Leaf Invenergy Company v. Invenergy Wind LLC

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

LEAF INVENERGY COMPANY, a )
Cayman Islands exempt limited liability )
company, )
)
Plaintiff, )
v. ) C.A. No. 11830-VCL
)
INVENERGY WIND LLC, a Delaware )
limited liability company, )
)
Defendant. )

MEMORANDUM OPINION

Date Submitted: January 19, 2018
Date Decided: April 19, 2018

Bradley D. Sorrels, Shannon E. German, Jessica A. Hartwell, WILSON SONSINI
GOODRICH & ROSATI, P.C., Wilmington, Delaware; Keith E. Eggleton, Steven D.
Guggenheim, David A. McCarthy; WILSON SONSINI GOODRICH & ROSATI, P.C.,
Palo Alto, California; Attorneys for Plaintiffs.

Kenneth J. Nachbar, Kevin M. Coen, Zi-Xiang Shen, MORRIS, NICHOLS, ARSHT &
TUNNELL LLP, Wilmington, Delaware; Bruce S. Sperling, Harvey J. Barnett, Eamon P.
Kelly, SPERLING & SLATER, P.C., Chicago, Illinois; Attorneys for Defendant.

LASTER, V.C.
 Leaf Invenergy Company (“Leaf”) holds Series B member interests in Invenergy

Wind LLC (“Invenergy” or the “Company”). Under Invenergy’s limited liability company

agreement (the “LLC Agreement”), Invenergy could not engage in an asset sale of a

specified magnitude—defined as a “Material Partial Sale”—unless Invenergy either (i)

obtained Leaf’s consent or (ii) paid Leaf an amount sufficient for Leaf to achieve an agreed-

upon rate of return—defined as the “Target Multiple.”1 This decision refers to the

requirement that Invenergy obtain Leaf’s consent as the “Series B Consent Right.”

At the outset of the case, Leaf moved for judgment on the pleadings on the question

of whether Invenergy had breached the Series B Consent Right by engaging in a Material

Partial Sale without paying Leaf its Target Multiple. I granted Leaf’s motion.

Leaf next moved for entry of a final judgment determining that the LLC Agreement

entitled Leaf as a matter of law to damages in the amount of the Target Multiple. I denied

the motion on the grounds that the LLC Agreement did not provide explicitly for the

payment of the Target Multiple in the event of breach. The Series B Consent Right

technically stated that if Invenergy paid Leaf the Target Multiple at closing, then Invenergy

did not need to obtain Leaf’s consent. The LLC Agreement did not include a liquidated

damages provision or specify a remedy for breach of the Series B Consent Right.

Consequently, I concluded that determining the proper remedy for Invenergy’s breach

The parties and their documents frequently abbreviate “Material Partial Sale” as
1

“MPS” and Target Multiple as “TM.”

1
required a trial. This post-trial decision holds that Invenergy’s breach entitles Leaf only to

nominal damages.

After Leaf filed this litigation, Invenergy exercised a right under the LLC

Agreement to call Leaf’s member interests. Leaf responded by exercising a parallel right

to put its position to Invenergy. Disputes arose over that process, and Invenergy brought

counterclaims asserting that Leaf violated the express terms of the put-call provisions as

well as terms implied by the covenant of good faith and fair dealing. This decision finds

that Invenergy failed to prove those claims. In light of this decision, the parties shall

complete the buyout of Leaf’s interests in accordance with the provisions in the LLC

Agreement.

I. FACTUAL BACKGROUND

Trial took place over three days. The parties submitted 536 exhibits and lodged

fifteen depositions. Seven witnesses testified live. The parties proved the following facts

by a preponderance of the evidence.

A. Invenergy Solicits Interest In The Series B Notes.

Invenergy “develops, owns, and operates utility-scale wind generation facilities in

North America and Europe.”2 Michael Polsky founded Invenergy in 2001 and has served

2
PTO ¶ II.A.4. Citations in this format are to stipulated facts in the pre-trial order.
Dkt. 160. Citations in the form “[Name] Tr.” refer to witness testimony from the trial
transcript. Citations in the form “[Name] Dep.” refer to witness testimony from a
deposition transcript. Citations in the form “JX __ at __” refer to trial exhibits using the
JX-based page numbers generated for trial.

2
continuously since then as its President and CEO.3 Polsky holds a majority of Invenergy’s

equity through two investment vehicles: Invenergy Wind Holdings LLC (“Invenergy

Holdings”) and Invenergy Wind Financing LLC (“Invenergy Financing”).4

In summer 2008, Invenergy began soliciting interest in an offering of Series B

convertible notes (the “Series B Notes”). In 2007, Invenergy had raised approximately

$250 million through a similarly structured issuance of Series A convertible notes (the

“Series A Notes”). Two third-party investors—Liberty Mutual Insurance Company

(“Liberty”) and Citigroup Global Markets, Inc. (“Citigroup”)—purchased the bulk of the

Series A Notes. Invenergy Financing invested alongside on the same terms and purchased

approximately 10% of the issuance.5

When Invenergy proposed to issue the Series B Notes, Liberty expressed interest.

So did Leaf Clean Energy Company, a publicly held investment company that specializes

in the clean technology and renewable energy sectors.6 Leaf Clean Energy would later form

3
JX 17 at 4 (Invenergy private placement memorandum).
4
See PTO ¶¶ II.B.1, 10-11, 13. The parties and their documents frequently
abbreviate “Invenergy Wind Holdings” as “IWH” and “Invenergy Wind Financing” as
“IWF.”
5
PTO ¶ II.B.3.
6
See JX 13 at 14-15; Alemu Tr. 4-5, 7-8, 10.

3
Leaf to participate in the offering.7 Polsky planned to have Invenergy Financing invest

again alongside the third-party investors.

B. The Series B Term Sheet

In fall 2008, Invenergy sent a proposed term sheet to Liberty and Leaf.8 One deal

point, titled “Negative Covenants,” contemplated that Invenergy would have to obtain

approval from the holders of the Series B Notes (the “Series B Investors”) before engaging

in “a sale of all or substantially all of [the Company’s] assets” or any “merger or acquisition

of the Company.”9 The provision also contemplated that “approval will not be required in

the event that such transaction would provide the [Series B Investors] the Target Multiple

as of the applicable transaction date.”10

Another deal point, titled “Merger, Sale, etc. of the Company,” distinguished

between “Control Transactions” and “Non-Control Transactions.” The operative language

on “Control Transactions” stated:

In the case of a (i) merger, consolidation, sale or reorganization of the
Company or a sale of equity in the Company as a result of which the current
direct or indirect holders of the Company’s equity securities immediately
prior to such transaction will hold less than a majority of the Company’s
equity securities immediately following such transaction or (ii) sale of
substantially all of the assets of the Company (a “Control Transaction”)

7
The distinction between Leaf and Leaf Clean Energy is not material to this
decision. Except in rare instances, this decision refers solely to “Leaf.”
8
JX 20.
9
Id. at 5.
10
Id. at 5-6.

4
 which occurs prior to the date which is the earlier of (a) the Conversion
Deadline or (b) the date on which all of the Series B Notes have been
converted . . . , any Series B Notes which are not converted in connection
with the Control Transaction to which the Required Holders . . . have
consented . . . shall be prepaid at par plus accrued but unpaid interest, with
no penalty or premium.11

This proposal contemplated that a Control Transaction would extinguish the Series B

Notes, either (i) through the Series B Investors converting and receiving their pro rata share

of any distribution associated with the Control Transaction or (ii) as a result of the

Company prepaying principal plus unpaid interest.

By contrast, for a Non-Control Transaction, the term sheet contemplated that

Invenergy would have the option of extinguishing the Series B Notes. The Company would

not be obligated to obtain consent before engaging in a Non-Control Transaction, nor

would it be obligated to make any payment as a result of a Non-Control Transaction.

Instead, Invenergy would have the option to redeem the Series B Notes for the Target

Multiple. The operative language on “Non-Control Transactions” stated:

In the case of a (i) merger, consolidation, sale or reorganization of the
Company or a sale of equity in the Company as a result of which the current
direct or indirect holders of the Company’s equity securities immediately
prior to such transaction will continue to hold at least a majority of the
Company’s equity securities immediately following such transaction or (ii)
sale of material assets of the Company that does not constitute a sale of
substantially all of the assets of the Company (a “Non-Control Transaction”)
which occurs prior to the Conversion Termination Date, the Company may,
at its option, offer to prepay all outstanding principal and interest on the
Series B Notes, together with a premium in such amount that would result in
receipt by the holders of the Target Multiple . . . . If such offer is made, each
holder of Series B Notes shall have the option to (a) accept such offer, (b)

11
Id. at 3-4.

5
 decline such offer and convert its Series B Notes, following which the
Company will be required to distribute to its members, pro rata, any proceeds
from the Non-Control Transaction that are not required to be retained in the
business of the Company pursuant to definitive documentation to be entered
into in connection with this transaction.12

This proposal contemplated that upon the occurrence of a Non-Control Transaction—the

type of transaction that the final agreement would define as a Material Partial Sale—

Invenergy could choose whether to pay the Target Multiple to redeem the Series B Notes.

Moreover, if Invenergy did elect to make such a payment and any Series B Investors did

not accept, the holdouts would have to convert to equity. At that point, they would only

receive their pro rata share of any proceeds from the Non-Control Transaction distributed

to the equity holders.

These concepts ran counter to the definitive agreement governing the Series A Notes

(the “Series A Agreement”). The Series A Agreement required Invenergy to obtain

approval from the holders of the Series A Notes both for (i) a “Liquidity Event,” unless the

transaction “would provide the holders of Notes, through the closing of such Liquidity

Event, the Target Multiple,”13 and (ii) any Material Partial Sale, “unless the transaction

giving rise to the Material Partial Sale yields proceeds equal to or greater than the amount

which, if paid to the holders of the Notes would provide the holders of Notes, through the

closing of such Material Partial Sale, the Target Multiple and the provisions of Section

12
Id. at 4.
13
JX 9 § 4.3(a).

6
1.5(e) (other than the last sentence thereof) are complied with.”14 In the latter scenario, the

Series A Agreement required Invenergy to offer to repurchase the Series A Notes for the

Target Multiple. At that point, each of the holders of the Series A Notes could choose

whether to accept the offer or retain their notes to preserve the possibility of greater equity

upside. The operative language stated:

Upon the occurrence of any Material Partial Sale that has not been consented
to by the Required Purchasers pursuant to Section 4.3(b) which (i) is not a
Liquidity Event, (ii) occurs prior to the Third Anniversary and (iii) yields
cash proceeds to the Company equal to or greater than the Target Multiple
of all outstanding Notes, the Company must offer to prepay the Notes for an
amount sufficient to cause the Holders to receive the Target Multiple, and
each holder of the Notes may choose . . . to accept or reject such offer. . . . If
any Material Partial Sale occurs on or after the Third Anniversary that has
not been consented to pursuant to Section 4.3(b), the Company shall use the
entire net proceeds of such sale to prepay the Notes together with any accrued
but unpaid interest thereon and any applicable premium contemplated by
Section 1.5(c) as in effect on the closing of the Material Partial Sale upon the
closing of the Material Partial Sale.15

In contrast to the Series A Agreement, Invenergy’s initial term sheet for the Series B Notes

contemplated dropping the consent requirement for a Material Partial Sale. It also

contemplated flipping the optionality so that instead of the noteholders deciding whether

to cash out, Invenergy could choose whether to offer to buy them out.

14
Id. § 4.3(b).
15
Id. § 1.5(e); see also Murphy Tr. 589-90 (“[Section 1.5(e)] provides for payment
in the event that the company is going to make a material partial sale, which is not a
liquidity event, and the company has not obtained the consent of the required purchasers. .
. . [I]f the company elected to bypass the consent right, then the noteholders, we understood,
wanted to have the ability to make an election to be paid.”).

7
 Liberty rejected these proposals. In its counterproposal on behalf of the investors,

Liberty added a consent requirement for a Material Partial Sale.16 Liberty also struck the

language that would have given Invenergy optionality on repurchasing the Series B Notes

after a Material Partial Sale. In its place, Liberty substituted the following:

Upon the occurrence of any Material Partial Sale (as defined herein below)
that has not been consented to by the Required Purchasers pursuant to the
negative covenants below which (i) is not a Control Transaction, (ii) occurs
prior to the Conversion Deadline and (iii) yields cash proceeds to the
Company equal to or greater than the Target Multiple of all outstanding
Series B Notes, the Company must offer to prepay the Series B Notes for an
amount sufficient to cause the holders thereof to receive the Target Multiple
. . . .17

Liberty’s counterproposal thus restored the consent requirement and gave the investors the

optionality they enjoyed under the Series A Agreement. The final term sheet reflected

Liberty’s changes.18

Liberty also added to the term sheet a series of governance rights that the LLC

Agreement would afford the Series B Investors if they converted into equity. Liberty’s

changes contemplated that Invenergy would need to obtain approval from the holders of a

majority of the unaffiliated interests before engaging in a long list of corporate actions,

including: “Cause a Material Partial Sale unless the transaction would provide the holders

of equity other than IWH with the Target Multiple. Any such transaction may be structured

16
JX 21 at 26-27.
17
Id. at 21; Alemu Tr. 29-31.
18
JX 32; Alemu Tr. 31-33.

8
to provide IWH with lower proceeds on a pro rata basis in order to yield the Target

Multiple.”19 The final term sheet included a lengthier version of this provision.20

Yonatan Alemu oversaw the investment for Leaf. Alemu testified without

contradiction that the parties intended for the Series B Investors’ post-conversion

governance rights to “function in a similar fashion” as their pre-conversion consent rights.21

He understood that “to the extent the company did not get consent from the investors that

had the equity, that they had an obligation to pay the target multiple.”22

C. The Series B Agreement

After reaching agreement on the term sheet, the parties negotiated binding

transaction documents. The governing agreement was the Series B Senior Subordinated

Convertible Note Purchase Agreement dated as of December 22, 2008 (the “Series B

Agreement”). In an initial closing, which took place on December 22, Liberty invested

$100 million in the Series B Notes, Leaf invested $20 million, and Invenergy Financing

invested $10 million.23 In a secondary closing in February 2009, Leaf invested another $10

19
JX 21 at 33.
20
JX 32 at 11.
21
Alemu Tr. 34.
22
Id.
23
PTO ¶ II.B.5.

9
million.24 Shortly thereafter, Banc of America Strategic Investments Corporation invested

$20 million.25

Under the Series B Agreement, the Series B Notes paid interest at 8% per annum

and matured on December 22, 2014.26 Invenergy could not prepay the Series B Notes

before December 22, 2011, a date defined as the “Conversion Deadline.” 27 After the

Conversion Deadline, the Company could prepay the Series B Notes for principal plus

interest. For purposes of the prepayment, principal would be calculated at 105% of the face

amount if paid before December 22, 2012, and 102% of the face amount if paid thereafter

until December 22, 2013, with no premium after that date.28 Any Series B Investor could

convert “all, but not less than all” of its Series B Notes into equity at any time “on or prior

to the Conversion Deadline,” with the resulting number of member interests determined by

formula.29 As a practical matter, if the Company did poorly, then the Series B Investors

would stay in the notes and preserve their debt-based rights to recover their principal and

24
Id.; see also JX 36 (closing set for follow-on investment); JX 40 at 1 (internal
email seeking approval of Leaf board for follow-on investment); Alemu Tr. 16, 20; Murphy
Tr. 591-92.
25
PTO ¶ II.B.6.
26
JX 37 § 1.4(a), (b).
27
Id. art. X.
28
Id. § 1.4(c).
29
Id. § 1.5(a).

10
interest. If the Company did well, then the Series B Investors would convert into equity

before the Conversion Deadline to capture the equity upside.

The Series B Agreement incorporated by reference a form of the LLC Agreement

that would govern Invenergy once a Series B Investor converted its Series B Notes into

member interests (the “Series B LLC Agreement”).30 The Series B LLC Agreement

anticipated that absent some other transactional development, the Series B Investors would

remain as members for up to three years after the Conversion Deadline, for a total

investment period of five to six years.31 To facilitate exit, Section 11.09 of the Series B

LLC Agreement established reciprocal put and call rights that the parties could exercise

between December 22, 2013 and December 22, 2014. During that window, any member

who held equity interests as a result of converting Series B Notes could “require that the

Company purchase all but not less than all” of its interests.32 Likewise, during the same

window, the Company could “redeem all but not less than all of the Company Interests

held by” such members.33

In each case, the Series B LLC Agreement defined the price for the redemption as

“Fair Market Value.” The Series B LLC Agreement defined Fair Market Value in

30
See JX 38 at 75.
31
See JX 24 at 9 (Leaf presentation stating “Exit assumed to occur in 2013”).
32
JX 38 at 116.
33
Id.

11
decidedly pro-investor fashion: “the product of (x) the highest price per unit of equity

interest which the Company could obtain from a willing buyer (not a current employee or

director) for the Company’s Company Interests in a transaction involving the sale by the

Company of all equity interests times (y) the number of Company Interests being valued.”34

The definition further specified that when “there is not an active trading market, the

appraisers shall value the interests without ascribing a minority interest or illiquidity

discount.”35 To determine Fair Market Value, the parties first would attempt to negotiate

in good faith. If they could not agree, then the Series B LLC Agreement provided for a

process in which each side would choose an appraiser to value the Company and the

resulting price would be the average of the two appraisals. If the first two appraisals varied

by more than 20%, then the parties would jointly choose a third appraiser and the value

would be the average of all three appraisals.36 This decision refers to these aspects of the

LLC Agreement as the Put Right, the Call Right, and the Put-Call Provisions.

If a Series B Investor triggered its Put Right and Invenergy failed to repurchase the

interests, then the Series B Investor gained additional rights, including the right to compel

34
Id. at 85 (emphasis added). This standard applied if Invenergy remained privately
held and was not contemporaneously engaging in a sale transaction. If Invenergy was
publicly traded, then Fair Market Value would equal the trading price. If Invenergy agreed
to be acquired, then Fair Market Value would be the deal price. See id.
35
Id.
36
Id.

12
a sale of the Company to a third party.37 The practical effect of the Put-Call Provisions was

to force an exit or renegotiation of the Series B Investors’ rights within six years after their

initial investment in December 2008.38

While their capital remained committed to Invenergy, the Series B Investors

enjoyed various approval rights. Section 4.3 of the Series B Agreement contained a lengthy

list of actions that the Company could not take without first securing the approval of

holders of a majority in value of the Series B Notes.

Section 4.3(b) specified that Invenergy had to secure the necessary vote before

engaging in a Material Partial Sale. The relevant language stated:

4.3 On or prior to the Conversion Deadline, without the consent of the
Required Purchasers, the Company shall not:

...

(b) sell (in one of more transactions within any period of twelve
(12) consecutive months) assets of the Company or assets of its Subsidiaries
for value greater than 20% of the value of the Company (such values being
net present values of the pro forma after tax cash flow of such assets to be
sold as compared to the pro forma after tax cash flow of all assets of the
Company and its Subsidiaries, in each case based on the Company’s then
current business plan prepared in good faith and calculated as provided in the
Projections or such other model worksheet used by the Company at such time
and reasonably acceptable to the Holders and discounted at a ten percent
(10%) net present value discount rate) (a “Material Partial Sale”), unless the
transaction giving rise to the Material Partial Sale yields cash proceeds equal

37
See id. at 117.
38
Cf. JX 61 (noting in context of later negotiation in 2012 that the “put option that
Leaf retains can be used to force some type of a liquidity or recap event”); JX 63 at 1
(same).

13
 to or greater than the amount which, if such cash were paid to the holders of
the Notes would provide the holders of Notes, through the closing of such
Material Partial sale, the Target Multiple in cash and the provisions of
Section 1.4(e) (other than the last sentence thereof) are complied with.39

The cross reference to Section 1.4(e) identified a provision that obligated Invenergy to offer

to purchase the Series B Notes in the event of a Material Partial Sale. It stated, in relevant

part:

Upon the occurrence of any Material Partial Sale that has not been consented
to by the Required Purchasers pursuant to Section 4.3(b) which (i) is not a
Liquidity Event, (ii) occurs on or prior to the Conversion Deadline and (iii)
yields cash proceeds to the Company equal to or greater than the Target
Multiple of all outstanding Notes, the Company must offer to prepay the
Notes for an amount sufficient to cause the Holders to receive the Target
Multiple, and each holder of the Notes may choose . . . to accept or reject
such offer. . . . If any Material Partial Sale occurs after the Conversion
Deadline that has not been consented to pursuant to Section 4.4(b), the
Company shall use the entire net proceeds of such sale to prepay the Notes
together with any accrued but unpaid interest thereon and any applicable
premium contemplated by Section 1.4(c) as in effect on the closing of the
Material Partial Sale upon the closing of the Material Partial Sale.40

These provisions documented the business agreement reached when the parties negotiated

the term sheet for the Series B Notes. They were substantially identical to similar

provisions in the Series A Agreement.41

The parties have debated the implications of the presence of Section 1.4(e) in the

Series B Agreement. In my view, its presence primarily reflected the fact that during the

39
JX 37 § 4.3(b).
40
Id. § 1.4(e).
41
See JX 9.

14
period when their investment was governed by that agreement, the Series B Investors held

debt. Absent a provision like Section 1.4(e), Invenergy might argue that the Series B

Investors only would be entitled to payment of principal and interest if the Series B Consent

Right was breached. Under Section 9.1(a)(3) of the Series B Agreement, breach of the

Series B Consent Right would be an “Event of Default,” because it would result in a

situation in which “the Company . . . defaults in any material respect in the performance or

observance of any other covenant term or condition [other than the payment of principal or

interest when due] contained in the Notes, this Agreement or the Related Agreements.” 42

The Series B Agreement provided that upon an Event of Default, the unpaid principal and

accrued but unpaid interest on the Series B Notes would accelerate and become due. But

that was not what the Series B Investors wanted to receive in that situation. They wanted

the equity upside of the Target Multiple. To avoid creating a loophole that might enable

Invenergy to extinguish the Series B Notes prematurely by engaging in a Material Partial

Sale, the drafters of the Series B Agreement included Section 1.4(e). That section provided

explicitly that Invenergy had to pay the investors the Target Multiple, not just principal and

interest.

In my view, another purpose for Section 1.4(e) was to reflect the parties’ agreement

that the holders of the Series B Notes would have optionality as to whether they wanted to

(i) accept the Target Multiple and exit or (ii) retain their Series B Notes and the possibility

42
JX 37, § 9.1(a)(3).

15
of greater equity upside. The parties could have drafted Section 1.4(e) to require the

investors to transact in return for the Target Multiple. Instead, the parties required

Invenergy to offer to purchase the Series B Notes, at which point the Series B Investors

could choose what to do. As in the term sheet, the optionality rested with the investors.

As noted previously, the Series B Agreement incorporated by reference the Series

B LLC Agreement, which would govern the Series B Investors’ rights once they converted

to equity. Under the Series B LLC Agreement, the Series B Investors would continue to

enjoy significant governance rights comparable to those in the Series B Notes following

their conversion into equity. In Section 8.01, titled “Significant Actions,” the Series B LLC

Agreement contained a lengthy list of items that required the approval of at least two

unaffiliated members holding at least 50% of the equity in the aggregate.43 The list of

actions included a Material Partial Sale. The operative language stated:

Without the prior written consent of . . . the Required Investor Members, the
Company shall not:

...

(b) sell [enough] assets of the Company or assets or equity of its Subsidiaries
[to constitute a Material Partial Sale] . . . , unless the transaction giving rise
to the Material Partial Sale yields cash proceeds equal to or greater than the
amount that, if received, would provide the Members other than IWH, as of
the closing of such Material Partial Sale, their applicable Target Multiple in
cash. Any such transaction may be structured to provide IWH with lower
proceeds on a pro rata basis as the other Members in order to yield such
Members with their applicable Target Multiple in cash.44

43
See JX 38 at 34 (definition of “Required Investor Members”).
44
Id. at 49.

16
This language paralleled the Series B Consent Right that appeared in the Series B

Agreement.

The Series B LLC Agreement did not contain an analog to Section 1.4(e) of the

Series B Agreement. Once again, the parties have debated the significance of this fact. In

my view, its absence does not imply an intent that the investors would not receive their

Target Multiple if a Material Partial Sale took place. Having considered the record, I

believe its absence simply reflected the fact that once the Series B Investors had converted

to equity, there was no longer any need for a contractual protection that would rule out the

possibility of Invenergy paying off the investors for principal plus accrued interest. It is

true that the issue of optionality still existed, but the parties do not appear to have

contemplated that point in 2008. They seem to have thought that if the investors received

their Target Multiple, then the investors would exit happily. The question of optionality for

the equity would resurface in 2014.

D. The 2011 Amendment

In mid-2011, Invenergy wanted to prepay a large loan and establish a new term-loan

facility.45 As part of that process, Invenergy proposed to extend the maturity of the Series

B Notes by two years, push out the Conversion Deadline by two years, align the terms of

45
See JX 47-48 (executed “Payoff of Credit Agreement and Release of Security
Interests”); Alemu Tr. 36-37.

17
the Series A Notes and Series B Notes, and modify the return thresholds in light of the

alignment and longer term.46

The Series B Investors accepted Invenergy’s changes but insisted on better return

thresholds than what Invenergy proposed. Under the new arrangement, the amended Series

B Agreement would guarantee the Series B Investors an internal rate of return (“IRR”) of

20.51% in the event of a Material Partial Sale while in the notes, which represented a higher

amount than the original deal. After conversion, the guaranteed IRR would be 25%,

representing a decrease from the 27% minimum IRR contemplated in the original deal, and

the rate of return would decline by 2% each year thereafter. 47 Joseph Condo, Invenergy’s

General Counsel, marked up the Series B Agreement and the Series B LLC Agreement to

modify the definition of “Target Multiple” that appeared in each to reflect the new IRR

arrangement.48

Underlying the parties’ discussions of the Target Multiple as a return floor was the

premise that in any scenario in which Invenergy engaged in a Material Partial Sale without

the Series B Investors’ consent, the Series B Investors would receive their Target

46
See JX 49; JX 51-52; JX 54.
47
See JX 49 (email between Liberty and Leaf showing IRR decline following
conversion); JX 52 (email summarizing proposed IRR structure).
48
See JX 53.

18
Multiple.49 The Liberty and Leaf investor representatives testified to that effect,50 and the

contemporaneous documents reflect this understanding. For example in December 2011,

when Alemu sought approval from Leaf’s board of directors to execute the amendment, he

noted that “Series B investors will continue to get a 20.5% IRR protection while still in the

note if Invenergy wanted to pursue a transaction/liquidity event without getting consent of

investors.”51 He continued:

Target multiples (designed to yield cash on cash rate of return) for Series B
investors post a conversion to company equity were slightly modified. These
target multiples would protect investors from a material partial sale or the
sale of Invenergy if such a transaction was pursued without the consent of
Series B investors.52

Leaf’s board signed off, and the parties executed the amendment on December 21.53

49
See Alemu Tr. 44-46.
50
See, e.g., Fontanes Tr. 416-17 (agreeing that “Invenergy had basically two options
in a material partial sale under the LLC; either get consent from Liberty or pay it its material
partial sale amount”); Alemu Tr. 40 (“So under both. They worked exactly in the same
fashion.”).
51
JX 54.
52
Id.
53
PTO ¶ II.B.7. To facilitate the amendment, the Series B Investors exchanged their
existing securities for Series B-2 Notes, and the parties entered into a new Series B-2
Agreement. See JX 58 § 1.5(b). For purposes of the operative provisions in this case, the
features of the securities did not change. For simplicity, this decision continues to refer to
the Series B Agreement and the Series B Notes.

19
E. The CDPQ Investment

At the end of 2012, Invenergy proposed to raise capital from Caisse de dépôt et

placement du Québec (“CDPQ”), a large Canadian pension fund. Among other things,

Invenergy would use the capital to pay off Citigroup’s Series A Notes. The capital raise

required consent from the Series B Investors. In return for their consent, Invenergy agreed

to extend the Conversion Deadline from 2013 to 2015.54 In January 2013, Invenergy issued

Series C Senior Subordinated Notes (the “Series C Notes”) to CDPQ. Invenergy used the

proceeds to redeem Citigroup’s position, leaving Liberty as the dominant holder of the

Series A Notes.55

F. The Liberty Conversion

In summer 2013, Invenergy and Liberty discussed having Liberty convert some of

its Series A Notes and all of its Series B Notes into equity. As part of the conversion,

Liberty wanted greater governance rights for its equity, but Liberty and Invenergy did not

want Leaf to share in those rights. Liberty and Invenergy also expressed concern that if

Liberty converted all of its Series B Notes, then Leaf would be the only holder of Series B

Notes and would have the ability to control the vote necessary for certain transactions.56

54
JX 63 (internal Leaf email soliciting approval of the amendment); JX 64 (signed
amendment).
55
PTO ¶ II.B.9.
56
See Murphy Tr. 597-99.

20
 Leaf believed that having Liberty convert to equity would benefit Invenergy. It

therefore would benefit Leaf indirectly. To facilitate the conversion, Leaf agreed to

“[a]ppropriate modifications” to the Series B Agreement “in order to limit Leaf’s blocking

rights.”57 Relevant to the current lawsuit, the parties agreed to separate Liberty and Leaf’s

consent rights in the amended operating agreement that would recognize Liberty as a

member post-conversion. Liberty’s rights remained in Section 8.01 and were supplemented

with additional provisions.58 Leaf’s rights were relocated to what eventually became

Section 8.04 in the operative LLC Agreement.59

Despite being relocated, the substance of Leaf’s rights remained the same.

Invenergy still required Leaf’s consent for any Material Partial Sale “unless the transaction

giving rise to the Material Partial Sale yields cash proceeds equal to or greater than the

amount that, if received, would provide [Leaf], as of the closing of such Material Partial

Sale, with cash proceeds equal to or more than [its] applicable Target Multiple.”60

On July 1, 2013, Liberty converted $12.5 million of its Series A Notes and all of its

Series B Notes into equity.61 In connection with the conversion and Invenergy’s

57
JX 63 at 1; JX 64.
58
JX 85 § 8.01(b), (e), (f); see also JX 74 at 44-48 (redline reflecting changes);
Alemu Tr. 53-54 (discussing changes).
59
Alemu Tr. 51-53.
60
JX 85 § 8.02(b).
61
PTO ¶ II.B.10.

21
recognition of Liberty as a member, Liberty, Invenergy, and Invenergy Holdings entered

into a Second Amended and Restated Limited Liability Company Operating Agreement.62

G. Leaf Explores Liquidating Its Position.

In spring 2014, Leaf’s parent company decided to begin an orderly liquidation of its

investments. As part of this strategy, Leaf explored ways to exit its investment in

Invenergy. In March 2014, Alemu and other members of management prepared a

presentation that analyzed exit scenarios for Leaf.63 The presentation showed that Leaf’s

principals understood that Leaf would be entitled to receive its Target Multiple if Invenergy

engaged in a Material Partial Sale without Leaf’s consent regardless of whether Leaf held

debt or equity.64 The analysis showed that for an exit in December 2015, Leaf would

receive greater value under the LLC Agreement than under the Series B Agreement,

because the former called for a guaranteed IRR of 23%, whereas the latter used an IRR of

20.5%.65

62
See JX 85.
63
JX 99 at 3; Alemu Tr. 55-57.
64
JX 99 at 7 (“Prior to December 22, 2015, the Investor Holders of the Series B
notes must approve any Invenergy liquidity event or material partial sale that does not yield
a 20.5% IRR.”); id. at 10 (“Prior to December 22, 2015, all Series B Investor Members
must approve any Invenergy liquidity event or material partial sale that does not yield a
cash-on-cash IRR . . . .”).
65
See Alemu Tr. 58-61 (explaining that LLC Agreement provided for higher IRR
for calculating Target Multiple than Series B Agreement). Compare JX 99 at 7 (calculating
Target Multiple of $110,670,172 for Series B Notes in December 2015 using 20.5% IRR),

22
 On April 1, 2014, Leaf’s parent hired Mark Lerdal to oversee the orderly liquidation.

Lerdal’s compensation consists of a base salary plus an incentive fee tied to the value of

the returns he generates through the liquidation process.66 This arrangement gives him an

economic interest in securing the highest possible value for Leaf’s position in Invenergy.

One option Leaf considered was to sell its position to a third party. In May 2014,

Leaf began interviewing investment banks to help with the sale process. The interview

materials described the Series B Consent Right in the same terms as the March 2014 board

presentation and depicted the same exit valuations.67

H. Invenergy’s CFO And Its General Counsel Confirm Leaf’s Understanding.

In spring 2014, CDPQ, Liberty, and Invenergy were considering a recapitalization

in which CDPQ would purchase additional equity and Liberty would convert more of its

debt into equity. The deal contemplated changes to the LLC Agreement and the Series B

Agreement and would require Leaf’s consent.68

Shashank Sane was a Vice President at Invenergy who reported directly to Jim

Murphy, Invenergy’s CFO. To assist in negotiating the revised documents, Sane prepared

with JX 99 at 10 (calculating Target Multiple of $127,778,279 for equity in December 2015
using 23% IRR).
66
See JX 100 (executed employment agreement); Lerdal Tr. 234.
67
See JX 108 at 2, 5; see also Lerdal Tr. 238-43 (discussing the deck).
68
JX 116 (Leaf internal email from Alemu summarizing discussions with
Invenergy).

23
and circulated a “matrix comparing member rights in the LLC agreement.”69 The matrix

summarized Leaf’s rights in the event of a Material Partial Sale as follows: “Consent

required, unless paying COC amount” and “Leaf COC Amount is Target Multiple.”70 Sane

revised the matrix several times under the supervision of Murphy and Condo, Invenergy’s

General Counsel.71 The description of Leaf’s rights in the event of a Material Partial Sale

never substantively changed.72

During the negotiations, CDPQ and Liberty asked Invenergy to add language to the

LLC Agreement that would give them the option upon the occurrence of a Material Partial

Sale to either receive their Target Multiple or stay in the equity. In other words, their

member interests would have the same optionality as their notes. In 2013, when the parties

had separated Leaf’s consent rights from the other investors’ and moved them to a different

section of the LLC Agreement, they had redefined the Target Multiple that CDPQ and

Liberty would receive in the event of a Material Partial Sale as the “Material Partial Sale

Amount.” Now, CDPQ and Liberty asked for the option to choose whether or not to receive

69
JX 109 at 1.
70
Id. at 5.
71
See JX 111-12; see also Murphy Tr. 665-72.
72
In the final version, Sane changed the generic “COC” to “MPS.” The relevant
bullets read: “Consent required, unless paying MPS amount” and “Leaf MPS amount is
Target Multiple.” JX 112.

24
their Material Partial Sale Amount if a Material Partial Sale took place. They proposed the

following language:

In the event of a Material Partial Sale, any Member who is not a Specified
Member (excluding Leaf Invenergy Company) shall have the right to elect
in writing, within thirty (30) days after its receipt of the 30-day notice
referred to directly below, to receive cash proceeds equal to the Material
Partial Sale Amount.73

Invenergy shared the draft with Leaf.

Leaf initially considered whether it had the right to block the recapitalization and

could use that right to facilitate an exit. In an email dated May 21, 2014, Lerdal asked

Alemu, “Why don’t we ask for our guaranteed return today? Do we have any blocking

rights? If so, this is the time to tell them we will approve no change to the operating

agreement.”74 Alemu responded that Leaf did not have blocking rights and that Leaf’s

“guaranteed return”— its right to receive its Target Multiple—was “only triggered if they

undertake a material partial sale (dispose [of] 20% of the assets) or [] consummate [a]

change of control without seeking our consent.”75 Both Alemu and Lerdal testified credibly

to their contemporaneous expectation that if Invenergy engaged in a Material Partial Sale

without Leaf’s consent, then Invenergy would have to pay Leaf its Target Multiple.76

73
JX 117 § 8.01(e).
74
JX 121 at 1.
75
Id.
76
Alemu Tr. 64-65 (“[T]o the extent they didn’t get our consent, the company had
an obligation to pay, so that’s what [] I was reflecting in that email.”); Lerdal Tr. 246 (“We

25
 Leaf retained Mike Russell at Wilson Sonsini Goodrich & Rosati, P.C. to provide

advice on the proposed changes to Invenergy’s governing documents.77 In an email dated

May 27, 2014, Russell asked Condo why Leaf would not be included in CDPQ and

Liberty’s proposal for new language in Section 8.01(e).78 He wanted to know “what

happens to Leaf in this scenario?”79

Condo responded that the section did not address Leaf because “Leaf’s rights in the

event of an MPS are specified explicitly in Section 8.04(b).”80 That answer did not respond

to the substance of Russell’s question, so Russell followed up by explaining that Section

8.04(b)

doesn’t actually provide a payout to Leaf, whereas 8.01(e) provides for a
payout to the non-Specified Members. Is there a reason why Leaf doesn’t
have a right to elect to receive the payout in the Material Partial Sale? If they
can’t elect to receive it, how are they assured to receive their Target Multiple
in the transaction?81

thought it was guaranteed. We thought if the transaction happened and -- and we weren’t -
- and we didn’t consent, they were obligated to pay that to us.”).
77
See JX 117-18; Alemu Tr. 62.
78
JX 128 at 4.
79
Id.; see also Russel Tr. 481-83.
80
JX 128 at 3.
81
Id. at 2; see also Russell Tr. 482-85 (testifying that after reviewing proposed
Section 8.01(e), it “stood out” that Leaf did not have a “specific election right” like Liberty
did under the provision).

26
Condo responded clearly and directly: “[I]t is a firm consent right that we can’t do a C of

C absent Leaf’s consent if the Target Multiple is not reach[ed]. So unless they consent not

to receive it, they will always get it.”82 At trial, Condo acknowledged that his reference to

“C of C” encompassed a Material Partial Sale.83 Russell reasonably perceived Condo to be

saying that if a Material Partial Sale took place and Leaf did not consent, then “[y]ou’ll get

paid.”84

Although Russell and Condo both understood the provision to work in the same

way, Russell remained concerned that the language was not sufficiently clear. He observed

that under the language as drafted, “Leaf does not have a consent right if the cash proceeds,

‘if received’, would be equal to or greater than the Target Multiple. There is no obligation

to actually deliver the cash proceeds.”85 Condo reassured Russell: “The intent is that Leaf

receives its TM. Do we need language to clarify?”86

After this exchange, both lawyers asked the business principals to confirm their

understanding about how the provision worked. Condo emailed Murphy and asked, “Jim -

do you agree that the intent is that absent their consent not to get it, Leaf is entitled to

82
JX 128 at 2 (emphasis added).
83
Condo Tr. 440.
84
Russell Tr. 487 (“He said they’ll always get it, so he just seemed to be saying,
‘You’ll get paid.’”).
85
JX 128 at 2.
86
Id. at 1.

27
receive their TM? They are wrapped around the axle on a semantic game thinking we don’t

actually have to pay them.”87 Murphy responded: “Yes I agree.”88 Condo responded, “OK

– I will work with them on reassuring language.”89

Meanwhile, Russell followed up with Leaf. Russell knew that Leaf believed it

should have the right to receive its Target Multiple if Invenergy completed a Material

Partial Sale without Leaf’s consent. His question was whether Leaf wanted to receive its

payment automatically, or whether Leaf wanted the same optionality that it had under the

Series B Notes and which CDPQ and Liberty were obtaining for their equity. Russell asked

Alemu, “[I]n the situation with a material partial sale, will you want to automatically

receive your target multiple or have the ability to elect to receive it, similar to the other

non-Specified Members.”90 Alemu responded, “We would like to receive it

automatically.”91 Russell passed Leaf’s response on to Condo: “Joe, Leaf confirmed that

they would expect to receive the payout associated with the Material Partial Sale

automatically, so we would appreciate if language could be added to clarify.”92

87
JX 124.
88
Id.
89
Id.
90
JX 126 at 1.
91
Id.
92
JX 128 at 1; see also Russell Tr. 488-89.

28
 At this point, the business principals for both sides (Murphy and Alemu) and the

lawyers for both sides (Condo and Russell) shared a uniform understanding about how the

Series B Consent Right worked: If Invenergy engaged in a Material Partial Sale without

obtaining Leaf’s consent, then “Leaf receives its TM.”93 There were no ifs, ands, or buts:

“[U]nless they [Leaf] consent not to receive it, they will always get it.”94 The only question

was how to make sure the language sufficiently confirmed this shared understanding.

Condo asked for Murphy’s sign-off on the following language:

[Invenergy shall not] participate in or permit a Material Partial Sale, unless
the transaction giving rise to the Material Partial Sale yields cash proceeds
equal to or greater than the amount that, if received, would provide the Series
B Non-Voting Investor Members, as of the closing of such Material Partial
Sale, with cash proceeds equal to or more than their applicable Target
Multiple, with such Target Multiple to be paid upon such closing of the
Material Partial Sale.95

With Murphy’s approval, Condo sent the language to Russell.96

Russell was “satisfied with the language” that Condo had proposed,97 but it occurred

to him that if a Material Partial Sale resulted in proceeds that could support a distribution

greater than the Target Multiple, then Leaf should receive the greater value and not be

93
JX 128 at 1 (Condo).
94
JX 128 at 2 (Condo).
95
JX 125 at 1.
96
JX 128 at 1; see also Alemu Tr. 70; Russell Tr. 489-90.
97
Russell Tr. 490.

29
capped at its Target Multiple. He wrote to Alemu: “Not sure that you should only be paid

your Target Multiple – i.e. if the payout is higher, shouldn’t you receive the full amount?”98

Alemu understandably liked that idea and responded: “We should have the ability to take

the greater of the target multiple or pro rata value of a transaction.”99 Russell informed

Condo that Leaf believed that “[t]he payout shouldn’t be limited to the Target Multiple if

the transaction would result in a higher payout based on their then pro-rata ownership.”100

Russell asked Condo to “modify [his proposed language] to provide for a payout of the

greater of the Target Multiple or their pro rata share of the transaction value.”101

Condo correctly perceived that Leaf was now asking for something more than what

everyone had understood the deal to be. He emailed Murphy:

Now Leaf wants to not be limited to the Target Multiple if an MPS would
result in a higher payout based on their then pro-rata ownership. They want
a payout of the greater of the Target Multiple or their pro rata share of the
transaction value. I don’t think that was the deal – maybe you should talk
with Yoni [Alemu] directly?102

98
JX 129 at 1.
99
Id.
100
JX 132 at 1.
101
Id.
102
JX 127 at 2.

30
Murphy initially wondered why Leaf would need language giving them a right to greater

transactional proceeds, asking “don’t they get the pro rata payout by just agreeing to the

transaction?”103 Condo explained that for a Material Partial Sale that was not the case.

No. The agreement generally does not specifically say so. Unless you are
referring to the general distribution clause. But that has nothing to do with a
Member consent – there is no direct benefit for a member to consent to an
MPS. If they consent, it just means we can do the MPS at less than the TM.104

At this point, Murphy cut to the chase by laying out his understanding of the fundamental

business deal:

My understanding is:

 If we do a material partial sale with their consent, we do the deal and
if we have a distribution as a result we pay pro rata.

 If we try to do an MPS and they don’t consent, then we can transact
anyway as long as we pay them the TM at which point they are out.
Probably in this case we pay them more than their pro rata amount to
get them to TM.

That was the deal. No way we agree to modify. Should I call Yoni
[Alemu]?105

Condo agreed and told Murphy, “Your understanding is right.”106

103
Id. at 1.
104
Id.
105
Id.
106
JX 133 at 1.

31
 Murphy scheduled a call with Alemu.107 Ahead of the call, Murphy sent Alemu a

summary of how he understood the current provision to operate. After quoting the language

of Section 8.04(b) of the LLC Agreement, Murphy stated:

To summarize,

 If we do a material partial sale with your consent, the value is captured
by the Company to the pro rata benefit of the members. And if we
have a distribution as a result the value is pro rata.

 If we desire to do an MPS without your consent, then we can transact
anyway as long as we pay you your Target Multiple, at which point
you would no longer be a member.108

Murphy then moved on to the new point Leaf had raised: “My understanding is that there

is a new request to modify the non-consent case such that your shares would need to be

redeemed at the greater of (a) your Target Multiple and (b) your pro rata share of the

transaction value?”109 Murphy said that the ask “makes no sense to me” because “[i]f a

Material Partial Sale is for say 20% of the Company value, how could your pro rata share

realistically . . . exceed your Target Multiple? And why would you redeem 100% of your

membership interest for 20% of your value?”110

107
See id. (Murphy agreeing to call Alemu); JX 134 (Murphy and Condo discussing
call).
108
JX 135 at 1.
109
Id.
110
Id.

32
 Internally, Murphy and Condo debated whether there was confusion over the fact

that Invenergy would be redeeming Leaf’s interests in return for paying the Target

Multiple.111 At Murphy’s request, Condo drafted changes to the LLC Agreement that

clarified that Invenergy would pay the Target Multiple in exchange for the member’s equity

interest; in other words, the payment would operate as a redemption.112 Condo

accomplished this by defining the Target Multiple as an amount that a Series B Investor

would receive “in exchange for its portion of the Company Interests.”113

Meanwhile, Alemu reviewed Murphy’s email and agreed with his analysis. Alemu

forwarded the email on to Russell and let him know that Leaf would not pursue the new

point.114 Russell viewed the point as a business matter involving economics rather than a

legal issue and hence was “[f]ine deferring to you on this.”115 On May 29, 2014, Alemu

111
See JX 140 at 2.
112
Id. at 1-2; see also JX 147 at 1 (Condo writing to Murphy and Sane, “My take
on this is simply that if they are entitled to a C of C Amount, MPS Amount or Target
Multiple, they give up all Company interest.”); id. (Sane agreeing, “If they trigger a COC
amount, MPS amount or Target Multiple, it has to be the entire position.”).
113
JX 140 at 1.
114
JX 136 at 1 (Alemu writing, “I will go back to him and accept their original
proposal”).
115
Id.

33
told Murphy that Leaf was “fine with the language below (target multiple for MPS without

consent).”116

Later that day, Condo sent Murphy and Sane a revised draft of the LLC Agreement

containing the proposed language. In his cover email, he explained that based on his

revisions, “8.04(b) reflects that Leaf actually gets paid the TM.”117 Murphy and Sane

signed off.118 Condo then circulated the changes to CDPQ and Liberty. He characterized

the revisions as “minor changes at Leaf’s request.”119 CDPQ and Liberty did not object.120

During a subsequent email exchange, Condo confirmed for CDPQ that “[i]f a transaction

entitles a Member to a C of C Amount, MPS Amount or Target Multiple, they give up all

Company Interest.”121

On July 3, 2014, Invenergy received regulatory approval for CDPQ’s investment.

On July 10, all of the members executed the Third Amended and Restated Limited Liability

116
JX 141 at 1.
117
JX 142 at 1.
118
JX 143 at 1.
119
JX 144 at 1 (cover email).
120
See JX 148 (exchange between Invenergy, CDPQ, and Liberty discussing other
changes in the agreement); JX 149 (same); Renault Tr. 371, 410-11 (CDPQ witness
confirming that he was aware of the changes but did not spend too much time focusing on
them).
121
JX 148 at 1.

34
Company Agreement of Invenergy Wind LLC.122 The LLC Agreement contained the

changes to Section 8.04(b) negotiated between Russell and Condo. The provision now

stated:

Without prior written consent of (i) the Manager and (ii) the Required Series
B Non-Voting Investor Members, the Company shall not:

...

(b) participate in or permit a Material Partial Sale, unless the transaction
giving rise to the Material Partial Sale yields cash proceeds equal to or greater
than the amount that would provide the Series B Non-Voting Investor
Members, as of the closing of such Material Partial Sale, with cash proceeds
equal to or more than their applicable Target Multiple with such Target
Multiple to be paid upon such closing of the Material Partial Sale. At the
option of all other Members, any such transaction may be structured to
provide such other Members with lower proceeds on a pro rata basis as the
Series B Non-Voting Investor Members in order to yield such Series B Non-
Voting Investor Members with their Target Multiple.123

Leaf qualified as a Required Series B Non-Voting Investor Member. This is the operative

version of the Series B Consent Right for purposes of this litigation.

I. Leaf Formalizes Its Plan For Orderly Liquidation.

In July 2014, Leaf’s parent held a special meeting of stockholders at which it

formally embarked on an orderly liquidation of its assets focused on “the return of capital

to the shareholders, with no predetermined timeframe and in a manner that produces

122
PTO ¶ II.C.3; JX 160 (the LLC Agreement); see also JX 159 (Amendment No.
1 to Second Amended and Restated Series B Senior Subordinated Convertible Note
Purchase Agreement); JX 162 (press release announcing CDPQ investment in Invenergy).
123
JX 160 § 8.04(b).

35
optimum realisation value to the shareholders.”124 Its annual report stated that Leaf was

“currently evaluating options for monetising its investment in” Invenergy, which the report

described as a “well-performing asset.”125

That same month, Leaf engaged Dean Bradley Osborne Partners LLC (“Dean

Partners”) to market Leaf’s position in the Series B Notes. Dean Partners’ engagement

letter provided for a flat fee of $1 million plus 10% of the consideration Leaf received for

its position in excess of $57 million, subject to a $2 million cap for a sale to a buyer

unaffiliated with Invenergy.126 This partially contingent fee arrangement gave Dean

Partners a financial incentive to seek a higher value for Leaf’s position.

In its preliminary analyses, Dean Partners valued Leaf’s positon at between $50

million and $79 million,127 and Dean Partners proposed to market the position at

approximately $70 million.128 The face value of the Series B Notes, consisting of principal

124
JX 155 at 5; see also Lerdal Tr. 236. Leaf’s parent traded on the London Stock
Exchange. In United Kingdom parlance, the special meeting was an “extraordinary general
meeting.”
125
JX 155 at 6.
126
JX 157 at 1 (executed Dean Partners engagement letter); see also Alemu Tr. 76.
127
JX 166 at 3 (deck prepared by Dean Partners for Leaf).
128
See JX 173 at 2 (notice to Invenergy of intent to transfer the notes, stating “we
propose to transfer the Notes to Invenergy at a purchase price of $70,000,000 in cash
consideration”); see also Lerdal Tr. 247-48.

36
and interest, was $46 million.129 Dean Partners ascribed incremental value to the Series B

Notes because of the Target Multiple, which Dean Partners regarded as a “guaranteed

return upon liquidity event.”130 The marketing materials explained that “[p]rior to

December 22, 2015, the note holders must approve any Invenergy liquidity event or

material partial sale that does not yield a 20.5% IRR” and that “[o]nce converted to equity,

investor must approve any Invenergy liquidity event that does not yield a return of

$113.1MM, $126.4MM, and $136.6MM in December ’14, ’15, and ’16, respectively.”131

Before it could start marketing the Series B Notes, Leaf had to comply with a right-

of-first-offer provision in the Series B Agreement. Section 11.2 required that Leaf deliver

what the Series B Agreement termed a “Note Offer Notice” to Invenergy specifying a price

and other proposed terms. Invenergy then had thirty days to consider the Note Offer Notice

and submit a counter offer. If Invenergy countered, Leaf had thirty days to consider the

counter. If Leaf rejected the counter, then Leaf had 120 days to sell the Series B Notes to

a third party as long as “the consideration, terms and conditions offered by such third party

are materially no less favorable to [Leaf] than is the Note Offer Notice.”132 Leaf and Dean

129
JX 169 at 1 (Preliminary Information Memorandum prepared by Dean Partners).
130
Id. at 3.
131
Id.
132
JX 88 § 11.2.

37
Partners did not expect Invenergy to cooperate with the right-of-first-offer process.133 But

Lerdal was not worried. He regarded the sales process as “not time sensitive” and, absent

some intervening event, “fully expect[ed] to exercise” Leaf’s Put Right in 2015.134

Dean Partners delivered Leaf’s Note Offer Notice to Invenergy on October 24,

2014.135 The Note Offer Notice invited Invenergy to repurchase the Series B Notes for $70

million rather than playing “appraisal roulette” after Leaf exercised its Put Right in

December 2015.136 Leaf stated that if Invenergy declined to purchase the Series B Notes,

then Leaf would market them to third parties or “hold the notes until December, 2015,

convert the notes into equity of Invenergy, and exercise the Put option.”137

On November 3, 2014, Condo rejected the notice as defective. Invenergy took the

positon that the Series B Agreement required Leaf to include “the identity of the proposed

third party transferee (which must be a Qualified Transferee) and the price at which the

133
See JX 170 at 2.
134
Id. at 1 (email from Lerdal: “if the company is not going to work with us, we
should run with our process. At a minimum just to send a message to the company that we
are serious about this asset.”); see also Lerdal Tr. 300-01.
135
JX 176 at 1 (transmittal email); see also Alemu Tr. 77; Lerdal Tr. 247; Russell
Tr. 504-05; Murphy Tr. 613-15.
136
JX 179 (email between Dean Partners and Leaf); see also Lerdal Tr. 300; Dean
Dep. 185-86.
137
JX 176 at 1.

38
Holder intends to sell the Notes to such third party.”138 Invenergy thus construed the

transfer procedures in the Series B Agreement as creating a right of first refusal, rather than

a right of first offer. By letter dated January 27, 2015, Leaf disputed Invenergy’s position,

but did not pursue the matter further.139

J. Invenergy Considers A Material Partial Sale.

In late 2014, Invenergy began to consider selling some of its assets and retained

Goldman Sachs & Co. LLC to assist with that process.140 Murphy explained at trial that an

investment vehicle called a “YieldCo” was “making its rounds on Wall Street.”141 In

YieldCo deals, assets were being valued “significantly higher than how [Invenergy was]

valuing assets, and we thought it might be a good time to test the market.” 142 Goldman

began exploring potential transactions and advised Invenergy that there was “significant

value in the M&A market for [Invenergy’s] high quality [wind] portfolio.”143

138
JX 177 at 1; see also Alemu Tr. 83; Lerdal Tr. 248; Russell Tr. 506-07.
139
JX 182 at 2 (letter from Russell to Condo).
140
Murphy Tr. 616-17; Polsky Dep. 48-49.
141
Murphy Tr. 616.
142
Id. at 616-17.
143
JX 180 at 5 (Goldman deck sent to Invenergy).

39
 Goldman marketed Invenergy’s assets and pushed interested parties “for indicatives

before March 17.”144 One of the interested parties was TerraForm Power, Inc., an owner

and operator of renewable power assets. Lerdal served as a director of TerraForm and in

that capacity learned in early March that TerraForm was preparing a bid. In what Lerdal

candidly described as “not [his] proudest moment,” he immediately notified Alemu that

Invenergy was pursuing an asset sale.145 Lerdal and Alemu were thrilled with the news,

because they expected that the sale “was going to trigger the [Material Partial Sale

clause].”146 Alemu also thought that a transaction could establish “a really good precedent”

for determining Invenergy’s Fair Market Value under the Put-Call Provisions.147

For its part, Invenergy was exploring how it could engage in a transaction without

securing Leaf’s consent or paying Leaf its Target Multiple. Polsky was “convinced that we

need to proceed with the wind asset sale to YieldCo, particularly considering [anticipated

revenue declines in Poland].”148 But “because of the behavior of Leaf . . . beginning in late

2014,” Invenergy did not want Leaf to “have a consent right to this transaction.”149

144
JX 186 at 1 (email from Murphy to Polsky providing “updates”).
145
Lerdal Tr. 253-54; see also JX 188 (emails between Lerdal and Alemu regarding
the sale); Alemu Tr. 85-87.
146
Lerdal Tr. 254.
147
JX 189 (email from Alemu to Lerdal).
148
JX 197 (email from Polsky to Murphy); see also Polsky Dep. 50-51.
149
Murphy Tr. 690.

40
Invenergy management calculated at the time that Leaf’s Target Multiple was $95

million.150

One Invenergy strategy was to postpone disclosing the sale to Leaf for as long as

possible.151 Another was to explore what would happen “if we do an MPS (where proceeds

exceed the Target Multiple) and simply do not offer the TM?”152 Condo told Murphy that

he was “happy to ask that of outside counsel,” but he was blunt about what the Series B

Agreement contemplated: “I don’t see any plausible way to make that case. It’s my view

that the agreement is very clear that we have to offer the TM to them, which they could

then take or stay in the note.”153 Murphy responded, “I admit it appears to be a long shot

[but] we should at least ask about it.”154

Condo asked. On March 10, 2015, he explained to outside counsel that Invenergy

was “looking at a transaction that, by any measure, would be a Material Partial Sale under

150
JX 191.
151
See JX 192 at 1 (email from Condo to Invenergy management advising that Leaf
had a right to attend noteholders’ meetings but not members’ meetings, “[s]o we don’t need
to be coy about separate meetings”).
152
Id. at 1.
153
JX 193 at 2.
154
Id.

41
this agreement.”155 Condo’s email walked through the pertinent sections of the Series B

Agreement. He wrote that the Series B Consent Right

says that we must get Leaf’s consent if we want to complete a Material Partial
Sale if the proceeds of such transaction are less than the amount of the Target
Multiple. If the proceeds exceed the amount of the Target Multiple and we
comply with Section 1.4(e), we don’t need consent. The proceeds here would
exceed the Target Multiple.156

Condo asked “whether there is any way to read this in a way that would not require us to

offer to pay the full Target Multiple.”157 He laid out several arguments:

 Perhaps we could make the case that because we don’t need to get
their consent in the first place since the transaction exceeds the Target
Multiple, 1.4(e)(iv) wouldn’t necessarily apply? Put another way,
could we say 1.4(e) only applies if they refuse consent, as opposed to
a case where we simply don’t ask?

 Or is there some other way to say that the intent here is that for a high-
value transaction, they benefit and we don’t need to make such an
offer?

 Or, maybe there would be a basis to say that their failure to simply
consent to the transaction (it’s a sole discretion consent per 11.15), if
it values the company highly, is a bad faith action?158

155
JX 194 at 1.
156
Id.
157
Id.
158
Id. (formatting added).

42
Condo concluded: “You may think we are grasping a little, and you’d be right. But we are

trying to see if we have any realistic alternatives here.”159 At the time, Condo and Murphy

both believed that Invenergy had to pay Leaf its Target Multiple if Invenergy engaged in a

Material Partial Sale without Leaf’s consent, and they believed any arguments to the

contrary either did not exist or were unlikely to succeed.

In contrast with its efforts to develop arguments to avoid Leaf’s consent rights,

Invenergy sought consent from CDPQ and Liberty.160 In mid-March 2015, Invenergy

management met with CDPQ and Liberty in Chicago and explained the rationale for the

sale.161 CDPQ and Liberty saw “significant value in this transaction” but argued that

“proceeds in excess of what [they] believe is reasonable should be distributed to the

members.”162 Liberty and CDPQ balked at Invenergy’s idea of using the proceeds to pay

down debt.163

159
Id.; see also Condo Tr. 425-26 (acknowledging the question “was one that I felt
was something of a stretch” and that he “didn’t really think there was really much merit”
to his theories but that he sent the email “so that I could report back to my boss that I had
run this down with outside counsel”).
160
See JX 195-96 (emails between Invenergy and CDPQ discussing potential asset
sale); Murphy Tr. 687-89.
161
JX 201 at 1 (email from Polsky to Liberty and CDPQ recapping meeting); see
also Renault Tr. 376-80; Murphy Tr. 633; Polsky Dep. 104-05.
162
JX 201 at 1.
163
Id.

43
 Polsky responded that reinvesting the proceeds in Invenergy’s business would yield

enough cash over time to begin making distributions to investors. He reminded CDPQ and

Liberty that he was the largest equity holder and hence shared their interests.164

Negotiations continued, and CDPQ and Liberty remained involved and generally

supportive of the asset sale.165

K. Leaf Evaluates Its Options.

On March 23, 2015, a news article leaked that “Invenergy is understood to be

considering a sale of the bulk of its generation fleet.”166 The article confirmed what Leaf

already knew due to Lerdal’s role as a director of TerraForm. Alemu noted that if the

transaction were “consummated prior to Dec 22, 2015, we would be entitled to our target

multiples.”167 He explained that the transaction

would certainly constitute a material partial sale and Leaf would be entitled
to its target multiple if the following conditions are met

1) Transaction occurs prior to Dec 22, 2015 and

2) If the sale would yield cash proceeds to Invenergy equal to or greater than
the target multiple for all outstanding Series B-notes.168

164
Id. at 2.
165
See Renault Tr. 373; Murphy Tr. 633.
166
JX 203 at 1.
167
JX 204 at 1.
168
Id.

44
He caveated that “[a]ll of the above assumes that we don’t consent to the deal.” 169 Dean

Partners agreed with Alemu’s analysis.170 So did Russell.171

The Leaf team also analyzed Leaf’s rights if it converted into equity. On April 27,

2015, Alemu advised Lerdal that under the LLC Agreement, “Invenergy would require

consent from all of us (CDPQ, Liberty and Leaf) in order to undertake a material partial

sale.”172 He also noted that “[c]onsent would not be required if they deliver consideration

equal to or greater than the target multiples to the investors.”173 Alemu further observed

that for a transaction prior to December 22, 2015, the Target Multiple for Leaf was higher

under the LLC Agreement than under the Series B Agreement, meaning that Leaf would

receive greater value if it converted into equity before a Material Partial Sale took place.174

Lerdal responded that Leaf “might want to convert soon” but cautioned that Leaf

needed to “time this properly” because “[w]e want their deal to be fully baked before we

tip our hand.”175 Lerdal anticipated that Invenergy “will fight the existence of an MPS” and

169
Id.
170
JX 208 at 2.
171
JX 212 at 1.
172
JX 222 at 1.
173
Id.
174
Id.
175
JX 223 at 1.

45
that “they might push it off to after December 2015 to force us into the put call.”176 In other

words, Lerdal believed that Invenergy might delay closing the Material Partial Sale and

exercise its Call Right before the transaction closed to avoid paying the Target Multiple.

That path did not worry Lerdal, because he believed that the Material Partial Sale would

result in “a new floor valuation, much higher than currently” for determining Fair Market

Value under the Put-Call Provisions.177

Alemu agreed. He also noted that “[t]he threshold for a MPS under the LLC

agreement ($240 mm) is lower than that under the [Series B Agreement] (20% of the value

of the company),” so it would be “very difficult for them to try and avoid having to pay

target multiple if we convert and they consummate the transaction.”178

176
Id.; see also Lerdal Dep. 106 (testifying he was concerned that, if Invenergy was
“aware of -- if they were contemplating our right to the target multiple, they might put it -
- they might have a closing date after the date that they could call our shares”).
177
JX 223 at 1; see also Lerdal Tr. 305-07 (testifying he wanted the deal to close
because Invenergy was “doing a very good deal for not themselves but for everyone” and
was selling at “[i]f not the very top [of the market], very close” which would “give Leaf a
better return under the appraisal process, either the put or the call”).
178
JX 223 at 1.

46
L. The TerraForm Bid

On June 4, 2015, TerraForm submitted its bid to purchase seven Invenergy projects

for an aggregate price of approximately $2.4 billion.179 On June 6, Invenergy accepted

TerraForm’s proposal and entered into an exclusive negotiation period.180

On June 16, 2015, Invenergy held a regularly scheduled meeting with its

noteholders. Representatives of Invenergy, CDPQ, Liberty, and Leaf attended. No one

mentioned the TerraForm deal.181 Invenergy circulated fifty-five pages of materials for the

meeting; none mentioned the pending transaction.182

By this point, Invenergy had decided not to seek Leaf’s consent, but Invenergy had

not settled on what argument it would use to justify that course of action. One approach

was to depress the value of the deal below the Material Partial Sale threshold. Between

June 15 and 16, 2015, Sane subjected various deal structures to an “MPS test” to determine

whether they tripped the Material Partial Sale threshold in the Series B Agreement.183 The

original deal clearly did, but Sane developed variations that did not.184 He settled on an

179
JX 233 at 2.
180
JX 235 at 5-6.
181
Alemu Tr. 98-100; Murphy Tr. 701-02.
182
JX 241.
183
JX 244-45; see also Sane Tr. 735-41.
184
See JX 242 at 3; JX 243 at 3; see also Sane Tr. 733-35.

47
analysis that increased the valuation of certain assets Invenergy was retaining while

decreasing the valuation of certain assets it was selling.185 Sane sent this revised analysis

to Murphy for “external distribution.”186

Meanwhile, Leaf had grown suspicious about Invenergy’s continuing silence

regarding the pending transaction.187 On June 18, 2015, Leaf held a board meeting to decide

on a course of action.188 The board materials reflected Leaf’s understanding that “[i]f Leaf

withholds consent, Invenergy can proceed with the MPS transaction but would be obligated

to deliver a target IRR to Leaf [of] 20.5% if Leaf holds [the] notes [and] 23% prior to

December 22, 2015 and 21% thereafter, if Leaf converts to equity.”189 The presentation

suggested that Invenergy might try to avoid paying the Target Multiple by “delay[ing]

closing the transaction until December 22, 2015” and “call[ing] Leaf’s position,” thereby

“requiring both parties to go through the [Fair Market Value] appraisal process.”190

185
See JX 245.
186
Id.; see also Sane Tr. 738.
187
See JX 239 (email from Dean Partners banker to Lerdal: “I am confident that
these guys will attempt to screw you if there is a material partial sale. We will be ready.”);
JX 250 (email from Lerdal to Dean Partners: “Again, I have no confidence that Invenergy
will honor any provision in the documents.”).
188
See JX 248 at 1 (email transmitting slides to Leaf board “for the purpose of our
call tomorrow”); Alemu Tr. 100-01; Lerdal Tr. 259-60; Russell Tr. 513-14. See generally
JX 248-49.
189
JX 249 at 3 (formatting omitted).
190
Id. at 8.

48
 At the conclusion of the meeting, the Leaf board authorized Leaf to convert its

position in the Series B Notes into membership interests.191 Russell sent notice to Invenergy

that Leaf was exercising its right to convert its full position.192 After several days of silence,

Russell followed up with Condo. Condo replied that Invenergy had decided to seek

regulatory approval for the conversion.193

M. TerraForm And Invenergy Sign Up A Deal.

Invenergy and TerraForm continued full steam ahead on their deal.194 Invenergy

also continued negotiating the terms on which CDPQ and Liberty would consent to the

transaction. Recognizing that they had leverage, CDPQ and Liberty sought to extract some

consideration for themselves. The vehicle for the negotiations was a use-of-proceeds

schedule to the written consent that would define how Invenergy could use the proceeds.

Initially, Invenergy prepared use-of-proceeds schedules for two possible transaction

structures. In one, Invenergy would sell 100% of the assets that TerraForm wanted for cash

proceeds of $1.4 billion plus assumption of approximately $800 million in debt. In the

other, Invenergy would sell 90% of the assets for cash proceeds of $1.2 billion plus the

191
Lerdal Tr. 259-61; Russell Tr. 522.
192
See PTO ¶ II.D.2; JX 253 at 2 (exercise notice); see also Alemu Tr. 102-03;
Russell Tr. 522.
193
JX 272 at 1.
194
See JX 251 (circulating draft consents to CDPQ and Liberty); JX 259 (email from
Goldman discussing open points with TerraForm).

49
assumption of debt.195 Under both structures, Invenergy would use the vast majority of the

proceeds to repay debt, including the Series A Notes, the Series B Notes, and a loan from

CDPQ secured by several of the assets being sold.196 Both draft schedules contemplated

CDPQ receiving a payment of $300 million for its loan.197 Under the full-sale scenario,

Invenergy would retain approximately $270 million in net proceeds; under the partial sale

scenario it would retain approximately $141 million. Neither schedule contemplated any

distributions to the equity holders other than tax distributions.198

On June 30, 2015, Invenergy and TerraForm executed a Purchase and Sale

Agreement (the “TerraForm Agreement”), which called for a deal consistent with the 90%

structure (the “TerraForm Transaction”).199 CDPQ and Liberty executed and delivered

their consents on July 1.200 At closing, Invenergy would receive cash proceeds of

195
JX 265 at 7 (draft use-of-proceeds schedule).
196
See Renault Tr. 382-87.
197
JX 265 at 7. The final schedule attached to the executed consent reflected that
the repayment comprised $250 million in principal and interest plus a $50 million
prepayment premium. JX 281 at 2. The premium compensated CDPQ for foregoing
approximately twenty-two years of expected interest on the long-term loan. Renault Tr.
384-86; Murphy Tr. 683-84.
198
JX 265 at 7.
199
See PTO ¶ II.D.3; JX 275 (executed Purchase and Sale Agreement).
200
JX 281 at 21.

50
approximately $1.1 billion.201 The final use-of-proceeds schedule called for the payment

of $300 million to CDPQ, a payment of approximately $100 million to satisfy investors in

the projects who had “tag along” rights upon their sale,202 and additional amounts to pay

certain equity holders in one of the projects.203 After these payments, the TerraForm

Transaction would yield net proceeds to Invenergy of approximately $230 million. From

that amount, Invenergy would make a tax distribution to its members of approximately

$123 million and retain approximately $107 million as working capital. 204 The final

consent provided that it would be “null and void in the event the proceeds of the

Transaction are not paid as set forth hereunder including Exhibit B (subject only to

immaterial adjustments).”205

N. Leaf Demands Payment.

On July 2, 2015, after Invenergy signed the TerraForm Agreement but before any

public announcement of the TerraForm Transaction, Invenergy finally notified Leaf.206

Murphy called Alemu and described the deal size and basic structure and relayed that

201
Id.
202
Murphy Tr. 634-35.
203
Renault Tr. 388.
204
JX 281 at 21.
205
Id. at 5.
206
PTO ¶ II.D.3.

51
Invenergy anticipated a principal closing in September and a secondary closing around

year’s end.207 Murphy also described the use of proceeds, which included a reserve against

Leaf’s anticipated exercise of its Put Right. During the call, Murphy took the position that

the TerraForm Transaction did not constitute a Material Partial Sale because “according to

[Invenergy’s] analysis . . . this transaction would be about 12% of [the] value of [the]

business.”208 Murphy reported to Condo that Alemu “seemed quite pleased about the value

that will accrue to the company.”209

On July 6, 2015, Murphy sent Alemu an analysis which showed the TerraForm

Transaction constituted 12.5% of the value of the Company.210 Invenergy had achieved this

percentage by retaining the 10% interest in the assets it sold and removing one of the

projects from the sale.211

Invenergy publicly announced the TerraForm Transaction on July 6, 2015.212 On

July 10, Invenergy filed for regulatory approval of Leaf’s conversion from debt to equity.213

207
JX 285 at 1 (email from Alemu to Leaf management and advisors recapping call).
208
Id.
209
JX 286 at 1 (email from Murphy to Condo).
210
JX 290 at 3.
211
Sane Tr. 739-41.
212
PTO ¶ II.D.3; JX 287 (press release).
213
PTO ¶ II.D.4; JX 296 (application); JX 297 (email notifying Leaf of filing).

52
During the same period, Alemu sought backup documentation for Invenergy’s analysis of

the Material Partial Sale threshold.214 Alemu’s own analyses indicated that the value of the

TerraForm Transaction qualified as a Material Partial Sale under the LLC Agreement.215

During a call on July 23, 2015, Alemu advised Murphy that Leaf had converted to

equity before the execution of the TerraForm Agreement, that the TerraForm Transaction

qualified as a Material Partial Sale under the terms of the LLC Agreement, and that

Invenergy therefore had to obtain Leaf’s consent for the TerraForm Transaction.216 Murphy

disagreed.217 The call ended with the parties agreeing “there was not more to talk about and

attorneys would be more appropriate parties to discuss these differences.” 218 Leaf decided

214
JX 298-300.
215
JX 304 at 1.
216
See JX 308 (calendar invitation scheduling call); JX 310 (internal Leaf email
discussing agenda for call); see also JX 318 at 5 (Leaf CFO providing summary of Leaf’s
position to auditors: “Leaf considers itself to be in the equity as a result of its June 18, 2015
conversion notice, effective June 21, 2015 and the terms of the [LLC Agreement] apply.
Therefore, the TerraForm deal is an MPS, since its value is much greater than $245mm.
Invenergy cannot close an MPS (i.e. the TerraForm deal) until after Leaf’s conversion is
effective, and without providing 30 days[’] prior notice of the deal to Leaf and requesting
Leaf’s consent to the deal. If Leaf does not consent (it will not), then Invenergy cannot
close the deal without paying Leaf its Target Multiple (i.e. 23% cash on cash IRR since the
first investment, which will be equal to approximately $120 million on 9/30/2015, the
expected date of [the] closing of the deal.”).
217
JX 311 at 2 (email from Murphy to Invenergy management recapping
conversation).
218
Id.; see also Alemu Tr. 109-15; Murphy Tr. 630-31.

53
not to take any further action until it received a fully executed signature page to the LLC

Agreement.219

O. Leaf Becomes A Member.

Throughout the summer and into the fall of 2015, TerraForm and Invenergy plodded

towards a closing. By the end of August, Murphy had grown anxious. He emailed a senior

executive at TerraForm to remind him that Invenergy entered into the TerraForm

Agreement “with the understanding that the transaction would be closed in the most

expeditious manner . . . and in no event later than the stated deadline of December 15,

2015.”220 The market had softened for comparable assets, and Murphy wanted “to proceed

forward to closing asap.”221

Because of the delay, Invenergy secured a bridge loan of $100 million. CDPQ and

Liberty agreed on a revised use-of-proceeds schedule that contemplated repaying the

bridge loan.222

JX 313 at 1 (email from Lerdal to members of Leaf board: “[T]he current plan is
219

to take no action until Leaf has received a fully executed signature page to the LLC
Agreement of Invenergy [W]ind, LLC.”).
220
JX 320 at 2.
221
Id. at 3; see also JX 346 (email from Murphy relaying assurance he received that
TerraForm “is committed to complet[ing] our transaction”); JX 347 (announcement of
TerraForm ratings downgrade); Lerdal Tr. 271 (testifying there had been “some [market]
deterioration during that six months” and “TerraForm was in trouble”).
222
See JX 325-27 (communications with CDPQ discussing changes to use of
proceeds); Murphy Tr. 637-38.

54
 On September 23, 2015, Invenergy received regulatory approval for the conversion

of Leaf’s Series B Notes into equity.223 On September 24, the equity holders entered into

an amendment to the LLC Agreement that admitted Leaf as a member of Invenergy.224

Other than revising the membership schedules, the LLC Agreement did not change.225

Afterwards, Condo told Russell that because Leaf was not an equity holder when

Invenergy executed the TerraForm Agreement, Leaf could not assert any rights under the

LLC Agreement.226 The attorneys agreed to disagree on that point.227

At the end of September 2015, Leaf’s parent company issued its annual report. The

“Chairman’s Statement” included an update on the Invenergy investment which stated:

Under the terms of the Operating Agreement, Leaf believes that Invenergy is
required to obtain Leaf’s consent to the Proposed TerraForm Sale prior to its
consummation and that, absent such consent, Invenergy is required to make
a payment to Leaf upon the closing of the sale.228

223
See JX 330 (FERC approval); JX 331 (email transmitting FERC approval from
Invenergy to Leaf).
224
PTO ¶ II.D.5; JX 332.
225
JX 333 (email from Condo circulating revised agreement and advising “there are
no changes to the operating agreement other than the annexes now reflecting Leaf’s
ownership”).
226
JX 334 (email from Condo relaying conversation to Murphy: “They think they
get TM at [the TerraForm] close. I said no, we don’t agree with that.”); Alemu Tr. 115-16;
Condo Tr. 468; Russell Tr. 528-30.
227
JX 334; Condo Tr. 430; Russell Tr. 530.
228
JX 337 at 2.

55
Internally, Leaf had no interest in blocking the TerraForm Transaction. Leaf instead

worried that pushing its consent right might give TerraForm grounds to back out of the

deal.229 Lerdal decided against filing a lawsuit before closing because “[w]e don’t want to

give [TerraForm] any excuse to walk.”230 At trial, Lerdal testified candidly that the sale

“was a great deal for us.”231 He thought that either Leaf would get its Target Multiple or,

“worst case,” the parties would end up in the put-call process and “the valuation of

Invenergy has just gone through the roof because of this deal.”232 Lerdal also believed that

Leaf could not obtain an injunction because a court would hold that Leaf could receive

money damages as a remedy.233

Alemu sent the Chairman’s Statement from Leaf’s annual report to Invenergy. On

October 9, 2015, he emailed Murphy a “reminder that, pursuant to Section 8.01(e) of the

LLC Agreement, Invenergy is required to ‘provide each Member with not less than thirty

229
See JX 339 at 1 (email from Dean Partners to Lerdal expressing concern that
“our lack of consent [could] give [TerraForm] grounds to back out of a market top deal”).
230
JX 340 at 1; accord JX 344 (email from Lerdal to Leaf CFO: “Remember the
reason we are not filing [suit] prior to closing is to give [TerraForm] no reason to back out.
Might be remote, but damages are unchanged before or after closing—if it closes. That is
the most important fact for us.”); Lerdal Tr. 324 (confirming that Leaf delayed filing a
complaint because it “didn’t want to give TerraForm any excuse to walk”).
231
Lerdal Tr. 270.
232
Id.
233
Id.; see also id. at 349 (reiterating analysis of why Leaf would not have
successfully secured an injunction); Condo Tr. 430 (confirming Leaf did not seek to block
TerraForm Transaction).

56
(30) days’ prior notice of the occurrence of any Material Partial Sale’” and that “the LLC

Agreement requires that Invenergy obtain Leaf’s consent prior to participating in or

permitting a Material Partial Sale or in lieu of such consent, pay Leaf the Target

Multiple.”234

Invenergy had its outside counsel respond to Alemu’s email. The response

acknowledged that “[u]nder the terms of the Operating Agreement, the Transaction is a

Material Partial Sale.”235 But it took the position that “Leaf did not become a Member until

nearly three months after the Company entered into the Transaction.”236

P. The TerraForm Transaction Closes.

Between the signing of the TerraForm Agreement and December 2015, Invenergy

removed a handful of projects from the sale. On December 15, 2015, the parties entered

into an amended and restated TerraForm Agreement and closed the deal.237 In the revised

TerraForm Transaction, Invenergy sold fewer assets and received approximately $1 billion

in cash.238 The revised deal required updated consents from CDPQ and Liberty as well as

234
JX 338 at 1.
235
JX 341 at 1; see also Alemu Tr. 119-20.
236
JX 341 at 1.
237
PTO ¶¶ II.D.6-7; JX 355-57 (fully executed Amended and Restated Purchase and
Sale Agreement).
238
JX 495 ¶ 7 (Murphy affidavit).

57
a revised use-of-proceeds schedule.239 After all outlays, the TerraForm Transaction left

Invenergy with approximately $85 million in working capital.240

Q. This Litigation And The Put-Call Process

Leaf filed this lawsuit on December 21, 2015.241 On December 28, 2015, Invenergy

exercised its Call Right and proposed a price of $42,375,694.00 for Leaf’s entire 2.3%

stake.242 The proposed price implied a total enterprise value for Invenergy of approximately

$1.8 billion. Including assumption of debt, the TerraForm Transaction had provided

consideration of roughly $2 billion for what Invenergy contended represented just 12.5%

of its assets.

Later on December 28, 2015, Leaf exercised its Put Right.243 Under the LLC

Agreement, Invenergy could revoke its call, and Leaf wanted to eliminate that possibility

by invoking its put.244 Leaf proposed a price of $214 million, which it derived by using the

value of the TerraForm Transaction to imply a value for Invenergy as a whole.245

239
JX 348 at 1 (revised schedule).
240
Id.
241
PTO ¶ II.E.1; JX 365 (filed complaint); Alemu Tr. 124.
242
JX 367 at 1 (Invenergy’s exercise notice).
243
JX 368 at 1 (Leaf’s exercise notice).
244
Id.; Alemu Tr. 134-35.
245
Alemu Tr. 134-36, 207; Lerdal Tr. 332-33.

58
 The LLC Agreement obligated the parties to negotiate in good faith in an effort to

agree on Fair Market Value. They agreed to meet in Chicago on January 8, 2016.246 Ahead

of the meeting, Alemu sent the calculations underlying Leaf’s valuation.247 During the

meeting, Leaf continued to argue in favor of valuing Invenergy based on the TerraForm

Transaction. Invenergy argued for valuing Leaf’s interest based on CDPQ’s investment in

2014.248 The parties could not reach agreement.

The next step under the Put-Call Provisions was for the parties to hire independent

appraisers. Russell and Condo exchanged lists of appraisers that they believed would not

qualify as independent.249 Invenergy engaged Navigant Consulting, Inc., and Leaf engaged

XMS Capital Partners, LLC.250 Neither appeared on either list of problematic appraisers.

Nevertheless, each side raised objections to the other side’s appraiser and reserved all rights

to challenge the selection later. Invenergy expressed concern about whether “XMS has the

necessary qualifications to perform an appraisal of a power generation company, as well

246
JX 371 (email exchange arranging meeting); JX 374 (same).
247
JX 374 at 4.
248
See id.; JX 376 (slides used at meeting).
249
JX 378 at 3-4.
250
Id. at 1; see also JX 381 (negotiating non-disclosure agreement with Navigant);
JX 382 (transmitting fully executed XMS engagement letter); JX 384 (transmitting fully
executed XMS documents to Invenergy).

59
as its independence.”251 Leaf expressed concern about “Navigant’s ability to provide a

proper valuation, given that they are primarily a consulting firm.”252

Both appraisers received a briefing from their clients about the valuation standard

and key valuation considerations.253 Both appraisers understood the nature of the appraisal

process, the interests of their client, and the competing interests of the other side. 254 Both

appraisers conducted due diligence.255

251
JX 378 at 1.
252
JX 384 at 3.
253
See JX 383 (discussion materials Dean Partners prepared for XMS); JX 397
(notes of Invenergy’s meeting with Navigant).
254
See, e.g., JX 397 at 2 (notes from Invenergy meeting with Navigant containing
observation that “Leaf’s value will be very high and will skew the value so our value should
take that into consideration”); JX 399 (internal Navigant email expressing concern that
“[t]he WACC is clearly too low” and exploring ways to “get it up slightly” such as
“pull[ing] betas from Bloomberg” which “sometimes . . . are a bit higher”); JX 405
(Navigant email noting that Leaf was relying on the TerraForm Transaction while
Invenergy was relying on the 2014 investment by CDPQ and guessing based on the latter
that “our target is in that range.”); see also Kohan Tr. 747-48 (Navigant appraiser testifying
that Invenergy had made clear that the TerraForm Transaction represented its “most
valuable assets” that “were acquired during a peak in the market”); Nygaard Dep. 70, 73-
74 (testimony of XMS representative about discussions with Leaf, including that “the
TerraForm transaction and the implied discount rates that were assumed in that transaction
would be very important benchmarks”).
255
See JX 385; JX 390; JX 396-97; JX 400.

60
 Both Navigant256 and XMS257 delivered near final versions of their reports to their

clients, discussed the reports with their clients, and made changes in the reports as a result

of those discussions that benefited their clients. Both appraisers delivered the revised

versions of their reports to their respective clients. Navigant finalized its report after

receiving signoff from Invenergy.258 Leaf and Dean Partners had another round of

comments for XMS.259 In response, XMS made additional changes to its report and

presented its final valuation conclusion as a point estimate that slightly exceeded XMS’s

earlier range.260 Lerdal admitted that he had “no reason to believe that but for Leaf’s

cajoling and bird-dogging, XMS would ever have gotten above the top of its prior

range.”261

256
Compare JX 436 at 1, 3 (near-final Navigant report ascribing value to Invenergy
of approximately $1.93 billion), with JX 445 at 1, 6 (updated report ascribing value to
Invenergy of $1.583 billion), and JX 448 at 3 (final report ascribing value to Invenergy of
$1.608 billion). In between, Navigant received feedback from Invenergy. See, e.g., JX 444
(comments from Invenergy team)
257
Compare JX 417 at 1 (initial XMS report valuing Leaf’s interest between $45.7
and $56.7 million), with JX 439 (revised XMS report valuing Leaf’s interest between $57.8
and $71.1 million). In between, XMS received feedback from Leaf and Dean Partners. See,
e.g., Lerdal Tr. 336; Alemu Dep. 242-52, 256-62; Dean Dep. 155-61.
258
See JX 445 at 1; JX 449 at 1; JX 451 at 1.
259
See JX 452 (email from Lerdal to Alemu).
260
See JX 460 at 19.
261
Lerdal Tr. 337. On this point, as in other aspects of his testimony, Lerdal was
honest and forthright. He did not dissemble or try to run from factual points that
Invenergy’s counsel sought to elicit. As discussed elsewhere in this decision, Invenergy’s

61
 On April 29, 2016, Leaf and Invenergy exchanged appraisal reports. The XMS

report valued Leaf’s interest at $73.1 million.262 The Navigant report valued Leaf’s interest

at $36.4 million.263 Because the two appraisals were more than 20% apart, the LLC

Agreement required the parties to appoint a third, independent appraiser. Disputes arose

over appointing the third appraiser.

Meanwhile, on April 19, 2016, Leaf moved for partial judgment on the pleadings to

obtain a determination that closing the TerraForm Transaction without Leaf’s consent

constituted a breach the LLC Agreement. In response, Invenergy argued (consistent with

its position to that point) that the relevant time for evaluating which investors possessed

consent rights was when Invenergy signed the TerraForm Agreement, not when the

TerraForm Transaction closed.264 Invenergy defended this interpretation by claiming it

needed to know in advance of signing whether it had the requisite consents because the

“consequence” of not receiving consent was that certain non-consenting members could

“require” that their interest be redeemed:

Under both sections [8.01(e) and 8.04 of the LLC Agreement], the
consequence of not obtaining consent is that, if Invenergy nonetheless elects
to enter into an agreement without consent, members may require that cash
proceeds of the sale be applied to buying out their membership interests at

witnesses took a different approach, particularly when seeking to characterize
contemporaneous emails in unpersuasive ways.
262
JX 460 at 19.
263
JX 451 at 12.
264
JX 469 at 21-30 (Invenergy’s brief).

62
 closing. See LLC Agreement § 8.01(e) (describing notice and election
options), § 8.04 (describing when Series B members may be entitled to the
Target Multiple, meaning “an amount, in exchange for its entire Company
Interest”) (defined at § 1.01, Target Multiple)).265

The argument demonstrated that, as of May 2016, Invenergy both believed (as Leaf did)

and represented to the court that Leaf could compel payment of the Target Multiple in

exchange for its interests if Invenergy engaged in a Material Partial Sale without Leaf’s

consent.

I entered an order granting Leaf’s motion in part (the “Liability Order”).266 The

Liability Order held that the operative time for determining Leaf’s status as a member was

at closing. The Liability Order further determined that if this conclusion was incorrect and

the operative time was signing, then Leaf had become an equity holder before the signing

of the definitive agreement. This was because TerraForm and Invenergy had executed the

amended and restated agreement just before closing, well after Invenergy recognized Leaf

as a member.267 The Liability Order found that by not securing Leaf’s consent or paying

the Target Multiple, Invenergy breached the LLC Agreement.268 The Liability Order did

“not determine the amount of damages,” which would “require further proceedings.”269

265
Id. at 24-25.
266
Dkt. 39.
267
Dkt. 39 ¶¶ 14-17.
268
Dkt. 39 ¶¶ 12, 18.
269
Dkt. 39 ¶ 23.

63
 After the issuance of the Liability Order, Condo was “presented with a proposed

separation agreement.”270 The agreement included cooperation and non-disparagement

obligations for Condo and provided that he would forfeit any remaining severance

payments if he violated those provisions.271 Condo agreed to release all claims he possessed

against Invenergy, but Invenergy did not give Condo a reciprocal release.272 Invenergy

retained new litigation counsel.273

Leaf moved for entry of an order and final judgment based on the Target Multiple

calculations in the LLC Agreement.274 Leaf determined that the amount of the Target

Multiple was $126,110,576. Invenergy disputed one aspect of Leaf’s calculation, but I held

that Leaf had calculated the figure correctly.275

Invenergy’s new counsel argued that even accepting that Invenergy had breached,

Leaf was not entitled to its Target Multiple.276 Invenergy’s new counsel argued that

determining damages required a trial to consider what the extrinsic evidence showed about

270
Condo Tr. 419; see also JX 4.
271
Condo Tr. 419, 434-35.
272
Id. 433-34.
273
Dkt. 48.
274
Dkt. 45.
275
Dkt. 81 ¶ 6.
276
Dkt. 62 (Invenergy’s answering brief).

64
the parties’ understanding of Leaf’s consent right.277 By order dated October 7, 2016, I

denied Leaf’s motion to establish the remedy as a matter of law and reiterated that

determining the proper remedy required a trial.278

On November 1, 2016, Invenergy filed counterclaims relating to the put-call

process.279 The parties mooted part of the counterclaims by agreeing to appoint Moelis &

Company, LLC as the third appraiser. Invenergy continued to seek a declaratory judgment

that Leaf’s conduct during the put-call process violated the express terms of the Put-Call

Provisions and breached the implied covenant of good faith and fair dealing.

On April 7, 2017, Moelis delivered an appraisal report valuing Leaf’s position at

$42.5 million.280

II. LEGAL ANALYSIS

As a remedy for Invenergy’s breach of the Series B Consent Right, Leaf seeks to

recover its Target Multiple. Leaf proved at trial that until midway through this litigation,

the parties believed that Leaf would receive its Target Multiple in exchange for its entire

equity interest if Invenergy engaged in a Material Partial Sale without obtaining Leaf’s

consent. But that is not the damages remedy afforded to Leaf by Delaware law.

277
Dkt. 83 at 40 (argument transcript).
278
Dkt. 81.
279
Dkt. 84.
280
JX 512 at 32.

65
 To recover damages, Leaf must show that it suffered actual harm from the violation

of the Series B Consent Right, meaning that Leaf must be worse off now than if the Material

Partial Sale had not taken place. Leaf failed to prove that it suffered actual damages in this

sense. Instead, Lerdal admitted that Leaf “ironically” was better off because the TerraForm

Transaction took place.281

Alternatively, Leaf could show that it could have secured consideration if given the

opportunity to negotiate for its consent. While serving as Chancellor, Chief Justice Strine

applied this measure of damages in Fletcher International, Ltd. v. ION Geophysical

Corp.282 On the facts of this case, Leaf failed to prove that it could have extracted any

consideration in return for consenting to the TerraForm Transaction. The record instead

shows that if Leaf had insisted on a meaningful payment, then the TerraForm Transaction

would not have taken place.

Although Leaf failed to prove that it suffered actual harm, Leaf did establish that

Invenergy breached the Series B Consent Right. Leaf is therefore entitled to nominal

damages of one dollar.

In its counterclaim, Invenergy contends that Leaf breached the express and implied

requirements of the Put-Call Provisions. As a remedy, Invenergy contends that the court

should order that Fair Market Value be determined without reference to the XMS appraisal.

281
Lerdal Tr. 344.
282
2013 WL 6327997 (Del. Ch. Dec. 4, 2013).

66
Invenergy failed to prove its counterclaim. The parties will complete the buyout of Leaf’s

interests in accordance with the LLC Agreement.

A. Leaf’s Entitlement To Damages

In the Liability Order, this court determined that Invenergy breached the Series B

Consent Right. At trial, Leaf proved that the parties subjectively believed that Leaf would

receive its Target Multiple in exchange for its equity interest if Invenergy engaged in a

Material Partial Sale without Leaf’s consent. On the facts presented, however, Delaware

law will not endorse that remedy. Leaf is therefore entitled only to nominal damages.

1. The Parties’ Subjective Expectations

Leaf proved at trial that until midway through this case, all of the parties to the LLC

Agreement understood that Leaf would receive its Target Multiple if Invenergy engaged

in a Material Partial Sale without Leaf’s consent. Invenergy only advanced a new

interpretation after losing the motion for judgment on the pleadings that resulted in the

Liability Order, separating from its former General Counsel (Condo), and hiring new

litigation counsel. The contemporaneous evidence presented at trial—spanning a period of

more than seven years starting with Leaf’s investment in 2008—demonstrated the parties’

67
shared, pre-litigation understanding. The totality of the evidence easily met the

preponderance of the evidence standard.283 It my view, it was clear and convincing.284

The most telling evidence of the shared understanding was generated during the

negotiations in 2014 over the equity investment by CDPQ and the conversion of a portion

of Liberty’s debt position into equity. As part of those discussions, Invenergy prepared a

matrix that it provided to CDPQ, Liberty, and Leaf which described Leaf’s rights in the

event of a Material Partial Sale: “Consent required unless paying MPS amount. Leaf MPS

amount is Target Multiple.”285 While seeking Leaf’s consent for the recapitalization,

Condo told Russell that the Series B Consent Right was “a firm consent right that we can’t

do a C of C absent Leaf’s consent if the Target Multiple is not reach[ed]. So unless they

consent not to receive it, they will always get it.”286 At trial, Condo acknowledged that his

283
“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.” Agilent Techs., Inc. v. Kirkland, 2010 WL 610725, at *13 (Del. Ch. Feb. 18,
2010) (Strine, V.C.) (internal quotation marks omitted) (quoting Del. Express Shuttle, Inc.
v. Older, 2002 WL 31458243, at *17 (Del. Ch. Oct. 23, 2002)).
284
“The clear and convincing evidence standard requires evidence that produces in
the mind of the trier of fact an abiding conviction that the truth of [the] factual contentions
[is] highly probable.” Hudak v. Procek, 806 A.2d 140, 147 (Del. 2002) (internal quotation
marks omitted) (quoting Cerberus Int’l, Ltd. v. Apollo Mgmt., L.P., 794 A.2d 1141, 1151
(Del. 2002)). “To establish proof by clear and convincing evidence means to prove
something that is highly probable, reasonably certain, and free from serious doubt.” Id.
(internal quotation marks omitted) (quoting Del. Super. P.J.I. § 4.3 (2000)).
285
JX 112 at 2.
286
JX 128 at 2 (emphasis added).

68
reference to “C of C” encompassed a Material Partial Sale.287 Condo later reassured Russell

again, writing that in the event of a Material Partial Sale without consent, “[t]he intent is

that Leaf receives its TM.”288

Leaf then asked for additional upside protection such that if the Material Partial Sale

generated distributions which on a pro rata basis would exceed the Target Multiple, Leaf

would get the higher amount. Condo relayed the ask to Murphy, Invenergy’s CFO, who

was the business principal on the deal. Murphy cut to the chase by laying out his

understanding of the arrangement:

My understanding is:

 If we do a material partial sale with their consent, we do the deal and
if we have a distribution as a result we pay pro rata.

 If we try to do an MPS and they don’t consent, then we can transact
anyway as long as we pay them the TM at which point they are out.
Probably in this case we pay them more than their pro rata amount to
get them to TM.

That was the deal. No way we agree to modify. 289

Condo agreed and told Murphy, “Your understanding is right.”290

287
Condo Tr. 440.
288
JX 128 at 1.
289
JX 127 at 1.
290
JX 133 at 1.

69
 After that, Murphy spoke with Leaf’s business principal, Alemu. After quoting the

language of Section 8.04(b), Murphy stated:

To summarize,

 If we do a material partial sale with your consent, the value is captured
by the Company to the pro rata benefit of the members. And if we
have a distribution as a result the value is pro rata.

 If we desire to do an MPS without your consent, then we can transact
anyway as long as we pay you your Target Multiple, at which point
you would no longer be a member.291

Murphy then moved on to the new point Leaf had raised and explained why it was contrary

to the original deal and made little economic sense. Alemu reviewed Murphy’s email,

agreed with his analysis, and told Murphy that Leaf was “fine with the language below

(target multiple for MPS without consent).”292 Russell fairly summarized the import of

these exchanges at trial: “I think it was confirmed . . . by both . . . the GC and the CFO. In

my world, that’s pretty good, right, when you have the principals basically saying, ‘Yes.

This is what the deal is.’”293

After Leaf converted to equity, Invenergy’s actions evidenced that it continued to

have the same understanding. When Leaf asserted that the closing of the TerraForm

Transaction would give it a right to its Target Multiple, Invenergy never disputed that this

291
JX 135 at 1.
292
JX 141 at 1.
293
Russell Tr. 503.

70
was the correct result if Leaf had properly converted into equity. Instead, Invenergy argued

that it had not breached the Series B Consent Right in the LLC Agreement because Leaf

converted into equity after Invenergy signed the TerraForm Agreement.294 When Leaf filed

suit, Invenergy advanced the same reasoning. In its brief opposing Leaf’s motion for

judgment on the pleadings, Invenergy contended that its interpretation of the point in time

for measuring what consents a Material Partial Sale required had to be correct. This was

because Invenergy needed to know at signing whether it had to pay out the Target Multiple

at closing:

Under both sections [8.01(e) and 8.04 of the LLC Agreement], the
consequence of not obtaining consent is that, if Invenergy nonetheless elects
to enter into an agreement without consent, members may require that cash
proceeds of the sale be applied to buying out their membership interests at
closing. See LLC Agreement § 8.01(e) (describing notice and election
options), § 8.04 (describing when Series B members may be entitled to the
Target Multiple, meaning “an amount, in exchange for its entire Company
Interest”) (defined at § 1.01, Target Multiple)).295

Thus, as late as May 2016, Invenergy continued to manifest its belief that Leaf could

compel payment of the Target Multiple in exchange for its interests if Invenergy engaged

in a Material Partial Sale without Leaf’s consent. Invenergy only came up with new

arguments after the Liability Order rejected its timing argument.

294
JX 341 at 1.
295
JX 469 at 24-25 (emphasis added).

71
 At trial, Murphy tried to discount his exchanges with Condo and Alemu during the

CDPQ negotiations as an “academic exercise” because “there would need to be enough

proceeds so that Leaf’s pro rata share would be enough to pay them the target multiple”

and “their share of the fair market value was very unlikely to exceed the material partial

sale amount.”296 I did not find Murphy’s testimony on this point credible. The

contemporaneous emails do not read like an academic exercise. They read like someone

who is stating accurately, definitively, and in straightforward terms what would happen if

Invenergy engaged in a Material Partial Sale without Leaf’s consent. Both Murphy and

Condo agreed at trial that throughout their communications with Leaf, they never suggested

that (i) Invenergy had the option—rather than an obligation—to pay Leaf its Target

Multiple if Invenergy engaged in a Material Partial Sale without Leaf’s consent, (ii) Leaf

could receive its Target Multiple only if its pro rata share of the proceeds equaled or

exceeded the Target Multiple, or (iii) Leaf could receive its Target Multiple only if Liberty

and CDPQ consented to the payment.297

The testimony and conduct of the other Invenergy representatives further

undermined Murphy’s hindsight explanation. Sane reported directly to Murphy during his

entire time at Invenergy and worked with Murphy and Condo to prepare the matrix

296
Murphy Tr. 603-04.
297
Condo Tr. 435-43, 446-49; Murphy Tr. 657-58, 663-64.

72
summarizing the investors’ rights.298 Sane testified that he never had the understanding that

Invenergy could pursue a Material Partial Sale without Leaf’s consent and only would have

to pay the Target Multiple if the transaction generated sufficient proceeds to make a large

enough distribution on a pro rata basis.299 Sane also did not recall any conversations with

Murphy in which Murphy expressed this concept.300 Condo confirmed that as of his

departure from Invenergy in July 2016, two weeks after the issuance of the Liability Order,

he could not recall any discussions with anyone at Invenergy reflecting that a transaction

had to be large enough to yield Leaf its Target Multiple on a pro rata basis to allow Leaf to

collect its Target Multiple if Invenergy engaged in a Material Partial Sale without Leaf’s

consent.301

At trial, Murphy and Condo also tried to characterize their communications as

simply discussing whether Invenergy would have to pay the Target Multiple to Leaf if

Invenergy sought to bypass the Series B Consent Right by achieving a transaction that

could generate sufficient proceeds to pay the Target Multiple. During the back-and-forth,

Russell did identify the possibility that under the original language, Invenergy might argue

298
See Murphy Tr. 665-68; Sane Tr. 723.
299
Sane Tr. 724-25.
300
Id.
301
Condo Tr. 456-57.

73
that it only had to receive sufficient proceeds, not pay them out. 302 But having considered

the evidence as a whole and having considered the credibility of the witnesses, I believe

the record supports the view that parties envisioned only two scenarios: either Invenergy

would get Leaf’s consent or Invenergy would redeem Leaf’s interests for its Target

Multiple.

2. The Absence of Actual Damages

Although Leaf proved what it sought to establish about the parties’ subjective

beliefs, Invenergy has explained persuasively that the parties’ subjective beliefs about a

remedy are not controlling unless they are implemented in a remedial provision in an

agreement, such as a liquidated damages clause. Instead, Leaf must show that it suffered

actual damages before it can recover anything other than a nominal award. One way Leaf

could prove actual damages would be by proving that the TerraForm Transaction itself

harmed Leaf’s interests. Another way that Leaf could prove actual damages would be by

proving that if Invenergy had respected the Series B Consent Right, then Leaf could have

bargained for consideration in exchange for granting its consent.

The parties have not cited authority which holds explicitly that the parties’

subjective beliefs about the likely remedy are not controlling unless memorialized in a

remedial provision, but this proposition appears to be correct. The Restatement (Second)

of Contracts states that the components of expectation damages include

302
See JX 128 at 2; Russell Tr. 558-59; see also Alemu Tr. 66; Condo Tr. 421, 443,
448.

74
 (a) the loss in the value to [the injured party] of the other party’s performance
caused by its failure or deficiency, plus

(b) any other loss, including incidental or consequential loss, caused by the
breach, less

(c) any cost or other loss that [the injured party] has avoided by not having
to perform.303

These measures do not refer to the parties’ subjective beliefs. It thus may be that “[c]ontract

damages are ordinarily based on the injured party’s expectation interest,”304 but that

concept is a term of art that does not depend on what the parties subjectively expected.

Instead, the court determines an amount that will give the injured party “the benefit of its

bargain by putting that party in the position it would have been but for the breach.”305

Parties can contract for a specified remedy, such as in a liquidated damages clause, 306 but

unless they memorialize their subjective beliefs in such a way, those beliefs do not establish

303
Restatement (Second) of Contracts § 347 (Am. Law Inst. 1981).
304
Id. cmt. a.
305
Genecor Int’l, Inc. v. Novo Nordisk A/S, 766 A.2d 8, 11 (Del. 2000); accord
Duncan v. TheraTx, Inc., 775 A.2d 1019, 1022 (Del. 2001) (“This principle of expectation
damages is measured by the amount of money that would put the promisee in the same
position as if the promisor had performed the contract.”); Restatement (Second) of
Contracts § 347 cmt. a (“Contract damages . . . are intended to give [the injured party] the
benefit of his bargain by awarding him a sum of money that will, to the extent possible, put
him in as good a position as he would have been in had the contract been performed.”).
306
See generally Brazen v. Bell Atl. Corp., 695 A.2d 43, 48-50 (Del. 1997).

75
the measure of damages. Expectancy damages “must be tied to and limited by the express

promises made to [the plaintiff] in the Agreement.”307

In this case, the parties did not memorialize their subjective beliefs about the

expected remedy in a contractual provision. As the Liability Order held, the Series B

Consent Right did not specify a remedy for breach. After describing how Leaf viewed the

appropriate remedy, the Liability Order stated:

The problem with this analysis is that the Series B Consent Right does not
explicitly entitle Leaf to $126 million if its consent to a Material Partial Sale
is not obtained. The Payment Path instead establishes a scenario in which the
Company does not have to obtain Leaf’s consent. The Company did not
follow the Payment Path, so that exception does not apply. 308

Consistent with this ruling, two other decisions by this court—Ford Holdings and

GoodCents—have held that when an investor’s consent right contains an exception

grounded in the investor’s receipt of particular consideration, the exception does not create

a right to receive the specified consideration in the event of breach.309

As discussed in the prior section, the evidentiary record developed at trial showed

that the parties believed subjectively that there were only two possibilities under the Series

B Consent Right: Either Leaf would consent, or Leaf would not consent and receive its

307
Interim Healthcare, Inc. v. Spherion Corp., 884 A.2d 513, 551 (Del. Super.),
aff’d, 886 A.2d 1278 (Del. 2005) (TABLE).
308
Dkt. 81 ¶ 7.
309
See In re Appraisal of GoodCents Hldgs., Inc., 2017 WL 2463665, at *5 (Del.
Ch. June 7, 2017); In re Appraisal of Ford Hldgs., Inc. Preferred Stock, 698 A.2d 973,
978-79 (Del. Ch. 1997) (Allen, C.).

76
Target Multiple. Their expectation regarding Leaf’s receipt of its Target Multiple stemmed

from the exception to the Series B Consent Right and the misimpression that it created a

right to receive the Target Multiple in the event of breach. If that misunderstanding were

now enforced under the guise of the parties’ subjective expectation regarding damages, it

would upend this court’s holdings in Ford Holdings and GoodCents and turn the exception

into a payment right.

Properly understood, the exception was only an exception. The Series B Consent

Right explicitly gave Invenergy only two options to consummate a Material Partial Sale:

get Leaf’s consent or satisfy the exception by paying Leaf its Target Multiple. But

Delaware law recognizes a third option: efficient breach.310 The doctrine of efficient breach

holds that “properly calculated expectation damages increase economic efficiency by

giving ‘the other party an incentive to break the contract if, but only if, he gains enough

from the breach that he can compensate the injured party for his losses and still retain some

of the benefits from the breach.’”311 Although Invenergy did not do so consciously at the

time, it elected that third option. The result is that Leaf must demonstrate actual damages

by showing either that it suffered harm as a result of the TerraForm Transaction or that it

310
Bhole, Inc. v. Shore Invs., Inc., 67 A.3d 444, 453 n.39 (Del. 2013).
311
E.I. DuPont de Nemours & Co. v. Pressman, 679 A.2d 436, 445 (Del. 1996)
(quoting Restatement (Second) of Contracts, Reporter’s Note to Introductory Note to ch.
16, Remedies).

77
would have secured additional consideration given the opportunity to negotiate for its

consent.

Leaf did not assert that the TerraForm Transaction harmed its interests. Leaf

benefitted from the transaction as an investor in Invenergy, because Invenergy sold assets

at an attractive price.312 Lerdal was candid about this in his testimony,313 and his

contemporaneous actions and communications support it.314 Lerdal admitted that any steps

he might have taken to withhold Leaf’s consent would not have been to protect Leaf from

an economic downside or threatened harm. Rather, any such steps would have been to

extract value, or as he put it, to act as “leverage to ask for something in return.” 315 Under

Fletcher, there is a strong argument that this concession should end the matter. Chief

Justice Strine observed in that decision that a consent right does not give its holder the

“opportunity to coerce value” from a counterparty “in circumstances where [the holder of

the consent right] believed that the transaction it was being asked to consent to was highly

beneficial.”316 That reasoning indicates that Leaf should not have withheld its consent from

the TerraForm Transaction and cannot now recover damages for breach.

312
See Alemu Tr. 122-23; Lerdal Tr. 270.
313
See, e.g., Lerdal Tr. 270, 340-41, 344.
314
JX 340 at 1; see also Lerdal Tr. 270, 349 (confirming Leaf declined to move to
enjoin the TerraForm Transaction).
315
Lerdal Tr. 322-23.
316
Fletcher, 2013 WL 6327997, at *18.

78
 In Fletcher, however, Chief Justice Strine did not end his analysis with a finding

that the transaction in that case benefitted the issuer by preventing it from becoming

insolvent, which would have wiped out the interests of the investor holding the consent

right. Instead, he recognized that the investor could have bargained for consideration in

return for providing its consent, and he derived a damages award by constructing a

hypothetical negotiation among the parties to the transaction. Leaf’s remaining avenue for

demonstrating actual damages, therefore, is showing it could have negotiated for

consideration for waiving its consent given the opportunity.

On the facts of this case, I find that Leaf would not have been able to extract any

payment in return for its consent, meaning that Leaf did not suffer any damages from

Invenergy bypassing its Series B Consent Right. As part of any negotiation with Leaf over

the Series B Consent Right, Invenergy had at least three options: (i) pay Leaf some amount

as the price of going forward with the TerraForm Transaction; (ii) restructure the

TerraForm Transaction to reduce its value below the threshold for a Material Partial Sale,

or (iii) abandon the TerraForm Transaction entirely.317 Importantly, Invenergy would be

317
Invenergy has suggested that it might have bargained with TerraForm for the
ability to hold open the TerraForm Transaction until after December 22, 2015, when
Invenergy could exercise the Call Right. Leaf also worried that Invenergy might pursue
that strategy. See, e.g., JX 223 at 1; JX 249 at 8; Lerdal Tr. 307; Lerdal Dep. 106. As a
factual matter, it may have been true that Invenergy could have pushed out the closing.
Invenergy certainly had the ability to seek a drop-dead date for the TerraForm Transaction
of December 23, 2015, or later, rather than the original drop-dead date of December 15,
and that would have enabled Invenergy to exercise the Call Right before closing. After
August 2015, market conditions made it unlikely that TerraForm would have agreed to an
extension beyond the original drop-dead, but before that point (and particularly during the

79
evaluating these options under circumstances where it had no pressing need for the

proceeds from the TerraForm Transaction.318 Invenergy liked the price TerraForm was

offering and could put the money to good use paying down debt, but Invenergy also had

the flexibility to pass on the deal, particularly if Leaf made aggressive demands.

Given its various options and lack of any financial pressure, Invenergy would have

had considerable leverage in any negotiation. By contrast, Leaf would have been bluffing

about its willingness to block the deal. In spring 2014, Leaf’s parent company had started

liquidating its investments.319 Leaf intended to exercise its Put Right in December no matter

what.320 Leaf recognized that the TerraForm Transaction was beneficial for the valuation

original negotiations), there is no reason to think that Invenergy could not have obtained
an additional ten days or so. Nevertheless, as a legal matter, that strategy would not have
been effective. The LLC Agreement provided that an equity holder would retain all of its
rights until the close of the call exercise. See JX 180 § 11(g). The closing of the call exercise
would occur on the thirtieth day after the parties determined Fair Market Value. See id.
Given the elaborate process for determining fair value and the tension between the parties,
the call exercise likely would not have closed for months after Invenergy exercised its Call
Right. If the Terraform Transaction closed during this extended period, as it almost
certainly would have, then the closing could have breached the Series B Consent Right,
and the parties would have been in the same positon where they are today. For Invenergy,
pushing back the drop-dead date and exercising the Call Right was not a viable strategy for
avoiding breach.
318
Renault Tr. 390 (confirming Invenergy had “[p]lenty” of “avenues to raise short-
term cash if it needed short-term cash”); Murphy Tr. 617 (confirming Invenergy did not
“need to sell assets in 2015”); Polsky Dep. 106-07 (denying “this was a necessary
transaction”).
319
JX 155 at 5 (Leaf’s parent’s annual report announcing it was initiating “the
orderly realisation of [its] investments and the return of capital to the shareholders.”).
320
See, e.g., JX 172; JX 173 at 1; JX 249 at 9; see also JX 280 at 6.

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process, because Leaf could use metrics derived from it to calculate a high valuation for

Invenergy as a whole.321 Consequently, Leaf had no intention of delaying or jeopardizing

the TerraForm Transaction.322 Leaf even decided to delay filing suit until after the

TerraForm Transaction closed because “[w]e don’t want to give [TerraForm] any excuse

to walk.”323

Moreover, Leaf’s consent was not the only investor sign-off the TerraForm

Transaction required to close. CDPQ and Liberty also had to consent, and there is no reason

to believe that they would have authorized a transaction that distributed value to Leaf

321
JX 189 (email from Alemu to Lerdal describing TerraForm Transaction as “a
really good precedent for our process since we can exercise the put by the end of the year”
and can “use [the TerraForm Transaction] as a proxy for the remainder of the pipeline and
then try to use cost of equity of yieldco’s to value operational projects”); accord JX 223 at
1; see also JX 337 at 2 (Leaf’s Chairman’s Statement alleviating concern around the
TerraForm Transaction closing because “Leaf’s conversion to equity provides an
additional pathway for Leaf to sell its equity interest to Invenergy”); Lerdal Tr. 270 (“I’m
going to get this target multiple or, worst case, the valuation of Invenergy has just gone
through the roof because of this deal.”); id. at 305-07 (testifying he wanted the deal to close
because Invenergy was “doing a very good deal for not themselves but for everyone” and
was selling “[i]f not at the very top [of the market], very close” which would “give Leaf a
better return under the appraisal process, either the put or the call”); id. at 344 (agreeing he
is “better off today with an appraisal and a fair market value with a TerraForm transaction
than [he] would be if the negotiations resulted in a stalemate, because there, [he would] be
in an appraisal world at a lower price”).
322
See JX 339 at 1; JX 344 (email from Lerdal to Leaf CFO: “Remember the reason
we are not filing prior to closing is to give [TerraForm] no reason to back out. Might be
remote, but damages are unchanged before or after closing—if it closes. That is the most
important fact for us.”); Lerdal Tr. 324 (confirming that Leaf delayed filing a complaint
because it “didn’t want to give TerraForm any excuse to walk”); see also id. at 270, 349.
323
JX 340 at 1.

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preferentially. Together, CDPQ and Liberty owned over 40% of Invenergy’s equity; Leaf

owned a 2.3% interest.324 Representatives of CDPQ and Liberty testified that they would

not have consented to preferential distributions to Leaf.325 I have viewed this testimony

skeptically because at this point, a damages award in favor of Leaf would harm CDPQ and

Liberty indirectly. I nevertheless credit their testimony that they would not have consented.

Invenergy’s negotiations with CDPQ and Liberty to secure their consents to the

TerraForm Transaction support a finding that viewed any distribution to the equity holders

was a nonstarter. When Invenergy first sought consent from CDPQ and Liberty, they asked

that Invenergy distribute part of the proceeds to them.326 Invenergy refused, and the

investors backed down. Then, at the eleventh hour, Liberty asked to receive a prepayment

penalty in the amount of $2 million for redeeming its Series A Notes with the proceeds.

Invenergy rejected the request as “insane,”327 and Liberty again backed down.328

The consent that CDPQ and Liberty ultimately signed did not provide for

distributions to the investors. The only portion of the proceeds that went to CDPQ was

324
PTO ¶ II.C.5 n.3.
325
See Renault Tr. 389; Fontanes Tr. 777-79.
326
JX 201 at 1; accord Murphy Tr. 632-33, 639-41.
327
JX 264.
328
See Murphy Tr. 639.

82
necessary to remove a security interest that CDPQ had in certain of the assets being sold.329

The only portion of the proceeds that went to Liberty was used to repay its position in the

Series A Notes.330 Invenergy retained all of the proceeds net of expenses necessary to

consummate the TerraForm Transaction or repay existing debt.

In my view, Leaf would have come to the negotiations eager to maximize its returns

and full of bluster. Lerdal testified that he would not have accepted less than $100 million

in return for Leaf’s consent.331 He might have taken that position at first, but he would have

learned quickly that on those terms the TerraForm Transaction would not have happened.

Once Lerdal found himself in a multi-party negotiation with CDPQ, Liberty, and

Invenergy, and once it became clear that CDPQ and Liberty were not getting any

distributions, Lerdal would have realized that he did not have the leverage he thought he

had. The evidence shows that Leaf had no desire to jeopardize the TerraForm Transaction.

Instead, Leaf wanted to gain from the resulting increase in Invenergy’s valuation when it

exercised its Put Option. In my view, in a hypothetical negotiation, Leaf ultimately would

have consented without receiving any unique consideration.

329
See Renault Tr. 382-88.
330
See JX 348 at 1; Murphy Tr. 634-38.
331
Lerdal Tr. 340-41.

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 3. Nominal Damages

Leaf suffered no actual damages due to Invenergy’s breach of the Series B Consent

Right. The TerraForm Transaction did not harm Leaf, and Leaf could not have secured any

additional consideration at the bargaining table. But “[e]ven if compensatory damages

cannot be or have not been demonstrated, the breach of a contractual obligation often

warrants an award of nominal damages.”332 “‘Nominal’ damages are not given as an

equivalent for the wrong, but rather merely in recognition of a technical injury and by way

of declaring the rights of the plaintiff.”333 They “are usually assessed in a trivial amount,

selected simply for the purpose of declaring an infraction of the Plaintiff’s rights and the

commission of a wrong.”334 This decision awards one dollar to Leaf as nominal damages

for Invenergy’s breach.

B. Invenergy’s Claim For Breach Of The Put-Call Provisions

Invenergy seeks a declaratory judgment that Leaf breached the Put-Call Provisions

by making an aggressive opening demand for the exercise price, then later by trying to

convince XMS to raise its valuation. As the party asserting this claim, Invenergy had the

332
Ivize of Milwaukee, LLC v. Compex Litig. Support, LLC, 2009 WL 1111179, at
*12 (Del. Ch. Apr. 27, 2009).
333
Penn Mart Supermarkets, Inc. v. New Castle Shopping LLC, 2005 WL 3502054,
at *15 (Del. Ch. Dec. 15, 2005) (quoting USH Ventures v. Glob. Telesystems Gp., Inc., 796
A.2d 7, 23 (Del. Super. 2000)).
334
Id. (quoting USH Ventures, 796 A.2d at 23).

84
burden of proving it by a preponderance of the evidence. 335 Invenergy did not meet its

burden.

1. Leaf’s Opening Bid

Invenergy contends that Leaf breached the explicit terms of the Put-Call Provisions

that require the parties to “negotiate in good faith” to determine the price at which

Invenergy would purchase Leaf’s interests.336 “[A]n express contractual obligation to

negotiate in good faith is binding on the contracting parties.”337 “At the very least,” an

obligation to negotiate in good faith precludes either party from “insist[ing] on specific

terms that directly contradict[] a specific provision found in” the instrument creating the

good-faith obligation.338 “Under Delaware law, ‘bad faith is not simply bad judgment or

negligence, but rather it implies the conscious doing of a wrong because of dishonest

335
See 26 C.J.S. Declaratory Judgments § 157 (2017); see also San Antonio Fire &
Police Pension Fund v. Amylin Pharm., Inc., 983 A.2d 304, 316 n.38 (Del. Ch. 2009)
(“Because Amylin seeks a declaratory judgment as to its right to approve, it bears the
burden of proof here.”); 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 omitted)
(quoting Those Certain Underwriters at Lloyd’s, London v. Nat’l Installment Ins. Servs.,
Inc., 2007 WL 4554453, at *6 (Del. Ch. Dec. 21, 2007), aff’d, 962 A.2d 916 (Del. 2008)
(TABLE)).
336
JX 332 § 11.09(a), (d).
337
SIGA Techs., Inc. v. PharmaAthene, Inc., 67 A.3d 330, 343-44 (Del. 2013).
338
RGC Int’l Inv’rs, LDC v. Greka Energy Corp., 2001 WL 984689, at *14 (Del.
Ch. Aug. 22, 2001) (Strine, V.C.), rev’d on other grounds, Scion Breckenridge Managing
Member, LLC v. ASB Allegiance Real Estate Fund, 68 A.3d 665 (Del. 2013); see also SIGA
Techs., 67 A.3d at 344 (quoting RGC with approval).

85
purpose or moral obliquity.’”339 Bad faith “is different from the negative idea of negligence

in that it contemplates a state of mind affirmatively operating with furtive design or ill

will.”340

Invenergy relies on Leaf’s opening bid of $214 million as evidence of bad faith.341

Compared to where the appraisers ended up, that figure turned out to be quite high: nearly

three times the XMS appraisal and five times what Moelis derived.342 It was also almost

twice the value that Leaf placed on its entire portfolio just a few days later.343 But Leaf had

a reasoned basis for making this ask: it relied on the value implied by the TerraForm

Transaction, which comprised a portion of Invenergy’s assets, and used that figure to

calculate Leaf’s share. Although aggressive, the $214 million figure was supportable and

not outside the realm of reason.

Except for a high opening bid, Invenergy has not identified any other indicia that

Leaf negotiated in bad faith. When Invenergy reached out to schedule a meeting to

339
SIGA Techs., 67 A.3d at 346 (quoting CNL-AB LLC v. E. Prop. Fund I SPE (MS
REF) LLC, 2011 WL 353529, at *9 (Del. Ch. Jan. 28, 2011)).
340
Id. (internal quotation marks omitted) (quoting CNL-AB, 2011 WL 353529, at
*9).
341
See JX 368 (Leaf’s exercise notice); Alemu Tr. 207; Lerdal Tr. 332.
342
See JX 460 at 19 (XMS report); JX 512 at 32 (Moelis report).
343
JX 389 at 2 (Leaf’s December 31, 2015 Interim Report to investors).

86
negotiate, Leaf acquiesced to Invenergy’s request to meet in Chicago.344 Ahead of that

meeting, Alemu sent an explanation of Leaf’s opening bid.345 During the meeting, the

parties engaged in negotiations, with each side presenting its positions. When the

negotiations were unsuccessful, the parties collaborated on moving forward with the

appraisal process.346

Leaf’s aggressive opening bid is not enough to establish bad faith. Invenergy has

failed to carry its burden to prove that Leaf breached the express terms of the Put-Call

Provisions by failing to proceed in good faith.

2. Leaf’s Retention Of And Interactions With XMS

Invenergy next takes issue with Leaf’s interactions with XMS. The evidence shows

that Leaf sought to convince XMS to reach a higher valuation of Leaf’s interest. According

to Invenergy, Leaf’s efforts resulted in XMS not being an “independent appraiser,” as

required by the Put-Call Provisions. Invenergy also contends that Leaf breached the

implied covenant by pushing XMS. Neither claim succeeds.

a. The Independence Requirement

The LLC Agreement defines Fair Market Value, in relevant part, as

the amount that could be obtained from an arm’s length willing buyer (not a
current employee or Executive Officer) for 100% of the Company Interests.
Such price shall be determined by the averaging of the prices obtained from

344
JX 371; JX 374; see also JX 373 (Invenergy sending timeline to its attorneys in
anticipation of meeting).
345
JX 374 at 4.
346
See JX 376.

87
 (x) an independent appraiser or investment bank chosen by the Company
(following consultation with CDPQ) and (y) an independent appraiser or
investment bank chosen by Liberty or the Series B Non-Voting Investor
Member, as applicable; provided, that if such appraisal amounts vary by
greater than 20% a third appraiser shall be chosen jointly by the parties and
the price per share shall be the averaging of the three appraisals. For the sake
of clarity, when Fair Market Value is being determined and there is not an
active trading market, the appraisers shall value the interests without
ascribing a minority interest or illiquidity discount. The Company and
Liberty or the Series B Non-Voting Investor Member, as applicable, agree to
instruct each independent appraiser or investment bank, as the case may be,
to promptly complete all independent appraisals, and that in any event all
such independent appraisals shall be completed within sixty (60) days of the
date that each independent appraiser is engaged.347

In three locations, this provision refers to an “independent appraiser or investment bank.”

It then refers twice to the “independent appraisals” and finishes with a final reference to

“such independent appraiser.”

When established legal terminology is used in a legal document, a court will

presume that the parties intended to use the established legal meaning of the terms.348

Under Delaware law, which governs the LLC Agreement, the concept of “independence”

347
JX 332 § 1.01.
348
See Hazout v. Tsang Mun Ting, 134 A.3d 274, 290 n.58 (Del. 2016) (collecting
authorities demonstrating that where the legislature uses a term with a “well-settled legal
meaning” it uses the term in its “legal sense”); LeVan v. Indep. Mall, Inc., 940 A.2d 929,
933 (Del. 2007) (looking to “both legal and non-legal definitions” of “to make” in
interpreting statute of limitations); cf. Am. Legacy Found. v. Lorillard Tobacco Co., 2005
WL 5775806, at *11 (Del. Ch. Aug. 22, 2005) (presuming use of words with “no accepted
blackletter legal definition . . . was an implicit agreement by the parties to avoid the use of
legal terms of art”).

88
refers to the ability to make a decision based on the merits, free of “extraneous

considerations or influences.”349

In this case, the plain language of the Put-Call Provisions required that each side

select an appraiser that was independent in the sense of being able to render a valuation on

the merits, free of extraneous considerations or influences. Examples of situations that

might compromise an appraiser’s independence include a pending engagement for the

other side of the negotiation or such a thick relationship with either side as to create a

feeling of loyalty or owing-ness. Such a degree of connection might arise because of

extensive present or past engagements or because of personal ties between the principals

of the appraisal firm and its client. The terms of an appraiser’s engagement also could

compromise the appraiser’s independence, such as a fee arrangement that gave the

appraiser a pecuniary interest in the outcome of the valuation.350 These are merely

examples; this list is not intended to be exhaustive.

In this case, Invenergy has not pointed to anything that would have compromised

XMS’s independence. Invenergy has not identified any prior relationship between XMS

349
Beam ex rel. Martha Stewart Living Omnimedia, Inc. v. Stewart, 845 A.2d 1040,
1049 (Del. 2004).
350
See, e.g., Cinerama, Inc. v. Technicolor, Inc., 663 A.2d 1156, 1167-68 (Del.
1995) (establishing standard for when financial interest is “material” for purposes of duty
of loyalty); Weinberger v. UOP, Inc., 457 A.2d 701,710 (Del. 1983) (“When directors of a
Delaware corporation are on both sides of a transaction, they are required to demonstrate
their utmost good faith and the most scrupulous inherent fairness of the bargain.”).

89
and Leaf, any financial interest XMS had in the outcome of the appraisal, or any similar

attachment that could create a conflict. Although the LLC Agreement did not require it, the

parties conferred regarding their selection of appraisers. As part of that process, Invenergy

identified to Leaf twenty-three potential appraisers it deemed conflicted; XMS was not one

of them.351 Although Invenergy later intimated that it harbored doubts as to the

“independence” of XMS,352 it never provided any specifics.

Invenergy instead relies on Leaf’s interactions with XMS to argue that XMS was

not independent. The record reflects that both parties engaged with their appraisers and

made arguments in favor of valuations that would favor their positon. But the record also

reflects that both appraisers ultimately exercised independent judgment to reach

supportable valuation opinions.353 Leaf’s interactions with XMS were more extensive in

degree than Invenergy’s interactions with Navigant (or at least there is more evidence

documenting them), but they did not differ in kind. In my view, Invenergy failed to

establish that Leaf pressured XMS to such a degree that XMS was no longer independent

for purposes of the Put-Call Provisions.

351
JX 378 at 5-6.
352
Id. at 1.
353
See Alemu Tr. 144, 147, 150; Lerdal Tr. 333, 350-51; Sane Tr. 742-44; Nygaard
Dep. 110, 115, 119, 180-82; see also id. at 180; Houlihan Dep. 87, 124.

90
 b. Breach Of The Implied Covenant

As an alternative to its claim that Leaf breached the express terms of the LLC

Agreement, Invenergy argues that Leaf breached the implied covenant of good faith and

fair dealing. Although not explicit about it, Invenergy appears to argue that Leaf breached

an implied term requiring that Leaf conduct the appraisal in “good faith.”354 To secure a

declaration that Leaf breached the implied covenant, Invenergy carries the burden of

proving “a specific implied contractual obligation, a breach of that obligation by the

defendant, and resulting damage to the plaintiff.”355

Under Delaware law, the implied covenant of good faith and fair dealing “attaches

to every contract.”356 The implied covenant of good faith and fair dealing is a doctrine

deployed to ensure that parties’ contractual expectations are fulfilled under circumstances

354
See Senior Hous. Capital, LLC v. SHP Senior Hous. Fund, LLC, 2013 WL
1955012, at *25-26 (Del. Ch. May 13, 2013) (Strine, C.) (finding that a procedure “which
contractually provides for additional appraisals in the event of a dispute . . . does not
contemplate any judicial review” but under such circumstances “it is a contractual
expectation that the appraiser make a good faith, independent judgment about value to set
the contractual input” and therefore any review “would not . . . involve second-guessing
the good faith judgment of the appraiser” but rather whether “a party had breached the
contract’s implied covenant of good faith and fair dealing”).
355
Fitzgerald v. Cantor, 1998 WL 842316, at *1 (Del. Ch. Nov. 10, 1998).
356
Dunlap v. State Farm Fire & Cas. Co., 878 A.2d 434, 441-42 (Del. 2005).

91
that they did not anticipate. In its most common manifestation, the implied covenant

“supplies terms to fill gaps in the express provisions of a specific agreement.”357

Invoking the doctrine is a “cautious enterprise.”358 Implying contract terms is an

“occasional necessity . . . to ensure [that] the parties’ reasonable expectations are

fulfilled.”359 Its use should be “rare and fact-intensive, turning on issues of compelling

fairness.”360 To aid in that cautious enterprise, this court has developed a methodical, multi-

step process to guide the application of the implied covenant: determination of the

existence of a gap, determination of whether the circumstances warrant filling that gap,

and, if necessary, crafting of the appropriate term to fill that gap.361

Here, Invenergy did not engage in a methodical analysis of the implied covenant. It

did not expressly identify the gap it seeks to fill, nor the term it seeks to fill it with. In

addition, the parties did not develop the factual record surrounding the negotiating history

of the Put-Call Provisions, making it all the more difficult to analyze these questions.

357
Allen v. El Paso Pipeline GP Co., L.L.C., 113 A.3d 167, 182 (Del. Ch. 2014),
aff’d, 2015 WL 803053 (Del. Feb. 26, 2015) (TABLE).
358
Nemec v. Shrader, 991 A.2d 1120, 1125 (Del. 2010) (internal quotation marks
omitted) (quoting Dunlap, 878 A.2d at 441).
359
Dunlap, 878 A.2d at 442 (internal quotation marks omitted).
360
Cincinnati SMSA Ltd. P’ship v. Cincinnati Bell Cellular Sys. Co., 708 A.2d 989,
992 (Del. 1998).
361
See, e.g., In re Oxbow Carbon LLC Unitholder Litig., 2018 WL 818760, at *58-
60; Allen, 113 A.3d at 182-85.

92
 Instead, Invenergy has claimed that Leaf breached an implied term to conduct the

appraisal in good faith by instructing XMS to determine “Fair Market Value” as the

“highest” price that anyone would pay for the company.362 Citing the Delaware Supreme

Court’s recent decision in DFC Global Corp. v. Muirfield Value Partners, L.P., Invenergy

argues that this definition is directly opposed to Delaware law, which holds that “fair value

is just that, ‘fair.’ It does not mean the highest possible price that a company might have

sold for had Warren Buffet negotiated for it on his best day and the Lenape who sold

Manhattan on their worst.”363 The Delaware Supreme Court made those comments when

discussing the meaning of “fair value” under the appraisal statute.364

This case involves a contractual definition for “Fair Market Value.” When Leaf

originally invested, the LLC Agreement defined that term as

the product of (x) the highest price per unit of equity interest which the
Company could obtain from a willing buyer (not a current employee or
director) for the Company’s Company Interests in a transaction involving the
sale by the Company of all equity interests times (y) the number of Company
Interests being valued.365

362
See Alemu Tr. 219-20; Alemu Dep. 283-84 (recalling that Leaf instructed XMS
that Fair Market Value was “the highest amount that could be achieved . . . on an M&A
sale.”); Nygaard Dep. 70.
363
172 A.3d 346, 370 (Del. 2017).
364
8 Del. C. § 262.
365
JX 38 at 85 (emphasis added).

93
The standard further specified that when “there is not an active trading market, the

appraisers shall value the interests without ascribing a minority interest or illiquidity

discount.”366

The definition of “Fair Market Value” in the governing LLC Agreement dropped

the “highest price” language and defined the measure simply as “the amount that could be

obtained from an arm’s length willing buyer.”367 Given the history of the provision and the

use of the phrase “could be obtained,” it was not unreasonable for Leaf to take the position

that XMS could derive the highest price that could be obtained from a third party. Under

the circumstances of this case, in light of the evolution of the provision, Leaf’s position did

not breach the implied covenant.

III. CONCLUSION

Leaf is awarded nominal damages of one dollar for Invenergy’s breach of the Series

B Consent Right. Invenergy’s request for a declaratory judgment that Leaf breached the

express and implied terms of the Put-Call Provisions is denied. In light of this decision, the

parties will complete the put-call process in accordance with the governing provisions in

the LLC Agreement.

To implement this relief, the parties shall submit a final judgment that is agreed

upon as to form. If there are issues that the court needs to address before it can enter a final

366
Id.
367
JX 332 at 12.

94
judgment, then the parties shall submit a joint letter within sixty days that identifies those

issues and proposes a path forward that will bring this case to a conclusion at the trial level.

95