IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

MEMORANDUM OPINION

Date Submitted: October 18, 2023

Date Decided: January 25, 2024

Richard P. Rollo, Travis S. Hunter, John M. O’Toole & Morgan R. Harrison, 

RICHARDS, LAYTON & FINGER, P.A., Wilmington, Delaware; Counsel for 

Plaintiff 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 Chancellor

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 partnership units, 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 

redemption through cash or Pillarstone equity. 

In late 2021, Pillarstone learned that Whitestone might redeem its investment. 

In response, Pillarstone adopted an unusual shareholder rights plan to deter a 

redemption and protect itself. The rights plan had the 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 breached

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 the 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 trial.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 Partnership, 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-trial 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 testimony 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 Delaware 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 entered 

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 not 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); see also id. at Schedule 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 nor elected to be taxed 

as a REIT for 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 As General Partner, 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 

threshold 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; see 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 through 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 the 

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, Whitestone 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 Defined 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 terms.26 Pillarstone director Dennis Chookaszian served as the 

chair of Pillarstone’s special committee, and Jeff Jones led 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 Jones 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 contingent 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 unfavorable to Whitestone.37 Among other 

issues, Tropoli believed that the transaction would result in a significant “writedown” of Whitestone’s investment in the Partnership.38

 He told Mastandrea that he 

believed exercising the redemption right would produce “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 contemplated 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 “shareholder 

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 conversion 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 

operating 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,” 

Chookasian “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 recommendations.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 . . . would 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 the 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 redacted for privilege. Id.

58 JX 46 at 1; see Chookaszian Dep. 97.

59 JX 46 at 1.
11

member of Pillarstone’s board—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,” including 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 redemption, 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 reportedly 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 that 

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 Rights 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 entered 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, 100-01, 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 164.

85 Dkts. 198, 200-01. 

86 Dkts. 217, 219.

87 See Dieckman v. Regency GP LP, 2021 WL 537325, at *19 (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 means 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 Whitestone’s contribution of commercial 

properties to the Partnership, it would receive Units and the right to unilaterally exit 

its investment by causing the Partnership to redeem the Units. 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 covenant 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) (TABLE) (“[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. Not 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 

Redemption.

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 the contract.’”

92

 It 

“ensures that parties do not ‘frustrat[e] the fruits of the bargain’ by acting ‘arbitrarily 

or unreasonably.’”

93

“The [implied] covenant is ‘best understood as a way of implying terms in 

the agreement,’ whether employed to analyze unanticipated 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’rs, Inc., 2020 WL 2838575, at *11 (Del. Ch. May 29, 2020) 

(quoting Allied Cap. Corp. v. GC-Sun Hldgs., 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 are 

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

Because 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 361.

96 Id. at 367.

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 Hldgs., 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 Units 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 

LP Agreement places 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] Agreement.”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 id.; see also id. § 8.6(E).

104 See Pl.’s Post-trial Opening Br. (Dkt. 193) (“Pl.’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 Units.

But the plain terms of Section 8.6 imply a corresponding condition: that 

Pillarstone will not frustrate Whitestone’s redemption right. Whitestone’s right to 

redeem is largely unrestricted. The bargained-for terms of the LP Agreement 

provide that Whitehouse can redeem “at any time” and “without limitation as to 

frequency.”107 An explicit term preventing Pillarstone from undertaking selfinterested actions to impede Whitestone from redeeming was unnecessary.108

 

“Partnership agreement drafters, whether drafting on their own, or sitting across the 

table in a competitive 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 be 

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 partner 

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 term 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 *15 (Del. Super. Aug. 23, 2023) (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, nothing 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. The 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 

The Rights 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 unrefuted

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 

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

34; Pl.’s Post-trial 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 reason 

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 

believed 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 direct response to Pillarstone learning in 

August 2021 that Whitestone might 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 1126 (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 from arbitrary or unreasonable 

conduct which has the effect of preventing the other party to the contract from receiving 

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. 37-38, 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 [its 

redemption right] . . . .”).

116 See Jassem Tr. 26-27; JX 102 No. 8-9; supra notes 45-46, 48-49 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. That has no 

bearing on whether the Rights Agreement amounts 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 acts deprived Whitestone of 

the benefit of its bargain 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 was 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’rs, LP v. Bandera Master Fund 

LP, 288 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. 99-100; 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 more 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 Chookaszian 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 outstanding 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 transferred 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 

even if a third party became 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 existed.

134

129 See PTO ¶ II.12.

130 See id. ¶ 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 at 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 Pillarstone’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 common shares.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 id. at 397-98. Pillarstone insists that the Rights Agreement has not harmed 

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 triggered”), 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 conditions . . . upon 

compliance with regulatory requirements, or otherwise) pursuant to any agreement, 

arrangement or understanding (whether or not in writing) . . . 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 common shares 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 common shares it 

could obtain through redeeming.141

Whitestone owns 13,591,764 Units, which could 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 redemption 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 considered the Beneficial Owner 

of 13,591,764 Pillarstone common shares.

143

 These shares are then included in the 

calculation of whether Whitestone is an “Acquiring Person” under the Rights 

Agreement.144 Section 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 [Pillarstone] 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 Agreement].145

Accordingly, after a Notice of Redemption, Whitestone would be deemed the 

Beneficial Owner of about 95% of Pillarstone’s common shares then outstanding, 

142 See LPA at Defined Terms (defining “Shares Amount” to mean the number of 

Pillarstone common shares determined by multiplying (a) the total Units offered for 

redemption and (b) the “Conversion Factor”); id. (defining “Conversion Factor,” which is 

1.0); see also supra notes 20, 22-23 and accompanying text.

143 See supra notes 140-42 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 Agreement would be triggered—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 shareholders 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; and 13,591,764 divided by 14,248,848 is about 95.4%. For 

purposes of the 5% calculation, the Pillarstone common shares that existing Pillarstone 

stockholders might receive under the Rights Agreement are disregarded. See Rights 

Agreement § 1(c)(iv) (providing that “a Person shall not 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 Event”); 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 whether the LP

Agreement 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 event any Person shall become an Acquiring 

Person, then, immediately upon the occurrence of such event . . . (B) each holder of a Right 

. . . shall thereafter have the right to receive . . . such number of [Pillarstone] Common 

Shares as shall equal the result obtained 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 The number of Pillarstone 

common shares each Right holder can purchase is calculated by dividing the 

“Purchase Price” by 50% of the then-current market price of a common share.153 

The purchase of these shares would reduce the ownership stake Whitestone can 

obtain in Pillarstone through a redemption and diminish the value 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 Amount.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 

purchase 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 common shares; 256,636 Series A preferred shares 

(convertible into 53,610 common shares); and 231,944 Series C preferred shares 

(convertible into 2,319,440 common shares). 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 could 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 common 

share. See id. § 11(a)(ii)(B). 

154 Def.’s Answering Br. 26-27; see Jassem Tr. 58. If 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 

consistently refuse to stipulate that it would 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 common shares to Whitestone in 

the event of a redemption.

156

The math changes, however, if any Rights were exercised to acquire new 

Pillarstone common shares in the 30 business days between a Notice of Redemption 

and satisfaction of a Shares Amount redemption. In that case, the number of 

Pillarstone common shares available to each Rights holder would increase while the 

price of these common shares decreased.

157

 If the price of Pillarstone common 

shares were 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 common shares 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 

common shares were priced at $0.34, Whitestone would own about 8.9% of the outstanding 

common shares if all Rights flipped in. See Pl.’s Reply Br. Ex. C. At the time of this 

decision, the most recent closing price of Pillarstone common shares 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 harms 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 the Partnership without suffering negative 

economic consequences. Whitestone should not be required to expose itself to

financial peril to exercise a contractual right (or, alternatively, 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

amounts 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); see also supra note 18 and accompanying text.

160 See Chookaszian Tr. 265-66, 271, 274; Jassem Tr. 42-43.

161 See Chookaszian Tr. 301-02; see also supra notes 34-38 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 $51,200,600 plus interest, reflecting a possible valuation of the 

Partnership’s assets as of December 31, 2021.

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-trial Arg. (Dkt. 219) 49-51. 

Whitestone acknowledges 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 Partnership 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 Partnership 

had no opportunity to present 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 Quo Order is hereby vacated insofar as Whitestone may tender a Notice of 

Redemption. Under its terms, the remainder of the Status Quo Order will be vacated 

upon the entry of a final order and judgment.
34

III. CONCLUSION

Pillarstone breached the implied covenant of good faith and fair dealing. 

Judgment on Count III is entered 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.