Court Opinion

ID: 9959585
Source: CourtListenerOpinion
Date Created: 2024-04-12 13:02:19.242813+00
Date Added: 2024-06-11T08:17:34.658472
License: Public Domain

IN THE SUPERIOR COURT OF THE STATE OF DELAWARE

SURF’S UP LEGACY PARTNERS, LLC               )
(f/k/a KAABOO, LLC), et. al.,                )
                                             )
         Plaintiffs-Counterclaim Defendants, )
                                             )
      v.                                     )         C.A. No. N19C-11-092
                                             )                  PRW CCLD
VIRGIN FEST, LLC, et. al.,                   )
                                             )
         Defendants-Counterclaim Plaintiffs. )
                                             )

                        Submitted: February 29, 2024
                          Decided: April 12, 2024

                        DECISION AFTER TRIAL

Theodore A. Kittila, Esquire, and James G. MacMillan, III, Esquire, HALLORAN
FARKAS + KITTILA LLP, Wilmington, Delaware, Jeffrey M. Greilsheimer, Esquire,
HALLORAN FARKAS + KITTILA LLP, New York, New York. Attorneys for Plaintiffs-
Counterclaim Defendants Surf’s Up Legacy Partners, LLC, et al., Counterclaim
Plaintiff-Counterclaim Defendant Bryan Gordon, and Counterclaim Defendants
Robert Walker and Seth Wolkov.

Robert K. Beste, Esquire, SMITH, KATZENSTEIN & JENKINS LLP, Wilmington,
Delaware, John Black, Esquire, LASH & GOLDBERG LLP, Miami, Florida, Sam
Buffone, Esquire, BUFFONE LAW GROUP, Washington, District of Columbia.
Attorneys for Defendants-Counterclaim Plaintiffs Virgin Fest, LLC, et al.

WALLACE, J.
                                 I. INTRODUCTION

      KAABOO was entering its fifth year of producing live music and outdoor

entertainment festivals. But for the party to go on, it needed capital. As of that fifth

year, and contrary to KAABOO’s hopeful expectations, its festivals hadn’t turned a

profit. Now tapped dry, KAABOO’s last resort was the sale of its flagship festival,

KAABOO Del Mar. Shifting away from a model of both owning and operating

music festivals, KAABOO aimed to just operate them by entering into long-term

managements contracts with a prospective buyer.            Soon, an interested party

emerged—Virgin Fest—a music-brand company that leveraged a trademark

licensing agreement it held with an investment company founded by British business

magnate Sir Richard Branson.

      At first glance, a partnership between Virgin Fest and KAABOO seemed it

might capitalize on the strengths of both companies: Virgin Fest would focus on

brand development and marketing; KAABOO could produce and operate festivals.

But to make itself an attractive target for a sale, KAABOO fudged its numbers and

presented an inaccurate picture of its profitability.

      As Virgin Fest and KAABOO moved closer to a deal, KAABOO’s cash needs

grew more dire as critical deadlines approached for putting on the upcoming

KAABOO festival in Del Mar, California. At the eleventh hour, Virgin Fest fronted

the cash KAABOO needed to avert canceling the event. And, on the eve of the Del
Mar event, Virgin Fest entered into the asset purchase agreement to acquire

KAABOO and most of its assets. In exchange, KAABOO received $10 million in

cash consideration––$2 million of which had already been advanced for Del Mar

festival costs––and ten-year management contracts to produce future festivals on

Virgin Fest’s behalf.

      After several months of negotiations, the Del Mar festival finally took place.

It was a three-day event and, from outward appearances, a hit. For the moment, it

seemed, that festival seemed a prelude of better things to come.

      But the music stopped and the lights dimmed on any prospect for a long-term

business relationship between KAABOO and Virgin Fest. Failing to make any profit

from the festival, KAABOO slashed its workforce, firing many senior members and

promoting others with limited experience to fill the vacant roles. Upon hearing of

rumored terminations, Virgin Fest communicated its concerns that KAABOO’s

anticipated staffing decisions jeopardized KAABOO’s ability to produce high-

quality events. When KAABOO didn’t allay those concerns, Virgin Fest sent a letter

to KAABOO relating to its right to terminate the long-term management contracts

it had entered into. KAABOO did not cure the defaults identified in the letter, and

countered that Virgin Fest, its only client, materially breached its obligations by

failing to pay for KAABOO’s services.

      All played out, KAABOO shut down the business and sued Virgin Fest.

                                        -2-
Virgin Fest counterclaimed alleging fraud and breach of contract, arising from the

asset purchase agreement and the management contracts.

      The record shows that while KAABOO’s management misrepresented the

financial health of the Company, Virgin Fest failed to prove justifiable reliance on

those misrepresentations. Thus, Virgin Fest’s fraud claims fail––but, its related

contractual claims under the APA do not, and damages therefrom are subject to the

APA’s indemnification cap.

      Virgin Fest has also prevailed on its claims under the management contracts.

Virgin Fest has proven by a preponderance of the evidence that KAABOO materially

breached its obligations under those agreements by terminating several staff

members and failing to take corrective action after Virgin Fest provided notice to do

so. Virgin Fest, therefore, did not wrongly terminate the management contracts, and

primarily on that basis, KAABOO’s contractual claims fail.

      With regard to Bryan Gordon’s claims, he is entitled to his consulting fees in

connection with his resignation from Virgin Fest.

                                  II. THE TRIAL

      Trial took place over seven days. The record consists of 676 exhibits, 21

deposition transcripts, and live testimony from six fact witnesses and two expert

                                        -3-
witnesses, as well as the facts stipulated to by the parties.1

                                  III. FINDINGS OF FACT

       It is difficult at times in the trial of certain actions to fully and cleanly

segregate findings of fact from conclusions of law. To the extent any one of the

Court’s findings of fact here might be more appropriately viewed as a conclusion of

law, that finding of fact may be considered the Court’s conclusion of law on that

point.2

    A. KAABOO3

       At centerstage in this nearly five-year-long litigation performance is the music

and entertainment festival business known as “KAABOO.”4 In 2015, KAABOO,

1
   This decision cites to: trial exhibits (by “JX” number); the trial transcript (“[Last Name] Tr.”);
deposition transcripts (“[Last Name] Dep. Tr.”); and stipulated facts set forth in the Pre-Trial Order
(“PTO”) (D.I. 397). The witnesses in order of appearance were: Robert Walker, Rebecca Shepherd,
Seth Wolkov, Jason Felts, Marc Hagle, Bryan Gordon, Gregory Cowhey, and Jeffrey George. This
decision also cites to the uncontested facts in the Complaint (“Compl.”) and Second Amended and
Supplemental Answer and Counterclaims Against Plaintiffs, Bryan Gordon, Seth Wolkov, and
Robert Walker (“SACC”) (D.I. 227).
2
    See Facchina Constr. Litigs., 2020 WL 6363678, at *2 n.12 (Del. Super. Ct. Oct. 29, 2020)
(collecting authority).
3
    Plaintiffs are Surf’s Up Legacy Partners, LLC (f/k/a KAABOO, LLC), Eventpro Management,
LLC (f/k/a KAABOO Management, LLC), Eventpro Production Services, LLC (f/k/a KB
Eventpro LLC), Eventpro Del Mar, LLC (f/k/a KAABOO – Del Mar LLC), Eventpro Services,
LLC (f/k/a KAABOOWorks Services, LLC), Eventpro Contract Services, LLC (f/k/a KAABOO
Contract Services LLC), and Eventproworks, LLC (f/k/a KAABOOWorks, LLC). Counterclaim-
defendants are Bryan Gordon, Seth Wolkov and Robert Walker. Defendants are Virgin Fest, LLC,
Virgin Fest Investco, LLC, VFLA Eventco LLC, and KSD Ownco, LLC (f/k/a San Diego Fest
Ownco, LLC). Plaintiffs and Counterclaim-defendants will collectively be called “KAABOO,”
and Defendants, “Virgin Fest,” unless further specificity is required.
4
    PTO ¶ 34.

                                                -4-
LLC (“KAABOO” or the “Company”)5 began producing an annual three-day music

festival in Del Mar, California (“KAABOO Del Mar”).6                        Headliners included

AeroSmith, Snoop Dogg, and P!nk, and attendance ranged from 25,000 to 30,000 a

day.7

         KAABOO was known for its mix of art, comedy, and culinary experiences.8

The festival grounds displayed billboard-size murals; uniquely, an artist painted an

original mural beginning at the start of the festival and finishing by its end.9

KAABOO believed this “elevated” music and art experience attracted older, more

affluent audiences in the music festival industry.10

         Though KAABOO Del Mar was successful from a customer-facing view,11 it

never turned a profit.12 In its first year, KAABOO Del Mar had a negative EBITDA

5
     KAABOO, LLC is now known as Surf’s Up Legacy Partners, LLC.
6
     Compl. ¶ 23; Walker Tr. at 13.
7
     Walker Tr. at 11, 22.
8
     Id. at 10.
9
     Felts Tr. at 769-70,
10
     Walker Tr. at 10.
11
    Hagle Tr. at 969 (“I was extremely impressed. It was amazing and well organized. It was an
artistic piece of work. The displays, the organization of displays, the physical nature of the people,
it was a very sophisticated project, very well done, very well organized, very well run, very
entertaining.”); Gordon Tr. at 1209-10 (“From a customer-facing point of view, I would say
exceedingly successful . . . From a sort of brand recognition point of view within the press, within
the industry, similarly great applause for—for the event consistently”); Felts Tr. at 749 (“The event
was elevated, as everybody has testified heretofore in this proceeding, and the event, [KAABOO]
event, was done in a first class manner with, you know, VIP tickets and great sponsorships and a
clean—a clean and aesthetically pleasing environment.”).
12
     See JX160 at 6029.

                                                -5-
of $9.3 million, negative $5.8 million in 2016, negative $3.7 million in 2017, and

negative $3.5 million in 2018.13

     B. KAABOO’S FINANCING EFFORTS ARE UNSUCCESSFUL.

           Going into 2019, KAABOO had significant cash needs to continue operating.

Following the 2018 KAABOO Del Mar festival, KAABOO owed approximately

$1.8 million to vendors.14 What’s worse, at that point, KAABOO could no longer

rely on a primary source of financial support. By then, KAABOO’s founder and

largest stockholder, Bryan Gordon, told KAABOO’s management that he would “not

be able to come to the rescue this time.”15 In short, 2019 was going to be critical to

KAABOO’s continued viability.

           It didn’t start off well. KAABOO’s two inaugural festivals––KAABOO

Cayman and KAABOO Dallas––failed to generate the cash flow KAABOO needed.

KAABOO Cayman was held in February, and KAABOO Dallas in May.16

Following KAABOO Cayman, KAABOO lost the support of its joint venture

partner, and as a result, became obligated to pay over a million in ticket refunds for

the cancellation of the event in 2020.17               KAABOO Dallas fared even worse.

13
     Id.
14
     JX267 at 2; JX053 at 6161; Shepherd Tr. at 129.
15
     JX61 at 6687; Walker Tr. at 155-56; Wolkov Tr. at 410-12; Gordon Tr. at 1308.
16
     Walker Tr. at 12-13.
17
     JX478 at 3027.

                                              -6-
Attendance was 50% less, and losses $8 million more, than forecasted.18

           Meanwhile, KAABOO unsuccessfully sought to raise $4 million of senior

debt financing, contacting close to 80 parties.19 KAABOO was only able to receive

a $1 million senior bridge loan.20 KAABOO also tried to raise $20 million via a

Series B raise, but failed to generate any proposals from the over 130 investors it

contacted.21

           With no success in its financing efforts, KAABOO’s cash deadlines to put on

the 2019 KAABOO Del Mar festival did not slow. $1.6 million in talent deposits

were due on August 14th, and the final talent deposit was due about a week before

the KAABOO Del Mar festival’s September 13 start date.22 The failure of either

would result in cancellation of the event.23 By the summer of 2019, KAABOO’s

strategy shifted to a sale of KAABOO’s assets.24 KAABOO’s search for a potential

buyer soon led them to Virgin Fest, LLC.

18
     Id. at 3025-26.
19
     Id. at 3023.
20
     Id.; Walker Tr. at 148.
21
     JX478 at 3025.
22
     JX267 at 1.
23
     Id.
24
     Id. at 2.

                                           -7-
     C. VIRGIN FEST

         Jason Felts formed Virgin Fest with Mr. Gordon in the summer of 2018.25

Prior to founding Virgin Fest, Mr. Felts managed an entertainment and content

production company known as “Virgin Produced.”26 Virgin Produced provided

video content to KAABOO.27 After the 2016 KAABOO Del Mar festival, Mr. Felts

began working for KAABOO as its Chief Marketing and Brand Officer. He also

joined its board of directors.28

         Virgin Fest leveraged the Virgin brand in entering the music festival business

through a trademark licensing agreement with Virgin Enterprise Limited (“VEL”), a

company founded by multi-billionaire Sir Richard Branson.29 As co-founders and

50/50 partners of Virgin Fest, Mr. Felts focused on providing brand management and

marketing, while Mr. Gordon offered management and event production expertise

gained from running KAABOO. 30 In contrast to KAABOO, Virgin Fest was aimed

at younger audiences, and was envisioned to be an “overhead-light brand;” that is,

an “asset manager,” not “physical producer” of a festival.31

25
     SACC ¶ 46.
26
     Felts Tr. at 650-51.
27
     Felts Dep. Tr. at 25.
28
     SACC ¶ 45.
29
     Felts Dep. Tr. at 81; SACC ¶ 45; Felts Tr. at 651, 887.
30
     Felts Tr. at 682.
31
     Id. at 678.

                                                -8-
           One of Virgin Fest’s early investors was Marc Hagle. Mr. Hagle first became

involved in Virgin Fest after attending the 2018 KAABOO Del Mar festival. There,

he met Mr. Gordon for the first time, talking briefly with him about the music

business.32        While a very successful real-estate developer, Mr. Hagle had no

experience in the music festival business. The 2018 KAABOO Del Mar festival was

the first festival he had ever been to.33 A short time after that festival, Mr. Gordon

offered Mr. Hagle an opportunity to become an investor and board member of Virgin

Fest.34 Mr. Hagle agreed.35 Mr. Hagle went on to attend KAABOO Cayman and

KAABOO Dallas.36

     D. THE JULY 4TH FINANCIALS

           With Mr. Hagle now on Virgin Fest’s board, in the summer of 2019,

Mr. Gordon first approached him about Virgin Fest potentially acquiring KAABOO

Cayman.37 When KAABOO Cayman’s joint venture partner backed out of a deal,38

Mr. Gordon alternatively proposed to Mr. Hagle an acquisition of KAABOO Del

32
     Hagle Tr. at 970.
33
     Id. at 971.
34
     Id. at 976.
35
     Id.
36
     Id. at 972.
37
     JX138.
38
     JX478 at 3027.

                                           -9-
Mar.39 This proposal appealed to Mr. Hagle because KAABOO Del Mar was not

competitive with Virgin Fest’s younger market audience and he believed the Virgin

Fest brand could extract value from a partnership with an operating festival that had

a “good reputation.”40

         On July 4, 2019, KAABOO forwarded a set of KAABOO Del Mar financial

results and projections of KAABOO Del Mar to Mr. Hagle (the “July 4 th

Financials”).41      Those financials showed historical and projected cash flows,

including revenue, cost of revenue, operational expenses, and EBITDA for 2018

actual, 2019 estimated, and 2020-2023 projected financials/forecasts.42 Much of

trial and the parties’ extensive post-trial briefing centered on this two-page

document.

         1. Preparation of the July 4th Financials

         The Court now describes in detail the series of changes KAABOO

management made in preparing the July 4th Financials.

         Optimistic of future success, KAABOO initially projected a 15% increase in

ticket revenue from the prior year in its 2019 budget, resulting in $215,676 profit

39
     Hagle Tr. at 992.
40
     Id. at 993.
41
     Walker Tr. at 30-31; JX197.
42
     See JX197.

                                        - 10 -
and $15,453,114 in ticket revenue for the 2019 KAABOO Del Mar festival.43 Yet,

after KAABOO Dallas and amidst lagging ticket sales for the 2019 KABOO Del

Mar festival, Rick Rosetti, who led KAABOO’s forecasting, lowered the projections

to a loss of $3.245 million, and $13.020 million in ticket revenue. 44

        With a projected loss of $3.245 million based on the new forecasting,

KAABOO employees proceeded to identify $1.009 million in line-item expense

reductions.45 The parties do not dispute that these expense reductions were “bottoms

up” and “team-driven.”46

        Next, Robert Walker, KAABOO’s chief financial officer, instructed

Mr. Rosetti to close “half the gap” in ticket revenue between the updated forecasted

numbers and the prior, 2019 budgeted numbers.47                This resulted in a lower loss

figure ($226,091) and $14.236 million in ticket revenue.48 But Mr. Walker never

explained what justified such a change to the ticketing revenue figure, just that

management would go through a post hoc “process [to] identify” a new marketing

43
     JX64; Walker Tr. at 111-14.
44
     JX140; Walker Tr. at 130-131.
45
     JX147 at 2188; Walker Tr. at 133-35; Rosetti Dep. Tr. at 68-73; JX629.
46
     Virgin’s Post-Trial Opening Brief (“VOB”) at 12 (D.I. 434).
47
     Walker Tr. at 161-63; JX147 at 2190.
48
    Walker Tr. at 161-63; JX147 at 2190-91. To cover its cash flow needs pending a sale of
KAABOO Del Mar (referred to in many documents as “KDM”), on June 20, KAABOO sent Shea
Ventures, a lender, financials that included the $14.236 million ticket revenue sale number. JX160
at 6032, 6056.

                                              - 11 -
plan.49

        Management continued to adjust until the numbers forecasted profitability.

Seth Wolkov, KAABOO’s president and director, instructed Mr. Rosetti to cut an

“additional $600k in opex.”50 This change resulted in the financials showing profit

for 2019.51 At trial, neither Mr. Wolkov, nor Mr. Walker, nor Mr. Gordon could

explain where these savings came from.52 A few hours later, Mr. Rosetti offered to

reduce “OPEX by an additional $100k” to cover a missed expense item.53 Mr.

Wolkov instead instructed Mr. Rosetti to “[r]educe contingency from $265k to

150k.”54 The contingency funds eventually went down to zero.55

        About a week before KAABOO provided the July 4th Financials, Mr. Wolkov

cut an additional “$250k . . . in expenses” from supposed savings identified by

Mr. Gordon.56 At trial, neither Mr. Wolkov, nor Mr. Walker, nor Mr. Gordon could

identify the originating savings.57 That same day, too, Mr. Wolkov instructed one of

49
     Walker Tr. at 162.
50
     JX166 at 2317.
51
     Id. at 2319.
52
     Wolkov Tr. at 474; Gordon Tr. at 1344-45; Walker Tr. at 192.
53
     JX166 at 2317.
54
     JX167 at 2403.
55
     JX187 at 8990.
56
     Id. at 8987.
57
     Wolkov Tr. at 492; Walker Tr. 199-200; Gordon Tr. at 1356.

                                              - 12 -
the team members to:

        Delete the OPEX and mgmt. fees from 2018 and 2019 as it makes
        numbers / losses look scary. I suggest having these as zeros and making
        the footnote instead say KDM was a wholly owned subsidiary and
        therefore did not allocate fees or expenses in 2018/2019. That way, the
        losses shown are less in these years.58

        “OPEX” represented corporate overhead expenses.59 At first, the number was

listed as $1.285 million, and then increased, at Mr. Wolkov’s instruction, to $1.35

million.60 Eventually, and in accordance with Mr. Wolkov’s instruction referenced

above, the $1.35 million number was removed altogether and replaced with an

“N/A” designation, and accompanying footnote.61

        The $1.35 million in corporate overhead expenses was an underestimate. A

few weeks after the July 4th Financials were presented to Mr. Hagle, employees of

KAABOO calculated that the corporate overhead should be $2,379,873, based on

expenses “for the past 12 months and the portion allocated to [KAABOO Del

Mar].”62 At trial, Mr. Walker did not dispute that the calculation was accurate.63

58
     JX186 at 8984, 8988.
59
    Walker Tr. at 200-201. Overhead costs were spread out across various departments, including
operations, accounting, business development, marketing, management, design, amplify, legal,
artwork, ticketing/credentials, production, administrative, talent, F&B, HR, amplify/bask/gear,
artist relations, and gear. Boulter Dep. Tr. at 58.
60
     JX186 at 8985.
61
     JX 187 at 8990.
62
     JX641 at 7634; JX221.
63
     Walker Tr. at 201.

                                            - 13 -
           On July 4, 2019, KAABOO sent Mr. Hagle its financials.64 In sum, the

financials incorporated the following changes:

           (a) $14.236 million in ticket revenue for the 2019 KAABOO Del Mar
               festival, rather than the anticipated $13.020 million in ticket
               revenue later forecasted by Mr. Rosetti;65

           (b) $600,000 in “opex” cuts with no line-item expense reductions;

           (c) zeroed-out contingency funds from the original $265,000;

           (d) $250,000 in additional “across the board expenses;” and

           (e) removal of the corporate overhead fees.

           For (e), three line-items for corporate overhead were listed. The first was the

KAABOO Opex Reimbursement, marked originally as $1.35 million.66 The second

was the KAABOO Event management fee, which KAABOO was estimating to be

1% of total revenue.67 The third line-item was the KAABOO incentive fee, for

which KAABOO was not proposing any amount at the time.68

           For each of the three line items, the July 4th Financials included no amount or

64
     JX197.
65
     Cf. JX140; Walker Tr. at 130-131.
66
     Wolkov Tr. at 359-60.
67
     Id.
68
     Id.

                                            - 14 -
figure, but instead had the following designation: “N/A,” and a footnote.69

        Footnote (1) stated that: “‘KDM was a wholly owned subsidiary and therefore

did not allocate fees or expenses in 2018 and 2019. Applicable EBITDA on exit to

69
     Here   is   a   partially   snipped   view   of   the   July   4th   Financials.   JX197.

                                             - 15 -
a strategic purchaser would be exclusive of management company costs.”70

           With these changes, the July 4th Financials showed the 2019 KAABOO Del

Mar festival making a positive EBITDA of $275,744—i.e., a swing of more than

$4 million from the previous year.71

           2. Mr. Hagle’s Reaction

           Mr. Hagle testified at his deposition that upon reviewing the July 4 th

Financials, his “first impression” was that he could not “realistically trust” the

numbers.72 They were, at least as to the projections after 2019, “fantasy land.”73 In

part because of his skepticism, Mr. Wolkov flew out to meet with Mr. Hagle.74

Mr. Hagle didn’t initially believe Mr. Wolkov’s explanations, but after speaking with

Mr. Gordon, he thought the financials could be accurate.75

           At trial, Mr. Hagle provided additional details. He testified that he asked

Mr. Wolkov about KAABOO’s operational expenses, namely, the three items in the

July 4th Financials with the designation “N/A.”76                   According to Mr. Hagle,

70
     Id.
71
     Id.
72
     Hagle Dep. Tr. at 89-90.
73
    Id. at 94. Mr. Hagle clarified in a subsequent affidavit that his skepticism towards the July 4th
Financials was in reference to the long-term projections from 2019 into 2020 through 2024, not
the 2019 forecast. JX592 ¶¶ 3-4. Mr. Hagle’s deposition testimony and later testimony at trial
aren’t inconsistent with this conclusion.
74
     Hagle Dep. Tr. at 95.
75
     Id.; Hagle Tr. at 1169-1170.
76
     Hagle Tr. at 999-1000.

                                               - 16 -
Mr. Wolkov told him that:

           all of the KAABOO overhead, all the expenses, everything that it took
           to put on this festival is incorporated into the other numbers . . . [so]
           that when you look at the EBITDA at the end, the EBITDA is truly
           representative of the total cash surplus or deficit that it took to run the
           festival during this period of time.77

           In other words, the N/A designation for corporate overhead represented costs

purportedly already baked into the direct costs in the other line items of the

financials.78 Mr. Hagle then confirmed Mr. Wolkov’s explanations of the financials

with Mr. Gordon over a call.79 In Mr. Hagle’s view, Mr. Wolkov “laid the

groundwork,” and Mr. Gordon “closed the deal.”80

           Mr. Hagle’s contemporaneous handwritten notes and Mr. Walker’s and

Mr. Wolkov’s testimony of the July 4th Financials, however, paint a different

picture.81 According to Mr. Walker, the July 4th Financials represented an “event-

level” forecast, thus requiring a prospective buyer to assign its own overhead––or if

it hired KAABOO to produce the company, negotiate overhead fees with

KAABOO.82 In apparent consistency with this characterization, below the footnote,

77
     Id.
78
     Id. at 1000-1001.
79
     Id. at 1004, 1014.
80
     Id. at 1170-71.
81
     JX598; Hagle Tr. at 995.
82
     Walker Tr. at 243-44.

                                             - 17 -
Mr. Hagle hand-wrote, “→ <1,575,000> Add Back Opex & Mgmt Fee at 2%.”83 In

the right-hand margin, he wrote “No Fee or overhead to K[AABOO] mgmt.”84 But,

in the left-hand margin, circling the three corporate overhead items, he wrote “Direct

Hard Cost inc corp admin.”85

           In an email to Mr. Walker, Mr. Gordon, and Robert Fraiman (who was a

KAABOO board member at the time), Mr. Wolkov described his meeting with

Mr. Hagle, writing:

           KDM DD - talked a lot about the kdm numbers. Grilled me on
           attendance contraction, Sunday numbers, cash flow losses, customer
           retention rates, historical numbers, ability to grow in future, growth
           assumptions, customer demos, etc . . . And, didn’t care about positive
           working capital at the event level with talent loans and ticket presales
           as he said capitalization for virgin fest wasn’t at all an issue.86

           Mr. Wolkov and Mr. Hagle also discussed potential management contracts

between KAABOO and Virgin Fest. In the same email, Mr. Wolkov reported that:

           Mgmt Contract. He did mention a question mark around the future roles
           in managing the kb mgmt co, and whether or not [Mr. Gordon] and [Mr.
           Felts] would continue in their roles with kaaboo going forward or be
           doing virgin fest full time. I said I did not know anything about that
           potential situation, especially with regards to [Mr. Gordon], as he was
           the largest shareholder in kaaboo. The topic came up as we discussed
           the stability of the future mgmt co for virgin fest deals and other
           kaaboo’s going forward, which makes perfect sense as we build a long

83
     JX598.
84
     Id.
85
     Id.
86
     JX210.

                                            - 18 -
           term partnership together.87

           Mr. Wolkov’s takeaway from his meeting was that Virgin Fest had “definite

interest,” but he was “uncertain” that they could “find a deal that meets both

companies mutual objectives (especially considering kaboo’s cash needs).”88

           After meeting with Mr. Wolkov and Mr. Gordon, Mr. Hagle received from Mr.

Gordon a list of twelve topics to address in a draft letter of intent.89 On July 31, Mr.

Gordon received a draft letter of intent (“LOI”) from Virgin Fest.90

     E. KAABOO AGREES TO PRODUCE VIRGIN FEST LOS ANGELES.

           That same day, KAABOO agreed to produce a Virgin Fest-branded music

festival in 2020 in Los Angeles through a Master Services Agreement (the

“MSA”).91 The MSA contained the following warranty and representation:

           All services will be performed in a competent and professional manner,
           by qualified personnel and will conform to [Virgin Fest Los Angeles’]
           requirements hereunder;92

           The MSA had a 5-year term and was terminable upon any material breach.93

The MSA provided for a fee schedule of $1,200,000 for the production of the 2020

87
     Id.
88
     Id.
89
     JX219.
90
     JX229.
91
     JX230 (“MSA”).
92
     MSA § 6.3.
93
     Id. §§ 7, 8.

                                           - 19 -
Virgin Fest Los Angeles event.94

      F. THE PARTIES FINALIZE THE LOI.

          With the 2019 KAABOO Del Mar festival about a month away, Mr. Hagle

sent Mr. Wolkov another draft LOI for the acquisition of KAABOO Del Mar.95 The

draft contemplated, inter alia, a $10 million purchase price for that festival and an

agreement to enter into ten-year management contracts for additional festivals.96

Mr. Felts expressed his support for the deal and advised Mr. Hagle to “stay firm on

this offer. This is a great deal for KAABOO.”97 Numerous drafts were exchanged,

including a proposal to convert $2 million of the $10 million purchase price into a

senior bridge loan.98

          On August 7th, Mr. Walker emailed the KAABOO board members—

including Mr. Felts—attaching a cash projection and stating that “next week is

critical with the upcoming talent deposits due” the following week.99 At the board

meeting that morning, Mr. Wolkov reported on the sale process.100 He said that the

94
      Id. at 10.
95
      JX240.
96
      Id. §§ 2, 9.
97
      JX239.
98
      See, e.g., JX245, JX251, JX253, JX254, JX255.
99
      JX242.
100
      JX514 at 6677.

                                             - 20 -
only offer KAABOO had received was from Virgin Fest,101 and that KAABOO

needed a minimum of $2 million to pay talent and venue deposits by the following

week.102 If KAABOO was unable to meet the deadline, Mr. Fraiman and Mr.

Wolkov proposed seeking bankruptcy counsel.103

            Shortly thereafter, Mr. Felts reported this information in an email to

Mr. Hagle with the subject line “Intel,” and the heading “Confidential” above the

email’s body.104 Mr. Felts wrote that “KAABOO DEL MAR has immediate cash

needs with some significant talent deposits due early next week . . . Believe we are

in poll position in terms of speed (maybe not purchase price) . . . In my opinion, we

move quick if they come back, so we make initial deposit and lock ourselves into an

exclusive diligence period etc etc.”105

            To meet one of Virgin Fest’s conditions to a deal, Mr. Walker requested one

of its lenders, Gemini Finance Corp. (“Gemini”), to subordinate its loan to Virgin

Fest’s proposed $2 million loan.106 Gemini wrote back that “subordinating without

any consideration is a nonstarter for us.”107 After a call with Gemini, Mr. Walker

101
      Id. at 6678.
102
      Id at 6678-79.
103
      Id. at 6679.
104
      JX241.
105
      Id.
106
      JX256.
107
      JX258 at 1048.

                                           - 21 -
reported to Mr. Gordon that they had obtained Gemini’s “verbal consent” to

subordinate Gemini’s loan to Virgin’s proposed loan.108 For Gemini’s consent,

KAABOO would pay Gemini an extra “$150k; $75k this week and $75k at

payoff.”109

            On August 12th, two days before the first deposits became due, the KAABOO

board held a telephonic meeting and reviewed the company’s financial position.110

The situation looked dire:

            • Remaining production costs were approximately $6.7 million.111

            • Approximately $10.2 million in revenue from the ticket proceeds
              of the 2019 KAABOO Del Mar festival had already been used
              up.112

            • If KAABOO missed the August 14th deadline, it would likely need
              to cancel the festival and refund the $10.2 million in revenue from
              ticket sales and sponsorships.113

            • KAABOO still owed $1.8 million in vendor payables from the 2018
              KAABOO Del Mar festival.114

            • The deal to sell KAABOO Cayman to Virgin Fest fell through,
              resulting in a loss of $2.5 million in potential sale proceeds and the

108
      JX261.
109
      JX289.
110
      JX267.
111
      Id at 2.
112
      Id.
113
      Id. at 1, 5.
114
      Id. at 2.

                                            - 22 -
                  future production services contract.115

            • To date, KAABOO had been unable to secure any offers for a
              bridge loan;116 and

            • slower pass sales represented an approximate $1 million reduction
              from the previous year.117

            At the conclusion of the board meeting, Mr. Wolkov and Mr. Fraiman,

followed by the full Board, approved the LOI and Loan and Security Agreement (the

“Loan Agreement”) to be entered into with Virgin Fest.118 With these, KAABOO

met the talent and venue deposit deadlines.119

      G. TERMS OF THE LOI AND LOAN AGREEMENT

            Pursuant to the LOI and Loan Agreement, Virgin Fest provided a $2 million

deposit that would apply to the $10 million purchase price of KAABOO Del Mar

(the “Bridge Loan”).120 The LOI stated that the Bridge Loan would be repaid “prior

to payment of any other loans, fees,” and KAABOO would disclose “any and all

existing financing,” and provide “subordination agreements.”121

115
      Id.
116
      Id. at 3.
117
    Id. at 5. Specifically, on August 8, Mr. Wolkov asked Mr. Rosetti to update the KDM forecast
based on the “current sales velocity curve.” JX246. In contrast to the 2019 forecast in the data
room, the new forecast showed estimated ticket revenue to be $13,244,260 and a negative EBITDA
of $719,360. Id.
118
      JX267 at 6-7; JX275; JX277.
119
      Walker Tr. 61; JX267 at 4.
120
      JX275 § 2(a); JX277 § 2.5; JX267 at 3.
121
      JX275 § 2(a)(i).

                                               - 23 -
            The LOI contemplated an additional $2 million for future festivals in Florida

and Las Vegas and an agreement to enter into ten-year term management contracts

to produce three other Virgin Fest-branded events.122

            The LOI provided for a due diligence period of seven business days.123 If at

the end of seven business days Virgin Fest gave notice of termination of the LOI, the

initial deposit would continue as a secured bridge loan.124 If there was no notice to

terminate, the Loan Agreement cancelled the loan upon the closing of the transaction

and the proceeds would apply to the purchase price.125

            Following the execution of the LOI, the parties were to engage in good faith

negotiation of a binding asset purchase agreement.126 Until the execution of such,

the LOI was “non-binding.”127

      H. THE DUE DILIGENCE PERIOD

            The due diligence process took place for seven days and ended on August

20.128 On August 16th, Tobin Armbrust, Virgin Fest’s Chief Strategy Officer,

identified to Mr. Hagle the relevant documents in the data room that were responsive

122
      JX275 §§ 2(b), 9.
123
      Id. § 3(a).
124
      Id.
125
      JX277 § 2.5.
126
      JX275 § 11.
127
      Id. § 12.
128
      See JX275 § 3; JX295.

                                            - 24 -
to the diligence questions list, including historical pass sales from 2015 to present.129

Those documents reflected that ticket revenue as of August 15, 2019, lagged behind

the 2018 ticket revenue as of the same time the previous year.130 Mr. Hagle also met

with Mr. Gordon and Mr. Felts.131 His handwritten notes of the meetings reflect that

KAABOO needed $11 to 13 million before September 10.132

      I. VIRGIN FEST STANDS DOWN ON THE LOI.

          On September 6, 2019, KAABOO’s Board members, including Mr. Felts,

received a package of materials, including a draft asset purchase agreement, event

forecast, ticket sale velocity and weekly cash plan update.133 The updated event

forecast anticipated ticket sales of $13,244,260—down from $14,236,918 in the July

4th Financials—and a negative $734,222 in total net cash flows.” 134 Later that day,

Mr. Gordon postponed the board’s meeting due to “a number of material open

business issues with Virgin Fest.”135       After a disagreement with Mr. Gordon

regarding a non-compete provision,136 Mr. Felts emailed Mr. Hagle:

          He doesn’t get it. Is [Mr. Gordon] still thinking that Virgin fest is

129
      JX296.
130
      JX660.
131
      JX319.
132
      Id. at 2.
133
      JX367.
134
      Id. at 83-84.
135
      JX364.
136
      JX366 at 2.

                                         - 25 -
            looking to proceed with the KAABOO Del Mar transaction? Can we
            please clarify this and get the letter notice sent over to them as we
            discussed? I truly think that the perception is still that Virgin Fest is
            working to acquire KAABOO….”137

            That same day and one week before the festival, Mr. Hagle sent a letter, stating

that Virgin Fest has “instructed our attorneys to stand down on this matter” and

requested that KAABOO “repay the Loan plus interest in full as soon as possible.”138

Without the loan, Messrs. Walker and Wolkov “didn’t know how [they] were going

to be able to execute on the festival.”139

      J. THE DEAL REVIVES (TWICE).

            Three days before the festival, Mr. Felts wrote to Mr. Gordon and Mr. Hagle

with proposed terms for a revived deal.140 The terms included, in part: (a) an $8

million note from Fortress Investment Group (“Fortress”); (b) acquisition of all

KAABOO, including KAABOO Del Mar, brand, and pipeline of future events for

$3 million in Virgin Fest equity; (c) release of Mr. Felts’s                 non-compete;

(d) management contracts for KAABOO to produce Virgin Fest events; and

(e) removal of Mr. Gordon at Virgin Fest as a manager.141

            Mr. Felts proposed an in-person meeting in Los Angeles for the next day to

137
      Id.
138
      JX369 at 2.
139
      Walker Tr. at 75; Wolkov Tr. at 376-77.
140
      JX376.
141
      JX615.

                                                - 26 -
discuss the terms.142 Mr. Hagle agreed. And before flying out to Los Angeles,

Mr. Hagle insisted on receiving Fortress’s contact information before 6 p.m. that

day.143 He was assured that Mr. Gordon would have the information.144 Mr. Hagle

flew from Florida to Los Angeles, but Fortress was a “no show.” 145 At that point,

Mr. Hagle told Mr. Gordon that Virgin Fest was out.146 At trial, Mr. Hagle testified

that:

            The meeting ended with [Mr. Gordon] coming over to me and standing
            two inches from my face and threatening me . . . He suggested to me
            that Virgin Fest was going to die; [Mr. Felts] was not going to be able
            to work going forward; and that he was going to make sure that Richard
            Branson got embarrassed; and the Virgin Fest brand would be no good
            forever and we’d never be able to raise any money.147

            On Mr. Hagle’s flight back, Mr. Gordon called to apologize and Mr. Hagle

agreed to fund the acquisition.148 After that call, Mr. Hagle wired the funds to

vendors and other third parties.149

      K. THE PARTIES ENTER INTO THE APA.

            One day before the festival, on September 12th, the parties executed the Asset

142
      JX378 at 2.
143
      Id.
144
      Id.
145
      Hagle Tr. at 1067-9.
146
      Id. at 1075-6.
147
      Id. at 1076.
148
      Id. at 1077-80.
149
      Id. at 1081.

                                             - 27 -
Purchase Agreement (“APA”).150               Through the APA, Virgin Fest purchased

substantially all of KAABOO’s assets.151 Too, the APA contained the following

representations concerning KAABOO:

          [N]o Seller has any Liabilities related to the Business that are of a nature
          required to be disclosed on a balance sheet prepared in accordance with
          generally accepted principles….152

And:

          To Sellers’ Knowledge, no representations or warranties by Sellers in
          this Agreement, nor any other Transaction Document or other
          document, exhibit, statement, certificate or schedule or other
          information (financial or otherwise) furnished to Buyer in connection
          with the transactions contemplated hereby contains any untrue
          statement of a material fact, or, to Sellers’ Knowledge, omits any
          material fact necessary to make the statements or facts contained
          therein not misleading.153

          The APA provided Virgin Fest with indemnification for any “breach or

inaccuracy of” these representations.154 The APA placed a $2 million cap on these

claims.155

150
      JX398 (the “APA”).
151
      Id. § 1.01.
152
   Id. § 3.05. The APA defines “Sellers” to include KAABOO LLC, KAABOO Management
LLC, KB Eventpro, LLC, KAABOO-Del Mar LLC, KAABOOWorks Services, LLC, KAABOO
Contract Services, LLC, and KAABOO Works, LLC.
153
      Id. § 3.10.
154
      See id. § 6.02(a)(i).
155
    Id. § 6.02(b)(i) (“The aggregate amount of all payments made by Sellers in satisfaction of
claims for indemnification pursuant to Section 6.02(a)(i) shall not exceed $2,000,000.”)); see also
id. § 6.06 (providing that the indemnification provisions are the “exclusive provisions in this
Agreement with respect to the liability of Sellers and Buyers for the breach, inaccuracy or
                                              - 28 -
          The APA also required that KAABOO apply all 2019 KAABOO Del Mar

festival income to any 2019 Del Mar Festival Liabilities.156 And, Mr. Gordon agreed

to guarantee the payment of all 2019 Del Mar Festival Liabilities as of April 1,

2020.157

      L. THE PARTIES ENTER INTO THE PRODUCTION SERVICES AND
         ENGAGEMENT AGREEMENTS.

          As required in the APA, at closing, KAABOO delivered to Virgin Fest an

executed Production Services Agreement for the production of future festivals (the

“PSA”), and a Services Engagement Letter (the “Engagement Agreement” and

together with the MSA and PSA, the “Management Contracts”).158

          Under the PSA, KAABOO would produce an annual festival in the San Diego

area for a period of ten years unless terminated earlier pursuant to the Engagement

Agreement.159 Virgin Fest would pay an annual $1,290,000 turnkey fee.160 In

nonfulfillment of any representation or warranty or any covenants, agreements or obligations
contained in this Agreement….”).
156
   Id. § 1.08(c). APA § 1.04 defines 2019 Del Mar Festival Liabilities to mean “any and all
Liabilities (including all accounts payables as well as Taxes) arising from or relating to the
ownership, operation, promotion, production and exploitation of the ‘2019 KAABOO Del Mar
Festival’ scheduled to be held in San Diego, California on September 13, September 14, and
September 15, 2019.”
157
      Id. § 7.16(a).
158
      Id. § 2.02(a)(vii) and (x); id. Ex. E (“PSA”), and id. Ex. G (“Engagement Agreement”).
159
   PSA Recitals, §§ 1, 3. The Engagement Agreement also extended the term of the MSA to ten
years. Engagement Agreement § 7(a).
160
      PSA § 2(c)(i).

                                               - 29 -
addition, KAABOO was to receive: (a) an event management fee equal to three

percent of estimated revenue; (b) an incentive management fee based on cash flow

achievements; and (c) reimbursement of certain third-party costs.161

          The PSA required that KAABOO:

          provide everyone and everything necessary for the production of each
          Event, including, without limitation, such personnel and administrative,
          production, supervisory and other related services consistent with the
          first-class manner that [KABOO] or any of its applicable affiliates have
          previously produced those events.162

          The Engagement Agreement similarly required that KAABOO “has, and will

continue to have, the assets, employees and other capabilities necessary to fully

perform its services under the [PSA and MSA].”163

          The parties consolidated the termination rights for the PSA and MSA in the

Engagement Agreement.             The Engagement Agreement provided that the

Management Contracts may be terminated by:

          Cause – by either party, in whole or in part, upon providing written
          notice to the other party thereto, if the other party thereto breaches any
          of the terms and conditions of this Agreement or the [PSA and MSA]
          in any material respect, and the breaching party has not cured such
          breach within thirty (30) business days following written notice thereof
          by the non-breaching party.164

161
      Id. § 2(a), (b), (c)(ii).
162
      Id. § 1(a).
163
      Engagement Agreement § 4.
164
      Id. § 5(b)(i).

                                            - 30 -
      M. THE KAABOO DEL MAR FESTIVAL TAKES PLACE —THEN COME THE
         LAYOFFS.

          On September 13, 2020, the “big party” finally happened –– and it seemed to

go off “without a hitch.”165 It was “successful operationally,” “safe[ly] execut[ed]

without incident,” and “well reviewed.”166 “Consumers were happy,” and from a

brand perspective, “it was great.”167 But the festival didn’t turn a profit.168 The

festival generated only $13,136,138 in ticket revenue—2.5% less than the previous

year—and expenses were likely going to be higher than originally forecasted.169

          With the Del Mar party now over, soon too would be Virgin Fest’s and

KAABOO’s business partnership. As they began planning for the next year’s

festivals, new issues quickly emerged.

          First, Virgin Fest and KAABOO disagreed as to whether the PSA required

KAABOO to provide ticketing and VIP services.170 Second, less than a week after

the 2019 event, Virgin Fest became aware that KAABOO intended to dismiss several

key members of its staff.171 This prompted Virgin Fest’s counsel to send an email to

165
      Felts Tr. at 738.
166
      Walker Tr. at 91.
167
      Felts. Tr. at 738.
168
      Plaintiffs’ and Counterclaim Defendants’ Opening Post-Trial Brief (“KOB”) at 34.
169
      JX574.
170
      Walker Tr. at 91-92; JX422; JX423; Felts Tr. at 787-788.
171
      JX422.

                                               - 31 -
KAABOO communicating its concerns.172 As feared, by September 23, KAABOO

laid off eighteen employees (in comparison to eight in June after the outcomes of

KAABOO Cayman and KAABOO Dallas) and terminated nine consultants.173 One

of the consultants led KAABOO’s iconic mural program.174 KAABOO doesn’t

dispute that the September layoffs involved the termination of many senior staff and

was more than double the number from the summer after KAABOO Cayman and

KAABOO Dallas.175             By mid-October, KAABOO would reduce its staff to

approximately 35 full-time workers, instead of the approximately 50 it had earlier in

the summer.176

            In October, KAABOO proposed designating Mr. Gordon’s daughter to serve

172
      Id.
173
    JX538 at 54; JX178. In JX178, Mr. Gordon and Mr. Wolkov confirm the accuracy of a draft
press release announcing the termination of eight employee positions.
174
      Gordon Tr. at 1287.
175
    The other employee dismissals appear to have included persons serving in the following
positions: (1) SVP – Corporate Operations, (2) SVP – Business Development, (3) VP – Corporate
Operations, (4) VP – Event Operations, (5) VP – Food & Beverage, (6) VP – Amplify Sales &
Hospitality, (7) Director – Ticketing & Credentials, (8) Creative Director/Sr. Graphic Designer,
(9) Partner Operations Manager, (10) Environmental Design Project Coordinator, (11) Manager –
Artwork Sales & Operations, (12) Sales Manager, (13) Business Affairs Manager, (14) Corporate
& Hospitality Sales Manager, (15) Manager – Culinary Business Dev. & Programming, (16) Data
Analyst. See JX538 (cross referencing JX154). In comparison, the June lay-offs involved
termination of the following positions: (1) Senior Associate – Corporate Development, (2) Director
– Amplify & Bask Operations, (3) Group Sales Representative, (4) Senior Staff Accountant,
(5) Graphic Designer, (6) Marketing Coordinator, (7) Amplify Guest Services Representative. See
JX178 (cross referencing JX154).
176
      Compl. ¶ 74; JX538 at 12, 45.

                                             - 32 -
as “Co-Manager.”177              Virgin Fest expressed its concerns with Mr. Gordon’s

daughter’s ability to serve in that new role, citing her lack of managerial

experience.178 As an alternative, Nate Prenger, who previously served as General

Manager at KAABOO, and was then working at Virgin Fest,179 proposed serving as

the overall General Manager on a three-member team that included Ms. Gordon.180

He proposed a fee reduction on KAABOO’s part due to his added role.181 KAABOO

didn’t agree to the reduction.182

            KAABOO also sent invoices to Virgin Fest, calculating a $71,680 amount

based on 3% of estimated revenue, and one of the monthly installments of the

turnkey fee for $107,500.183 The same day, KAABOO sent an invoice for Virgin

Fest Los Angeles pursuant to the MSA.184

      N. VIRGIN FEST SENDS THE OCTOBER 18 LETTER.

            On October 18th, Mr. Felts left a voicemail for Mr. Wolkov stating that

“they’re going to be terminating the [KAABOO] engagement,” and that he would

177
      JX450 at 7002.
178
      Prenger Dep. Tr. at 172.
179
      Shepperd Tr. at 268.
180
      JX462.
181
      Id.
182
      Id.
183
      JX445.
184
      JX448.

                                             - 33 -
be sending out a letter shortly.185 Later that day, Mr. Felts emailed a letter to

Mr. Gordon and Mr. Wolkov that identified alleged defaults under the relevant

agreements and proposed that the parties “mutually and amicably terminate the

Agreements as of October 1, 2019.”186 The letter concluded with the following:

            For the avoidance of doubt, this letter shall constitute notice of default
            pursuant to each of the Agreements, and all of VF’s rights are hereby
            expressly reserved.187

After receiving the letter, KAABOO terminated its remaining employees and didn’t

pay the vendors it owed.188

              IV. THIS LITIGATION AND THE PARTIES’ CONTENTIONS

            Within a month, KAABOO and its affiliates filed its complaint against Virgin

Fest and its affiliated entities. KAABOO brought three claims; only two survived

to trial.189 Its first charges breach of contract under the APA, MSA and PSA.

KAABOO also brings an accompanying implied covenant of good faith and fair

dealing claim.190

            Virgin Fest answered, leveled eight counterclaims, and added Mr. Gordon as

185
      JX503; Felts Dep. Tr. at 87.
186
      JX501 at 4.
187
      Id.
188
      Walker Tr. at 99.
189
      The Court dismissed KAABOO’s tortious interference claim. D.I. 109.
190
      See Compl. ¶¶ 85-98.

                                              - 34 -
a counterclaim defendant.191 In response, Mr. Gordon filed his own counterclaim

against Virgin Fest. Through it he seeks payment in connection with his agreement

to resign from Virgin Fest after the 2019 KAABOO Del Mar festival (the “Gordon

Side Agreement”).192 Virgin Fest followed with an amended and supplemental

answer with a total of 14 counterclaims (including claims for fraud) and now adding

Mr. Wolkov and Mr. Walker as defendants.193 Virgin Fest’s fraud claims survived

KAABOO’s later motion to dismiss and were pressed at trial.194

         The Court denied a KAABOO judgment-creditor’s motion to intervene in this

action.195

         Virgin Fest eventually filed its Second Amended and Supplemental Answer

and Counterclaims (“Second Amended Counterclaims”).196 Virgin Fest’s Second

Amended Counterclaims upped the counterclaims to fifteen. Counterclaims One

through Seven, Twelve, and Fourteen are contractual claims relating to the APA and

Management Contracts. Counterclaims Nine through Eleven are claims for fraud

and civil conspiracy. Counterclaims Eight and Thirteen are contractual claims aimed

191
      D.I. 13.
192
      D.I. 49.
193
      D.I. 78.
194
      D.I. 109.
195
      D.I. 186.
196
      D.I. 227.

                                       - 35 -
at Mr. Gordon pursuant to APA Section 7.16 (the “the Gordon Guarantee”). And

Counterclaim Fifteen is for breach of the LOI and Loan Agreement.

         With trial pending, both Virgin Fest and KAABOO filed unsuccessful motions

for summary judgment.197

         Trial was held over seven days from October 23 to November 1, 2023. Post-

trial briefing was filed and is now completed.

         In sum, KAABOO seeks $84.5 million in damages. While Virgin Fest seeks

fraud-based damages in the amount of $11.810 million plus punitives.

                           V. GENERAL LEGAL PRINCIPLES

         Though the Court sits without a jury, it has applied the same principles of law

in its deliberations and consideration of each individual claim and counterclaim that

it would have more formally instructed a jury to follow. The Court may in this

writing highlight some of those most applicable to this particular case. But the fact

that some particular point or concept may be mentioned here should not be regarded

as any indication that the Court did not—during its deliberations—consider all legal

principles applicable to this case and to the parties’ claim, counterclaims, and

defenses.

          In reaching its verdict, the Court has examined all exhibits submitted and

considered the testimony of all witnesses, both direct and cross, live and by

197
      D.I. 345; D.I. 346; D.I. 365.

                                          - 36 -
deposition. The Court has also considered the applicable Delaware case law that has

defined the legal precepts applicable to the claims and defenses the parties have

forwarded. The Court has applied the Delaware Rules of Evidence to the testimony

and exhibits and only used for its deliberation that which would be allowed under

those rules—consistent with the Court’s knowledge of those rules and the specific

rulings that may have been made and articulated both pre-trial and during the trial

proceedings. And, of course, the Court has considered each party’s respective

arguments on the weight to be accorded the testimony and evidence.

          The Court then reviewed and applied some of the very instructions that it

would give a jury in these circumstances.198

                                 VI. ANALYSIS AND FINDINGS

          The Court first addresses Virgin Fest’s fraud claims, followed by the parties’

competing contractual claims. Additional facts are included now where needed but

the Court will, where possible, seek to avoid repetition. On the key disputed points,

the Court had to make certain difficult and nuanced credibility determinations in

deriving its factual findings from the testimony of Messrs. Walker, Wolkov, Gordon,

Hagle and Felts.199

198
    See, e.g., Del. Super. Ct. Civ. Pattern Jury Instr. 4.1 (Burden of Proof by a Preponderance of
the Evidence); id. at 4.2 (Evidence Equally Balanced); id. at 23.1 (Evidence—Direct or
Circumstantial); id. at 23.9 (Credibility of Witnesses—Weighing Conflicting Testimony); id. at
23.10 (Expert Testimony).
199
      Ms. Sheppard’s limited testimony didn’t pose nearly the same challenge.

                                               - 37 -
      Mr. Hagle and Mr. Felts described themselves as neophytes to the financial

workings of the music festival industry.         But Mr. Hagle was a sophisticated

businessman, and the record shows that he closely scrutinized the financials and

likely was likely well-aware of the financial peril KAABOO was facing. Too,

Mr. Felts was closely engaged in negotiations and had much at stake in a deal, despite

portraying himself narrowly as the “brand guy” with a limited role at KAABOO.

      On the other side, Mr. Gordon’s testimony was largely self-serving and

unreliable. He praised the capabilities of his daughter and KAABOO staff, but

offered little evidence to support his beliefs when balanced against the economic and

managerial challenges facing KAABOO. He also portrayed himself as an innocent

bystander who tried to wall himself off in negotiations due to his dual fiduciary roles

at Virgin Fest and KAABOO. But, like Mr. Felts, he was a major driver of

negotiations. Mr. Walker and Mr. Wolkov in large part followed Mr. Gordon’s lead.

      For these reasons, the Court found the parties’ testimony on the key disputed

points far less helpful than the evidence of contemporaneous communications and

documentation.

   A. VIRGIN FEST’S CLAIMS

      Virgin Fest’s claims fall into two categories. Counterclaims Nine through

Eleven charge fraud and civil conspiracy. The Court will address these claims first.

Next are the contractual counterclaims One through Eight and Twelve through

                                        - 38 -
Fifteen. These claims relate to the APA, the Management Contracts, the LOI and

Loan Agreement and make various requests for declaratory relief.

       1. Virgin Fest’s Fraud Claims: the July 4th Financials

       Virgin Fest contends that KAABOO committed fraud. Fraud requires:

       (i) a false representation of material fact; (ii) the knowledge or belief
       that the representation was false, or made with reckless indifference to
       the truth; (iii) an intent to induce another party to act or refrain from
       acting; (iv) the action or inaction taken was in justifiable reliance on the
       representation; and (v) damage to the other party as a result of the
       representation.200

       A party must prove each element by a preponderance of the evidence.201

       a. The July 4th Financials were false.

       Fraud may occur as (1) an overt misrepresentation; (2) deliberate concealment

of material facts; or (3) silence in the face of a duty to speak.202 Deliberate

concealment has occurred if a defendant “took some action affirmative in nature

designed or intended to prevent, and which [did] prevent, the discovery of facts

200
    Infomedia Grp., Inc. v. Orange Health Sols., Inc., 2020 WL 4384087, at *3 (Del. Super. Ct.
July 31, 2020) (citation omitted); see also Morris v. Thayer, 1991 WL 244235, at *2 (Del. Ch. Nov.
15, 1991).
201
    NetApp, Inc. v. Cinelli, 2023 WL 4925910, at *12 (Del. Ch. Aug. 2, 2023), judgment entered,
(Del. Ch. 2023). Though there is some dispute as to whether a clear and convincing standard
applies, the weight of authority suggests—and this Court here applies—a preponderance of
evidence standard. See id. n.168 (citing Arwood v. AW Site Servs., LLC, 2022 WL 705841, at *21
(Del. Ch. Mar. 9, 2022)); Stone & Paper Invs., LLC v. Blanch, 2021 WL 3240373, at *26 (Del. Ch.
July 30, 2021); Roma Landmark Theaters, LLC v. Cohen Exhibition Co. LLC, 2021 WL 2182828,
at *8 n.12 (Del. Ch. May 28, 2021); Trascent Mgmt. Consulting, LLC v. Bouri, 2018 WL 4293359,
at *17 (Del. Ch. Sept. 10, 2018)). No matter. Under either standard, the outcome here is the same.
202
   In re Am. Int’l Grp., Inc., Consol. Deriv. Litig., 965 A.2d 763, 804 (Del. Ch. 2009), aff’d sub
nom. Tchrs.’ Ret. Sys. of La. v. PricewaterhouseCoopers LLP, 2011 WL 13595 (Del. Jan. 3, 2011).

                                             - 39 -
giving rise to the fraud claim[;] some artifice to prevent knowledge of the facts[;] or

some representation intended to exclude suspicion and prevent inquiry.”203 The duty

to speak arises “if, before the consummation of a business transaction, [the party]

acquire[d] information that [he] knows will make untrue or misleading a previous

representation that when made was true.”204

         The July 4th Financials were false. KAABOO management made a series of

unsubstantiated decisions that rendered the July 4th Financials inaccurate. And,

when Mr. Walker or Mr. Wolkov received new information that they knew yielded

these inaccuracies, they never disclosed that information to Virgin Fest.

         First, the July 4th Financials didn’t accurately represent estimated ticket

revenue. Mr. Rosetti informed Mr. Walker that ticket revenue projections were

lower than the original budgeted amount.205 Nonetheless, Mr. Walker told Mr.

Rosetti to lower projections by only half the difference between the old and newly

forecasted amounts.206 At trial, Mr. Walker testified that the forecast, or as he called

it, “scenario,” was one of many, and that management believed it could justify the

203
   Maverick Therapeutics, Inc. v. Harpoon Therapeutics, Inc., 2020 WL 1655948, at *26 (Del.
Ch. Apr. 3, 2020) (brackets in original) (internal quotation marks omitted); see Lock v. Schreppler,
426 A.2d 856, 860 (Del. Super. Ct. 1981).
204
      Maverick, 2020 WL 1655948, at *29 (brackets in original).
205
      JX140; Walker Tr. at 130-31.
206
      Walker Tr. at 161-63; JX147 at 2190.

                                              - 40 -
projection by an improved marketing plan.207 While it is conceivable that an

improved plan could achieve the ticket revenue Mr. Walker was projecting, he

provided no convincing testimony nor did any contemporaneous communications

reveal that these changes to the financials were anything but arbitrary and born by

the need for a sale.

         Second, the July 4th Financials didn’t accurately represent operating expenses.

Mr. Wolkov cut “600k in opex,” and at Mr. Gordon’s request, an additional “250k

. . . in expenses.”208 The July 4th Financials also stripped out any “contingency” as

a line item.209 Not one witness could identify the source of the savings justifying

these cuts.210 In contrast, previously, KAABOO employees identified approximately

$1 million in line-item expense reductions with supporting documentation.211

Mr. Wolkov and Mr. Gordon’s top-down changes rendered the July 4th Financials

inaccurate.

         Third, because costs for corporate overhead were not included, the July 4 th

Financials didn’t accurately state the applicable EBITDA. Mr. Walker posited that

the July 4th Financials were an “event level P&L,” and thus, “a buyer is going to

207
      Walker Tr. at 162, 245-248.
208
      JX166 at 2317, 2319; JX187 at 8987.
209
    See JX197. Mr. Walker suggests that this money was shifted over to another category. Walker
Tr. at 198. The Court didn’t find this “shift” explanation credible.
210
      Wolkov Tr. at 472, 492; Walker Tr. at 192, 199-200; Gordon Tr. at 1344-45, 1356.
211
      JX629.

                                              - 41 -
have either their internal cost covered that they’re going to factor into their analysis

or they are going to hire us based on the fee structure that we reflected in those outer

years. It’s not going to be based on actuals. This is a buyer pro forma.” 212 But

nowhere does the document include that language.                 Instead, the document’s

description is headed as “KDM Summary Financials and Key Operating Metrics.”213

            Nor does the supposed clarifying footnote help. That footnote states that

KAABOO Del Mar didn’t allocate fees or expenses in 2018 and 2019 because it was

a wholly owned subsidiary.214 It further states that “[a]pplicable EBITDA on exit to

a strategic purchaser would be exclusive of management costs.”215 But by July 4,

KAABOO still operated KAABOO Del Mar, and an “N/A” designation suggests

that corporate overhead was already integrated in the other numbers for 2019. The

fact that KABOO Del Mar “did not allocate fees or expenses in 2018 and 2019”

raises the same reasonable inference.

            If not suffering facial inaccuracy, the footnote is, at very best, intentionally

vague and the omission of the corporate overhead costs constitutes a deliberate act

of concealment. Communications and testimony confirm that the actual spend on

KAABOO Del Mar corporate overhead was at least $1 million greater than initially

212
      Walker Tr. at 202, 204.
213
      JX197.
214
      Id.
215
      Id.

                                             - 42 -
documented.216 Omitting this information—and refusing to disclose it later—was a

deliberate act of concealment of material facts. Indeed, Mr. Walker requested to

“delete the OPEX . . . as it makes numbers/losses look scary . . . ” and doing so

would make “losses shown [to be] less.”217

         For these reasons, Virgin Fest has satisfied the first element of fraud with

respect to the July 4th Financials.

          b. KAABOO Management knew the representations were false.

         The second element of fraud requires knowledge of the falsity of the

representation or that the representation was made with reckless indifference to the

truth.218 Virgin Fest has proven that KAABOO management knew the July 4th

Financials were false. Mr. Wolkov and Mr. Gordon lowered the operating expense

numbers without justification, having no savings to point to. Mr. Walker inflated

ticket revenue numbers on the basis of an illusory marketing plan.219 With four years

of experience operating KAABOO Del Mar and having never produced any profits,

KAABOO management was pretending that year five would produce a near

$4 million swing in cash flow. Virgin Fest has thus satisfied element two.

216
      JX641 at 7634; JX221; Walker Tr. at 201.
217
      JX186 at 8984, 8988.
218
   Great Hill Equity Partners IV, LP v. SIG Growth Equity Fund I, LLLP, 2018 WL 6311829, at
*32 (Del. Ch. Dec. 3, 2018).
219
      Walker Tr. at 162.

                                                 - 43 -
            c. KAABOO Management intended for Virgin Fest to rely on the July 4th
               Financials.

            The third element of fraud requires that the false statements were made with

an intent to induce another party to act or refrain from acting. 220 Direct evidence is

not necessary but proving motive and opportunity for inducement suffices. 221 The

“transaction itself may serve as both the motive and opportunity to commit the

fraud.”222

            KAABOO had a motive to commit fraud. KAABOO management was under

pressure to push through a sale of KAABOO Del Mar, and Mr. Hagle was an

interested investor who could solve KAABOO’s financial woes.                          The 2018

KAABOO Del Mar festival failed to generate sufficient cash to finance the 2019

festival. Vendors from the 2018 festival were demanding payment, and other cash

deadlines for the 2019 festival were fast approaching.223 KAABOO had dried up all

other possible sources: no financing was coming through from the series financing

rounds;224 Mr. Gordon had warned Mr. Walker and Mr. Wolkov that he wouldn’t

“come to the rescue;”225 any hope for cash in-flows from KAABOO Cayman were

220
      Maverick, 2020 WL 1655948, at *29.
221
      NetApp, Inc., 2023 WL 4925910, at *13.
222
      Id.
223
      JX267.
224
      JX474 at 3902; JX145; Walker Tr. at 148; JX474 at 3024-25.
225
      JX61 at 6687; Walker Tr. at 155-56; Wolkov Tr. at 410-12; Gordon Tr. at 1308.

                                               - 44 -
dashed when KAABOO Cayman’s joint partner backed out of producing future

Cayman festivals; and, KAABOO Dallas had suffered considerable losses.226

          KAABOO also had an opportunity to sell KAABOO to Virgin Fest. Virgin

Fest had a genuine interest in acquiring KAABOO Del Mar. Mr. Hagle had positive

experiences attending the events.227 He didn’t see the festival as competitive with

Virgin Fest and believed both sides could extract value from a long-term

partnership.228

          Virgin Fest has proved that KAABOO management made knowingly false

representations in the July 4th Financials with the intent to induce Virgin Fest to

acquire KAABOO Del Mar.

          d. But Virgin Fest didn’t prove justifiable reliance on the July 4th
             Financials.

          To carry its burden on its fraud claims, Virgin Fest must prove that it

justifiably relied upon the July 4th Financials. The recipient of a false representation

“must in fact have acted or not acted in justifiable reliance upon it.” 229 Whether

reliance is determined by employing an objective standard.230 A finding of justifiable

226
      JX478 at 3027.
227
      Hagle Tr. at 969, 972.
228
      Id. at 993.
229
    Universal Enter. Grp., L.P. v. Duncan Petroleum Corp., 2013 WL 3353743, at *14 (Del. Ch.
July 1, 2013) (quoting NACCO Industries, Inc. v. Applica Inc., 997 A.2d 1, 29 (Del. Ch. 2009)).
230
      Great Hill Equity Partners IV, LP, 2018 WL 6311829, at *33.

                                              - 45 -
reliance isn’t possible if the recipient was aware of a representation’s falsity.231

         Mr. Hagle says that he justifiably relied on the July 4th Financials, namely that

the 2019 KAABOO Del Mar festival would be profitable. Mr. Hagle testified at trial

that Mr. Walker and Mr. Gordon represented to him that the corporate overhead costs

were already incorporated in the other expense categories, and that the positive

EBITDA number for 2019 was therefore accurate.232

         There is no dispute that Mr. Hagle closely scrutinized the July 4 th Financials.

His initial impression was that—at least as to the projections beyond 2019—they

were numbers he could not rely on and were “fantasy land.”233 As to the 2019

numbers, however, he testified that Mr. Wolkov and Mr. Gordon convinced him that

the numbers were accurate. According to Mr. Hagle, he believed those 2019

numbers to be correct.234

         Several considerations weigh against finding that Mr. Hagle justifiably relied

231
    Maverick Therapeutics, Inc., 2020 WL 1655948, at *30 (citing Universal Enter. Grp., L.P.,
2013 WL 3353743, at *14; T.P. Inc. v. J&D's Pets, Inc., 1999 WL 135243, at *4 (Del. Ch. Feb. 26,
1999) (“In this context, it is hornbook law that the plaintiff must rely upon the truthfulness of the
representation at issue.”) (quoting 37 Am. Jur. 2d § 226 (1968) (“It follows that in any fraud case,
in order to secure relief, the complaining party must honestly confide in the representations or, as
has been said, must reasonably believe them to be true. The law will not permit one to predicate
damage upon statements which he does not believe to be true, for if he knows that they are false,
it cannot truthfully be said that he is deceived by them”)); see also 37 Am. Jur. 2d § 236
(“Representations made to a plaintiff that the plaintiff actively disbelieves cannot serve as a basis
for claiming fraud.”)
232
      Hagle Tr. at 999-1000.
233
      Hagle Dep. Tr. at 94.
234
      Hagle Tr. at 1169-1170.

                                               - 46 -
on the July 4th Financials. First, Mr. Hagle knew, or at least should have known, that

the ticket revenue numbers were inflated. Mr. Hagle had access to current pass sales

during the seven-day due diligence period.235 Too, Mr. Felts, as a board member of

KAABOO, and an attendee of the August and September board meetings, had access

to this information.236 Mr. Felts was already providing self-dubbed “Confidential”

“Intel” to Mr. Hagle during the negotiation of the LOI.237 It is reasonable to expect

that he continued to do that throughout the negotiations and up to the execution of

the other agreements.

         Second, the Court’s harmonization of the credible evidence reveals that

Mr. Hagle maintained true (and justified) doubt about Messrs. Wolkov and Gordon’s

explanation that the corporate overhead was already incorporated in the other costs.

At his deposition, Mr. Hagle introduced for the first time his handwritten notes of

the July 4th Financials.238         Those notes and Mr. Hagle’s deposition testimony

demonstrate that Mr. Hagle didn’t justifiably rely on the July 4th Financials.

Mr. Hagle’s later reparative recollection was simply less convincing.239

         In Mr. Hagle’s handwritten version of the July 4th Financials, he wrote the

235
      JX296; JX660.
236
      See, e.g., JX367.
237
      JX241.
238
      See Hagle Dep. Tr. at 82-84, 141-43.
239
      Cf. Hagle Tr. at 999-1000.

                                             - 47 -
words “Add back opex and management fee at 2 percent.”240 When asked at his

deposition what he meant by that, Mr. Hagle recounted:

                  Yeah. That’s after my discussions with [Mr. Wolkov] when I
                  pointed out that it did not have that. And we, in the room, did a
                  very quick calculation on what that might be. And if we add back
                  in the overhead expense to Eventpro for managing and operating
                  these festivals, it would adjust the EBITDA so that – downward
                  by about a million five-seventy-five.241

            And when then asked why he circled the phrase “direct hard cost inc[luding]

corp admin.” in the left-hand margin, he explained,

                  Well, because I don’t see anything. We’re looking at KAABOO
                  opex reimbursement and event management fees and incentive
                  management fees. And if you look at 2018, it’s not applicable.
                  If you look at 2019, it’s not applicable. And then all of a sudden
                  jumps in 2020.

                  So what it seemed to me is, the KAABOO festivals that were
                  being put on in 2018 and ’19, there had to be a fee structure to
                  management. Management doesn’t do this for nothing. Bryan
                  Gordon is not a guy that does anything for anybody without
                  being paid for it, and all those numbers are missing.242

            At trial, however, Mr. Hagle added that Mr. Wolkov and Mr. Gordon had

convinced him that:

            all of the KAABOO overhead, all the expenses, everything that it took
            to put on this festival is incorporated into the other numbers . . . [so]
            that when you look at the EBITDA at the end, the EBITDA is truly
            representative of the total cash surplus or deficit that it took to run the

240
      JX598.
241
      Hagle Dep. Tr. at 144-45.
242
      Id.

                                              - 48 -
         festival during this period of time.243

         When asked at trial about the note to “Add back opex and management fee at

2 percent,” Mr. Hagle said that he did that “as an internal analysis to me just to see

if I had hired a management fee in 2019 it would have been to that number. It has

nothing to do with the profitability that was projected in 2019.”244

         Putting aside that Mr. Hagle appears to have failed to raise these details in his

deposition testimony, Mr. Hagle’s suggestion that the “add back opex and

management fee at 2 percent” was an “internal analysis” makes far less sense.

         If Mr. Wolkov truly represented to Mr. Hagle that the corporate overhead

numbers were already baked in the other direct costs, one wouldn’t then add back

the corporate overhead fee as an “internal analysis.” This exercise would be

duplicative and would seemingly overestimate EBITDA. In addition, if the numbers

were already baked into the other costs, one would expect the operating expenses in

those rows for 2020 to decrease, because those expenses would be pulled out and

reflected in the opex reimbursement fee. Instead, the non-corporate overhead

expenses from 2019 to 2020 increase.245

         Third, Mr. Hagle is a sophisticated businessman whose subsequent conduct

243
      Hagle Tr. at 999-1000.
244
      Id. at 1142.
245
      See JX197.

                                           - 49 -
showed a lack of reliance. He scrutinized the numbers, and he identified the

discrepancies in the July 4th Financials. Indeed, other interested parties identified

the same discrepancy.246 In addition, after the September 6 KAABOO Board

meeting, in which updated forecasts were provided to Board members, including Mr.

Felts, Mr. Hagle sent a letter to KAABOO stating that Virgin Fest instructed their

attorneys to stand down on the matter.247 Only after Mr. Hagle was able to obtain

further concessions, including the removal of Mr. Gordon at Virgin Fest and the

acquisition of KAABOO’s intellectual property, did he come back to the table.

         Mr. Hagle saw the warning signs, but nonetheless proceeded to go through

with the transaction.

         For these reasons, Virgin Fest did not justifiably rely on the July 4th Financials.

Thus, Virgin Fest has failed to prove its claims for fraud as to them.248

         2. Virgin Fest’s Remaining Fraud Claims

         Virgin Fest alleges additional fraudulent acts, but its attendant counterclaims

fail for similar reasons.

         Virgin Fest alleges that KAABOO failed to disclose subsequent ticketing

246
      See JX300; JX301.
247
      JX369.
248
    This finding should not be misunderstood as in any way condoning KAABOO’s chicanery that
underpins this fraud claim. It is merely a recognition that the Court must find that one claiming
fraud justifiably relied on the deceit alleged. Here, Virgin Fest at the very least intuited the dubiety
of the numbers presented and instability of the presenting entity, engaged its own risk-reward
analysis, extracted what further it could, and moved forward with the deal.

                                                - 50 -
forecasts.      But as explained above, Virgin Fest could not justifiably rely on

information, or the concealment thereof, that it knew to be fraudulent or that would

uncover fraud it was already aware of. Mr. Hagle was receiving insider information

from Mr. Felts throughout the negotiation process. He also had direct access to

information that would have shown current pass sales through the due diligence

process. For these reasons, Virgin Fest has failed to prove fraud as to the non-

disclosure of subsequent ticketing forecasts.

         Virgin Fest says that KAABOO lied in the LOI. KAABOO represented in the

LOI that Virgin’s $2 million loan “shall be in the senior most position” and paid with

KAABOO Del Mar income prior to the payment of any other losses, fees.”249 The

parties entered into the LOI on August 13th. Just one day before, Gemini agreed to

subordinate its loan to Virgin Fest’s in exchange for added consideration.250 Virgin

Fest argues that failure to disclose this deal induced it into loaning KAABOO

$2 million.

         Yet, even if true, Virgin Fest fails to prove any damages distinct from what it

would have recovered under the APA. The LOI was a non-binding agreement. It

stated that, upon completion of a sale and pursuant to the Loan Agreement and APA,

the loan would convert into a down payment on the $10 million purchase price of

249
      JX275 § 2(a)(i).
250
      Id.; JX277; JX289.

                                          - 51 -
KAABOO Del Mar.251 Resultingly, the loan, by September 12th, became forgiven

and was “deemed paid in full.”252 And Virgin Fest, therefore, suffered no discernable

injury from the non-disclosure of the payment to Gemini.253

         Virgin Fest complains that Messrs. Gordon and Walker committed fraud by

misusing their roles as dual fiduciaries of both Virgin Fest and KAABOO. But these

are breach of fiduciary duty claims costumed as fraud claims. Virgin Fest can obtain

no relief for such fiduciary-duty claims here. These claims fail.

         Finally, Virgin Fest contends that KAABOO management committed

contractual fraud by making knowingly false representations in the APA. As

discussed above, the contractual fraud claims premised on the July 4th Financials

fail because Virgin Fest didn’t prove justifiable reliance. Now, as discussed below,

the other contractual fraud claims fail for want of showing falsity.254

251
      JX275 § 2(a)(i), 12; JX277 § 2.5; APA 1.08(d).
252
      JX277 § 2.5.
253
    Virgin Fest also claims that KAABOO committed fraud by failing to disclose the debts from
KAABOO Cayman and KAABOO Dallas pursuant to the terms of the LOI. This claim also fails
for failure to show damages.
    Lastly, for similar reasons, Virgin Fest fails to prove its Fifteenth counterclaim regarding
breach of the LOI and Loan Agreement. The LOI was a non-binding agreement, and the APA
terminated the Loan Agreement upon closing. APA § 1.08(d). Too, for the Loan Agreement, Virgin
Fest fails to show any damages because the loan converted into the purchase price upon execution
of the APA, and if there were any damages, Virgin Fest has failed to show that they would be
distinct from any damages retrievable under the APA.
254
      The civil conspiracy claims fail because they are predicated on the unproven fraud claims.

                                               - 52 -
            3. Breach of Contract under the APA

            A breach of contract requires (1) a contractual obligation, (2) a breach of that

obligation, and (3) resulting damages.255 The Court will read a contract as a whole

and will give each provision and term effect, so as not to render any part of the

contract surplusage.256 The Court will give effect to the plain meaning of the clear

and unambiguous terms and provisions of a contract.257 If the contractual language

is clear, the Court “will give priority to the parties’ intentions as reflected in the four

corners of the agreement, construing the agreement as a whole and giving effect to

all its provisions.”258 “[A] contract is ambiguous only when the provisions in

controversy are reasonably or fairly susceptible of different interpretations or may

have two or more different meanings.”259 If there is ambiguity, then the Court “may

consider extrinsic evidence to resolve the ambiguity.”260

            One championing a breach-of-contract claim must establish each of its

elements by a preponderance of the evidence. 261

255
   Interim Healthcare, Inc. v. Spherion Corp., 884 A.2d 513, 548 (Del. Super. Ct.
2005), aff’d, 886 A.2d 1278 (Del. 2005).
256
      Osborn ex rel. Osborn v. Kemp, 991 A.2d 1153, 1159 (Del. 2010) (citations omitted).
257
      Id.
258
      In re Viking Pump, Inc., 148 A.3d 633, 648 (Del. 2016).
259
      Rhone-Poulenc Basic Chems. Co. v. Am. Motorists Ins. Co., 616 A.2d 1192, 1196 (Del. 1992).
260
      Salamone v. Gorman, 106 A.3d 354, 374 (Del. 2014).
261
    See Facchina Constr. Litigs., 2020 WL 6363678, at *14 (defining burden of proof in trial of
such claims and counterclaims) (citing Reynolds v. Reynolds, 237 A.2d 708, 711 (Del. 1967)
(defining preponderance of the evidence); Oberly v. Howard Hughes Med. Inst., 472 A.2d 366,
                                               - 53 -
       a. KAABOO breached the APA.

       KAABOO breached the APA by representing that the July 4th Financials were

accurate and failing to disclose to Virgin Fest its existing debt to Mr. Gordon. That

said, Virgin Fest fails on its other contractual claims under the APA.262

       Virgin Fest says that KAABOO breached the APA by affirming that all prior

disclosures were true and that KAABOO had not omitted material facts. Virgin Fest

prevails on this with respect to the July 4th Financials under the APA. The APA

contained the following representation:

       [t]o Sellers’ Knowledge, no representations or warranties by Sellers in
       this Agreement, nor any other Transaction Document or other
       document, exhibit, statement certificate or schedule or other
       information (financial or otherwise) furnished to Buyer in connection
       with the transactions contemplated hereby contains any untrue

390 (Del. Ch. 1984)); Dieckman v. Regency GP LP, 2021 WL 537325, at *18 (Del. Ch. Feb. 15,
2021).
262
    Counterclaims Eight and Thirteen are claims against Mr. Gordon arising from Section 7.16 of
the APA, i.e., the Gordon Guarantee. Section 7.16 provides that Mr. Gordon “guarantees” payment
when due of all 2019 Del Mar Festival Liabilities, as defined in Section 1.04(a). APA §§ 7.16,
1.01(a). Virgin Fest argues that KAABOO failed to use 2019 KAABOO Del Mar festival receipts
to satisfy 2019 festival venders. JX500; VOB at 71. Virgin Fest asks the Court to enter a judgment
against Mr. Gordon for certain amounts in each creditors’ favor. In other words, Virgin Fest,
through its prayers here, seeks judgment and relief on behalf of non-party creditors. By failing to
demonstrate any injury or damages to itself in this regard, though, Virgin Fest fails on its breach-
of-contract claims with respect to the Gordon Guarantee.
    Counterclaim Fourteen seeks declaratory relief that KAABOO is required to defend,
indemnify, and hold Virgin Fest and their affiliates harmless for excluded liabilities under the APA,
and other lawsuits. Counterclaim Five also seeks indemnification under Section 6.02 of the APA
for losses related to certain threatened lawsuits. But Virgin Fest’s post-trial briefs didn’t address
these “other lawsuits” claims. They are, therefore, waived. Oxbow Carbon & Mineral Hldgs.,
Inc. v. Crestview-Oxbow Acq., LLC, 202 A.3d 482, 502 n.77 (Del. 2019) (“[A]n issue not raised
in post-trial briefing has been waived, even if it was properly raised pre-trial.”). Virgin Fest also
did not pursue Counterclaim Six, breach of the implied covenant of good faith and fair dealing,
and thus is deemed waived.

                                               - 54 -
            statement of a material fact, or, to Sellers’ Knowledge omits any
            material fact necessary to make the statements or facts contained
            therein not misleading.263

            The July 4th Financials were a “document . . . furnished to Buyer in connection

with the” acquisition of KAABOO Del Mar.264 KAABOO represented that such a

document did not “contain[] any untrue statement of a material fact, or, to Sellers’

Knowledge omit[] any material fact necessary to make the statements or facts

contained therein not misleading.”265 As already described, the July 4th Financials

were, in the most forgiving light, purposely obfuscatory. Virgin Fest, thus, prevails

on its claim under the APA with regard to the July 4th Financials.

            According to Virgin Fest, KAABOO also breached the APA because

KAABOO did not disclose: (1) 2018 debt to KAABOO Del Mar’s vendors;

(2) debts associated with KAABOO Cayman and KAABOO Dallas; and (3) debts

Mr. Gordon placed on his personal American Express Card. Section 3.05 provided,

in relevant part, that “[n]o Seller has any Liabilities related to the Business that are

of a nature required to be disclosed on a balance sheet prepared in accordance with

generally accepted principles.”266

263
      APA § 3.10.
264
      Id.
265
      Id.
266
   APA § 3.05. The APA defines “Sellers” to include KAABOO LLC, KAABOO Management
LLC, KB Eventpro, LLC, KAABOO-Del Mar LLC, KAABOOWorks Services, LLC, KAABOO
Contract Services, LLC, and KAABOOWorks, LLC. Annex I to APA.

                                             - 55 -
         Virgin Fest complains that KAABOO failed to disclose the debts associated

with KAABOO Cayman and KAABOO Dallas. But Virgin Fest has failed to show

that any of the Defendants owed a contractual obligation to disclose these debts

under APA Section 3.05. “Sellers” are defined in Annex 1 of the APA. 267 Missing

from that list are KAABOO Texas Investments, LLC and KAABOO Cayman

Eventco, LLC––the KAABOO-affiliated joint venture entities of KAABOO

Cayman and KAABOO Dallas.268 As well, Virgin Fest has failed to show that these

debts belonged to an entity other than KAABOO Texas Investments, LLC and

KAABOO Cayman Eventco, LLC. So, Virgin Fest hasn’t proven that a false

statement was made with regard to the debts of KAABOO Cayman and KAABOO

Dallas.

         With respect to the 2018 debt to KAABOO Del Mar’s vendors, APA

Disclosure Schedule Section 3.05-Liabilities Disclosure included approximately

$5.5 million of disclosed liabilities.269 Virgin Fest presented no evidence that any of

the 2018 debt to KAABOO Del Mar’s vendors weren’t included in those liabilities

enumerated in Disclosure Schedule Section 3.05. So, this specific Virgin Fest claim

fails.

267
      Annex I to APA.
268
      See JX76, JX110.
269
      JX602.

                                        - 56 -
         As to the payments made under Mr. Gordon’s credit card, KAABOO paid at

least $941,434 in September 2019 and $83,943 in October 2019.270 At trial,

Mr. Gordon did not dispute that he paid $250,000 for a hotel deposit in August on

an American Express credit card.271 Yet, again, Virgin Fest presented no evidence—

or more than conclusory assertions—that that debt was not already disclosed on

Disclosure Schedule Section 3.05.272 Virgin Fest therefore has not prevailed on its

270
      JX657 at 13; Gordon Tr. at 1416; JX320.
271
      Gordon Tr. at 1416.
272
    See VOB at 32, 37. To the extent Virgin Fest bases its contractual fraud claims on the non-
disclosure of KAABOO’s purported debts to Gordon, Virgin Fest failed to address how those
allegations satisfy the elements of fraud. Instead, in the argument section of its opening brief,
Virgin Fest levels conclusory assertions that “Management lied in the APA” by “fail[ing] to
disclose . . . the debts to Gordon placed on his personal American Express card.” VOB at 37. It
goes no further to show scienter, nor does it give any explanation for the damages it is owed for
the purported non-disclosure of $250,000 that went towards hotel deposits. Thereafter, in its
answering brief, Virgin Fest doesn’t raise these allegations under its fraud claims, but instead
discusses them in relation to its breach of contract claims. See Virgin’s Post-Trial Answering Brief
(“VAB”) at Section III; cf. Section VI. As a result, the contractual fraud claims flounder on that
basis alone. Franklin Balance Sheet Inv. Fund v. Crowley, 2006 WL 3095952, at *4 (Del. Ch. Oct.
19, 2006) (“Under the briefing rules, a party is obliged in its motion and opening brief to set forth
all of the grounds, authorities and arguments supporting its motion.”); In re Asbestos Litig., 2007
WL 2410879, at *4 (Del. Super. Ct. Aug. 27, 2007) (“Moving parties must provide adequate factual
and legal support for their positions in their moving papers in order to put the opposing parties and
the court on notice of the issues to be decided.”). But even without that, Virgin Fest fails to specify
how any alleged fraud based on this supposed failure to disclose debts to Gordon resulted in
damages that are not already captured under the breaches of the APA that Virgin Fest has proven.
See generally Norman v. Elkin, 860 F.3d 111, 130 (3d Cir. 2017) (“Importantly, in cases involving
both a breach of contract and an allegation of fraud, damages from the fraud must be pled ‘separate
and apart from . . . breach damages.’”) (quoting Cornell Glasgow, LLC v. La Grange Properties,
LLC, 2012 WL 2106945, at *9 (Del. Super. Ct. June 6, 2012); EZLinks Golf, LLC v. PCMS Datafit,
Inc., 2017 WL 1312209, at * 5-6 (Del. Super. Ct. Mar. 13, 2017) (holding that where plaintiff
“failed to separate the damages incurred by any fraudulent conduct from those incurred by
any breach of contract, the claim for the former should be dismissed”) (cleaned up); Cornell
Glasgow, 2012 WL 2106945, at *9 (“Delaware courts have consistently held that to successfully
plead a fraud claim, the allegedly defrauded plaintiff must have sustained damages as a result of a
                                                - 57 -
claim with regard to the nondisclosure of debts KAABOO owed to Mr. Gordon.273

            b. Damages for KAABOO’s Breaches of the APA

            Under Delaware law, the standard remedy for breach of contract “is based

upon the reasonable expectations of the parties ex ante.”274 Such expectation—or

benefit-of-the-bargain—damages are measured by the amount of money that would

put the non-breaching party in the position it would have held if the breaching party’s

representations were true.275 Benefit-of-the-bargain damages are equal to “the

difference between the actual and the represented values of the object of the

transaction.”276

            Virgin Fest purchased KAABOO Del Mar for $10 million.                   Using the

projections provided to Virgin Fest, Virgin Fest’s expert valued KAABOO Del Mar

to be $10.06 million.277 But using the actual 2019 results and applying the same

growth projections KAABOO expected for 2020 and beyond, KAABOO’s expert

defendant’s actions. And the damages allegations may not simply ‘rehash’ the damages allegedly
caused by the breach of contract.”) (internal quotation marks omitted).
273
    Virgin Fest also argues that KAABOO violated APA Section 1.08(c) by not paying $2 million
to Virgin Fest based on the cash received from the 2019 KAABOO Del Mar festival and by also
improperly using 2019 receipts. See APA § 1.08(c). Regardless of Virgin Fest’s potential success
on these claims, any purported damages hereon would be duplicative and thus barred. See VOB
at 68; APA § 6.02(b)(iii).
274
   NetApp, Inc., 2023 WL 4925910, at *17; Duncan v. Theratx, Inc., 775 A.2d 1019, 1022 (Del.
2001).
275
      Stephenson v. Capano Dev., Inc., 462 A.2d 1069, 1076 (Del. 1983).
276
      Id.
277
      JX574 at 3.

                                              - 58 -
arrived at a valuation of less than $0.278

            To arrive at this valuation, he used an income-based approach through a

discounted cash flow analysis.279 Virgin Fest’s expert took the five-year projections

provided to Virgin Fest, and applied a terminal value.280 A 26.47% discount rate was

used and traditional WACC.281 Changing the 2019 starting point via the 2019 actual

results, Virgin Fest’s expert then used the same growth percentages or percent of

revenue percentages that KAABOO management expected for each year going

forward.282 From this, Virgin Fest calculated a value of less than $0.283

            KAABOO provided no competing valuation. KAABOO’s expert didn’t posit

that the DCF method was incorrectly calculated, but instead opined that the

acquisition didn’t properly value KAABOO’s other assets such as its intellectual

property.284      Without a competing valuation, KAABOO resorts to generalized

statements that positive valuations may attach to companies that have never been

278
      Id.
279
      George Tr. at 1711.
280
      JX574 at 12.
281
      Id.
282
      Id.
283
      Id.
284
    JX581 at 3, 6-7. Though KAABOO’s expert takes aim at the discount rate used in Virgin Fest’s
valuation, KAABOO nonetheless fails to proffer a competing valuation. See KOB at 82; George
Tr. at 1740-41.

                                            - 59 -
profitable—giving Tesla and Twitter as examples.285

         At bottom, KAABOO didn’t credibly rebut Virgin Fest’s use of the DCF

method. Nor has it proffered good reason to question Virgin Fest’s analysis.

Regardless of whether KAABOO was worth more than zero dollars, KAABOO has

failed to provide any valuation of KAABOO Del Mar—besides the transaction

price—that could warrant providing less than what the indemnification cap

maximally allows. Virgin Fest seeks damages of $11.810 million—i.e., the

difference between KAABOO’s purchase price and Virgin Fest’s valuation expert’s

estimate. Damages arising under the APA, however, are capped at $2 million.286

Thus, Virgin’s damages are $2 million based on the breaches of the APA.287

285
      See KOB at 82.
286
      APA § 6.02(b)(i).
287
    Virgin Fest is not entitled to punitive damages. For one, Virgin Fest has failed to prove its
fraud claims. It is therefore not entitled to punitive damages based on alleged fraudulent conduct.
Two, Virgin Fest fails to satisfy the high standard required to obtain such an award based upon the
contractual breaches found.
    A party’s conduct must “exhibit[] a wanton or willful disregard for the rights” of the other.
Ripsom v. Beaver Blacktop, Inc., 1988 WL 32071, at *16 (Del. Super. Ct. Apr. 6,
1988) (citing Cloroben Chem. Corp v. Comegys, 464 A.2d 887 (Del. Super. Ct. 1983)). Punitive
damages may be appropriate for “egregious cases of willful and malicious breach of contract.”
Cassan v. Nationwide Insurance Co., 455 A.2d 361 (Del. Super. Ct. 1982). “[T]his Court has
phrased the test for punitive damages in breach of contract cases in various ways . . . [t]he import
of these cases suggests that punitive damages may not be awarded for breach of contract unless
the intentional breach is similar in character to an intentional tort.” Ripsom, 1988 WL 32071, at
*16.
   KAABOO’s contractual breaches of the APA and Management Contracts, which will be
described in more detail below, fall short of the standard of “egregious[ness]” or “willful and
malicious” conduct. KAABOO made false representations, but Virgin Fest was aware of
KAABOO’s lack of profitability. And though KAABOO breached the Management Agreements,
KAABOO’s actions weren’t aimed at injuring Virgin Fest, but cutting expenses for its economic
                                              - 60 -
            4. Breach of the Management Contracts

            Virgin Fest does not seek regular damages for its breach-of-contract claims

against KAABOO under the Management Contracts.288 Instead, Virgin Fest argues

that KAABOO’s breaches of the Management Contracts gave Virgin Fest grounds

to validly terminate those agreements.289

            Virgin Fest has proven by a preponderance of the evidence that KAABOO

was in default of the Management Contracts, thereby entitling Virgin Fest to

terminate those contracts, absent any cure by KAABOO.

            KAABOO breached the Management Contracts by terminating several key

staff members. The PSA required KAABOO “to provide everyone and everything

for the production of each Event . . . consistent with the first-class manner that [it

has] previously produced those events.”290 The MSA required that “[a]ll services

will be performed in a competent and professional manner, by qualified personnel

and will conform to [Virgin Fest Los Angeles’] requirements hereunder.”291

Similarly, the Engagement Agreement required that KAABOO “has, and will

continue to have, the assets, employees and other capabilities necessary to fully

survival. Virgin Fest has failed to prove malice or willfulness in those actions—or that such actions
effectively equate to torts.
288
      VOB at 56.
289
      Id.
290
      PSA § 1(a).
291
      MSA § 6.3.

                                               - 61 -
perform its services under the [MSA and PSA].”292

         Following the 2019 KAABOO Del Mar festival, Virgin Fest feared that

KAABOO intended to terminate several staff, thereby jeopardizing KAABOO’s

commitment to produce two upcoming festivals in the manner required under the

Management Contracts. As feared, approximately a week after the festival and after

Virgin Fest communicated its concerns of potential layoffs, KAABOO fired eighteen

employees and terminated relationships with nine consultants.293 Many of the

terminations involved senior staff members, and among the consultants terminated,

one included the lead person who organized KAABOO’s iconic mural program.294

KAABOO’s staff went from approximately 50 employees to 35.295 In comparison,

after KAABOO Cayman and KAABOO Dallas, KAABOO fired only eight

employees.296

         Mr. Gordon’s testimony at trial did not credibly explain the adequacy of

KAABOO’s new staffing levels. Mr. Gordon stated that KAABOO regularly

reduced its staff after an event.297 He also testified that Virgin Fest Los Angeles was

292
      Engagement Agreement § 4.
293
      JX538 at 54.
294
      See id.; Gordon Tr. at 12.
295
      Compl. ¶ 74; JX538 at 12, 45.
296
      See JX178.
297
      Gordon Tr. at 1272.

                                        - 62 -
“a less complicated festival than a KAABOO event,” and so shrinking from owning

and operating three KAABOO events to one KAABOO event and one Virgin Fest

event required less manpower.298 Even still, KAABOO fired more than double the

number of its staff after KAABOO Del Mar than those let go after KAABOO

Cayman and KAABOO Dallas.299

         The far more likely explanation was that KAABOO didn’t have the funds to

maintain pre-closing staffing levels. As described above, KAABOO made a series

of ad hoc changes to the July 4th Financials to support a picture of profitability.

Neither Mr. Wolkov nor Mr. Gordon identified any corresponding cost-saving

measures to justify those cuts. Having failed to identify cost-saving measures then,

298
      Id. at 1271-72.
299
    KAABOO heavily relies on Mr. Gordon’s testimony that the post-KAABOO Del Mar staffing
levels were adequate. Id. at 1281-1289. Yet KAABOO justified several staffing cuts on the
erroneous belief that the PSA didn’t require KAABOO to provide ticketing and VIP services.
Section 1(a)(i) of the PSA requires that KAABOO provide “VIP Hospitality and operations.” PSA
§ 1(a)(i). It also required that KAABOO provide everything “reasonably necessary for the
production and presentation of each Event.” Id. § 1(a). Virgin Fest also had final approval rights
over ticketing, raising the logical inference that KAABOO had default responsibility for ticketing
as part of the production and operations of the festivals. Id. KAABOO’s failure to provide these
services, therefore, was a breach of the PSA.
    KAABOO’s arguments to the contrary are without merit. It cites to a proposed amendment to
the PSA that would shift the responsibility for ticketing services to KAABOO, but offers no
evidence that the parties agreed to the draft. Plaintiffs’ and Counterclaim Defendants’ Answering
Brief (“KAB”) at 46 (D.I. 438); JX423. It also creates artificial terminology not present in the
PSA. KAABOO argues that ticketing only constitutes “revenue” generating activities, not
“production.” KAB at 47. Or, that KAABOO was responsible for “onsite ticketing” services, but
not “year round” ticketing services. Id. at 47. The PSA doesn’t make these contrived distinctions.
The PSA does not define and rather leaves uncapitalized “Production” and “Revenue.” The PSA
also makes no distinction between “onsite” and “year-long” ticketing services. KAABOO’s
arguments fail, because its contractual interpretations do not give plain effect to the PSA’s clear
and unambiguous language.

                                              - 63 -
KAABOO tried to find them later––by terminating several members of its staff.

         In addition, there’s no evidence that the 2019 KAABOO Del Mar festival

turned any profit at all. Though KAABOO entered into long-term management

contracts with Virgin Fest, Virgin Fest was its only client. Its viability depended on

the continued business of Virgin Fest. And with Virgin Fest’s failure to pay the first

month’s invoices under the PSA and MSA, KAABOO was forced to shutter its doors

and close down business.300 Virgin Fest has proven by a preponderance of the

evidence that KAABOO breached the Management Contracts by failing to maintain

adequate staffing levels.301

300
      Walker Tr. at 99; Wolkov Tr. at 384.
301
    Virgin Fest argues for additional breaches of the PSA and MSA. Because Virgin Fest has
proven that KAABOO breached the PSA and MSA by terminating its staff, the Court briefly
addresses the other claims. Virgin Fest contends that KAABOO breached the PSA by refusing to
replace Mr. Gordon’s daughter. The PSA provides that KAABOO is to have “sole responsibility”
for its employees, but if any employee “who is performing services is found to be unacceptable to
[Virgin Fest], in [Virgin Fest]’s reasonable judgment, [Virgin Fest] will notify [KAABOO] and
[KAABOO] will immediately take appropriate corrective action.” PSA § 1(d).
    Virgin Fest notified KAABOO of its concern that Mr. Gordon’s daughter would serve as “Co
Manager” of KAABOO, the senior-most role at KAABOO. Felts Tr. at 755-6; JX453; JX462.
Virgin Fest’s concern was reasonable. Ms. Gordon was new to the position, and had limited
managerial experience. Prenger Dep. Tr. at 172. Mr. Prenger at Virgin Fest alternatively proposed
serving on a three-member team with Ms. Gordon and assume overall responsibilities as General
Manager. JX462. Due to his increased managerial responsibilities, he proposed a $145,000 fee
reduction for KAABOO. Id. KAABOO refused to accept a fee reduction because, in its view,
Mr. Prenger’s proposal to serve as overall General Manager was a “reduc[tion to] [KAABOO]’s
Scope of Engagement.” Id. Under Section 1(a)(viii) of the PSA, if there was a reduction in
KAABOO’s “Scope of Engagement,” the PSA provided that “[KAABOO]’s Fees and
Reimbursements set forth in Section 2 shall not be reduced.” PSA § 1(a)(viii). Virgin Fest,
however, maintained its request for a fee reduction because “the General Management Team lacks
both the local knowledge and the experience necessary to produce the event.” JX496. Regardless
of whether Virgin Fest’s alternative proposal to install Mr. Prenger as the overall General Manager
constituted a reduction in KAABOO’s scope of engagement or a remedial response to KAABOO’s
                                              - 64 -
         KAABOO’s financial woes and manipulation of its numbers finally caught up

to it.302

         5. Claims for Declaratory Relief: the October 18 Letter

         Virgin Fest seeks a declaration that KAABOO’s defaults under the

Management Contracts, and KAABOO’s failure to timely cure these defaults

constituted material breaches of those agreements and therefore are grounds for

termination.303 KAABOO’s breaches of the Management Contracts provided Virgin

Fest with grounds to validly terminate those agreements.

         The Engagement Agreement provided that the Management Contracts may be

terminated by:

         Cause – by either party, in whole or in part, upon providing written
         notice to the other party thereto, if the other party thereto breaches any
         of the terms and conditions of this Agreement or the [PSA and MSA]
         in any material respect, and the breaching party has not cured such

management deficiencies, KAABOO had an obligation to take “appropriate corrective action.”
PSA § 1(d). KAABOO failed to do so by maintaining the status quo.
    In addition, the MSA delineated the scope of services KAABOO agreed to provide in
Attachment A to Exhibit A to the MSA. MSA § 1. Attachment A set the number of members
required on each servicing team. See Attachment A to MSA. KAABOO was deficient in several
areas. For example, the MSA required a six-member accounting team, but KAABOO only had
three accounting employees in October. JX480 at 5472. The MSA required three “Site
Operations” employees, but KAABOO had two. Id. KAABOO responds—without citing to any
language in the MSA—that it wasn’t required to use full staffing for those operations on a year-
round basis. KAB at 56-57. In sum, Virgin Fest has prevailed on its claims that KAABOO failed
to provide adequate staffing under the Management Contracts.
302
    Virgin Fest also argues that KAABOO breached Section 3(a) of the Engagement Agreement
by failing to deliver “monthly reconciliation reports.” VOB at 71; Engagement Agreement § 3(a).
But Virgin Fest has failed to show it suffered any damages as a result of any alleged failure to
deliver such reports. So, this claim fails.
303
      SACC ¶¶ 211-12.

                                            - 65 -
            breach within thirty (30) business days following written notice thereof
            by the non-breaching party.304

            Without doubt, KAABOO was in material breach of the Management

Contracts. Because KAABOO was in material breach of the Management Contracts,

Virgin Fest was excused from paying KAABOO’s invoices. KAABOO’s breaches

of the Management Contracts provided Virgin Fest with grounds to validly terminate

those agreements. And, on October 18, Virgin Fest provided notice of the defaults

under the Management Contracts.

            KAABOO insists that the October 18 Letter terminated the Management

Contracts. Not so. On October 18, Virgin Fest sent a letter to KAABOO identifying

defaults under the relevant agreements and proposing that the parties “mutually and

amicably terminate” those agreements.305 The letter concluded stating, that “for the

avoidance of doubt, this letter shall constitute notice of default.”306

            The language of the letter is clear and unambiguous, and though the letter

itself is not a contract, it is notice of a party’s exercise of its rights under a contract

––here, the Management Contracts.              And, because the operative termination

provisions thereof required written notice, that contract language controls.

            Accordingly, the letter constitutes “a notice of default,” and pursuant to

304
      Engagement Agreement § 5(b)(i).
305
      JX501.
306
      Id.

                                             - 66 -
Section 5(b)(i) of the Engagement Agreement, the Management Contracts were

terminable for cause if KAABOO failed to cure the breach within thirty business

days following written notice thereof.

      B. KAABOO’S AND MR. GORDON’S CLAIMS

         KAABOO pursued claims for breach of contract and the implied covenant of

good faith and fair dealing at trial. Both are largely predicated on the question of

whether Virgin Fest had grounds to terminate the Management Contracts.

KAABOO argues that Virgin Fest wrongfully terminated the Management

Contracts, failed to pay its invoices pursuant to the Management Contracts, and

failed to transfer shares of Virgin Fest Investco stock.307 Mr. Gordon also seeks

payments under the Gordon Side Agreement.308

         The Court can make short work of these claims.          Virgin Fest did not

wrongfully terminate the Management Contracts. As already explained, KAABOO

was in material breach of the Management Contracts; the October 18 Letter provided

KAABOO with the notice of default thereof. KAABOO’s subsequent failure to cure

the noticed defaults provided valid grounds for termination.        In addition, the

antecedent material breaches by KAABOO under the Management Contracts

excused Virgin Fest’s obligations to pay the monthly invoices.

307
      Compl. §§ 85-88; KAB at 82.
308
      D.I. 7; KOB at 51-52.

                                         - 67 -
            KAABOO also failed to prove its claim under APA Section 1.05(b) for the

transfer of shares of Virgin Fest Investco stock. Section 1.05(b) of the APA provides

that Virgin Fest deliver “an aggregate of 25 restricted Class B Common Units” of

Virgin Fest Investco to KAABOO.309 Virgin Fest doesn’t dispute its failure to deliver

the shares.310 Nonetheless, KAABOO failed to provide any evidence of the stock’s

value at trial, and doesn’t now seek money damages. Thus, KAABOO’s claim for

relief under Section 1.05(b) fails here.

            The “Gordon Side Agreement,” or more aptly, Mr. Gordon’s resignation letter,

was the product of Virgin Fest’s proposed conditions to a revived deal in acquiring

KAABOO Del Mar.311 Pursuant to the Gordon Side Agreement, Mr. Gordon agreed

to resign from Virgin Fest’s board in exchange for a one-time severance payment of

$250,000 and consulting fee of $360,000.312                The severance payment was

conditioned on Virgin Fest Investco, LLC receiving $20 million in one or more

transactions or closings.313 On December 9, 2020, the Court dismissed Mr. Gordon’s

severance payment claim on the basis that the claim was not ripe because the

309
      APA § 1.05(b).
310
      VOB at 91.
311
      JX615; see Ex. H to the APA (“Gordon Side Agreement”).
312
      Gordon Side Agreement at 1.
313
      Id.

                                            - 68 -
condition precedent to that payment had not occurred.314

         KAABOO still has failed to prove that Virgin Fest Investco ever received

$20 million in funding. KAABOO’s sole support for its contention is the conclusory

statement that “[Mr.] Hagle admitted that a secured loan of $23 million was made to

Investco,” and cites to three pages of his deposition testimony.315 There is nothing

in that deposition testimony that establishes that Virgin Fest Investco received a

secured loan. Mr. Gordon is not entitled to his claimed severance payment under the

Gordon Side Agreement.

         Nonetheless, Mr. Gordon does prevail on his claim for the consulting fee.

Virgin Fest’s only defense to the consulting fee is that KAABOO’s fraud releases

Virgin Fest’s obligation to pay the consulting fees. But, again, Virgin Fest failed to

prove its fraud claims. Thus, Mr. Gordon is entitled to the consulting fee of $360,000

plus interest.

         KAABOO’s second count alleges a breach of the implied covenant by Virgin

Fest’s based, again, on the purported wrongful termination of the Management

Contracts.       Again, Virgin Fest had ample valid grounds to terminate those

agreements. KAABOO’s implied covenant claim fails.

314
      December 9, 2020 Tr. Ruling at 56-63 (D.I. 124).
315
      Hagle Dep. Tr. at 13-14.

                                              - 69 -
      C. ATTORNEY’S FEES

         Virgin Fest seeks an award of attorney’s fees and costs for claims under the

PSA, MSA and APA.              The PSA and MSA contain mirror-image fee-shifting

provisions the applicability of which are undisputed.316 Virgin Fest is entitled to its

reasonable fees on the claims it has prevailed upon under the PSA and MSA.

         For its request for attorney’s fees under the APA, Virgin Fest points to Section

6.02. Unlike the fee-shifting provisions in the MSA and PSA, Virgin Fest seeks its

reasonable attorney’s fees through the indemnification provisions of the APA.

Section 6.02 requires that KAABOO indemnify Virgin Fest for “any Loss” suffered

as a result of any “breach or inaccuracy of any representation or warranty” or any

“breach, non-compliance or non-performance of any covenant, agreement or

obligation” in the APA.317           “Loss” includes “reasonable attorneys’” fees and

expenses.318 Setting aside the question of whether the provision constitutes a first-

party indemnification provision entitling Virgin Fest to fees, Virgin Fest’s damages

316
    PSA § 5(d) (Section 5(d) of the PSA states that: “in the event of any action or litigation between
any of the Parties to enforce any provision of this Agreement, the prevailing party shall be entitled
to recover from the losing party, in addition to any other recovery, all costs and expenses, including
reasonable attorneys’ fees.”)); MSA § 15 (“In the event of any action or litigation between any of
the parties to enforce any provision of this Agreement, the prevailing party shall be entitled to
recover from the losing party, in addition to any other recovery, all costs and expenses, including
reasonable attorneys’ fees.”).
317
      APA § 6.02.
318
      Annex II to APA.

                                               - 70 -
have already hit the $2 million indemnity cap.319

         Given this, Virgin Fest is entitled to an award of costs and expenses (including

reasonable attorney’s fees) under Section 5(d) of the PSA and Section 15 of the

MSA.

                          VII. CONCLUSION AND VERDICT

         Consistent with the above, judgment is entered in favor of Virgin Fest under

the APA and Management Contracts. It is entitled to an award of damages totaling

$2 million for its APA claims. It is also entitled to an award of its reasonable

attorney’s fees and expenses for those claims on which it has prevailed under the

MSA and PSA.

         Mr. Gordon is entitled to $360,000 in consulting fees plus interest.

         The parties are instructed to prepare a form of final order of judgment

consistent with this decision.

IT IS SO ORDERED.
                                                       /s/ Paul R. Wallace
                                                       _
                                                       Paul R. Wallace, Judge

Original to Prothonotary
cc: All counsel via File & Serve

319
      APA § 6.02(b)(i).

                                          - 71 -