additions; strikethrough text
represents deletions).
63
JX 81 at Oxbow_0013536-37. It is not clear why Crestview included references
to ArcLight in this rider when it was striking them in other sections of the LLC Agreement.
I suspect this was accidental. Things were moving fast at this point, with the parties
negotiating many elements simultaneously.

22
 The bulk of the revisions focused on the governance rights that Crestview would

receive.64 On April 30, 2007, Coumantaros finally weighed in with comments. One of his

representatives asked that the Put Right include his entity. On the Drag-Along Right, he

asked why the other minority members would not receive the same return floor of 2.5 times

invested capital before Oxbow Holdings could exercise the right.65

5. The April 30 and May 1 Drafts

The last two days of the negotiations were hectic. At 1:58 a.m. on April 30, 2007,

Oxbow Holdings circulated a revised version of the LLC Agreement.66 This version fixed

the problem created when Crestview struck “neither . . . nor” from the Exit Sale Right. The

new language stated that Crestview “may not require any other Member to engage in such

Exit Sale unless the resulting proceeds to each Member (when combined with all prior

distributions to such Member) equal at least 1.5 times such Member’s aggregate Capital

Contributions through such date.”67 The language continued to contemplate a Blocking

Option, consistent with Koch’s revisions.

64
See JX 85; JX 86; JX 89; JX 90; JX 92; JX 105.
65
JX 94 at DPW-001985.
66
JX 98.
67
Id. at Oxbow_00075506 (formatting in original; bold text indicates additions).

23
 On the afternoon of April 30, 2007, Oxbow Holdings circulated another draft.68 It

moved the definition of “Exit Sale” from the Drag-Along Right to a stand-alone collection

of definitions in Article I. The relocated definition stated:

“Exit Sale” means a Transfer of all, but not less than all, of the then-
outstanding Equity Securities of the Company and/or of the assets of the
Company to any non-Affiliated Persons(s) in a bona fide arms’-length
transaction or series of related transactions (including by way of a purchase
agreement, tender offer, merger or other business combination transaction or
otherwise).69

In response to a comment from Crestview,70 the April 30 draft specified that if Oxbow

Holdings exercised its Drag-Along Right, it could “require all of the Members to

participate in an Exit Sale on the [sic] substantially the same terms and conditions as”

Oxbow Holdings.71 Crestview wanted this language so that Oxbow Holdings would not be

able to demand better terms for its controlling block. Koch liked the “same terms and

conditions” concept.72 In a later draft, the parties added comparable language about “the

same terms and conditions” to Article XIII, Section 7(d), where it persisted as one of the

Equal Treatment Requirements.73

68
JX 96.
69
Id. at Oxbow_00013835.
70
See JX 95 at LL0013828.
71
JX 96 at Oxbow_00013871; see also Hurst Tr. 76-77; Koch Tr. 677.
72
Koch Tr. 676-77.
73
See JX 105 at DPW-001454.

24
 The April 30 draft did not make any changes to the language of Article XIII, Section

8(e), which set out the core Exit Sale Right. The draft tweaked the procedures for hiring an

investment bank in Article XIII, Section 8(f). The revision stated:

If Crestview elects to require all of the Members to engage in an Exit Sale
pursuant to Section 8(e) above, at the request of Crestview, the Company
shall engage a nationally recognized investment banking firm mutually
acceptable to Crestview and [Oxbow Holdings] to initiate a process for the
orderly sale of the Company, as well as one law firm for the Company
mutually acceptable to Crestview and [Oxbow Holdings]. The Company
agrees to pay all customary and reasonable fees and expenses of such
investment bank and law firm in connection with such Exit Sale. In such
event, each party hereto agrees to use its reasonable efforts to take or cause
to be taken or do or cause to be done all things necessary or desirable to effect
such Exit Sale. Without limiting the generality of the foregoing, each
Member shall vote for, consent to, and raise no objections against any Exit
Sale pursuant to this Section 8(f) and shall enter into customary definitive
agreements in connection therewith.74

The next several exchanges of drafts did not make meaningful changes to the Drag-Along

Right or the Exit Sale Right.

On the morning of May 1, 2007, Oxbow Holdings circulated another draft reflecting

numerous changes to the Exit Sale Right.75 The bulk of the revisions addressed the right of

an entity controlled by Coumantaros to exercise the Put and trigger an Exit Sale. The draft

introduced the concept of “the Exercising Put Party” and revised Article XIII, Section 8

accordingly. The draft contained the following revisions to the Exit Sale Right:

If (x) the Company rejects the Put Notice in writing or fails to respond to the
Put Notice within 180 calendar days of its receipt and (y) the Company is not

74
JX 96 at Oxbow_00013988.
75
JX 108.

25
 Publicly Traded, Crestviewthe Exercising Put Party may require all of the
Members to engage in an Exit Sale, on the terms set forth in Section 9(b) and
9(c) below, in which the aggregate consideration to be received by such
Members at the closing of such Exit Sale equal or exceed Fair Market Value;
provided, that Crestviewthe Exercising Put Party may not require any other
Member to engage in such Exit Sale unless the resulting proceeds to
eachsuch Member (when combined with all prior distributions to such
Member) equal at least 1.5 times such Member’s aggregate Capital
Contributions through such date.76

As part of these edits, the reference to proceeds to “each Member” changed to “such

Member.”

Crestview has focused on these changes to argue that they made the 1.5x Clause

more consistent with a Leave Behind Option. That is a fair observation, but after tracing

the evolution of the language, the edits look to me like lawyers’ cleanup. Someone noticed

that the phrase “such Member” already appeared in the phrase “equal at least 1.5 times

such Member’s aggregate Capital Contributions” and was trying to use parallel language.

If the parties really were trying to create a Leave Behind Option, they would have revised

other sections of the LLC Agreement to address the All Securities Clause and the Equal

Treatment Requirements. The lawyers already were making significant changes to the

agreement to accommodate an entity controlled by Coumantaros. If they had wanted to

create a Leave Behind Option, they would have done much more to integrate that concept

into the LLC Agreement. None of the contemporaneous documents suggest a substantive

change. I cannot infer that the parties intended one.

76
Id. at Oxbow_00013449 (formatting in original; bold text indicates additions;
strikethrough text indicates deletions).

26
 Oxbow Holdings circulated another round of edits at 4:28 p.m. on May 1, 2007.77

The edits cleaned up cross-references in the Exit Sale Right.78

C. The Final LLC Agreement

At 8:28 p.m. on May 1, 2007, Oxbow Holdings circulated fully executable versions

of the transaction documents.79 The parties signed and closed the deal on May 8.80

The final LLC Agreement spanned sixty-four pages, not including exhibits and

signature pages. The parties intended for the LLC Agreement to be the full expression of

their agreement. To that end, the LLC Agreement contained an integration clause stating:

Entire Agreement. This Agreement constitutes the entire agreement of the
Members and any Additional Members with respect to the subject matter
hereof, and supersedes all prior and contemporaneous communications
(whether or not oral or in writing) regarding such subject matter.81

Consistent with this provision and industry practice, Crestview wanted the LLC Agreement

to cover its rights comprehensively, including its exit rights, rather than leaving anything

to implication.82

77
JX 110.
78
Id. at OXBOW_LATHAM_0001323.
79
JX 106.
80
JX 115.
81
LLCA art. XVII, § 4.
82
Hurst Tr. 61-63.

27
 Under the terms of the final documents, Crestview made a capital contribution to

Oxbow of $190 million and received a total of 1,899,729 units, representing a 23.48%

equity interest in Oxbow.83 Crestview gained the right to appoint two members of the

Oxbow Board and appointed Hurst and Volpert.84

Coumantaros made a capital contribution to Oxbow of $75 million through Load

Line Capital LLC (“Load Line”), a newly formed entity. Load Line received 750,000 units,

representing a 9.27% equity interest. Load Line gained the right to appoint one member of

the Oxbow Board and appointed Coumantaros.85

Oxbow Holdings made a capital contribution to Oxbow of $483,038,499.86 and

received 4,830,385 units, representing a 59.69% equity interest.86 Oxbow Holdings gained

the right to appoint six members of the Oxbow Board.87 Members of Koch’s family or their

affiliates made capital contributions totaling $61,163,382.38. The Wyatt I. Koch 2000

Trust received 224,704 units, representing a 2.78% interest. The William I. Koch Family

83
Technically, Crestview invested through Crestview-Oxbow Acquisition, LLC and
Crestview-Oxbow (ERISA) Acquisition, LLC. PTO ¶ 14. Through affiliates, Crestview
owns a majority interest in both entities. Crestview-Oxbow Acquisition, LLC made a
capital contribution of $181,603,194.25 and received 1,802,037 units. Crestview-Oxbow
(ERISA) Acquisition, LLC made a capital contribution of $8,396,805.70 and received
97,962 units. The two Crestview entities executed the LLC Agreement and became
members of Oxbow. Id. ¶ 19.
84
Id. ¶¶ 19, 20.
85
Id. ¶¶ 21, 22.
86
See id. ¶ 23; LLCA Ex. A.
87
PTO ¶ 6.

28
Trust dated December 26, 1976 for the benefit of Charlotte Koch received 55,764 units,

representing a 0.69% interest. Joan Granlund, Koch’s ex-wife, received 331,167 units,

representing a 4.09% interest. Together, Koch and his family members owned 67% of the

equity in Oxbow.88

Article XI, Section 1 of the LLC Agreement required that Oxbow make a quarterly

distribution to its members of all net cash flow “in accordance with their Percentage

Interests.”89 Oxbow was the only investment in Crestview’s initial fund in which Crestview

secured a cash-flow distribution right.90

Beginning on May 8, 2014, Crestview could exercise the Put in Article XIII, Section

8(a) and have the Company repurchase its units at Fair Market Value.91 Section 8(b)

specified that Fair Market Value “shall be determined on a going concern basis, without

any discount for lack of liquidity (including the absence of a public market and the presence

of transfer restrictions) or minority interest.”92 Section 8(b) also specified a procedure by

which a combination of investment banks would determine Fair Market Value. The

provisions contemplated that if Crestview chose to exercise the Put, then Load Line could

88
LLCA Ex. A.
89
Id. art. XI, § 1; Hurst Tr. 68-69.
90
Volpert Tr. 628-29.
91
LLCA art. XIII, § 8(a).
92
Id. art. XIII, § 8(b).

29
tag along, and that if Crestview did not exercise the Put, then Load Line could do so. The

LLC Agreement referred to Crestview and Load Line together as the “Minority Members.”

If the Company declined to buy the Minority Members’ units, then the Exercising

Put Party could exercise the Exit Sale Right. If Crestview was the Exercising Put Party but

Load Line had tagged along, then Load Line could exercise the Exit Sale Right if Crestview

declined. The final LLC Agreement described the Exit Sale Right in the following terms:

If (x) the Company rejects the Put Notice in writing or fails to respond to the
Put Notice within 180 calendar days of its receipt and (y) the Company is not
Publicly Traded, the Exercising Put Party may require all of the Members to
engage in an Exit Sale, on the terms set forth in Section 7(c), Section 7(d)
and Section 9(b), in which the aggregate consideration to be received by such
Members at the closing of such Exit Sale equal or exceed Fair Market Value;
provided, that the Exercising Put Party may not require any other Member to
engage in such Exit Sale unless the resulting proceeds to such Member (when
combined with all prior distributions to such member) equal at least 1.5 times
such Member’s aggregate Capital Contributions through such date.93

The 1.5x Clause is the proviso to the Exit Sale Right.

The final LLC Agreement defined “Exit Sale” as follows:

“Exit Sale” means as a Transfer of all, but not less than all, of the then-
outstanding Equity Securities of the Company and/or all of the assets of the
Company to any non-Affiliated Person(s) in a bona fide arms’-length
transaction or series of related transactions (including by way of purchase
agreement, tender offer, merger or other business combination transaction or
otherwise).94

93
Id. art. XIII, § 8(e).
94
Id. art. I.

30
Crestview’s principals understood that the definition of “Exit Sale” was one of the “Key

Definitions” in the LLC Agreement.95

The Exit Sale Right stated that any Exit Sale had to take place “on the terms set

forth in [Article XIII,] Section 7(c), Section 7(d) and Section 9(b).” These sections

established requirements for pro rata treatment that this decision refers to as the Equal

Treatment Requirements. Article XIII, Section 7(c) stated:

In the case of both a Tag-Along Transfer and an Exit Sale, each Member
shall be obligated to pay only its pro rata share (based on the aggregate
consideration received by such Member in respect of the Units Transferred
by such Member) of expenses incurred in connection with a consummated
Tag-Along Transfer or Exit Sale to the extent such expenses are incurred for
the benefit of all Members and are not otherwise paid by the Company or
another Person.96

Article XIII, Section 7(d) stated:

In the case of both a Tag-Along Transfer and an Exit Sale, (A) each Unit
Transferred in such Tag-Along transfer and Exit Sale shall be Transferred on
the same terms and conditions as each other Unit so Transferred and (B) each
Member shall (i) make such representations, warranties and covenants and
enter into such definitive agreements as are reasonably required in the
proposed Transfer and as are customary for transactions of the nature of the
proposed Transfer, provided that if the Members are required to provide any
representations or indemnities in connection with such Transfer, liability for
misrepresentation or indemnity shall (as to such Members) be expressly
stated to be several but not joint (provided, that any collective escrow,
holdback or adjustment may be treated as a joint obligation) and each
Member shall not be liable for more than its pro rata share (based on the
aggregate consideration received by such Member in respect of the Units
Transferred by such Member) of any liability for misrepresentation or

95
See JX 500 at CRESTVIEW000011565 (internal Crestview email listing “Exit
Sale” under “Key Definitions”); Hurst Tr. 72-74.
96
LLCA art. XIII, § 7(c).

31
 indemnity and (ii) be required to bear their proportionate share of any
escrows, holdbacks or adjustments in purchase price.97

Article XIII, Section 9(b) stated:

No Member shall be obligated in connection with any such Exit Sale (i) to
agree to indemnify or hold harmless the Person to whom the Units are being
sold with respect to any indemnification or other obligation in an amount in
excess of the net proceeds paid to the such [sic] Member in connection with
such Exit Sale or (ii) to enter into any non-competition, non-solicitation or
other similar arrangement; provided, further, that such indemnification or
other obligations shall be pro rata as among the Members other than with
respect to representations made individually by a Member (e.g.,
representations as to title or authority of such Member or the lack of any
encumbrance on any of the Units to be sold by such Member). Allocation of
the aggregate purchase price payable in an Exit Sale will be determined by
assuming that the aggregate purchase price was distributed to [Oxbow
Holdings] and the remaining Members in accordance with Article XI,
Section 1 hereof.98

The last sentence of Article XIII, Section 9(b) called for distributing proceeds from

an Exit Sale “in accordance with Article XI, Section 1 hereof.” This reference incorporated

a daisy chain of provisions that would result in a pro rata distribution. Article XI, Section

1 stated:

Subject to such conditions as may be imposed under any Financing
Arrangements and to the prior payment of distributions pursuant to Article
XI, Section 2, all Net Cash Flow shall be distributed on a quarterly basis to
the Members in accordance with their Percentage Interests within 45
calendar days after the end of each Fiscal Quarter. . . .99

This language referenced Article XI, Section 2, which stated:

97
Id. art. XIII, § 7(d).
98
Id. art. XIII, § 9(b).
99
Id. art. XI, § 1.

32
 Prior to making any distributions in respect of any quarter pursuant to Article
XI, Section 2, the Company will make quarterly distributions to each
Member, to the extent of Net Cash Flow, in an amount equal to such
Member’s Maximum Permitted Tax Amount; provided, that if the amount of
Net Cash Flow is not sufficient to make the foregoing payments in full, the
amount that is available will be distributed in the same proportion as if the
full amount were available . . . .100

These provisions call for distributing proceeds from an Exit Sale to all members in

proportion to their Percentage Interests, which is a term that uses all of the units as the

denominator. The provisions thus contemplated that the Company would distribute the

proceeds from an Exit Sale to all unitholders in proportion to the number of units held.

In a memorandum to Crestview’s investment committee, Hurst and Volpert

described the Exit Sale Right as permitting Crestview to exit if the proceeds satisfied the

1.5x Clause for all members.

If the Company declines to exercise [the Put] option, [Crestview] can elect
to require a 100% exit sale, provided that the proceeds from such a sale equal
at least 1.5 times any investor’s aggregate capital contributions to date.101

GSO Capital Partners LP, which co-invested $30 million in one of the Crestview entities,

described the exit rights to its investment committee in similar terms.102

100
Id. art. XI, § 2. As noted, this decision refers to the provisions addressing the
distribution of proceeds as the “Distribution Provisions.” It regards the requirement that
the proceeds from an Exit Sale be distributed pro rata as one of the Equal Treatment
Requirements.
101
JX 102 at CRESTVIEW000219158.
102
JX 159 at GSO_Oxbow_0005488; see also Hurst Tr. 104-05.

33
 The final LLC Agreement did not expressly provide for a top off right.103 During

the negotiations, Crestview never asked for a top off right and did not offer a top off right

for Koch’s Drag-Along Right.104 The parties did negotiate over what categories of returns

would be included when determining whether the 1.5x Clause had been met, starting with

only sale proceeds, then progressing to sale proceeds plus distributions other than tax

distributions, and finally settling on sale proceeds plus all prior distributions, including tax

distributions.105

D. The Admission Of Family LLC and Executive LLC

In fall 2010, Oxbow was finalizing an all-cash acquisition of a large sulfur-trading

business known as International Commodities Export Corporation. The sulfur company

was owned by its executives, and Oxbow wanted to offer the executives an opportunity to

purchase equity in Oxbow.106

On November 1, 2010, Koch emailed the Board about the acquisition and noted that

he would be sending out “a dilution analysis resulting from offering [the sulfur-company

executives] and certain Oxbow employees Oxbow [] stock via an investment trust at

various amounts and prices. This is part of the deal.”107 Koch subsequently sent an email

103
Hurst Tr. 114-16.
104
See id. at 99-100.
105
See JX 25 at Oxbow_00236397; LLCA art. XIII, §§ 8(e), 9(b); Hurst Tr. 111-14.
106
Hurst Tr. 164-65; see also PTO ¶¶ 4, 29-30.
107
JX 140; see also Hurst Tr. 185-86.

34
stating, “I suggest offering $30 million at $300/share to minimize our dilution from an

investment trust, so that we have only one additional stockholder.” 108 The email attached

graphs showing the level of dilution at various prices ranging from $100 per unit to $300

per unit.

Koch’s email included a summary prepared by Oxbow’s then-COO, Steven Fried.

It described an investment structure in which

a newly formed entity (“Newco”) will be formed, and that Newco would
purchase units of Oxbow at fair market value. The amount available and the
price is entirely TBD, but as a placeholder, I would analyze the case of
Newco owning 100,000 units at $300/unit = $30 million.

Invited participants ([sulfur-company] and Oxbow employees) would in turn
hold equity interests (“Units”) in Newco and would therefore indirectly own
an interest in Oxbow through their investment in Newco.109

Fried listed eighteen bullet points describing details of the structure, including:

 “Newco would be a Delaware limited liability company.”

 “Newco would be a single purpose vehicle, with no assets other than the Units and
some cash.”

 “Newco would become a member of Oxbow, owning the same class of units as
currently exists.”

 “An affiliate of Oxbow would be an investor in Newco and serve as the Manager of
Newco. The Manger would not be subject to removal. This will enable Oxbow to
maintain control and management of Newco.”

108
JX 138. Koch’s sentence elided two concepts: the economic dilution that would
result from the issuance of units and the use of an investment vehicle to minimize the
number of new members.
109
JX 138 at Oxbow_00237125.

35
 “The information rights of Newco with respect to the operation of Oxbow would be
limited (and specifically members of Newco would not be entitled to receive
Oxbow’s financial statements, annual budgets, etc.).”110

Fried envisioned that “[t]he existing members of Oxbow would be required to consent to

an amendment to implement the rights of Newco as described above.”111

Later that evening, Fried emailed the Board a memorandum about the proposed

acquisition.112 It explained that Oxbow intended “to implement an investment vehicle

structure through which some former [sulfur-company] management (as well as some

existing Oxbow management) may invest in [Oxbow] equity at fair market value.”113

Around the same time, Koch proposed to have members of his family invest

alongside the sulfur-company executives. On November 3, 2010, Volpert emailed Quentin

Chu, one of his colleagues at Crestview, stating:

Bill [Koch] called today. Among other things, he asked if it is okay with us
for his ex-wife to invest “a few million” in Oxbow at $300/share alongside
[the sulfur-company executives]. I told him I thought this would be fine. It
occurred to me that we should see if either [of our co-investors] want to sell,
and frankly whether we should sell a few shares, rather than accept the
dilution.114

110
Id. at Oxbow_00237125-26.
111
Id. at Oxbow_00237126.
112
JX 139; see also Hurst Tr. 24, 187-88.
113
JX 139 at Oxbow_00237129.
114
JX 141 at CRESTVIEW000089036.

36
Volpert’s email forwarded the Newco analysis prepared by Fried and the slides showing

the level of dilution at various issuance prices.115 Crestview ultimately signed off on the

investment by Koch’s family members as an accommodation to Koch.116 Hurst testified

that Crestview probably understood that Koch would control the vehicle and “just didn’t

make a big deal out of it.”117

In January 2011, Oxbow acquired the sulfur company for $150 million.118 During a

meeting of the Board on April 28, 2011, the directors voted unanimously to issue units

worth $20 million to members of Koch’s family and units worth $10 million to the sulfur-

company executives, all priced at $300 per unit.119

Despite the Board’s authorization, Oxbow did not immediately implement the

transactions. There were details to hammer out with the sulfur-company executives.120 In

115
See id.
116
Volpert Tr. 387 (testifying Crestview agreed to the issuance as “an
accommodation to [Koch’s] estate planning,” that Oxbow “didn’t need the capital,” and
that the issuance “didn’t enable the company to do anything”); accord Hurst Tr. 22-23
(“We did this as an accommodation to Bill [Koch].”); see also JX 167 (Volpert emailing
Chu: “Remember that we approved of Oxbow selling up to $30m of primary stock at
$300/share to the [sulfur-company] management and Bill’s ex-wife.”).
117
Hurst Tr. 202-03.
118
Id. at 164-65.
119
JX 155.
120
See, e.g., JX 153 (internal Crestview email discussing deal-structure concerns).

37
addition, Oxbow had not set up an equity investment program for its own executives, so

the proposal to include a limited number of Oxbow executives complicated matters.121

Internally, Oxbow noticed a preemptive rights provision in the LLC Agreement. In

an email dated April 29, 2011, Oxbow’s then-CFO, Zach Shipley, explained the issue to

Koch and Richard Callahan, who was Oxbow’s corporate secretary at the time:

In the context of [Oxbow] selling new equity to members of Bill’s family, it
has been drawn to my attention that the Operating Agreement of [Oxbow]
gives all members certain rights of participation in any equity [issuance] by
the Company. . . . I don’t think this will have a practical effect on the ultimate
outcome of the equity sales to Bill’s family, but it does present a procedural
requirement. Basically, we have to offer equity to all members at $300 per
unit. . . . I expect that, at $300/unit, no one but the intended buyers will buy
additional equity, but if they do, maybe that is a good thing.

[T]his does raise a question about whether we need to get a slightly different
approval from the Board.122

No one appears to have considered whether the issuance was a related-party transaction

that would trigger a requirement for Board approval by a “Supermajority Vote,”123 defined

as approval from a majority of the Board that included the Load Line director and at least

one Crestview director.124 Oxbow did not get any further approvals from the Board for the

issuance to Koch’s family members.

121
Koch Tr. 692-93; see also, e.g., JX 158.
122
JX 157.
123
LLCA art. III, § 3(d)(11).
124
Id. art. I.

38
 During a meeting on November 9, 2011, the Board revisited its approval of the

issuance of units to the sulfur-company executives. This time, the Board reached consensus

to issue units worth $15 million, rather than $10 million, but still at a price of $300 per

unit.125 The Board approval did not address the question of preemptive rights.

Koch formed Ingraham Investments LLC to hold the units issued to his family

members, rather than having his family members own the units directly. 126 Because the

entity is an investment vehicle for members of Koch’s family, this decision calls it “Family

LLC.” Koch has controlled Family LLC from its inception.127

Oxbow formed Oxbow Carbon Investment Company LLC to hold the units issued

to the former executives of the sulfur-trading company. The documents frequently refer to

it as “OCIC.” Because the entity is an investment vehicle for executives, this decision calls

it “Executive LLC.” Koch is the sole manager of the managing member of Executive

LLC.128

125
JX 2545 at CRESTVIEW000027420-21.
126
See JX 201; JX 208.
127
PTO ¶ 3; JX 4322 No. 23 (response to request for admissions).
128
See PTO ¶ 4; see also JX 170.

39
 On December 23, 2011, Family LLC wired $20 million to Oxbow, and Oxbow

issued 66,667 units to Family LLC.129 The Board resolved to distribute the funds, and

Family LLC received its proportionate share.130

On March 12, 2012, Executive LLC wired $15 million to Oxbow, and Oxbow issued

50,000 units to Executive LLC.131 The Board gave Koch discretion over whether to

distribute the funds from Executive LLC’s investment. He elected to distribute the

money.132 Both Family LLC and Executive LLC received their proportionate share.133

Together, Family LLC and Executive LLC own approximately 1.4% of Oxbow’s

units.134 As mentioned previously, this decision refers to the entities together as the “Small

Holders.”

The issuance of units to the Small Holders had potential implications for the Exit

Sale Right. After four years of distributions from Oxbow, all of the existing members had

received a sufficient return on their investment to satisfy the 1.5x Clause.135 Issuing equity

129
PTO ¶ 32; JX 2906 at Oxbow_00160186; see also Hurst Tr. 169; Volpert Tr.
505-06
130
JX 210; Koch Tr. 698; Hurst Tr. 173-75.
131
PTO ¶ 34; JX 234 at Oxbow_00242653; Hurst Tr. 179; Volpert Tr. 505-06; see
also JX 2539.
132
See Hurst Tr. 179-80; Koch Tr. 694; see also JX 234.
133
See JX 212-14; JX 218; Hurst Tr. 175-80; Koch Tr. 694, 698.
134
PTO ¶ 31.
135
Volpert Tr. 384-86.

40
at $300 per unit created a new group of unitholders who had not yet received any

distributions and had a return hurdle of $450 per unit.

When Oxbow issued the units to the Small Holders, Crestview’s principals were

aware of the 1.5x Clause,136 and the firm was evaluating its alternatives for exiting from

Oxbow.137 They had already discussed potential exit scenarios with Koch.138

There is some reason to think that Crestview’s principals were not overly concerned

with the issuances to the Small Holders because of the valuation that they placed on

Oxbow. Using multiples ranging from seven to ten times EBITDA, Crestview was

forecasting exit values in a sale of Oxbow from $283.34 to $452.04 per unit. 139 Crestview

generally believed that a multiple of ten times EBITDA was appropriate for Oxbow.140

Crestview projected that Oxbow would generate EBITDA of $566 million in 2015,

136
See Hurst Tr. 123.
137
See JX 165 (Volpert requesting an analysis of returns at various multiples); JX
166 at CRESTVIEW000116078-79 (reviewing exit scenarios as part of evaluation of
Oxbow investment); JX 193 (Crestview analysis of carried interest under various exit
scenarios); JX 217 (same); see also Hurst 123-26.
138
See JX 189 (Volpert email to Hurst stating, “On exits, Bill said he wants to
consider every alternative possible . . . . I just agreed that he should do this and figure out
what he thinks is best. I’m glad he raised this.”); JX 199 at Oxbow_36221-22 (Koch
reporting that “Crestview has offered to stager [sic.] the buyout date so that there is not
pressure of a specific buyout day: 1/3 a year before, 1/3 on the buyout day, and 1/3 a year
after.”); id. at Oxbow_00036221 (email from Fried to Johnson explaining that “Crestview
has offered up to let us buy them out 1/3 per year so the cost can be spread out. Their trigger
date is May 7, 2014 but can be modified with agreement.”); see also Koch Tr. 699-702.
139
JX 166 at CRESTVIEW000116078.
140
See Hurst Tr. 128.

41
supporting a potential exit at close to $560 per unit.141 Oxbow in fact achieved EBITDA of

$571.6 million in 2011.142 In an email, Crestview’s principals discussed whether Koch

should “explore whether Petrochina is interested in purchasing 10-20% of the company at

$500/share . . . , maybe as a way for us to pave the way for an eventual exit.” 143 Morgan

Stanley & Co. LLC was contemporaneously advising Oxbow and Crestview that Oxbow

could go public at around $400 per unit and that the stock would trade up to around $500

per unit.144 Volpert later wrote that when Crestview approved the issuance of units to the

Small Holders, “[w]e thought we were giving them all a great discount.”145

Internally at Oxbow, after Crestview began raising the possibility of an exit, Koch

tasked Oxbow personnel with evaluating Crestview’s exit rights and considering potential

strategic alternatives.146 As part of that process, Shipley prepared a summary of the

Minority Members’ exit rights.147 It included the following analysis:

141
See JX 164 at CRESTVIEW000116055 (EBITDA projection); JX 166 at
CRESTVIEW000116078 (exit sensitivities); Hurst Tr. 130-32.
142
Hurst Tr. 132.
143
JX 160 at CRESTVIEW000010924.
144
Volpert Tr. 385-86.
145
JX 1243. There is conflicting evidence. As of May 2011, Crestview was carrying
its investment in Oxbow at $374.7 million, or approximately $197 per unit. JX 164 at
CRESTVIEW000116058.
146
See JX 206.
147
JX 3159; see also Koch Tr. 702-06.

42
 Regarding the 1½-times-capital-contributions proviso: At this point in time,
most Members’ distributions have been so great that there is no lower bound
on net proceeds. A key exception is [Executive LLC], which recently
contributed capital of $300 per unit for newly issued equity. By 2014,
[Executive LLC] will undoubtedly have received some distributions, but, by
the letter of the Agreement, [Executive LLC] may have the right not to
participate in an Exit Sale if the price is low enough. Furthermore, the
Agreement defines an Exit Sale to be a sale of all (but not less than all) of the
equity or assets of the Company. [Executive LLC] may therefore be in a
position to prevent an Exit Sale altogether, if the price is much less than $300
per unit.148

Shipley appears to have thought that if an Exit Sale did not satisfy the 1.5x Clause for a

particular member, then it could not go forward. This is an example of the Blocking Theory.

He did not take the next step of analyzing the Equal Treatment Requirements to arrive at

the Highest Amount Theory.

As noted, Oxbow did not obtain a specific waiver of the existing members

preemptive rights, nor did Oxbow consider whether the issuances to the Small Holders

required a Supermajority Vote. In addition, the LLC Agreement required that, “[a]s a

condition to being admitted as a Member of the Company, any Person must agree to be

bound by the terms of this Agreement by executing and delivering a counterpart signature

page to this Agreement, and make the representations and warranties set forth in Section 7

148
JX 3159 at Oxbow_00158126.

43
below as of the date of such Person’s admission to the Company.”149 The Small Holders

did not provide Oxbow with signed signature pages until 2016, after this litigation began.150

Despite not satisfying these formal requirements, everyone treated the Small

Holders as members. Starting in early 2012, Oxbow listed the Small Holder as members in

the monthly management reports that Crestview and Load Line received. 151 Oxbow’s

audited financial statements for 2011, 2012, and 2013 reported the issuance of units to the

Small Holders and identified those entities as affiliated with Koch.152 In 2012 and 2013,

Oxbow’s auditor identified the Small Holders as members in its reports to the audit

committee, which Hurst chaired. The first time that Crestview and Load Line raised any

objection to the Small Holders’ status as members was after this litigation began.153

E. The Third Amendment To The LLC Agreement

Under the terms of the LLC Agreement, Crestview could exercise the Put beginning

on the seventh anniversary of the effective date of its investment, or May 8, 2014.154 Koch

and the executive team at Oxbow viewed the Put and the Exit Sale Right as serious threats.

149
LLCA art. IV, § 5.
150
Koch Tr. 1221-22; see also JX 4322 Nos. 8, 10 (responses to requests for
admissions).
151
See, e.g., JX 232 at CRESTVIEW_000222549; see also JX 243; Hurst Tr. 139-
40, 168-69, 179-80.
152
See, e.g., JX 273 at Oxbow_00167079; see also Hurst Tr. 196-98.
153
See Hurst Tr. 178-79; Koch Tr. 694-95.
154
LLCA art. XIII, § 8(a).

44
In March 2013, Brian Bilnoski of Oxbow wrote a private memorandum to Koch in which

he warned that “[i]f Oxbow cannot afford to buyout [sic] the minority investors with debt,

the majority shareholders will be at the mercy of either the minority shareholders in terms

of exit timing (and price as determined by the market at that time) or timing of finding a

new equity investor.”155 Bilnoski’s memorandum reflected a belief that Oxbow’s units

were worth $217 per unit.156 The fact that Bilnoski viewed the Exit Sale Right as a

meaningful threat at that valuation indicates that he did not perceive the 1.5x Clause and

the Equal Treatment Requirements as working together to generate the Highest Amount

Theory.

By May 2013, Koch perceived that Crestview was focusing on achieving liquidity

for its investment and that its interests were diverging from his.157 By November 2013,

Koch had become concerned that Crestview was “more interested than the near term than

in the long term” and would be pushing for an exit.158

To give Koch more time to raise money and alleviate Koch’s anxiety about the Put,

Crestview offered to extend the exercise date.159 The parties reached agreement on

155
See JX 272 at Oxbow_00005424-25.
156
Id. at Oxbow_00005424.

See JX 281 (Koch’s handwritten notes indicating “interest diverging now” and
157

“Crestview need liquidity”).
158
JX 314.
159
Hurst Tr. 27-28; see also Volpert Tr. 391-93.

45
Amendment 3 to the LLC Agreement, dated February 13, 2014 (the “Third

Amendment”).160

The Third Amendment extended the exercise date for the Put until January 1, 2015.

It also permitted Crestview to exercise the Put for only some, but in no case less than 25%,

of its units. Before the Third Amendment, Crestview had to put “all (but not less than all)”

of its units.161 The Third Amendment amended and restated the Exit Sale Right to limit its

availability to situations in which Crestview owned 10% or more of the Company. The

new provision stated:

If (x) the Company rejects the Put Notice in writing or fails to respond to the
Put Notice within 180 calendar days of its receipt and (y) the Company is not
Publicly Traded:

(A) if at such time Crestview owns ten percent (10%) or more of the
outstanding Member Interests and Units of the Company, the Exercising Put
Party may require all of the Members to engage in an Exit Sale, on the terms
set forth in Section 7(c), Section 7(d) and Section 9(b), in which the
aggregate consideration to be received by such Members at the closing of
such Exit Sale equal or exceed Fair Market Value; provided, that the
Exercising Put Party may not require any other Member to engage in such
Exit Sale unless the resulting proceeds to such Member (when combined with
all prior distributions to such Member) equal at least 1.5 times such
Member’s aggregate Capital Contributions through such date; and

(B) if at such time Crestview owns less than ten percent (10%) of the
outstanding Member Interests and Units of the Company, then
notwithstanding any other provision of this Agreement the Exercising Put
Party (and if applicable, the Tag-Along Put Party) shall have the right (i) to
Transfer all of its or their Member Interests and Units that were subject to
the Put Notice to any non-Affiliated Person at any time on such terms and
conditions as the Exercising Put Party (and if applicable, the Tag-Along Put

160
PTO ¶ 25(c).
161
LLCA art. XIII, § 8(a).

46
 Party) shall determine, or (ii) to require the Company to use commercially
reasonable efforts to complete an Initial Public Offering on customary terms
and conditions as promptly as practicable and to include in such Initial Public
Offering all Member Interests and Units then held by the Exercising Put
Party (and if applicable, the Tag-Along Put Party).

The obligation of the Company to provide cooperation and support as
contemplated by Section 8(f) of this Article XIII in the event of an Exit Sale
shall apply, mutatis mutandis, to any Transfer or Initial Public Offering
pursuant to clause (B) above. For the avoidance of doubt, the provisions of
Section 6 and 7 of this Article XIII shall not apply to any Transfer or Initial
Public Offering pursuant to clause (B) above.162

The Third Amendment continued to speak in terms of all members engaging in an Exit

Sale “on the terms set forth in Section 7(c), Section 7(d) and Section 9(b),” which gave rise

to the Equal Treatment Requirements. The Third Amendment did not make any changes

to the definition of Exit Sale, which included the All Securities Clause.

During the negotiations over the Third Amendment, Chu spoke with Oxbow’s then-

General Counsel, Michael McAuliffe, about the mechanics of the Put and the Exit Sale

Right. In an email to Chu dated February 12, 2014, McAuliffe followed up on the

conversation:

I have been thinking about the discussion yesterday regarding the “Put” and
“Drag Along” provisions. I will forward some additional language that
addresses the issues you raised. The challenge is to be as surgical as possible
and avoid unintended consequences, but still effect the changes sought. The
existing agreement is somewhat cumbersome because, as you noticed, the
transfer provisions arguably are in tension with the Put/Drag along language
....

As a result, additional language may need to be added to the previously
forwarded language amendments:

162
Third Am. ¶ 4.

47
 ...

-Article I Definitions—Modification of definition of “Exit Sale” to reflect
that an “Exit Sale” may include a less than whole company sale pursuant to
Article XIII, Section 8. This, of course, is a result of the creation of a partial
put right and the elimination of a drag along in the case of a less than 10%
holding by Crestview. The other possible less than whole company “Exit
Sale” in Article XIII, Section 8(e), is moot given that all members have
received proceeds in excess of 1.5 times their capital contributions.

Dave Clark will draft some language . . . .163

McAuliffe copied Clark and Bill Parmelee, who had taken over as Oxbow’s CFO.

In his email, McAuliffe recognized the conflict between the All Securities Clause

and a partial Exit Sale, but he stated that “a less than whole company sale” was possible.

He viewed one possibility as “of course [the] result of the creation of a partial put right and

the elimination of a drag along in the case of less than 10% holding by Crestview.” But

that statement mixed up different concepts. Crestview was always going to exercise the Put

for a minority of the Company’s units. If Crestview exercised the Put for all of its units, it

would offer to sell 23.5% of the Company. The fact that Crestview might offer to sell less

than all of its units did not change the relationship between the Put and the Exit Sale. The

point of the Exit Sale was to put teeth into the Put so that the Company would buy rather

than pass. Nor did the elimination of the Exit Sale Right if Crestview owned less than 10%

of the Company’s securities have anything to do with a partial Exit Sale. Under those

circumstances, Crestview gave up its Exit Sale Right in favor of either selling its units

freely to any non-Affiliated Party or having the right to force the Company to undertake an

163
JX 360.

48
initial public offering. But McAuliffe told Crestview that these scenarios contemplated a

less-than-whole-company Exit Sale.

McAuliffe also indicated that he believed that the 1.5x Clause gave rise to “[t]he

other possible less than whole company ‘Exit Sale.’” McAuliffe did not explain why he

thought this, and his comment did not take into account either the definition of an Exit Sale,

which included the All Securities Clause, or the terms for an Exit Sale, which included the

Equal Treatment Requirements. McAuliffe then described the possibility of a less-than-

whole-company sale under this route as “moot given that all members have received

proceeds in excess of 1.5 times their capital contributions.” McAuliffe in fact was wrong

about that, because the Small Holders had not received sufficient distributions to satisfy

the 1.5x Clause. Regardless, he clearly indicated to Chu that if there had been members

who had not received sufficient distributions, then a less-than-whole-company Exit Sale

would have been possible. For that to happen, he must have been contemplating either the

Leave Behind Interpretation or the availability of a Top Off Option.164

At trial, Hurst testified that Crestview did not negotiate for any changes in the

definition of an Exit Sale or the general requirements for an Exit Sale Right in reliance on

McAuliffe’s statements.165 To rebut McAuliffe’s contemporaneous email, Koch relies on

164
Two years later, McAuliffe would write explicitly that he understood the Exit
Sale Right to permit either the Leave Behind Option or a Top Off, although he did not walk
through the language to explain why. See JX 2144. McAuliffe testified in deposition that
he, Clark, and Parmelee discussed the idea of a Top Off. McAuliffe Dep. 456-57.
165
Hurst Tr. 30-31, 141-43.

49
a post-litigation affidavit from McAuliffe in which he averred that, after he sent the email,

either Clark or Parmelee reminded him that the Small Holders had not yet received

sufficient distributions to meet the 1.5x Clause. He then reached out the next evening to

Chu and corrected his statement.166 The Crestview witnesses dispute this account,167 and

one of Oxbow’s attorneys testified that when he first met McAuliffe in August 2015,

McAuliffe told him that all members had received enough distributions to satisfy the 1.5x

Clause.168 I think it is more likely that McAuliffe did not follow up with Chu and correct

himself.

F. Oxbow Considers Seeking Capital For A Buyout.

During 2014, Koch tried to raise replacement capital to redeem Crestview’s units,

and the Oxbow team began interviewing investment banks to lead a process.169 Also during

2014, Christine O’Donnell emerged as a key player within Oxbow.

In 2011, Koch had hired O’Donnell as a consultant to his family office, Renegade

Management, Inc.170 She performed well and gained Koch’s trust.171 In February 2014,

166
See JX 2967 ¶¶ 14-16 (McAuliffe affidavit).
167
See Hurst Tr. 136-40; Chu Dep. 134-35.
168
Popeo Tr. 1424-25.
169
Koch Tr. 710-11; see, e.g., JX 349; JX 369; JX 409; JX 443; JX 445; JX 489.
170
O’Donnell Dep. 37.
171
See, e.g., JX 346. For example, Koch gave O’Donnell carte blanche on using
Oxbow’s private plane. Compare JX 403 (executives questioning O’Donnell’s private
plane usage) with JX 428 (Koch giving O’Donnell full authority to use private plane).

50
Koch made her a member of the Oxbow Board.172 In August 2014, Koch made her the

CEO of Renegade.173 She also held the positions of President of Family LLC and Vice

President of Oxbow Holdings.174 In these capacities, she had broad responsibility for

overseeing Koch’s personal financial holdings, including Oxbow Holdings’ majority

interest in Oxbow.175

O’Donnell appears to have believed that she could help Koch solve various issues

at Oxbow and in his personal life. She thought that good relations with Crestview were

critical, so she began cultivating Volpert and Hurst.176

Koch continued to worry that Crestview was focusing on its short-term desire for

liquidity to the detriment of Oxbow’s long-term success.177 In September 2014, Koch and

O’Donnell had a dinner meeting with Hurst, Volpert, and Chu during which they discussed

172
PTO ¶ 10.
173
Id.
174
JX 3828 ¶ 3 (O’Donnell affidavit).
175
Id. ¶ 4.
176
See, e.g., JX 424; JX 430; JX 439; JX 450.
177
See, e.g., JX 432-33.

51
Crestview’s desire to exit.178 Afterwards, tensions between Koch and Crestview rose.179

O’Donnell tried to maintain good relations with both sides.180

Another face-to-face meeting took place in November 2014. During the meeting,

Crestview reported that it would extend the life of the fund that had invested in Oxbow and

therefore did not need to exit until 2017 or 2018.181 Koch believed that détente had been

achieved and halted Oxbow’s efforts to hire an investment banker. After the meeting, Koch

sent a detailed email to Volpert and Hurst in which he described the understandings he

believed they had reached.182 Among other points, Koch expressed a desire

to modify the LLC/Put agreement with the current 5 year partial put to be
consistent with your stated possible delay to 2017 or 2018 so that we can
operate efficiently our business to achieve profits and growth without the
constant uncertainty of when to raise and/or save cash for your exit.183

He further noted that “[i]t would also be helpful to both of us to correct much of the

vagueness and contradictions that exist in the current LLC agreement.”184

178
See JX 452; JX 463.
179
See, e.g., JX 463; JX 465-67.
180
See, e.g., JX 466; JX 497-98.
181
See JX 497-98; JX 507; Koch Tr. 714-16.
182
JX 513.
183
Id. at CRESTVIEW000023138.
184
Id.

52
 Crestview, however, did not stand down from its efforts to achieve an exit.

Crestview began actively analyzing the exit provisions of the LLC Agreement.185

Crestview also worked with GSO Capital to generate an actionable term sheet for the

purchase of half of Crestview’s position.186 O’Donnell worked with Crestview and GSO

Capital, believing that a partial sale could help defuse the tensions between Koch and

Crestview.187

G. A Management Crisis Brings Together O’Donnell, Johnson, and Crestview.

In December 2014 and early 2015, a management crisis developed at Oxbow. It was

the second of the year. In April 2014, Fried had resigned from the COO position. Koch

replaced Fried with Eric Johnson.188 Now, Johnson was on the verge of resigning.189

Koch wanted to keep Johnson, but he and Johnson had a poor relationship.190 Koch

asked Hurst, Volpert, and O’Donnell to convince Johnson to stay.191 After an all-hands-on-

deck effort, they succeeded.192 As part of the deal, Koch agreed to increase Johnson’s

185
See JX 500.
186
See JX 501; JX 510; JX 514; JX 517.
187
See, e.g., JX 515-19; JX 521; JX 531.
188
See PTO ¶ 11; Johnson Dep. 299-30; see also, e.g., JX 385; JX 386; JX 389; JX
395.
189
See, e.g., JX 526; JX 534; JX 535.
190
See, e.g., JX 522.
191
See JX 538; Johnson Dep. 305-06; Koch Dep. 432-37.
192
See, e.g., JX 536; JX 543-47; JX 549.

53
salary, give him equity in Oxbow, and promote him to President.193 Johnson felt indebted

to Crestview and told his wife he had a “[m]an crush on [the] Crestview guys.”194

Despite reaching agreement with Johnson, Koch resisted giving up day-to-day

control.195 On January 13, 2015, Koch announced Johnson’s new role as President, while

making clear that he remained in charge as Chairman and CEO.196

Unfortunately, the relationship between Koch and Johnson did not improve.197

O’Donnell had come to respect Johnson, and they became close friends.198 She also

respected Hurst and Volpert, and their working relationship grew closer as well.199 Whether

individually or collectively, O’Donnell, Johnson, Hurst, and Volpert all seem to have

reached the conclusion that Koch was often his own worst enemy and that Oxbow would

be best served if he stepped back, gave up control, and let Johnson lead the Company. 200

193
See PTO ¶ 11; JX 538 (Koch emailing O’Donnell that he told Crestview about
having “offered Eric to be president with doubled salary and a lot of equity”); JX 560
(email announcing Johnson’s promotion “to President and COO”); JX 570 (offer letter);
see also Koch Dep. 431-32.
194
JX 567.
195
See JX 536-38; JX 548.
196
JX 560; see, e.g., JX 550-53; JX 559; JX 561; JX 577.
197
See, e.g., JX 578; JX 584; JX 595; JX 606; JX 614.
198
See, e.g., JX 504; JX 525.
199
See, e.g., JX 590-91; JX 606; JX 608-09.
200
See, e.g., JX 597; JX 606; JX 608; Hurst Tr. 259; Volpert Tr. 477-78.

54
Koch was confronting problems unrelated to Oxbow that demanded his attention, and my

impression is that O’Donnell, Johnson, Hurst, and Volpert believed that taking a step back

would be best for Koch personally as well.201

One path was for the Board to empower Johnson to run Oxbow.202 Another was for

Crestview to purchase enough units from Koch to acquire control.203 A third was to “bring

in a new investor to purchase enough of [Koch’s] shares to give Crestview plus the new

investor a majority interest.”204 Yet another was for Koch to agree to sell the Company.205

None of these options were viable unless Koch agreed,206 so O’Donnell, Johnson,

Hurst, and Volpert set out to convince him. In addition to the potential benefits for the

Company and Koch, the Put loomed as leverage. If exercised, it would bring on a storm,

and that danger might motivate Koch to change course. Recognizing that Koch might view

their efforts as an attack, O’Donnell, Johnson, Hurst, and Volpert kept their discussions

secret.207

201
See Hurst Tr. 315-16.
202
JX 622.
203
See JX 615.
204
JX 622 at CRESTVIEW000015402; see also JX 623.
205
JX 622.
206
See Hurst 217-18.
207
See JX 624.

55
 During January and February 2015, Crestview and O’Donnell quietly explored

possible investments by other private equity firms.208 Crestview took steps to enhance its

relationship with Johnson.209 O’Donnell and Hurst suggested to Koch that he take a brief

leave of absence to attend to personal matters.210 Koch saw these suggestions as an effort

to undermine his control, and his suspicions about Crestview grew.211

H. Koch Tasks O’Donnell With Raising Capital.

In March 2015, Johnson told Volpert that Oxbow could cut nearly $18 million in

annual expenses, largely by eliminating programs that Koch personally valued. 212 Volpert

concluded that Oxbow was spending too much to support Koch’s lifestyle, and he raised

these issues during a March Board meeting.213

Koch felt attacked.214 On March 22, 2015, he responded with a lengthy and

condescending email to Volpert that he sent to the full Board.215 In the midst of it, he

announced that O’Donnell would “start to put together a program” to raise equity financing

208
See JX 629; JX 632: JX 644; JX 646; JX 648.
209
See JX 631; JX 639.
210
See Koch Tr. 719-21.
211
See JX 626.
212
See JX 650.
213
See JX 657.
214
See JX 660; JX 672; JX 675; JX 691; see also JX 663.
215
JX 675.

56
that would provide all investors in Oxbow with liquidity.216 By that time, Koch had learned

about O’Donnell’s interactions with GSO Capital,217 but he did not know the extent of

O’Donnell and Crestview’s approaches to other investors, nor the degree to which

O’Donnell, Johnson, Hurst, and Volpert were working together. He also did not know that

O’Donnell, Johnson, Hurst, and Volpert had concluded that it would best serve Oxbow if

Koch were no longer in control.218

On March 23, 2015, Koch sent another combative email to Volpert in which he

proposed that they “work out a peace agreement” but threatened serious consequences if

they did not:

If you want peace only on your terms HELL will come down on both of us
which will be both a financial and reputational disaster for all of the Oxbow
unit holders. I will point [out] that I have been there before and know many
of the techniques and their consequences. I have shown over and over that I
am willing to accept them. On the other hand I will point out that rationally
it is far better for us to cooperate than to fight. . . .

I know that you have said in a macho matter that you have not thrown your
first punch. Neither have I. However I have been in many more fights than
you with far more nasty, powerful, and clever opponents than you, such as
Koch Industries (for 20 years), the Turkey mafia, the Turkish Government,
the IRS, the MAS RS, a vindictive ex-wife who threw me in jail, the NY
Times, wine counterfeiters, etc., etc., etc. It makes more sense for us to come
to a peace treaty than to dissipate the value we have in Oxbow by fighting.

I am intelligent enough to know from Bob [Hurst’s] numerous conversations
with me, his continued repeated unsolicited advice to me, his secret and
devious maneuvers with Oxbow employees, and you[r] waterboarding

216
Id. at CRESTVIEW000088505; see also Hurst Tr. 32.
217
See JX 662; Koch Tr. 717.
218
See JX 615-17; JX 622; JX 653; JX 665-66; JX 786; JX 794; JX 820.

57
 combined with your actions and behavior at the recent unofficial board
meetings that Crestview has a hidden agenda, which is consistent with PE
firm’s exist [sic] tactics. These tactics have been and are harmful to Oxbow
in spite of some good intentional and unintentional consequences of
Crestview’s waterboarding. Crestview’s motives are very clear. I have told
Bob directly that it appears that Crestview wants me out “dea[d] or alive, but
putting that that label on someone can be very dangerous to the bounty
hunter.”219

The next day, Koch privately sent a mea culpa note to Volpert, which Volpert graciously

acknowledged, but Koch had made his position clear.220 Evidencing her role in the midst

of it all, O’Donnell received and responded to requests from both Koch and Volpert for

feedback on their emails.221

Koch’s decision to put O’Donnell in charge of the financing process enabled her to

meet with investors openly, but Koch wanted O’Donnell to run the financing process

without any involvement from Crestview.222 He viewed Crestview as the other side in a

negotiation, and he did not want them to participate in the financing efforts. Contrary to

Koch’s instructions, O’Donnell and Crestview continued to work together. 223 They

219
JX 691 at Oxbow_00057826.
220
See JX 688; JX 699.
221
See JX 657; JX 660; JX 671-74; JX 676-77; JX 686; JX 694-96; JX 701-02.
222
Koch Tr. 726-28; see also JX 741.
223
See, e.g., JX 719; JX 721; JX 741; JX 763-66; see also JX 690.

58
coordinated their efforts using private email accounts, text messages, and telephone calls,

many of which stressed the need to keep their interactions secret from Koch.224

During the next three months, O’Donnell and Johnson targeted approximately ten

investors.225 They signaled that as part of a transaction, Koch was willing to transition the

CEO role to Johnson and sell enough equity to give up control. Koch had not committed

to do either.226 There is conflicting evidence about whether and how strongly O’Donnell

and Johnson conveyed these messages, and there is reason to think that the investors would

have inquired about CEO succession and control in any event, but I am satisfied that

O’Donnell and Johnson put these points on the table. Both believed that transitioning the

CEO role and having Koch give up control best served Oxbow’s interests and, although

Koch might not perceive it, his interests as well. Those parameters also would enable the

capital raise to generate more proceeds than the sale of a minority interest, which would

make it easier to buy out Crestview and potentially generate some liquidity for Koch

himself. Koch has pointed out that Johnson would benefit personally from taking the CEO

role and that a major capital raise would be a professional feather in O’Donnell’s cap. Both

observations are true, but I believe that at this stage of the process, O’Donnell and Johnson

224
See, e.g., JX 631; JX 741; JX 752; JX 799; JX 807; JX 817; JX 843; JX 845;
O’Donnell Dep. 469.
225
See JX 3772 at CWO85409; see also PTO ¶ 47.
226
See, e.g., JX 897 at TCP_003786 (internal investor presentation suggesting
investor to “control all major decisions”); JX 995 (email from Koch to O’Donnell: “I have
absolutely no interest in the 51% offer.”); Johnson Dep. 409-14; O’Donnell Dep. 552-53.

59
saw a capital raise in which Koch gave up control and the CEO role as the outcome that

served everyone best.227

During March 2015, the first month after Koch instructed O’Donnell to raise capital,

a medical issue sidelined Koch. After his recovery, O’Donnell tried to limit his

involvement with potential investors.228 Koch views her actions as perfidious, but

considerable evidence indicates that Koch was not the best pitch man for Oxbow and that

his presence at meetings dampened investor interest.229 O’Donnell was trying to achieve

an outcome that she believed was best for everyone, and accomplishing that meant

protecting the process from Koch and Koch from himself.

During the process, O’Donnell tried to convince Koch that the right decision for

Oxbow, his family, and himself was to accept a transaction that would involve giving up

control and transitioning the CEO role to Johnson.230 As part of that effort, O’Donnell

depicted candidly for Koch the effects of his spending habits. At one point, she asked

227
Koch contends that Crestview co-opted O’Donnell by suggesting that Oxbow
should pay O’Donnell a success bonus for raising capital and bought Johnson’s loyalty by
supporting an overly rich compensation package for him. Both assertions lead into factual
rabbit warrens that this overly long opinion need not chart. It is possible to empathize with
Koch as a human who feels aggrieved and understand why he drew these inferences and
advanced these arguments, but after parsing through the record, I find that the evidence
does not support Koch’s theories.
228
See, e.g., JX 793; JX 850; JX 880; JX 885; see also JX 899.
229
See, e.g., JX 850; JX 856; see also JX 796 (O’Donnell emailing regarding
problems created by Koch micromanaging confidentiality agreements).
230
See, e.g., JX 768; JX 838; JX 861; JX 901; see also JX 863.

60
Volpert to have Chu assist her in analyzing Koch’s personal finances,231 but after a positive

meeting with Koch, decided she did not need Chu’s help.232 Koch sees the request for Chu’s

help as manipulative and duplicitous,233 but I believe it was part of O’Donnell’s effort to

achieve the outcome that she believed was best for everyone.

As a result of these efforts, Oxbow received term sheets from ArcLight, Energy

Capital Partners, and Trilantic Capital Partners. The ArcLight term sheet contemplated

Koch selling control and Johnson becoming CEO.234 The Energy Capital term sheet

contemplated Koch selling control, and O’Donnell told Koch that Energy Capital wanted

Johnson to become CEO.235 The Trilantic term sheet also contemplated Koch selling down

below 50%.236

231
JX 848.
232
JX 852.
233
See Koch Tr. 741-44.
234
JX 958 at ACP0012544. ArcLight’s representative testified that ArcLight
included these provisions independently and not because of prompting by O’Donnell and
Johnson. See Crosby Dep. 46-49, 63-68, 88-90. This testimony is consistent with
O’Donnell and Johnson signaling that the points were fair to raise and on the table.

JX 959; JX 3254. Energy Capital’s representative testified that they reached their
235

own conclusions about Koch and CEO succession. D’Argenio Dep. 88-90. Again, this
testimony is consistent with O’Donnell and Johnson putting the points on the table.
236
JX 899; JX 998; JX 1308. O’Donnell sent Koch a “short form” version of the
term sheet that omitted the fact that he would be selling down below 50%. JX 899. She
sent both the short-form and the long-form versions to Volpert. JX 998. Trilantic’s
representative testified that O’Donnell and Johnson had not urged them to include the
provision that called for Koch to give up control. See Manning Dep. 116, 138-39. Once
again, this testimony is consistent with softer positioning by O’Donnell and Johnson.

61
I. Koch Hires Mintz Levin And Takes Over The Minority Financing Effort.

Koch did not like any of the term sheets, largely because they endangered his control

over Oxbow.237 Koch asked Pierre Azzi, an in-house lawyer who held roles at both Oxbow

and Oxbow Holdings, to analyze Crestview’s exit rights. Azzi summarized the Exit Sale

Right as follows:

Exit Sale means a transfer of all of the equity of Oxbow to a non-affiliated
buyer in a bona fide arms’ length transaction (e.g., sale, tender or merger).

○ The parties must “mutually agree” on the sale process and terms and
conditions of any resulting Transaction. So Crestview cannot impose the type
of sale.

○ Crestview can require Oxbow to engage an investment bank and
law firm that is mutually acceptable to [Oxbow Holdings], Crestview and
Load Line.

● Note: [Oxbow Holdings] could delay the Exit Sale process
by failing to agree on the sale process, terms, conditions, investment
bank and/or law firm.238

237
See Koch Tr. 729-30 (discussing his desire to retain control); id. at 732-740
(discussing term sheets); Koch Dep. 537 (Q: “You wanted to keep control?” A:
“Absolutely.”). Koch appears to have wanted to achieve a transaction in which he (i) did
not give up control and remained CEO, while (ii) raising enough money from a minority
investment to reduce Crestview’s stake or buy them out completely and receive $100 to
$200 million for himself. See JX 914 at Mintz_0010626. Reasonable minds can debate
whether this outcome was ever achievable. What seems far more likely is that if Koch
wanted to retain control, then to buy out Crestview he would need to go into his own pocket
in addition to raising some outside money. If Koch wanted to buy out Crestview or reduce
their stake and achieve liquidity for himself, then he could not expect to retain control. Cf.
JX 933; JX 941.
238
JX 886 at Oxbow_to_CV_LL0009166.

62
Although Azzi cited the All Securities Clause, he did not try to interpret the 1.5x Clause.

Azzi also prepared a memorandum for Koch analyzing the scope of his authority and rights

under the LLC Agreement.239 Both memoranda seem geared towards protecting Koch’s

interests rather than considering the best interests of Oxbow.

McAuliffe and O’Donnell recommended that Koch retain separate counsel to advise

him personally.240 In May 2015, after considering several firms, Koch accepted

O’Donnell’s recommendation and hired R. Robert Popeo and the law firm of Mintz, Levin,

Cohen, Ferris, Glovsky & Popeo, P.C.241 On Tuesday, May 19, 2015, Popeo and one of his

litigation partners, Bret Leone-Quick, met with O’Donnell.242 She briefed them on the

situation, including Koch’s personal finances, the capital raising effort, and Crestview’s

rights under the LLC Agreement.243 They understood that their primary task was to

evaluate the situation themselves, then meet with Koch to advise him on what was in his

best interests, even if that advice conflicted with his wishes.244 Consistent with Mintz

239
Id. at Oxbow_to_CV_LL0009168-72.
240
See JX 838; JX 869; JX 870.
241
See JX 3759 (email from Azzi advising Ropes & Gray LLP that “Christina
convinced [Koch] to hire Mintz Levin on the personal side. I am hopeful that this will be
to R&G’s benefit in the longer run as . . . Oxbow has not yet retained counsel for the
company . . . .”). Popeo had previously represented Koch in several matters, and they had
a longstanding relationship. See JX 914 at Mintz_0010630.
242
See JX 914; JX 919; Popeo Tr. 1292-93.
243
See JX 914.
244
Id. at Mintz_0010630.

63
Levin’s role as Koch’s personal counsel, the firm’s engagement letter described the firm

as representing Koch and his wife “in connection with your stock ownership of [Oxbow

Holdings], [Oxbow] as well as estate planning matters.”245

Popeo asked Leone-Quick to examine Crestview’s rights under the LLC

Agreement.246 Leone-Quick prepared a summary that made the following observations

about the Exit Sale Right:

○ Members cannot be forced to participate in the sale unless the
proceeds of a sale (and all prior distributions to them) equal at least
1.5 times their aggregate capital contributions.

■ Note: because an Exit Sale must, by definition, result in the
sale of all outstanding securities of Oxbow, it appears that a
single member could block such a sale unless proceeds from
the sale (and all prior distributions) equals at least 1.5 of their
aggregate capital contributions.247

Leone-Quick thus interpreted the 1.5x Clause using the Blocking Theory. His

memorandum did not address whether the members could receive a Top Off to satisfy the

1.5x Clause. He also did not parse the Equal Treatment Requirements to develop the

Highest Amount Theory.

Popeo and Leone-Quick asked Rich Kelly, a partner in Mintz Levin’s corporate

group, and Greg Fine, a partner in the private equity group, to help them analyze the term

245
JX 1045.
246
Popeo Tr. 1293
247
JX 3129 at Mintz_0034059; see also Koch Tr. 755-57.

64
sheets that Oxbow had received.248 They concluded that that the investments would be

disastrous for Koch’s control over Oxbow.249 Koch made clear to Popeo that he did not

want to give up control and wanted to continue as CEO.250

Over the next two weeks, O’Donnell and Crestview worked to promote a transaction

with one of the three private equity firms in which Koch gave up control and Johnson

became CEO.251 After conferring with Mintz Levin, Koch reached the conclusion that

O’Donnell, Johnson, and Crestview were trying to use the capital raise to stage a coup.

Koch felt that O’Donnell had betrayed him,252 but he and Mintz Levin decided “to keep

[her] on the reservation for now.”253

To stop the perceived coup, Koch asserted control over the capital-raising

process.254 In June 2015, Koch advised the Oxbow Board that Crestview had “informed

the Company of its desire to sell its shares and, absent a negotiated sale, it would exercise

248
See JX 920; JX 926; JX 933 at Mintz_0009654-55.
249
See JX 926; JX 933 at Mintz_0009654-55; Popeo Tr. 1299.
250
See JX 933 at Mintz_0009653; see also JX 980 at CWO038470.
251
JX 1013; JX 1035; JX 1062; see also JX 1008-10; JX 1015; JX 1019 at
Mintz_0011804 (describing conversation between Koch, Volpert, and Hurst).
252
See JX 1037 at Oxbow_to_EJ0006715; JX 1049 at Owbow_to_CV_LL0007446;
JX 3785; cf. JX 1020.
253
JX 1059 at Oxbow_to_CWO0004220.
254
See JX 1038; JX 1049; JX 1059.

65
its put.’”255 He asserted that “the interests of Crestview . . . are not consistent with the

Company’s interests.”256 Hurst and Volpert were not pleased by Koch’s actions,257 and they

sent a letter of their own to the Board disputing Koch’s assertions.258

At Popeo’s suggestion, Koch engaged Intrepid Financial Partners to help him

evaluate the term sheets, negotiate with investors, and continue the search for replacement

capital.259 Koch let O’Donnell and Johnson know that they were no longer involved unless

he said otherwise.260 Despite these instructions, O’Donnell and Johnson continued

interacting secretly with Crestview.261 After a long delay, Koch sent a term sheet to

ArcLight that was consistent with his goal of retaining control.262

Crestview did not believe that Intrepid was up to the task of raising minority

capital.263 They argued for bringing in Morgan Stanley to run a “transparent, cooperative

255
JX 1101.
256
Id.
257
See JX 1137 at CRESTVIEW000047307 (Volpert describing Koch as
“pathetic”).
258
JX 1120.
259
Koch Tr. 748-49; see also JX 1065; Popeo Tr. 1309-10.
260
See JX 1084; JX 1089 at Oxbow_00256425; JX 1096; JX 1139.
261
See, e.g., JX 1245; JX 1268; JX 1281; JX 1322; JX 1324; JX 1348; JX 1389; JX
1399; JX 1400; JX 1463; JX 1473; JX 1480-81; JX 1496; JX 1511.
262
JX 1109.
263
Hurst Tr. 33.

66
process.”264 When Morgan Stanley pitched for the business, they advised Koch, Popeo,

O’Donnell, Hurst, and Volpert that if Crestview exercised the Put, it “will get out to the

market and will impact a sale process as bidders will believe there is a potential fire sale.”265

To address Koch’s concern that Crestview might exercise the Put at any moment, Koch,

Crestview, and Load Line entered into the Fourth Amendment to the LLC Agreement. In

that agreement, Crestview committed not to exercise the Put before September 3, 2015,

and Oxbow reduced its time to respond to the Put to 135 days.266

In July 2015, Koch, Freney, O’Donnell, and Popeo had a follow-up meeting with

Morgan Stanley.267 During the meeting, Morgan Stanley argued that Oxbow needed to raise

money immediately. Popeo intervened and disagreed. He explained that the Put had two

major weaknesses. One was that the Small Holders had invested at $300 per unit, so the

Minority Members could not force them to sell unless they received over $400 per unit. He

observed that because of the All Securities Clause, an Exit Sale could not proceed without

the Small Holders. In other words, he described the Blocking Theory.

The other weakness derived from corporate statutory and common law limitations

on stock redemptions, which only permit a corporation to redeem shares if it has both (i)

adequate surplus and (ii) sufficient legally available funds to avoid rendering itself

264
JX 1201.
265
JX 1242; see also JX 1250 at CWO034505; Hurst Tr. 163; Koch Tr. 753-54.
266
JX 1209 at Oxbow_00105743.
267
See Popeo Tr. 1307-08.

67
insolvent. Popeo explained that because of these limitations, Oxbow could accept the Put,

then redeem Crestview and Load Line’s equity slowly over time, to the extent it had the

financial capacity to do so. Popeo described this theory as the “Thoughtworks strategy.”268

After the meeting, Koch began telling people, including McAuliffe, that the Put was

defective.269

Volpert heard from O’Donnell about the Blocking Theory and the Thoughtworks

strategy.270 On August 18, 2015, Volpert met with Popeo. Anticipating that Popeo would

raise the Blocking Theory, Volpert led with the Leave Behind Theory.271 Popeo chose not

to get into a legal debate and did not respond. After the meeting, Crestview began

investigating the facts surrounding the Small Holders’ investment and contacted litigation

counsel at Quinn Emmanuel Urquhart & Sullivan LLP.272 Crestview began analyzing a

Top Off as another way to defeat the Blocking Theory.273 Internally, Quinn Emmanuel

268
See Koch Tr. 758-62 (describing meeting); id. at 777 (explaining his
understanding of the Thoughtworks strategy); Popeo Tr. 1308-09, 1311; see also JX 1284;
JX 1329. Popeo also had a call with Johnson during which he explained the Blocking
Theory. See Popeo Tr. 1312-13.
269
See JX 1296.
270
See JX 1243; JX 1270; Volpert Tr. 414.
271
See Volpert Tr. 415-16, 539-40; Popeo Tr. 1403-04, 1437-38.
272
See JX 1280; JX 1286-93; JX 1299.
273
See JX 1398.

68
attorneys debated whether the language of the Exit Sale Right permitted the Leave Behind

Option, supported the Blocking Theory, or permitted a Top Off.274

Meanwhile, Koch had continued negotiating with ArcLight and Trilantic, but it

became increasingly clear that an agreement would not be reached.275 Mintz Levin’s

assignment shifted towards efforts to “stop Crestview from exercising the Put . . . or having

an Exit Sale.”276 Mintz Levin began search for additional ways to “delay the payment of

the Put in order to have negotiating leverage”277 and to create “serious deadlock in the put

process.”278 Koch and Mintz Levin modified the firm’s engagement letter so that Mintz

Levin represented Oxbow.279

Effective as of September 3, 2015, Oxbow and Crestview entered into the Fifth

Amendment to the LLC Agreement, which extended the date for exercising the Put until

September 17. In exchange, Oxbow reduced its time to respond to the Put to 121 days.280

Effective as of September 21, Oxbow and Crestview entered into the Sixth Amendment to

274
See JX 1385 at QE0017537; JX 1394 at QE00017463, QE00017471; JX 1396-
98; see also JX 1672.
275
See JX 1302; JX 1304; JX 1341; JX 1357; Hurst Tr. 34-35.
276
Popeo Tr. 1420-21.
277
JX 1160.
278
JX 1362.
279
JX 1311.
280
See JX 1423.

69
the LLC Agreement, which extended the date for exercising the Put until September 28. In

exchange, Oxbow reduced its time to respond to 113 days.281 In conjunction with these

amendments, Oxbow and Crestview tried to reach a compromise. Those efforts failed.

J. Crestview Exercises The Put Right.

On September 28, 2015, Crestview exercised the Put and demanded that Oxbow

purchase all of its units.282 Load Line did the same.283 Under the Sixth Amendment, Oxbow

had until January 19, 2016 to acquire the Minority Members’ units. Otherwise, Crestview

could exercise the Exit Sale Right.284

Attached to Crestview’s exercise notice was a valuation prepared by Duff & Phelps,

LLC, that appraised the Company’s Fair Market Value at $256.56 per unit. Under Article

XIII, Section 8(b) of the LLC Agreement, the next step was for Oxbow Holdings to retain

an investment bank of its own and have that bank generate an opinion as to Fair Market

Value. If the two valuations were within 10% of each other, then Fair Market Value for

purposes of the Put Right would be the average of the two. If the two valuations differed

by more than 10%, then the two banks would select a third bank, and Fair Market Value

281
See JX 1504.
282
JX1536.
283
JX1534.
284
See Sixth Am.

70
would be the median of the three valuations.285 Oxbow Holdings retained Evercore Group

L.L.C.

Shortly before the exercise of the Put, Oxbow had interviewed Goldman, Morgan

Stanley, and Perella Weinberg Partners L.P. as potential financial advisors to raise capital

to satisfy the Put.286 In October 2015, Oxbow retained Goldman. The evidence suggests

that Crestview preferred Goldman over the other banks, which is not surprising given that

Hurst and Volpert spent decades at Goldman before founding Crestview. 287 Goldman

began the process of preparing an updated confidential information memorandum and

reaching out to potential investors. My overall impression is that Goldman executed a

professional and independent process under difficult circumstances.

Mintz Levin continued their efforts to brainstorm defenses to the Put Right. They

focused primarily on the Thoughtworks strategy288 but also developed other potential

arguments.289 McAuliffe and Clark, the two senior members of Oxbow’s legal department,

285
LLCA art. XIII, § 8(b).
286
See JX 1702.
287
See JX 1537; JX 1557. Michael Carr was the lead banker for the Goldman
engagement, and he had invested in a later Crestview fund through a trust for his daughters.
Carr Dep. 289. Crestview Fund III, in which the trust invested, did not own any equity in
Oxbow, which was owned by Crestview Fund I. Id. Carr disclosed the investment during
his first interview about the project. Id. Koch has not shown that the investment was
material to Carr. More importantly, there is no evidence that it affected any action that he
or Goldman took.
288
See, e.g., JX 1566 at MINTZ_0011723; Popeo Tr. 1436-39.
289
See, e.g., JX 1568; JX 4341.

71
disagreed with the Thoughtworks strategy. They consulted with outside counsel290 and

prepared memoranda calling into question the Thoughtworks strategy.291

Koch hired Ropes & Gray LLP as his personal counsel.292 They began

brainstorming defenses to the Put Right.293

Quinn Emmanuel analyzed the Put Right and Exit Sale Right for Crestview. In an

internal memorandum, a Quinn Emmanuel attorney concluded that

[t]he plain language of the contract is arguably ambiguous. On the one hand,
Section 8(e)(A) uses the words “other Member” suggesting that the
Exercising Put Party can require some Members to engage in an Exit Sale
depending on whether the 150% return requirement is satisfied. This
language suggests that the failure of some Members to earn a 150% return
prevents the Exercising Put Party from requiring such members to engage in
an Exit Sale but does not prevent the Exit Sale as to other Members.
However, on the other hand, Exit Sale is defined under the contract as a
Transfer of all, but not less than all, of the then-outstanding Equity
Securities of the Company and/or all of the assets of the Company. This
language could be relied on to suggest that unless all Members receive a
150% return, the Exit Sale cannot occur. 294

The Quinn Emmanuel attorney argued for the Leave Behind Interpretation, explaining that

the small percentage interest owned by the Small Holders counseled in favor of interpreting

the 1.5x Clause limiting Crestview’s ability to compel the Small Holders to sell, “but it

290
See JX 1447-48; JX 1517; JX 1612; JX 1639; JX 1683.
291
See JX 1427; JX 1683; McAuliffe Dep. 61-70.
292
Koch Tr. 905.
293
See, e.g., JX 1753.
294
JX 1656 at QE00018897.

72
should not be interpreted as giving these minority members the extraordinary right to block

the entire sale and thereby affect the rights and obligations of all other members.” 295 The

attorney suggested a Top Off as a solution: “Perhaps one option would be to offer the

[Small Holders] additional consideration in exchange for their agreement to participate in

the Exit Sale.”296 The attorney did not analyze the Equal Treatment Requirements.

In November 2015, Mintz Levin prepared a slide deck to present to Oxbow

Holdings’ appointees to the Oxbow Board. The deck analyzed the structure of the Put Right

and presented various options that the Company had available.297 It noted that Oxbow’s

preferred outcome was to raise sufficient financing to redeem all of Crestview and Load

Line’s units.298 It then discussed three principal alternatives available to the Company.

One option was to negotiate a reduced redemption amount. Mintz Levin thought

Oxbow had the leverage to achieve a reduction because “the Put Right does not provide

Crestview with as clear a path to full liquidity as it claims.”299 Another option was to reject

or ignore the Put, permit Crestview to exercise its Exit Sale Right, then dispute the validity

of an Exit Sale based on the Blocking Theory. A third option was the Thoughtworks

295
Id. at QE00018897-98.
296
Id. at QE00018898.
297
JX 1735.
298
Id. at 17.
299
Id. at 18.

73
strategy, in which the Company would accept the Put, then take the positon that it only had

the capacity to redeem units periodically over time.

The bulk of the presentation described the Thoughtworks strategy.300 Significant

portions of the presentation addressed the Blocking Theory. For example, the presentation

described the following “potential legal argument” under the Exit Sale Provision:

 Under the Agreement, an Exit Sale cannot occur without all members
selling their units.

 In other words, an Exit Sale requires that no member be left behind.

 Under the Exit Sale Provision . . . , any member can refuse to
participate in an Exit Sale if the proceeds of the sale (along with prior
distributions) do not “equal at least 1.5 times such Member’s
aggregate Capital Contributions . . . .”

 If any such member refuses to participate pursuant to this provision,
then by definition, an Exit Sale cannot occur.301

The presentation noted that “[i]t appears that at least one investor, [Family LLC], would

have the ability to block any Exit Sale based on the current Duff & Phelps valuation.”302

Later, another slide revisited the Blocking Theory, asking “Can [Family LLC] hold up an

Exit Sale?”303 The presentation did not discuss the Equal Treatment Requirements, and it

did not develop the Highest Amount Theory.

300
See id. at 23-50.
301
Id. at 20-21.
302
Id. at 22.
303
Id. at 53. Popeo testified that Mintz Levin had not yet analyzed whether
Executive LLC was in the same position. See Popeo Tr. 1335.

74
 Koch’s notes from the November 2015 meeting indicate that Mintz Levin advised

the Board members that a Top Off provided a viable path around a Blocking Option. Koch

wrote that, “[n]ot all [Members were] at 1.5x” because Family LLC had “not received

anything” and that “[s]ome[one] has to come up with cash for [Family LLC delta].”304 This

interpretation comports with how Mintz Levin’s corporate lawyers interpreted the 1.5x

Clause. Kelly had questioned from the outset whether the 1.5x Clause could “halt the train

if Crestview and Load Line are willing to divert transaction proceeds to any small holder

who would not otherwise receive the minimum.”305

Koch’s advisors suggested other ways to defeat the Put, including by going public

through an initial public offering or by merging with a public shell company.306 Under the

LLC Agreement, the Minority Members could not exercise the Put if Oxbow was publicly

traded. Koch did not want to go public but was willing to consider it if it blocked the Put.307

Evercore advised that there was not time to conduct an initial public offering.308

Koch’s advisors developed these theories because they believed that that if the 1.5x

Clause was read to create a Blocking Option, then Crestview could satisfy the 1.5x Clause

304
JX 3199 Oxbow_00366479; see also Koch Tr. 977-978.
305
JX 1725 at Mintz_0015902; Popeo Tr. 1462.
306
See JX 1716; JX 1719; JX 1721.
307
See JX 1721 at GS-Oxbow-Crestview_00031668.
308
JX 1730.

75
a Top Off. They did not believe that the Blocking Theory was a showstopper, so they

needed other ways to defeat the Put.

In late November 2015, Evercore determined that the Fair Market Value of Oxbow

was $145 per unit, dramatically lower than Duff & Phelps’ valuation of $256.56 per unit.309

Because the valuations differed by more than 10%, the bankers had to pick a third banker.

They selected Moelis.

K. The Results of the Goldman-Led Process

In December 2015, bids arrived from interested investors. None of the values

exceeded $120 per unit for a minority stake, and several offers fell below $100 per unit.310

ArcLight offered approximately $115 per unit.311

There is evidence that Crestview sought to influence the financing process so that

the efforts to raise capital would not succeed and an Exit Sale would become more likely.312

Crestview perceived that if an Exit Sale took place, it might be able to roll over part of its

interest or co-invest with the buyer. This would allow Crestview to continue to own what

it regarded as a highly profitable business, but without the headaches of dealing with Koch.

In backchannel discussions with Goldman, Volpert observed that “the minority sale is

309
See JX 1786.
310
See JX 1845.
311
See id. at Oxbow_00060761-64; see also Carr Dep. 69-71; Crosby Dep. 109-13.
312
See Popeo Tr. 1349-51.

76
really hard and this likely results in a wholeco sale.” 313 He later told Goldman that the

assignment was “really [Crestview’s] to allocate,” because the Put would likely lead to an

Exit Sale that he felt Crestview would have the right to control.314 One week before the

deadline for bids, Volpert was “encouraging” Goldman to have bidders “hang around”

because Crestview “would roll a good chunk of [its] stake into a control deal run by one

of” the bidders.315 During the process, Hurst and O’Donnell secretly met with Trilantic,316

O’Donnell and Johnson had a private dinner meeting with ArcLight,317 and O’Donnell and

Johnson continued to communicate secretly with Crestview.318

L. Oxbow Rejects The Put.

On January 14, 2016, Moelis advised Oxbow Holdings and Crestview that in its

opinion, the enterprise value of the Company was $2.65 billion, which equated to a value

of $169 per unit.319 As the median of the three investment banker valuations, this figure

established Fair Market Value for purposes of the Put Right.

313
JX 1557 at GS-Oxbow-Crestview_00035662.
314
JX 1565 at GS-Oxbow-Crestview_00006853.
315
JX1808 at GS-Oxbow-Crestview_00050155; see also JX 1760 at
QSPCFLP00001460 (executives within Soros Fund Management, LLC speculating on
whether the Oxbow deal was “a test case for a GP wanting to roll their carry and stay on”).
316
JX 1941; see also JX 1787.
317
See JX 1792-93; JX 1803.
318
See JX 1797; JX 1809; JX 1872.
319
JX 2057 (valuation letter); see also JX 2056 (supporting presentation materials).

77
 On January 15, 2016, the directors appointed by Oxbow Holdings met for the first

of two sessions to discuss whether to accept or reject the Put. They focused on the possible

deployment of the Thoughtworks strategy. Popeo made a passing reference to the Blocking

Theory.320 I believe he did not emphasize it because Mintz Levin thought that even if the

1.5x Clause gave rise to a Blocking Option, Crestview could use a Top Off to bypass it.

Contemporaneous communications support this view. On January 16, 2016, Kelly

wrote to Popeo to recommend against the Thoughtworks strategy. He believed that Oxbow

did not need to take that aggressive step because the Minority Members would not be able

to find a buyer who would pay Fair Market Value. Kelly based his recommendation “on

the assumption that the declining value of Oxbow versus FMV of $169/unit precludes an

Exit Sale under Article XIII, Section 8(e),” but he warned that “[i]f that premise is wrong,

[Koch] could end up an involuntary seller . . . [and he] will need to be OK if, however

unlikely, he sells the Company at $169/unit through the Exit Sale.”321 Kelly thought that

the Minority Members could force Koch to sell because, if a buyer existed, the Small

Holders could be topped off.

On January 17, 2016, Leone-Quick circulated a memorandum describing strategies

for defeating an Exit Sale. One was to “[s]tipulate to higher Fair Market Value (Crestview’s

320
Popeo Tr. 1347-48; see also JX 3192 at DEF_EPJ0021941.
321
JX 2094 at Mintz_0022835.

78
original mark of $190)” in order to “[d]ecrease[] the chances of a successful Exit Sale.”322

Leone-Quick’s memorandum suggests that he shared Kelly’s view about the viability of a

Top Off. If Leone-Quick had believed at this point in the Highest Amount Theory, then an

Exit Sale would have to generate enough proceeds to yield $414 per unit. Stipulating to

Crestview’s original mark of $190 would make no difference.323

On January 18, 2016, Ropes & Gray drafted a memorandum outlining ways to

defeat an Exit Sale, including taking the Company public through a merger with a special

purpose acquisition company (“SPAC”).324 Popeo testified that he already had shared the

Highest Amount Theory with Ropes & Gray,325 but their memorandum did not mention it.

On January 19, 2016, the directors appointed by Oxbow Holdings met for a second

session on the Put. No one discussed the Blocking Theory, much less the Highest Amount

Theory.326 The directors decided unanimously to reject the Put.327 Koch ended the meeting

322
JX 2092 at Mintz_0027893.
323
See Popeo Tr. 1472-73.
324
JX 2137 at CWO_022144.
325
Popeo Tr. 1509-10.
326
Koch Tr. 1081-82; Popeo Tr. 1475; Parmelee Dep. 56-57; McAuliffe Dep. 344-
46.
327
JX 2079 at Oxbow_00362782.

79
by demanding that Oxbow and its counsel work to “obstruct [and] derail” or “delay” the

Exit Sale process.328

Shortly after the meeting, Koch asked Ropes & Gray and Mintz Levin to “[d]evise

a lawsuit” or “devise something on [the Exit Sale]” to avoid having to sell the Company.329

Each firm analyzed various options, collectively identifying over a dozen different

strategies. Neither firm discussed the Highest Amount Theory.330

M. Crestview Exercises The Exit Sale Right.

On January 20, 2016, Crestview exercised the Exit Sale Right.331 At the time,

McAuliffe and Parmelee both believed that the 1.5x Clause could be addressed with either

a Top Off or by leaving the Small Holders behind. On January 21, Parmelee emailed

McAuliffe to confirm that approximately $28 million was the amount necessary “to top up

the two holders that wouldn’t yet be at 1.5x.”332 McAuliffe replied: “Or they stay in new

entity as shareholders. All members have obligation to support exit sale and vote for it, but

328
JX2068 at DEF-EPJ_00021726.
329
Koch Tr. 1085-86; see also JX2224 at Mintz_0005152.
330
See JX 2092; JX 2137; JX 2262; JX 2276.
331
PTO ¶ 68; JX 2125.
332
JX 2144.

80
their interests can’t be sold to buyer absent the 1.5 x figure. At least, that is how I am

reading it.”333

On January 28, 2016, Koch and David Rosow, a director appointed by Oxbow

Holdings, met with Volpert and Hurst. Rosow told Crestview, in Koch’s presence, that

Crestview “had to reach a minimum of $169 [per unit].”334 Koch did not disagree or raise

the Highest Amount Theory.335 Koch testified that during January and February 2016, he

“participated in discussions about the topic of a top off payment” and that he did not

“remember anyone telling [him] in January or February that a top-off payment was

prohibited under the LLC Agreement.”336

On February 18, 2016, Parmelee asked Kelly whether the Small Holders could be

“paid $414 per unit from the consideration paid, while other unit holders receive

substantially less than that on a per unit basis.”337 Parmelee was anticipating a Top Off,

and he wanted to know “the mechanics of dividing up the cash consideration in a way that

333
Id. But see JX 353 (McAuliffe describing Exit Sale Right and stating, “As I
understand it, the drag along right currently allows Crestview to either (1) take the whole
company public or (2) have the whole company bought by a strategic buyer, correct?”).
334
JX 2201 at Oxbow_00244123.
335
Volpert Tr. 427-28; Koch Tr. 1122-25.
336
Koch Tr. 1119-20.
337
JX 2279 at Oxbow_00355641.

81
[the Small Holders] get to 1.5x and the other members share what’s left.”338 Kelly deferred,

proposing to “discuss sometime soon.”339

Although Kelly did not answer Parmelee directly, the record reflects that Mintz

Levin believed during this period that Crestview could satisfy the 1.5x Clause using a Top

Off. Popeo wrote in his notes that “Crestview must net $169 after Investment Bank fee—

pay out to [Family LLC] . . . . Calculate amount due [Family LLC] & others re: sale.”340

Popeo was expecting a Top Off.341

Kelly and Eric Macaux, an associate in Mintz Levin’s corporate department, thought

that the Small Holders could be left behind or taken care of with a Top Off. Macaux

explained his reasoning in an email dated February 25, 2016:

There are two possible readings of [Section 8(e)]: (1) that a Member can opt
not to participate in [an] Exit Sale, which would go forward without
him/her/it, or (2) that a Member could block the Exit Sale entirely. Section
8(e) does not say that the Exit Sale cannot proceed, only that the Exercising
Put Party may not compel a Member to participate unless the 1.5x multiple
is reached for that Member. That is, Section 8(e) acts as an exception to the
definition of an Exit Sale.342

Macaux elaborated on this analysis in a memorandum dated February 26, 2016, in which

he concluded that “[a]ny Member not receiving at least 1.5x its aggregate Capital

338
Id.
339
Id.
340
JX 2263 at Mintz_0027292-93.
341
JX 2263 at Mintz_0027292-93; see also Popeo Tr. 1484-87.
342
JX 2319.

82
Contributions from the Exit Sale (when combined with all prior distributions) can remain

in the Company but cannot block the Exit Sale.”343 He reasoned that,

Unlike the Fair Market Value requirement, the 1.5x threshold is not drafted
as a condition to conducting the Exit Sale. Instead, it is included in Section
8(e) as a proviso, suggesting that the 1.5x threshold is a specific requirement
intended to modify the general requirement that an Exit Sale be a sale of “all,
but not less than all” of the equity securities.344

Consequently, he believed that a member failing the 1.5x Clause would have a choice: the

member could waive the requirement and participate or “opt out of the Exit Sale and remain

a Member of the Company.”345 His memorandum acknowledged that this analysis did not

work if the Exit Sale was accomplished as a sale of assets, which would not provide an

equivalent ability to opt out. He suggested that, in that setting, the member might have an

implied right to block distributions until the 1.5x Clause was met, effectively resulting in

a Waterfall Top Off.346 Macaux’s memorandum did not analyze the Equal Treatment

Requirements.

Kelly held the same view. He noted in an email dated March 1, 2016, that Popeo

and Macaux already knew his opinion, which was “that the proviso that says unit holders

can’t be forced into an Exit Sale does not . . . enable them or anyone else to block an

otherwise agreed to Exit Sale from happening because they don’t get their catch-up

343
JX 2327 at Mintz_0022186.
344
Id. at Mintz_0022187.
345
Id.
346
Id.

83
payments.”347 He believed that Crestview could pay the Small Holders additional amounts

to satisfy the 1.5x Clause—a Seller Top Off.348 Kelly recognized that the Exit Sale Right

contained language that cut against this interpretation, such as the All Securities Clause

and the language in Article XIII, Section 8(f) that spoke in terms of all unitholders selling

in an Exit Sale, but he did not view language as strong enough to prevent an Exit Sale.349

At this point, Kelly had not yet focused on the Equal Treatment Requirements.

N. Oxbow Hires Goldman To Conduct A Full-Company Sale.

The Exit Sale Right provided that at the request of the exercising party, “the

Company shall engage a nationally recognized investment banking firm mutually

acceptable to Crestview, Load Line and [Oxbow Holdings] to initiate a process for the

orderly sale of the Company, as well as one law firm for the Company mutually acceptable

to Crestview, Load Line and [Oxbow Holdings].”350 Crestview wanted Oxbow to retain

Goldman. Crestview did not have a strong preference for any particular law firm.

Behind the scenes, Hurst, Volpert, Johnson, and O’Donnell conferred about how

best to convince Koch to retain Goldman. On January 22, 2016, Johnson suggested points

for Hurst to include in an email to Koch concerning the benefits of retaining Goldman, but

cautioned, “[o]bviously you don’t want to oversell those points as Goldman needs to feel

347
JX 2331 at Mintz_0025820.
348
Id.
349
Id.
350
LLCA art. XIII, § 8(f).

84
like his choice.”351 After speaking with O’Donnell for forty-five minutes, Volpert offered

Hurst some suggestions of his own.352

By this point, Koch had sidelined O’Donnell and repeatedly criticized her. Six

months earlier, she had wanted to achieve a solution that would be best for everyone,

including Koch. Now, she despised Koch. On January 23, 2016, O’Donnell vented in an

email to Johnson:

Let’s take his company from him quickly, not a day of relief, put him through
the hell he put us through, let’s find $30 million of cost savings if he’s not
running it. Let’s make it very personal, just like he did.

Let’s remind him we know things about him as well. Let’s take his plane, his
job, and when it’s over let’s drink his wine before you take me dancing.353

She texted Johnson that she “want[ed] [Koch] out with no office and no place to go.”354

To achieve that outcome, Johnson and O’Donnell suggested that Crestview adopt

“the ambush approach.”355 Under this strategy, Crestview would act “as though they have

351
JX 2148.
352
JX 2153.
353
JX 2154.
354
JX 3192 at DEF-EPJ0021942. Koch argues that these communications show
O’Donnell’s true motivations from the outset, but I disagree. I believe her feelings toward
Koch soured during the months following June 2015, when Koch took over the capital
raising process after concluding that O’Donnell was working with Crestview and Johnson
to attempt a coup. By the time her motives turned aggressively hostile, she was not in a
position to do anything meaningful to hurt Koch.
355
JX 2168 at CWO044025.

85
zero interest to sell or change anything this year.”356 Crestview would be “very subtle” by

“creating the illusion that Goldman Sachs is not favored by Crestview, doesn’t want to go

to market for a year and will be the only firm that can protect all the company’s deep dark

confidential data.”357 Then, as soon as Oxbow hired Goldman, Crestview would “turn on

a dime and sell hard.”358 Johnson and O’Donnell believed that it would be easy to outsmart

Koch by following this strategy.359

On February 10, 2016, the Oxbow Board met. Koch reported on a recommendation

from Goldman to have “a three- to six-month pause in the marketing effort” for an Exit

Sale.360 The minutes recite that Hurst, Volpert, and Coumantaros “agreed in principle with

the recommended three- to six-month pause.”361 The minutes state that “it was the

consensus of the Board to proceed with the negotiation of an engagement letter with

Goldman Sachs.”362

356
Id.
357
Id. at CWO044026.
358
Id. at CWO044025; accord id. at CWO44025 (“Once Goldman Sachs is on
board, the gloves come off.”).
359
See JX 2208; see also JX 2159; JX 2165- 69; JX 2171; JX 2193.
360
JX 2076 at Oxbow_00197059; see also JX 2250 at Oxbow_00091028 (Goldman
presentation: “we would expect at least a 3-6 month period before markets regain their
footing based on current conditions”).
361
JX 2076 at Oxbow_00197059.
362
Id.

86
 The directors next discussed Crestview’s right to have the Company retain legal

counsel to handle the Exit Sale. Koch “indicated that he felt it was premature to engage a

law firm, given the recommended pause.”363 Hurst, Volpert, and Coumantaros argued for

accelerating the engagement of a law firm.364

After the meeting, Mintz Levin engaged in discussions with Goldman over its

engagement letter. Both Koch and Crestview wanted non-customary terms that Goldman

resisted.365 For present purposes, it is significant that the discussions over Goldman’s fee

reflected a belief that Crestview could satisfy the 1.5x Clause with a Top Off. On February

23, 2016, for example, Kelly sent an email discussing Goldman’s potential engagement to

conduct “an Exit Sale under Article XIII, Section 8(e) and (f), of the operating agreement,

and not any general engagement to sell all or parts of Oxbow.” 366 Kelly advised Koch,

Clark, Parmelee, and Popeo that he had revised the engagement so that “Goldman’s fee

increases as a percentage of per Unit value received above a threshold of $190/Unit.”367 He

chose this figure to

cover without broadcasting it at this time that the sale price will need to be
above $169/Unit in order for holders of Units to net at least $169/Unit as is

363
Id.
364
Id.
365
See JX 2363 (Kelly describing Goldman’s objections to terms); see also JX 2315.
366
JX 2304 at Oxbow_00351545.
367
Id.

87
 required for such an Exit Sale (not to mention the extra amounts needed to
assure all holder[s] will get at least 1.5 times their respective investments).368

Kelly envisioned a Top Off.

A month later, the discussions with Goldman were still ongoing. On March 24,

2016, Goldman agreed to an engagement letter with a lower threshold that nevertheless

accounted for a “true up with an enterprise value figure that reflects the unit holders’

receiving the $169 per unit FMV as a minimum to be received by them at the end of the

day.”369 The final terms of Goldman’s engagement letter thus accommodated a Top Off.

O. Crestview Solicits An Offer From ArcLight.

To be prepared to “sell hard”370 once Oxbow retained Goldman, Hurst, Volpert,

Johnson, and O’Donnell began working to find a buyer. O’Donnell sent Crestview the list

of investors that had signed confidentiality agreements with the Company. 371 A few days

later, O’Donnell met secretly with Kevin Crosby, a managing director with ArcLight.372

After the meeting, O’Donnell reported back to Volpert.373

368
Id.
369
JX at 2493 Mintz_0017701.
370
JX 2168 at CWO044025.
371
See JX 2113.
372
See JX 2121; JX 2141.
373
See JX 2153; see also Volpert Tr. 580-83.

88
 On February 1, 2016, Koch fired O’Donnell and removed her from the Oxbow

Board.374 Koch also fired McAuliffe.375 He promoted Clark to General Counsel.

O’Donnell continued helping Crestview. On February 21, 2016, she set up a meeting

between Crosby and Volpert.376 She also sent Crestview a copy of the confidentiality

agreement between Oxbow and ArcLight so that Crestview could evaluate what it could

tell ArcLight about Oxbow.377

Internally, Crestview modeled a leveraged buyout of Oxbow that contemplated

satisfying the FMV Clause by paying a total enterprise value of $2.355 billion, with

Crestview rolling a significant portion of its equity into the new ownership structure.378

Crestview developed its model by working backwards from the Fair Market Value figure

of $169 per unit.379 On February 24, 2016, Volpert sent the analysis to Crestview’s co-

investor in Oxbow, GSO Capital, and disclosed that the model incorporated the valuation

from “the Moelis appraisal.”380

374
PTO ¶ 70; JX 2207; JX 2209.
375
PTO ¶ 71; JX 2212.
376
See JX 2293; JX 2325.
377
See JX 2313; JX 2316. Quinn Emanuel reviewed the agreement and “looked into
the questions [Volpert] raised regarding the potential meeting with Arc Light.” JX 2322 at
QE00019722.
378
JX 2298.
379
See JX 2292.
380
JX 2308.

89
 On February 26, 2016, Volpert met with Crosby.381 On March 2, Crosby submitted

a report to ArcLight’s investment committee that proposed a transaction in which ArcLight

would acquire approximately 80% of Oxbow’s equity and offer existing investors the

opportunity to roll over a portion of their proceeds. His memorandum noted that Crestview

had exercised its Put Right and stated: “While the target valuation is unknown, we believe

there may be an opportunity to pre-empt a broad sale process and acquire the Company at

a [total economic value] of $2.4 billion.”382

Volpert had a follow-up call with Crosby on March 7, 2016.383 Afterwards, a

Crestview analyst provided Volpert with different per-unit prices for Oxbow based on an

enterprise valuation of $2.4 billion.384

On March 9, 2016, Hurst asked Koch for the current unit count.385 Crestview and

ArcLight needed the count to confirm whether an offer at an enterprise value of $2.4 billion

would clear the FMV Clause. On March 15, the day after Koch provided the unit count,

381
JX 2325; JX 2332 at ACP0010811; Volpert Tr. 589-90; Crosby Dep. 121-22.
382
JX 2332 at ACP0010811.
383
JX 2347.
384
JX 2531.
385
JX 2368.

90
ArcLight sent a proposed letter of intent to Crestview.386 Crestview reviewed it, and

Volpert and Crosby had a call to discuss it.387

On March 16, 2016, ArcLight sent Oxbow Holdings, Crestview, and Load Line a

letter of intent to acquire 100% of Oxbow’s equity “for $1,448,990,000 or $176.59 per

unit.”388 The per unit figure exceeded the Fair Market Value hurdle of $169 per unit,

satisfying the FMV Clause. ArcLight’s proposal achieved this result by excluding unvested

units, resulting in a lower number of outstanding units than Moelis had used when

calculating the per unit figure for Fair Market Value. Including debt, the letter of intent

contemplated an enterprise value for Oxbow of $2,399,990,000, or $10,000 less than the

$2.4 billion reflected in the ArcLight and Crestview documents.389 The offer expired at

5:00 p.m. on March 22.390

P. The Initial Response To ArcLight’s Letter of Intent

ArcLight’s offer surprised Koch and his advisors, because they had not believed

that anyone would make a proposal that satisfied the FMV Clause.391 They immediately

began analyzing the offer to determine whether it really had cleared the threshold.

386
See id. (unit count information arrives on March 14); JX 2375.
387
See JX 2377.
388
JX 2379 at CRESTVIEW000016097.
389
Id. at CRESTVIEW000016097-98.
390
Id. at CRESTVIEW00016099.
391
Popeo Tr. 1366-67; see also JX 2085.

91
 One question was whether ArcLight’s proposal satisfied the FMV Clause after

making the deductions that Koch and his advisors believed were required before

determining a per unit value. Freney had joined Oxbow as an executive in the years since

he brokered the original 2007 transaction with the Minority Members, and he analyzed the

payment waterfall for Koch.392 In an email dated March 17, 2016, Freney circulated an

analysis that deducted $27.9 million as the “[a]mount required to achieve minimum 1.5x

aggregate capital contribution for all unitholders.”393 Freney circulated a series of these

analyses during March 2016, all of which deducted $27.9 million as the amount “required

to achieve 1.5x” for the Small Holders.394 Freney testified that he was trying to provide “an

accurate assessment of [the ArcLight] offer” by treating the 1.5x Clause as calling for a

Waterfall Top Off.395 No one disagreed with this aspect of his analysis.

Because ArcLight’s offer contemplated an Exit Sale at the unitholder level,

ArcLight had addressed its letter to Oxbow Holdings, Crestview, and Load Line. On March

18, 2016, Koch emailed Crestview and Load Line that, based on his reading of ArcLight’s

proposal, it was “below the required Fair Market Value . . . after all required deductions

392
Koch Tr. 878-79.
393
JX 2394 at Oxbow_GS_to_CV_LL_00000343.
394
See, e.g., JX 2405 at Oxbow_00252217; JX 2407 at Oxbow_00252386; JX 2416
at Oxbow_00026709; JX 2419 at Oxbow_00252451.
395
Freney Dep. 74-75.

92
are made.”396 Koch said that he would be consulting with Oxbow, its counsel, and its

financial advisor.397

Popeo believed that Oxbow might be able to resist the Exit Sale if Goldman advised

the Oxbow Board that it was possible to secure a better offer for the Company, at which

point the directors could take the position that their fiduciary duties required them to seek

out a better offer, notwithstanding the Exit Sale Right. In an email dated March 18, 2016,

Popeo told Koch that if Goldman said the ArcLight bid was an “amazing offer,” then

Oxbow was “dead in the water.”398 His statement was consistent with using a Top Off to

take care of the Small Holders.

Over the next several days, Koch and his advisors continued analyzing whether

ArcLight’s offer still satisfied the FMV Clause even after deducting “transaction specific

adjustments,” including a Waterfall Top Off payment of $27.9 million.399 Koch provided

the analyses to Goldman.400 Goldman understood that the $27.9 million deduction

represented “the [C]ompany’s interpretation” of the 1.5x Clause.401

396
JX 2404.
397
Id.
398
JX 2422 at Oxbow_to_EJ0028393.
399
See, e.g., JX 2451 at Oxbow_to_EJ0018870; JX 2463 at Oxbow_00247068-69;
see also JX 2466; JX 2468; JX 2471.
400
JX 2463 at Oxbow_00247068.
401
Carr Dep. 270-71.

93
 Goldman analyzed ArcLight’s offer using a Waterfall Top Off to satisfy the 1.5x

Clause for the Small Holders.402 At trial, Popeo testified that he did not believe a Waterfall

Top Off was possible and had explained the Highest Amount Theory to Carr on March 21,

2016.403 The weight of the evidence indicates that Popeo misremembered the conversation.

All of the contemporaneous documents reflect a Waterfall Top Off; none reflect the

Highest Amount Theory. Carr testified that Popeo did not tell him about the Highest

Amount Theory.404 There is an internal Goldman email in which Stephanie Cohen, another

senior banker on the deal, asked a junior colleague, “At what enterprise value is the 1.5x

threshold met for everyone[?]”405 The junior banker noted that the Small Holders needed

to receive $450 per unit or approximately $414 per unit net of distributions, and he

observed that a deal at that price would equate to approximately $4.5 billion in enterprise

value, which he described as “nothing reasonable.”406 But he immediately explained the

“minor cost associated with truing them up” with a Waterfall Top Off.407 A longer version

of the email chain shows that the Goldman team was discussing a Waterfall Top Off.408

402
See, e.g., JX 2532 at GS-Oxbow-Crestview_00014405.
403
Popeo Tr. 1377; see also JX 4273.
404
Carr Dep. 197-98.
405
JX 2476 at GS-Oxbow-Crestview_00018164.
406
Id. at GS-Oxbow-Crestview_00018163.
407
Id.
408
See JX 2475.

94
My sense is that Cohen asked for an enterprise value that included a Waterfall Top Off,

and the junior banker either misunderstood or mentioned the $4.5 billion enterprise value

in an effort to provide a complete response. Goldman invariably analyzed the ArcLight

offer using a Waterfall Top Off.409

Ironically, before receiving ArcLight’s offer, Oxbow still had not signed off on

Goldman’s engagement letter. Koch finally executed it on March 24, 2016.410 It was

backdated to March 18.411

On March 25, 2016, Koch emailed the Oxbow Holdings appointees about convening

“an official board call” to discuss the ArcLight offer. 412 Summarizing the analysis to date,

he stated:

The price they quote is not what the unit holders would get as they have left
out the deductions of expenses that will reduce the face amount of their
proposal. . . . The Agreement requires that all members receive at least
$169/unit while other members are required to receive additional funds
which will bring their returns to 1.5 times their original investments.413

409
See, e.g., JX 2477 (Goldman analysis); JX 2478 (same); JX 2479 at
Oxbow_00366554 (Popeo’s notes of conversation with Goldman); JX 2480 (Goldman
analysis).
410
JX 2487.
411
JX 2401.
412
JX 2502 at Oxbow_00255249.
413
Id.

95
This email described a Waterfall Top Off. Koch sent this email after “reading and studying

[the LLC Agreement] quite a bit” and after receiving Popeo’s advice and comments on a

draft version.414 Koch believed that a Waterfall Top Off was viable.

Q. The Highest Amount Theory

The Highest Amount Theory did not make its appearance until March 24, 2016.

Mintz Levin had been working on a letter that it would send on behalf of the Company to

Oxbow Holdings, Crestview, and Load Line. Although nominally prepared on behalf of

Oxbow and directed to the member-level participants in the Exit Sale process, in substance

it raised objections to the ArcLight offer that served Koch’s interests.

On the evening of March 24, 2016, Macaux emailed Leone-Quick with comments

on the letter:

I especially want to flag a point Greg [Fine] raised regarding the 1.5x, which
I don’t think we have discussed. Because Exit Sale proceeds must be paid
pro rata (see Section 8(e), incorporating by reference Section 9(b)), ArcLight
cannot simply increase their offer $27.5M to get a handful of Members their
1.5x. Everyone’s per Unit price must be the same, so whatever price is
required to deliver 1.5x is the price everyone must get.415

This is the first reference in the record to the Highest Amount Theory. I have the impression

that in analyzing the ArcLight offer, Fine and Macaux worked through the payout

mechanics for the first time. Their analysis took them through the Equal Treatment

414
Koch Tr. 865-67, 873.
415
JX 2494.

96
Requirements, including the Distribution Provisions, prompting them to recognize the

implications of these provisions for the Exit Sale Right.

Leone-Quick emailed back, immediately recognizing that this was a new idea:

Thanks; that is an interesting and promising argument. I want to make sure I
understand it fully. Are we saying that 9(b) requires allocation of the
purchase price in accordance with Article XI, Section 1 and that section
requires distributions to be made per percentage interest? So this precludes
any one member from getting a true-up or higher percentage of the proceeds
than their ownership percentage? That seems to hang together for me.416

Macaux responded: “Correct. Section 9(b) expressly states that the aggregate purchase

price must be allocated to the Members pursuant to the waterfall set forth in Art. XI, Section

1 (governing interim cash distributions), which is to say that it must be allocated ‘to the

Members in accordance with their Percentage Interests.”417

After this email exchange, Mintz Levin prepared a revised draft of the letter that

raised the Highest Amount Theory, but which recognized that this contention represented

a change of position for Oxbow. The relevant text stated:

And finally, an Exit Sale cannot occur unless certain Members waive their
rights to receive . . . . 1.5 times their aggregate Capital Contributions from
the proceeds of the Exit Sale . . . . The LLC Agreement defines an Exit Sale
to be “a Transfer of all, but not less than all, of the then outstanding Equity
Securities of the Company . . . .” If any Member does not, therefore, receive
1.5 times their aggregate Capital Contributions, they cannot be forced to
participate in an Exit Sale, which by definition, can only occur with their
participation.

[T]he Company initially believed that one possible solution to this issue
would be to have extra proceeds from the Exit Sale be directed to such

416
JX 2488.
417
Id.

97
 Members so that they did hit this 1.5x threshold. But, unfortunately, the LLC
Agreement forecloses this possible solution. Article XIII, Section 8(c)
subjects the Exit Sale to the terms set forth in, inter alia, Article XII, Section
9(b). This section provides, in part, that “[a]llocation of the aggregate
purchase price payable in an Exit Sale will be determined by assuming that
the aggregate purchase price was distributed to [Oxbow Holdings] and the
remaining Members in accordance with Article XI, Section 1, hereof. That
section, in turn, requires that distributions be made to Members “in
accordance with the[i]r Percentage Interests . . . .” Accordingly, the proceeds
from any Exit Sale are required to be distributed in accordance with each
member’s Percentage Interests, and so it is not possible under the LLC
Agreement to provide more than this in order to get certain Members over
the 1.5x threshold.418

These paragraphs captured how Koch and his advisors developed their position. They

initially relied on the All Securities Clause to develop the Blocking Theory, but they

believed that the 1.5x Clause could be satisfied with a Top Off. Only after Macaux’s email

on March 24, 2016 did Mintz Levin perceive that the Equal Treatment Requirements

mandated the Highest Amount Theory. Over time, as he worked through these additional

provisions, even Kelly became more comfortable with the Highest Amount Theory.419

On March 28, 2016, Koch sent a final version of the letter to Crestview and Load

Line. The final letter deleted the reference to what “the Company initially believed,”

substituting the phrase, “It has earlier been suggested . . . .” 420 This letter was the first

occasion when anyone representing Oxbow or Koch told Crestview and Load Line that it

was “not possible under the LLC Agreement to provide more proceeds from an Exit Sale

418
JX 2492 at Mintz_0014471-72 (emphasis added).
419
See JX 2603.
420
JX 2501 at Mintz_0022671.

98
to particular Members so that those Member[s] meet the 1.5x threshold.”421 Quinn

Emmanuel wrote back, invoked the Leave Behind Theory, and argued that the Small

Holders simply would not participate in the Exit Sale.422

R. The Exit Sale Process.

On April 6, 2016, the Oxbow Board met with all directors in attendance. Carr and

Cohen attended for Goldman, and Popeo and Leone-Quick attended for Mintz Levin.423

Goldman made a presentation during which Carr explained that ArcLight had based its

proposal on a November 2015 confidential information memorandum. As a result, “many

of the assumptions on which the proposal were based were out of date.”424 Goldman

analyzed ArcLight’s offer using a Waterfall Top Off.425 The directors and Goldman

debated various aspects of Goldman’s analysis, including “the 1.5x ‘make whole’ return

mechanism.”426 Carr explained that under Goldman’s analysis, the per-unit value of

ArcLight’s offer did not meet the FMV Clause, but he also advised that Goldman could re-

engage with Arclight and “it might be possible to obtain a modified proposal which met or

421
JX 2514 at Oxbow_00093687.
422
JX 2525 at Oxbow_00174150.
423
JX 2550 at Obow_00169330.
424
Id. at Obow_00169331.
425
See, e.g., JX 2532 at GS-Oxbow-Crestview_00014405.
426
JX 2550 at Oxbow_00169331

99
exceeded this threshold.”427 Hurst, Volpert, and Coumantaros argued that the Company

should negotiate with ArcLight. Koch and other directors argued for a “broad, competitive

sales process.”428 Carr recommended going back to ArcLight.429

After further discussion, by a vote of six to three, the Board authorized Goldman

“to immediately proceed with a broad sales process, including both financial and strategic

investors.”430 The Board also instructed Goldman to “seek clarification of ArcLight’s . . .

letter of intent, and advise ArcLight that the Company believes that the indication of

interest set forth in that letter was not pre-emptive.”431

The Board also resolved to hire legal counsel to advise the Company on the sale

process, as contemplated by Article XIII, Section 8(f) of the LLC Agreement. The Board

decided to hire Robert I. Townsend, III, of Cravath, Swain & Moore LLP.432

Although the Board authorized Goldman to pursue a broad sales process, Koch tried

to micromanage the effort. He insisted that “Oxbow’s executives [] refer all requests from

anyone, except customers and suppliers, who is requesting information and meetings,

427
Id. at Oxbow_00169332.
428
Id.
429
Id.
430
Id.
431
Id.
432
Id. at Oxbow_00169333.

100
directly to [him].”433 He told Johnson and Clark that if “Goldman Sacks [sic] . . . and/or

any potential buyer and/or investor calls any one of you, refer them to me. Do not answer

any of their questions, give them any information written or orally, any gossip about

Oxbow, any personal opinions, plans, meetings/calls with Goldman and/or

buyers/investors . . . .”434

Koch even tried to micromanage Goldman. In one email, he told Carr, “As GS

supposedly works for the Company (Oxbow) and since I am CEO of Oxbow, before GS

calls ArcLight and/or gives them information I insist on having a conversation with you.”435

When Carr explained the extent of Goldman’s communications with ArcLight, Koch

berated him.436 During an update with members of the Oxbow Board on April 18, 2016,

Goldman described other limitations on their efforts.437 Later, Koch accused Goldman of

“puffing” Oxbow’s numbers in its presentations to ArcLight. 438 The lead bankers from

433
JX 2569 at Oxbow_to_EJ0028428; see also Koch Tr. 1206-07.
434
JX 2564.
435
JX 2569 at Oxbow_to_EJ0028430.
436
JX 2570 at Oxbow_to_EJ0028747.

See JX 2612 (Volpert’s notes of meeting); JX 2658 (Clark’s notes of meeting);
437

JX 2662 (Volpert’s comments on Clark’s notes). The Crestview directors had called this
meeting under the provisions of the LLC Agreement. Koch and the other Oxbow Holdings
appointees stayed away, defeating a quorum. See JX 2594.
438
See JX 2701 at Oxbow_GS_00004404; JX 2703 at LL0000450.

101
Goldman described the resulting process as the “most constrained” they had encountered

in at least thirty years and perhaps ever.439

During the sale process, Koch pressured Oxbow’s executives to provide prospective

investors, including ArcLight, with a negative outlook for Oxbow. In advance of a meeting

with ArcLight in late May 2016, Koch instructed Parmelee, Oxbow’s CFO, to tell certain

executives to dampen their forecasts or risk their bonuses.440 Koch had never previously

given that type of direction.441

During the same period, Koch and the Oxbow Holdings’ appointees on the Board

debated whether to grant units to members of the Board and cause all unvested unit rights

to accelerate. Goldman advised that this was not customary, but it helped Koch because

taking this step would increase Oxbow’s outstanding unit count and make it more difficult

to achieve an Exit Sale. Koch, Volpert, and their attorneys began a letter-writing campaign

regarding these issues and about the restrictions that Koch was placing on Goldman.442

Despite the constraints on the Company’s process, ArcLight remained interested

and, on May 27, 2016, submitted a revised offer.443 The new offer raised the equity value

for the Company from $1,449 million to $1,476 million, resulting in a net value of $176.59

439
Carr Dep. 180-83.
440
JX 2762; McIntosh Dep. 117-20; JX 2774 at OXBOW_00204767.
441
Koch Tr. 1021-22.
442
See JX 2578; JX 2580; JX 2589; JX 2597; JX 2601; JX 2604.
443
PTO ¶ 81.

102
per unit. This time, with Oxbow having embraced the Highest Value Theory, Freney did

not include a Waterfall Top Off for the Small Holders in his analysis. His report simply

stated that the ArcLight offer “fails to comply with key provisions of Oxbow’s LLC

Agreement, including 1.5x minimum return requirement.”444

The Board had scheduled its next meeting for June 3, 2016. On June 2, Clark

cancelled the meeting. Volpert and Hurst argued in favor of going forward so anyone who

could participate could receive an update from Goldman and advice from Cravath. A

debate ensued over the propriety of the cancellation.445 The meeting did not take place.

The next meeting of the Oxbow Board was scheduled for June 10, 2016. During the

lead-up to the meeting, Koch concluded that he could kill the ArcLight deal by firing

Johnson and suing Crestview.446

Just before the Board meeting, Koch terminated Johnson.447 At the meeting, Koch

announced his termination of Johnson and asked for a ratifying vote. Volpert, Hurst, and

Coumantaros voted against the resolution. Koch and his appointees voted in favor.448

444
JX 2839 at Oxbow_00024174.
445
JX 2806.
446
See JX 3199; Popeo Tr. 1390-91.
447
PTO ¶ 83; JX 2855; see also Koch Tr. 1010-12.
448
See JX 3835.

103
 During the meeting, Goldman analyzed the ArcLight offer. Goldman continued to

include a “1.5x Return ‘Make Whole’ Adjustment” of $27.8 million,449 but noted that it

was a placeholder pending a final determination on how the 1.5x Clause operated.450 Carr

advised that “the valuation by ArcLight exceeded the fair market value for the Company’s

units established through the appraisal process.”451 Carr also advised that “under the

present circumstances it seemed unlikely . . . that any other purchaser would make a better

bid.”452 Goldman provided a timeline for reaching a definitive agreement with ArcLight

within three months, while conducting a parallel market check that would extend for an

additional month post-signing.453

In the midst of the meeting, Koch instructed his attorneys to file a lawsuit against

Crestview and Load Line. The attorneys filed the lawsuit at 2:22 p.m., while the meeting

was still going on.454

Cravath had been prepared to give its views on the Exit Sale process during the

meeting, but it adjourned before Townsend could provide his thoughts. His talking points

449
JX 2863 at Oxbow_00246861.
450
JX 2864 at Oxbow_00364375.
451
Id.
452
Id.
453
See JX 2863 at Oxbow_00246864.
454
See JX 2866; Koch Tr. 832.

104
noted that “there is a fair amount of ambiguity in the [1.5x Clause].”455 He planned to say

that “[i]n [his] experience, provisions like this are designed to stop a particular member

from being dragged along in an exit sale, not to preclude the entire exit sale.”456 For support,

Townsend planned to cite “the references to ‘such Member’ in the 1.5 times provision,

rather than ‘any Member’” and “the reference to ‘any other Member.’”457 His talking points

expressed “full[] support” for Goldman’s recommendation that Oxbow seek to “finalize

the terms and conditions of a definitive deal with ArcLight,” while simultaneously pursuing

a market check.458

On June 14, 2016, Crosby left a message for Koch. When Koch returned his call,

Crosby told him that ArcLight would not be part of a “forced hand deal.”459 Crosby had

heard about Koch’s lawsuit against Crestview, and Koch informed him that he had fired

Johnson. Crosby told Koch that ArcLight would let the current investors work things out

and that ArcLight would not buy in with a lawsuit pending.460

455
JX 2852 at CSM_X0000287.
456
Id.
457
Id.
458
Id.
459
JX 2874 at Oxbow_00147815.
460
Id. at Oxbow_00147814; see also JX 2899 (Carr referring to “ArcLight’s
unwillingness to sign the LOI and continue their pursuit of Oxbow while the litigation goes
on.”).

105
S. This Litigation

The complaint that Koch’s lawyers filed on June 10, 2016, spanned sixty-five pages,

contained 134 numbered paragraphs, and asserted six counts. The plaintiffs were Oxbow

Holdings, the Small Holders, and Koch himself. The defendants were the Crestview

entities, Hurst, Volpert, and Load Line.

 Count I asserted that the Crestview member entities and Load Line
had breached the LLC Agreement both before and after exercising the
Exit Sale Right.

 Count II asserted a claim for tortious interference with contract
against the defendants who were not members of Oxbow.

 Count III sought a declaratory judgment determining that the Highest
Amount Theory was the proper interpretation of the 1.5x Clause.

 Count IV sought a declaratory judgment determining that under
Article XIII, Section 8(f), the Company alone controlled the Exit Sale
process, not Crestview or Load Line.

 Count V sought a declaratory judgment that the ArcLight offer did not
satisfy the FMV Clause, the 1.5x Clause, or result from “bona fide,
arms’-length” negotiations.

 Count VI sought a declaration that in connection with the Exit Sale,
Koch did not owe any fiduciary duties to Crestview or Load Line and
had not breached any fiduciary duties that might exist.

The Crestview member entities and Load Line answered and asserted

counterclaims. Count I sought declaratory judgments adopting their interpretations of the

LLC Agreement, including that Crestview could compel a sale to ArcLight, had the right

to control the Exit Sale process, and could compel an Exit Sale under the Leave Behind

Theory. Count II asserted claims for breach of the LLC Agreement against Oxbow

Holdings.

106
 On June 28, 2016, Koch caused Oxbow to file a separate action against the

Crestview member entities, Volpert, Hurst, O’Donnell, and Johnson. This complaint

spanned 144 pages, contained 515 numbered paragraphs, and asserted eleven counts.

 Count I asserted a claim for breach of the LLC Agreement against the
Crestview member entities.

 Count II asserted a claim for breach of the implied covenant of good
faith and fair dealing against the Crestview member entities.

 Count III asserted a claim for breach of fiduciary duty against
O’Donnell.

 Count IV asserted a claim for breach of fiduciary duty against
Johnson.

 Count V asserted a claim against Johnson to claw back compensation
under his employment agreement.

 Count VI asserted a claim for breach of fiduciary duty against Volpert.

 Count VII asserted a claim for breach of fiduciary duty against Hurst.

 Count VIII sought a declaratory judgment that an Exit Sale had to
satisfy the All Securities Clause, meaning that the Exit Sale could not
leave any member behind and the Blocking Theory was correct.

 Count IX sought a declaration that the Highest Amount Theory was
correct.

 Count X sought a declaration that Oxbow did not have to engage with
either ArcLight or GSO Capital because an offer from one of those
entities would not be a bona fide, arm’s-length transaction resulting
from an orderly sale process.

 Count XI sought a determination that the Company had the sole right
to control the Exit Sale process.

In the requests for relief, the complaint also sought a ruling on the viability of the

Thoughtworks strategy.

107
 I entered an order consolidating the two actions, and the parties cross-moved for

summary judgment.461 One issue was the proper interpretation of the 1.5x Clause. A second

issue was whether the Company or the Minority Members had control of the Exit Sale

process. A third issue was whether all members had to use reasonable efforts to effect an

Exit Sale.

By order dated August 10, 2016, I held that the plain language of the LLC

Agreement, read as a whole, implemented the Highest Amount Interpretation and

foreclosed the Leave Behind Interpretation.462 For reasons set forth below, I continue to

adhere to that view. I nevertheless recognized that this imposed a harsh result:

The Minority Members stress that the 1.5x Return Clause would be satisfied
except for the Small Holders. They argue with some force that given the
overall structure of the agreement and the concept of the Exit Sale, they never
would have agreed that investors with a stake as small as the Small Holders’
would be able to block the operation of the Exit Sale Right. That is an implied
covenant argument, and it is fairly litigable. One can posit that in the original
bargaining position, had the current situation been discussed, then the
Minority Members would have insisted on the ability to compensate the
Small Holders separately, rather than lose the efficacy of the threat that put
teeth into the Put Right. It is also true that the Company, [Oxbow Holdings],
and Koch did not historically act as if the Small Holders were an impediment
to the Exit Sale Right. But the current cross-motions for summary judgment
are not about the implied covenant. They are about the plain language of the
Exit Sale Right, which is contrary to the Minority Members’ position.463

461
The numerous affiliates that Koch lined up to join him in making affirmative
claims—Oxbow, Oxbow Holdings, Family LLC, Executive LLC—created nomenclature
difficulties in the consolidated action. This decision refers to Koch and his affiliates,
collectively, as the “Koch Parties.”
462
Dkt. 142 (the “Summary Judgment Order” or “SJ Order”).
463
Id. ¶ 23(b).

108
 In terms of control over the Exit Sale process, the Summary Judgment Order stated

that the LLC Agreement “in fact contemplate[s] cooperation between the Minority

members and the Company.”464 After quoting the Exit Sale Right, the Summary Judgment

Order held that “[i]f the Minority Members can generate an Exit Sale without Company

involvement, they are free to do so. If the Exit Sale satisfies the requirements of the Exit

Sale Right, then the Company and its members have to comply.” 465 The Summary

Judgment Order held that once the Minority Members had exercised the Exit Sale Right,

then under Article XIII, Section 8(f), each party had an obligation to “use reasonable efforts

to take or cause to be taken to do or cause to be done all things necessary or desirable to

effect such Exit Sale.”466

After the issuance of the Summary Judgment Order, the Crestview members and

Load Line moved to file amended counterclaims. The counterclaims now spanned ninety-

two pages, contained 279 numbered paragraphs, and asserted six counts:

 Count I asserted a claim for breach of the LLC Agreement against
Oxbow Holdings.

 Count II asserted a claim for tortious interference with contract
against the Small Holders.

 Count III asserted a claim for breach of the implied covenant of good
faith and fair dealing against Oxbow Holdings.

464
Id. ¶ 24.
465
Id. ¶ 25.
466
Id. ¶ 27.

109
  Count IV asserted a claim for breach of fiduciary duty against Koch.

 Count V sought declaratory judgments against Oxbow Holdings
establishing that Crestview’s interpretations of provisions in the LLC
Agreement were correct.

 Count VI sought reformation of the 1.5x Clause to conform with the
Leave Behind Theory.

Load Line did not assert counterclaims for tortious interference or for breach of fiduciary

duty. Crestview and Load Line subsequently withdrew their claim for reformation.

The case proceeded through discovery, which was contentious. It was also

complicated, because all five of the individuals who were named parties to the case had

served as directors of Oxbow, and three of them continued to serve. Their status raised

questions about their ability to access otherwise privileged material prepared by Oxbow’s

in-house legal department and Mintz Levin. Moreover, the suit was between former clients

of the in-house legal department and Mintz Levin, implicating another exception to the

attorney-client privilege. The parties filed eleven motions to compel and three motions for

protective order. The court issued three memorandum opinions and eleven orders

addressing discovery issues.

The case reached trial in July 2017. On the third day of trial, the parties announced

a partial settlement. The Koch Parties settled fully with O’Donnell and Johnson, and the

Koch Parties and the Minority Members agreed not to press their tort claims against one

110
another. As a result of that agreement, the case became limited to contract theories and

affirmative defenses.467

II. LEGAL ANALYSIS

The issues for decision consist of contractual disputes and affirmative defenses. The

contractual disputes involve requests for declaratory judgments and claims for breach of

contract.

A. The Challenge To The Small Holders’ Status As Members

The Minority Members have challenged whether Oxbow properly admitted the

Small Holders as members in 2011 and 2012. If successful, this claim would moot any

disputes over the 1.5x Clause, because all of the other members have received sufficient

distributions to satisfy it. The Minority Members did not challenge the Small Holders’

status as members until August 31, 2016, when they moved to amend their counterclaims

to add this theory.468 Laches bars this claim.

In substance, the Minority Members contend that the parties failed to obtain the

necessary approvals and follow the requisite formalities when issuing units to the Small

Holders. Historically, if a corporation failed to follow corporate formalities when issuing

shares, then a party challenging the issuance had strong grounds to contend that the

issuance was void and could not be validated in equity, whether through the invocation of

467
See Tr. 622-25.
468
See Dkts. 156-57.

111
equitable defenses or otherwise.469 To mitigate the harshness of this rule, the General

Assembly added two sections to the Delaware General Corporation Law: (i) Section 204,

which provides a statutory path for ratifying invalid issuances and other defective corporate

acts and (ii) Section 205, which empowers the Court of Chancery to validate defective

corporate acts.470 When dealing with LLCs, Delaware courts have not approached

membership determinations with the same strict eye for formalities. Instead, Delaware

decisions have taken into account “the flexible and less formal nature of LLCs”471 and

observed that, under Delaware’s LLC Act, “[s]ubstance is supposed to be paramount over

form.”472

There is no dispute that Oxbow had the power as an entity to issue units and admit

new members. Oxbow could have issued units to the Small Holders and admitted them as

members, if the parties had adhered to the procedures specified in the LLC Agreement.

469
See STAAR Surgical Co. v. Waggoner, 588 A.2d 1130, 1137 (Del. 1991); Olson
v. EV3, Inc., 2011 WL 704409, at *14 (Del. Ch. Feb. 21, 2011); Blades v. Wisehart, 2010
WL 4638603, at *12 (Del. Ch. Nov. 17, 2010) (Strine, V.C.). See generally C. Stephen
Bigler & Seth Barrett Tillman, Void or Voidable?--Curing Defects in Stock Issuances
Under Delaware Law, 63 Bus. Law. 1109 (2008).
470
See 8 Del. C. §§ 204-05; In re Numoda Corp., 128 A.3d 991, 2015 WL 6437252,
(Del. Oct. 22, 2015) (TABLE) (affirming decision validating stock under 8 Del. C. § 205).
See generally C. Stephen Bigler & John Mark Zeberkiewicz, Restoring Equity: Delaware’s
Legislative Cure for Defects in Stock Issuances and Other Corporate Acts, 69 Bus. Law.
393 (2014).
471
Mickman v. Am. Int’l Processing, L.L.C., 2009 WL 891807, at *2 (Del. Ch. Apr.
1, 2009).
472
In re Grupo Dos Chiles, LLC, 2006 WL 668443, at *2 (Del. Ch. Mar. 10, 2006).

112
Consequently, assuming for the sake of analysis that the parties failed to follow the

requisite procedures, the issuance of units to the Small Holders and their admission as

members would be voidable, not void.473 Voidable acts can be validated by equitable

defenses.474

“Laches is an equitable defense born from the longstanding maxim ‘equity aids the

vigilant, not those who slumber on their rights.’”475 “[L]aches generally requires proof of

three elements: first, knowledge by the claimant; second, unreasonable delay in bringing

the claim; and third, resulting prejudice to the defendant.”476 As the party raising the

473
See generally Carsanaro v. Bloodhound Tech., Inc., 65 A.3d 618, 648-653 (Del.
Ch. 2013) (discussing the concepts of corporate power and capacity for the analogous
corporate doctrine of ultra vires). Unlike in a different scenario recently addressed by this
court, the LLC Agreement does not say that units issued without complying with this
provision are void. See Southpaw Credit Opportunity Master Fund, L.P. v. Roma Rest.
Hldgs., Inc., 2018 WL 658734, at *2 (Del. Ch. Feb. 1, 2018) (analyzing provision rendering
issuances without a joinder to a stockholders’ agreement “null and void ab initio”). Article
XIII, Section 2 of the LLC Agreement enumerates eight circumstances under which a
transfer of units is void. If the parties had wanted to agree to a similarly draconian
consequence for violations of the provisions governing the admission of new members,
they could have done so.
474
See Klaassen v. Allegro Dev. Corp., 106 A.3d 1035, 1047 (Del. 2014) (holding
that voidable act was “properly subject to equitable defenses” and finding that challenge
was “barred by the doctrine of acquiescence”); see also Nevins v. Bryan, 885 A.2d 233,
244-50 (Del. Ch.) (holding that challenged actions were voidable and that equitable
defenses barred plaintiff’s challenge), aff’d, 884 A.2d 512 (Del. 2005).
475
Reid v. Spazio, 970 A.2d 176, 182 (Del. 2009) (quoting Adams v. Jankouskas,
452 A.2d 148, 157 (Del. 1982)).
476
Whittington v. Dragon Gp. L.L.C., 991 A.2d 1, 8 (Del. 2009) (internal quotation
marks and citation omitted).

113
affirmative defense of laches, the Koch Parties bear the burden of proving its elements. 477

The standard of proof is a preponderance of the evidence.478 “Proof by a preponderance of

the evidence means proof that something is more likely than not. It means that certain

evidence, when compared to the evidence opposed to it, has the more convincing force and

makes you believe that something is more likely true than not.”479

The Koch Parties proved that the Minority Members knew in 2011 about the plan

to issue units to the Small Holders. The Koch Parties proved that the Minority Members

knew in January 2012 that Oxbow was treating Family LLC as a member and in April 2012

477
See Austin v. Judy, 65 A.3d 616, 2013 WL 1944102, at *2 (Del. May 9, 2013)
(TABLE) (“As an affirmative defense, the burden was on [the defendant] to prove all of
the elements of laches.”); In re Tenenbaum, 918 A.2d 1109, 1114 (Del. 2007) (“The party
asserting laches bears the burden of proving both that the delay was unreasonable and that
prejudice resulted from the delay.” (quoting Bash v. Bd. of Med. Practice, 579 A.2d 1145,
1152-53 (Del. Super. 1989))).
478
See Slovin v. Knotts, 1980 WL 268097, at *2 (Del. Ch. Dec. 5, 1980) (“[S]tatute
of limitations, estoppel and laches are affirmative defenses which must be proven by a
preponderance of the evidence.”); see also TA Operating LLC v. Comdata, Inc., 2017 WL
3981138, at *21 (Del. Ch. Sept. 11, 2017) (“[D]efendants . . . bear the burden to prove each
element of each of their affirmative defenses by a preponderance of the evidence.”); 27A
Am. Jur. 2d Equity § 128 (“The standard of proof generally applied to establish laches is
the preponderance of evidence standard . . . .” (citing Tenneco Auto. Operating Co., Inc. v.
Visteon Corp., 375 F. Supp. 2d 375 (D. Del. 2005))).
479
Agilent Techs., Inc. v. Kirkland, 2010 WL 610725, at *13 (Del. Ch. Feb. 18,
2010) (Strine, V.C.) (internal quotation marks and citation omitted); accord Triton Const.
Co. v. E. Shore Elec. Servs., Inc., 2009 WL 1387115, at *6 (Del. Ch. May 18, 2009)
(“Under this standard, [the plaintiff] is not required to prove its claims by clear and
convincing evidence or to exacting certainty. Rather, [the plaintiff] must prove only that it
is more likely than not that it is entitled to relief.”), aff’d, 988 A.2d 938 (Del. 2010)
(TABLE).

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that Oxbow was treating Executive LLC as a member. The Minority Members now argue

that the Koch Parties did not give them sufficient details about the issuances, but for laches

to apply, a party need not have actual knowledge of every element of a claim. “Laches will

bar a claim if the claimant had actual or constructive knowledge of the claim.”480 “Actual

knowledge is defined as direct and clear knowledge. Constructive knowledge is defined as

knowledge that one using reasonable care or diligence should have, and therefore that is

attributed by law to a given person.”481 A party is also “chargeable with such knowledge

of a claim as he or she might have obtained upon inquiry.”482 Consequently, laches will

foreclose recovery if a plaintiff failed to act when “it would have been reasonable for [him]

to inquire into the situation,” and further inquiry would have uncovered the claim.483

Inquiry notice does not require full knowledge of the material facts; rather,
plaintiffs are on inquiry notice when they have sufficient knowledge to raise
their suspicions to the point where persons of ordinary intelligence and
prudence would commence an investigation that, if pursued would lead to
the discovery of the injury.484

480
All Pro Maids, Inc. v. Layton, 2004 WL 1878784, at *8 (Del. Ch. Aug. 9, 2004),
aff’d, 880 A.2d 1047 (Del. 2005) (TABLE).
481
Deutsche Bank Nat’l Tr. Co. v. Goldfeder, 86 A.3d 1118, 2014 WL 644442, at
*2 (Del. Feb. 14, 2014) (TABLE) (internal quotation marks and footnotes omitted).
482
Fike v. Ruger, 752 A.2d 112, 114 (Del. 2000) (affirming the Court of Chancery’s
grant of summary judgment on the issue of laches “because Plaintiffs were on inquiry
notice and/or possessed actual knowledge of their present claims”).
483
Whittington, 2009 WL 1743640, at *9.
484
Pomeranz v. Museum P’rs, L.P., 2005 WL 217039, at *3 (Del. Ch. Jan. 24, 2005)
(Strine, V.C.); see also Fike, 752 A.2d at 114 (charging plaintiff with inquiry notice where

115
 The Minority Members were on inquiry notice, at a minimum, starting in 2011.

Their representatives participated in 2011 in the votes to approve the issuances of units to

the sulfur-company executives and to members of Koch’s family. The monthly report that

Oxbow sent to its members in January 2012 listed Family LLC as a member, showed the

$20 million being distributed to the members, and disclosed that Family LLC received its

share as a member.485 The monthly report that Oxbow sent to all members in April listed

Executive LLC as a member, showed $15 million being distributed to all members, and

disclosed that Executive LLC received its share of that distribution.486 Thereafter, for

seventy-two consecutive months, Crestview and Load Line received monthly management

reports that listed the Small Holders as members on the page titled “Member Equity.” The

same page showed the Small Holders receiving distributions as members.

The Small Holders likewise appeared as members on Oxbow’s audited financial

statements. In 2011, 2012, and 2013, the Minority Members received Oxbow’s audited

financial statements, which reported the issuance of member units to the Small Holders

and noted that Koch controlled both entities.487 In 2012 and 2013, in their report to the

Audit Committee, Oxbow’s outside auditor identified the issuances to the Small Holders

“the facts already known to that plaintiff were such as to put the duty of inquiry upon a
person of ordinary intelligence”).
485
JX 232 at CRESTVIEW000222549; see also Hurst Tr. 175-78; Koch Tr. 694.
486
JX 234; Hurst Tr. 179.
487
See, e.g., JX 273 at Oxbow_00167079.

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in the section titled “Membership Units.”488 Hurst chaired Oxbow’s Audit Committee. He

agreed that he was aware of the investments in 2012 and that Crestview “just didn’t make

a big deal about it.”489

As noted, the Minority Members did not challenge the Small Holders’ status as

members until August 31, 2016. “What constitutes unreasonable delay is a question of fact

dependent largely upon the particular circumstances.”490 “The period of time that

constitutes an ‘unreasonable delay’ can range from one month to many years. The length

of the delay is less important than the reason for it.”491 Bringing a claim “after the expiration

of the analogous limitations period is presumptively an unreasonable delay for purposes of

laches.”492 The analogous statute of limitations in this case was three years.493

The Koch Parties proved that by waiting until August 31, 2016, the Minority

Members delayed unreasonably in bringing suit. The Minority Members contend that they

did not know until March 2016 that the Koch Parties were invoking the Highest Amount

488
See JX 238 at Oxbow_00149624; JX 275; JX 276 at Oxbow_00149671; JX 277;
Hurst Tr. 193-98.
489
Hurst Tr. 203.
490
Whittington, 991 A.2d at 9 (quoting Fed. United Corp. v. Havender, 11 A.2d
331, 343 (Del. 1940)).
491
IAC/InterActiveCorp v. O’Brien, 26 A.3d 174, 177 (Del. 2011).
492
Levey v. Brownstone Asset Mgmt., LP, 76 A.3d 764, 769 (Del. 2013).
493
See 10 Del. C. § 8106.

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Theory, but that is a different issue than whether the Small Holders validly became

members.

The final element is prejudice, which need not rise to the level of quantifiable,

monetary damages. Prejudice occurs where “the condition of the other party has, in good

faith, become so changed that he cannot be restored to his former state, if the right be then

enforced, delay becomes inequitable and operates as an estoppel against the assertion of

the right.”494 “Prejudice can be either procedural, such as when a party is unable to call a

crucial witness due to the delay and the witness has since become unavailable, or

substantive, such as when a party relies to his detriment on the plaintiff’s failure to file a

claim in a timely manner.”495 A defendant may be substantively prejudiced where the

plaintiff “sit[s] by inactive and in what amounts to silence . . . until affairs had become so

complicated that a restoration of former status was difficult, if not impossible.”496

In this case, everyone has acted since 2011 and 2012 as if the Small Holders were

members. The Minority Members received their share of the Small Holders’ capital

contributions when Oxbow distributed them, and all distributions since then have included

the Small Holders. Oxbow’s financial statements, and presumably its tax returns, have all

494
2 John Norton Pomeroy, A Treatise on Equity Jurisprudence § 419d (5th ed.
1941) (citation omitted).
495
Meer v. Aharoni, 2010 WL 2573767, at *8 (Del. Ch. June 28, 2010); accord
Steele v. Ratledge, 2002 WL 31260990, at *3 (Del. Ch. Sept. 20, 2002).
496
Havender, 11 A.2d at 348.

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reflected an ownership structure in which the Small Holders were members. It would be

unfairly prejudicial to permit a belated challenge to their status as members to go forward

at this point.

Laches bars the Minority Members’ objection to the status of the Small Holders as

members. That does not mean that this decision will ignore the evidence surrounding the

admission of the Small Holders, including evidence that Oxbow failed to adhere to proper

formalities. That evidence remains relevant to the Minority Members’ claim for breach of

the implied covenant of good faith and fair dealing.

B. The Requests For Declarations Regarding The Meaning Of The 1.5x Clause

The parties seek competing declaratory judgments regarding the meaning of the

1.5x Clause. The party seeking a declaratory judgment assumes the burden of proving its

position.497 Here, both sides have sought competing declarations, so each theoretically

bears the burden of proof to establish its position. The burden in this case is a non-issue,

497
See San Antonio Fire & Police Pension Fund v. Amylin Pharm., Inc., 983 A.2d
304, 316 n.38 (Del. Ch.) (“Because Amylin seeks a declaratory judgment as to its right to
approve, it bears the burden of proof here.”), aff’d, 981 A.2d 1173 (Del. 2009); Hexion
Specialty Chems., Inc. v. Huntsman Corp., 965 A.2d 715, 739 (Del. Ch. 2008) (“[T]he
better view is that a plaintiff in a declaratory judgment action should always have the
burden of going forward.” (internal quotation marks and citation omitted)). See generally
26 C.J.S. Declaratory Judgments § 157 (2017) (“The plaintiff in an action for a declaratory
judgment normally has the burden of proving by a preponderance of the evidence that
conditions exist which justify an award of declaratory relief. The plaintiff must prove his
or her case in accordance with the general rules even if a negative declaration is sought.”
(footnotes omitted)).

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because the question of the plain meaning of the 1.5x Clause presents an issue of law,498

and I continue to believe that the meaning of the 1.5x Clause is clear when its language is

read in the context of the LLC Agreement as a whole. Because the provision is not

ambiguous, the parol evidence rule bars consideration of extrinsic evidence for purposes

of construing the meaning of the contract.499

The Koch Parties maintain that the plain language of the LLC Agreement, when

read as a whole, mandates the Highest Amount Theory. They correctly observe that I

already decided this issue in the Summary Judgment Order. The Minority Members renew

their contention that the plain language of the provision requires the Leave Behind Theory.

They ask that I reconsider the Summary Judgment Order, because the evidence at trial

showed that many sophisticated individuals who have looked at the 1.5x Clause thought

that the Leave Behind Theory was correct, or at least viable. They correctly point out that

I did not have the benefit of this evidence when I issued the Summary Judgment Order.

The Summary Judgment Order is a prejudgment order. “Prejudgment orders remain

interlocutory and can be reconsidered at any time, but efficient disposition of the case

demands that each stage of the litigation build on the last, and not afford an opportunity to

498
See AT&T Corp. v. Lills, 953 A.2d 241, 251-52 (Del. 2008).
499
Exelon Generation Acqs., LLC v. Deere & Co., – A.3d –, –, 2017 WL 6422337,
at *10 (Del. Dec. 18, 2017).

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reargue every previous ruling.”500 “Subject to the law of the case doctrine, [a prejudgment

order] can be revisited should future developments, including evidence generated by the

discovery process, provide a compelling reason for doing so.”501 For the sake of

completeness, this decision revisits the question of the proper interpretation of the 1.5x

Clause and holds that the plain language of that provision, read in the context of the LLC

Agreement as a whole, implements the Highest Amount Theory.

1. Principles of Contract Interpretation

The LLC Agreement is a contract governed by Delaware law.502 When interpreting

such a contract, “the role of a court is to effectuate the parties’ intent.”503 Absent ambiguity,

the court “will give priority to the parties’ intentions as reflected in the four corners of the

agreement, construing the agreement as a whole and giving effect to all its provisions.”504

500
See Siegman v. Columbia Pictures Entm’t, Inc., 1993 WL 10969, at *3 (Del. Ch.
Jan. 15, 1993) (quoting 1B James Wm. Moore et al., Moore’s Federal Practice ¶ 0.404[1]
(2d ed. 1992)).
501
Quadrant Structured Prods. Co., Ltd. v. Vertin, 2014 WL 5465535, at *5 (Del.
Ch. Oct. 28, 2014); see also Zirn v. VLI Corp., 1994 WL 548938, at *2 (Del. Ch. Sept. 23,
1994) (Allen, C.) (“Once a matter has been addressed in a procedurally appropriate way by
a court, it is generally held to be the law of that case and will not be disturbed by that court
unless compelling reason to do so appears.”).
502
See LLCA art. XVII, § 5.
503
Lorillard Tobacco Co. v. Am. Legacy Found., 903 A.2d 728, 739 (Del. 2006).
504
In re Viking Pump, Inc., 148 A.3d 633, 648 (Del. 2016) (internal quotation marks
and citation omitted).

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

their plain, ordinary meaning.”505 “Absent some ambiguity, Delaware courts will not

destroy or twist [contract] language under the guise of construing it.”506 “If a writing is

plain and clear on its face, i.e., its language conveys an unmistakable meaning, the writing

itself is the sole source for gaining an understanding of intent.”507 “Contract language is

not ambiguous merely because the parties dispute what it means. To be ambiguous, a

disputed contract term must be fairly or reasonably susceptible to more than one

meaning.”508

“In upholding the intentions of the parties, a court must construe the agreement as a

whole, giving effect to all provisions therein.”509 “Moreover, the meaning which arises

from a particular portion of an agreement cannot control the meaning of the entire

agreement where such inference runs counter to the agreement’s overall scheme or

plan.”510 “It is well established that a court interpreting any contractual provision . . . must

505
Alta Berkeley VI C.V. v. Omneon, Inc., 41 A.3d 381, 385 (Del. 2012).
506
Rhone-Poulenc Basic Chems. Co. v. Am. Motorists Ins. Co., 616 A.2d 1192, 1195
(Del. 1992).
507
City Investing Co. Liquidating Tr. v. Cont’l Cas. Co., 624 A.2d 1191, 1198 (Del.
1993).
508
Alta Berkeley, 41 A.3d at 385 (footnote omitted).
509
E.I. du Pont de Nemours & Co., Inc. v. Shell Oil Co., 498 A.2d 1108, 1113 (Del.
1985).
510
Id.

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give effect to all terms of the instrument, must read the instrument as a whole, and, if

possible, reconcile all the provisions of the instrument.”511

2. The Plain Meaning Of The 1.5x Clause

The 1.5x Clause appears as a proviso in the Exit Sale Right. The Exit Sale Right

appears in Article XIII, Section 8(e) of the LLC Agreement. In the original LLC

Agreement, it stated:

If (x) the Company rejects the Put Notice in writing or fails to respond to the
Put Notice within 180 calendar days of its receipt and (y) the Company is not
Publicly Traded, the Exercising Put Party may require all of the Members to
engage in an Exit Sale, on the terms set forth in Section 7(c), Section 7(d)
and Section 9(b), in which the aggregate consideration to be received by such
Members at the closing of such Exit Sale equal [sic] or exceed [sic] Fair
Market Value; provided, that the Exercising Put Party may not require any
other Member to engage in such Exit Sale unless the resulting proceeds to
such Member (when combined with all prior distributions to such member)
equal at least 1.5 times such Member’s aggregate Capital Contributions
through such date.512

The Exit Sale Right remained in this form until 2014, when the parties executed the Third

Amendment.

The Third Amendment modified the Exit Sale Right by eliminating Crestview’s

right to exercise it if Crestview owned less than 10% of the Company. The parties achieved

this outcome by creating two subsections, one that applied if Crestview owned 10% or

more of the Company, and another that applied if Crestview owned less than 10% of the

Company. The resulting provision states:

511
Elliott Assocs., L.P. v. Avatex Corp., 715 A.2d 843, 854 (Del. 1998).
512
LLCA art. XIII, § 8(e).

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 If (x) the Company rejects the Put Notice in writing or fails to respond to the
Put Notice within 180 calendar days of its receipt and (y) the Company is not
Publicly Traded:

(A) if at such time Crestview owns ten percent (10%) or more of the
outstanding Member Interests and Units of the Company, the Exercising Put
Party may require all of the Members to engage in an Exit Sale, on the terms
set forth in Section 7(c), Section 7(d) and Section 9(b), in which the
aggregate consideration to be received by such Members at the closing of
such Exit Sale equal or exceed Fair Market Value; provided, that the
Exercising Put Party may not require any other Member to engage in such
Exit Sale unless the resulting proceeds to such Member (when combined with
all prior distributions to such Member) equal at least 1.5 times such
Member’s aggregate Capital Contributions through such date; and

(B) if at such time Crestview owns less than ten percent (10%) of the
outstanding Member Interests and Units of the Company, then
notwithstanding any other provision of this Agreement the Exercising Put
Party (and if applicable, the Tag Along Put Party) shall have the right (i) to
Transfer all of its or their Member Interests and Units that were subject to
the Put Notice to any non-Affiliated Person at any time on such terms and
conditions as the Exercising Put Party (and if applicable, the Tag-Along Put
Party) shall determine, or (ii) to require the Company to use commercially
reasonable efforts to complete an Initial Public Offering on customary terms
and conditions as promptly as practicable and to include in such Initial Public
Offering all Member Interests and Units then held by the Exercising Put
Party (and if applicable, the Tag-Along Put Party).

The obligation of the Company to provide cooperation and support as
contemplated by Section 8(f) of this Article XIII in the event of an Exit Sale
shall apply, mutatis mutandis, to any Transfer or Initial Public Offering
pursuant to clause (B) above. For the avoidance of doubt, the provisions of
Section 6 and 7 of this Article XIII shall not apply to any Transfer or Initial
Public Offering pursuant to clause (B) above.513

For purposes of an Exit Sale when Crestview owned 10% or more of the Company, the

Third Amendment did not change the Exit Sale Right. Other amendments shortened the

513
Third Am.

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amount of time that the Company had to respond to the Put, but the substance of the Exit

Sale Right remained the same.

Focusing only on the language of Article XIII, Section 8(e), the 1.5x Clause

modifies the ability of the Exercising Put Party to force an Exit Sale. Under this provision,

the Exercising Put Party

may require all of the Members to engage in an Exit Sale . . . provided, that
the Exercising Put Party may not require any other Member to engage in such
Exit Sale unless the resulting proceeds to such Member (when combined with
all prior distributions to such member) equal at least 1.5 times such
Member’s aggregate Capital Contributions through such date.

If the 1.5x Clause is read in isolation, then it is possible to construe its language as

an exception to the ability of the Exercising Put Party to “require all of the Members to

engage in an Exit Sale.” This reading stresses that the proviso speaks in the singular, saying

that the Exercising Put Party may not require “any other Member” to engage in the sale

unless “such Member” receives sufficient proceeds. Under this view, the Exercising Put

Party can compel an Exit Sale involving the other members and leave behind any members

for whom the Exit Sale does not satisfy the 1.5x Clause. Those members can choose to

participate, but if they do not, the Exercising Put Party cannot compel them to sell. This

reading generates the Leave Behind Theory.

The Leave Behind Theory seems plausible, until the 1.5x Clause is considered in

conjunction with other aspects of the Exit Sale Right. One such aspect is the definition of

an Exit Sale, which the LLC Agreement defines as follows:

“Exit Sale” means as a Transfer of all, but not less than all, of the then-
outstanding Equity Securities of the Company, and/or all of the assets of the
Company to any non-Affiliated Person(s) in a bona fide arms’-length

125
 transaction or series of related transactions (including by way of a purchase
agreement, tender offer, merger or other business combination transaction or
otherwise.514

An Exit Sale thus can take the form of either (i) a transaction at the unitholder level, in

which case it must involve “a Transfer of all, but not less than all, of the then-outstanding

Equity Securities of the Company,” or (ii) an asset sale, in which case it must involve “all

of the assets of the Company.” These alternatives can be accomplished “by way of purchase

agreement, tender offer, merger or other business combination transaction or otherwise.”

When the 1.5x Clause is read in light of the definition of Exit Sale, the Leave Behind

Theory is no longer viable. The definition of an Exit Sale states that any transaction at the

unitholder level must involve “a Transfer of all, but not less than all, of the then-outstanding

Equity Securities of the Company,” which this decision has referred to as the All Securities

Clause. For an Exit Sale to take place at the unitholder level, the All Securities Clause

means that no members can be left behind. Read in light of the definition of Exit Sale, the

1.5x Clause becomes another condition that must be met before an Exit Sale takes place.

The use of singular terms like “any other Member” and “such Member” becomes

recognizable as a straightforward way to ensure that the 1.5x Clause is analyzed on a

member-by-member basis. If the requirement fails for any “such Member,” then “the

Exercising Put Party may not require any other Member to engage in such Exit Sale.” Once

the requirement to include all members cannot be met, the Exit Sale fails.

514
LLCA art. I.

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 When confronted with the definition of Exit Sale, adherents of the Leave Behind

Theory have contended that the 1.5x Clause is a more specific provision and hence should

control over the more general definition of Exit Sale. Under this approach, they argue that

an Exit Sale can still leave members behind. But the plain language of the definition of an

Exit Sale contemplates a sale of the entire company, either at the entity level through an

asset sale or at the member level through a transfer of securities. In an entity-level

transaction, there is no means by which some members can be left behind. All of the assets

are sold and the proceeds distributed pro rata to the members. The Exit Sale is viable if it

can satisfy the 1.5x Clause for all holders; it fails if there is a holder who will not receive

sufficient consideration. This fact is inherent in the asset-sale alternative, and the All

Securities Clause makes it explicit for a member-level transaction.

The outcome of the plain language analysis up to this point is the Blocking Theory,

under which an Exit Sale fails if the proceeds will not satisfy the 1.5x Clause for some

members. This result led some interpreters to counter with the Top Off Theory, under

which some holders could receive greater consideration to satisfy the 1.5x Clause.

The plain language of the Exit Sale Right does not permit some members to receive

greater consideration than others in an Exit Sale. The Exit Sale Right states that the Exit

Sale must proceed in compliance with Article XIII, Sections 7(c), 7(d), and 9(b). These

sections link to the Distribution Provisions. Collectively, they establish the Equal

Treatment Requirements. They effectively require equal and ratable treatment of members

in an Exit Sale.

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 One version of the Top Off Theory is a Seller Top Off, in which Crestview, Load

Line, or the buyer in an Exit Sale would come up with greater consideration for the Small

Holders. Article XIII, Section 7(d) specifies that all units transferred in an Exit Sale “shall

be Transferred on the same terms and conditions as each other Unit so Transferred.” The

price that a member receives for its units is a term of the transfer.515 Often, it is the most

important term. Article XIII, Section 7(d) thus forecloses having certain members receive

greater consideration—different terms—than others.

Another version of a Top Off Theory is a Waterfall Top Off, in which the proceeds

of an Exit Sale are allocated first to members who have not yet received enough

distributions to satisfy the 1.5x Clause, then subsequently allocated pro rata to all

members. The Exit Sale Right lacks any language that would provide for a priority return

of capital, much less a priority return on capital. Instead, the Distribution Provisions

establish a payment scheme that forecloses priority returns. They require that the proceeds

of an Exit Sale must be distributed first so that members receive their Maximum Permitted

Tax Amount, then pro rata “in accordance with their Percentage Interests.” A Waterfall

Top Off would contravene these provisions and is not permitted.

515
See In re Hypodermic Prods. Antitrust Litig., 484 F. App’x 669, 671 (3d Cir.
2012) (discussing the negotiation of “prices of products and other terms and conditions”);
CC Fin. LLC v. Wireless Props., LLC, 2012 WL 4862337, at *2 (Del. Ch. Oct. 1, 2012)
(citing the “purchase price and other material terms and conditions of sale”); In re Marriott
Hotel Props. II Ltd. P’ship Unitholders Litig., 1997 WL 589028, at *2 (Del. Ch. Sept. 17,
1997) (discussing disclosure of “offer price and the other terms and conditions of the tender
offer”).

128
 Working through the Distribution Provisions both forecloses a Top Off Option and

gives rise to another reason why the Leave Behind Theory is not reasonable. The

Distribution Provisions contemplate distributions to all members in proportion to their

Percentage Interests. The definition of Percentage Interests uses all of the outstanding units

as the denominator. If an Exit Sale left some members behind, then the math of the

Distribution Provisions would not work. Those members would still get their distributions

from the Exit Sale, yet they would not have sold.

The Minority Members have pointed out that the last sentence of Article XIII,

Section 9(b) uses the word “remaining Members,” which they say supports reading the

Distribution Provisions to contemplate that an Exit Sale could leave some members behind.

The full sentence states: “Allocation of the aggregate purchase price payable in an Exit

Sale will be determined by assuming that the aggregate purchase price was distributed to

[Oxbow Holdings] and the remaining Members in accordance with Article XI, Section 1

hereof.”516 This sentence does not use “remaining” in the sense of “those who remain” or

“those left behind.” It uses “remaining” as a synonym for “other” to say that the proceeds

will be distributed to “Oxbow Holdings and the other Members in accordance with Article

XI, Section 1 hereof.” If the word “remaining” meant “those left behind,” then this

provision would call for distributing the consideration from the Exit Sale to only a subset

of members: Oxbow Holdings and the Small Holders. Under the reading that their lawyers

516
Id. art. XIII, § 9(b).

129
have advocated, Crestview and Load Line would not participate in the distribution of

consideration from the Exit Sale that they caused to take place! What this language instead

means is that all of the members, including Oxbow Holdings as the majority member, get

pro rata consideration. This provision dovetails with the requirement that all units be sold

on the “same terms and conditions” to ensure that Oxbow Holdings cannot demand extra

consideration as compensation for its controlling stake.

The Exit Sale Right is not the only type of transaction in the LLC Agreement that

uses the concept of an Exit Sale. Article XIII, Section 9 gives Oxbow Holdings the

reciprocal Drag-Along Right to force an Exit Sale and drag along all other members. It

states:

Subject to the terms and conditions of Section 7(c), Section 7(d) and this
Section 9, following the earlier of (i) the second anniversary of the Effective
Date or (ii) the death of William I. Koch, [Oxbow Holdings] may require all
of the Members to participate in an Exit Sale on the same terms and
conditions as [Oxbow Holdings]; provided, that such Exit Sale must result in
proceeds to each of Crestview and Load Line (when combined with all prior
distributions to Crestview and Load Line, respectively) equal to at least 2.5
times their respective aggregate Capital Contributions through such date.517

This language says plainly that for an Exit Sale to be sufficient for purposes of the Drag-

Along Right, it must deliver an amount of proceeds “to each of Crestview and Load Line”

that meets the prescribed return hurdle. The language does not contemplate that either

Crestview or Load Line could abstain from the transaction and stay in as a minority

investor. The Exit Sale either meets the hurdle for both investors and works, or it falls short

517
Id. art. XIII, § 9.

130
of the hurdle for both investors and fails. The hurdle in the Drag-Along Right only applies

to Crestview and Load Line, so it was easy to draft. The Exit Sale Right strives to achieve

a parallel structure, but extends the 1.5x Clause to all other members. The provision

therefore speaks in terms of “any other Member,” but it operates in a parallel fashion.

The parties could have drafted the LLC Agreement differently. They might have

defined a concept called a “Drag-Along Sale” for Koch’s Drag-Along Right and included

the clauses that protect against Koch obtaining extra consideration for Oxbow Holdings.

Having done so, they could have defined an “Exit Sale” differently for purposes of the Exit

Sale Right. They might also have drafted different mechanics for implementing a Drag-

Along Sale and an Exit Sale.

Another alternative would have been for the parties to keep the unitary Exit Sale

concept but revise the definition and the procedures to speak in terms of participating

members and make the math work if fewer than all members participated. The parties took

this approach in Article XIII, Section 7, which addresses a situation in which Oxbow

Holdings might wish to sell some of its units in a member-level transfer and gives the

Minority Members a right to tag along in the sale and sell a proportionate number of their

own units (the “Tag-Along Right”).518 The Tag-Along Right both (i) contemplates that the

Minority Members can choose whether to participate and (ii) permits the Minority

518
Id. art. XIII, § 7.

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Members to participate as to only some of their units.519 The language that the drafters of

the LLC Agreement used to address this situation contrasts with the language they used for

the Exit Sale Right, reinforcing the interpretation of the latter as requiring the participation

of all members.

Doubtless other approaches are possible. Instead, the drafters used a single

definition of Exit Sale that incorporated the All Securities Clause. They made the Exit Sale

subject to the Equal Treatment Requirements and called for a pro rata payout under the

Distribution Provisions.

Contracts must be read as a whole. If the 1.5x Clause were read in isolation, then

the Leave Behind Theory would be reasonable. If one ponders what might be commercially

reasonable, then a Top Off is viable. When the 1.5x Clause is read in conjunction with the

All Securities Clause and Equal Treatment Requirements, including the Distribution

Provisions, then neither the Leave Behind Theory nor a Top Off is reasonable.

The practical result of these provisions when read together is to mandate the Highest

Amount Interpretation. It an Exit Sale does not satisfy the 1.5x Clause for any member,

then it cannot proceed. To satisfy the 1.5x Clause for all members and to pay all members

the same consideration, the Exit Sale must provide all members with the highest amount

necessary to satisfy the 1.5x Clause for any member.

519
Id. art. XIII, § 7(a)-(c).

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 3. Extrinsic Evidence

“If a contract is unambiguous, extrinsic evidence may not be used to interpret the

intent of the parties, to vary the terms of the contract, or to create an ambiguity.”520 Because

this case proceeded to trial on the implied covenant of good faith and fair dealing and other

theories, there is extensive evidence about (i) how different parties interpreted the 1.5x

Clause, (ii) the negotiations that led to the 1.5x Clause, and (iii) the circumstances

surrounding the issuance of units to the Small Holders, which gives rise to the current

controversy over the 1.5x Clause. Because the meaning of the 1.5x Clause is plain when

read in the context of the Exit Sale Right and the LLC Agreement as whole, the parol

evidence rule forecloses the consideration of that evidence for purposes of interpreting the

Exit Sale Right. The evidence remains relevant, however, to the analysis of the implied

covenant of good faith and fair dealing.

If I were to consider the negotiating history, it would not change my reading of the

Exit Sale Right. Although Crestview and ArcLight initially proposed the 1.5x Clause as a

Leave Behind Option for ArcLight, Koch personally revised the provision to change it to

a Blocking Option. Koch explained credibly what he was seeking to achieve, which fit with

his economic interests at the time and matched up with the plain language of his changes.

The lawyers later cleaned up Koch’s language in a manner that took a step back towards a

Leave Behind Option, but there is no indication that anyone intended the edits to effect a

520
Exelon, 2017 WL 6422337, at *4.

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substantive change. More importantly, no one ever made the types of changes to the All

Securities Clause or the Equal Treatment Requirements, including the Distribution

Provisions, that would be necessary to implement a Leave Behind Option.

The parallelism between the Exit Sale Right and the Drag-Along Right reinforces

this interpretation. The negotiating history indicates that the drafters developed the concept

of an Exit Sale for the Drag-Along Right. In this context, the Minority Members wanted to

make clear that Oxbow Holdings could not insist on additional consideration to reflect its

status as a controller, so their counsel introduced the requirement that an Exit Sale be on

the “same terms and conditions” for all members.521 Oxbow Holdings’ counsel suggested

“substantially the same terms and conditions,” but Crestview rejected the qualifier.522 The

parties later built the same concept into the Equal Treatment Requirements. The Minority

Members understandably wanted this protection if Koch was the seller pursuant to the

Drag-Along Right and it was their ox potentially being gored. Because the parties used the

same definition of Exit Sale and the same Equal Treatment Requirements when structuring

the Exit Sale Right and the Drag-Along Right, it follows that the two rights should be

interpreted similarly. The result is the Highest Amount Interpretation under which all

holders get the highest amount that any holder receives.

521
JX 83 at Oxbow_00075012; see also JX 105 at DPW-001454; Hurst Tr. 76-79.
522
See JX 113 at OXBOW_LATHAM_00002986.

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 The Minority Members and their counsel were not shy about marking up the LLC

Agreement. Crestview and its counsel provided extensive comments throughout the

negotiations, and the parties substantially redrafted the language implementing the Exit

Sale Right to accommodate Load Line. They never attempted to redraft the definition of

an Exit Sale or to modify the Equal Treatment Requirements, including the Distribution

Provisions, in ways that would accommodate a Leave Behind Option.

The fact that various sophisticated individuals have looked at the Exit Sale Right

and reached different interpretations does not mandate a finding of ambiguity or call for

adopting the Leave Behind Theory. As Volpert recognized at trial, the Leave Behind

Theory was best for Crestview, because it enabled them to exit without paying any extra

money.523 It is unsurprising that Crestview and their counsel advocated for this theory.

Their analysis never went meaningfully beyond the 1.5x Clause. Other than making the

argument that the specific 1.5x Clause should control over the more general All Securities

Clause, they never dealt with other aspects of the LLC Agreement, such as the possibility

of an entity-level Exit Sale that could leave no member behind or the implications of the

Equal Treatment Requirements, including the Distribution Provisions.

McAuliffe subjectively believed in either the Leave Behind Theory or a Top Up

Option, but he never explained why. As discussed in the Factual Background, his analysis

does not track the relevant provisions, and the two instances he identified in which a partial

523
See Volpert Tr. 607.

135
Exit Sale would be possible mix up different concepts. Neither of the emails in which he

expressed his views parse through the language of the LLC Agreement or reference the

Equal Treatment Requirements. My impression is that McAuliffe believed that Crestview

should be able to exit and that such an outcome would be in the best interests of Oxbow

and, ultimately, Koch. He approached the Exit Sale Right with a view towards getting a

transaction done.

The views of the Mintz Levin lawyers evolved. When they considered only the 1.5x

Clause and the definition of an Exit Sale, the corporate partners read the former as an

exception to the latter, supporting the Leave Behind Theory. The litigators read the latter

as trumping the former, supporting the Blocking Theory. Both thought a Top Off Option

solved any impediment created by the Blocking Theory. Only after the ArcLight offer

arrived and the corporate lawyers worked through the Equal Treatment Requirements,

including the Distribution Provisions, did the Highest Amount Interpretation jump out at

them. The fact that the Mintz Levin lawyers came to this reading late in the day is a reason

to be skeptical about it, but it ends up being the only reading that gives meaning to the LLC

Agreement when read as a whole.

Cravath’s views are underrepresented in the record, but appear motivated by

practicality. Townsend was prepared to advise that in his experience, most provisions like

the 1.5x Clause could be addressed with a Top Off. His talking points did not work through

the Equal Treatment Requirements. Townsend had interacted regularly with McAuliffe and

understood the difficult corporate governance dynamics at Oxbow. Although not as loose

136
in his analysis as McAuliffe, I believe Townsend also examined the Exit Sale Right with a

view towards to getting a transaction done.

My overall impression is that when interpreting the 1.5x Clause, many of the

lawyers were influenced by their clients’ objectives, which is understandable.524 A court’s

only client is the integrity of the law and the judicial process.

It also appears that the lawyers’ views about the proper interpretation of the contract

were influenced by the size of the Small Holders’ ownership interest and the circumstances

surrounding their admission as members. Those factors made it seem unreasonable that the

Small Holders could block an Exit Sale. If the Small Holders had purchased a much larger

block, then I doubt that the Blocking Theory or the Highest Amount Theory would have

seemed extreme. The language of the Exit Sale Right does not turn on the size of the

members’ interest or how they became members, so those factors do not affect a plain

language interpretation of the LLC Agreement. They are relevant to the analysis of the

implied covenant of good faith and fair dealing.

Because the plain language of the Exit Sale Right mandates the Highest Amount

Interpretation, extrinsic evidence is not relevant. For the sake of completeness, this decision

has considered it. Although it reveals a range of views about the 1.5x Clause, it does not

change the fact that the Highest Amount Interpretation is the only reading that gives

524
See Andrew M. Perlman, A Behavioral Theory of Legal Ethics, 90 Ind. L.J. 1639,
1653-57 (2015) (discussing the effects of partisanship on the judgment of lawyers and other
professionals).

137
meaning to the 1.5x Clause, the Exit Sale definition, and the Equal Treatment

Requirements, including the Distribution Provisions. It is the only reasonable reading of

the LLC Agreement.

C. The Application Of The Implied Covenant

The next issue is the application of the implied covenant of good faith and fair

dealing. The Minority Members seek a declaration that the implied covenant prevents the

Koch Parties from relying on the Highest Amount Interpretation. At a minimum, they

contend that Crestview should be permitted to provide additional proceeds to the Small

Holders to satisfy the 1.5x Clause—a Seller Top Off. They would prefer a Waterfall Top

Off, and they believe that the implied covenant should permit an Exit Sale to leave the

Small Holders behind. The Koch Parties contend that the plain language of the LLC

Agreement leaves no room for the implied covenant.

The Minority Members technically seek a declaratory judgment regarding the effect

of the implied covenant. As parties seeking this declaration, they bore the burden of

proving their claim by a preponderance of the evidence. They did not take the next step

and assert a claim for breach of the implied covenant, which requires proof of “a specific

implied contractual obligation, a breach of that obligation by the defendant, and resulting

damage to the plaintiff.”525 Consequently, this decision only addresses what obligation is

implied.

525
Fitzgerald v. Cantor, 1998 WL 842316, at *1 (Del. Ch. Nov. 10, 1998).

138
 1. The Legal Standard

Under Delaware law, the implied covenant of good faith and fair dealing “attaches

to every contract.”526 The implied covenant of good faith and fair dealing is a doctrine that

Delaware law deploys to ensure that parties’ contractual expectations are fulfilled under

circumstances that the parties did not anticipate. In its most common manifestation, the

implied covenant “supplies terms to fill gaps in the express provisions of a specific

agreement.”527 When a party asserts an implied covenant claim, the court “first must

engage in the process of contract construction to determine whether there is a gap that

needs to be filled.”528 “Through this process, a court determines whether the language of

the contract expressly covers a particular issue, in which case the implied covenant will not

apply, or whether the contract is silent on the subject, revealing a gap that the implied

covenant might fill.”529 A court must determine whether a gap exists because “[t]he implied

covenant will not infer language that contradicts a clear exercise of an express contractual

right.”530 “[B]ecause the implied covenant is, by definition, implied, and because it protects

526
Dunlap v. State Farm Fire & Cas. Co., 878 A.2d 434, 442 (Del. 2005).

Allen v. El Paso Pipeline GP Co., 113 A.3d 167, 182 (Del. Ch. 2014), aff’d, 2015
527

WL 803053 (Del. Feb. 26, 2015).
528
Id. at 183; see also Mohsen Manesh, Express Contract Terms and the Implied
Contractual Covenant of Delaware Law, 38 Del. J. Corp. L. 1, 19 (2013).
529
Nama Hldgs., LLC v. Related WMC LLC, 2014 WL 6436647, at *16 (Del. Ch.
Nov. 17, 2014).
530
Nemec v. Shrader, 991 A.2d 1120, 1127 (Del. 2010).

139
the spirit of the agreement rather than the form, it cannot be invoked where the contract

itself expressly covers the subject at issue.”531 “[I]mplied covenant analysis will only be

applied when the contract is truly silent with respect to the matter at hand . . . .”532

“If a contractual gap exists, then the court must determine whether the implied

covenant should be used to supply a term to fill the gap. Not all gaps should be filled.”533

The most obvious reason a term would not appear in the parties’ express
agreement is that the parties simply rejected that term ex ante when they
articulated their contractual rights and obligations. Perhaps, for example, the
parties . . . considered the term, and perhaps [after] some give-and-take
dickering, the parties agreed the term should not be made part of their
agreement. They thus rejected the term by purposefully omitting the term.534

The implied covenant should not be used to fill a gap created by a rejected term because

doing so would grant a contractual right or protection that the party “failed to secure . . . at

the bargaining table.”535 A court must not use the implied covenant to “rewrite [a] contract”

531
Fisk Ventures, LLC v. Segal, 2008 WL 1961156, at *10 (Del. Ch. May 7, 2008),
aff’d, 984 A.2d 124 (Del. 2009).
532
Allied Capital Corp. v. GC-Sun Hldgs., L.P., 910 A.2d 1020, 1032 (Del. Ch.
2006).
533
Allen, 113 A.3d at 183.
534
Manesh, supra, at 28 (footnote omitted).
535
Aspen Advisors LLC v. United Artists Theatre Co., 843 A.2d 697, 707 (Del. Ch.)
(Strine, V.C.), aff’d, 861 A.2d 1251 (Del. 2004).

140
that a party “now believes to have been a bad deal.”536 “Parties have a right to enter into

good and bad contracts, the law enforces both.”537

But a contractual gap may exist for other reasons. “No contract, regardless of how

tightly or precisely drafted it may be, can wholly account for every possible

contingency.”538 Even the most skilled and sophisticated parties will necessarily “fail to

address a future state of the world . . . because contracting is costly and human knowledge

imperfect.”539 “In only a moderately complex or extend[ed] contractual relationship, the

cost of attempting to catalog and negotiate with respect to all possible future states of the

world would be prohibitive, if it were cognitively possible.”540 And “parties occasionally

have understandings or expectations that were so fundamental that they did not need to

negotiate about those expectations.”541

These or other circumstances may warrant resort to the implied covenant. The

Delaware Supreme Court has provided guidance in this area by admonishing against a free-

536
Nemec, 991 A.2d at 1126.
537
Id.
538
Amirsaleh v. Bd. of Trade of City of New York, Inc., 2008 WL 4182998, at *1
(Del. Ch. Sept. 11, 2008).
539
Lonergan v. EPE Hldgs., LLC, 5 A.3d 1008, 1018 (Del. Ch. 2010).
540
Credit Lyonnais Bank Nederland, N.V. v. Pathe Commc’ns Corp., 1991 WL
277613, at *23 (Del. Ch. Dec. 30, 1991) (Allen, C.).
541
Katz v. Oak Indus. Inc., 508 A.2d 873, 880 (Del. Ch. 1986) (Allen, C.).

141
wheeling approach. Invoking the doctrine is a “cautious enterprise.”542 Implying contract

terms is an “occasional necessity . . . to ensure [that] parties’ reasonable expectations are

fulfilled.”543 Its use should be “rare and fact-intensive, turning on issues of compelling

fairness.”544

“Assuming a gap exists and the court determines that it should be filled, the court

must determine how to fill it. At this stage, a reviewing court does not simply introduce

its own notions of what would be fair or reasonable under the circumstances.”545 Although

its name includes the concepts of “good faith” and “fair dealing,” the implied covenant

does not establish a free-floating requirement that a party act in some morally

commendable sense.546 When used with the implied covenant, the term “good faith”

contemplates “faithfulness to the scope, purpose, and terms of the parties’ contract.”547 The

concept of “fair dealing” similarly refers to “a commitment to deal ‘fairly’ in the sense of

542
Nemec, 991 A.2d at 1125.
543
Dunlap, 878 A.2d at 442 (internal quotation marks and citation omitted).
544
Cincinnati SMSA Ltd. P’ship v. Cincinnati Bell Cellular Sys. Co., 708 A.2d 989,
992 (Del. 1998), aff’d, 708 A.2d 989 (Del. 1998).
545
Allen, 113 A.3d at 184.
546
Gerber v. Enter. Prods. Hldgs., LLC, 67 A.3d 400, 418 (Del. 2013), overruled in
part on other grounds by Winshall v. Viacom Int’l, Inc., 76 A.3d 808 (Del. 2013).
547
Id. at 419 (emphasis omitted); accord Restatement (Second) of Contracts § 205
cmt. a (Am. Law Inst. 1981) (“Good faith performance or enforcement of a contract
emphasizes faithfulness to an agreed common purpose and consistency with the justified
expectations of the other party . . . .”).

142
consistently with the terms of the parties’ agreement and its purpose.”548 These concepts

turn not on whether a court believes that a particular action was morally or equitably

appropriate under the circumstances, but rather “on the contract itself and what the parties

would have agreed upon had the issue arisen when they were bargaining originally.”549

To supply an implicit term, the court “looks to the past” and asks “what the parties

would have agreed to themselves had they considered the issue in their original bargaining

positions at the time of contracting.”550 The court seeks to determine

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.551

“Terms are to be implied in a contract not because they are reasonable but because they are

necessarily involved in the contractual relationship so that the parties must have intended

them . . . .”552 In this manner, the implied covenant “seeks to enforce the parties’ contractual

bargain by implying only those terms that the parties would have agreed to during their

original negotiations if they had thought to address them.”553

548
Gerber, 67 A.3d at 419.
549
Id. (emphasis omitted).
550
Id. at 418.
551
Id.
552
Cincinnati Bell, 1997 WL 525873, at *5.
553
Gerber, 67 A.3d at 418.

143
 2. The Gap

The gap in this case concerns the terms on which Oxbow admitted the Small

Holders. The LLC Agreement that the parties executed in 2007 clearly contemplated the

possibility of members later joining Oxbow (for example, by providing for preemptive

rights),554 but it did not specify the rights that later-admitted members would have. Instead,

it left the issue open until the Company admitted new members, and it empowered the

Board to make the determination.

Article IV, Section 5 of the LLC Agreement (the “New Member Provision”)

governs the admission of new members. It states:

Subject to Article XIII, Section 5, upon the approval of the Directors,
additional Persons may be admitted to the Company as Members and Units
may be created and issued to such Persons as determined by the Directors on
such terms and conditions as the Directors may determine at the time of
admission. The terms of admission may provide for the creation of different
classes or series of Units having different rights, powers and duties. As a
condition to being admitted as a Member of the Company, any Person must
agree to be bound by the terms of this Agreement by executing and delivering
a counterpart signature page to this Agreement, and make the representations
and warranties set forth in Section 7 below as of the date of such Person’s
admission to the Company. The address, Percentage Interest and Capital
Contribution of each such additional Member shall be added to Exhibit A,
which shall thereby be amended.555

This provision grants the Board the power to determine whether “additional Persons” are

“admitted to the Company as Members,” and it authorizes the Board to create units and

554
LLCA art. XIII, § 5.
555
LLCA art. IV, § 5. The introductory phrase, “[s]ubject to Article XIII, Section
5,” cross-references the preemptive rights provisions in the LLC Agreement.

144
issue them “on such terms and conditions as the Directors may determine at the time of

admission.” It further states that “[t]he terms of admission may provide for the creation of

different classes or series of Units having different rights, powers and duties.”

By deferring until a later point the question of what rights subsequent members

would have, the LLC Agreement created a gap. Determining whether that gap persisted for

the Small Holders requires examining the terms on which the Company admitted them in

2011.

The Board did not fill the gap in 2011. On April 28, 2011, the Board unanimously

adopted the following two resolutions:

RESOLVED, that the Company is authorized to issue up to $20,000,000 of
shares of Company stock to the family of William I. Koch’s family, including
unit holder Joan Granlund, at a price of $300 per share.

FURTHER RESOLVED, that the Company is authorized to issue up to
$10,000,000 of shares of the Company stock to former [sulfur-company]
executives at a price of $300 per share.556

Neither resolution referred to Family LLC or Executive LLC. Neither specified the rights

that the members of Koch’s family or the former sulfur-company executives would have

as members. The resolutions spoke of “shares of Company stock.” As an LLC, the

Company did not have stock. If anything, this reference implied a common-stock-like

instrument without special rights, powers, preferences, or privileges, such as a preferential

right to receive 1.5 times invested capital before being forced to engage in a sale.

556
JX 2539 at Oxbow_00261105.

145
 The Board revisited the issuance to the former sulfur-company executives during a

meeting on November 9, 2011. The minutes contain the following:

Steve Fried discussed the proposed stock purchase plan for the International
Commodities Export Corporation (Sulphur group) employees, stating that
approximately 12 people had shown an interest in purchasing Company units
at the price of $300 per share, for a total of Fifteen Million Dollars
($15,000,000). After some discussion concerning the price to be charged, it
was unanimously agreed that $15,000,000 of stock would be offered at the
same price discussed in the April board meetings, $300 per share. It was
agreed to attempt to get this matter finalized by January 1, 2012.557

The action taken at this meeting did not specify the rights that the former sulfur-company

executives would have as members. Although the minutes referred at one point to “units,”

it described the issuance as part of a “proposed stock purchase plan” and later referred to a

price of “$300 per share.” For purposes of determining the rights of the former sulfur-

company executives, the reference to a “proposed stock purchase plan” clouded matters

rather than clarifying them. As Volpert testified at trial, employee stock purchase plans

(particularly in private companies) often limit a recipient’s ability to exercise rights

associated with shares. They also frequently give the issuer rights regarding the shares,

such as a right to repurchase them under particular circumstances.558 The directors could

have reasonably expected that management would develop the specific terms of the

“proposed stock purchase plan” and ask the Board to approve them.

557
Id. at Oxbow_00261107.
558
Volpert Tr. 373.

146
 In considering the evidence, I do not fully credit Hurst and Volpert’s testimony that

they had no reason to think that the sulfur-company executives and the members of Koch’s

family would invest through entities rather than individually. Koch had sent emails to the

Board that proposed to have the sulfur-company executives invest “via an investment

trust.”559 Fried had circulated a more detailed summary describing a “Newco” structure in

which “Newco would be a Delaware limited liability company,” “Newco would become a

member of Oxbow, owning the same class of units as currently exists,” and “[a]n affiliate

of Oxbow would be an investor in Newco and serve as the Manager of Newco.” 560 This

description anticipated Executive LLC. But Fried also stated in his email that “[t]he

existing members of Oxbow would be required to consent to an amendment to implement

the rights of Newco as described above.”561 I personally do not see any basis in the LLC

Agreement for believing that the issuance required a formal amendment and member-level

consent (as opposed to Board-level consent). Nevertheless, Hurst, Volpert, and the other

directors reasonably could have believed that management would present them with more

detailed documents regarding the issuance to Newco and that the Board would be able to

weigh in at that time.

559
JX 140; see also JX 138 at Oxbow_00237109; Hurst Tr. 185-86.
560
JX 138 at Oxbow_00237125.
561
Id. at Oxbow_00237126.

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 By failing to follow proper formalities, the Koch Parties created a gap regarding the

terms on which the Small Holders became members. The Koch Parties’ failure to follow

proper formalities is all the more significant because Oxbow’s CFO flagged that Oxbow

was not complying with the preemptive rights section in the LLC Agreement and that the

issuance required an additional approval to address it.562 Both Koch and Oxbow’s corporate

secretary at the time ignored the issue. Given this lax attitude, it is perhaps less surprising

that Oxbow personnel also failed to recognize that, because Koch controlled Family LLC

and Executive LLC, and for the additional reason that members of Koch’s family owned

Family LLC, the issuances were related-party transactions that required approval by

Supermajority Vote.563

In arguing that no gap exists, the Koch Parties point to the Equal Treatment

Requirements, which exist by virtue of Article XIII, Section 8(e) stating that an Exit Sale

may only occur “on the terms set forth in Section 7(c), Section 7(d) and Section 9(b).”

They also point to the Distribution Provisions, which come in via the reference to Article

XIII, Section 9(b). The Koch Parties assert that using the implied covenant to permit a Top

Off Option or Leave Behind Option would conflict with these express provisions in the

LLC Agreement. But this argument begs the question by assuming that subsequently

admitted members have the same rights and obligations as the original members. Through

562
See JX 157.
563
LLCA art. III, § 3(d)(11).

148
the New Member Provision, the LLC Agreement took a different course. It left open the

question of what rights and obligations subsequently admitted members would have,

creating an intentional gap. When the Board acted in 2011, it did not act formally to specify

those rights and obligations. The gap therefore remains open for the implied covenant to

fill.

In arguing that no gap exists, the Koch Parties also cite the negotiations over the

Exit Sale Right and the 1.5x Clause that took place in 2007. They observe that Crestview

negotiated with the goal of spelling out its exit rights and leaving nothing to implication.564

They further observe that the parties negotiated over what would count towards satisfying

the 1.5x Clause, with the initial draft only considering the Exit Sale proceeds, a later draft

adding prior distributions but not tax distributions, and the final LLC Agreement including

sale proceeds and all prior distributions, including tax distributions.565 The Koch Parties

conclude that if Crestview wanted the 1.5x Clause to accommodate a Top Off, they needed

to bargain for it in 2007. Once again, this argument begs the question by assuming how the

LLC Agreement would treat subsequent members for purposes of the Put and Exit Sale

Right. In 2007, the parties left this issue open by including the New Member Provision in

the LLC Agreement. If the Oxbow Board later admitted new members, it could condition

the issuance on the 1.5x Clause not applying to those units, or it could issue a different

564
See Hurst Tr. 61-62.
565
Compare JX 25 at Oxbow_00236397, with LLCA art. XIII, § 8(e). See Hurst Tr.
111-14.

149
class of units entirely. Once again, the terms of the LLC Agreement do not foreclose the

application of the implied covenant where subsequent members are concerned. The focus

necessarily shifts from 2007, when the parties left the issue open, to 2011, when Oxbow

admitted the Small Holders.

Oxbow’s failure to follow proper formalities when admitting the Small Holders

leaves the Koch Parties poorly positioned to argue that there is no gap to fill. It is impossible

to know what would have happened if Koch and his team had documented the issuances

properly. Under those circumstances, Hurst, Volpert, and Coumantaros could have

identified the potential threat to the Exit Sale Right from the Small Holders resetting the

threshold for the 1.5x Clause. The Supermajority Vote requirement meant that they could

have blocked the issuance and forced a negotiation. The Board had the power under the

New Member Provision to issue units to the Small Holders on the condition that they not

be able to invoke the 1.5x Clause. The Board also could have created a new class or series

of units that did not possess the right to invoke the 1.5x Clause. Because of the lax manner

in which the Koch Parties proceeded, that discussion never happened, and the gap remained

open.

The Minority Members proved at trial that a gap exists in the parties’ contract

relating to the terms on which the Small Holders became members. The implied covenant

can fill that gap and satisfy the parties’ reasonable expectations.

3. The Implied Provision

To fill the gap, this court must “look[] to the past” and consider “what the parties

would have agreed to themselves had they considered the issue” during the time when they

150
were contracting.566 Because the gap in this case concerns the terms on which Oxbow

admitted the Small Holders as members, the time of contracting is not 2007, when the

parties originally executed the LLC Agreement, but rather 2011, when the issue of

admitting the new members arose.

The Minority Members proved at trial that they never would have consented to

admitting the Small Holders if they had understood that the admission would reset the 1.5x

Clause. At trial, Volpert explained that “[b]y 2011, there was no hurdle [for an Exit Sale].

Everyone had received 1.5 times. So to reset it from zero, in effect, to $450 would have

been completely irrational.”567 Hurst testified similarly.568 I credit their testimony.

The Koch Parties have argued that Crestview did not care about the 1.5x Clause in

2011 because they expected to exit for at least $500 per unit and did not expect the hurdle

to matter. There is some evidence to support this contention.569 At trial, I asked Volpert

about this specific point, and he explained that while such an exit “was possible,” even

“hoped for,” that was the upside case.570 There was risk that it would not happen. “So there

566
Gerber, 67 A.3d at 419.
567
Volpert Tr. 385; see also id. at 365-66, 387.
568
See Hurst Tr. 17-18, 22-23.
569
See, e.g., JX 160 at CRESTVIEW000010924; JX 164 at
CRESTVIEW000116055; JX 166 at CRESTVIEW000116078; JX 235 at
CRESTVIEW000093138.
570
Volpert Tr. 386.

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was no reason for us to anticipate that we would have an exit at such a high price.”571 There

was likewise “no reason for [Crestview] to give up the most important right we had for . .

. the company to raise money that they didn’t need.”572 On balance, I credit Volpert’s

testimony that Crestview never would have agreed in 2011 to reset a key exit hurdle to

$450 per share.

The Minority Members also proved at trial that the Koch Parties would not have

insisted on a Highest Amount Option. Until March 2016, no one among the Koch Parties

had identified the Highest Amount Theory, so they would not have insisted upon it during

a negotiation in 2011 or 2012. McAuliffe thought that the LLC Agreement allowed an Exit

Sale to leave behind the Small Holders or make them whole with a Top Off.573 Until March

2016, the Mintz Levin legal team, Koch, the other Oxbow Holdings appointees, and key

members of management like Freney thought an Exit Sale could make the Small Holders

whole with a Waterfall Top Off. The Koch Parties would not have insisted on a position

that they had not yet taken based on aspects of the Exit Sale Right that they had not yet

identified.

The evidence convinces me that the parties would not have agreed to admit the

Small Holders on conditions that implemented a Leave Behind Option. As their initial

571
Id.
572
Id.
573
See JX 360; JX 2144 at Oxbow_00254920.

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offer, the Minority Members likely would have proposed a set of conditions that

implemented a Leave Behind Option, but Koch never would have accepted it. Koch

testified credibly that he was adamantly opposed to any provision that would leave behind

any member.574 As discussed in the Factual Background, during the negotiation of the LLC

Agreement in 2007, Koch personally redrafted the original 1.5x Clause so that it no longer

provided a Leave Behind Option.575 Hurst and Volpert admitted Koch was a “difficult” and

“tough negotiator.”576 I credit that Koch would not have accepted a scenario in which an

Exit Sale would have left Family LLC behind. As a matter of principle, he would have

insisted that the LLC Agreement treat all members the same, including Executive LLC,

just as he had in 2007. A Leave Behind Option was not in the cards.

The evidence convinces me that it was possible, but unlikely, that the parties would

have agreed to a Waterfall Top Off. This approach treats the 1.5x Clause as a priority return

of capital plus a 50% priority return on capital. It deducts this amount off the top from the

Exit Sale proceeds and then distributes the balance pro rata to all members. Because Koch

and members of his family owned two thirds of Oxbow’s units, they would bear two-thirds

of the cost of a Waterfall Top Off. As a practical matter, under this approach, Koch and

members of his family would have to pay two-thirds of the cost to facilitate a forced sale

574
Koch Tr. 660-62, 675, 679-80.
575
See JX 71; JX 74.
576
Hurst Tr. 62; Volpert Tr. 387.

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of their business. It is possible that Koch would have agreed to this, and there is significant

evidence that the Koch Parties believed until March 2016 that the Exit Sale Right

contemplated a Waterfall Top Off, but Koch would have bristled at paying most of the

freight. In a negotiation in 2011, I do not believe that he would have given up easily.

The evidence convinces me that the most likely outcome is that the parties would

have agreed to a Seller Top Off. Under that approach, the Minority Members could

complete an Exit Sale if they came up with sufficient additional funds to satisfy the 1.5x

Clause for the Small Holders. Volpert testified that Crestview would have “insist[ed] on

the right to provide a top-up at our cost” and described it as the “commercially logical,

reasonable thing to do.”577 A series of individuals who looked at the situation in real time

concluded that a Seller Top Off was the commercially reasonable outcome. McAuliffe

stated in 2014 and again in 2016 that the Small Holders could be made whole with a Top

Off.578 Kelly, a partner in Mintz Levin’s corporate group, argued in March 2016 that the

structure of the Exit Sale Right “implied” that the Minority Members would be able to

“forego or reallocate whatever is needed in order to top up” the Small Holders.579 Popeo

described Kelly’s view as “good corporate practice and custom in the corporate

577
Volpert Tr. 366-67.
578
See JX 360; JX 2144 at Oxbow_00254920.
579
JX 2495 at Mintz_0023999 (displaying “Rich [Kelly]’s comments”).

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environment.”580 On March 25, 2016, within two days of receiving the ArcLight letter of

intent, Koch emailed Oxbow Holdings’ other appointees and told them that “[t]he [LLC]

Agreement requires that all members receive at least $169/unit while other members are

required to receive additional funds which will bring their returns to 1.5 times their original

investments.”581 Koch believed in the viability of a Seller Top Off.

The contemporaneous views of these individuals made sense in light of the purpose

of the 1.5x Clause, which the trial witnesses agreed was to provide a minimum financial

return.582 Koch explained that he wanted his family members who invested “to receive a

minimum return on their investment before being forced to sell their interests” and that it

was “an important concept . . . that all Members get at least 1.5 times their investment.”583

A Seller Top Off would achieve that goal by ensuring that each member received at least

the bargained-for 1.5-times-return threshold.

Koch testified that during the negotiations in 2007, any request by Crestview for a

Top Off Option would have been a “deal killer.”584 Accepting that testimony for purposes

580
Popeo Tr. 1554; see also Popeo Dep. 371-72 (noting that corporate partners
believed the LLC Agreement permitted a Top Off based on their understanding of “general
corporate practice”); id. at 440 (“[Kelly’s] view was as corporate lawyers would see
applying general corporate practice in this environment.”).
581
JX 2502 at Oxbow_00255249; see also JX 3199 at Oxbow_00366479 (Koch’s
notes: “Some[one] has to come up with cash for [Family LLC delta].”).
582
See Hurst Tr. 12-13; Volpert Tr. 356-58; Popeo Tr. 1389-90.
583
JX 2911 ¶ 10 (Koch affidavit).
584
Koch Tr. 679; see also id. at 675-76.

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of the private equity investment in 2007, it does not hold true for discussions about the

Small Holders in 2011. In 2007, everyone was buying in at the same time and at the same

price per unit, so Koch’s principle of equal treatment made sense. The parties also were all

taking large equity stakes, with Koch and his affiliates taking roughly two-thirds,

Crestview taking roughly one-fourth, and Load Line taking roughly a tenth, so again

comparable treatment made sense. In 2011, the Small Holders were buying in four years

later and taking only 1.4%. They were differently situated than the original investors, so

treating them differently made sense. Giving them nominally equal treatment would

bestow on them preferential treatment.

Another difference was that in 2007, Koch had leverage. Crestview wanted to buy

a sizeable stake in Oxbow, but Oxbow did not need Crestview’s capital.585 In 2011, the

situation was reversed. Koch wanted his family members to buy a small additional stake in

Oxbow. Oxbow did not need their capital, and Crestview was in a position to block the

investment.586

In my view, Koch would have compromised on a Seller Top Off for Family LLC.

As a matter of principle, Koch likely would have obtained the same terms for Executive

LLC. It is possible that he might not have insisted that Executive LLC benefit from the

1.5x Clause and a Seller Top Off. Under Executive LLC’s limited liability company

585
See Koch Tr. 678-79.
586
Volpert Tr. 375.

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agreement, Koch has the power to dissolve the entity and pay the executives fair market

value, without any floor of 1.5 times invested capital.587 Until this litigation, the executives

never knew about the 1.5x Clause.588 The parties might have agreed that Executive LLC

would receive units or invest on terms that did not include a 1.5x Clause. But I think it is

more likely that Executive LLC would have received the same terms as Family LLC.

The Koch Parties also have argued that Koch never would have agreed to a Seller

Top Off because it would be the equivalent of granting the Minority Members a call option,

which had been a nonstarter in 2007.589 A call option would give the Minority Members

the right to buy the Koch Parties’ shares themselves. A Seller Top Off for the Small Holders

does not create a call option. The Seller Top Off operates within the confines of the Exit

Sale Right. The Minority Members still must find an offer that satisfies the requirements

of the Exit Sale Right, including the FMV Clause and the 1.5x Clause. The only effect of

the implied term is to plug the contractual hole that currently permits the Koch Parties to

claim that all members must receive the benefit of the clearing price necessary to satisfy

the 1.5x Clause for the Small Holders.

587
JX 2545 at CRESTVIEW_000027444; see also Hurst Tr. 17-18.
588
See Koch Tr. 1240-41; Zisson Dep. 29.
589
During the negotiations of the LLC Agreement, Koch asked Crestview to give
him a call option, but Crestview rejected it because they “didn’t want to be called out at a
time that the company’s business was doing exceptionally well and had great prospects.”
Hurst Tr. 116-17; see also JX 22 at Oxbow_00075051. Crestview never even considered
asking Koch for a call option, knowing he would refuse. Hurst Dep. 258.

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 By drawing analogy to a call option, the Koch Parties seem to be envisioning a

situation in which Oxbow did not do well following the Minority Members’ investment,

such that the 1.5x Clause was never satisfied for any members. They posit that if a Seller

Top Off is permitted in this case for the Small Holders, then it would be permitted in the

hypothetical case in which Oxbow never fared well. Under that hypothetical scenario, they

envision that the Minority Members could use a Seller Top Off to force a sale of Oxbow

even though the 1.5x Clause was not satisfied for anyone.

In my view, the implied covenant would not operate to imply the availability of a

Seller Top Off under those circumstances. The difference between the two scenarios

highlights the narrow role of the implied covenant and the limited nature of the implied

term. The implied covenant only has a role because of the poorly documented admission

of the Small Holders and the resulting unexpected scenario in which the Koch Parties can

use that fortuitous circumstance to invoke the Highest Amount Interpretation and block an

Exit Sale Right that otherwise indisputably would apply for the other 98.6% of the units.

In the hypothetical situation that the Koch Parties posit, that confluence of factors would

not exist. In a world where Oxbow never prospered, the Exit Sale would fail as to 100% of

the units because of the 1.5x Clause. The admission of the Small Holders, assuming it had

happened in that dystopian timeline, would not raise an impediment to an otherwise viable

Exit Sale. Rather, a clear term in the parties’ original agreement would not have been met.

In my view, a court would not deploy the implied covenant under those circumstances.

The Koch Parties also have contended that implying a Seller Top Off would invite

“Top Off Creep,” because Koch does not enjoy a similar right to achieve an Exit Sale using

158
a Top Off under his Drag-Along Right. Koch has not sought an implied Top Off and the

current record would not support one. Moreover, Koch’s Drag-Along Right is limited to

Crestview and Load Line, so the concept of issuing units to other members does not apply.

Nevertheless, it is possible to imagine circumstances that could warrant deploying the

implied covenant in a similar fashion for Koch’s benefit. Imagine, for example, that

Crestview convinced the Oxbow Board to issue it a small number of additional units some

years after its original agreement. Further envision that Crestview made statements to the

Board that led the directors to issue the units without specifying their terms and conditions.

Under those circumstances, if Crestview later argued that Koch could not use his Drag-

Along Right unless Crestview and Load Line received a grossed-up price for all of their

units equal to 2.5 times what Crestview had paid in the small issuance, then perhaps the

implied covenant might come into play. There is no inequity in not implying a comparable

term for Koch now, when there is no suggestion of any gap to be filled or unfairness to be

addressed.

4. Whether To Use The Implied Provision To Fill The Gap

Just because a contractual gap exists does not meant that the court will use an

implied provision to fill it. One compelling reason to eschew filling a gap is if the parties

actually negotiated over the issue, and the implied provision would give one side the benefit

of a provision that it “failed to secure . . . at the bargaining table.” 590 That is not the case

590
Aspen Advisors, 843 A.2d at 707.

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here. The LLC Agreement intentionally left open the question of what rights and

obligations subsequent members would have. The parties did not engage on the question

of the rights and obligations of the Small Holders when the issue of their admission arose

in 2011, largely because the Koch Parties failed to follow proper formalities.

More broadly, the implied covenant should be deployed cautiously because it has

the potential to upset the parties’ reasonable expectations and undermine the value of

contracting.

The right to contract is one of the great, inalienable rights accorded to every
free citizen. If there is one thing more than any other which public policy
requires it is that men of full age and competent understanding shall have the
utmost liberty of contracting and that this freedom of contract shall not
lightly be interfered with. We also recognize that freedom of contract is the
rule and restraints on this freedom the exception, and to justify this exception
unusual circumstances should exist.591

“When parties have ordered their affairs voluntarily through a binding contract, Delaware

law is strongly inclined to respect their agreement . . . .”592 “Delaware courts rightly employ

the implied covenant sparingly when parties have crafted detailed, complex agreements,

lest parties be stuck by judicial error with duties they never voluntarily accepted.”593

591
Libeau v. Fox, 880 A.2d 1049, 1057 (Del. Ch. 2005) (Strine, V.C.) (alterations,
internal quotation marks, and citation omitted), aff’d in part, rev’d in part, 892 A.2d 1068
(Del. 2006).
592
Id.
593
Bay Ctr. Apartments Owner, LLC v. Emery Bay PKI, LLC, 2009 WL 1124451,
at *7 (Del. Ch. Apr. 20, 2009) (Strine, V.C.).

160
Deployment of the implied covenant therefore “should be a rare and fact-intensive exercise,

governed solely by issues of compelling fairness.”594

In this case, the issues of compelling fairness call for deploying the implied

covenant to permit a Seller Top Off. Enforcing the plain meaning of the LLC Agreement,

without addressing the gap created by the admission of the Small Holders, requires giving

effect to the Highest Amount Interpretation. Under that circumstances, a clause that all of

the witnesses agreed was meant to be “compensatory”595 transforms into a blocking right

that permits holders who bought 1.4% of the Company at $300 per unit to hold up a $2

billion-plus transaction. Fortuitously for the Koch Parties, this result deprives the Minority

Members of a bargained-for right they otherwise would have to exit their investment at

Fair Market Value, without a minority discount, after having fulfilled their promise to

remain invested for at least seven years.

Absent the admission of the Small Holders and the resulting application of the

Highest Amount Interpretation, the Minority Members could force Koch and Oxbow

Holdings to sell into an Exit Sale that satisfies the FMV Clause, which entails a sale that

values Oxbow at approximately $2.4 billion or more. But because Koch controls the Small

594
Dunlap, 878 A.2d at 442 (alterations, internal quotation marks, and citation
omitted).
595
JX 2911 ¶ 10 (Koch affidavit); Hurst Tr. 11-13 (explaining that Crestview
understood the 1.5x Clause to provide “return on investment criteria” to capture “a
minimum return on investment for those who made the investment”); Volpert Tr. 356-58
(same); Popeo Tr. 1389-90; see also JX 3199 at Oxbow_00366569.

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Holders and can advance the Highest Amount Interpretation, he can refuse to go along with

any sale that does not produce the commercially unreasonable sum of $4.5 billion. It makes

no sense that Oxbow Holdings has the ability to insist on a right to receive 1.5 times

somebody else’s capital contributions. An unanticipated confluence of events should not

bestow on the Koch Parties the power to block the Exit Sale Right and demand a massive

windfall.

The Koch Parties argue that the current situation is not unfair, because when

Crestview entered into the LLC Agreement, Crestview understood that Oxbow operated in

a highly cyclical industry, such that the value of Oxbow and its units would fluctuate with

commodity cycles and macroeconomic forces. Crestview recognized that because Oxbow

might perform poorly, the 1.5x Clause might not be satisfied when the time to exercise the

Put Right arrived.596 If the Minority Members were simply arguing that the 1.5x Clause

was too harsh, then I would reject their position and leave them to the terms they bargained

for. In this situation, the Minority Members are objecting to a different scenario: the

unforeseen confluence of the poorly documented admission of the Small Holders and the

resulting transformation of the 1.5x Clause into a near-absolute transactional barrier.

The Koch Parties also argue that the current situation is not unfair because

Crestview has the right to exit simply by selling its stake under Article XIII, Section 6.

596
See Hurst Tr. 89-92, 96-97. Crestview’s Fund I, which invested in Oxbow, made
ten other investments. Four failed to generate a return of 1.5 times invested capital, even
after a complete exit, and some failed to return their original investment. See Hurst Tr. 92-
96.

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That right is no substitute for the Exit Sale because it contemplates a minority investor

transaction that would carry a minority discount.597 The buyer also would pay less for other

reasons:

The ability in Section 6 is to transfer the units but not to transfer any rights.
So somebody would be stepping into a position where they had no way out
and no governance rights. Furthermore, Section 6 has a right of first refusal.
So we would have to go out to the market, try to find somebody, try to get
the company’s cooperation to do due diligence, and tell them that at the end
of the day, whatever price they negotiate with us, the company has an option
to take it away and do it themselves. So as a practical matter, Section 6 is
not a viable exit at all.598

At a minimum, it is not a viable substitute for an Exit Sale.

This is the rare case in which issues of compelling fairness call for deploying the

implied covenant. The admission of the Small Holders as members creates a gap in the

parties’ agreement regarding the operation of the 1.5x Clause. That gap is filled by holding

that the 1.5x Clause can be satisfied with a Seller Top Off.

D. Breach Of The Reasonable Efforts Clause

The Minority Members contend that Oxbow Holdings breached its obligation to use

reasonable efforts to effect an Exit Sale. Under Delaware law, the elements of a breach of

contract claim are “first, the existence of the contract, whether express or implied; second,

597
Volpert Tr. 348-49.
598
Volpert Tr. 363.

163
the breach of an obligation imposed by that contract; and third, the resultant damage to the

plaintiff.”599 The Minority Members proved their claim.

Article XIII, Section 8(f) provides that once Crestview elected to exercise the Exit

Sale Right, each party to the LLC Agreement has to use “its reasonable efforts to take or

cause to be taken or do or cause to be done all things necessary and desirable to effect [an]

Exit Sale.”600 The Reasonable Efforts Clause specifies that each member “shall vote for,

consent to and raise no objections against any Exit Sale pursuant to this Section 8(f) and

shall enter into customary definitive agreements in connection therewith.”601

The Delaware Supreme Court has held that the concept of “commercially reasonable

efforts” imposes an “affirmative obligation on the parties to take all reasonable steps” to

complete a transaction.602 At trial, Koch agreed that the Reasonable Efforts Clause required

each of the parties to act in “good faith” to “do what it takes to effect . . . an exit sale,”603

including to “cooperate in trying to get [the Exit Sale] done.”604

599
VLIW Tech., LLC v. Hewlett-Packard Co., 840 A.2d 606, 612 (Del. 2003).

LLCA art. XIII, § 8(f). This decision refers to this provision as the “Reasonable
600

Efforts Clause.”
601
Id.
602
See Williams Cos., Inc. v. Energy Transfer Equity, L.P., 159 A.3d 264, 273 (Del.
2017).
603
Koch Tr. 1245-46.
604
Id. at 1109-10.

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 Koch and Oxbow Holdings breached the Reasonable Efforts Clause by seeking

purposefully to obstruct the Exit Sale. At the meeting when the Board decided to reject the

Put, Koch told the attendees to “obstruct,” “derail,” and “delay” the Exit Sale process.605

To achieve that outcome, Koch and Oxbow Holdings delayed selecting an

investment bank and law firm to run the Exit Sale process until after Oxbow had received

the Arclight offer. Koch deliberately slowed the flow of information to Goldman and

prospective investors,606 creating the most constrained process that the Goldman senior

bankers had seen in decades, and possibly ever.607 Koch even instructed Parmelee,

Oxbow’s CFO, to tell certain executives to dampen their forecasts or risk their bonuses.608

Meanwhile, Koch had Ropes & Gray explore the possibility of using a SPAC to defeat the

Exit Sale right.609

Koch and Oxbow Holdings ultimately deployed “[l]itigation as a tool to effectuate

[their] strategy” and to “slow down the Exit Sale or keep potential buyers on the

sideline.”610 After ArcLight submitted a revised offer at a price above Fair Market Value,

605
JX 2068 at DEF-EPJ00021726; see Koch Tr. 1083-86, 1093-94, 1128; see also
JX 2262; JX 2276 at Mintz_0021744.
606
See Koch Tr. 1206-08; JX 2564; JX 2570; JX 2612.
607
Carr Dep. 180-83.
608
JX 2760; JX 2762; JX 2774 at OXBOW_00204767; Johnson Dep. 694-98;
McIntosh Dep. 117-33; Parmelee Dep. 111-22; see also Crosby Dep. 285-88.
609
See, e.g., JX 2137; Koch Tr. 1105-08.
610
JX 2262 at Oxbow_00359001.

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Koch concluded that he could bring the process to a halt if he fired Johnson, Oxbow’s key

executive, and sued Crestview.611 Once Oxbow Holdings and the Small Holders filed suit,

ArcLight withdrew.612 Goldman confirmed that the resulting litigation foreclosed any

opportunity to sell Oxbow to any interested purchaser in the near future.613

The record regarding Koch and Oxbow Holdings’ efforts must be viewed in its

totality. Taken as a whole, the clearest evidence that Koch and Oxbow Holdings did not

comply with their duty to use reasonable efforts to support an Exit Sale is that they spent

most of their energy and resources trying to design ways to thwart it.614

The breach of the Reasonable Efforts Clause damaged the Minority Members.

During a meeting of the Oxbow Board on June 10, 2016, Goldman advised the Board that

the Company could act on the ArcLight offer dated May 27, 2016 (the “ArcLight Offer”),

and that it was unlikely to find a better deal.615 Goldman nevertheless recommended a dual

process that involved reaching agreement with Arclight to establish a transaction floor

while proceeding in parallel with a limited market check. Goldman believed that the

611
Koch Tr. 1010-12.
612
JX 2874 at Oxbow_00147814.
613
Carr Dep. 216-17.
614
See WaveDivision Hldgs., LLC v. Millennium Dig. Media Sys., L.L.C., 2010 WL
3706624, at *18 (Del. Ch. Sept. 17, 2010) (Strine, V.C.) (“[T]he clearest evidence that
[defendant] did not comply with its duty to use its reasonable best efforts . . . was that it
spent most of its energy and resources helping to develop an alternative to the sale, efforts
designed to thwart, not obtain, consent.”).
615
JX 2863 at Oxbow_00246861.

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Company could reach an agreement with ArcLight within three months. 616 Townsend’s

talking points indicated that Cravath supported Goldman’s views and was more optimistic

about the timeline for signing up a deal with ArcLight.617 But for Koch’s actions, Oxbow

would have entered into a deal with ArcLight, and the Minority Members would have

received at least the value of the ArcLight Offer.

E. Whether The ArcLight Offer Was A Bona Fide Arm’s-Length Bid

The Koch Parties contend that the Minority Members could not compel an Exit Sale

based on the ArcLight Offer, because an Exit Sale must be a “bona fide arms’-length

transaction.”618 The Koch Parties argue that the ArcLight Offer does not meet this standard

because Crestview solicited it. The parties have not devoted nearly the same care to briefing

this issue as they did to debating the meaning of the 1.5x Clause. In my view, the ArcLight

Offer satisfied this aspect of the definition of Exit Sale.

A transaction involving a third party lacking any affiliation with Oxbow, its

controller, or its existing members satisfies the plain language of the requirement that an

Exit Sale be a “bona fide arms’-length transaction.” Reading the LLC Agreement as a

whole, support for this interpretation can be found in Article III, Section 3(d)(11), which

requires Board approval by a Supermajority Vote for related-party transactions, defined as:

[T]he Company’s or any Subsidiary’s entering into, terminating or amending
any transaction, agreement or arrangement with or for the benefit of any

616
See id. at Oxbow_00246864.
617
JX 2852 at CSM_X0000287.
618
LLCA art. I.

167
 Member or any of its Affiliates (or any member of their “immediate family”
as such term is defined in Rule 16a-1 of the Securities Exchange Act of 1934)
(other than any benefit derived as a result of its ownership of Membership
Interests in the Company as expressly set forth in this Agreement); provided,
that the foregoing shall not apply to

(a) this Agreement, the entry into the Administrative Services and
Management Agreement and the transactions agreements, agreements and
arrangements expressly contemplated hereby and thereby,

(b) any bona fide arms’-length transaction or series of related transactions up
to $300,000 individually or $2 million in the aggregate in any one calendar
year with respect to any Member or Affiliate thereof (or any member of their
“immediate family” as such term is defined in Rule 16a-1 of the Securities
Exchange Act of 1934),

(c) any transaction, agreement or arrangement contemplated by an Approved
Summary Annual Budget, or

(d) any item set forth on Exhibit E.619

This provision would not apply to transactions with a third party, such as ArcLight.

Moreover, subsection (b) of this provision indicates that even a related-party transaction

could be shown to be a “bona fide arms’-length transaction.” Presumably, satisfying that

test would involve looking at comparable transactions involving third parties. The

ArcLight Offer is already an offer from a third party.

The Koch Parties argue that the ArcLight Offer is not truly bona fide or at arm’s

length because Crestview solicited it from ArcLight. The Exit Sale Right permits the

Minority Members to obtain a qualifying offer, present it to the Company, and force an

Exit Sale. As this court held in the Summary Judgment Order,

619
LLCA art. III, § 3(d)(11) (formatting as separate paragraphs added).

168
 The Exit Sale Right states that “the Exercising Put Party may require all of
the Members to engage in an Exit Sale.” If the Minority Members can
generate an Exit Sale without Company involvement, they are free to do so.
If the Exit Sale satisfies the requirements of the Exit Sale Right, then the
Company and its members have to comply.620

Nothing in the Exit Sale Right prohibits the Minority Members from communicating with

third parties to develop an Exit Sale.

The Koch Parties contend that Crestview went beyond what the Exit Sale Right

permits by communicating the Fair Market Value figure to ArcLight. They have not cited

any language in the LLC Agreement that would have prevented Crestview from doing this.

The FMV Clause is a hurdle that an Exit Sale must clear. It is logical that when soliciting

an Exit Sale, the Minority Members would tell third parties what bid they had to hit.

Notably, Fair Market Value is not a depressed or discounted price. It is the price generated

through a contractual valuation process that reflects the value of the Company “on a going

concern basis, without any discount for lack of liquidity (including the absence of a public

market and the presence of transfer restrictions) or minority interest.”621 The FMV Clause

protects the Company from a low-ball offer.

In any event, the Koch Parties failed to prove that Crestview provided ArcLight with

the Fair Market Value figure. The evidence shows that Volpert met with Crosby, and I am

confident that they discussed price. Both Volpert and Crosby testified that Crestview did

620
SJ Order ¶ 25.
621
LLCA art. XIII, § 8(b).

169
not give ArcLight the specific Fair Market Value number.622 That is likely true. Volpert

did not have to be so specific to help Crosby get to a number that would work.

Volpert had an interest in getting ArcLight to pay the highest possible price, but he

did not want to throw around figures that would scare off ArcLight. ArcLight previously

had developed a valuation of Oxbow, and I suspect that Volpert encouraged Crosby,

directly or through euphemisms, to consider an offer in the range of $2.4 billion. Crosby’s

memorandum to his investment committee supports this.623 Crestview had modeled

whether a lower valuation would clear the FMV Clause. After a call from Crosby on March

7, 2016, Crestview modeled what a deal would look like at $2.4 billion.624 This sequence

makes me think that during his meeting with Crosby, Volpert sought a higher valuation but

signaled that ArcLight needed to bid at least $2.4 billion. The decision to bid $2.4 billion,

rather than risk a lower figure, came from ArcLight.

I reach this conclusion even though the facts surrounding Crestview’s interactions

with ArcLight are less clear than they should be. For example, when Koch asked Hurst

whether Crestview had been involved in soliciting the initial indication-of-interest from

ArcLight, he responded that Crestview had “not spoken” to ArcLight throughout the

process and that Volpert merely bumped into Crosby at a Harvard event. 625 In reality,

622
Volpert Tr. 433; Crosby 154-55.
623
JX 2332.
624
JX 2351.
625
JX 4271 at Mintz_0004939; Koch Tr. 814; Popeo Tr. 1410-11.

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O’Donnell set up their meeting.626 There is also evidence that ArcLight secretly spoke to

Johnson,627 and Crosby’s deposition testimony conflicted with the evidentiary record on

various points. Nevertheless, although there is smoke around Crestview’s interactions with

ArcLight, I ultimately do not see any fire. Nor do I think it would have breached the LLC

Agreement if Volpert had told Crosby what the Fair Market Value number was.

The ArcLight Offer is a bona fide, arm’s-length offer. As Goldman determined, it

satisfies the requirements for an Exit Sale.

F. Unclean Hands

In their final argument, the Koch Parties group together everything they object to

about Crestview’s conduct and contend that the defense of unclean hands should result in

Crestview having forfeited its Exit Sale Right. They devote the least effort to this argument.

Here is the key paragraph from their brief:

It would take hundreds of pages to detail all of the secret meetings, hidden
texts/calls, false information given to potential investors, theft of privileged
communications and other duplicitous actions of Crestview and
O’Donnell/Johnson acting at Crestview’s direction. As summarized supra at
29-50, Crestview repeatedly and materially breached the Agreement and the
covenant of good faith and fair dealing by its consistent pattern of deceptive
and inequitable conduct aimed to deprive Koch of his ownership and control
of Oxbow. For example, Crestview conspired with O’Donnell and Johnson
to: (1) forestall the Company’s growth to pare it down for sale; (2)
deliberately frustrate Oxbow’s resulting efforts to attract investors to
purchase Crestview’s units by demanding an unreasonably high price of
$190/unit and interfering with the financing process to try to force Koch to

626
See JX 2293; JX 2325.
627
See JX 3183 at CWO083445 (O’Donnell telling Johnson to “make sure Kevin
[Crosby] doesn’t say something stupid about talking to you pre full company bid”).

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 sell his controlling interest (supra at 30); (3) vitiate Oxbow and Koch’s
attorney-client privilege by inducing O’Donnell to wrongfully disclose to
Crestview privileged legal advice rendered by Mintz Levin and Ropes &
Gray; (4) falsely representing it would abide by Goldman’s recommendation
for a 3-to-6-month pause when it had no intention of doing so; (5) solicit an
indication-of-interest from ArcLight outside of the Exit Sale process that
would allow Crestview to roll its sales proceeds back into the Company and
share control of Oxbow with ArcLight, without disclosing to the Board the
role of Crestview and its lawyers in procuring that indication, leaking the
crucial FMV number, and then attempting to force the Company to accept
the indication without first undertaking any systematic marketing effort to
ensure the Company obtained the best sale price.628

The Koch Parties then assert that “Crestview’s conduct in connection with the ArcLight

‘bid’ is perhaps most egregious.”629

This decision has held in the preceding section that Crestview’s conduct in

connection with the ArcLight Offer was not egregious. It was consistent with the LLC

Agreement and the Exit Sale Right. Because what the Koch Parties view as the “most

egregious” misconduct does not give rise to a breach, it follows that less serious actions

would not either.

As to the other four categories of conduct listed in this paragraph, the Koch Parties

made no attempt in their opening post-trial brief to spell out why the actions were wrongful

or to provide supporting legal authority. In their reply brief, they summarized the actions

that Crestview took in somewhat greater detail, but again did not explain why the actions

628
Dkt. 1188 at 98-99.
629
Id. at 99.

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were wrongful or provide supporting legal authority. Their arguments on these points are

waived.630

Regardless, there is another Minority Member—Load Line—that did not engage in

any of this misconduct. Load Line has exercised the Exit Sale Right as well. There is no

basis to deprive Load Line of its ability to pursue an Exit Sale.

G. The Remedy

The Minority Members are entitled to a remedy. The parties’ post-trial briefing

focused on the merits and devoted minimal effort to explaining what remedy is warranted

and why. The remedies that they proposed present potential difficulties that the briefing

did not address.

As its preferred remedy, Crestview asks for “an order of specific performance either

(i) requiring [Oxbow Holdings] and Koch to redeem Crestview’s units of Oxbow for cash

at the price per unit offered by ArcLight, plus interest, or (ii) requiring [Oxbow Holdings],

Koch, [Family LLC], and [Executive LLC] to allow Oxbow to complete an Exit Sale

controlled by Crestview and Load Line.”631 A decree of specific performance is a

See Emerald P’rs v. Berlin, 726 A.2d 1215, 1224 (Del. 1999) (“Issues not briefed
630

are deemed waived.”).
631
Dkt. 1187 at 92-93.

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mandatory injunction implementing a particular contractual provision. It requires the

existence of a contractual provision to enforce.632

Crestview’s first request for specific performance appears problematic. The LLC

Agreement does not contain a provision requiring the redemption of the Minority

Members’ units. The Put was a soft put, not a hard put. There are also open issues

surrounding the viability of a redemption right in light of the Company’s financial

situation. The Exit Sale Right sidestepped those issues.

I suspect Crestview may have proposed a redemption scenario because otherwise

calculating compensatory damages is difficult. An award of compensatory damages could

be keyed off the value of the ArcLight Offer. The Koch Parties have suggested that the

offer was too contingent to support a damages award, but the parties have not really

grappled with this issue, much less taken into account relevant case law on damages.

Whatever the starting point, an award of compensatory damages would have to take into

account that the Minority Members retain their units. To calculate damages, the court

would have to ascribe a value to those units and award the delta between that and what the

Minority Members would have received in an Exit Sale. Oxbow is a private company, so

determining a point value for the Minority Members’ units would be difficult in any event.

Determining their value becomes even more difficult since the Minority Members can

expect to face a hostile controller going forward. A remedy that effects a clean break

632
See Otto v. Gore, 45 A.3d 120, 138 (Del. 2012).

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between Oxbow and the Minority Members has strong equitable appeal, but it is not clear

to me that an order compelling redemption is viable. Perhaps there are answers to these

questions, but the abbreviated briefing on remedies does not provide them.

The alternative form of specific performance—an order compelling an Exit Sale—

would enforce a contractual right set out in the LLC Agreement. In its current form,

however, the request is broad and asks the court to give full control over the Exit Sale

process to the Minority Members. As the Summary Judgment Order explained, the Exit

Sale Right contemplates a degree of cooperation among the Minority Members, the

Company, and the other members. As a practical matter, some degree of cooperation will

be essential to achieve a transaction. It seems to me that an order along these lines should

spell out in greater detail the procedures that the parties would follow. Given the

antagonism between the parties, a receiver might be appointed to oversee the process.

The Minority Members shall submit a single brief of not more than 7,500 words,

specifying the remedy that they believe is warranted based on the findings and rulings made

in this decision. They shall cite relevant legal authorities that support the requested remedy.

The Koch Parties shall have thirty days to submit a brief of similar length in response.

Crestview and Load Line shall have two weeks to submit reply of not more than 4,000

words. If the parties believe that additional post-trial proceedings are necessary, they

should make that argument in their papers.

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 III. CONCLUSION

The Small Holders are members of Oxbow, and the plain language of the Exit Sale

Right mandates the Highest Amount Interpretation. Under this reading, all members must

receive the same amount per unit in an Exit Sale, and that amount must clear the FMV

Clause and provide each member with 1.5 times that member’s capital contribution, taking

into account distributions received. Because the per unit amount must clear this

requirement for every holder, and because every holder must receive the same amount, all

holders must receive the highest amount needed to satisfy the 1.5x Clause for any particular

holder.

Although the plaint language of the LLC Agreement calls for this result, the original

LLC Agreement intentionally left a gap: It did not define the terms on which Oxbow

subsequently would admit members. When the Board admitted the Small Holders as

members in 2011 and 2012, the Board did not fill that gap, largely because Oxbow did not

follow proper formalities. The implied covenant of good faith and fair dealing can fill that

gap. The analysis required by the implied covenant demonstrates that in 2011, when

Oxbow admitted the Small Holders, the parties would have agreed that a Seller Top Off

could be used to satisfy the 1.5x Clause for the Small Holders. Issues of compelling fairness

call for deploying the implied covenant here because, otherwise, the fortuitous and poorly

documented admission of the Small Holders would vitiate the Exit Sale Right.

Separately, the Koch Parties breached the Reasonable Efforts Clause by seeking to

disrupt, derail, and delay an Exit Sale. The ArcLight Offer satisfied the requirements for

176
an Exit Sale. The doctrine of unclean hands does not bar the Minority Members from

seeking a remedy.

The parties shall provide supplemental briefing as requested by this decision. In

addition, within thirty days, the parties shall submit a joint letter identifying any other

matters that the court needs to address to bring this matter to a conclusion at the trial level.

177