COURT OF CHANCERY

OF THE

STATE OF DELAWARE

J OHN W. N OBLE 417 S OUTH S TATE S TREET
V ICE C HANCELLOR D OVER

, D ELAWARE 19901

T ELEPHONE : (302) 739

- 4397

F ACSIMILE : (302) 739

- 6179

May 29, 2015

Stephen P. Lamb, Esquire Kevin G. Abrams, Esquire Meghan M. Dougherty, Esquire J. Peter Shindel, Jr., Esquire Paul, Weiss, Rifkind, Wharton Abrams & Bayliss LLP

& Garrison LLP 20 Montchanin Road, Suite 200 500 Delaware Avenue, Suite 200 Wilmington, DE 19807 Wilmington, DE 19801

Re: AM General Holdings LLC v. The Renco Group, Inc.

C.A. No. 7639

- VCN The Renco Group, Inc. v. MacAndrews AMG Holdings LLC

C.A. No. 7668

- VCN Date Submitted: February 13, 2015

Dear Counsel:

The Renco Group, Inc. (“Renco”) and MacA ndrews AMG Holdings LLC

(“MacAndrews AMG ”) ask the Court to intervene once more regarding selection

of the T hird A ppraiser to value AM General Holdings LLC (“ Holdco ”)

. 1 In

1 MacAndrews AMG Holdings LLC’s Mot. to Order Compliance with Ct.’s Order for Appointment of Third Appraiser; Pl. The Renco Group, Inc.’s Second Renewed Mot. for Appointment of Third Appraiser. The Court focuses on the current dispute over valua tion professionals’ conflicts and will not delve into backgroundAM General Holdings LLC v. The Renco Group, Inc.

C.A. No. 7639

- VCN The Renco Group, Inc. v. MacAndrews AMG Holdings LLC

C.A. No. 7668

- VCN May 29, 2015 Page 2

November 2014, t he Court select ed Valu ation Research Corpora tion (“Valuation

Research ”) as the T hird A ppraiser, “ subject to a conflicts check.” 2 The Court

reasoned that V aluation Research “appears to be the firm most closely meeting the

sta ndards agreed to by the parties

. ” 3 For purposes of the conflict s check, the Court

relied on a test that was elaborated in Renco’s Renewed Application for

Appointment of a Third Appraiser 4 :

A conflict shall exist and Valuation Research shall not proceed as Third Appraiser if, at any time within the last five years, Valu ation Research has performed work for or otherwise been engaged in any

that has been discussed elsewhere. See, e.g.

, Renco Gp., Inc. v. MacAndrews AMG Hldgs. LLC , 2013 WL 3369318, at *2 (Del. Ch. June 19, 2013).

2 AM Gen. Hldgs. LLC v. Renco Gp., Inc. , 2014 W L 6734850, at *1 (Del. Ch.

Nov. 28, 2014).

3 Id. According to Holdco’s operating agreement, a “Qualified Appraiser” is “a firm with a national reputation for appraising businesses engaged in activities such as those engaged in by the relevant Person or for appraising assets that are comparable to the ass ets of the relevant Person.” Aff. of Steven C. Herzog, Esquire (“Herzog Aff.”) Ex. A § 1.1, Jan. 23, 2015.

4 Herzog Aff. Ex. B ¶ 6 (“Renco’s view is that the Third Appraiser should be fully neutral, without even the appearance of a conflict of interest

— me aning the person and his or her firm should have no current or past relationship with Renco, MacAndrews AMG, or their respective affiliates.”).AM General Holdings LLC v. The Renco Group, Inc.

C.A. No. 7639

- VCN The Renco Group, Inc. v. MacAndrews AMG Holdings LLC

C.A. No. 7668

- VCN May 29, 2015 Page 3

capacity by Renco, MacAndrews AMG, or any of their affiliates listed for purpose of the conflict check. 5

A fter Valuation Research disclosed that it has performed work for clie nts of

Pa ul, Weiss, Rifkind, Wharton & Garrison LLP ( “ Paul, Weiss ” ) , MacAndrews

AMG’s counsel , Renco “refuse[d] to go forward with Valuation Research.” 6

MacAndrews AMG filed its motion to order compliance with the Court’s

N ovember 2014 order on January 22 , 2015. Renco filed its own motion in

con nection with its opposition to MacAndrews AMG’s motion. Renco i s

concern ed that Valuation Research has worked with Paul, Weiss for mutual clients

numerous times over the past five years and has rec eived approximately $3

-

$5 million from related engagements (over an undefined period), representing

work “‘orders of magnitude’ greater than [Valuation Research’s] work with any

other law firm.” 7 Some work for mutual clients is ongoing, and Valuation

5 AM Gen. Hldgs. LLC v. Renco Gp., Inc.

, C.A. Nos. 7639 & 7668 , at 2 (Del. Ch. Nov. 28, 2014) (ORDER)

. It is th e Court’s understanding that counsel were not listed as (or considered) affiliates.

6 Herzog Aff. ¶¶ 14, 18.

7 Renco’s Br. in Supp. of Its Second Renewed Appl. to Appoint Third Appraiser and in Opp’n to M&F Parties’ Mot. to Require Parties to Proceed with VRC asAM General Holdings LLC v. The Renco Group, Inc.

C.A. No. 7639

- VCN The Renco Group, Inc. v. MacAndrews AMG Holdings LLC

C.A. No. 7668

- VCN May 29, 2015 Page 4

Research’s president has rece ived thousands of emails from Paul, Weiss

. 8

Furthermore, Renco faults MacAndrews AMG (and related parties 9 ) for not

disclosing these ties earlier. There is no issue about engagement by t he parties and

their affiliate s , as set forth in the November 2014 o rder, over the last five years. 10

Renco argues that Valuation Research cannot serve as the T hird A ppraiser

because of its relationship with Paul, Weiss and MacAndrews AMG’s non

disclosure

. Under th e evident partiality standard, an arbitrator’s failure “to disclose

a substantial personal or financial relationship with a party, a party’s agent, or a

party’s attorney that a reasonable person would conclude was powerfully

Third Appraiser (“Renco Opp’n Br.”) 6

- 7 (citing Decl. of Joshua R. Weiss in Supp. of Renco’s Second Renewed Mot. to Appoint Third Appraiser (“Weiss Aff.”) ¶¶ 8

- 10).

8 Weiss Aff. ¶¶ 8, 11. It should be noted that Valuation Research has also performe d work for clients of Renco’s Delaware counsel, including directly working with one of the attorneys involved in this action. Herzog Aff. ¶¶ 14, 16. Renco’s Delaware counsel does not believe that this presents a conflict. Renco Opp’n Br. 7 n.4.

9 For th e purposes of the pending motions, the Court does not distinguish among

MacAndrews AMG and two of its affiliates, MacAndrews & Forbes Inc. and Ronald O. Perelman, who are parties to this action.

10 Herzog Aff. ¶ 13.AM General Holdings LLC v. The Renco Group, Inc.

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suggestive of bias” is reason to invalidate an arbitrator’s award

. 11 I t is the burden

of the party seeking vacatur to establish that an undisclosed relationship “ is so

intimate

—

personally, socially, professionally or financially

— as to cast serious

doubt on [the arbitrator’s] impartiality

. ” 12 The fact of non

- disclosure of s uch

relationships is enough to require vacatur, protecting courts from engaging in

inefficient and unfruitful analysis of actual bias

. 13 This formulation of a standard is

obviously framed for application after an award; here, Valuation Research has not

formally commenced its valuation work. Yet, the nature of the relationship that

makes serving as an arbitrator (or appraiser) inappropriate is well

- described.

The current situation is distinguishable from th ose in th e authority Renco

cites , however, because the alleged conf lict is not so serious as to be

11 Del. Transit Corp. v. Amalgamated Trans it Union Local 842 , 34 A.3d 1064,

107 2 (Del. 2011). Arbitration is not the same as appraisal, but Renco relies on arbitration cases, and the reasoning is pers uasive because the role of the T hird

A ppraiser is similar to that of an arbitrator.

12 Id. at 1073 (alteration in original) (internal quotation marks omitted).

13 See Beebe Med. Ctr., Inc. v. InSight Health Servs. Corp. , 751 A.2d 426, 436

- 37 & n.33 (Del. Ch. 1999).AM General Holdings LLC v. The Renco Group, Inc.

C.A. No. 7639

- VCN The Renco Group, Inc. v. MacAndrews AMG Holdings LLC

C.A. No. 7668

- VCN May 29, 2015 Page 6

disqualifying

, 14 and Valuation Research disclose d its relationshi p with clients of

Paul, Weiss before it began its work

. 15 Instead , t he reasoning in Anadarko

Petroleum Corp. v. Panhandle Eastern Corp. 16 ( though a ddress ing a di spute over a

representative selected by one party to negotiate with the other party’s

representative ) respecting the discretion of an arbitrator i s more on point . In

Anadarko , the Court explain ed that it should not , at the outset, interfere with an

arbitr ator’s judgment of his ability to serve once he has disclosed possible

conflicts

. 17 All too aptly, the Court cautioned that “[a]ny other rule might spawn

endless applications and indefinite delay.” 18

On the other hand, t he Court does not intend to suggest that the

independence of an appraiser can never be challenged or that the standard used in

its November 2014 o rder is a definitive test for conflicts. There may be cases

14 See infra

. Of course, the Court’s conclusion on this limited record should not influence Valuation Research’s own assessment of its ability to serve impartially.

15 That an inquiry by Renco might have prompted the disclosure, see Weiss Aff

. ¶ 4, does not change the efficacy of the disclosure.

16 1987 WL 17445 (Del. Ch. Sept. 21, 1987)

. 17 Id. at *1

- 2.

18 Id. at *2 (internal quotation marks omitted).AM General Holdings LLC v. The Renco Group, Inc.

C.A. No. 7639

- VCN The Renco Group, Inc. v. MacAndrews AMG Holdings LLC

C.A. No. 7668

- VCN May 29, 2015 Page 7

where ex ante disqualification is appropriate. For example, actual misconduct 19 or

c lose relation ships could clearly render the T hird A ppraiser conflicted although not

technically captured by the order

. 20 One could also argu e that ordering the parties

to continue with Valuation Research would deprive the m of the opportunity to

make their own informed choice s
, flouting a major policy goal of disclosure

requirements

. 21 The situation in front of the Court, though

, is that the parties have

been attempting to select an appraiser for roughly one year and have ruled out

many otherwise qualified firms based on real or perceived con flicts

. Renco allege s

that Valuation Research cann ot serve because MacAndrews AMG did not inform

Renco of the significant work Valuation Research does for clients shared with

19 See Metro. Prop. & Cas. Ins. Co. v. J.C. Penney Cas. Ins. Co. , 780 F. Supp. 885, 894 (D. Conn. 1991) (reasoning, in a case involving sufficient allegations of misconduct by an arbitrator, t hat “[t]he ‘just’ and ‘expeditious’ policy . . . would be to evaluate [the plaintiff’s] claims on the merits of its action for injunctive relief prior to arbitration rather than have the parties waste their time, energy, and money by participating in a pot entially tainted process”).

20 On the extreme end , if one of the attorneys i nvolved in this action o wned Valuation Research, there would be no doubt about a conflict. See Oral Arg. on MacAndrews AMG Holdings LLC’s Mot. to Order Compliance with Ct.’s Order for Appointment of Third Appraiser and Pl. The Renco Group, Inc.’s Second Renewed Mot. for Appointment of Third Appraiser (“Oral Arg. Tr.”) 29

- 30.

21 See Beebe Med. Ctr.

, 751 A.2d at 437.AM General Holdings LLC v. The Renco Group, Inc.

C.A. No. 7639

- VCN The Renco Group, Inc. v. MacAndrews AMG Holdings LLC

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Paul, Weiss . Nonetheless, Valuati on Res earch has disclosed this information.

Paul, Weiss has represented that it “did not select, hire, retain, or pay” 22 ( or

recommend 23 ) Valuation Research to the client s 24 whose engagement of Paul,

Weiss and Valuation Resea rch is at issue

. 25 Perhaps most i mportant ly

, the Court

does not conclude that Valuation Research has failed to make material disclosures

or engaged in any misconduct. 26

22 Reply Aff. of Steven C. Herzog (“Herzog Reply Aff.”) ¶ 3

, Feb. 10, 2015.

23 Oral Arg. Tr. 31. Valuation Research may have appeared on a list of professionals for clients to consider, but there is no reason to believe that Valuation

Rese arch was chosen or designated by Paul, Weiss.

24 There is a discrepancy in the number of mutual clients alleged, but this

difference can b e explained by the fact that “ one ” client has various affiliates and

subsidiaries. Id. at 31

- 32.

25 The Cour t does not fault MacAndrews AMG for not disclosing the ties between

its counsel and Valuation Research. MacAndrews AMG represents that

discussions about conflicts focused on whether the individual attorneys in this action, the parties, or the parties’ affiliates had ever worked with particular

valuatio n firms. Herzog Reply Aff. ¶¶ 8

- 9. Under the circumstances,

MacAndrews AMG’s conduct was neither unreasonable nor disingenuous.

26 At oral argument, Renco implied that Valuation Research should have made its

disclosure s before the Court appointed the T hird A ppraiser. See Oral Arg. Tr. 37. The Court notes, however, that its selection of Valuation Research was conditioned

on a conflicts check.AM General Holdings LLC v. The Renco Group, Inc.

C.A. No. 7639

- VCN The Renco Group, Inc. v. MacAndrews AMG Holdings LLC

C.A. No. 7668

- VCN May 29, 2015 Page 9

Renco suggest s that the Court should give the parties more time to select a

T hird A ppraiser and, if that effort is unsuccessful , choose between one more firm

proposed by each side . Unfortunately, this path is not promising : MacAndrews

AMG takes issue with all of Renco’s alternative appraisers

, 27 and (even if

alternative test s are not as limited as Ma cAndrews AMG suggests) there does not

seem to be a principled way to resolve the deadlock

. 28 Again, Paul, Weiss has

represented that none of its attorneys working on the current matter has worked

with Valuation Research 29 a nd th at it has “no personal or fin ancial relationship or

27 Herzog Aff. ¶ 20

. 28 This analysis is fact

- specific. If Paul, Weiss’ s actions materially affect ed its

clients’ decisions to retain Valuation Research, Valuation Research had not made

its disclosures

, or the parties suggested an alternative with a reasonable chance of

success, the Court mi ght be persuaded to refrain from enf orcing its November

2014 order. Here, the parties have not questioned the Court’s authority to select an appraiser, and the Court sees no reason for further delay. See Emp’rs Ins. of Wausau v.

Jackson , 505 N.W.2d 147, 152 (Wis. Ct. App. 1993) (“ The poli cy underlying the case law is that courts should stay out of agreed

- on arbitrable disputes whenever possible. We agree. However, here the stalemate between the parties requires court action.”)

, aff’d , 527 N.W.2d 681 (Wis. 1995)

. 29 S ee Herzog Reply Aff. ¶ 7

.AM General Holdings LLC v. The Renco Group, Inc.

C.A. No. 7639

- VCN The Renco Group, Inc. v. MacAndrews AMG Holdings LLC

C.A. No. 7668

- VCN May 29, 2015 Page 10

arrangement” with Valuation Research. 30 I t is hard to believe that major law firms

and valuation firms, to whom clients turn for their broad experience and

professionalism, would not have common clients. 31 The conflicts test that Ren co

offered and the Court found reasonable in November 2014 continues to operate

re asonably , and there is the safeguard of judicial review ex post

. 32 The Cour t, thus,

will not interfere with Valuation Research ’ s professional assessment about whether

it can and should serve as the T hird A ppraiser.

* * * * *

For the reason s above, Renco’s motion to designate another appraiser is

denied and MacAndrews AMG’s motion to confirm Valuation Research’s

30 Id. ¶ 3.

31 Given the size and reach of the parties and the law firms representing them, one wonders if there is a valuation firm both qualified for the complex work to be done and without a tinge of any prior relationship with any of them.

32 See Anad

arko , 1987 WL 17445, at *2 (“The arbitrator must of course be aware

that such a decision [about ability to serve] would be subject to judicial review

after the award had been made.” (internal quotation marks omitted) ) . The fact of disclosure will also assist review, if necessary. See Beebe Med. Ctr. , 751 A.2d at

439 n.38 (noting that it does not reach discovery in a situation where an arbitrator timely discloses a conflict but that disclosure could create a record th at facilitates judicial review)

.AM General Holdings LLC v. The Renco Group, Inc.

C.A. No. 7639

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designation is granted s ubject to Valuation Research ’s determinati on of its ability

to serve as a neutral appraiser. 33

IT IS SO ORDERED.

Very truly yours,

/s/ John W. Noble

JWN/cap

cc: Thad J. Bracegirdle, Esquire Joel Friedlander, Esquire Register in Chancery

- K

33 To be clear, the Court is not dealing with a violation of its November 2014 order. By granting MacAndrews AMG’s motion, the Court simply confirms its choice for

the Third A ppraiser, notwithstanding the subsequent disclos ures, assuming that Valuation Research has disclosed all relevant conflicts and remains willing and

able to serve.