COURT OF CHANCERY

OF THE

STATE OF DELAWARE

 JOHN W. NOBLE 417 SOUTH STATE STREET

VICE CHANCELLOR DOVER, DELAWARE 19901

 TELEPHONE: (302) 739-4397

 FACSIMILE: (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 MacAndrews AMG Holdings LLC 

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

of the Third Appraiser 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 valuation professionals’ conflicts and will not delve into background 

EFiled: May 29 2015 12:40PM EDT 

Transaction ID 57309270

Case No. Multi-Case
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 2

November 2014, the Court selected Valuation Research Corporation (“Valuation 

Research”) as the Third Appraiser, “subject to a conflicts check.”2 The Court 

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

standards agreed to by the parties.”

3

 For purposes of the conflicts check, the Court 

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

Appointment of a Third Appraiser4:

A conflict shall exist and Valuation Research shall not proceed as 

Third Appraiser if, at any time within the last five years, Valuation 

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 WL 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 assets 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—meaning 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

After Valuation Research disclosed that it has performed work for clients of

Paul, 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 

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

connection with its opposition to MacAndrews AMG’s motion. Renco is 

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

numerous times over the past five years and has received 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.”7Some 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 the 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 as 
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 4

Research’s president has received thousands of emails from Paul, Weiss.

8

 

Furthermore, Renco faults MacAndrews AMG (and related parties9) for not 

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

their affiliates, as set forth in the November 2014 order, over the last five years.10

Renco argues that Valuation Research cannot serve as the Third Appraiser 

because of its relationship with Paul, Weiss and MacAndrews AMG’s nondisclosure. Under the 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 

performed 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 the 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.

 C.A. No. 7639-VCN

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

 C.A. No. 7668-VCN

May 29, 2015

Page 5

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

11

 It 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 such 

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 those in the authority Renco 

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

 

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

1072 (Del. 2011). Arbitration is not the same as appraisal, but Renco relies on 

arbitration cases, and the reasoning is persuasive because the role of the Third 

Appraiser 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 disclosed its relationship with clients of 

Paul, Weiss before it began its work.

15

 Instead, the reasoning in Anadarko

Petroleum Corp. v. Panhandle Eastern Corp.16 (though addressing a dispute over a 

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

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

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

arbitrator’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, the 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 order 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 misconduct19or

close relationships could clearly render the Third Appraiser conflicted although not 

technically captured by the order.

20

 One could also argue that ordering the parties 

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

make their own informed choices, 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 conflicts. Renco alleges

that Valuation Research cannot 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, that “[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 potentially tainted process”).

20 On the extreme end, if one of the attorneys involved in this action owned

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

 C.A. No. 7668-VCN

May 29, 2015

Page 8

Paul, Weiss. Nonetheless, Valuation Research has disclosed this information. 

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

recommend23) Valuation Research to the clients

24 whose engagement of Paul, 

Weiss and Valuation Research is at issue.

25

 Perhaps most importantly, 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 

Research was chosen or designated by Paul, Weiss.

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

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

subsidiaries. Id. at 31-32.

25 The Court 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 

valuation 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 

disclosures before the Court appointed the Third Appraiser. 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 suggests that the Court should give the parties more time to select a 

Third Appraiser 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 tests are not as limited as MacAndrews 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 Research29and that it has “no personal or financial relationship or 

 

27 Herzog Aff. ¶ 20.

28 This analysis is fact-specific. If Paul, Weiss’s actions materially affected 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 might be persuaded to refrain from enforcing 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 policy 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 See 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 It 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 Renco 

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

reasonably, and there is the safeguard of judicial review ex post.

32

 The Court, thus, 

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

it can and should serve as the Third Appraiser.

* * * * *

For the reasons 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 Anadarko, 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 that facilitates 

judicial review).
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 11

designation is granted subject to Valuation Research’s determination 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 Appraiser, notwithstanding the subsequent disclosures, assuming that 

Valuation Research has disclosed all relevant conflicts and remains willing and 

able to serve.