Opinion ID: 1889298
Heading Depth: 1
Heading Rank: 3

Heading: Decision After Trial

Text: After trial, the Court of Chancery found the defendants liable for their conduct associated with the Odd Lot Resale to HGI, but upheld their conduct connected with the Reverse Split and the Option Plan. [18] The Vice Chancellor found that the Odd Lot Resale, unlike the other two transactions, did not involve an issuance of units, but rather a resale of existing units to HGI. [19] As a result, the Vice Chancellor found inapplicable the protections of Section 9.01 of the Partnership Agreement, which authorizes the General Partner to issue Partnership Units of any kind to any person without the consent or approval of the Limited Partners. [20] Instead, the Vice Chancellor continued, the Odd Lot Resale was subject to Partnership Agreement Sections 7.05 and 7.10(a), which provide for the contractually created fiduciary duties of entire fairness. [21] The Vice Chancellor found that the General Partner breached the contractual fiduciary duties of entire fairness because (1) the General Partner never formed the Audit Committee as required by Section 7.10(a) to review and approve the Odd Lot Offer and Resale, and (2) the General Partner failed to perform a market check or obtain any reliable financial analysis indicating that the Odd Lot Resale would be conducted on the same terms obtainable from a third party. [22] The Court of Chancery thus held the General Partner liable for breach of the contractually created fiduciary duties of entire fairness contained in the Partnership Agreement and found HGI, Gumbiner, and Guzzetti jointly and severally liable with the General Partner for aiding and abetting its breach. [23] Gotham requested rescission, or money damages and sterilization of voting rights. [24] The Court of Chancery awarded money damages plus compound interest instead of rescission, in part because it found that Gotham delayed challenging the transaction for nearly two years, and then filed suit to rescind only after it was clear that the market price [of the Partnership units] was up substantially and on a sustainable basis. [25] The Vice Chancellor then went on to find that the challenged transactions were not conceived of as a conscious scheme to entrench the General Partner's control and enrich HGI improperly. He stated that if he had been convinced otherwise, I might be inclined to grant rescission despite Gotham's torpid pace. [26] Gotham then filed a direct appeal in this Court contesting the remedy. The General Partner, HGI, Gumbiner, and Guzzetti filed cross appeals asserting that the Court of Chancery erred by finding Section 9.01(a) of the Partnership Agreement inapplicable to the Odd Lot Offer and Resale or, alternatively, by holding HGI, Gumbiner, and Guzzetti liable for aiding and abetting the General Partner's breach of its contractually created fiduciary duties and by awarding compound interest on a damages award. [27]