Title: American Rail Partners LLC v. International Rail Partners LLC, et al.

State: delaware

Issuer: Delaware Supreme Court

Document:

IN THE SUPREME COURT OF THE STATE OF DELAWARE 
 
AMERICAN RAIL PARTNERS, 
LLC,  
 
Defendant Below, 
Appellant, 
 
v. 
 
INTERNATIONAL RAIL 
PARTNERS LLC, BOCA EQUITY 
PARTNERS, LLC, PATRIOT 
EQUITY, LLC, and GARY O. 
MARINO, 
 
Plaintiffs Below, 
Appellees. 
§ 
§ 
§ 
§   
§ 
§       No. 436, 2020 
§ 
§       Court Below–Court of Chancery 
§       of the State of Delaware 
§ 
§       C.A. No. 2020-0177-PAF 
§ 
§ 
§ 
§ 
§ 
 
 
 
 
 
 
Submitted: December 29, 2020 
 
 
 
 
   Decided: January 21, 2021 
 
Before SEITZ, Chief Justice; TRAYNOR and MONTGOMERY-REEVES, 
Justices. 
 
ORDER 
 
 
After careful consideration of the notice of interlocutory appeal, the 
supplemental notice of appeal, and their exhibits, it appears to the Court that: 
 
(1) 
The defendant below/appellant, American Rail Partners, LLC 
(“American Rail”), is a Delaware limited liability company governed by a June 28, 
2019 Amended and Restated Limited Liability Company Agreement (“the LLC 
Agreement”).  Under the LLC Agreement, International Rail Partners LLC (“IRP”) 
served as American Rail’s manager pursuant to the terms of an August 2, 2018 
2 
 
Management Agreement until the Management Agreement was terminated on July 
19, 2019.  On February 28 2020, American Rail filed suit against IRP, Boca Equity 
Partners, LLC (“BEP”), Patriot Equity, LLC (“Patriot”), and Gary O. Marino 
(collectively, “the Appellees”) in the Superior Court (“the Superior Court Action”).  
American Rail alleged, among other things, that IRP and Marino, IRP’s CEO, 
engaged in mismanagement in order to enrich Marino and his entity-affiliates1 at the 
expense of American Rail. 
(2) 
On March 9, 2020, the Appellees filed a verified complaint in the Court 
of Chancery for advancement of their legal fees and expenses incurred in defending 
the Superior Court Action under Section 18-108 of the Limited Liability Company 
Act2 and the LLC Agreement’s advancement provision.  Both American Rail and 
the Appellees subsequently moved for judgment on the pleadings. 
(3) 
On November 24, 2020, the Court of Chancery issued a written decision 
granting the Appellees’ motion for judgment on the pleadings and denying American 
Rail’s motion for judgment on the pleadings (the “Opinion”).3  In the Opinion, the 
Court of Chancery found that the Appellees are entitled to advancement of fees under 
the LLC Agreement.  In doing so, the Court of Chancery rejected American Rail’s 
 
1 Marino also controls BEP, which owns 100% of IRP, and Patriot. 
2 6 Del. C. § 18-108. 
3 Int’l Rail Partners LLC v. Am. Rail Partners, LLC, 2020 WL 6882105 (Del. Ch. Nov. 
24, 2020). 
3 
 
argument that the advancement provision did not provide indemnification for claims 
between American Rail and any “covered person” as defined by the LLC Agreement 
(so-called “first-party claims”), distinguishing the Superior Court’s holding in 
TranSched Systems Ltd. v. Versyss Transit Solutions, LLC4 and its progeny. 
 
(4) 
On December 4, 2020, American Rail asked the Court of Chancery to 
certify an interlocutory appeal from the Opinion under Supreme Court Rule 42.  
American Rail maintained that the Opinion decided a substantial issue of material 
importance5—that is, the Opinion held that the Appellees are entitled to 
advancement.  American Rail also argued that the following Rule 42(b)(iii) factors 
weighed in favor of granting interlocutory review:  the Opinion involves a question 
of law resolved for the first time in Delaware;6 the question of law addressed relates 
to the construction of a statute that has not been, but should be, settled by the Court 
in the advance of an appeal from a final order;7 interlocutory review may terminate 
the litigation;8 and considerations of justice warrant interlocutory review.9 The 
 
4 2012 WL 1415466 (Del. Super. Ct. Mar. 29, 2012) (holding that, where one party 
breached the terms of the parties’ asset purchase agreement, the agreement’s 
indemnification provision could not be used to enlarge the exception to the general rule 
that litigants must pay their own attorneys’ fees). 
5 Del. Supr. Ct. R. 42(b)(i). 
6 Del. Supr. Ct. R. 42(b)(iii)(A). 
7 Del. Supr. Ct. R. 42(b)(iii)(C). 
8 Del. Supr. Ct. R. 42(b)(iii)(G). 
9 Del. Supr. Ct. R. 42(b)(iii)(H). 
4 
 
Appellees filed an untimely opposition to the application, which the Court of 
Chancery did not consider. 
(5) 
On December 23, 2020, the Court of Chancery denied American Rail’s 
application.  The Court of Chancery agreed with American Rail that the Opinion 
decided a substantial issue that relates to the merits of the case.  And the Court of 
Chancery acknowledged that the Opinion involves a question of law resolved for the 
first time—namely, whether there is a distinction between first-party and third-party 
claims in the context of advancement and indemnification provisions contained in 
alternative entity agreements—and that review of the Opinion could terminate the 
litigation.  Although the court also agreed that the question of law presented relates 
to the construction and application of 6 Del. C. § 18-108, it disagreed with American 
Rail’s contention that the question merits review before the entry of a final order.  In 
reaching this conclusion, the Court of Chancery noted that, in the absence of a stay 
pending appeal, the parties would nonetheless be obligated to submit and review 
invoices under the court’s Fritacks Order as the Superior Court Action progresses.  
Moreover, the Court of Chancery found that there were arguments both for and 
against American Rail’s assertion that interlocutory review would serve 
considerations of justice.  Mindful of Rule 42’s directive that a trial court should 
refuse to certify an interlocutory appeal if it finds the balance of the Rule 42 factors 
5 
 
to be uncertain,10 the Court of Chancery denied American Rail’s application.  We 
agree with the Court of Chancery’s conclusion. 
 (6) 
Applications for interlocutory review are addressed to the sound 
discretion of the Court.11  In the exercise of its discretion and giving great weight to 
the Court of Chancery’s analysis, this Court has concluded that the application for 
interlocutory review does not meet the strict standards for certification under Rule 
42(b).  Exceptional circumstances that would merit interlocutory review of the Court 
of Chancery’s decision do not exist in this case,12 and the potential benefits of 
interlocutory review do not outweigh the inefficiency, disruption, and probable costs 
caused by an interlocutory appeal.13 
NOW, THEREFORE, IT IS ORDERED that the interlocutory appeal is 
REFUSED.   
 
 
 
 
 
 
BY THE COURT: 
 
 
 
 
 
 
 
 
/s/ Tamika R. Montgomery-Reeves  
 
 
 
 
 
 
 
 
Justice 
 
10 Del. Supr. Ct. R. 42(b)(iii). 
11 Del. Supr. Ct. R. 42(d)(v). 
12 Del. Supr. Ct. R. 42(b)(ii). 
13 Del. Supr. Ct. R. 42(b)(iii).