### IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

MEMORANDUM OPI N ION
Date Submitted: October 18, 2023 Date Decided: January 2 5 , 2024 Richard P. Rollo, Travis S. Hunter, John M. O’Toole & Morgan R. Harrison, RICHARDS, LAYTON & FINGER, P.A., Wilmington, Delaware; Counsel for Plaint iff Whitestone REIT Operating Partnership, L.P. Christopher P. Simon & David G. Holmes, CROSS & SIMON, LLC, Wilmington, Delaware; Thomas R. Ajamie & Eric P. Chenoweth , AJAMIE LLP, New York, New York; Mike O’Brien, MIKE O’BRIEN P

. C

. , Houston, Texas; Counsel for Defendant Pillarstone Capital REIT

WILL, Vice Chancello r WHITESTONE REIT OPERATING PARTNERSHIP, L.P., a Delaware limited partnership, Plaintiff,
v. PILLARSTONE CAPITAL REIT, a Maryland real estate investment trust,

Defendant. C.A. No. 2022

- 0607

- LWW

### 1

This case concerns the adoption of a “poison pill” to frustrate a redemption right in the alternative entity context. In December 2016, Whitestone REIT Operating Partnership, L.P. and Pillarstone Capital REIT negotiated an agreement through which Whitestone
contributed real estate assets to a limited partnership . Whitestone received 80% of
the p artnership u nits , which it had the right to unilaterally redeem under the terms of the limited partnership agreement. If Whitestone were to exercise its redemption right, Pillarstone (as general partner) has the discretion to assume and satisfy the redemp tion through cash or Pillarstone equity

. In late 2021, Pillarstone learned that Whitestone might redeem its investment. In response, Pillarstone adopted a n unusual shareholder rights plan to deter a redemption and protect itself

. The rights plan had t he desired outcome : Whitestone feared negative economic consequences if it served a notice of redemption. Instead of redeeming, it pursued litigation. After trial, I conclude that Pillarstone’s adoption of the rights plan breache d the implied covenant of good faith and fair dealing. The limited partnership agreement provides Whitestone with an express right to exit its investment by tendering a notice of redemption

. An obvious corollary of that provision is that
Pillarstone will not thwart Whitestone’s exercise of th e right. Pillarstone ’s actions deprive Whitestone of the fruits of its bargain.

### 2

Judgment is entered in Whitestone’s favor on this claim

. The rights plan is unenforceable as to Whitestone. Whitestone may proceed to serve a notice of redemption for some or all of its units without fear of damaging repercussions.
I. FACTUAL BACKGROUND Unless otherwise noted, the following facts were stipulated to by the parties or proven by a preponderance of the evidence at tria l. 1 

### Trial was held over two days during which four fact witnesses and one expert witness testified live. 2 

### The trial record includes 131 exhibits and 9 deposition transcripts. 3


### A. The Property Contribution In 2016, plaintiff Whitestone REIT Operating Pa rtnership, L.P. (“Whitestone”) and defendant Pillarstone Capital REIT (“Pillarstone”) negotiated a
transfer of certain Whitestone properties to Pillarstone Capital REIT Operating Partnership L.P. (the “Partnership”). 4 

### Whitestone is a Delaware limited partnership through which its general partner

— non
- party Whitestone REIT

— conducts real

1 Pre

- t rial Stipulation and Order (Dkt. 173) (“PTO”).
2 Dkts. 186

- 88.
3 See Dkt. 186. Facts drawn from trial exhibits jointly submitted by the parties are referred to according to the numbers provided on the parties’ joint exhibit list and cited as “JX__ ” unless otherwise defined. Trial t estimony is cited as “[Name] Tr.” Deposition transcripts are cited as “[Name] Dep.” To the extent that conflicting evidence was presented, I have weighed it and made findings of fact accordingly.
4 See JX 5 (“Contribution Agreement”); PTO ¶ II.7; Dee Tr. 104

- 05.

### 3

estate operations and activities. 5 

### Pillarstone is a Maryland REIT and the general partner of the Partnership. 6 

### The Partnership, a D elaware limited partnership, was formed in September 2016 to facilitate Whitestone’s contribution and act as a holding company. 7 

### Its only partners are Pillarstone and Whitestone. 8 

### On December 8, 2016, Whitestone, Pillarstone, and the Partnership enter ed into a Contribution Agreement. 9 

### Whitestone contributed to the Partnership 14 commercial properties in Texas with a fair market value of approximately $84
million. 10 

### The Partnership assumed debt related to those properties of approximately $65 million

. 11 

### Whitestone received 13,591,764 Class A Partnership units (“Units”) for the $18 million difference. 12 

### The Contribution Agreement provided that “during any period in which [Pillarstone] is not taxed as a real estate investment trust . . . [it]
shall no t issue [common shares] to [Whitestone] upon redemption of . . . Units in an amount that would cause [Whitestone] to own in excess of 10% of the outstanding ”

5 PTO ¶ II.1.
6 Id. ¶ II.2.
7 Id. ¶ II.4.
8 JX 4 (“LPA”) at Ex. A; Chookaszian Tr. 220.
9 PTO ¶ II.7; see generally Contribution Agreement.
10 Contribution Agreement § 2.2(a ) ; s ee also id. at Schedu le 2.1; PTO ¶ II.4.
11 Dee Tr. 104

- 05. This assumed debt included Whitestone’s existing mortgage debt plus additional indebtedness to Whitestone. See Contribution Agreement at Schedule 2.2; id. § § 2.2(b)(i)

- (ii) , 10.1.
12 Contribution Agreement § 10.1.

### 4

Pillarstone common shares. 13 

### Pillarstone has never qualified n or elected to be taxed
as a REIT fo r U.S. federal tax purposes. 14 

### In connection with Whitestone’s contribution of properties to the Partnership, Whitestone and Pillarstone entered into an Amended and Restated Agreement of Limited Partnership of the Pillarstone Capital REIT Operating Partnership L

. P

. (the “LP Agreement ”). 15 

### The LP Agreement governs the relationship between Whitestone and Pillarstone. Exhibit A to the LP Agreement reflects that Whitestone owns 81.4% of the outstanding interests in the Partnership, with Pillarstone holding the remaining 18.6%. 16 

### A s G eneral P artner, Pillarstone has exclusive control over the Partnership’s operations. 17 

### Section 8.6 of the LP Agreement grants Whitestone a right to unilaterally exit its investment by causing the Partnership to redeem its Units, subject to a minimum
thr eshold of 1,000 Units

. 18 

### If Whitestone exercises its redemption right by delivering a Notice of Redemption to the Partnership ( with a copy to Pillarstone) , Pillarstone is entitled “in its sole and absolute discretion” to assume the redemption

13 Id. § 5.3. A similar 10% limitation is found in an OP Unit Purchase Agreement. Verified Compl. (Dkt. 1 ) (“Compl.”) Ex. E. § 4(h).
14 PTO ¶ II.10.
15 PTO ¶ II.8 ; s ee generally LPA.
16 LPA at Ex. A; see PTO ¶¶ II.1

- 2.
17 LPA § 7.1( A ).
18 Id. § 8.6( A )

- (B) ; see also Chookaszian Tr. 220, 310

- 11; Jassem Tr. 40.

### 5

from the Partnership. 19 

### If Pillarstone assumes the redemption, Pillarstone as General
Partner can decide whether the redemption will be satisfied th rough cash (a “Cash Amount”) or by issuing Pillarstone common shares to Whitestone (a “Shares Amount”). 20 

### The LP Agreement defines Cash Amount as the “amount of cash equal to the
Value on the Valuation Date of the Shares Amount.” 21 

### The Shares Amount is t he product of the number of Units offered for redemption by a redeeming party multiplied by a conversion factor. 22 

### For purposes of Whitestone’s redemption right,
“Shares” refer to Pillarstone common shares. 23


### B. The Separation Negotiations By late 2020, W hitestone and Pillarstone were considering a separation. 24 

### Jim
Mastandrea was then the Chief Executive Officer of both Whitestone and

19 LPA § 8.6( C )

- (D) (providing that Pillarstone “may, in its sole and absolute discretion

. . . elect to . . . assume directly and satisfy a Redemption Right”).
20 Id. ; see also id. § 7.1( A )(21).
21 Id. at D efined Terms . “Value” is the “amount that a holder of one Partnership Unit would receive if each of the assets of the Partnership were to be sold for its fair market value on the Specified Redemption Date, the Partnership were to pay all of its outstanding liabilities, and the remaining proceeds were to be distributed to the Partners.” Id . The “Specified Redemption Date” means the tenth business day following the “Valuation Date,” or the date Pillarstone receives the Notice of Redemption. Id

. 22 Id . The conversion factor is 1.0. See id

. 23 Id.
24 Chookaszian Tr. 220

- 24; JX 16 at 6.

### 6

Pillarstone. 25 

### To address this conflict, each company formed a special committee to negotiate separation te rms. 26 

### Pillarstone director Dennis Chookaszian served as the chair of Pillarstone’s special committee , and Jeff Jones le d Whitestone’s special
committee. 27 

### A key point of discussion was the value of the Partnership’s real estate

assets. 28 

### An October 2020 broker opinion from Jo nes Lange LaSalle valued the Partnership’s eight properties at $73,764,531. 29 

### Based on this assessment, Pillarstone calculated the value of Whitestone’s Units to be approximately $48
million. 30 

### Chookaszian and Jones discussed various options to separate the parties, including Whitestone exercising its redemption right. 31 

### Jones and Mastandrea told
Chookaszian that Whitestone did not intend to redeem at that time. 32 

### Instead, in June

25 Chookaszian Tr. 221; see Chookaszian Dep. 40

- 41, 56, 153, 160.
26 Chookaszian Tr. 221.
27 Id. at 221

- 22 ; see JX 18.
28 Chookaszian Tr. 222; see JX 16.
29 JX 15 at 4; see also JX 16 at 6.
30 JX 16 at 6; see also Chookaszian Tr. 223; Jassem Tr. 23; Jassem Dep. 57

- 58.
31 Chookaszian Tr. 224

- 26.
32 Id. at 226; JX 60 at 2.

### 7

2021, Whitestone signed a non

- binding letter of intent ( the “LOI ”) that contemplated
a sale of Whitestone’s Units to Pillarstone. 33


### The transaction reflected in the LOI was Chookaszian’s construct. 34 

### Whitestone would receive a fixed $10 million 10

- year note at an interest rate of 3% ($3 million total) plus a contin gent payment in 10 years based on the net value of the Partnership’s properties. 35 

### Whitestone could potentially receive $49 million by
2031. 36 

### Whitestone’s General Counsel Peter Tropoli formed a view that the transaction contemplated by the LOI was unf avorable to Whitestone. 37 

### Among other issues, Tropoli believed that the transaction would result in a significant “write

down” of Whitestone’s investment in the Partnership. 38 

### He told Mastandrea that he believed exercising the redemption right would prod uce “a far more favorable
outcome” for Whitestone. 39 

### Tropoli’s views about the LOI were relayed to

33 JX 26; see Chookaszian Tr. 226.
34 Chookaszian Tr. 227.
35 JX 26 at 2.
36 Id. at 3.
37 Tropoli Tr. 364

- 66.
38 Id. at 365

- 66.
39 Id. at 366.

### 8

Chookaszian around early August 2021. 40 

### Both Mastandrea and Chookaszian reacted negatively to Tropoli’s feedback. 41 

### In August 2021, Mastandrea asked John Dee

— a Pillarstone director and
Whitestone’s then

- Chief Operating Officer

— to draft a resolution for Whitestone’s board that would prevent Whitestone from exercising its redemption right. 42 

### The resolution was Mastandrea’s attempt to cause the transaction c ontemplated by the
LOI to close. 43 

### The Whitestone board rejected the proposed resolution. 44


### C. The Rights Agreement Around this time, Pillarstone learned that Whitestone might redeem its Partnership investment. 45 

### Chookasian began to consider adopting a “sha reholder rights plan” in response. 46 

### Although he lacks legal training, Chookaszian knew
about rights plans from serving on other boards and teaching business school
classes. 47 

### He believed that a rights plan would protect Pillarstone “from an adverse

40 Id. at 367, 369

- 70.
41 See id. at 369

- 70; Chookaszian Dep. 155

- 56.
42 Dee Tr. 158

- 59; see also JX 130 at 251, 295.
43 Dee Tr. 166

- 67; see also JX 130 at 251.
44 Dee Tr. 162

- 63; see also JX 28 at 5.
45 Chookaszian Tr. 235

- 36; see also JX 85 ¶¶ 8

- 9; JX 102 No. 8; JX 36 at 1 (noting that Whitestone “had made statements during the negotiations concerning a separation of . . . Pillarstone and Whitestone . . . that Whitestone . . . may exercise its conversio n rights”).
46 Chookaszian Tr. 239

- 40; see also Chookaszian Dep. 36, 154

- 55; JX 102 No. 9; Jassem Tr. 26

- 27; Jassem Dep. 90; Dee Tr. 153

- 55; Dee Dep. 23.
47 Chookaszian Tr. 320

- 21.

### 9

action by either Whitestone or a third party” by making it “unattractive [for] anybody attempting to convert [or] redeem.” 48 

### On December 10, 2021, Pillarstone’s board convened to consider “a recommendation” from Chookasian about a “shareholder rights plan.” 49 

### Chookaszian relayed that Whitestone “may be working on a transaction that could have implications for Whitestone[’]s holding of 81.4% ownership of Pillarstone’s

o perating partnership units . . . which are convertible into Pillarstone’s common
shares [and] that Whitestone . . . may exercise its conversion rights.” 50 

### “Because of Whitestone[ ’ ] s disclosure of a consideration of converting the . . . Units,”
Chook asian “recommended that Pillarstone consider implementing a shareholder rights plan to protect its shareholders.” 51


### Chookaszian discussed “several options” with the Pillarstone board , including “a shareholder rights plan, in anticipation of Whitestone . . . potentially converting
the . . . Units into [Pillarstone] common shares, which could be detrimental to the
shareholders of Pillarstone.” 52 

### Chookaszian proposed that the board form an

48 Id. at 262; see also Chookaszian Dep. 41.
49 JX 36 at 1; see Chookaszian Tr. 244

- 46.
50 JX 36 at 1; see Chookaszian Tr. 333. The discussion of Whitestone’s “conversion rights” in the December 10, 2021 minutes refers to Whitestone’s contractual redemption right. Chookaszian Tr. 246; Chookasian Dep. 62

. 51 JX 36 at 1; Chookaszian Tr . 334.
52 JX 36 at 3.

### 10

independent committee given the dual fiduciaries at Pillarstone and Whitestone. 53


### Pillarstone’s board then formed a special committee of Chookaszian and director Kathy Jassem for the purpose of evaluating a “shareholder rights plan.” 54 

### On December 21, the Pillarstone board met to consider the special
committee’s recomme ndations. 55 

### At the meeting, Chookaszian explained that adopting what the minutes call “the Plan” would provide Pillarstone with “some protection” from Whitestone’s potential redemption. 56 

### Jassem relayed that the special committee felt “the Plan . . . wou ld enhance the ability of both Pillarstone and Whitestone . . . to be fair and equitable in their negotiations to separate [the] two companies.” 57 

### On December 26, Pillarstone’s board met to consider resolutions “for adopting, approving and implementing t he proposed Shareholder Rights Plan.” 58 

### Chookaszian and Jassem voted in favor of approving the resolutions. 59 

### The third

53 Id. at 2.
54 Id.
55 JX 44. A Pillarstone board meeting also occurred on December 11, 2021. The substance of the meeting minutes is redacted. JX 37.
56 JX 44 at 1; see also Chookaszian Tr. 253; Chookasian Dep. 88.
57 JX 44 at 2. Portions of the relevant discussion are redac ted for privilege. Id.
58 JX 46 at 1; see Chookaszian Dep. 97.
59 JX 46 at 1.

### 11

member of Pillarstone’s b oard

— Paul Lambert

— abstained “due to his service on the
board of trustees of Whitestone.” 60 

### Pillarstone and American Stock Transfer & Trust Company LLC , as rights agent, subsequently executed a Rights Agreement dated as of December 27, 2021. 61 

### The Rights Agreement provides that dilution will follow the occurrence of a “Triggering Event,” includ ing an “Acquiring Person” becoming the “Beneficial Owner of 5% or more of [Pillarstone’s] Common Shares then outstanding.” 62 

### This potential dilution creates an economic disincentive for Whitestone to redeem its
Units. 63 

### By delaying Whitestone’s redemptio n, the Rights Agreement allowed
Pillarstone to “buy time” and improve its leverage in separation negotiations. 64 

### Chookaszian told Whitestone director Jones about the Rights Agreement. 65


### Pillarstone’s December 30 board minutes reflect that Chookaszian re portedly told Jones the “Plan was filed to protect the Pillarstone minority shareholders and was

60 JX 46; see Chookaszian Tr. 254

- 55.
61 JX 48 (“Rights Agreement”)

. 62 Id. § 1(a); see id. § 1(c)(iv). There are currently 657,084 Pillarstone common shares outstanding

. PTO ¶ II.3

. 63 Dee Tr. 179; Chookaszian Tr. 260, 266; see also Chookaszian Dep. 65

- 66, 69, 83, 90

- 91, 99

- 101, 104

- 07; Jassem Tr. 42, 55

- 56; Jassem Dep. 100, 130

- 31; Dee Dep. 66

- 67.
64 Chookaszian Tr. 262, 271

- 72; see also Chookaszian Dep. 66, 92, 94, 99, 128.
65 JX 51 at 1.

### 12

intended to allow the parties to have the time to reach a fair resolution for all parties.” 66 

### Chookaszian similarly told Whitestone’s then

- CEO Dave Holeman t hat Pillarstone adopted the Rights Agreement to cause Whitestone to negotiate a separation preferable to Pillarstone. 67 

### Chookaszian suggested to Holeman that Pillarstone would consider selling the Partnership properties

— an outcome that
Whitestone favored

. 68 

### But in July 2022, Chookaszian informed Holeman that Pillarstone would not agree to a sale

. 69


### D
. This Litigation
Whitestone concluded that it could not tender a Notice of Redemption without triggering the Rights Agreement. 70 

### It turned to litigation. On July 8, 2022, Whitestone filed a Verified Complaint in this court advancing three claims against Pillarstone

. 71 

### Count I is a claim for breach of the LP Agreement. 72 

### Count II is a claim for breach of fiduciary duty. 73 

### And Count III is a

66 Id. ; see Chookaszian Tr. 272.
67 Chookaszian Tr. 301

- 02.
68 Id.
69 Id. at 302; Chookaszian Dep. 70

- 73.
70 See Tropoli Tr. 375, 397

. 71 Dkt. 1.
72 Compl. ¶¶ 84

- 90.
73 Id. ¶¶ 91

- 98.

### 13

claim for breach of the implied covenant of good faith and fair dealing. 74 

### As relief, Whitestone seeks a declaration that the Rig hts Agreement is unenforceable and an award of damages. 75 

### Pillarstone both moved to dismiss and answered the complaint, asserting 13 affirmative defenses. 76 

### On July 21, 2022, Whitestone filed a motion to preserve the status quo. 77 

### On September 8 , I ent ered a status quo order confirming that Whitestone’s redemption right would not be exercised and limiting the non

- ordinary course transactions that
the Partnership could undertake pending the resolution of this action. 78 

### A slew of emergency disputes have arisen since then, causing the court to walk a fine line between ensuring that Pillarstone does not render Whitestone’s redemption right illusory while allowing the Partnership’s real estate business to function. 79


### Amid these disputes, on December 12, 2022, Pillarstone filed a motion for summary judgment. 80 

### Pillarstone’s arguments included that it was mathematically

74 Id. ¶¶ 99

- 104.
75 See id. at ¶¶ 105

- 06.
76 Dkts. 7, 8.
77 Dkt. 4.
78 Status Quo Order (Dkt. 26).
79 See Dkts. 34, 38, 40, 46, 53, 56, 58, 63, 69, 73, 75, 78, 83, 90, 1 00

- 01, 116, 125, 127, 198, 200

- 202.
80 Dkts. 51

- 52.

### 14

impossible for Whitestone to trigger the Rights Agreement

. 81 

### I denied the motion
because it was based on an unreasonable reading of the Rights Agreement

. 82


### A two

- day trial was held from July 17 to July 18, 2023. 83 

### Whitestone subsequently moved to add the Partnership as a defendant for remedial purposes. 84 

### Emergency motions to show cause and to enforce the status quo order persisted. 85 

### After post

- trial briefing and argument, this matter was submitted for decision on
October 18. 86


### II. LEGAL ANALYSIS
Whitestone seeks to hold Pillarstone liable for adopting and enforcing the Rights Agreement under three alternative theories : breach of contract, breach of the implied covenant of good faith and fair dealing, and breach of fiduciary duty. To prevail on any of these claims , Whitestone must prove the claim’s elements by a preponderance of the evidence. 87 

### Pillarstone, however, has “the burden to prove

81 See Opening Br. in Supp. of Def.’s Mot. for Summ. J. (Dkt. 52) 20.
82 Tr. of Mar. 3, 2023 Oral Arg

. and Rulings of the Ct

. (Dkt. 111 ) 54

- 55 ; see also Dkt. 99

. 83 Dkt. 186.
84 Dkt. 194. That motion is denied. See infra note 16 4

. 85 Dkts. 198, 200

- 01.
86 Dkts. 217, 219.
87 See Dieckman v. Regency GP LP , 2021 WL 537 325 , at *1 9 (Del. Ch. Feb. 15, 2021), aff’d , 264 A.3d 641 (Del. 2021) (TABLE).

### 15

each element of [its] affirmative defenses by a preponderance of the evidence.” 88 

### Proof by a preponderance of the evidence mea ns that something is more likely than

not. 89 

### The bulk of the parties’ briefing is spent on Whitestone’s breach of contract arguments

. Yet I believe that another theory

— the implied covenant

— is more apt. 90 

### The parties agreed that, in exchange for Whiteston e’s contribution of commercial properties to the Partnership, it would receive U nits and the right to unilaterally exit its investment by causing the Partnership to redeem the U nits. These express terms have the corresponding condition that Pillarstone would not engage in self

- interested conduct to frustrate Whitestone’s redemption right. The record shows that
Pillarstone breached this obligation, causing harm to Whitestone. Because Whitestone proved that Pillarstone breached the implied c ovenant of good faith and fair dealing, I need not resolve the remaining contract and fiduciary

88 TA Operating LLC v. Comdata, Inc. , 2017 WL 3981138, at *21 (Del. Ch. Sept. 11, 2017).
89 Taylor v. State , 748 A.2d 914 (Del. 2000) (T ABLE ) (“[T]o establish something by a preponderance of the evidence means to prove that something is more likely so than not so.”)

. 90 Pillarstone argues that Whitestone’s implied covenant claim must fail because it amounts to “bootstrapping” of its breach of contract claim. No t so. Whitestone’s claim for breach of the implied covenant of good faith and fair dealing was appropriately brought in the alternative to its breach of contract claim. See Trumbull Radiologists, Inc. v. Premier Imaging TRI Hldgs. LLC , 2021 WL 5577249, at *6 (Del. Super. Nov. 29, 2021) (explaining that “implied covenant claims can be retained and litigated simultaneously and parallel to breach of contract claims as an alternative form of relief”).

### 16

duty claims. Whitestone is entitled to one recovery. The Rights Agreement cannot
be enforced against Whitestone , which can now freely tender a Notice of
Redem ption.
A. The Implied Covenant of Good Faith and Fair Dealing “The implied covenant [ of good faith and fair dealing ] is inherent in all contracts,” including limited partnership agreements. 91 

### At its core, the implied covenant “embodies the law’s expectation that ‘ each party to a contract will act with good faith toward the other with respect to the subject matter of th e contract

. ’ ” 92 

### It “ensures that parties do not ‘ frustrat[e] the fruits of the bargain ’ by acting ‘ arbitrarily or unreasonably. ’ ” 93


### “T he [implied] covenant is ‘ best understood as a way of implying terms in the agreement, ’ whether employed to analyze unan ticipated developments or to fill gaps in the contract ’ s provisions .” 94 

### As such, parties to an agreement can hold one another accountable for violating implied “contract[] terms that are so obvious . . .

91 Baldwin v. New Wood Res

. LLC , 283 A.3d 1099, 1116 (Del. 2022); see also Gerber v. Enter. Prods. Hldgs., LLC , 67 A.3d 400, 420 , 426 & n.49 (Del. 2013) , overruled on other grounds by Winshall v. Viacom Int’l, Inc. , 76 A.3d 808 (Del. 2013)

. 92 Sheehan v. Assured P ’r s, Inc., 2020 WL 283857 5, at *11 (Del. Ch. May 29, 2020) (quoting Allied Cap. Corp. v. GC

- Sun H ldgs. , L.P. , 910 A.2d 1020, 1032 (Del. Ch. 2006)).
93 Baldwin , 283 A.3d at 1116 (quoting Dieckman v. Regency GP LP , 155 A.3d 358, 367 (Del. 2017) ).
94 Dunlap v. State Farm Fire and Cas. Co , 878 A.2d 434, 441 (Del. 2005) ( quoting E.I. DuPont de Nemours & Co. v. Pressman , 679 A.2d 436, 443 (Del. 1996) )

.

### 17

that the drafter would not have needed to include the conditions as express terms in the agreement.” 95 

### “The reasonable expectations of the contracting parties a re assessed at the time of contracting.” 96 

### Still, the implied covenant is “a limited and extraordinary legal remedy” and the existing contract terms control. 97 

### The implied covenant cannot be used to rewrite an agreement or “rebalanc[e] economic interests after events that could have been anticipated, but were not , that later adversely affected one party to [ the ] contract.” 98



### “ But when the contract is ‘ truly silent ’ about the issue, and the express terms of the partnership agreement naturally imply certain corresponding conditions, [parties] are entitled to have those terms enforced according to the [ir] reasonable expectations

. . . at the time of contracting. ” 99


### Bec ause a claim for breach of the implied covenant is contractual, the elements are those of a breach of contract claim. Whitestone must prove “a specific

95 Dieckman , 155 A.3d at 36 1

. 96 Id. at 36 7

. 97 Nemec v. Shrader , 991 A.2d 1120, 1128 (Del. 2010) ; see also Dunlap , 878 A.2d at 441 (“Existing contract terms control . . . such that implied good faith cannot be used to circumvent the parties ’ bargain, or to create a ‘free

- floating duty . . . unattached to the underlying legal document.’” (citation omitted))

. 98 Baldwin , 283 A.3d at 1117 (quoting Oxbow Carbon & Minerals H ldg s
. , Inc., LLC , 202 A.3d 482, 507 (Del. 2019))

. 99 Id.

### 18

implied contractual obligation, a breach of that obligation by [Pillarstone] , and resulting damage to [ Whitestone] .” 100 

### I consider each element in turn.

1. The Implied Term Section 8.6 of the LP Agreement entitles Whitestone to redeem its Units. “[A]t any time on or after” six months of the issuance, it has “the right

. . . to require the Partnership to redeem” its U nits by delivering a Notice of Redemption

. 101


### Whitestone can exercise this right “from time to time, without limitation as to frequency, with respect to part or all of the Partnership Units that it owns.” 102 

### The
L P Agreement p laces few limitations on the exercise of this redemption right

. 103 

### Whitestone argues that a “Further Action” provision in Section 15.4 of the LP Agreement should be read to limit Pillarstone’s conduct vis

- à

- vis Whitestone’s redemption right

. 104 

### Section 15.4 states : “The parties shall execute and deliver all documents, provide all information and take or refrain from taking action as may be necessary or appropriate to achieve the purposes of [ the LP ] A greement .” 105 

### This is

100 Kuroda v. SPJS Hldgs., L.L.C. , 971 A.2d 872, 888 (Del. Ch. 2009) (citing Fitzgerald v. Cantor , 1998 WL 842316, at *1 (Del. Ch. Nov. 10, 1998) )

. 101 LPA § 8.6(A)

- (B)

. 102 Id

. 103 The limitations include a minimum redemption of at least 1,000 Units as well as general compliance with applicable legal requirements. See i d. ; see also id. § 8.6(E).
104 See Pl.’s Post

- trial Opening Br. (Dkt. 193) (“P l.’s Opening Br.”) 48

. 105 LPA § 15.4.

### 19

a boilerplate clause often found in contracts governing real property transactions. 106 

### It does not expressly pertain to a redemption of U nits

. But the plain terms of Section 8.6 imply a corresponding condition: that
Pillarstone w ill not frustrate Whitestone’s redemption right

. Whitestone’s right to
redeem i s la rgely unrestricted. The bargained

- for terms of the LP Agreement provide that Whitehouse can redeem “at any time” and “without limitation as to frequency.” 107 

### A n exp licit term preventing Pillarstone from undertak ing self

interested action s to impede Whitestone from redeeming was unnecessary. 108 

### “Partnership agreement drafters, whether drafting on their own, or sitting across the
table in a competi tive negotiation , do not include [such] obvious and provocative conditions in an agreement

. . . . ” 109

106 See Liberty Prop

. L.P. v. 25 Mass. Ave. Prop

. LLC , 2009 WL 224904, at * 7 n.29 (Del. Ch. Jan. 22, 2009) (“Many model forms and practice guides for real property transactions recommend the inclusion of a further assurances clause, usually as a ‘ miscellaneous ’ or
‘ general ’ provision, that obligates the parties to take what reasonable further action may b e necessary to complete the transactions contemplated by the agreement or to carry out the agreement’s purpose.” (citing forms and practice guides)).
107 LPA § 8.6(A)

- (B)

. 108 See Dieckman , 155 A.3d at 361, 368 (concluding “a requirement that the general partn er not engage in misleading or deceptive conduct to obtain safe harbor approvals” was “so obvious” that the parties would not have contracted for it); In re CVR Refining , LP Unitholder Litig. , 2020 WL 506680, at *15 (Del. Ch. Jan. 31, 2020) (implying a ter m in a limited partnership agreement requiring a general partner not to “subvert price

- protection mechanisms” for limited partners).
109 Dieckman , 155 A.3d at 368 ; see also Intermec IP Corp. v. TransCore, LP , 2023 WL 5661585, at *1 5 (Del. Super. Aug. 23, 202 3) (finding post

- trial that the implied covenant was implicated in a contract where the issue was “not discussed at all” at the time of

### 20

Further, n othing in the record indicates that the parties anticipated at the time
of contracting that Pillarstone might adopt a rights plan to impair Whitestone’s
exercise of its redemption right

. T he LP Agreement was negotiated to reflect that Whitestone could tender a Notice of Redemption at its option. Whitestone reasonably expected that it could do so without penalty

. 110 

### It was not until years later that Pillarstone contemplated a rights plan , which Whitestone first learned
about in late December 2021. 111 

### Chookaszian believes that Whitestone could have bargained for greater protections in the LP Agreement because “any person with governance knowledge” knows that “shareholder rights plans . . . could exist.” 112 

### I suppose that the drafters might have had some general awareness of poison pills as a defensive mechanism. 113


### Th e Right s Agreement, however, is a different beast. It is intended to mitigate a general partner’s financial fallout caused by a limited partner ’s exercise of a

contracting but was an “obvious” term that did not “change any bargained

- for protections”)

. 110 See Pl. ’s Opening Br. 54

- 55. Pillarstone’s post

- trial answering brief leaves un refute d Whitestone’s argument that the LP Agreement drafters did not consider that Pillarstone might adopt a rights agreement to frustrate Whitestone’s redemption rights , among other argum ents

. See Def.’s Post

- trial Answering Br. (Dkt. 207) (“Def.’s Answering Br.”) 33

- 34 ; Pl.’s Post

- t rial Reply Br. (Dkt. 213) (“Pl.’s Reply Br.”) 26; Emerald P’rs v. Berlin , 726 A.2d 1215, 1224 (Del. 1999) (“Issues not briefed are deemed waived.” (citation omitted) )

. 111 See Tropoli Tr. 372.
112 Chookaszian Dep. 67.
113 See, e.g. , Unocal Corp. v. Mesa Petroleum Co. , 493 A.2d 946 (Del. 1985).

### 21

contractual right to exit its investment in a limited partnership. There is no r e ason to suspect that Whitestone anticipated this unique turn of events.

2. Pillarstone’s Breach Pillarstone’s adoption of the Rights Agreement deprives Whitestone of “the fruits of the bargain” reflected in Section 8.6 of the LP Agreement. 114 

### Pillarstone
believe d that Whitestone exercising its redemption right would be “to the detriment of,” “adverse” to, “potentially be very damaging” to, and “unfair to” Pillarstone. 115 

### The Rights Agreement was adopted in di rect response to Pillarstone learning in August 2021 that Whitestone m ight redeem its investment in the Partnership. 116 

### It

114 Smith v. Scott , 2021 WL 1592463, at *6 (Del. Ch. Apr. 23, 2021); see also Nemec , 991 A.2d at 112 6 (stating that the implied covenant applies “when the party asserting the implied covenant proves that the other party has acted arbitrarily or unreasonably, thereby frustrating the fruits of the bargain”); Veloric v. J.G. Wentworth, Inc. , 2014 WL 4639217, at *17 (Del. Ch. Sept. 18, 2014) (“The implied covenant of good faith and fair dealing

‘ requires a party in a contractual relationship to refrain f rom arbitrary or unreasonable conduct which has the effect of preventing the other party to the contract from re ceiving the fruits of the bargain. ’ ” (citation omitted) ); Baldwin , 283 A.3d at 1120 (explaining the importance of the implied covenant to “protect an agreement’s spirit against underhanded tactics that deny a party the fruits of its bargain”).
115 Chookaszian Dep. 3 7

- 38 , 41, 80; see Chookaszian Tr. 262 (“There’s an economic disincentive, which is what a rights plan does, and the economic disincentive is there for one very specific reason: to buy time . . . We didn’t want [Whitestone] to exercise [i ts redemption right] . . . .”).
116 See Jassem Tr. 26

- 27; JX 102 No. 8

- 9 ; supra notes 4 5

- 4 6 , 4 8

- 49 and accompanying text. Pillarstone advanced 13 affirmative defenses in its answer. Defs.’ Answer and Affirmative Defenses ( Dkt. 7 ) (“Answer”) at 42

- 45

. They were given little attention in Pillarstone’s post

- trial briefing. Pillarstone argues that Whitestone’s claims fail because rights plans are permitted under Maryland law. Def.’s Answering Br. 37. Th at has no bearing on whether the Rights Agreement a mounts to a breach of the implied covenant of good faith and fair dealing. Pillarstone also invokes an advice of counsel defense to suggest that it cannot be held liable for adopting the Rights Agreement. See id. at 38 ; LPA § 7.9(B)

.

### 22

was intended to benefit Pillarstone while impeding Whitestone’s right to redeem, thereby averting Pillarstone’s obligation to perform

. 117 

### Pillarstone used the Rights Agreement “to buy time” and “slow things down” to force Whitestone into negotiations more favorable to Pillarstone. 118 

### By weakening Whitestone’s redemption right, Pillarstone could renegotiate
Whitestone’s exit at a discount. This was not “a fair solution for both parties,” as Pillarstone suggests. 119 

### Rather, it was an effort to undermine Whitestone’s ability to
invoke Section 8.6 of the LP Agreement. Pillarstone’s act s deprived Whitestone of
the benefit of its barg ain and are contrary “to the scope, purpose, and terms of the parties’ contract.” 120 

### Pillarstone makes two arguments to suggest that its actions were taken in good faith and consistent with the LP Agreement

. Neither succeeds.

But this defense wa s not raised in Pillarstone’s pleading or identified in responding to relevant interrogatories. See Answer at 42

- 45; JX 104 No. 10. Regardless, Pillarstone did not prove this defense at trial. Cf. Boardwalk Pipeline P ’r s, LP v. Bandera Master Fund LP , 2 88 A.3d 1083, 1123 (Del. 2022).
117 E.g. , Chookaszian Tr. 271

- 74; Jassem Tr. 41

- 42 ; see also Chookaszian Dep. 66, 92, 94, 99, 128; Jassem Dep. 9 9

- 100; JX 36 at 3

. 118 See Chookaszian Tr. 272, 274.
119 JX 36 at 3; see Chookaszian Tr. 336.
120 Gerber , 67 A.3d at 419

.

### 23

First, Pillarstone asserts that Whitestone’s redemption could “result in a coercive, rushed, and discounted liquidation of partnership assets.” 121 

### In other words, Pillarstone maintains that it was reasonably concerned about a fire sale of the Partnership’s properties to fund a redemption. 122 

### But Chookaszian conceded at trial
that Pillarstone could raise the necessary cash to fund a redemption in six to twelve
months. 123 

### Second, Pillarstone argues that it implemented the Rights Agreement to protect against some perceived takeover threat. 124 

### The record provides no support
for this premise . When the Rights Agreement was adopted, Pillarstone insiders
controlled m ore than 90% of Pillarstone’s outstanding common and preferred

votes. 125 

### For that group to be diluted below a majority, Pillarstone would have to
issue new stock. 126 

### But no new Pillarstone shares can be issued without Pillarstone’s
consent, 127 

### and no third party (including Whitestone) can force Pillarstone to issue
new shares. 128 

### In addition, because Whitestone can only receive Pillarstone shares

121 Chookaszian Tr. 236 ; JX 85 at ¶ 8.
122 Chookaszian Tr. 237.
123 Id.
124 Def.’s Answering Br. 12 ; see Chookaszian Dep. 41

- 49, 116; Jassem Tr. 55.
125 JX 129 at 30 ; see also Chookas z ian Dep. 118; Jassem Tr. 27

- 28; Dee Tr. 181

- 84

. 126 Dee Tr. 184; Dee Dep. 88

- 89.
127 PTO ¶ II.12.
128 Dee Tr. 184

- 86; Dee Dep. 89.

### 24

in connection with a redemption if Pillarstone elects to satisfy it with a Shares Amount, Pillarstone’s consent is effectively required for Whitestone to acquire a
Pillarstone stake. 129 

### Whitestone is also contractually limited from obtaining more
than 10% of Pillarstone’s outs tanding common shares

— an amount insufficient to
control Pillarstone. 130 

### Pillarstone suggests that a third

- party “threat” could arise if Whitestone were to be acquired or transfer red its shares to another entity

. 131 

### But Pillarstone’s prior
written consent is needed for Whitestone to transfer its Units to a third party. 132 

### And

e ven if a third party bec a me the beneficial owner of 35% or more of Whitestone’s combined voting power, a change of control would occur under the Contribution Agreement , allowing the Partnership to purchase Whitestone’s Units at a discount. 133 

### In any event, there is no evidence that a legitimate takeover threat existe d

. 134

129 See PTO ¶ II .12.
130 See i d. ¶ II. 11 ; Chookaszian Tr. 284 ; see also Dee Tr. 186 (“Q. And issuing 10 percent of the general partner’ s common shares would not dilute the general partner’s trustees, insiders, and executives below a majority. Right? A. Yes.”)

. 131 See Def.’s Answering Br. 12.
132 LPA § 11.3; see Chookaszian Tr. 288

- 90.
133 See Contribution Agreement § 1.1 (defining “Change of Control”); id. § 12.10 ; Chookaszian Tr. 291

- 92. Since Whitestone owns 13,591,764 Units, triggering the change of control provision would allow the Partnership to purchase Whitestone’s Units for around $18 million

— about a third of the recovery Whitestone seeks in this litigation

. 134 Pillarstone’s witnesses a t trial either speculated or relied on hearsay to support their stated beliefs that a takeover was threatened. See Chookaszian Dep. 116, 118

- 20, 122

- 23; Jassem Tr. 28

- 29; Jassem Dep. 102

- 03, 138, 140

- 41; Dee Tr. 186

- 97; Dee Tr. 80

- 81, 93

- 94. None of Pilla rstone’s witnesses could explain how a takeover was even possible.

### 25 3. Resulting Damage The Rights Agreement harmed Whitestone by creating an economic
disincentive to Whitestone’s exercise of its redemption right. Tropoli emphatically testified that Whitestone would redeem but for the Rights Agreement. 135 

### Whitestone has yet to send a Notice of Redemption in accordance with the LP Agreement
because it fears dilution. 136 

### These concerns are well founded

. A “ Triggering Event” for purposes of the Rights Agreement includes a person becoming the “Beneficial Owner” of at least 5% of Pillarstone’s c ommon s hares. 137 

### Although a person is generally deemed a Beneficial Owner of any shares it has the right to obtain under conversion, exchange, or similar rights , 138 

### the Rights

135 Tropoli Tr. 375. Of course, Whitestone is also currently prevented from redeeming by the Status Quo Order.
136 See i d. at 397

- 98

. Pillarstone insists that the Rights Agreement has not har med Whitestone because Whitestone has never tendered a Notice of Redemption

— that is, Whitestone’s claim is unripe

. Def.’s Answering Br. 18. Delaware courts have rejected similar ripeness arguments. See Carmody v. Toll Brothers, Inc. , 723 A.2d 1180, 1188 (Del. Ch. 1998) (denying a motion to dismiss because the plaintiff advanced ripe claims challenging a poison pill that had the “current adverse impact” of preventing the “shareholders’ present entitlement to receive and consider” certain corporate actions ); see also Moran v. Household Int’l, Inc. , 490 A.2d 1059, 1072 (Del. Ch. 1985) (recognizing that a rights plan caused harm because it had a “present depressing effect . . . on shareholder interests, regardless of whether the rights are in fact ever trigge red”) , aff’d , 500 A.2d 1346 (Del. 1985)

. 137 See Rights Agreement § 1(a); id. § 11(a)(ii).
138 Id. § 1(c)(iv) (defining “ Beneficial Ownership ” to include securities “which such Person

. . . directly or indirectly, has the right

. . . to acquire (whether such right is exercisable

. . . immediately or only after the passage of time, upon the satisfaction of condition s . . . upon compliance with regulatory requirements, or otherwise) pursuant to any agreement, arrangement or understanding (whether or not in writi ng)

. . . upon the exercise of

### 26

Agreement contains an exception directly implicating Whitestone. 139 

### Under
Section 1(c)(z) of the Rights Agreement :

[N] o Partnership Unit Holder shall be deemed the “Beneficial Owner” of

. . . any securities which may be issued to such

. . . Unit Holder in exchange for such

. . . Unit Holder’s

. . . Units

. . . pursuant to the

. . . [LP Agreement ], unless and until such

. . . Unit Holder delivers a Notice of Redemption

. . . to the

. . . Partnership, at which time such

. . . Unit Holder shall be deemed the “Beneficial Owner” of

. . . such securities. 140


### Given this provision , before a Notice of Redemption, Whitestone is not considered
a Beneficial Owner of the Pillarstone c ommon s hares it could receive via its redemption right . But after a Notice of Redemption for any number of Units , Whitestone is considered the Beneficial Owner of all Pillarstone c ommon s hares it
could obtain through redeeming. 141 

### Whitestone owns 13,591,764 Units, which c ould be exchanged for 13,591,764
Pillarstone common shares ( subject to the 10% limitation ) if Whitestone were to

conversion rights, exchange rights, rights (other than the Rights), warrants or options, or otherwise ” ) ; see infra note 150 and accompanying text (defining “Right”)

. 139 See id. § 1(c)(z).
140 Id. A “Partnership Unit Holder” is a partner in the Partnership. See id. § 3(g); PTO ¶ II.1. “Partnership OP Units” are Units. Rights Agreement § 3(g). The “Operating Partnership Agreement” is the LPA. Id. at Ex. C ; PTO ¶ II.8.
141 See Rights Agreement § 1(c)(z); Chookaszian Tr. 275

- 77. The language of Section 1(c)(z) does not limit “ Beneficial Ownership ” to just the Pillarstone common shares Whitestone might obtain for the Units it offered for r edemption in a Notice of Redemption. See Rights Agreement § 1(c)(z).

### 27

redeem

. 142 

### Under Section 1 (c)(z) of the Rights Agreement, if Whitestone delivers

a Notice of Redemption for even a single Unit , it is consider ed the Beneficial Owner of 13,591,764 Pillarstone common shares

. 143 

### Th e se shares are then included in the
calculation of whether Whitestone is an “Acquiring Person” under the Rights Agreement. 144 

### Sec tio n 1(c) of the Rights Agreement provides:

With respect to any Person, for all purposes of this [ Rights Agreement ], any calculation of the number of [Pillarstone] Common Shares outstanding at any particular time, including for purposes of determining the particular percentage of the outstanding [Pillars tone] Common Shares of which such Person is the Beneficial Owner, shall

. . . include the number of Common Shares not outstanding at the time of such calculation that such Person is otherwise deemed to beneficially own for purposes of this [ Rights Agreemen t]. 145 

### Accordingly, after a Notice of Redemption , Whitestone would be deemed the
Beneficial Owner of about 95% of Pillarstone’s c ommon s hares then outstanding ,

142 See LPA at Defined Terms (defining “Shares Amount” to mean the number of Pillarstone c ommon shares determined by multiplying (a) the total Units offered for
r edemption and (b) the “ Conversion Factor ” ); id. (defining “Conversion Fac tor,” which is 1.0); see also supra notes 20, 22

- 2 3 and accompanying text.
143 See supra note s 14 0

- 42 and accompanying text.
144 Subject to irrelevant exceptions, an “Acquiring Person” is a “Person

. . . who

. . . is the Beneficial Owner of 5% or more of the [Pillarstone] Common Shares then outstanding.” Rights Agreement § 1(a) . “Common Shares when used with reference to [Pillarstone ] or without reference, shall mean the common shares of beneficial interest

. . . of [ Pillarstone ].” Id. § 1(h)

. 145 Id. § 1(c).

### 28

qualifying it as an Acquiring Person under the Rights Agreement

. 146 

### That is true

— and the Rights A greement would be trigger ed

— regardless of whether Pillarstone elected to satisfy Whitestone’s redemption through a Cash Amount or a Shares
Amount. 147


### This result risks economic harm to Whitestone that is contrary to its expectations under the LP Agreement

. Triggering the Rights Agreement “immediately” gives Pillarstone common and preferred s hare holder s the ability to buy additional common shares , 148 

### which is a so

- called “flip

- in” provision. 149 

### The

146 For example, 657,084 Pillarstone common shares (outstanding before a Notice of Redemption) plus 13,591,764 shares (considered outstanding because of a Notice of Redemption) is 14,248,848 ; a nd 13,591,764 divided by 1 4,248,848 is about 95.4%. For purposes of the 5% calculation, the Pillarstone c ommon s hares that existing Pillarstone stockholders might receive under the Rights Agreement are disregarded

. See Rights Agreement § 1(c)(iv) ( providing that “a Person shall n ot be deemed the “Beneficial Owner” of

. . . securities which such Person has the right to acquire upon exercise of Rights at any time prior to the occurrence of a Triggering Even t ”); id. at 1 (defining a “ Right ” ).
147 Whitestone contends that the use of “or” in Section 8.6( C )

- (D) of the LPA is conjunctive and permits Pillarstone to satisfy the redemption with a mix of cash and equity. See Pl.’s Opening Br. 46. For purposes of this decision, I need not determine whet her the LP A greement permits a mix because the flip

- in provision can be triggered regardless. See infra notes 154

- 58 and accompanying text.
148 Rights Agreement § 11 (a)(ii) (“[I]n the even t any Person shall become an Acquiring Person, then, immediately upon the occurrence of such event . . . (B) each holder of a Right . . . shall t hereafter have the right to receive

. . . such number of [ Pillarstone ] Common Shares as shall equal the result obtai ned by” a formula provided).
149 JX 72 at 21 (“Flip

- In Trigger. If any person . . . becomes an Acquiring Person, each holder of a Right (other than Rights beneficially owned by an Acquiring Person . . . which Rights will thereupon become null and void) will thereafter have the right to receive upon exercise of a Right that number of [ Pillarstone ] Common Shares having a market value of two times the Purchase Price.”).

### 29

Rights Agreement gives one common share purchase right (a “Right”) to each
Pillarstone common share , 150 

### and ten Rights to each Pillarstone Class C preferred
share

. 151 

### There are 2,976,524 total Rights outstanding. 152 

### T he number of Pillarstone

c ommon s hares each Right holder can purchase is calculated by dividing the “Purchase Price” by 50% of the then

- current market price of a common s hare. 153 

### The purchase of these shares would reduce the ownership stake Whitestone can
obtain in Pillarstone through a r edemption and diminish the v a lue of Whitestone’s redemption consideration.
Pillarstone insists that , if a Notice of Redemption were to put the flip

- in provision in play, Whitestone would be unharmed because a redemption would be
satisfied through a Cash Am ount. 154 

### Since Pillarstone is not currently taxed as a

150 See Rights Agreement at 1 (defining a “ Right ” as “a dividend of one preferred share purchas e right . . . for each [Pillarstone] Common Shares outstanding”) ; JX 72 at 32; JX 129 at 30

. 151 JX 72 at 32; JX 129 at 30.
152 There are 657,084 Pillarstone c ommon s hares; 256,636 Series A p referred s hares (convertible into 53,610 c ommon s hares); and 231,94 4 Series C p referred s hares (convertible into 2,319,440 c ommon s hares). JX 72 at 32. 657,084 plus 2,319,440 is 2,976,524.
153 Rights Agreement § 7(b) ( defining “Purchase Price”). The number of additional shares that c ould be purchased after the flip

- in provision is triggered is determined by dividing $7 (subject to adjustment) by 50% of the then

- current market price of a Pillarstone c ommon s hare. See i d. § 11(a)(ii)(B).
154 Def.’s Answering Br. 26

- 27 ; see Jassem Tr. 5 8. I f it were so obvious that a redemption could only be satisfied through a Cash Amount, why would Pillarstone go through the trouble of adopting the Rights Agreement in the first place? And why would Pillarstone consistent ly refuse to stipulate that it woul d satisfy a redemption in cash without requiring

### 30

REIT, Whitestone cannot acquire more than 10% of Pillarstone’s outstanding
Common Shares. 155 

### This limitation would (if enforceable and unwaived) allow
Pillarstone to issue as many as 73,009 Pillarstone c ommon s hares to Whitestone in
the event of a redemption

. 156 

### The math changes, however, if any Rights were exercised to acquire new
Pillarstone c ommon s hares in the 30 business days between a Notice of Redempt ion and satisfaction of a Shares Amount redemption

. In that case, the number of
Pillarstone c ommon s hares available to each Rights holder would increase wh ile the price of these c ommon s hares decrease d

. 157 

### If the price of Pillarstone common
shares we re low enough and sufficient Rights were exercised , Pillarstone could satisfy a redemption for all of Whitestone’s Units with a Shares Amount without running afoul of the 10% limitation

. 158

Whitestone to first send a Notice of Redemption (thereby triggering the Rights Agreement)? See Def.’s Answering Br. 27 (explaining that Pillarstone was unwilling to stipulate to this unless Whitestone first sent a Notice of Redemption ) ; JX 125.
155 See PTO ¶¶ II.11

- 12; Contribution Agreement § 5.3 ; Compl. Ex. E. § 4(h).
156 This calculation is based on the 657,084 Pillarstone c ommon s hares currently outstanding plus the new shares issued to Whitestone through the exercise of its redemption right. See Pl.’s Opening Br. 43 (citing Dkt. 18 at ¶ 11; Dkt. 52 at 16 n.5).
157 See Rights Agreement § 11(a)(ii) ; Pl.’s Reply Br. Ex. C.
158 Pillarstone’s preadoption modeling of the Rights Agreement estimates that if Pillarstone
c ommon s hares were priced at $0.34, Whitestone would own about 8.9% of the outstanding
c ommon s hares if all Rights flipped in. See Pl.’s Reply Br. Ex. C. At the tim e of this decision, the most recent closing price of Pillarstone c ommon s hare s was $0.02. See Pillarstone Capital REIT (PRLE), Yahoo! Finance , https://finance.yahoo.com/quote/prle/ (last visited January 24 , 2024)

.

### 31 * * * Setting aside the complexities of the Rights Agreement and the various
scenarios that could be implicated by a Notice of Redemption, it is evident that the Rights Agreement harm s Whitestone. Whitestone bargained for a nearly unlimited right to redeem, at the time and for the number of Units it unilaterally chose. 159 

### The Rights Agreement was adopted by Pillarstone to discourage and delay a redemption

. 160 

### The very existence of the Rights Agreement puts in doubt whether
Whitestone can exit its investment in t he Partnership without suffering negative economic consequences. Whitestone should not be required to expose itself to financial peril to exercise a contractual right (or, alternative ly , be deterred from exercising it and forced into separation negotiations on terms benefitting Pillarstone). 161 

### If it were, Whitestone would be deprived of the bargain it reasonably expected (and negotiated for) in Section 8.6 of the LP Agreement.
B. The Appropriate Remedy
Whitestone proved that Pillarstone’s adoption of the Rights Agreement

amount s to a breach of the implied covenant of good faith and fair dealing that has
caused it harm

. Whitestone proffers two approaches to expectation damages that

159 See LPA § 8.6(A)

- (B) ; s ee also supra note 1 8 and accompanying text.
160 See Chookaszian Tr. 265

- 66, 271, 274; Jassem Tr. 42

- 43.
161 See Chookaszian Tr. 301

- 02 ; s ee also supra notes 3 4

- 3 8 and accompanying text.

### 32

measure the amount “necessary to put [ it ] in as good a position as it would have occupied had there been full performance of the contract

. ” 162 

### The first is monetary damages of $5 1 ,200, 600 plus interest , reflecting a possible valuation of the Partnership’s assets as of December 31, 202 1

. 163 

### The second approach asks me to: (1) declare the Rights Agreement unenforceable as to Whitestone or enjoin its enforcement against Whitestone; (2) permit Whitestone to tender a Notice of Redemption; (3) allow Pillarstone to determine the current value of the Partnership’s assets; and, as necessary, (4) later enter a monetary judgment against Pillarstone for
the difference between the amount Whitestone would have received in or around
December 2021 and the current value. 164

162 Am. Gen. Corp. v. Cont’l Airlines Corp. , 622 A.2d 1, 8 (Del. Ch. 1992), aff’d , 620 A.2d 856 (Del. 1992) (TABLE).
163 See JX 121 at 6

. 164 Pl.’s Opening Br. 64

- 65; see Tr. of Oct. 18, 2023 Post

- t rial Arg. (Dkt. 219) 49

- 51. Whitestone acknowledge s that it will need to file a separate action should it seek a monetary judgement against the Partnership since the Partnership is not a party to this case. See Pl.’s Opening Br. 64

- 65. On August 28, 2023, Whitestone filed a motion to amend its complaint under Court of Chancery Rule 15(b) to add the Partnership as a party. Pl.’s Mot. to Conform Pleadings to the Evid

. ( Dkt. 194 )

. This motion was purportedly in response to Pillarstone’s suggestion that the court lacked the authority to grant monetary relief against the Partnership as a non

- party. The motion is denied. It would be prejudicial to both the Partnership and Pillarstone to add the Partnersh i p as party after trial. E.g. , In re Mindbody , Inc., S ’ holder Litig. , 2023 WL 2518149, at *42 (Del. Ch. Mar. 15, 2023) (“Whether to permit post

- trial amendment is a matter for this court’s discretion. The primary consideration is ‘prejudice to the opposing party.’” (citation omitted) ). The Partners hip had no opportunity to p resent a defense and has rights and obligations different from Pillarstone. Regardless, the relief I am granting does not require the Partnership to be joined as a party.

### 33

The latter approach to a remedy is appropriate. It both addresses the harm to
Whitestone caused by the Rights Agreement and maintains the parties’ contractual expectations in the LP Agreement . To award $51 million today would require me
to find that a hypothetical redemption by Whitestone would have been for all of its
Units. It is possible, though, that Whitestone would have redeemed a lesser amount. Awarding money damages would also bypass the provisions of the LP Agreement allowing Pillarstone to decide whether to assume the redemption from the Partnership, whether to satisfy the redemption through a Cash Amount or Shares Amount, and what value to attribute to the Partnership’s assets. 165 

### To preserve the parties ’ bargain , these steps should be followed in the course set out by the LP Agreement. Accordingly, the Rights Agreement is declared unenforceable against Whitestone. Whitestone may proceed to tender a Notice of Redemption for the
number of Units it chooses , consistent with Section 8.6 of the LP Agreement. 166 

### The parties must thereafter follow the framework prescribed by the LP Agreement. Any further relief must await future proceedings.

165 See LPA § 8.6( A )

- ( D ).
166 The Status Q u o Order is hereby vacated insofa r as Whitestone may tender a Notice of Redemption. Under its terms, t he remainder of the Status Quo Order will be vacated upon the entry of a final order and judgment

.

### 34

III. CONCLUSION
P illarstone breached the implied covenant of good faith and fair dealing. Judgment on Count III is ent ered for Whitestone. Counts I and II , which are brought in the alternative to Count III, are moot. The parties shall confer on a proposed final
order and judgment to implement this decision and file it within 10 days.