In re Happy Child World, Inc.

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

IN RE HAPPY CHILD WORLD, INC. ) CONSOLIDATED
) C.A. No. 3402-VCS

MEMORANDUM OPINION

Date Submitted: June 15, 2020
Date Decided: September 29, 2020

George H. Seitz, III, Esquire and James S. Green, Sr., Esquire of Seitz, Van Ogtrop
& Green, P.A., Wilmington, Delaware, Attorneys for Boraam Tanyous and Happy
Child World, Inc.

Jeffrey S. Goddess, Esquire of Cooch and Taylor, P.A., Wilmington, Delaware,
Attorney for Medhat Banoub and Mariam Banoub.

SLIGHTS, Vice Chancellor
 “Perhaps the broadest and most accepted idea [in our adversarial system of

justice] is that the person who seeks court action should justify the request, which

means that the plaintiffs bear the burdens on the elements in their claims.”1 Deeply

enmeshed in the fabric of our jury trial courts, this bedrock principle of our

adversarial legal system is, it seems, sometimes overlooked by parties litigating in

this court of equity where matters are tried to the Bench. This is especially so when

parties come to the court charged with emotions, such as when former friends accuse

each other of dishonesty leading to fractured relationships, both personal and

professional. In such instances, supplication often takes the place of proof. The

parties beseech the court to view the facts as they see them—as they lived them—

whether supported by evidence or not. But that is not how trials work. Factual proof,

not fervent pleas for justice, is what drives trial outcomes.

Yet trials, by their nature, are imperfect. “[I]n a judicial proceeding in which

there is a dispute about the facts of some earlier event, the factfinder cannot acquire

unassailably accurate knowledge of what happened. Instead, all the factfinder can

1
C. Mueller & L. Kirkpatrick, Evidence § 3.1 (3d ed. 2003). Stated another way,
“[t]he reus has no duty of satisfying [t]he court; it may be doubtful, indeed extremely
doubtful, whether he be not legally in the wrong and his adversary legally in the right, and
yet he may gain and his adversary lose, simply because the inertia of the court has not been
overcome, or, to use the more familiar figure, because the actor has not carried his case
beyond the equilibrium of proof, or, as the case may be, of all reasonable doubt. Whatever
the standard be, it is always the actor and never the reus who has to carry his proof to the
required height; for, truly speaking, it is only the actor that has any duty of proving at all.”
James B. Thayer, The Burden of Proof, 4 HARV. L. REV. 45, 58 (1890).

1
acquire is a belief of what probably happened.”2 This is especially so when the

factfinder must parse through testimony of witnesses attempting to recollect events

that occurred more than a decade before trial, and when the parties to the litigation

made no effort to document their activities or interactions in real time. Such is the

case here.

This post-trial decision resolves a decade-old dispute between former friends,

Boraam Tanyous and Medhat and Mariam Banoub (together, the “Banoubs”),

arising from their ultimately failed endeavor to own and operate a daycare center in

New Castle County, Delaware, ironically named Happy Child World, Inc. (“HCW”

or the “Company”).3 While both parties allege they are casualties of serious

breaches of fiduciary duty by the other, neither party took care to marshal evidence

in support or defense of their claims, making the post-trial adjudication of this long-

running dispute exceptionally difficult. When the many evidentiary gaps were

revealed during trial, the Court directed, and at times implored, the parties to fill

them.4 Unfortunately, most of the gaps remain. Consequently, I am left with an

2
In re Winship, 397 U.S. 358, 370 (1970) (Harlan, J. concurring).
3
For the sake of clarity, I will occasionally refer to the parties by their given names.
I intend no familiarity or disrespect.
4
See, e.g., Tr. of Post-Trial Closing Args. at 3–4 (Nov. 15, 2019) (“The lack of joinder in
these papers is remarkable. . . . It’s been a frustrating exercise.”); id at 89 (urging counsel
to close evidentiary gaps, and observing: “I am loath to ask this, but there a couple of
additional things that I need from counsel. And to be clear—and I apologize for coming
out and immediately lobbing criticisms, but it is frustrating, and I stand by the fact
2
evidentiary record that is disjointed, incomplete and wholly inadequate to enable

thoughtful post-trial deliberations. But the matter is submitted for decision and the

Court must render judgment.

HCW was incorporated in Delaware in 2002, with the majority-owner,

Tanyous, providing the capital and the minority-owners, Medhat and Mariam

Banoub, controlling the day-to-day operations of the daycare. Tanyous resided in

Egypt and did not carefully oversee the Banoubs’ work at HCW. This dynamic led

to miscommunication, surprises, allegations of mismanagement and ultimately a

disintegration of the relationship.

The Court first encountered the parties in 2007 when Tanyous filed a demand

to inspect HCW’s books and records under 8 Del. C. § 220. That dispute morphed

into a dispute over who owned what equity in HCW. In 2008, the Court determined

that Tanyous was the controlling shareholder of HCW, owning 55% of HCW’s

equity.5 Noting its frustration with the state of the evidence, the Court observed,

“the books and records of HCW are in shambles,” a state of affairs that continues to

frustrate the judicial resolution of the many disputes between these parties.6

[as previously expressed] that this record is unprecedented, in my experience as a trial
judge, in terms of having a basis to actually render a verdict, based on gaps in evidence—
but I certainly don’t fault counsel.”) (D.I. 417).
5
Tanyous v. Happy Child World, Inc., 2008 WL 2780357, at *7 (Del. Ch. July 17, 2008).
6
Id.

3
 After the Court declared in 2008 that Tanyous was HCW’s majority owner,

the Banoubs abruptly left the daycare, leaving Tanyous to assume control of HCW’s

operations. HCW floundered under his leadership, culminating in the State’s

revocation of HCW’s operating license in September 2011. A year later, Tanyous

executed a squeeze-out merger, cancelling the Banoubs’ shares and assessing their

share of the enterprise fair value at $8,457.17.

The parties then unleashed a series of claims and counterclaims in several

actions before this Court, all of which were ultimately consolidated for trial. The

case as currently framed presents “another progeny of one of our law’s hybrid

varietals: the combined appraisal and entire fairness action.”7 But this case also

presents a unique twist: both owners of the corporation to be appraised have asserted

claims on behalf of that corporation against the other relating to conduct that

occurred before the merger. For his part, Tanyous asserts claims on behalf of HCW

against the Banoubs seeking to recover damages for breach of fiduciary duties and

misappropriation of corporate assets while the Banoubs operated the daycare. As a

setoff to Tanyous’ claims, the Banoubs counterclaim that HCW owes them back

wages for work performed as the daycare’s operators. They also bring their own

claims on behalf of HCW against Tanyous for various breaches of fiduciary during

7
Del. Open MRI Radiology Assocs., P.A. v. Kessler, 898 A.2d 290, 299 (Del. Ch. 2006).

4
the time he ran the daycare that allegedly caused the demise of the business,

including misappropriation of corporate assets. Finally, in the wake of the squeeze-

out merger executed by Tanyous, the Banoubs seek an appraisal of the fair value of

their HCW shares under 8 Del. C. § 262.

One approach the Court might take to adjudicate the competing claims is to

provide the plaintiff/owner bringing the claim on behalf of HCW a direct damages

recovery, assuming the claim is proven, adjusted to account for that owner’s pro rata

stake in HCW. As a court of equity, this Court, I believe, would be within its

authority to fashion a remedy in that manner if it did so with care.8 At first glance,

while neither party has endorsed it, one might observe a certain elegance in this

approach since it would prevent wrongdoers who misappropriated corporate

property from enjoying any aspect of the corporation’s recovery.9

The other approach, and the one I follow here, is to value the competing

derivative claims, incorporate those values in the appraisal of the corporation and

then adjust the petitioner’s appraisal recovery to account for his liability to the

8
Cf. In re El Paso Pipeline P’rs L.P. Deriv. Litig., 132 A.3d 67, 120–29 (Del. Ch. 2015)
(providing a thorough and thoughtful explication of the law on pro rata direct recoveries
in derivative litigation), rev’d, 152 A.3d 1248 (Del. 2016).
9
See id. at 123 n.71 (identifying this as one of six recurring fact patterns in which “[c]ourts
have been willing to award a pro rata recovery to shareholders”) (quoting 13 Fletcher
Cyclopedia of Corporations § 6028, at 325 (rev. ed. 2013)). I discuss this “wrongdoer
recovery” dynamic later when performing my appraisal.

5
corporation. It appears, as best I can discern, that the parties endorse this approach,

and it too is consistent with our law.

Unfortunately, the parties’ tangled web of claims and counterclaims, fueled

by rampant emotion and resting on disjointed factual and legal predicates, has

resulted in a post-trial decision that is longer than it ought to be. The fault for the

woefully inadequate factual record does not lie at the feet of counsel. They did their

best to package what their clients gave them, which was not much. The post-trial

deliberations were arduous, as reflected here, and the result, I am certain, will be

unsatisfying for all involved.

My findings of fact reveal that both parties engaged in fiduciary wrongdoing,

but not nearly to the extent claimed by the other. After valuing the proven claims,

incorporating those values in my appraisal, and then adjusting for their liability to

the Company, the end-result is that the Banoubs will receive $36,017.96 for their

equity in HCW, plus appropriate pre-judgment interest.

I. FACTUAL BACKGROUND

The Court held a three-day trial during which it received 167 exhibits, lodged

depositions and live testimony.10 I have drawn the facts from the related post-trial

judgment entered in 2008, stipulations entered before trial and the evidentiary record

10
Joint Trial Ex. List (“JX List”) (D.I. 381).

6
presented during trial.11 The following facts were proven by a preponderance of the

evidence.

A. The Formation of HCW

In 1991, Egyptian citizen and “international businessman,” Boraam Tanyous,

met Medhat Banoub through mutual business acquaintances.12 A friendship

blossomed and the two kept in touch.13

In 1999, Tanyous visited the newly married Medhat and his wife Mariam in

the United States.14 Medhat revealed to Tanyous that Mariam dreamed one day of

owning and operating a daycare center—a dream deferred because the newlyweds

lacked the financial means to start a new business.15 Coincidentally, Tanyous was

11
Citations will appear as follows: “PTO ¶ __” shall refer to stipulated facts in the pre-trial
order; “Op. __” shall refer to the related post-trial opinion Tanyous v. Happy Child World,
Inc., 2008 WL 2780357 (Del. Ch. July 17, 2008); “D.I.” shall refer to docket entries by
docket number; “Tr. __ ([Name])” shall refer to witness testimony from the trial transcript
(D.I. 389–91); “JX __” shall refer to trial exhibits using the JX-based page numbers
generated for trial; “D.I. __ ([Name] Dep.) __” shall refer to witness testimony from a
deposition transcript lodged with the Court for trial.
12
Op. at *2; PTO at 3, ¶ 1. See Greene v. Conn. Mut. Life Ins. Co., 1979 WL 174435, at *4
(Del. Ch. Sept. 19, 1979) (holding the court may draw factual findings from a prior opinion
involving similar issues and the same parties under the doctrine of collateral estoppel).
I note that even though the parties referred to the Court’s prior post-trial decision
extensively in their Pretrial Stipulation, I have referred to that opinion as support only for
facts that are background in nature, but not for facts of consequence to the outcome here.
13
Op. at *2; PTO at 3, ¶ 1.
14
Op. at *2.
15
Op. at *2; see Tr. 236–38 (Mariam) (recounting how the Banoubs moved to the United
States in 1999 shortly after their marriage and began searching for a way to further
7
looking to acquire an E-2 Treaty Investor visa (the “Investor Visa”) that would

enable his family to move to the United States. To do so, the law required that he

assume a majority ownership interest in a company chartered in the United States.16

Hoping to seize an opportunity, Tanyous offered to provide capital for, and assume

majority ownership of, a daycare center in Delaware if the Banoubs would agree to

operate it.17 Medhat demurred.18

Tanyous continued to press the issue. In 2001, the Banoubs agreed that the

venture made sense and requested $100,000 in capital from Tanyous to acquire a

daycare facility in Delaware.19 Tanyous wired $20,000 to the Banoubs’ personal

bank account in the spring of 2001 and brought a check for an additional $80,000 on

his next visit to Delaware in June 2001.20 During this visit, Tanyous executed a

general power of attorney authorizing Medhat to act on his behalf with respect to

Mariam’s career in childcare); Tr. 473 (Medhat) (discussing the Banoubs’ financial state
in the late-1990s and early-2000s).
16
Tr. 469 (Medhat); Op. at *2–3. The E-2 visa is authorized under the Immigration and
Nationality Act, 8 U.S.C. § 1101, et seq.
17
PTO at 3, ¶¶ 1–4.
18
See id. at 3, ¶¶ 1–2 (stating Tanyous broached the possibility of a joint business venture
in the 1990s, but the suggestion did not gain traction with the Banoubs until 2001).
19
Op. at *3; PTO at 3, ¶ 2.
20
Op. at *2; PTO at 4, ¶ 3.

8
HCW in all matters, including those instances where Tanyous’ signature, as majority

owner, would be required to take action on behalf of the business.21

In 2002, Medhat purchased an operating daycare business and property in

Newark, Delaware for $647,000.22 The Banoubs secured a mortgage to finance the

acquisition of the daycare with a second mortgage on their residence, while

Tanyous’ prior capital contributions primarily funded the down payment required

for closing.23 The newly formed Delaware corporation was named Happy Child

World, Inc., and the daycare then created was to be operated under the same name.

B. The Banoub Era

The Banoubs, who were both officers and directors of HCW, controlled

HCW’s day-to-day operations from September 2002 through July 18, 2008

(the “Banoub Era”).24 Mariam worked daily as the Chief Administrative Officer of

the Company, and Medhat chipped in on nights and weekends to acquire supplies

and perform maintenance at the facility while working a full-time job elsewhere

21
Op. at *3; PTO at 4, ¶ 4.
22
Op. at *3; PTO at 5, ¶ 8.
23
PTO at 5, ¶ 8.
24
Id. at 2, ¶ 3; Id. at 5–6, ¶¶ 8–9, 13; Op. at *1.

9
during the day.25 Under the Banoubs’ management, HCW achieved modest

growth.26

Issues with communication and recordkeeping surfaced early in the parties’

business relationship. In January 2003, Tanyous discovered that Medhat had

unilaterally reduced Tanyous’ interest in the Company from his anticipated 77.5%

to 55%.27 Tanyous was irate, but he was ultimately persuaded to accept the change

because of the significant effort expended by the Banoubs as operators of HCW.28

He continued to bankroll HCW as a 55% owner.29

In July 2003, Medhat and Tanyous met with immigration attorney Emre Ozgu

to assist with Tanyous’ Investor Visa application.30 Medhat agreed to work as

Tanyous’ liaison during the application process.31 Even at that nascent stage of

HCW’s existence, Mr. Ozgu raised concerns about the Company’s “haphazard

25
Tr. 201–06 (Clark).
26
JX 147, Ex. B; PTO at 5, ¶ 9.
27
Op. at *4; Tr. 524–25 (Tanyous); PTO at 4, ¶ 7.
28
Op. at *4; Tr. 524–25 (Tanyous).
29
Op. at *4; PTO at 7, ¶ 1.
30
Op. at *5.
31
Id.; Tr. 469 (Medhat).

10
documentation” of Tanyous’ investment.32 Sure enough, Tanyous’ Investor Visa

application was later denied for precisely that reason.33

Trust between the parties was eroded further when, in December 2005,

Tanyous saw that HCW’s 2004 tax return disclosed that the Banoubs’ ownership

interest in HCW was 80% while his was 20%.34 Tanyous took the extraordinary step

of flying from Kuwait to Delaware in order to confront Medhat about this latest

unauthorized attempt to dilute Tanyous’ majority ownership stake in HCW. 35 This

time Medhat relented, agreeing to amend the tax returns to reflect the previously

agreed 55-45% split.36 At that point, Tanyous curtailed Medhat’s authority

conferred by the 2001 power of attorney, thereby limiting Medhat’s ability to act on

behalf of the business.37

Trouble finally overwhelmed the business relationship when, in 2006, the

Banoubs formed Happy Kids Academy, Inc. (“HKA”), another Delaware

corporation through which the Banoubs acquired a competing daycare facility in

32
Op. at *5.
33
Id.
34
Id.; Tr. 338–39, 475–77 (Medhat); Tr. 556–57 (Tanyous).
35
Op. at *5; Tr. 338–39, 475–77 (Medhat).
36
Op. at *5; Tr. 338–39, 475–77 (Medhat).
37
JX 32; Tr. 556–58 (Tanyous).

11
Newark, Delaware.38 Tanyous raised concerns that the Banoubs were neglecting

HCW to prop up HKA.39 In 2007, Tanyous demanded, through Delaware counsel,

to inspect HCW’s books and records pursuant to 8 Del. C. § 220 (“Section 220”).40

The Banoubs refused the demand on the basis that Tanyous’ contributions to HCW

were loans, not capital contributions for equity, and, therefore, Tanyous did not

possess stockholder inspection rights under Section 220.41 The dispute culminated

in a post-trial Opinion from this Court in July 2008 finding that Tanyous was the

controlling shareholder of HCW with a 55% equity stake.42

In response to the Court’s opinion, the Banoubs promptly ceased their work

at HCW and turned their full efforts to running HKA.43 This left Tanyous to take

over the day-to-day operations of HCW as both controlling shareholder and daycare

manager.44

38
Op. at *6; Tr. 284–85, 303 (Mariam); Tr. 411 (Medhat).
39
Op. at *6; PTO at 8, ¶¶ 4–5.
40
Op. at *6; PTO at 6, ¶ 13.
41
Op. at *6; PTO at 6, ¶ 13.
42
Op. at *2–7; PTO at 6, ¶ 13.
43
Tr. 463 (Medhat).
44
Tr. 525–26 (Tanyous).

12
 C. The Tanyous Era

The Tanyous Era began at the close of the July 2008 litigation, when Tanyous

replaced the Banoubs as operator of HCW.45 Tanyous’ stewardship was turbulent

from the start, beginning with his allegation that the Banoubs had stolen HCW

records. According to Tanyous, on July 18, 2008, the day after the Section 220

litigation concluded, the Banoubs removed all HCW attendance and State program

records from before 2006, a desktop computer containing operating records, and

other records used in HCW’s day-to-day operations46 The Banoubs denied the

allegations and maintained they left all files that were needed to run the business at

the daycare.47

Stolen or not, the HCW records in dispute are not in the trial record. In an

attempt to fill this void, Tanyous engaged a forensic accountant, David Ford, CPA,

to attempt to reconstruct the missing records in a costly effort that, according to

Tanyous, was ultimately unsuccessful.48

Because he was fully engaged in business dealings abroad, Tanyous left the

day-to-day operations of HCW to his wife, Gaklin Guirguis, and his associate, Nabil

45
D.I. 385 (Tanyous Dep.) 6–7; Tr. 531–33 (Tanyous).
46
Tr. 533–38 (Tanyous).
47
Tr. 445–49, 498–502 (Medhat); Tr. 286–69 (Mariam).
48
PTO at 13–14, ¶¶ 1–3.

13
Girgis.49 Under their supervision, HCW’s performance suffered. Receipts fell by

$108,119 in 2009, from $462,035 to $353,916, and fell another $51,543 in 2010,

from $353,916 to $302,373.50 In addition to declining financial performance, HCW

struggled to meet regulatory standards. The daycare was cited by the State Office

of Child Care Licensing (the “OCCL”) for numerous instances of non-compliance

with State daycare standards in late 2008 and April 2009.51 OCCL placed the

daycare on a two-year “Warning of Probation” in May 2009.52 In September 2010,

HCW’s continued noncompliance caused the OCCL to escalate the daycare’s

probationary status closer to license revocation.53

Girgis resigned in April 2011 amidst mounting conflict with the OCCL.54

He was replaced by Tanyous’ son-in-law, David Mikhaiel,55 who worked with

Program Director, Deborah Hofmann, and Mrs. Guirguis to bring HCW up to code.56

49
D.I. 383 (Girgis Dep.) 6–13.
50
JX 147, Ex. B.
51
JX 127.
52
Id.
53
Surprisingly, notwithstanding the parties’ inability to produce records throughout this
and previous litigation, HCW does not appear to have been cited by the OCCL for its
insufficient record keeping. See JX 70, 74–76, 79, 86, 102–04, 107–11.
54
JX 94.
55
Tr. 566 (Tanyous).
56
JX 93.

14
Despite these efforts, new management could not right the listing ship. By mid-

August 2011, the OCCL observed “the facility [appears to be] spiraling out of

control.”57 Two days later, HCW closed its doors.58 Consequently, the OCCL

suspended HCW’s license and then revoked it on September 27, 2011.59

When HCW closed its doors, parents were told to direct all questions to Little

Scholars—a separate daycare facility acquired by Tanyous in 2007, also located in

Newark, Delaware.60 While Tanyous and his wife owned Little Scholars,61 Girgis

ran its day-to-day operations.62 Given that Girgis, at various times, had been in

charge of both HCW and Little Scholars, there was significant overlap between the

management of the two daycares.63 But, unlike HCW, Little Scholars was successful

and remains in operation today.64

57
JX 111.
58
JX 113.
59
PTO at 16, ¶ 6.
60
JX 52, 55, 100, 113; Tr. 528 (Tanyous).
61
JX 48–49, 52, 55, 100; Tr. 530 (Tanyous).
62
PTO at 16–17, ¶¶ 7–9.
63
D.I. 383 (Girgis Dep.) 6–13, 59–63, 78, 115–24.
64
PTO at 16–17, ¶¶ 7–9.

15
 D. The Merger

On August 6, 2012 (the “Merger Date”), Tanyous acted as the majority

stockholder of HCW, without a meeting and by written consent under Section 228

of the Delaware General Corporation Law, to adopt resolutions approving the

merger of HCW into Happy Child World Acquisition Corp. (“HCWA”)

(the “Merger”).65 As a result of the Merger, HCW shares previously held by the

Banoubs were cancelled and converted into the right to receive cash.66 The fair value

of the Banoubs’ equity ownership in HCW was set at $8,457.17 by a valuation expert

retained by Tanyous.67 The Banoubs elected to pass on the merger consideration

and to exercise their right to appraisal.

E. Procedural History

The Court (through my predecessor) is familiar with these parties from prior

litigation that relates directly to the claims addressed here.68 As noted, in his first

Verified Complaint filed on May 2, 2007, Tanyous sought an order compelling

HCW to allow him to inspect HCW’s books and records under Section 220.69 HCW

65
Id. at 6, ¶ 1.
66
Id. at 6, ¶ 3.
67
JX 147, 149.
68
See Tanyous, 2008 WL 2780357.
69
Id.

16
filed its Answer on June 6, 2007, refusing to comply with Tanyous’ books and

records demand on the ground that Tanyous was not a stockholder of HCW.70 This

prompted a contest over HCW ownership, with Tanyous’ standing to assert rights

under Section 220 as the ultimate question to be decided.71 That case was tried from

October 23–24, 2007. In its post-trial decision, the Court concluded that Tanyous

was, in fact, the owner of 55% of HCW’s equity and entitled to inspect its books and

records.72

On December 11, 2007, Tanyous filed his original Complaint in this action,

which he Amended on February 13, 2008.73 The Amended Complaint comprises six

counts. Count I asserts a claim for appointment of a Custodian pursuant to 8 Del. C.

§ 226; Count II asserts a claim for declaratory judgment that Tanyous owns a 55%

interest in HCW; Count III asserts a claim for breach of fiduciary duties against the

Banoubs; Count IV asserts a claim for conversion of HCW assets by the Banoubs;

Count V asserts a claim for an accounting; and Count VI asserts a claim for breach

of contract and fraud against the Banoubs.74

70
Id.
71
Id.
72
Id. at *6–7.
73
Compl. (D.I. 1); Am. Compl. (D.I. 7).
74
Am. Compl. ¶¶ 64–94.

17
 Count II was decided in the books and records litigation.75 Tanyous’

application for appointment of a Custodian was denied on May 22, 2008.76

Thereafter, Tanyous filed his Second Amended Verified Complaint (his now

operative Complaint) on November 24, 2008, in which he reasserted the initial

Complaint’s Counts III–VI as Counts I–IV, respectively.77

Complicating matters for the next decade of litigation, the Banoubs’ counsel

withdrew (for good reason), leaving the Banoubs without counsel to defend complex

claims and then to initiate and pursue their own complex claims.78 Proceeding

pro se, the Banoubs denied Tanyous’ allegations,79 brought counterclaims,80 and

then initiated or defended years’ worth of often-misguided motion practice.81

75
See Tanyous, 2008 WL 2780357, at *6.
76
Tanyous v. Banoub, 3402-VCN, at 4 (Del. Ch. May 22, 2008) (denying Tanyous’ motion
for appointment of custodian) (D.I. 18).
77
2d Am. Compl. ¶¶ 71–90 (D.I. 37).
78
Mot. to Withdraw Appearance (D.I. 28); Tanyous v. Banoub, 3402-VCN (Del. Ch.
Dec. 5, 2008) (ORDER) (granting motion to withdraw as Banoubs’ counsel) (D.I. 44).
79
Defs.’ Answer to 2d Am. Compl. (D.I. 48).
80
Tanyous v. Banoub, 3402-VCN, at 3 (Del. Ch. Apr. 26, 2012) (granting the Banoubs
leave to assert counterclaims) (D.I. 168).
81
See generally D.I. 49–147.

18
 The Banoubs’ counterclaims, as currently pled, comprise five counts.82

Count I asserts a claim for breach of contract against HCW, as a setoff to Tanyous’

accounting demand and derivative claims; Count II asserts a claim for breach of

fiduciary duty against Tanyous; Count III asserts a claim of waste against Tanyous;

Count IV asserts a claim for misappropriation of corporate funds against Tanyous;

and Count V asserts a claim for gross mismanagement, again against Tanyous.83

The Banoubs’ filed a separate action seeking appraisal under Section 262 of the

DGCL following Tanyous’ execution of the squeeze-out Merger on December 3,

2012.84 The Court consolidated the appraisal action with the plenary fiduciary duty

actions in December 2017.85

Once again, years of motion practice (mainly discovery) ensued.86 As among

the countless motions brought by the parties, one is relevant here. On April 4, 2018,

82
Defs.’ Am. Countercl. (D.I. 157).
83
Id.
84
D.I. 1 (C.A. No. 8076-VCS).
85
In re Happy Child World, Inc., 3402-VCS, at 2 (ORDER) (Del. Ch. Dec. 29, 2017)
(granting motion to consolidate) (D.I. 289).
86
See generally D.I. 152–266; Letter from Court to Parties (Jan. 29, 2018) (concerning
discovery issues) (D.I. 300); Letter from Court to Parties (Feb. 21, 2018) (regarding
additional document requests) (D.I. 305); Letter from Court to Parties (Mar. 27, 2018)
(regarding document requests) (D.I. 316).

19
the Banoubs filed a Motion for Discovery Abuse and Spoliation, which, given its

fact-intensive premise, was deferred to trial and is addressed below.87

When it became clear the matter was proceeding to trial, the Banoubs finally

heeded the Court’s many admonitions and retained counsel in June 2018, ending

their ten years of self-representation.88 That important development restored order

to the litigation and allowed the case to be readied for trial.

Trial convened from February 12 to February 14, 2019. After post-trial

briefing and oral arguments were completed, I requested several supplemental

submissions in an effort to focus the issues for decision, and ultimately deemed the

matter submitted on June 15, 2020.

In post-trial briefing, Tanyous did not brief his claims for breach of contract

and fraud. Similarly, the Banoubs did not brief their claim for waste. And

“Delaware law does not recognize an independent cause of action . . . for reckless

and gross mismanagement. Such claims are treated as claims for breach of fiduciary

87
Banoubs’ Mot. for Disc. Abuse and Spoliation, Apr. 4, 2018 (D.I. 321).
88
Entry of Appearance by Jeffery S. Goddess, Esquire, on behalf of the Banoubs, June 8,
2018 (D.I. 358).

20
duty.”89 Accordingly, I deem all of those claims either waived or not supported as a

matter of law.90

Thus, what remains for decision are Tanyous’ claims against the Banoubs for

breach of fiduciary duties (Count I) and conversion (Count II), and the Banoubs’

counterclaims against HCW for spoliation, breach of contract (Count I), breach of

fiduciary duty (Count II), misappropriation (Count IV), and the appraisal action.

II. ANALYSIS

The claims submitted for decision correspond to each of the timeframes

delineated above. The Banoub Era gave rise to Tanyous’ claims (on behalf of HCW)

against the Banoubs, as well as the Banoubs’ direct claims against HCW for

unfulfilled obligations, which they present as “offsets” to any damages awarded to

HCW. The Tanyous Era gave rise to the Banoubs’ derivative claims against

Tanyous for breach of fiduciary duties. Finally, the Merger gave rise to the Banoubs’

appraisal action.

I begin by addressing the Banoubs’ threshold claim that HCW (through

Tanyous) should be found liable for spoliation of evidence. I address this claim first

because, if proven, evidence secretion or destruction might justify negative

89
In re Citigroup Inc. S’holder Deriv. Litig., 964 A.2d 106, 114 n.6 (Del. Ch. 2009).
90
See Emerald P’rs v. Berlin, 726 A.2d 1215, 1224 (Del. 1999) (“Issues not briefed are
deemed waived.”).

21
inferences that would color the lens through which all of the other claims are viewed.

As explained below, the Banoubs have failed to demonstrate intentional or reckless

destruction of evidence, so their spoliation claim fails.

I next address Tanyous’ derivative claims for breach of fiduciary duties and

misappropriation of corporate assets, as well as the Banoubs’ “setoff” counterclaims

against HCW for outstanding loans and wages. After rejecting the factual premise

of most of the claims, I value Tanyous’ derivative claims at $62,199.11. I reject the

Banoubs’ offset counterclaims.

I then take up the value of the Banoubs’ derivative claims against Tanyous for

breach of fiduciary. I value those claims at $20,099.19.

Next, I address the Banoubs’ claim that the process leading to the squeeze-out

Merger was unfair. I reject that claim as to process, but do find that the price at

which the Merger was executed was unfair.

Finally, I address the Banoubs’ appraisal action, encompassing the value of

the derivative claims both parties have asserted against the other. While it might be

possible to adjudicate the parties’ competing derivative claims post-merger outside

of the appraisal process, and to fashion a remedy for proven claims as a matter of

equity, I have elected instead to value the derivative claims, all of which were

possessed by HCW at the time of the Merger, and then incorporate those values into

my final fair value appraisal. I take this approach for two reasons. First, as discussed

22
below, it is the approach the parties have endorsed, although not as clearly as they

might have.91 Second, I am satisfied this approach is consistent with our law.92

After carefully considering “all relevant factors,”93 I have appraised the fair

value of HCW as of the Merger at $218,260.15, and assess the Banoubs’ share of

that value, after adjusting for liabilities, at $36,017.96 (or $800.40 per share).

A. HCW (Through Tanyous) Did Not Commit Spoliation

Before finding spoliation, “a trial court must first determine that a party acted

willfully or recklessly in failing to preserve evidence.”94 And, before imposing an

adverse inference sanction following a finding of spoliation, the court must be

satisfied that the aggrieved party has demonstrated “a reasonable possibility, based

91
See PTO at 2 (referring to letter from Tanyous’ counsel conceding that derivative claims
should be valued in the appraisal action and citing for that proposition, Kohls v. Duthie,
765 A.2d 1274, 1289 n.33 (Del. Ch. 2000)); Banoubs’ Post-Trial Opening Br. at 2
(acknowledging that derivative claims should be valued in the appraisal) (D.I. 399).
See also Cavalier Oil Corp. v. Harnett, 564 A.2d 1137, 1142 (Del. 1989) (observing that
it was appropriate for the trial court to value derivative claims in a statutory appraisal
because, in addition to comporting with Delaware law, the parties “consented” to “accord
recognition to derivative-like claims for future valuation purposes”).
92
See Nagy v. Bistricer, 770 A.2d 43, 55–56 (Del. Ch. 2000) (holding the court should
value breach of fiduciary claims in an appraisal proceeding as “those claims are assets of
the corporation being valued”); Porter v. Tex. Commerce Bancshares, Inc., 1989 WL
120358, at *5 (Del. Ch. Oct. 12, 1989) (Allen, C.) (“If the company has substantial and
valuable derivative claims, they, like any asset of the company, may be valued in an
appraisal.”).
93
8 Del. C. § 262(h).
94
Sears, Roebuck and Co. v. Midcap, 893 A.2d 542, 548 (Del. 2006).

23
on concrete evidence rather than a fertile imagination, that access to the lost material

would have produced evidence favorable to his cause.”95

The Banoubs proffer four bases upon which the Court could justify a finding

of spoliation. First, they assert Tanyous did not respond to the Banoubs’ discovery

requests until 2015, years after they were propounded. Second, former HCW

employee Girgis admitted to shredding paid invoices while litigation was ongoing.96

Third, Tanyous purported to lose “a box containing HCW operating records” after a

burglary of his home in December 2010.97 Fourth, Tanyous’ wife, Guirguis, failed

to appear at trial even though the Banoubs moved to compel her attendance after she

returned to her home in Kuwait.98

After carefully reviewing the record, I am satisfied the Banoubs have not

carried their burden to prove intentional or reckless destruction of favorable

evidence. First, counsel’s unresponsiveness does not fit under the rubric of

spoliation, as there is no alleged destruction of evidence. Discovery in this case was

an exercise in boundless frustration (and delay) for all concerned. That some

95
In re DaimlerChrysler AG, 2003 WL 22951696, at *2 (D. Del. Nov. 25, 2003) (internal
quotations omitted).
96
D.I. 383 (Girgis Dep.) 17, 21.
97
JX 156.
98
D.I. 54; Tr. 583–84 (Tanyous).

24
discovery responses were delayed was par for the course (on both sides) in this

litigation. Second, while Girgis admitted to shredding HCW’s paid invoices after

his employment there concluded,99 a substantial amount of HCW’s payroll and

operating records were ultimately made available to the Banoubs through other

sources.100 And there is no indication that what little is missing would have been

favorable to the Banoubs.101 Third, there is no persuasive evidence that materials

lost in the burglary of Tanyous’ home were intentionally secreted or destroyed. The

testimony regarding the burglary was credible.102 Finally, Guirguis’ failure to

appear at trial is due in large part to the Banoubs’ own lack of diligence: they did

not seek to take her deposition and only requested her attendance on the last day of

the discovery period. Moreover, the Banoubs’ argument that her testimony is

suddenly crucial to their case is particularly hard to believe when, in their post-trial

brief, they characterize Guirguis’ role at HCW as so negligible as to disable her from

99
D.I. 383 (Girgis Dep.) 17, 22.
100
JX 61–62.
101
I note that both parties accuse the other of either stealing, secreting or losing documents.
There has been little precision attending these allegations, leaving the Court to guess what
other records might exist and how they might help or hurt either party’s cause. Suffice it
to say, neither the Banoubs nor Tanyous were good record keepers. That is all that can be
drawn from the cross-accusations and the evidentiary record submitted at trial.
102
Tr. 580–82 (Tanyous).

25
drawing any salary from the Company.103 The spoliation claim fails for want of

proof.

B. Tanyous’ Derivative Claims and the Banoubs’ Setoff Counterclaims

Tanyous seeks entry of a judgment against the Banoubs for breach of their

fiduciary duty of loyalty as officers by engaging in self-dealing, as well as

misappropriating corporate funds. He offers several categories of alleged damages

totaling $857,628. To reach this number, Tanyous relies principally upon an expert

forensic analysis of corporate records he commissioned at the close of the Banoub

Era.104 This report (the “Damages Report”) was based not on the Company’s books

and records—which Tanyous alleges were taken by the Banoubs when they left

HCW—but rather on a compilation of records produced by third-parties (mainly

banks).105

I begin by laying out the legal standards by which Tanyous’ derivative claims

must be evaluated. The standards are particularly important here, where so little

evidence has been produced by either party to support or rebut any claim. Next,

103
Banoubs’ Post-Trial Opening Br. at 42.
104
JX 82. I note that Tanyous originally included an additional claim for damages based
on a stolen corporate opportunity when the Banoubs founded Happy Kids Academy. That
claim was abandoned in the Tanyous Post-Trial Answering Brief. See Tanyous’ Post-Trial
Answering Br. at 39 (“HCW is not pressing any corporate opportunity claim.”) (D.I. 402).
105
JX 82 at 4.

26
I evaluate Tanyous’ claims on their merits. I organize the claims into four

categories: compensation-related claims, expense-related claims, revenue-related

claims and Tanyous’ catch-all “suggestions of additional damages.” I then address

Tanyous’ claim seeking reimbursement from the Banoubs for the cost of recreating

HCW’s records. Finally, I address the Banoubs’ “setoff” counterclaims.

1. The Legal Standards

Tanyous’ derivative claims implicate the fiduciary duty of loyalty, as well as

conversion, for which the generally applicable standards are well settled.106

“The essence of a duty of loyalty claim is the assertion that a corporate officer or

director has misused power over corporate property or processes in order to benefit

himself rather than advance corporate purposes.”107 “Most basically, the duty of

loyalty proscribes a fiduciary from any means of misappropriation of assets

entrusted to his management and supervision.”108 “If corporate fiduciaries stand on

both sides of a challenged transaction, an instance where the directors’ loyalty has

106
While Tanyous stated in the parties’ Joint Pretrial Stipulation that he would present a
claim of corporate waste as a separate cause of action, his Post-Trial Briefs did not address
this claim and so it is deemed withdrawn.
107
Steiner v. Meyerson, 1995 WL 441999, at *2 (Del. Ch. July 19, 1995) (Allen, C.).
108
U.S. W., Inc. v. Time Warner Inc., 1996 WL 307445, at *21 (Del. Ch. June 6, 1996)
(Allen, C.).

27
been called into question, the burden shifts to the fiduciaries to demonstrate the

‘entire fairness’ of the transaction.”109

A party bringing a claim for fiduciary breach generally “ha[s] the burden of

proving each element, including damages, of each of [his] causes of action . . . by a

preponderance of the evidence.”110 “[P]roof by a preponderance of the evidence

means that something is more likely than not.”111 “By implication, the

preponderance of the evidence standard also means that if the evidence is in

equipoise, the Plaintiff[] lose[s].”112 In the context of Tanyous’ breach of fiduciary

duty claims, his burden is to prove a basis to implicate self-dealing. If he carries that

burden, then the burden shifts to the fiduciaries (the Banoubs) to demonstrate that

the dealings were entirely fair.113

109
Oliver v. Boston Univ., 2006 WL 1064169, at *18 (Del. Ch. Apr. 14, 2006).
110
Revolution Retail Sys., LLC v. Sentinel Techs., Inc., 2015 WL 6611601, at *8 (Del. Ch.
Oct. 30, 2015).
111
Narayanan v. Sutherland Glob. Hldgs. Inc., 2016 WL 3682617, at *8 (Del. Ch. July 5,
2016) (citing Aigilent Techs., Inc. v. Kirkland, 2010 WL 610725, at *14 (Del. Ch. Feb. 18,
2010)).
112
Revolution Retail, 2015 WL 6611601, at *9 (quoting 2009 Caiola Family Tr. v. PWA,
LLC, 2015 WL 6007596, at *12 (Del. Ch. Oct. 14, 2015)).
113
See Avande, Inc. v. Evans, 2019 WL 3800168, at *12 (Del. Ch. Aug. 13, 2019)
(determining a party asserting a claim for an accounting of the disposition of assets must
first make “a prima facie showing based on substantial evidence that the expenditures in
question are self-interested transactions.”) (emphasis in original); Technicorp Int’l II, Inc.
v. Johnston, 1997 WL 538671, at *15–16 (Del. Ch. Aug. 25, 1997) (holding that plaintiff
must make an initial showing of fiduciary self-dealing before the court will shift the burden
28
 If Tanyous fails to meet his prima facie burden, then the Court cannot and will

not shift the burden of proof to the Banoubs as fiduciaries to defend the entire

fairness of their conduct.114 Instead, the Court must review their decisions and

conduct under the deferential business judgment rule, which “is a presumption that

in making a business decision the [fiduciary] acted on an informed basis, in good

faith and in the honest belief that the action taken was in the best interests of the

company.”115

“Entire fairness has two components: fair dealing and fair price. ‘Fair dealing’

focuses on the actual conduct of corporate fiduciaries in effecting a transaction, such

to the fiduciary “of proving the fairness of the transaction”); CanCan Dev., LLC v. Manno,
2015 WL 3400789, at *19 (Del. Ch. May 27, 2015) (allocating to the defendant fiduciary
the “burden of accounting for compensation and expenses” only after plaintiff
demonstrated that the transactions were self-interested); Zutrau v. Jansing, 2014 WL
3772859, at *27–28 (Del. Ch. July 31, 2014) (refusing post-trial to shift the burden to
fiduciary defendants under Technicorp after the plaintiff failed to make “a prima facie
showing that any of the remaining Amex charges were incurred improperly . . . [with]
substantial evidence”); Sutherland v. Sutherland, 2010 WL 1838968, at *16 (Del. Ch.
May 3, 2010) (granting summary judgment for defendants after plaintiffs failed to make
the prima facie showing of “unaccounted-for dispositions” of corporate assets as required
by Technicorp); Carlson v. Hallinan, 925 A.2d 506, 537 (Del. Ch. 2006) (holding post-
trial that an accounting would be necessary after “Plaintiffs’ showing of definite instances
where [fiduciary] Defendants did not properly allocate expenses”).
114
Avande, 2019 WL 3800168, at *12.
115
Aronson v. Lewis, 463 A.2d 805, 811 (Del. 1984).

29
as its initiation, structure, and negotiation. ‘Fair price’ includes all relevant factors

relating to the economic and financial considerations of the proposed transaction.”116

As for conversion, that claim rests on “any distinct act of dominion wrongfully

exerted over the property of another, in denial of [the plaintiff’s] right, or

inconsistent with it.”117 In order to state a claim for conversion, “the plaintiff must

generally allege that the defendant violated an independent legal duty.” 118

2. The Compensation-Related Claims

Tanyous challenges the Banoubs’ right to draw any salary from HCW without

his approval as an independent director and majority shareholder. He also claims

that, even if authorized, the Banoubs’ salary was excessive. Finally, Tanyous alleges

the Banoubs improperly diverted HCW funds from their salary into an unauthorized

retirement account.

116
Carlson, 925 A.2d at 531 (internal quotations omitted). Fair price is commonly
characterized as the most important consideration in determining the fairness of the
transaction. See, e.g., Del. Open MRI, 898 A.2d at 311 (“[T]he overriding consideration
[in an entire fairness review of a transaction] is whether the substantive terms of the
transaction were fair.”).
117
Kuroda v. SPJS Hldgs., L.L.C., 971 A.2d 872, 889 (Del. Ch. 2009) (citing Drug, Inc. v.
Hunt, 168 A. 87, 93 (Del. 1933)).
118
Id.

30
 a. Excess Salary

According to Tanyous, based on the Damages Report, the Banoubs received

$256,975 in excessive salary payments.119 The Banoubs do not dispute the Damages

Report’s calculation of the amounts they drew from HCW as compensation while

they served as corporate officers. They argue, instead, that their compensation was

entirely justified and not excessive.120

To shift to an officer the burden to prove that his compensation was entirely

fair, a plaintiff must first show that the board or the relevant committee lacked

independence or good faith in making or approving the compensation award.121

“Independence means that a director’s decision is based on the corporate merits of

the subject before the board rather than extraneous considerations or influences.”122

“Self-interested compensation decisions made without independent protections are

subject to the same entire fairness review as any other interested transaction.”123

119
JX 82 at 25–29; PTO at 12, ¶ 13(l).
120
Banoubs’ Post-Trial Opening Br. at 21–25.
121
Nelson v. Emerson, 2008 WL 1961150, at *9 (Del. Ch. May 6, 2008); Gagliardi v.
TriFoods Int’l, Inc., 683 A.2d 1049, 1051 (Del. Ch. 1996).
122
Aronson, 473 A.2d at 816.
123
Valeant Pharm. Int’l v. Jerney, 921 A.2d 732, 745 (Del. Ch. 2007); see also Carlson,
925 A.2d at 529 (holding that executive defendants were on both sides of a decision to
cause their company to pay them executive compensation and thus bore the burden of
establishing their compensation was entirely fair).

31
 Not surprisingly, there was no formal process that led to setting compensation

for the Banoubs, at either the HCW board level or otherwise. Indeed, the Banoubs

admit they set their own salary without any process at all, placing the burden on

them to prove that their compensation was entirely fair.124

No process, in this context, is an unfair process. Medhat admitted at trial the

Banoubs did not consult Tanyous when deciding whether or how much to pay

themselves.125 While Medhat asserted that Tanyous generally knew what the

Banoubs were paying themselves because that information was buried in the

documentation submitted to obtain his Investor Visa,126 that evidence is not in the

record, and that visa was ultimately denied due to poor documentation.127 The fact

that HCW is a small company does not excuse the Banoubs “complete and total

failure to adopt any meaningful procedure for ensuring” that compensation decisions

were reasonable to the corporation.128

124
Tr. 469 (Medhat).
125
Tr. 468–70 (Medhat). Medhat still maintains that he had no duty to consult with
Tanyous because Tanyous was merely a lender, not an owner. Id.
126
Tr. 469 (Medhat).
127
Op. at *4.
128
Zutrau, 2014 WL 3772859, at *23 (emphasis in original).

32
 As for fair price, the Damages Report reveals the Banoubs took “Officers’

Salaries” of $360,855 over six years, for an average salary of $60,142.50 per year

between the two.129 They also drew $42,889 over six years in “Other Salary

Payments,” averaging $7,148 per year.130 As factfinder, I do not view this average

salary as excessive on its face. Mariam worked at HCW full-time from its inception,

serving as “Chief Administrator” of the center, which State regulations define as

“the person designated by the governing body of a Center to assume direct

responsibility for and continuous supervision of the day-to-day operation of the

Center.”131 While Tanyous presented testimony from employee Deborah Hoffman

that the Banoubs were rarely present, this was contradicted by more credible

testimony from co-worker Deborah Clark that Mariam worked long hours.132

Mariam also shepherded HCW’s enrollment in important State programs, such as

the Purchase of Care (“POC”) program, which expanded HCW’s client-base by

qualifying the daycare to receive supplemental tuition payments from the State for

lower income families.133 For his part, Medhat testified that he worked at the

129
JX 82, Ex. N.
130
Id.
131
JX 70.
132
Tr. 201–06 (Clark).
133
Tr. 263–64 (Mariam).

33
daycare on weekends and evenings when he was not working his full-time job,134

and he only began drawing salary in 2006 for less than $8,846.135

On the other hand, while the Banoubs presented credible testimony that they

worked hard as operators, they did not provide evidence of what their work was

worth (through comparables or otherwise). And, notwithstanding their hard work,

the Banoubs’ salary increased even as they started a separate daycare business and

even as HCW’s performance suffered.136 In 2006, Medhat drew salary of $8,846,

while Mariam’s pay continued to increase from $52,003 in 2004 to $60,660 in

2005.137 That same year, the Banoubs started their own daycare, HKA, presumably

leaving them less time to attend to HCW. 138 Even still, their collective wages

skyrocketed 39% from $69,506 in 2006 to $96,731 in 2007.139 And yet, HCW’s net

134
Tr. 331 (Medhat).
135
JX 82, Ex. N.
136
In evaluating the entire fairness of a salary, courts may look to evidence that the
compensation was appropriate in light of the company’s economic and financial
circumstances. Cf. Carlson, 925 A.2d at 536 (holding defendants failed to show the
fairness of their compensation where no credible “attempt to quantify the value of those
goods and services or to show the relation between them and the [compensation]” was
made).
137
JX 82, Ex. N.
138
Tr. 284–85, 303 (Mariam); Tr. 411 (Medhat).
139
JX 82, Ex. N.

34
income fell from the previous year’s $4,841 to -$74,808.140 Of course, Tanyous

directed his books and records request to HCW that same year, catalyzing the dispute

between the two parties.141 In 2008, the Banoubs’ salaries collectively were on track

to reach a near-six digit number prior to this Court’s decision resolving the

ownership dispute in July of that year, which, as noted, prompted the Banoubs’

abrupt departure from the daycare.142

There is only one year of compensation on record that might have been

approved/ratified by the majority owner (Tanyous).143 In December 2005, Tanyous

signed a revised 2004 income tax return. That tax return showed clearly on its first

page: “Compensation of officers . . . $52,308.”144 A majority owner’s signature on

a tax return typically would not suffice to ratify unilateral self-interested

140
JX 147, Ex. B.
141
See Op. at *2–7 (holding Tanyous was not a lender to, but rather a majority owner of,
HCW); see also PTO at 6, ¶ 13 (summarizing the prior litigation between the parties).
142
JX 82, Ex. N.
143
I note here that the gravamen of Tanyous’ compensation-related claims is that the
Banoubs failed to obtain his approval as majority owner to pay themselves any
compensation. To the extent the Banoubs present evidence that Tanyous did, in fact,
approve their compensation in any particular year, that would go a long way toward
undermining at least a significant factual predicate of the compensation-related claims.
144
JX 32.

35
compensation decisions by corporate officers.145 In this case, however, where the

majority owner alleges a loyalty breach based on the officers’ failure to advise him

that they were drawing any salary, the highly scrutinized 2004 tax return puts the lie

to that claim. This was the same tax return that listed the inaccurate equity split that

caused Tanyous to travel from Kuwait to Delaware to confront the Banoubs.146 That

confrontation led Tanyous to limit Medhat’s power of attorney. 147 Even still,

Tanyous—an independent director and majority shareholder accompanied by an

English translator—signed off on that document after an evidently meaningful

review of its contents, which included clear disclosure of the fact and amount of the

Banoubs’ annual compensation.148

After carefully reviewing the evidence, I conclude the Banoubs failed to meet

their burden to prove, with competent evidence, that their salary was entirely fair in

any year except 2004. This leaves for decision the question of remedy for the breach.

145
See CanCan Dev., 2015 WL 3400789, at *16 (refusing to protect defendant with the
business judgment rule for compensation decisions where an arguably dependent business
partner approved larger checks that encompassed salary increases).
146
Op. at *5; Tr. 556–58 (Tanyous).
147
Tr. 556–58 (Tanyous).
148
I note here that I give no weight to Tanyous’ self-serving testimony at trial that he
expressly forbade the Banoubs from drawing salary from HCW. See Tr. 525 (Tanyous)
(“Q. Did you authorize Mr. and Mrs. Banoub to take a salary from Happy Child World?
A. No.”). That testimony makes no sense given all parties’ understanding that the Banoubs
would be on point for all aspects of the daycare’s operations.

36
“When a transaction does not meet the entire fairness standard, the Court of

Chancery may fashion any form of equitable and monetary relief as may be

appropriate.”149

Starting with the Banoubs’ ratified 2004 salary, I apply the Damages Report’s

3.0% inflation rate to estimate their entirely fair salary both on a backward- and

forward-looking basis. For the year 2008, I calculate the Banoubs’ salary pro rata

for the seven and one-half months they worked at HCW, until they left on July 18,

2008. The results are as follows:

The Banoubs’ Wages
2002 $49,216.60
2003 $50,738.76
2004 $52,308.00
2005 $53,877.24
2006 $55,493.56
2007 $57,158.36
2008 $35,723.98
Total $354,516.50

Based on this calculation, I find that the Banoubs were entitled to draw compensation

from HCW in the amount of $354,516.50. As noted, they actually drew salary of

$403,744.

149
Julian v. E. States Constr. Serv., Inc., 2008 WL 2673300, at *19 (Del. Ch. July 8, 2008).
See also Technicorp, 1997 WL 538671, at *15 (providing a remedy after determining a
fiduciary had improperly set his own salary that accounted for the value of the service the
fiduciary did provide to the corporation).

37
 b. Retirement Funding

Tanyous next claims the Banoubs’ retirement funding in the amount of

$33,597 amounts to improper self-dealing.150 The Banoubs admit they unilaterally

determined to apply these funds for retirement savings, but argue the funds were

diverted from their salary and thus were not paid by HCW directly.151

An employee’s decision to divert money from his salary into a retirement

savings account has no adverse effect on the employer. If the employee causes the

company to match the employee’s contribution, however, that, obviously, does

affect the employer. And if that employee is a fiduciary, that self-interested decision

will be reviewed for entire fairness.

Here, there is no evidence that HCW made any significant matching

contribution to the Banoubs’ retirement savings.152 While the Damages Report

calculated the Banoubs’ salary, the report provides no indication that the Banoubs

caused HCW to match their contributions to their retirement account.153 The only

evidence of company matching in the record reveals that employee salaries were

150
JX 82 at 10–11; PTO at 13, ¶ 13(m).
151
Banoubs’ Post-Trial Opening Br. at 7–8 (citing JX 28, 78).
152
Tr. 131–32 (Ford).
153
See JX 82 at 11 (“The review of the available Form W-2’s for Mrs. Banoub did reflect
that the retirement payments were withheld from her payroll and remitted to the SEP.”).

38
matched at $3.85 per biweekly pay, or just $100 per year, and that four other

employees benefitted from this program.154 Even assuming the burden shifts to the

Banoubs to justify this limited company matching, the cost to the Company is

de minimis and reasonable on its face.

Because the Banoubs’ contributions to retirement savings were not improper

self-dealing, I see no basis in this record to compensate HCW for amounts the

Banoubs diverted from their own salary for retirement savings. The claim fails for

want of proof.

c. Citizens Bank Withdrawals as Salary

Tanyous claims the Banoubs improperly withdrew $5,144.09 ($5,044.09 from

HCW’s Citizens Bank commercial account and $100 from HCW’s payroll account)

on July 18, 2008, following the Court’s decision that Tanyous was the controlling

shareholder of HCW.155 According to Tanyous, these withdrawals were a wrongful

conversion of funds for unearned salary. The Banoubs counter that the evidence

does not support the claim that the withdrawals were improper.156 In particular, they

point to a July 2008 monthly account statement from Citizens Bank showing the

154
D.I. 387, Ex. 7; see also JX 82 at 11 (“We were unable to determine from the records
provided, the aggregate amount to withholdings versus company matching contributions
to the retirement plan.”).
155
PTO at 10, ¶ 13(a); Tanyous’ Post-Trial Opening Br. at 17 (D.I. 397).
156
Banoubs’ Post-Trial Opening Br. at 13–14.

39
$5,044.09 withdrawal from HCW’s money market account.157 The statement also

shows a deposit that same day into HCW’s checking account for $5,144.09.158 From

that checking account, the Banoubs attempted to cash their past paychecks for

amounts already included in Tanyous’ claim for excessive salary.

The Banoubs’ position here is supported by the preponderance of evidence.

The temporal proximity of the withdrawal and deposit, and the corresponding

amounts involved in the transactions, supports the Banoubs’ testimony that the

transactions involve the same money. Because Tanyous’ claimed damages of

$5,144.09 is subsumed within the Damages Report’s excess salary numbers, I see

no basis in the evidence or law to double-count that amount.

*****

To reiterate, I have determined the Banoubs properly drew a salary of

$354,516.50. The Damages Report sets the total salary drawn by the Banoubs from

2002 to 2008 at $403,744. The Banoubs contest the arithmetic behind this figure,

arguing that Ford double-counted in the course of his calculation. But while Ford

cites to the evidentiary record for his totals, the Banoubs cite to nothing; they simply

assert there was overcounting.

157
D.I. 387, Ex. 3.
158
Id. The extra $100 was obtained from closing the payroll account. Id.

40
 It bears repeating here that the evidentiary record on which I must base this

decision is muddled. The Damages Report offers the clearest picture, although even

that image is necessarily incomplete given the fragmented information supplied to

Ford. With respect to the salary claim, the Banoubs bore the burden of proof for the

reasons stated. They did not carry that burden. To assess damages, I rely on the

Damages Report’s $403,744 figure for actual salary drawn by the Banoubs, and

subtract from that the $354,516.50 salary properly owed, to conclude that the

Banoubs are liable to HCW for $49,228 as compensation-related damages.

3. Expense-Related Claims

The first category of expenditures for which Tanyous seeks damages is

characterized in the Damages Report as “Alleged Unsubstantiated Expenses.”

Of course, the mere fact that an expense is unsubstantiated is not grounds for finding

a fiduciary breach. Rather, Tanyous must present substantial evidence of self-

dealing to carry his prima facie burden before any burden shifts to the Banoubs as

fiduciaries to justify the expenditures.159 In most instances discussed below,

Tanyous has failed to carry his threshold burden of proof.

159
Technicorp Int’l II, Inc. v. Johnston, 2000 WL 713750, at *15 (Del. Ch. May 31, 2000).

41
 a. The Banoubs’ Personal Credit Card Payments

Tanyous’ claims $178,929 for unsubstantiated disbursements from HCW to

various financial institutions to pay-off credit card debt during the Banoub Era.160

But Tanyous has failed to satisfy his burden to make a prima facie showing that the

expenditures in question were self-interested in nature. No specific instance (or even

indicia) of self-dealing was flagged in these payments. Indeed, the Damages Report

recognizes “a portion of these credit card payments may be [legitimate] business

expenses of HCW.”161

In Zutrau v. Jansing, the court rejected a plaintiff’s derivative claim for

unsubstantiated credit card expenses when “neither side ha[d] submitted convincing

evidence as to the nature of the[] expenses.”162 The court shifted the burden of proof

to the defendant solely as a sanction for failure to comply with discovery obligations

with respect to specifically requested credit card charges.163 Here, Tanyous did not

move to compel the production of the Banoubs’ credit card records, presumably

content to leave the evidentiary landscape barren under the misimpression that the

160
PTO at 12, ¶ 13(i); Tanyous’ Post-Trial Opening Br. at 8.
161
JX 82 at 9.
162
Zutrau, 2014 WL 3772859, at *27–28.
163
Id. at *29–30.

42
Banoubs bore the initial burden to establish the propriety of those credit card

charges.164

Because Tanyous did not submit any evidence suggesting the challenged

credit card expenses were improper and did not vigorously pursue these records in

discovery, he failed to shift to the Banoubs the burden of establishing their fairness.

The claim fails for want of proof.

b. Automobile Related Expenses

Tanyous claims $52,990 for unauthorized automobile expenses charged by

the Banoubs to HCW.165 The Banoubs maintain these expenses were products of

legitimate business decisions that are entitled to protection under the business

judgment rule.166

The Banoubs stand on both sides of the transactions for automobiles they

bought and then drove, so they bear the burden of establishing entire fairness.167

164
While Tanyous requested credit card records from the Banoubs, he made no effort to
follow up on those requests and, instead, subpoenaed the records directly from third-party
banks. D.I. 410. This does not, on its own, shift the burden to the Banoubs to prove the
entire fairness of the card expenses.
165
Tanyous’ Post-Trial Opening Br. at 8–9; PTO at 12, ¶ 13(j).
166
Banoubs’ Post-Trial Opening Br. at 5–6; see also Tr. 468–71 (Medhat) (describing his
business rationale for purchasing the automobiles).
167
See Cancan Dev., 2015 WL 3400789, at *16 (“Decisions by interested fiduciaries to
reimburse their own expenses or provide themselves with other corporate benefits are
similarly subject to entire fairness review.”) (citing Sutherland v. Sutherland, 2009
WL 857468, at *4 n.16 (Del. Ch. Mar. 23, 2009)).

43
They admit they did not include Tanyous in the decision to purchase the vehicles in

question.168 But Tanyous signed off on the automobile expense in the same amended

2004 tax return where he approved the Banoubs’ salary decisions prior to 2005.169

That amended tax return showed HCW was paying notes on two vehicles and taking

depreciation on one of them.170 Because the amended 2004 tax return was subject

to rigorous scrutiny by Tanyous, I am satisfied that the Banoubs’ ostensibly self-

interested decision to purchase the automobiles was ratified by Tanyous’ uncoerced

and fully informed approval of the transactions, and the business judgment rule

applies.171

Under the business judgment rule, these automobiles were properly charged

to HCW. In this regard, I find credible Medhat’s testimony—corroborated by repair

slips on these vehicles in 2005 and 2007 showing low mileage—that these vehicles

made good business sense and were used primarily for commutes to and from the

168
Tr. 470 (Medhat).
169
JX 32.
170
Id.; Tr. 337–42 (Medhat).
171
See generally Rosser v. New Valley Corp., 2000 WL 1206677, at *3–4 (Del. Ch.
Aug. 15, 2000) (discussing shareholder ratification of allegedly conflicted transactions).
Even if the transactions were reviewed for entire fairness, I am satisfied the Banoubs
carried that burden. There is no evidence HCW overpaid for the vehicles. Nor is there
evidence that HCW did not need or, through the Banoubs, use the vehicles for legitimate
business purposes.

44
daycare and to transport food supplies and materials to the facility.172 Deborah Clark

offered credible testimony that Medhat often used the vehicles in his efforts to

maintain the physical plant and to conduct other HCW business.173 There is no

credible evidence in the record to rebut that evidence. Nor is there evidence (or

meaningful argument) regarding what did or should have happen(ed) to the vehicles

after the Banoubs left the daycare in 2008. The claim fails for want of proof.

c. Legal Expenses

Tanyous seeks $38,700 in legal expenses incurred by HCW during 2007 and

2008, when the Banoubs hired legal counsel to assist in the defense of Tanyous’

Section 220 action.174 A Section 220 demand is directed against the corporation, not

the corporation’s officers.175 It is proper, then, that the corporation pay the legal fees

incurred in connection with the company’s response to a books and records demand.

While Tanyous amended his pleadings after the trial to include a declaratory

judgment claim, and to join Medhat as a defendant in order to resolve the dispute

regarding Tanyous’ equity stake in the Company, the case still proceeded as a

172
Tr. 337–42 (Medhat); JX 26, 53 (Repair slips).
173
Tr. 205 (Clark).
174
PTO at 12, ¶ 13(d); see also Tanyous v. Happy Child World, Inc., C.A. No. 2947-VCN.
175
8 Del. C. § 220.

45
Section 220 action.176 Thus, I find all legal fees incurred by HCW up to the Court’s

July 17, 2008 post-trial opinion were properly charged to HCW.

This leaves one charge for legal fees of $2,500, dated December 17, 2008.177

In the Banoubs’ attorney’s motion to withdraw, counsel stipulated that he had

“finished up his work in the first action (preparing and filing a response to plaintiff’s

motion for costs in August).”178 Counsel withdrew after advising the Banoubs that

they would be responsible for fees incurred defending the plenary action, at which

point the Banoubs elected to proceed pro se.179

After reviewing the evidence, I am satisfied the December 17 payment

reflected services rendered by counsel to HCW as the Company wound down its

obligations with respect to the Section 220 action (e.g., prevailing party costs, etc.).

Tanyous’ claim for reimbursement of legal expenses, therefore, fails for want of

proof.

176
Op. at *1.
177
JX 82, Ex. E.
178
Mot. to Withdraw Appearance, supra note 78.
179
Tr. 345–46 (Medhat).

46
 d. Undocumented Reimbursements

Tanyous claims the Banoubs owe $19,947 in undocumented reimbursements

in the form of 29 checks between May 2005 and October 2006.180 The Banoubs

counter that these reimbursements represented proper business expenses.181

While a reimbursement flowing from HCW to the Banoubs is self-dealing on

its face, I am satisfied that the relatively minimal scope of these expenses, and the

presence of supporting documentation for nearly all of them, suggests there is no

need to shift the burden of proof to the Banoubs in this limited instance.182 Indeed,

only three of the challenged checks lack legends documenting the business-related

expense for which the reimbursement was sought.183 And the reimbursements

amount to $1,108.17 per month, certainly reasonable as expenses incurred by a

daycare business operating at full or near full capacity. The claim fails for want of

proof.

180
JX 82, Ex. F; PTO at 12, ¶ 13(k).
181
Banoubs’ Post-Trial Opening Br. at 9–11; Tr. 314–17 (Mariam); Tr. 346–49 (Medhat).
182
See Zutrau, 2014 WL 3772859, at *28 (“Although [Defendant’s] lack of formal expense
reporting is far less than ideal, I find that the relatively minimal nature of the personal
expenses that Jansing has been shown to have charged to the Company over a span of six
years is not sufficient to warrant shifting the burden of proof to him.”).
183
JX 82, Ex. F.

47
 e. Past Due Payroll Taxes

Tanyous seeks to recover $11,809 for a tax penalty assessed against HCW

after he assumed operational control of the business.184 There is no proof the

Banoubs received any personal benefit from the circumstances that gave rise to the

penalty, and so there is no semblance of self-dealing. And Tanyous does not

articulate a theory for recovery under a duty of care. Even if he did, this would not

qualify as a duty of care breach because Medhat reasonably relied upon an advisor

to address the daycare’s taxes, which, by law, he was entitled to do.185 For that

reason, the claim fails for want of proof.

4. Revenue-Related Claims

Tanyous asserts several claims for unrecorded or missing revenue based on

the Damages Report. The claims amount to $147,443 and consist of unrecorded

cash receipts, unremitted tuition deposits, and unremitted tuition payments from the

Banoubs for time their children attended the daycare. All of these claims depend on

the same false premise that Tanyous need not provide any evidence of self-dealing

in order to hold the Banoubs to account for the speculated amounts allegedly due.

184
PTO at 11, ¶ 13(e); Tanyous’ Post-Trial Opening Br. at 22–23.
185
Tr. 350–52 (Medhat); see also 8 Del. C. § 141(e); Aronson, 473 A.2d at 812.

48
 a. Unrecorded Cash Receipts

Tanyous claims HCW is owed $73,800 in unrecorded cash receipts.186 The

absence of cash receipts is not self-dealing on its face, so Tanyous must make a

prima facie showing based on substantial evidence that the Banoubs duty of loyalty

is implicated. Tanyous fails to meet that burden. The Damages Report on which

Tanyous relies bases its calculation of damages on an estimate of one year (2006) of

revenues that is then carried backwards and projected forwards over the course of

the Banoub Era.187 It is difficult to discern from this “evidence” whether HCW was

even missing cash receipts, much less where that missing cash may have gone.188

Even if cash receipts are, in fact, unaccounted for, Tanyous must set forth

some evidence of self-dealing to shift the burden to account for the receipts onto the

Banoubs. He has presented no such evidence. The only link to Medhat is the

Damages Report’s cross-reference to Medhat’s personal bank account, and a note

that there were deposits made between 2002 and 2007 into Medhat’s savings

186
PTO at 11, ¶ 13(c); Tanyous’ Post-Trial Opening Br. at 29–30.
187
JX 82 at 18–19.
188
Indeed, HCW used a software program—Procare—to track how much each parent had
paid by cash or by check, and at year end provided parents with reports of their payments.
See JX 24, 157; Tr. 277–367 (Mariam); Tr. 360–61 (Medhat). There is no evidence from
Procare that HCW was missing receipts.

49
account.189 The fact Medhat was making deposits to savings is hardly incriminating

evidence given that Medhat was working another job at the time. This is precisely

the sort of speculative claim of wrongdoing this court has rejected for failing to

establish a prima facie showing of self-dealing.190 The claim fails for want of proof.

b. Unremitted Tuition Deposits

Tanyous stakes the same ground for his argument concerning $17,940 in

allegedly unremitted tuition deposits.191 HCW policy required parents to make a

two-week deposit before their children started at HCW.192 Tanyous asserts these

deposits should have been stored in escrow and that, because no escrow existed when

he assumed operations, the Banoubs must be held to account for “missing” tuition

deposits calculated based on the number of students at the center.193

Again, Tanyous fails to carry his initial burden. Not only is there no evidence

of self-dealing to support these claims, there is no evidence of the need for an escrow

189
Ex. 82 at 19.
190
See, e.g., Avande, 2019 WL 3800168, at *12–13 (refusing to hold a fiduciary to account
for expenses where the plaintiff “ha[d] not provided substantial evidence that the
transactions making up the Challenged Amount, which likely consist of thousands of
individual expenditures incurred over a span of more than five years, constitute self-
interested transactions involving [the defendant]”).
191
PTO at 13, ¶ 13(o); Tanyous’ Post-Trial Opening Br. at 25–26.
192
JX 16.
193
PTO at 13, ¶ 13(o); Tanyous’ Post-Trial Opening Br. at 25.

50
account at all. The relevant company policy states that “one week’s advance tuition

will be applied to the child’s first week. The remaining advance tuition will be

applied to the child’s last week, provided that the center is given a two weeks

advance notice of the child’s withdrawal.”194 In other words, the advance tuition

payments were nonrefundable.195 Because HCW was entitled to those funds upon

payment, it had no need to hold them in escrow. There is no proof of self-dealing.

Consequently, the claim fails for want of proof.

c. Unremitted Tuition Payments for the Banoubs’ Children

Finally, Tanyous alleges the Banoubs’ two children attended HCW from 2002

to 2008, and yet the Banoubs never paid their tuition. Tanyous seeks payment for

the Banoubs’ unremitted tuition payments, totaling $39,503.196

Again, Tanyous bears the initial burden to present a prima facie claim based

on substantial evidence of self-dealing. To this end, he offers the testimony of a

single witness, Ms. Hofmann, along with a one-day entry on a Food Program record

in 2006 revealing that the Banoubs’ children were served lunch at the daycare on

that day.197

194
JX 16.
195
Tr. 270–71 (Mariam).
196
PTO at 11, ¶ 13(h); Tanyous’ Post-Trial Opening Br. at 26–27.
197
JX 82 at 26.

51
 Here again, the evidence is insufficient to shift the burden of proof to the

Banoubs. Ms. Hofmann’s testimony regarding the Banoubs’ presence at HCW was

earlier contradicted by Deborah Clark—a more credible witness. 198 This casts doubt

upon the reliability of all aspects of Hoffman’s testimony.199 And the existence of a

single entry on a Food Program record is insufficient to prove that the Banoubs’

allowed their children to attend the daycare without paying the employee tuition rate.

Indeed, Mariam credibly testified that her children were likely on-site because they

were scheduled for a doctor’s visit that day at the hospital across the street.200

Moreover, if the Banoubs’ children actually attended HCW, then their names would

appear on various records, such as classroom lists, attendance sheets, and tracking

sheets listing the other students. There are no such references. The claim fails for

want of proof.

See Cede & Co. v. Technicolor, Inc., 884 A.2d 26, 35 (Del. 2005) (“[T]he Court of
198

Chancery is the sole judge of the credibility of live witness testimony.”) (internal quotation
omitted) (“Cede III”).
199
See, e.g., Manichaean Capital, LLC v. SourceHOV Hldgs., Inc., 2020 WL 496606,
at *19–21 (Del. Ch. Jan. 30, 2020) (discounting a witness’s entire testimony after finding
parts of the testimony demonstrably not credible).
200
Tr. 286–87 (Mariam).

52
 5. Suggestions of Additional Damages

Finally, Tanyous asserts the Banoubs misappropriated HCW funds totaling

$119,493 in order to acquire two properties and to support their competing daycare,

HKA. I address the claims in turn.

a. The Newark Personal Residence

Tanyous claims HCW is entitled to recoup $26,329 after the Banoubs

converted these funds to purchase their home in Newark, Delaware.201 The Damages

Report observes that Tanyous’ initial capital contribution to the Banoubs in February

and June of 2001—$20,000 wired to the Banoubs’ personal bank account and a

check for $80,000 deposited in HCW’s newly-created business account—was soon

followed by the Banoubs’ purchase of their suburban home with a $14,596.12 cash

down payment.202 Because Tanyous’ $20,000 wire was in the Banoubs’ personal

account when the Banoubs purchased this home, the Damages Report states,

“it could be concluded that the Banoubs used the capital contribution from Tanyous

as a source of funds for the purchase.”203

Since the Banoubs exercised exclusive control over HCW funds that were

transferred into their personal account, they bear the burden to prove those funds

201
PTO at 11, ¶ 13(f); Tanyous’ Post-Trial Opening Br. at 33.
202
JX 82 at 30–31.
203
Id. at 31.

53
were used properly.204 In this instance, the Banoubs carried that burden. Because

money is fungible, the Banoubs can only demonstrate that HCW funds were not used

in the purchase of their Newark home by showing that their remaining balance

covered the amount earmarked for HCW purposes. The Banoubs had a total of

$39,742.74 in their personal accounts after Tanyous’ $20,000 infusion.205 Thus, they

had $19,742.74 of their own money on hand for the $14,596.12 down payment on

the Newark property. After closing on the home in July 2001, the Banoubs had a

total of $25,182.47 in their personal account—more than enough to fund the cash

component of the HCW acquisition or to refund the cash to Tanyous had he ever

asked for it.206

There is no claim that the Banoubs used Tanyous’ initial cash infusion for

some other improper purpose; the focus at trial was on the Banoubs’ alleged

misappropriation of Tanyous’ money to fund the purchase of real property. Because

the preponderance of the evidence reveals that HCW funds were not used in the

purchase of the Banoubs’ home, the claim fails for want of proof.

204
Cf. Technicorp, 2000 WL 713750, at *20 (holding fiduciary defendant exercising
exclusive control over company cash deposited into his personal account bore the burden
of demonstrating the cash was used for proper business purposes).
205
JX 1 (Wilm. Trust Feb. 2001 statement).
206
JX 4 (Wilm. Trust July 2001 statement).

54
 b. The Newark Investment Property

Tanyous next claims the Banoubs used HCW funds ($23,856.83) to fund a

down payment on a personal investment property in Newark, Delaware.207

In February of 2004, the Banoubs moved $35,600 from HCW’s Money Market

account to the Banoubs’ personal account.208 Two months later, in April 2004, the

Banoubs made a $23,856.83 down payment on the investment property.209 The

Damages Report states, “[b]ased upon the large amounts of HCW funds moved in

and out of the Banoubs’ personal accounts, it could be concluded that the source of

the funds used at settlement for the [investment] property came indirectly from

HCW.”210 The Banoubs claim that, even if some HCW funds were mixed in their

personal account at the time of the purchase, their account balance of $48,048.97

was comprised of more than enough of their personal funds to cover the $23,820.83

down payment on the investment property.211

The Banoubs’ unilateral transfer of corporate funds into their personal bank

account is self-dealing on its face, so the Banoubs bear the burden to show those

207
PTO at 11, ¶ 13(g); Tanyous’ Post-Trial Opening Br. at 28.
208
JX 82 at 32–33.
209
Id.
210
Id. at 33.
211
JX 22.

55
funds were not misappropriated. With respect to the investment property, they have

not carried that burden. Unlike the purchase of their personal residence, the

Banoubs’ personal account did not have sufficient funds to cover the down payment

on the investment property without HCW’s money. Excluding the $35,600 transfer

from HCW, the Banoubs had only $13,048.97 of personal funds in their account—

$10,771.86 shy of the $23,820.83 needed for the down payment on the investment

property. The Banoubs failed to demonstrate that the $35,600 transfer from HCW

was no longer in their personal account at the time they acquired their investment

property. HCW funds, therefore, are implicated in that transaction.

Because the Banoubs failed to satisfy their burden of proof and their duty to

account, they failed to show the fairness of the transaction, and damages must be

assessed. Here again, the Court has broad power to fashion a remedy in equity.212

Tanyous asks the Court to disgorge profits from the investment property based

on a calculation of the funds appropriated ($23,857.82) and interest ($5,009.93)

calculated by a 3.5% simple interest rate over 70 months, plus estimated rental value

($38,513.98) and interest at the same rate ($1,322.71). The proffered rental amount

is entirely speculative without any evidentiary support, so I disregard it completely.

212
See Weinberger v. UOP, Inc., 457 A.2d 701, 714 (Del. 1983) (“[W]e do not intend any
limitation on the historic powers of the Chancellor to grant such other relief as the facts of
a particular case may dictate.”); Julian, 2008 WL 2673300, at *19 (“When a transaction
does not meet the entire fairness standard, the Court of Chancery may fashion any form of
equitable and monetary relief as may be appropriate.”).
56
I also find that a calculation of damages based on all the transferred funds is

inappropriate here, where the credible evidence leads me to conclude that only

$10,771.86 of HCW’s funds were misappropriated.213

After carefully considering the evidence, I find damages are equal to the

amount of funds proven to be misappropriated, plus interest (as laid out in the

Damages Report).214 The table below computes the damages:

Interest on $10,771.86 from 4/21/2005 - 3/1/2010
2004 $ 251.34
2005 $ 377.02
2006 $ 377.02
2007 $ 377.02
2008 $ 377.02
2009 $ 377.02
2010 $ 62.84
Total Interest $ 2,199.25

HCW Funds $ 10,771.86

Damages $ 12,971.11

The Banoubs are liable to HCW for $12,971.11, representing funds misappropriated

from HCW to purchase their investment property.

213
JX 22; Tr. 370–71 (Medhat); JX 82 at 33. I note again that the claim of misappropriation
here focused solely on the use of HCW funds to acquire a personal investment property.
And given the propensity of both of HCW’s owners to draw from HCW to suit their own
needs, I see no basis in equity to order disgorgement of profits from the investment
property.
214
JX 82 at 32–33, Ex. P.

57
 c. HKA

Finally, Tanyous brings a claim for several disbursements from HCW to HKA

totaling $24,000 during July 2006, as purportedly reflected in the Banoubs’ personal

bank account.215 The Banoubs admit Medhat mistakenly effected three online

transfers from HCW to HKA accounts in July, 2006.216 Because the Banoubs

exercised exclusive control over these accounts and stood on both sides of the

transaction, they have the burden to prove the transactions were entirely fair to

HCW.

The Banoubs successfully carry that burden here. Tanyous’ claim is based on

his allegation that net transfers to the Banoubs’ personal accounts were, at that time,

unfavorable to HCW. This allegation, in turn, was based on Exhibit H of the

Damages Report, documenting a net gain of $17,200 to the Banoubs’ personal

account.217 But Tanyous dropped his claim for net transfer payments owed by the

Banoubs to HCW when he discovered records that revealed the Banoubs did not, in

fact, come out ahead on those transfers.218 Even so, Tanyous presses on with this

claim under the theory that the Banoubs must show that these specific funds were

215
JX 82 at 34, Ex. H; PTO at 13, ¶ 13(p).
216
Banoubs’ Post-Trial Answering Br. at 23 (D.I. 403).
217
JX 82, Ex. H.
218
Tanyous’ Post-Trial Answering Br. at 10.

58
returned to HCW.219 The claim is difficult to follow, much less assess in the

evidence. In any event, Medhat testified convincingly that the evidence upon which

Ford relied to “flag” this issue was the product of recordkeeping errors on Medhat’s

part.220 After reviewing the evidence, I share that view and draw a reasonable

inference that these funds, in fact, were returned to HCW, as the Banoubs say they

were.221 The claim fails for want of proof.

6. Records Recreation Expenses

Tanyous claims $87,276 for the amount paid to Ford’s firm to “reconstruct

the records to continue [HCW’s] day to day operations,” again under a theory that

the expenses were the proximate result of a breach of fiduciary duties.222 The central

premise behind that claim is that HCW business records were either taken, lost, or

destroyed by the Banoubs.223 Tanyous leaves unclear what particular duty he

219
Tr. 94 (Ford) (stopping short of opining that funds “that went to Happy Kids” were
misappropriated from HCW, and noting that he “felt we needed to this matter to the Court
and say, you know, it’s out there”).
220
Tr. 425 (Medhat).
221
Tr. 411, 425 (Medhat).
222
PTO at 13–14, ¶¶ 2–3; Tanyous’ Post-Trial Opening Br. at 34–35.
223
Tr. 533–38 (Tanyous).

59
believes is breached. Because he did not brief any duty of care claim, I deem that

claim either waived, withdrawn or never asserted.224

While the Court previously observed that the “unfortunate state of the

Company’s books is largely Medhat’s own doing,”225 that observation does not

equate to a finding that the absence of proper records is a product of actionable

wrongdoing. The only testimony that addresses purportedly missing records comes

from Girgis, Guirguis, and Hofmann.226 That testimony, in my view, was not

credible, particularly given that HCW had a security system in place at the time the

Banoubs allegedly made off with HCW records, and yet Tanyous (who controlled

the system) did not produce videos or reports from that system.227 The Banoubs, on

the other hand, were credible in their adamant denials when asked if they

misappropriated HCW’s records.228 Finally, the record is entirely unclear as to why

the financial software used by HCW could not reproduce the supposedly missing

224
See Emerald P’rs, 726 A.2d at 1224 (“Issues not briefed are deemed waived.”).
225
Op. at *2.
226
D.I. 383 (Hofmann) 20–21; see also Tr. 539–40 (Tanyous) (testifying that Girgis and
his wife, Guirguis, informed him of missing records).
227
JX 25; Tr. 246–80 (Mariam); Tr. 429–57 (Medhat). The system tracks who “swipes”
in and out of the building and notes the corresponding time, and can produce videos of the
comings and goings if prompted to do so. Tr. 249–50 (Mariam); Tr. 440–44 (Medhat).
228
Tr. 445–49, 498–502 (Medhat); Tr. 286–69 (Mariam).

60
records.229 In this regard, I note that Tanyous’ own inability to keep track of HCW

records does not instill confidence that his sense of what records exist, and what

records are missing, comports with reality.230 The records recreation claim fails for

want of proof.

7. The Banoubs’ Counterclaim

The Banoubs counterclaim for a declaration that they may negotiate twelve

HCW uncashed paychecks for work they performed while operating the daycare.231

The Banoubs also seek the return of funds they allegedly loaned to HCW after April

2007 that were not tallied in the Damages Report.232 They characterize these claims

as “setoffs” to Tanyous’ fiduciary breach claims “in the nature of an affirmative

defense.”233 “Set-off is a mode of defense by which the defendant acknowledges the

229
See JX 157 (showing receipts for “Procare” software); JX 24 (advertising “Procare”
software’s capabilities, including tracking accounting, tuition expenses, employee data and
payroll).
230
JX 156.
231
Banoubs’ Post-Trial Opening Br. at 14 n.4, 33.
232
JX 82, Ex. H; 2d Am. Countercl. at ¶ 13 (D.I. 239).
233
Tanyous v. Banoub, 2012 WL 1526873, at *1 (Del. Ch. Apr. 26, 2012).

61
justice of the plaintiff’s demand, but sets up a defense of his own against the plaintiff,

to counterbalance it either in whole or in part.”234

With respect to the uncashed paychecks, the Banoubs have failed to enter

those paychecks into evidence or otherwise support their claim with competent

evidence. The claim fails, therefore, for want of proof.

The Banoubs’ claim for $7,200 in loans likewise fails because they have not

provided any accounting for what these loans represented, nor did they prove the

actual source of the funds in order to prove that a loan, in fact, occurred.235 The

Banoubs admit they often intermingled HCW funds with personal funds in their

accounts. Without clear evidence that loans were even made, much less any details

regarding the loans, the claim fails for want of proof.

*****

To recount, I have found the Banoubs are liable to HCW for (1) $49,228 in

compensation-related damages; and (2) $12,971.11 for misappropriated funds,

totaling $62,199.11. The value of these claims will be incorporated in the appraisal,

as discussed below. I have also found the Banoubs failed to prove their “set-off”

counterclaims.

234
Finger Lakes Capital P’rs, LLC v. Honeoye Lake Acq., LLC, 151 A.3d 450, 453
(Del. 2016) (quoting Victor B. Woolley, Practice in Civil Actions and Proceedings in the
Law Courts of the State of Delaware § 492 (1906)).
235
Banoubs’ Post-Trial Opening Br. at 12–13, 28 (citing JX 50).

62
 C. The Banoubs’ Derivative Claims

The Banoubs have asserted counterclaims against Tanyous for breaches of

fiduciary duties and misappropriation prior to the Merger. “[B]reach of fiduciary

duty claims that do not arise from the merger are corporate assets that may be

included in the determination of fair value.”236 None of the claims arise from the

Merger. As discussed below, the value of the proven claims, therefore, will be

incorporated in the appraisal along with the value of HCW’s proven claims against

the Banoubs. Three of the four claims against Tanyous implicate the duty of loyalty,

while the last implicates the duty of care.

1. The Duty of Loyalty Claims

The Banoubs challenge three specific transactions. First, it is alleged that

Tanyous’ wife withdrew $14,750 from the HCW’s accounts between June 7 and

July 15, 2011 for personal use.237 Second, it is alleged that Guirguis drew salary

totaling $1,349.19 from HCW when Tanyous testified she did not work at HCW.238

Third, it is alleged that Tanyous caused $4,000 to be wrongfully diverted from HCW

236
Bomarko, Inc. v. Int’l Telecharge, Inc., 1994 WL 198726, at *3 (Del. Ch. May 16,
1994); see also Nagy, 770 A.2d at 55–56 (noting the appraiser must value breach of
fiduciary claims as these claims are “part of the going concern value of the corporation”).
237
JX 61.
238
D.I. 386 (Tanyous Dep.) 80–81.

63
to Little Scholar, Tanyous’ solely owned daycare. 239 In total, these claims amount

to $20,099.19.

Tanyous did not rebut any of these three claims on their merits or argue that

they were not instances of self-dealing. Rather, his defense rests on the notion that

the Banoubs lack standing to bring derivative claims after the Merger or,

alternatively, that the Banoubs’ expert’s failure to value their derivative claim means

they cannot sustain their burden to prove them. Neither defense withstands scrutiny.

First, HCW’s claims against Tanyous were HCW assets as of the Merger Date

and may be considered as a “relevant factor” in the Court’s appraisal. Tanyous

acknowledged as much before trial.240 Even if the Court were to countenance

Tanyous’ post-trial change of position, the new position fails on the merits.

To ignore the value of these claims, all of which were available to HCW as of the

Merger, would be to ignore both HCW’s pre-Merger “operative reality” and all

relevant factors that inform the appraisal of HCW’s fair value. 241 It would also

deprive the Court of important evidence regarding the fairness of the Merger price

239
Banoubs’ Post-Trial Opening Br. at 41 (citing JX 61).
240
PTO at 2.
241
See M.G. Bancorporation, Inc. v. Le Beau, 737 A.2d 513, 525 (Del. 1999) (noting that,
in an appraisal proceeding, the “corporation must be valued as a going concern based upon
the ‘operative reality’ of the company as of the time of the merger”) (citation omitted).

64
(an issue squarely before the Court in the context of this squeeze-out merger, as

discussed below).242

Second, Tanyous points to no authority for the proposition that a petitioner’s

expert must testify as to the value of derivative claims in order for the court to

consider that value in its appraisal. If the record contains competent non-expert

evidence from which the Court can reliably value a derivative claim, no expert

testimony is required. Indeed, in this case, the Court has adjudicated the claims and

has set their value. No expert input (beyond Tanyous’ Damages Report) was (or is)

required to make those findings.

Turning to the merits, each of the claims involve self-dealing on their face;

thus, Tanyous bears the burden to prove entire fairness. Tanyous admits that the

withdrawals at issue were undocumented243 and, while some evidence suggested

Guirguis was principally operating HCW while Tanyous was abroad, Tanyous was

adamant in his testimony that she “has nothing to do with the daycare. She is solely

242
See El Paso Pipeline GP Co., L.L.C. v. Brinckerhoff, 152 A.3d 1248, 1250–51
(Del. 2016) (observing that a cashed-out equity holder has standing “to challenge the
fairness of the merger by alleging that the value of his [derivative] claims was not reflected
in the merger consideration”); Del. Open MRI, 898 A.2d at 311 (holding that the court
should engage in an entire fairness review of the squeeze-out merger when conducting a
post-merger statutory appraisal).
243
D.I. 416.

65
my wife . . . and has nothing to do with the business.”244 Tanyous similarly fails to

justify the $4,000 transferred from HCW to Tanyous’ solely-owned Little

Scholars.245 Because Tanyous has failed to demonstrate the entire fairness of the

self-dealing transactions, the claims for breach of fiduciary relating to those

transactions are both factually and legally sound. Their value, for appraisal

purposes, is $20,099.19.

2. The Duty of Care Claim

The Banoubs claim that Tanyous grossly mismanaged HCW. Gross

mismanagement, as alleged here, is a duty of care claim.246

The fiduciary duty of care mandates that directors of Delaware corporations

act in good faith and “consider all material information reasonably available in

making business decisions.”247 “[D]uty of care violations are actionable only if the

244
D.I. 386 (Tanyous Dep.) 80–81. See also Tr. 570–71 (Tanyous) (when confronted,
Tanyous was unable to explain his wife’s withdrawals from HCW accounts).
245
See Technicorp, 2000 WL 713750, at *15 (finding plaintiffs “made a prime facie
showing” that the defendants diverted almost $12 million from a plaintiff’s company while
that company was under the defendants’ exclusive control).
246
See In re Citigroup Inc., 964 A.2d at 114 n.6 (“Delaware law does not recognize an
independent cause of action against corporate directors and officers for reckless and gross
mismanagement; such claims are treated as claims for breach of fiduciary duty.”).

In re Walt Disney Co. Deriv. Litig., 907 A.2d 693, 747 (Del. Ch. 2005), aff’d, 906 A.2d
247

27 (Del. 2006) (quoting Brehm v. Eisner, 746 A.2d 244, 259 (Del. 2000)) (internal
quotations omitted).

66
directors acted with gross negligence.”248 Under our fiduciary law, gross negligence

means “reckless indifference to or a deliberate disregard of the whole body of

stockholders or actions which are without the bounds of reason.”249 As former-

Chancellor Allen explained:

[C]ompliance with a director's duty of care can never appropriately be
judicially determined by reference to the content of the board decision
that leads to a corporate loss, apart from consideration of the good faith
or rationality of the process employed. That is, whether a judge or jury
considering the matter after the fact, believes a decision substantively
wrong, or degrees of wrong extending through “stupid” to “egregious”
or “irrational”, provides no ground for director liability, so long as the
court determines that the process employed was either rational or
employed in a good faith effort to advance corporate interests.250

The Banoubs rely on two facts to support their claim that Tanyous’

mismanagement breached his fiduciary duty of care to HCW. First, HCW receipts

fell $108,119 (from $462,035 to $353,916) in 2009, and another $51,543

(from $353,916 to $302,373) in 2010.251 Second, HCW failed to comply with

248
Id. at 750.
249
Tomczak v. Morton Thiokol, Inc., 1990 WL 42607, at *12 (Del. Ch. Apr. 5, 1990)
(internal quotations omitted).
250
In re Caremark Int’l Inc. Deriv. Litig., 698 A.2d 959, 967 (Del. Ch. 1996) (emphasis in
original).
251
Tanyous’ Post-Trial Opening Br. at 35 n.122 (citing JX 147).

67
regulatory requirements, as revealed in “lack of supervision, incorrect child staff

ratio and safety issues.”252

The Banoubs’ duty of care claims fail because there is no evidence in this

record that the corporate setbacks the Banoubs have identified were products of

irrational processes or bad faith.253 By asking the Court to infer a breach of Tanyous’

duty of care from HCW’s poor business performance, the Banoubs urge the Court

to engage in precisely the sort of “substantive [judicial] second guessing” that our

law forbids.254 The claim fails for want of proof.

D. The Appraisal

The Banoubs seek an appraisal of the fair value of their common stock in

HCW. One month prior to the Merger Date, HCW’s equity was valued by an

independent appraiser (Ford) at $85,357, or $157.80 per share.255 Tanyous maintains

that price was fair, and Ford defended his valuation as an expert witness at trial.256

252
JX 70, 74–76, 79, 86, 88, 90, 99, 110, 111.
253
In re Caremark, 698 A.2d at 967.
254
Id. As an aside, I note that in 2007—the year before Tanyous took over—HCW
operated at a net loss of $74,808. JX 147, Ex. B.
255
JX 147.
256
Id. Ford holds a BS in accounting from the University of Delaware, an MS in taxation
from Widener University, and is a Certified Public Accountant. Tr. 56 (Ford). In addition
to being well-credentialed, he presented as a credible witness.

68
The Banoubs presented their own expert witness, Victor S. Pelillo,257 who opined

that the “fair market value” of HCW’s equity, as of December 31, 2008, was

$790,552, or $7,905.52 per share.258

I have conducted my appraisal analysis in four steps. First, I review the legal

framework by which I am bound to conduct the appraisal in the context of this

squeeze-out Merger. Second, I assess the value of HCW’s non-litigation assets. In

doing so, as I must, I evaluate the fairness of the Merger process and the Merger

price. Third, I incorporate the value of HCW’s litigation assets, as determined

above, into the fair value appraisal. Fourth, I adjust the Banoubs’ fair value appraisal

award to account for their liability on HCW’s derivative claims against them.

I address each step seriatim.

1. The Appraisal Standards Following a Squeeze-Out Merger

The resolution of the Banoubs’ statutory appraisal claim is complicated by

their additional equitable entire fairness claim, prompted by the squeeze-out Merger

initiated unilaterally by a controlling shareholder. While the analytical rubrics for

each issue (merger fairness and appraisal) differ, both ultimately call the same

257
JX 160. Pelillo holds a BA in Accounting from Pace University and is a Certified Public
Accountant. JX 162. While I have no doubt he was sincere in rendering his opinions, for
reasons explained below, his methodology here was not reliable in that it was not suited
for the task at hand.
258
Tr. 389, 401 (Pelillo).

69
question, namely, whether the Merger price was fair.259 Even so, when conducting

an appraisal following a squeeze-out merger alleged to be the product of an unfair

process, the Court must “address each claim on its own distinct terms.”260

The Delaware appraisal statute “provide[s] equitable relief for shareholders

dissenting from a merger on grounds of inadequacy of the offering price.”261

The statute directs the court to:

determine the fair value of the shares exclusive of any element of value
arising from the accomplishment or expectation of the merger or
consolidation, together with interest, if any, to be paid upon the amount
determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors.262

The statutory concept of “fair value . . . is not equivalent to the economic

concept of fair market value.”263 Rather, fair value is a jurisprudential construct

meant to capture “the value of the company as a going concern, rather than its value

259
See Kahn v. Lynch Commc’ns Sys., Inc., 638 A.2d 1110, 1117 (Del. 1994)
(“[T]he exclusive standard of judicial review in examining the propriety of an interested
cash-out merger transaction by a controlling or dominating shareholder is entire fairness”);
accord In re Sunbelt Beverage Corp. S’holder Litig., 2010 WL 26539, at *5 (Del. Ch.
Jan. 5, 2010); Del. Open MRI, 898 A.2d at 310.
260
Del. Open MRI, 898 A.2d at 310.
261
Cede & Co. v. Technicolor, Inc., 542 A.2d 1182, 1186 (Del. 1988) (“Cede I”).
262
8 Del. C. § 262(h).
263
Merion Capital L.P. v. Lender Processing Servs., Inc., 2016 WL 7324170, at *13
(Del. Ch. Dec. 16, 2016) (quotation and citation omitted).

70
to a third party as an acquisition.”264 A court tasked with determining fair value is

“not to find the actual real world economic value of [parties’] shares, but instead to

determine the value of the [parties’] shares on the assumption that they are entitled

to a pro rata interest in the value of the firm when considered as a going concern,

specifically recognizing its market position and future prospects.”265

While judges of this court have “significant discretion” to determine fair value

in the context of an appraisal action,266 the statutory direction to consider

“all relevant factors” is well-understood to mean the court should consider

“all generally accepted techniques of valuation used in the financial community” to

the extent those techniques have been proffered by the parties through competent

evidence.267 After giving due consideration to that evidence, “it is entirely proper

for the [court] to adopt any one expert’s model, methodology, and mathematical

calculations, in toto, if that valuation is supported by credible evidence and

withstands a critical judicial analysis on the record.”268

264
Del. Open MRI, 898 A.2d at 310; see also Glassman v. Unocal Expl. Corp., 777 A.2d
242, 246 (Del. 2001).
265
Finkelstein v. Liberty Digital, Inc., 2005 WL 1074364, at *12 (Del. Ch. Apr. 25, 2005)
(citations omitted).
266
Golden Telecom, Inc. v. Glob. GT LP, 11 A.3d 214, 218 (Del. 2010).
267
Cede I, 542 A.2d at 1186–87 (citing Weinberger, 457 A.2d at 712–13).
268
M.G. Bancorporation, 737 A.2d at 526.

71
 While a statutory appraisal typically places upon both parties “the burden of

establishing fair value by a preponderance of the evidence,”269 a squeeze-out merger,

such as occurred here, triggers a slightly different allocation of burdens. Because

the Merger is self-dealing on its face, Tanyous bears the burden to show that the

process leading to the Merger and the price it yielded were entirely fair to the

minority.270 As noted above, a showing of entire fairness involves procedural

fairness in the party’s dealing (e.g., the transaction’s timing, initiation, structure,

negotiation, disclosure and approval) as well as fair price (i.e., all elements of

value).271 While this court has observed that “the overriding consideration” in these

inquiries tends to be whether the transaction’s price was fair, the questions triggered

by entire fairness review must be examined holistically.272

2. The Merger Process

Tanyous effected the Merger of HCW into HCWA without a meeting by

delivering his own written consent, as was his right under Section 228 of the

269
In re Appraisal of Ancestry.com, Inc., 2015 WL 399726, at *16 (Del. Ch. Jan. 30, 2015)
(citing Huff Fund Inv. P’ship v. CKX, Inc., 2013 WL 5878807, at *9 (Del. Ch. Nov. 1,
2013)).
270
Del. Open MRI, 898 A.2d at 310–11.
271
Glassman, 777 A.2d at 246.
272
Del. Open MRI, 898 A.2d at 311.

72
DGCL.273 He did not attempt to “temper” or “eliminate” the “application of the

entire fairness standard” by employing a special committee of disinterested directors

to negotiate the Merger or subjecting the Merger to a majority-of-the-minority

stockholder vote.274 These undisputed facts, however, standing alone, are not

evidence of unfairness.275 A squeeze-out merger under circumstances like those

attending the Merger of this closely held corporation, effected with the assistance of

an independent appraiser to ensure that fair value is paid to the minority, typically

will satisfy both the process and price prongs of entire fairness.276

Tanyous retained an independent appraiser, Ford, to provide valuation input

in advance of the Merger. Thus, the critical question is whether Tanyous’ expert

provided a fair valuation.277 If the valuation was too low, as the Banoubs contend,

then Tanyous will have failed to meet his burden to prove that the Merger was

entirely fair.278

273
PTO at 6, ¶ 1.
274
Del. Open MRI, 898 A.2d at 311.
275
Id. at 312.
276
Id.
277
Id.
278
Id.

73
 3. The Merger Price Does Not Reflect HCW’s Fair Value

The Banoubs attack Ford’s appraisal at the time of the Merger in two respects.

First, they claim Ford’s valuation is flawed for the simple reason that it differs from

their own expert’s valuation. Second, they take issue with various decisions Ford

made in the course of conducting his valuation. I address both criticisms in turn.

a. The Experts’ Valuations

Even when conducting an appraisal through the lens of entire fairness review,

the Court must come to its own determination of fair value. To that end, in the course

of evaluating the parties’ competing expert valuations, “[t]he Court may . . . select

the most representative analysis, and then make appropriate adjustments to the

resulting valuation.”279 In situations involving small closely held companies, like

HCW, “the absence of both market information about the subject company and good

public comparables force the court to rely even more than is customary on the

testimonial experts. That reality is inescapable.”280

In preparing his pre-Merger valuation, Ford employed three separate

methodologies: (i) the Capitalization of Earnings (“CE”) method, (ii) the Net Asset

279
In re Appraisal of Dell Inc., 2016 WL 3186538, at *20 (Del. Ch. May 31, 2016), aff’d
in part, rev’d in part sub nom. Dell, Inc. v. Magnetar Glob. Event Driven Master Fund
Ltd., 177 A.3d 1 (Del. 2017).
280
Del. Open MRI, 898 A.2d at 331.

74
Value (“NAV”) method, and (iii) the Transactions method.281 The CE yielded an

indicated equity value of $50,794, and the NAV yielded an indicated equity value of

$119,920. The Transactions method, however, did not yield a useful result, as Ford

concluded there were too few comparable businesses from which to derive a reliable

estimate of HCW’s fair value.282 Accordingly, Ford based his conclusions

exclusively on the CE and NAV valuations, considering the Transactions method

only as a “sanity check” of the market multiples yielded by his other approaches.283

CE is an income-based valuation method that normalizes historical earnings

to estimate the future earnings capacity of a company, and then capitalizes it to

develop an enterprise value.284 Ford derived the future earnings by calculating

HCW’s debt-free net cash flow from nine years of tax returns (2003 to 2011).285

He then calculated the capitalization rate by subtracting HCW’s long-term growth

rate from the Company’s discount rate.286 Finally, he divided the debt-free net cash

281
JX 147 at 9.
282
Id. at 18.
283
Id.
284
Id. at 9. Ford explained that he chose the CE method over a Discounted Cash Flow
(“DCF”) method because DCFs rely on a company’s projected results over several years,
and HCW did not prepare cash flow projections. Tr. 98–113 (Ford).
285
JX 147 at 10.
286
Id. at 11.

75
flow figure by the computed capitalization rate to derive an enterprise value for

HCW of $461,210.287 After reducing this figure by HCW’s interest-bearing debt,

Ford arrived at an indicated equity value of $50,794.288

In addition to his CE analysis, Ford engaged in a cost-based NAV analysis

because, at the time of his valuation, HCW was not operating as a childcare

provider.289 An NAV approach restates the assets and liabilities appearing on a

company’s balance sheet to their fair market value, and then subtracts the fair market

value of a company’s liabilities from the fair market value of its assets to determine

the company’s net asset value.290

According to Ford, the “only significant asset” held by HCW as of

December 21, 2011, was a parcel of real estate with improvements.291 Real estate

appraisal expert Douglas L. Nickel was hired to value that asset.292 To do so, Nickel

employed two separate methodologies: the (i) Sales Comparison method and (ii) the

287
Id. at 13–14.
288
Id. at 14.
289
Id. at 9.
290
Id. at 7, 14.
291
Id. at 15.
292
Id.; see also JX 137. Nickel holds a B.A. in economics from University of Richmond.
Nickel is a licensed General Real Property Appraiser in the state of Delaware, a member
of the Appraisal Institute, and a fellow at the Royal Institute of Chartered Surveyors.
Tr. 13 (Nickel).

76
Income Capitalization method.293 The former approach compares the sales prices of

similar properties with the real estate to be valued; the latter approach analyzes the

income-generating potential of the property and the anticipated rate of return to

arrive at an estimated value for the property.294 Nickel reconciled the difference

between the sales approach and income capitalization approach by weighting them

equally, calculating the market value of the real estate to be $530,000.295

With Nickel’s valuation of HCW’s property assets in hand, Ford then

calculated the Company’s liabilities.296 He ultimately concluded that the total fair

value of HCW’s liabilities was $410,416.297 Subtracting the cost of HCW’s

liabilities from its assets’ value, Ford’s cost approach yielded an NAV of

$119,920.298

Ford reconciled his CE and NAV values by weighting them equally, yielding

a fair value for HCW’s equity of $85,357.299 Because Ford reclassified certain

293
JX 147 at 15.
294
JX 137 at 4.
295
Id. at 55.
296
See JX 147 at 15–17.
297
Id. at 16–17.
298
Id. at 17.
299
Id. at 19–20.

77
previously recorded shareholder loans to equity, the ultimate fair value of stock on

a post-capitalization per share basis was determined to be $157.80.

The Banoubs’ valuation expert, Pelillo, took a different tack. Pelillo

“determined [total fair market value] on a going concern basis stated as the gross

asset value of the Company’s Tangible and Intangible Assets.”300 For reasons

unclear, Pelillo conducted his valuation as of 2008, even though the Merger Date

was August 6, 2012.301 To calculate the value of HCW’s tangible and intangible

assets, Pelillo used an asset-based approach for the former and an income-based

approach for the latter, adding both values together to reach his final value.302

Like Ford, Pelillo’s asset valuation placed particular emphasis on pricing

HCW’s real estate. But, unlike Ford, Pelillo did not engage an expert real estate

appraiser.303 Instead, he relied on a 2009 appraisal of Happy Kids Academy

300
Id.
301
Of course, at the outset, it is clear Pelillo, who was engaged by the Banoubs when they
were pro se, solved for the wrong problems—fair market value (as opposed to fair value)
as of 2008 (as opposed to as of the Merger Date). See Cede & Co. v. Technicolor, Inc.,
684 A.2d 289, 296 (Del. 1996) (emphasizing that the appraisal statute requires the court to
appraise fair value “as of the date of the merger”); Merion Capital L.P., 2016 WL 7324170,
at *13 (noting that “fair value,” in the statutory appraisal context, “is not equivalent to the
economic concept of fair market value”). That Pelillo asked the wrong questions, as a
matter of law, provides basis alone to discount, if not disregard entirely, his valuation
opinions.
302
Tr. 378–79 (Pelillo).
303
Tr. 396–401 (Pelillo).

78
(not HCW), a June 2012 lease of the HCW property, and his own “drive by”

appraisal of a residence on the HCW property.304 He projected the value of the

property by applying a multiple to the lease, adding what he guessed to be the value

of the residential property, and discounting that sum back to 2008.305 After other

adjustments and subtracting the property’s liabilities from its fair market value,

Pelillo concluded that the fair market value of HCW’s assets was $335,140.306

Summing his calculated fair market value of HCW’s tangible and intangible assets,

Pelillo concluded that the fair market value of HCW’s assets were, as of

December 31, 2008, $790,552.

Not surprisingly, I conclude that Ford’s valuation analysis and trial testimony

is more credible and reliable, for two primary reasons. First, the two experts chose

different dates on which to appraise the Company. One (Ford) chose the right date;

the other (Pelillo) chose the wrong date.307

304
JX 160.
305
Id. at 6.
306
Id.
307
8 Del. C. § 262. The Banoubs argue Tanyous’ ongoing breach of fiduciary duty from
2008 through the Merger Date warrants backdating HCW’s valuation to December 2008
as an equitable remedy for the breach. Banoubs’ Opening Post-Trial Br. at 47, 59.
Of course, they cite no authority for this proposition. In any event, to the extent claims for
breach of fiduciary duty against Tanyous have been proven, the value of those claims as of
the Merger have been incorporated in my appraisal as litigation assets belonging to HCW.

79
 Second, Ford’s approach to valuing HCW’s principal asset, its real estate, was

credible. Pelillo’s approach was not. For his part, Ford recognized that his expertise

was not in real estate valuation so he retained Nickel—an expert real estate

appraiser—to perform the real estate valuation. Nickel went about his work using

accepted methods, including a detailed comparable sales and lease transactions

analysis.308 Pelillo, by contrast, conducted the real estate appraisal himself even

though he admittedly lacks that expertise.309 He relied on a 2009 appraisal of a

different daycare facility, a June 2012 lease of the HCW property, and his own “drive

by” appraisal of HCW’s on-premise owner’s residence.310 I have no confidence in

these assessments. The utility of an appraisal of a single, separate comparable

property is limited. The utility of a lease that may or may not cover an attached

residence is questionable. The utility of a tack-on guess at the value of a residential

property based on a “drive by” view of the property is nil.

After carefully considering the evidence, I find Pelillo’s valuation an

unsatisfactory rebuttal to Ford’s substantially more reliable work. As I work through

my own fair value analysis, then, I make reference (with occasional adjustments) to

308
I discuss the reliability of Nickel’s application of these accepted methods (and ultimate
conclusions) below.
309
Tr. 373–75 (Pelillo).
310
JX 137.

80
Ford’s valuation. In doing so, I pay special attention to those aspects of the Ford

opinion the Banoubs identify as flawed, namely: (1) in the NAV analysis, Nickel’s

real estate appraisal; and (2) in the Capitalization of Earnings analysis, Ford’s (i) cost

of debt, (ii) cost of equity, and (iii) the relative weighting of the different analyses.

b. The Asset-Based Fair Value of HCW

On a high level, the NAV model adjusts the appraised fair market value of a

company’s assets and subtracts the fair market value of its liabilities. Neither party

disputes that Ford’s calculation of total liabilities is reasonable and credible. Rather,

the Banoubs take issue with Ford’s calculation of the value of HCW’s assets.

Specifically, the Banoubs maintain that Nickel, Ford’s real estate appraiser,

made overly conservative assumptions when conducting his valuation. Nickel used

two approaches—the sales comparison approach and the income capitalization

approach. For the sales comparison approach, he selected five comparable daycare

centers sold between 2008 and 2011.311 After making adjustments up and down

based on various factors, Nickel calculated an adjusted per square foot (psf) sale

price for each of the five centers.312 He then honed in on two transactions—a 2009

daycare sale in Frazer, Pennsylvania at $104.92 psf and a 2011 daycare sale in

311
JX 137 at 37.
312
Id. at 41.

81
Middletown, Delaware at $145.31 psf—as an upper and lower bound for HCW’s

price psf.313 He ultimately determined that HCW’s indicated property value was just

above the lower bound at $105 psf. After other adjustments, Nickel derived HCW’s

real estate value under the sales comparison approach at $500,000.

While light on specifics, and even lighter on expert analysis (Pelillo did not

undertake any review of Ford or Nickel’s work), it appears the Banoubs’ primary

objection to Nickel’s valuation is that he chose a value just pennies above the lower

bound he set without “showing his work.” I am not persuaded.

I note at the outset that I found Nickel’s trial testimony, where he explained

his real estate valuation, both reasonable and credible. Nickel characterized his

comparables approach as “an interpretation of the data which is an interpretation of

market participant actions.”314 While these evaluations are not performed with

mathematical precision, this alone does not render them unreliable.315 Nickel did

what real estate appraisers do—he employed his expertise to select the most

appropriate comparables, explained his rationale and then completed his valuation.

313
Id. at 39–42.
314
Tr. 33 (Nickel).
315
Indeed, our Supreme Court has cautioned against “the visual appeal of a mathematical
formulation to create an impression of precision.” DFC Glob. Corp. v. Muirfield
Value P’rs, L.P., 172 A.3d 346, 388 (Del. 2017).

82
 The Banoubs ask the Court to consider the upper-bound or average of the

range, but provide no justification for doing so. Thus, any effort to “split the baby”

by choosing the mathematical midpoint of the upper- and lower-bound would be

completely arbitrary. A mathematical average is especially inapt in circumstances

with so few comparable sales to begin with, because fewer comparables means a

higher expected standard deviation of value among comparables. I see no

compelling reason to substitute a mathematical average or my own guess for

Nickel’s expertise, and the Banoubs have offered none.

Next, the Banoubs take aim at Nickel’s income capitalization approach. For

this approach, Nickel found leases for comparable daycares, adjusted their price up

or down based on various factors, determined a likely range based on two of the

samples and, from that, derived an indicated rental psf figure to apply to HCW’s

4882 square feet.316 In Nickel’s report, he estimated the annual rental value of

HCW’s facility to be $61,025 and the annual rental value of the single-family

residence on HCW’s property to be $14,280, for a collective potential annual gross

rental value of $75,305.317 After adjusting for expenses, he derived a net operating

income of $60,407. In two final steps, Nickel applied a capitalization rate of 9.50%

316
JX 137 at 43–48; Tr. 38–43 (Nickel).
317
JX 137 at 54.

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to the net operating income and subtracted estimated lease-up costs and

entrepreneurial incentive costs (totaling $73,938) to compute a final capitalized

value of $560,000.318

The Banoubs contend that a better indication of the fair value of HCW’s real

estate existed at the time of Nickel’s report: an actual, signed lease for HCW’s

property.319 In fact, unbeknownst to Nickel, Tanyous was negotiating a lease with a

tenant while Nickel prepared his real estate valuation.320 Nickel offered his opinion

on May 17, 2012.321 Tanyous closed the lease only two weeks later, on June 1, 2012

(the “HCW lease”).322 The Merger Date, of course, was just over two months after

the HCW lease was signed.

The HCW lease term was for one year.323 The rent was waived for the lessee’s

first two months—June and July—and the rents for August and September were at

a reduced rate of $5,000 per month.324 The rent for the final eight months was

318
Id.
319
JX 146.
320
JX 146 (Lease between HCW and Happy Place Day Care, dated June 1, 2012); Tr. 43–
45 (Nickel).
321
JX 137.
322
JX 146.
323
Id.
324
JX 147 at 15.

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$6,000 per month.325 Thus, the annual rent was $58,000, while the effective annual

rental rate (i.e., the scaled up $6,000 rental rate over one year) was $72,000.326

The broker’s commission was $3,480.327

The Banoubs argue that I should substitute the relevant values substantiated

by the HCW lease into Nickel’s model. More specifically, they say I should

substitute Nickel’s estimated facility rental value of $61,025 for the lease’s effective

rental rate of $72,000, and reduce the entrepreneurial and lease-up costs from

$73,938 to $17,480—the sum of the broker’s commission and the reduced rent

provided in the first two months of the lease.

I agree, in principle, that the relevant values substantiated by the HCW lease

are more reliable inputs and should be substituted for Nickel’s hypothetical values.

Delaware law is clear that “elements of future value, including the nature of the

enterprise, which are known or susceptible of proof as of the date of the merger and

not the product of speculation, may be considered” in an appraisal proceeding.328

Nickel’s valuation estimates the actions of market participants, while the HCW lease

substantiates them. The HCW lease, therefore, is a better indicator of the value of

325
Id.
326
Id. at 1.
327
Id.
328
Weinberger, 457 A.2d at 713; see also Technicolor, 684 A.2d at 300.

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HCW’s real estate, and its relevant values will be substituted into the model where

appropriate.

Before revising the Nickel model, I must confront three related issues. First,

it remains unclear whether the HCW lease includes the residence located on the

HCW property. The answer to that question has obvious implications. On the one

hand, if the $72,000 HCW lease includes the residential property, then Nickel’s

estimation of the potential gross rental rate ($75,305) is too high. On the other hand,

if the HCW lease does not include the residential property, then Nickel’s estimation

of the daycare property ($61,025) is too low.

It is appropriate here to remember the burden of proof. When conducting an

appraisal under entire fairness review, I must “endeavor[] to resolve doubts, at the

margins, in favor of the [minority shareholders].”329 With this in mind, I proceed

under the assumption that the lease does not include the value of the residence on

the property.330

Second, the HCW lease was to expire in one year, whereas Nickel’s model

was built assuming the typical lease in the daycare industry runs for five years.331

329
Del. Open MRI, 898 A.2d at 313.
330
I note that Tanyous could have clarified whether the lease he negotiated included the
residential property; he failed to do so.
331
JX 137; Tr. at 45 (Nickel).

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This raises the question of whether the effective rental rate of $72,000 is affected by

the HCW lease’s one-year term. Nickel answered the question at trial; one would

not expect a tenant to pay more or less for a one-year lease.332

Third, I must decide how to account for the $17,480 broker’s fee and reduced

rent. The Banoubs assert these fees should be substituted for the entrepreneurial

incentives and lease-up costs, while Tanyous contends the fees should be subtracted

from the $72,000 rental rate. After carefully considering the evidence, I am satisfied

that the broker’s fee and reduced rent fall in the category of lease-up costs, i.e., those

costs “associated with locating a day care operator to either lease or purchase the

property.”333 I also eliminate all costs associated with “entrepreneurial incentives.”

Nickel described entrepreneurial incentives as “a measure of reward associated with

locating a daycare operator to either lease or purchase the property.”334 The

existence of the HCW lease implies that a daycare operator had already been located

at the time of the transaction, rendering this deduction inapt.

332
See Tr. at 45 (Nickel) (“Q. Would one expect a tenant to pay less the shorter the term
for a one-year lease? A. No. I wouldn’t expect it. No.”).
333
JX 137 at 54.
334
Id.

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 After carefully considering the evidence, I derive an income capitalization

value of $763,091.335 After averaging that value with the sales comparables estimate

of $500,000, as Nickel did, I derive a total real estate value of $631,450.50. After

making the uncontested adjustments for HCW’s liabilities as of the Merger Date,

I conclude HCW’s NAV equals $221,129.50.336

c. The Earnings-Based Indicated Equity Value of HCW Is $50,794

Neither party disagrees with the utility of Ford’s Capitalization of Earnings

(“CE”) Method.337 The Banoubs, however, take issue (without expert support) with

two critical inputs in Ford’s model: the cost of debt and the cost of equity. I find

Ford’s computation on both fronts reasonable and credible.

To calculate the cost of debt, Ford used an 11.25% rate, which was the sum

of the mortgage rate (6.25%) and the penalty rate imposed by HCW’s mortgage

335
More specifically, I substitute into Nickel’s Direct Capitalization model $72,000 in base
annual rental rate for the daycare’s base rent. I add his undisputed estimate for the owner-
occupied single-family residence ($14,280) to derive a potential gross rent of
$86,280. After subtracting an estimated 5% for vacancy and collection loss, and his
undisputed expenses incurred in the ordinary course of running a facility, I reach a net
operating income figure of $70,833. After capitalizing that figure by Nickel’s 9.5%
capitalization rate, and adjusting for the substituted $17,480 in lease up costs (and $0 for
the entrepreneurial incentive), I derive a stabilized value indication of $763,090.53 for the
property, which I then round to $763,091.
336
See JX 14, Ex. D.
337
See Banoubs’ Post-Trial Opening Br. at 58 (stating “there is no opposition to utilization
of [Ford’s Capitalization of Earnings] approach”).

88
lender (5%).338 The Banoubs counter that the penalty rate should be subtracted from

the mortgage rate because Tanyous was responsible for the mortgage landing in

default.

The Banoubs’ argument is unconvincing. HCW’s financial records show that

it was highly leveraged, operating at an average net loss of $57,500 from 2009 to

2011.339 A mortgage penalty is understandable for a company with a large mortgage

obligation and limited operating income. Thus, the mortgage penalty rate is properly

accounted for in the calculation of HCW’s cost of debt as a feature of HCW’s

operative reality.

For the cost of equity, Ford used a generally accepted build up method, relying

on the Ibbotson SBBI 2011 Valuation Yearbook, which documents publicly

available data for stocks, bonds, bills and inflation from 1926-2011.340 When

employing the build-up method, the appraiser must compute the company’s

“Size Premium.”341 The Banoubs object to Ford’s reliance on this dataset for the

calculation of a size premium because the lowest decile of companies available in

338
JX 147, Ex. C; JX 128 (Default Letter from Citizens Bank, dated Mar. 9, 2012).
339
JX 147, Ex. B.
340
JX 147 at 12.
341
Id.

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Ibbotson had a market capitalization between $1.028 million and $86.757 million.342

HCW is nowhere near that size, they observe, making any comparison to the

Ibbotson companies inappropriate.

I am satisfied, however, that Ford’s approach to deriving the cost of equity is

reliable under the circumstances. As then-Vice Chancellor Strine noted while

conducting a similar appraisal under entire fairness review, the application of

income-based valuation models such as the CE in valuing a small, privately owned

entity “has its challenges, principally in the area of calculating a proper cost of

capital. In this situation, the absence of both market information about the subject

company and good public comparables force the court to rely even more than is

customary on the testimonial experts. That reality is inescapable.”343 The Banoubs

offer no alternative data set and point, instead, to their own expert report, which I

have already held to be unreliable and not credible for too many reasons to count.

The fact is that finding comparables for HCW is difficult. Ibbotson is the best data

on record, and I am satisfied it is appropriate to rely on that data, in this circumstance,

to derive a cost of equity.

342
Id. at 13.
343
Del. Open MRI, 898 A.2d at 331.

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 After carefully considering Ford’s CE valuation, and the Banoubs’ criticisms

of that analysis, I am satisfied that Ford’s approach is both credible and reliable.

Thus, I conclude the value of HCW, per the Capitalized Earnings method, is

$50,794.

d. HCW’s Fair Value Without Litigation Assets

In his final step, Ford chose to weight equally the different values derived

from the NAV and CE methods in calculating his final fair value of HCW on the

Merger Date.344 The Banoubs challenge this weighting on two grounds. First, they

argue it makes little sense to trust Ford’s CE method when he describes the NAV as

a “floor” in his report.345 In other words, if the NAV valuation is, in Ford’s own

words, a “‘floor’ or the lower range of a fair value determination of the Company,”

and the CE valuation is less than the NAV valuation, then the CE valuation should

be disregarded entirely. Second, they argue that the NAV value and the CE value

should be added, just as Pelillo added values derived from the methods he employed.

Once again, I am not persuaded. The CE method gives primary consideration

to cash flow, and so is typically used to value operating entities; the NAV approach

gives primary consideration to the value of underlying assets, and so is most apt for

344
JX 147 at 9.
345
Id. at 14.

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investment or holding companies.346 An operating daycare business is a cash-flow

business that would typically merit an income-based valuation approach.

An operating company presumably incurs higher operating expenses than a non-

operating company. In HCW’s case, these expenses led to an average net income

loss of $76,941.20 from 2007 through the Merger Date.347 If HCW were to continue

as a daycare post-merger, there is no basis in the evidence to conclude that its

performance or value would have improved.

Upon the execution of the Merger, however, HCW was no longer operating

as a daycare center. Regulators were threatening to revoke HCW’s license to

operate, and Tanyous recently discovered that he could lease the building without a

daycare license.348 He opted to lease out the real estate for one year and then decide

whether to restart operations.349 A pure leasing business model is more appropriately

valued under an NAV approach. If the one-year HCW lease was not renewed,

however, there is no evidence another lessor was waiting in the wings, nor is there a

346
JX 147.
347
JX 147, Ex. B.
348
JX 133.
349
Tr. 578 (Tanyous).

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basis to predict, as of the Merger, whether HCW would have resumed its daycare

operations.350

Because the Company’s future business model was uncertain as of the Merger

Date, it makes sense to average the CE value and the NAV value, as Ford elected to

do to reach his final fair value appraisal.351 Here again, I find that Ford’s explanation

for his allocation approach was credible, and I have no basis in the evidence to

allocate differently. Having determined HCW’s asset-based value is $221,129.50,

its income-based value is $50,794, and the two models should be weighted equally,

I conclude that the fair value of HCW’s equity interest as of the Merger Date was

$135,961.75.

One final issue remains before turning to the value of the derivative claims.

In Ford’s Report, he reclassifies certain stockholder loans to equity in determining

each party’s indicated equity value on the Merger Date. This diluted the Banoubs’

share of HCW from 45% to less than 10%. The Banoubs, understandably, object.

A company generally metabolizes investors’ capital in one of two ways:

equity or debt. These two types of infusions are differentiated in demonstrable ways,

such as a note indicating the interest at which a debt is meant to be paid. According

350
Tr. 551 (Tanyous) (testifying that he had the option to reopen the daycare after the State
revoked its license if he brought it up to code).
351
Tr. 111 (Ford); JX 147.

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to Ford, stockholder loans were originally characterized as such in HCW’s 2011 tax

return.352 If Tanyous argues these loans should be reclassified, then the burden is on

him to explain why. Ford offers nothing to support the reclassification beyond his

summary statement (in his report, not explained at trial) that “it was my

determination that these loans acted more like capital infusions into the Company.”

That says nothing of the bases for the reclassification. Without more, I reject Ford’s

reclassification. HCW has 100 shares, and the Banoubs own 45 of those shares.

e. HCW’s Fair Value With Litigation Assets

Having determined the fair value of HCW without its litigation assets, I turn

next to the questions of whether and how to incorporate HCW’s pre-merger litigation

assets in the appraisal. The answer to the first question is clearly yes, for reasons

already stated; the pre-merger litigation assets, in this case HCW’s claims against

the Banoubs and Tanyous, should and will be incorporated in the appraisal.353

352
JX 147 at 16.
353
See Cavalier Oil Corp., 564 A.2d at 1142; Nagy, 770 A.2d at 55–56; Porter, 1989
WL 120358, at *5. I acknowledge that, at first glance, there may be some incongruity in
this outcome. Giving value to company claims of wrongdoing against owners in an
appraisal, and then “round tripping” that value back to the owner via an appraisal award,
in some instances, may offend notions of equity. But here, both owners have been found
to have misappropriated funds prior to the Merger. The approach I have taken values each
owner’s share in the Company as if they have had returned those funds to the Company in
advance of the Merger and thereby enhanced the firm’s value for the benefit of all
concerned. My sense of equity is not offended by this outcome, under the circumstances,
and I am further convinced that the approach taken provides the most efficient means to
94
The answer to the second question—how to incorporate the litigation assets—

requires further discussion. When valuing contingent (unfiled) corporate (or

derivative) claims for appraisal, the court often will consider litigation risk and

expenses associated with the claims, and may discount the value of the claims to

account for that risk.354 There is no need to apply such discounts here. The parties

have litigated HCW’s pre-Merger claims in this consolidated case, and I have

decided them. The value of those claims, now determined, is the equivalent of cash

in the corporate coffers. I treat the litigation assets in that manner for purposes of

appraisal.

As explained, HCW’s combined litigation assets (HCW’s proven claims

against the Banoubs and Tanyous) have a fair value of $82,298.40, and HCW’s non-

litigation equity has a fair value of $135,961.75. Thus, I appraise the fair value of

HCW as of the Merger at $218,260.15.

resolve all claims in recognition of the rather unique and convoluted posture in which they
have been presented.
354
See, e.g., Cavalier Oil Corp., 564 A.2d at 1141–44 (observing it is appropriate to value
accrued, but unlitigated derivative claims, with consideration of litigation risks and costs
as discounts to value); In re Countrywide Corp. S’holders Litig., 2009 WL 846019, at *8
(Del. Ch. Mar. 31, 2009) (same); Oliver, 2006 WL 1064169, at *20 (same); Bomarko, Inc.
v. Integra Bank, 794 A.2d 1161, 1189 (Del. Ch. 1999), aff’d, 766 A.2d 437 (Del. 2000)
(same); Onti, Inc. v. Integra Bank, 751 A.2d 904, 931–32 (Del. Ch. 1999) (same).

95
 f. The Banoubs’ Adjusted Appraisal Award

To derive the Banoubs’ proper appraisal award, I must account for both their

share in HCW’s fair value at the time of the Merger (including its litigation assets),

as well as their liability to HCW for their breaches of fiduciary duty. In other words,

I subtract the Banoubs’ liabilities to the Company from their pro rata interest in

HCW’s fair value, including its litigation assets. This method effectively adjusts the

Banoubs’ equity-based appraisal award in proportion to their personal liabilities to

the Company.

The math is simple. The Banoubs’ 45% share of HCW’s fair value of

$218,260.15 at the Merger is $98,217.07. Their liability to HCW for breaches of

fiduciary duty as of the Merger is $62,199.11. Their adjusted appraisal award

($98,217.07 – $62,199.11) is $36,017.96.

III. CONCLUSION

The Court has found that the HCW fiduciaries, the Banoubs and Tanyous,

all breached their fiduciary duties to HCW. The Court has valued HCW’s claims in

that regard and has incorporated that value into an appraisal of HCW. The appraisal

petitioner is entitled to his share of HCW’s fair value at the Merger, adjusted for his

liability to HCW. That equates to $36,017.96 in total, or $800.40 per share. The

legal rate of interest, compounded quarterly, shall accrue on this amount from the

96
date of the Merger until the date of payment. The parties shall confer and submit a

final judgment and order to the Court within the next fourteen (14) days.

97