Court Opinion

ID: 4766020
Source: CourtListenerOpinion
Date Created: 2021-08-16 15:05:11.845261+00
Date Added: 2024-06-11T09:02:09.239141
License: Public Domain

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

                                     )
IN RE DISSOLUTION OF JEFFCO          ) C.A. No. 2018-0027-PAF
MANAGEMENT, LLC                      )
                                     )

                       MEMORANDUM OPINION

                      Date Submitted: May 19, 2021
                      Date Decided: August 16, 2021

Jason C. Powell, THE POWELL FIRM, LLC, Wilmington, Delaware; Receiver for
Jeffco Management, LLC.

S. Michael Sirkin, ROSS ARONSTAM & MORITZ LLP, Wilmington, Delaware;
Attorney for Petitioner Jeffrey Miller.

John G. Harris, BERGER HARRIS LLP, Wilmington, Delaware; James Nealon,
WITHERS BERGMAN LLP, New York, New York; Attorneys for Respondent
Jeffrey S. Tabak.

FIORAVANTI, Vice Chancellor
      This dispute involves the dissolution of a two-member limited liability

company, whose sole asset is an indirect majority ownership interest in a municipal

bond broker-dealer business. After decades of doing business together, the

relationship between the two members fell apart. Their equally owned LLC became

deadlocked, and the court ordered that the LLC be dissolved. When the members

failed to reach consensus on how to wind up the company’s affairs and one member

began diverting distributions owed to the other member, the court appointed a

receiver to effectuate the dissolution. The receiver spent the next several months

engaging with the members and reviewing the company’s finances. He concluded

that one member had a positive capital account balance while the other member’s

balance was negative. As permitted under the operative LLC agreement, the receiver

proposed an in-kind distribution of the company’s assets to the first

member. Predictably, the second member objected to this plan. The objecting

member asserted that he had a claim against the company for reimbursement of the

subsidiary’s operating expenses and that the receiver discredited over $1 million in

capital contributions that this member had previously made, among other objections.

      Upon initial review of the receiver’s proposed plan of distribution and the two

principal objections, the court decided to hold a limited evidentiary hearing. The

objecting member and the LLC’s longtime accountant testified at the hearing. In

this memorandum opinion, after considering the evidence and testimony presented,
the court overrules the objections and confirms the receiver’s proposed plan of

distribution and dissolution. The court also decides the non-objecting member’s

motion for fee shifting.

    I.   FACTUAL BACKGROUND1

         Jeffco Management, LLC (“Jeffco” or the “Company”) is a Delaware limited

liability company formed for the purpose of operating a broker/dealer business.2

Jeffco is governed by a Limited Liability Company Agreement dated October 2001

(the “LLC Agreement”).3 Jeffco has two equal managing members, Jeffrey Miller

and Jeffrey Tabak (together, the “Members”).4 Jeffco owns 88.12% of MTCO LLC

(“MTCO”), a New York limited liability company, and serves as its managing

member.5 The remaining 11.88% of MTCO is held by four other members.6 MTCO

1
 The factual background comes primarily from the evidentiary hearing held on April 20,
2021 (cited as “Tr.” followed by the transcript page and line number) and the joint hearing
exhibits submitted therewith (cited as JX followed by the Bates number).
2
 Verified Petition for Judicial Dissolution ¶ 1; see also Receiver’s Motion to Approve Plan
of Distribution and Dissolution for Jeffco Management, LLC and for Related Relief
(“Motion to Approve”) ¶ 4(a).
3
    The LLC Agreement is JX 61.
4
    Receiver’s Motion to Approve ¶ 4(b); LLC Agreement, Ex. A.
5
    Tr. 14:1–2.
6
    Tr. 14:3–5.
                                            2
owns 75% of Miller Tabak Asset Management, LLC (“MTAM”).7                    Michael

Pietronico is the COO and the other 25% owner of MTAM.8

          MTAM is a registered investment advisor that manages municipal bond

money for individuals.9 As an operating company, MTAM has various expenses.

These include salaries for its employees; retention bonus payments to Pietronico;

bills from its accountants at Citrin Cooperman & Company LLP (“Citrin

Cooperman”); and rental payments for its office on Park Avenue in Manhattan.10

The arrangement for paying these expenses is complicated and disputed. Tabak

asserts that MTCO is obligated to pay MTAM’s operating expenses.11 Tabak

suggests that at least part of this obligation arises from a provision in an operating

agreement, but Tabak could not identify the operating agreement or the specific

provision.12 Tabak also asserts that MTCO agreed to pay certain MTAM expenses

pursuant to an unwritten side agreement with Pietronico that Miller orchestrated.13

For his part, Miller represented to the Receiver that he arranged for MTAM’s

expenses to be covered by another related entity, Miller Tabak + Co., LLC (“Miller

7
    Tr. 13:21–24.
8
    Id.
9
    Tr. 13:12–20.
10
     Tr. 16:7–17; Tr. 18:10–21; JX 37 § 3.3.
11
     Tr. 16:18–17:2.
12
     Id.; Tr. 129:5–130:13.
13
     JX 54 at ‘491; Tr. 127:14–128:11; Tr. 130:14–131:4.
                                               3
Tabak + Co.”).14 Miller Tabak + Co. has no operations, but Tabak contributes to

Miller Tabak + Co. the commissions he receives through his job as an independent

contractor at Lek Securities.15 In practice, because a recent decline in MTAM’s

profitability has made it difficult for MTCO to pay expenses out of MTAM’s passed-

through profits, Tabak has used funds from Miller Tabak + Co. to pay MTAM’s

operating expenses.16

         In April 2017, Miller ceased participating in the business.17 That month,

Tabak started covering MTAM’s expenses out of the funds he contributed to Miller

Tabak + Co.18           Tabak alleges that Miller is equally responsible for all these

payments, and Tabak has kept a running tally of Miller’s share.19 As discussed

below, Tabak has regularly sent Miller letters informing him of his increasing

liability. As of March 31, 2021, Tabak alleges that he has paid approximately

$136,000 of MTAM’s operating expenses and that Miller personally owes

approximately $68,000 for his share of the expenses.20

14
     JX 30. MTCO is made up of partners from Miller Tabak + Co. Id.
15
     Tr. 40:18–41:19.
16
     Id.; Tr. 22:11–15.
17
     Tr. 21:9–19.
18
     Tr. 18:10–19:12.
19
     JX 76.
20
     JX 79.
                                             4
         On January 12, 2018, Miller filed a Verified Petition for Judicial Dissolution

of Jeffco, asserting that he and Tabak were hopelessly deadlocked on the

management of Jeffco. Tabak initially did not oppose dissolution,21 and the court

granted a Decree of Judicial Dissolution on March 26, 2018. 22 In addition to

dissolving Jeffco, the Dissolution Order required the parties to “commence the

disposition of Jeffco’s assets and winding up of its affairs pursuant to Section 11 of

Jeffco’s LLC agreement.”23 The parties, however, failed to make any significant

progress in winding up Jeffco.24 Tabak then belatedly opposed dissolution, claiming

it would “have adverse tax consequences” for Tabak and Miller.25

         On November 29, 2018, Tabak sent Miller the first of many letters regarding

Miller’s alleged liability for MTAM’s expenses. It stated: “As of November 30,

2018, you owe Miller Tabak + Co., LLC $51,280.”26 On December 4, 2018, Tabak

sent Miller another letter informing Miller that Tabak had paid the Park Avenue rent

21
  Dkt. 13, Ex. B (Feb. 3, 2018 email from Tabak to Miller’s counsel: “I am not fighting
Mr. Miller’s request for dissolution.”); Dkt. 15 (May 22, 2018 letter from Tabak to the
court: “I have not opposed the dissolution and have agreed to cooperate with petitioner
and his counsel.”).
22
     Dkt. 14 (the “Dissolution Order”).
23
     Id. ¶¶ 1–2.
24
     See Dkts. 15, 17–19 (letters to the court from Tabak and from Miller’s counsel).
25
  Dkt. 19 (Jan. 5, 2019 letter from Tabak to the court: “I therefore now object to the
petitioner’s move to dissolve Jeffco.”).
26
     JX 1 at ’002.
                                               5
for MTAM and that Miller’s liability for the expenses had grown to $52,526.50.27

Three days later, on December 7, 2018, after having received no response from

Miller, Tabak again sent a letter and informed Miller that “I instructed Lois Torres

[MTAM’s bookkeeper] to take 50% of the most recent quarterly profit distribution

(after payment to the four other partners) to begin to fund the distribution. The use

of $13,421.08 reduced your current liability from $52,526.50 to $39,105.42.”28 Over

the next several months, Tabak continued sending letters to Miller to inform Miller

of his increasing liability due to Tabak covering the Park Avenue rent.29 On March

19, 2019, Tabak informed Miller that he had instructed Torres to take another

$6,273.62 from Miller’s distribution to fund Miller’s alleged deficit.30 Thus, during

the pendency of this proceeding, Tabak directly caused approximately $20,000 of

what would have been Miller’s Jeffco distributions to be diverted to Tabak.31 The

27
     Id. at ‘003.
28
     Id. at ‘004.
29
     Id. at ‘005–08.
30
     Id. at ‘009.
31
     Tr. 124:6–125:10:
          Q: Am I right, sir, that the money that you instructed Lois Torres to redirect
              that would have gone to Jeffrey Miller instead went to reduce his claimed
              liability?
          A: That’s correct.
          Q: Without his consent?
          A: That’s correct.
          ...
          Q: Did any court say that you were entitled to the money you took from Mr.
              Miller?
                                                6
second transfer actually occurred during the pendency of Miller’s petition to appoint

a receiver.32

          On January 22, 2019, Miller filed a motion requesting that the court appoint

an independent receiver to wind up Jeffco. Among the grounds for the motion were

Tabak’s diversion of Miller’s Jeffco distributions.33 On March 12, 2019, the court

granted Miller’s motion and entered an order (the “Receivership Order”) appointing

Jason Powell, Esquire as an independent receiver of Jeffco (“the Receiver”). The

Receiver was given “full authority over the business and affairs of Jeffco.”34 The

order directed the Receiver to confer with the Members and to submit a proposed

plan of dissolution that would “provide for the prompt distribution of Jeffco’s assets

and the winding up of its affairs.”35 The Receiver’s plan of dissolution would be

“subject to Court approval.”36 The Receivership Order did not otherwise provide

detailed instructions or establish a standard of review for the Receiver’s actions.

          A: Well, I didn’t take the money. The money went into [Miller Tabak +
             Co.]. I didn’t take the money.
          Q: Who controls the money at [Miller Tabak + Co.]? who gets the money
             at the end of the day at [Miller Tabak + Co.], on that side of the business?
             It’s Jeffrey Tabak, isn’t it?
          A: That’s correct.
32
     See Dkt. 26 (March 8, 2019 letter from Miller’s counsel to the court).
33
     Dkt. 20 (Motion for Appointment of Receiver) at 2.
34
     Receivership Order ¶ 1. The Receivership Order is Dkt. 27.
35
     Id. ¶ 2.
36
     Id. ¶ 3.
                                                7
         The Receiver spent the next several months gathering and analyzing Jeffco’s

financial information, formulating a proposed Plan of Distribution, and

corresponding with the Members about any issues regarding distribution. The

Receiver retained the accounting firm of Dingle & Kane P.A. to review the parties’

submissions and to provide guidance to the Receiver in making the determinations

made in the Plan of Distribution.37 The primary area of dispute among Tabak and

Miller was Tabak’s capital account in Jeffco. During the dissolution process, Tabak

realized that the Company’s tax returns and capital account statements reflected that

Tabak’s capital account was negative. Tabak then turned to Jeffco’s accountant at

Citrin Cooperman, Constantine Sophos, and convinced him to prepare a one-page,

revised capital account statement, showing Tabak’s capital account as positive.38

         The Receiver did not agree with the newly revised capital account statement,

and in June 2019, the Receiver informed the court that the dissolution plan would

provide for an “in kind distribution of Jeffco’s assets, per the LLC agreement.”39 On

November 1, 2019, the Receiver filed a Motion to Approve Plan of Distribution and

Dissolution for Jeffco Management, LLC and for Related Relief (the “Motion to

Approve Plan”). The Receiver determined that “Jeffco is unsaleable/illiquid and any

37
     Dkt. 41 (Receiver’s Report in Response to Tabak’s Objections) ¶ 20.
38
     JX 16 at ‘096.
39
     Dkt. 34.
                                             8
distribution of its assets to the Member(s) would involve an in-kind distribution.”40

The Receiver also determined that there are no outstanding liabilities or claims

against Jeffco.41      The Receiver found that “[t]he Capital Accounts, per the

documents and information reviewed by the Receiver, indicate that Jeffrey Miller’s

Capital Account is positive, while Jeffrey Tabak’s Capital Account is negative.”42

The LLC Agreement provides that, upon dissolution of Jeffco, “[t]he positive

balance of each Member’s Capital Account . . . shall be distributed to the Members,

either in cash or in kind.”43 Pursuant to the LLC Agreement, the Receiver proposed

to distribute all of Jeffco’s assets in kind to Miller. Id.

          On March 12, 2020, the court granted an Agreed Order to Approve Receiver’s

Motion to Approve Plan (the “Agreed Order”), which established procedures for

finalizing the Receiver’s Plan of Distribution.44 As its title suggests, Tabak, Miller,

and the Receiver agreed upon the terms of the Agreed Order.45 The Agreed Order

provided that “any written objection to the proposed dissolution of Jeffco, the

Distribution Plan, or the distribution of Jeffco’s assets as contemplated by the

40
     Motion to Approve Plan ¶ 4(g). The Motion to Approve Plan is Dkt. 35.
41
     Id. ¶ 9.
42
     Id. ¶ 11.
43
     LLC Agreement § 11.2(a)(ii).
44
     The Agreed Order is Dkt. 39.
45
  See Dkt. 38 (Letter from Receiver to the court stating the Agreed Order “incorporates
revisions as a result of multiple discussions and negotiations”).
                                            9
proposed Distribution Plan, which any Member may have, must be served by the

Member upon the Receiver [the ‘Member Objection’].”46 Thereafter,

          [t]he Receiver shall promptly advise the Court of any such Member
          Objection, and shall submit to the Court a written report regarding the
          Receiver’s investigation of the legal merit of any such Member
          Objection, and the Receiver’s belief regarding the proper treatment and
          disposition of such Member Objection . . . . The Members shall have
          twenty (20) days after delivery of the Receiver's report to them to file a
          reply or other motion with the Court concerning said Receiver’s report,
          after which time the Court will proceed to adjudicate the treatment to
          be taken with respect to any such Member Objection at a Hearing to be
          held on [September 15], 2020.47

          Tabak disagreed with the Receiver’s findings and his plan to distribute all of

Jeffco’s assets to Miller. Tabak sent his objections via a letter to the Receiver dated

April 24, 2020 (the “Objections Letter”).48           The Objections Letter raised the

following objections:

      • The Receiver did not have jurisdiction to interpret or apply the LLC

          Agreement, because such disputes are subject to compulsory arbitration.49

46
     Id. ¶ 5.
47
     Id. ¶ 6.
48
  The Objections Letter is JX 32. The objections were untimely under the terms of the
Agreed Order. The Receiver informed Tabak’s counsel, however, that he would not take
the position that the objections should not be considered solely because of their
untimeliness. Tr. 272:1–273:15.
49
     Objections Letter at ‘169.
                                             10
      • The Receiver failed to interview Jeffco’s accounting firm, Citrin Cooperman,

          and the Receiver ignored Citrin Cooperman’s revisions to Tabak’s capital

          account balance.50

      • The Receiver failed to account for the approximately $68,000 that Tabak had

          advanced for operating expenses, which should have been treated as a claim

          against Jeffco, MTCO, and Miller jointly and severally, or, alternatively, a

          capital contribution.51

      • Jeffco’s sole asset, its managing membership interest in MTCO, is not illiquid

          and does not require in-kind distribution.52

      • Jeffco, MTCO, and Miller were unjustly enriched by Tabak’s time and effort

          spent while managing the business after Miller left in 2017.53

      • The capital account balances were calculated using Jeffco’s finances from

          2017, when they should have been determined as of the liquidation date and

          included post-2017 adjustments.54

50
   Id. at ‘171. Relatedly, Tabak also took issue with the fact that the Receiver was not an
accounting expert and did not identify what experts the Receiver consulted and what
information the Receiver relied on to reach his conclusion. Id. at ‘170–71.
51
     Id. at ‘169–70.
52
     Id. at ‘170–71.
53
     Id. at ‘171.
54
     Id. at ‘171–72.
                                              11
      • The book value of Jeffco’s assets was not adjusted upon certain events to

           conform to the assets’ fair market value, which adjustment would have

           changed the capital account balances.55

           Pursuant to the Agreed Order, the Receiver responded to Tabak’s objections

in a “Receiver’s Report” filed with the court.56 Tabak and Miller each submitted a

reply, and the court heard argument on September 15, 2020 (the “September 2020

Hearing”). At the hearing, the court requested supplemental briefing with regard to

the standard of review, the Receiver’s process, and whether Tabak was pursuing his

demand that the whole dispute was subject to arbitration.

           On January 28, 2021, the court issued a letter opinion (the “January 28 Letter

Opinion”). See In re Dissolution of Jeffco Mgmt., LLC, 2021 WL 282634 (Del. Ch.

Jan. 28, 2021). The January 28 Letter Opinion confirmed that Tabak had withdrawn

his objection that the matter must be arbitrated, and it provided the parties with initial

guidance concerning the standard of review for the Receiver’s determinations.

Ultimately, the January 28 Letter Opinion concluded that certain of the Receiver’s

determinations were likely subject to de novo review, including the determinations

that Tabak had no claim against Jeffco for advanced expenses and that Tabak’s

capital account balance was negative. Because the court concluded that its review

55
     Id.
56
     Dkt. 35.
                                             12
of those issues may turn on credibility determinations, the January 28 Letter Opinion

directed that Tabak and Sophos should be permitted to testify at an evidentiary

hearing. The documentary record, however, would not be reopened and would be

limited to the evidence submitted to the Receiver.

      On April 20, 2021, the court held a one-day evidentiary hearing (the April

2021 Hearing). Tabak and Sophos testified. The court then heard oral argument

from the Receiver, Miller’s counsel, and Tabak’s counsel. Following the hearing,

Miller filed an application for an award of attorneys’ fees and expenses, to which

Tabak responded on May 19, 2021. This Memorandum Opinion resolves the parties’

dispute over the Receiver’s Motion to Approve Plan and Miller’s application for

attorneys’ fees and expenses.

II.   ANALYSIS

      A.     General Principles for the Standard of Review

      The Receivership Order did not specify a standard of review for the Receiver’s

determinations. In the January 28 Letter Opinion, the court discussed the appropriate

default standard of review, with reference to various statutes, Rules, and precedent.

This Memorandum Opinion will reiterate some of that discussion here.

      “[E]ach of the Receiver’s challenged determinations should be analyzed

independently,” because “certain determinations may be subject to de novo review

and other determinations may receive a deferential review, depending on the nature

                                         13
of the determination.” January 28 Letter Opinion, 2021 WL 282634, at *4.57

Determinations “as to claims and to accounts” will be subject to de novo review. See

Ct. Ch. R. 157; see also B.E. Capital Mgmt. Fund LP v. Fund.com Inc., 171 A.3d

140 (Del. Ch. 2017) (applying de novo review to a receiver’s disallowance of a

creditor’s claim). On the other hand, a more deferential standard will apply where

“the receiver . . . has exercised the powers that otherwise would rest with the board

of directors [or managers].” B.E. Capital, 171 A.3d at 146; see also 6 Del. C. § 18-

805 (authorizing a receiver to “do all other acts which might be done by the limited

liability company . . . that may be necessary for the final settlement of the unfinished

business”) (emphasis added).58 For those decisions, this Memorandum Opinion

57
   See In re 14 Realty Corp., 2009 WL 2490902, at *7–13 (Del. Ch. Aug. 4, 2009)
(considering separately three discrete determinations made by a Trustee); Badii ex rel.
Badii v. Metro. Hospice, Inc., 2012 WL 764961, at *11 (Del. Ch. Mar. 12,
2012) (appointing a receiver and directing the receiver to exercise independent business
judgment to settle a federal tax liability but to make recommendations to the court to
resolve creditor and shareholder claims).
58
   See In re First Woburn Bancorp., Inc., 1999 WL 33318823, at *1 (Del. Ch. Oct. 5,
1999) (receiver’s decision to seek agreement with I.R.S. was “entitled to the protective
presumption of the business judgment rule in the absence of any persuasive evidence of
bad faith, self-dealing, gross negligence, or any other reason justifying removal of that
protection”); 14 Realty Corp., 2009 WL 2490902, at *4 n.3 (“[D]e novo review of the
determinations of a skilled and experienced trustee is duplicative and wasteful of judicial
resources and parties’ time and money. Were the standard of review closer to a business
judgment standard—as it should have been—this motion could have been decided far more
expeditiously and efficiently on the basis of the Trustee’s well-reasoned
determinations.”); Acela Investments LLC v. DiFalco, 2020 WL 1987093, at *7 (Del. Ch.
Apr. 27, 2020) (“[The Trustee] is indisputably independent and has no personal financial
interest in the outcome of the sale process. He also possesses invaluable knowledge and
insight gained over the past ten months of his tenure as Liquidating Trustee concerning,
among other things, the Company’s operations and finances as well as the capabilities of
                                            14
adopts the court’s guidance in B.E. Capital: “[T]he standard of review [for a

receiver’s decision] should be at least as deferential as the standard that would apply

to the board’s [or managers’] decision in the same context.” B.E. Capital, 171 A.3d

at 146. That is particularly the case here, where the Receiver was expressly given

“full authority over the business and affairs of Jeffco.”59

         B.     Tabak’s Objections

                1.    The Capital Account Balance

         The Receiver determined that Miller had a capital account balance of positive

$172,944 and that Tabak had a capital account balance of negative $652,237.60 The

Receiver arrived at this conclusion because these figures are the balances reflected

in Jeffco’s 2017 tax return, the last available tax return at the time of his appointment.

Tabak contends that the tax returns show an incorrect capital account balance

because they do not reflect $1.4 million in capital contributions that he made in 2013

and 2014. To corroborate his assertion, Tabak submitted to the Receiver a letter

from Sophos, along with supporting documentation, which purports to show that

Tabak’s capital account balance was positive $401,746 at the end of 2017 (the

its stakeholders. It is for such reasons that this court routinely applies a deferential standard
of review when the action of an agent of the court is challenged . . . .”).
59
     Receivership Order ¶ 1.
60
     Motion to Approve Plan, Ex. B.
                                               15
“Revised Balance”). Tabak objects to the Receiver’s decision to not credit the

Revised Balance and to use the negative balance from the tax return instead.

                       a.     Standard of Review for the Capital Account Balance

         I conclude that the Receiver’s decision to disregard the Revised Balance is

subject to de novo review. The LLC Agreement contains detailed provisions for

how to treat capital contributions and distributions and how to otherwise calculate

the Members’ capital accounts.61 The adherence to these provisions is not subject

to a manager’s business judgment. Although a manager would have some leeway

when applying certain accounting standards,62 the ability to selectively exclude

significant capital contributions from one Member’s capital account is outside the

scope of that discretion.

         Furthermore, the Court of Chancery Rules suggest that an exception to a

Receiver’s determination of an account should be afforded a hearing. “At the

hearing of exceptions to claims and to accounts, the testimony of witnesses shall be

taken in the same manner as is provided for in other causes pending in this Court.”

Ct. Ch. R. 157 (emphasis added). As previously discussed, this court has construed

the reference to a hearing in Rule 157 to permit de novo review. January 28 Letter

Opinion, 2021 WL 282634, at *2. Absent a standard of review specified in the

61
     See LLC Agreement §§ 6, 7, 8.
62
     Id. § 5.4 (“All decisions as to accounting matters shall be made by the Members.”).
                                              16
Receivership Order, this court will not merely defer to the Receiver’s computation

of the account balance without giving the exceptant an opportunity to be heard, and

review of the Receiver’s conclusion regarding Tabak’s capital account balance will

be de novo.63

                      b.      Review of the Capital Account Balance

         Jeffco’s 2017 tax returns show that Tabak has a capital account balance of

negative $652,237.64 The tax returns were signed and filed under penalty of perjury.

Although Miller was Jeffco’s tax-matters partner and was principally responsible for

preparing the returns, Tabak has received statements of his capital account balances

on Form K-1s, and Tabak has never been denied access to Jeffco’s tax returns.65

Despite continuously possessing tax returns that showed him having a negative

capital account balance every year from 2014 forward, Tabak never disputed the

accuracy of that calculation prior to this proceeding. Even Citrin Cooperman, which

has prepared Jeffco’s tax returns since 2012, has not sought to amend the tax returns

and has not indicated a need to do so.66 Even after Tabak sent documents to Sophos

that Tabak says reflect additional capital infusions, Sophos did not incorporate that

63
   It is possible for this “hearing” to be a review on the record. See B.E. Capital, 171 A.3d
at 143.
64
     JX 60.
65
     Tr. 83:15–19; 114:5–8.
66
    Sophos testified he did not want to make any changes to the tax returns due to this
litigation. Tr. 176:20–177:2.
                                             17
information into the next year’s tax returns.67 The tax returns are a reliable indicator

of Tabak’s capital account balance.

       Tabak’s assertion of the Revised Balance is unpersuasive and does not to

undermine the reliability of the tax returns. The increase in the Revised Balance

primarily results from two sets of purported capital infusions: $850,000 of

contributions in 2013 and a $300,000 subordinated loan.68 I address each component

in turn.

                           i.      The Alleged $850,000 Cash Infusion

       The undisputed evidence shows that Tabak created the $850,000 discrepancy

after Miller filed the petition for dissolution. Tabak’s supporting documentation for

the capital infusions does not show capital contributions from Tabak to Jeffco. The

67
  JX 60 (stating that Jeffco’s 2018 tax returns, which were prepared by Sophos and filed
in September 2019, show that Miller’s year-end capital account balance is negative
$613,399).
68
   The Revised Balance also reflects that Tabak made three capital infusions in 2014
totaling $250,000. JX 16 at ‘096 (showing deposits of $50,000, $75,000, and $125,000 in
August 2014). Sophos testified that he believed that the 2014 deposits were properly listed
on the Revised Balance. Tr. 186:8–11 (“Based on my view of the 250,000, I think it should
be [listed on the Revised Balance].”); but see Tr. 180:9–181:17 (Sophos explaining that he
could not find the 2014 deposits on the general ledger, even though he would have expected
them to be listed there). The parties did not discuss the 2014 deposits in briefing, and they
did not dwell on the 2014 deposits at the April 2021 Hearing. In any event, as even Tabak’s
counsel acknowledged, the 2014 deposits alone are not weighty enough to flip Tabak’s
capital account balance from negative to positive. Tr. 231:5–22 (Tabak’s counsel arguing
that, if the $850,000 capital contribution was discredited, then the 2014 deposits plus the
subordinated loan would get Tabak within “spitting distance” of a positive capital account
balance).
                                             18
documentation consists of 2013 bank statements with various deposits hand-circled

by Tabak.69 The names associated with these deposits do not appear to bear any

relationship to Tabak. At the April 2021 Hearing, Tabak testified that deposits from

the various individuals into Jeffco in 2013 “were made from my accounts,”70 but in

a November 2018 email to Miller, Tabak said the funds represented “credits from

the individuals from whom I borrowed funds and injected into [Jeffco].”71 Tabak

has not presented any evidence other than his self-interested testimony to suggest

that they are his capital contributions, much less that they are his capital

contributions that were not already credited to his capital account.

         The Revised Balance was based only on information that was chosen by

Tabak.72 In his cover letter to the Receiver attaching the Revised Balance, Sophos

declared that the revision was “based on documents provided to me by Jeffrey

Tabak.”73 The cover letter did not indicate that Sophos or Citrin Cooperman had

consulted any other information in arriving at the Revised Balance.74 At the April

69
     JX 16 at ‘104–17.
70
     Tr. 81:10–14.
71
     JX 16 at ‘100.
72
  See JX 83 at ‘877 (December 12, 2018 email from Tabak to Sophos) (“In order to make
your job easier in getting the correct figure for my capital position, I have aggregated all
of the documents sent to you (but only including the relevant pages) over the past week.”)
73
     JX 16 at ‘095.
74
  Cf. JX 83 at ‘877 (email from Tabak to Miller copying Sophos, stating: “Mr. Sophos is
perfectly capable of analyzing the [purported capital infusions] without your input.”).
                                            19
2021 Hearing, Sophos testified that he calculated the Revised Balance because

Tabak told him to do so and that the Revised Balance was based only on the

documents that Tabak gave to him.75

         Q:    [T]hese reports [] have $850,000 down as a capital contribution
               by Mr. Tabak; correct?
         A:    Correct.
         Q:    And that was done because Mr. Tabak directed you to do so, or
               asked you to do so? You tell me if my word choice is incorrect.
         A:    Mr. Tabak told me to do so.76

         Sophos acknowledged that he did not independently investigate the deposits,

other than to check them against the general ledger.77 Sophos further testified he

could not verify whether the 2013 deposits should be credited as additional capital

contributions and that he would need more information, such as an explanation of

the names on the transactions and a better understanding of the general ledger.78 At

the conclusion of his direct examination, when asked whether he stood by the

inclusion of the $850,000 in the Revised Balance, Sophos testified that he was not

75
     Tr. 196:18–197:8.
76
     Tr. 196:10–17.
77
     Tr. 199:11–200:18; Tr. 209:11–17.
78
   Tr. 186:8–13 (Q: “So should [the $850,000] be listed here or not, based on what you
have reviewed?” A: “. . . I just don’t know. I’m just not definitive on it. I need more
information.”); see also Tr. 181:14–17; Tr. 183:11–18. The Agreed Order permitted the
parties to take discovery, but they did not do so.
                                          20
sure.79 Not only was Sophos unsure, but he previously told Tabak that he was

unsure.80 Both of those revelations appeared to come as a shock to Tabak’s counsel:

         [I]f I thought that [Sophos] was going to come in and say he wasn’t sure
         about the $850[,000], I wouldn’t have allowed him to testify. . . . So
         again, out of respect for the Court, I was very concerned when I heard
         him say that about the [$850,000] because it’s not consistent with what
         at least I had been told. What he might have privately discussed with
         Mr. Tabak, I can’t speak to. But it’s upsetting to me because,
         obviously, time and effort has been spent on that point.81

         Contemporaneous financial records validate Tabak’s capital account balance

as reflected in the tax returns. Jeffco maintained capital account statements for the

Members, which were prepared by Charles Levine, the CFO of Miller Tabak + Co.82

The capital account statements show Tabak starting 2012 with a positive balance of

$1,141,341. Over the course of the year, Tabak withdrew $1,601,728, and he ended

2012 with a balance of negative $460,387. In 2013, Tabak made contributions that

totaled $758,344, and he ended 2013 with a positive balance of $297,957.21. The

tax returns similarly show that Tabak started 2012 with a balance of $1,139,000.

The tax returns, however, show that Tabak withdrew only $649,342 during 2012 and

79
  Tr. 191:23–192:2 (Q: “As you sit here today, should the 850,000 be included or not? Do
you stand on that, or are you not sure?” A: “I’m not sure.”).
80
   Tr. 206:2–7 (Q: “[A]m I correct, sir, that you told Mr. Tabak at some point while you
were doing all this work that, ‘Gosh, Mr. Tabak, I'm just not sure about that 850’? You
told him that, didn't you?” A. “I told him I wasn't sure about it.”).
81
     Tr. 237:4–10; see also Tr. 236:10–237:3.
82
   JX 85 at ‘887 (stipulated chart summarizing the capital account statements and the tax
returns in 2012 and 2013).
                                                21
finished the year with a balance of $489,658. But the tax returns also identify a “due

from member” asset in the amount of $950,045 arising in 2012. For 2013, the tax

returns show Tabak making net withdrawals of $192,959. The tax returns also

indicate that the $950,045 “due from member” asset was taken off the books in 2013.

The tax returns then show Tabak’s final balance at the end of 2013 to be $296,699.83

          To summarize the preceding paragraph, (i) the tax returns and the capital

account statements have substantially identical balances for Tabak at the beginning

of 2012; (ii) the difference between the changes to Tabak’s capital account according

to the account statements versus the tax returns for 2012 is $952,386; (iii) the

difference between the changes to Tabak’s capital account according to the account

statements versus the tax returns for 2013 is $951,303; (iv) the amount of the 2012

loan given to a Member that appears on the tax returns but not the spreadsheet is

$950,045; (v) the 2012 loan was apparently repaid in 2013; and (vi) the tax returns

and capital account statements have substantially identical balances for Tabak at the

end of 2013. From these facts, I conclude that the tax returns accounted for the 2013

capital infusions that Tabak now alleges should have increased his capital account

balance beyond what the tax returns currently reflect.

83
     Id. at ‘888.
                                          22
                             ii.       The Subordinated Loan

         On July 31, 2013, Tabak made a subordinated loan to Miller Tabak + Co. in

the amount of $300,000 (the “Subordinated Loan”).84 Because Miller Tabak + Co.

was a FINRA-registered business, FINRA approved the Subordinated Loan on

August 1, 2013.85 The note was payable on July 31, 2014,86 but there is no evidence

that the note was ever repaid. Tabak argues that, with interest, the amount owed on

the Subordinated Loan is now $380,000.87

         Tabak’s argument regarding the accounting treatment of the Subordinated

Loan has been a moving target.               Sophos’s Revised Balance classified the

Subordinated Loan as a Jeffco capital contribution. At the September 2020 Hearing,

however, Tabak insisted that the Subordinated Loan was not a capital contribution,

but, in fact, a loan.88 At the April 2021 Hearing, Tabak took a more noncommittal

84
     JX 81.
85
     Tr. 96:16–97:12; JX 16 at ‘107.
86
     JX 16 at ‘107; JX 81.
87
     September 2020 Hr’g Tr. 28:10–11.
88
  Id. 28:4–10 (“[T]he subordinated loan that Mr. Tabak made, that we’re saying that Citrin
Cooperman said [Tabak] did not get credit for . . . as capital, isn’t capital at all but, rather,
is a straight loan that’s documented, as required by FINRA as regulatory capital for
$300,000 with interest.”); id. 35:2–13 (arguing that Tabak’s capital account is still positive
“even if you deduct that $300,000 . . . and treat it as straight-up debt that has priority . . .
separate and apart from capital”); id. 29:13–23 (“[The tax returns] plainly show an over
$300,000 loan that’s owed to Mr. Tabak that would get priority. . . .”).
                                               23
approach, refusing to say whether the $300,000 was a loan or capital contribution

and, instead, deferring to Sophos’s determination.89

         Sophos was unaware that Tabak had previously insisted that the loan was not

a capital contribution.90 Sophos testified that he classified the subordinated loan as

a capital contribution because it was unlikely to be repaid.91 Tabak has not presented

a persuasive reason for why the Subordinated Loan that Tabak made to Miller Tabak

+ Co. should count as a capital contribution to Jeffco.92 Tabak admitted that “[t]he

$300,000 loan was a subordinated loan from [Tabak] to Miller Tabak + Co.”93 and

that Jeffco was not directly involved in that transaction.94 Regardless, the $300,000

capital contribution is not large enough to overcome Tabak’s $652,000 capital

account deficit; thus, the Receiver’s conclusion would have been the same even if

89
  Tr. 82:21–83:1; Tr. 95:22–96:6. Tabak’s shifting position seems to have been tactical.
He was willing to have the loan classified as a capital contribution if the result would be
that his capital account were positive, thus avoiding an in-kind distribution of Jeffco’s
assets to Miller. But if classifying the loan as a capital contribution did not result in a
positive capital account, Tabak wanted the ability to seek to recover the full amount of the
loan, with interest, from Jeffco or Miller personally. Because Tabak’s Objection Letter did
not assert that the Subordinated Loan was a Jeffco liability as opposed to a capital
contribution, he was barred from doing so. See January 2021 Letter Opinion, 2021 WL
282734, at *4 n.5.
90
     JX 16 at ‘096; Tr. 200:24—201:12.
91
     Tr. 182:15–183:2, 200:19–23.
92
  Tabak testified that Miller Tabak + Co. “immediately transferred” the $300,000 to Jeffco,
but he provided no documentary evidence or compelling reason to disregard their distinct
corporate entities. Tr. 97:13–18.
93
     Tr. 96:16–19.
94
     Tr. 97:13—98:2.
                                            24
the Subordinated Loan counted as a capital contribution to Jeffco. The Subordinated

Loan thus provides no basis for rejecting the Receiver’s determination that Tabak’s

capital account balance is negative.

      Upon a de novo review of the record and hearing testimony from Tabak and

Sophos, the court agrees with the Receiver’s determination that Tabak has a negative

capital account balance of $652,237.

             2.    Claim for Advanced Expenses

      Tabak asserts that he has a claim against Jeffco for approximately $68,000 of

MTAM operating expenses that Tabak advanced. Tabak argues that the Receiver

was required to reimburse the expenses prior to making any distribution of Jeffco’s

assets. The Receiver disallowed Tabak’s claim.

                   a.     Standard of Review for the Claim for Advanced
                          Expenses

      The Receiver’s decision to disallow Tabak’s claim for advanced expenses is

subject to de novo review. See B.E. Capital, 171 A.3d at 146 (holding that a

receiver’s disallowance of a creditor’s claim was subject to de novo review); Ct. Ch.

R. 156–157 (providing for a hearing on exceptions as to claims). Furthermore, the

LLC Agreement does not give a manager the power to exercise business judgment

regarding expense reimbursement decisions.

      Any Member shall be entitled to reimbursement from the Company of
      all expenses of the Company reasonably incurred and paid by such
      Member on behalf of the Company. . . . Any reimbursement pursuant

                                         25
          hereto shall be treated as an expenditure of the Company and shall not
          be treated as a Distribution to the reimbursed Member.95

If Tabak’s expense payments meet the contractual conditions of the LLC Agreement,

then the Receiver has the obligation to reimburse Tabak. The due reimbursement

would be a liability “other than on account of [Tabak’s] interests in the Company

capital or profits,” requiring it to be paid prior to any distributions upon liquidation.96

The Receiver’s determination that Tabak does not have a valid claim for

reimbursement will be reviewed de novo.

                       b.    Review of the Claim for Advanced Expenses

          Tabak does not have a claim against Jeffco for reimbursement of advanced

expenses. The operating expenses in question were incurred by MTAM. According

to Tabak, MTCO agreed to cover MTAM’s expenses.97 When the funds that passed

through from MTAM to MTCO became insufficient to cover MTAM’s expenses,

Tabak voluntarily paid MTAM’s expenses out of the funds in Miller Tabak + Co.,

which Tabak had contributed from his commissions as a securities broker. 98 The

demand letters that Tabak sent to Miller were sent on Miller Tabak + Co. letterhead

and asserted that Miller personally owed the specified amounts to Miller Tabak +

95
     LLC Agreement § 4.5.
96
     Id. § 11.2(a).
97
     Tr. 16:18–17:2.
98
     Tr. 22:7–15; Tr. 40:18–41:19.
                                            26
Co.99 Tabak told the Receiver that the monthly letters tallying Miller’s growing

liability represented Miller’s “pro rata liability to MTCO for the failure to pay his

portion” of the MTCO expenses.100 Tabak did not indicate that Jeffco had any

obligation to pay those expenses.

         Tabak testified that “[Miller] is responsible for 50 percent of the expenses that

MTCO needs to pay for [MTAM] expenses.”101 Tabak also argues that Miller is

responsible for MTCO and MTAM expenses under an unwritten “expense sharing

arrangement that presently exists between MTAM and MTCO/Jeff Miller/Jeff

Tabak.”102 Jeffco is not a party to this unwritten expense sharing arrangement, and

Tabak acknowledged that he did not claim it involved Jeffco. 103 There is no

persuasive evidence that Jeffco was contractually obligated to pay MTAM’s

expenses or MTCO’s liabilities.         There is also no allegation that Tabak paid

99
     E.g., JX 1 at ‘002.
100
   JX 57 at ‘502 (emphasis added); see also JX 2 at ‘023 (“Miller has failed to meet any
of his expense obligations of MTCO . . . . I have sent Miller seven letters . . . indicating
his expense liability to MTCO and requesting payment.”).
  Tr. 116:7–9; see also Tr. 117:13–16 (Q: “[Y]ou’re claiming that you have advanced Mr.
101

Miller’s share of MTCO/MTAM expenses?” A: “Yes.”).
102
      JX 54 at ‘491.
103
   Tr. 129:23–130:3 (Q: “So when [Tabak’s counsel’s email to the Receiver] is describing
the expense sharing agreement, he doesn’t say that Jeffco agreed to share any bit of that
expense, does he, sir?” A: “No.”).
                                            27
MTAM’s expenses on behalf of Jeffco.104              Tabak made a broad, unsupported

assertion that Jeffco, MTAM, MTCO and Miller Tabak + Co. were essentially one

entity.105 But Tabak made no legal argument to support ignoring the corporate form

of any of these entities or piercing the corporate veil.106 Thus, the Receiver, who

was tasked with dissolving and winding-up the affairs of Jeffco and not some other

entity, was correct to deny Tabak’s claim against Jeffco for advanced expenses.

                3.     In-Kind Distribution

         The Receiver determined that “Jeffco is unsaleable/illiquid and any

distribution of its assets to the Member(s) would involve an in-kind distribution.”107

Tabak argues that Jeffco is not unsaleable or illiquid and that the Receiver could

have instead sold Jeffco’s majority ownership interest in MTCO and distributed the

proceeds.108

104
   LLC Agreement § 4.5 (“Any Member shall be entitled to reimbursement from the
Company of all expenses of the Company reasonably incurred and paid by such Member
on behalf of the Company.” (emphases added)).
105
    Tr. 116:15–17 (“I’m not going to get caught up in the legalese. These companies are
all intertwined in ownership.”).
106
    See Gadsden v. Home Preservation Co., Inc., 2004 WL 485468, at *4 (Del. Ch. Feb.
20, 2004) (“A Delaware court will not lightly disregard a corporation’s jural identity.
Absent sufficient cause the separate legal existence of a corporation will not be
disturbed.”); Crosse v. BCBSD, Inc., 836 A.2d 492, 497 (Del. 2003) (“To state a ‘veil-
piercing claim,’ the plaintiff must plead facts supporting an inference that the corporation,
through its alter-ego, has created a sham entity designed to defraud investors and
creditors.”).
107
      Receiver’s Motion to Approve Plan ¶ 4(g).
108
      Objections Letter at ‘170–71.
                                             28
                     a.     Standard of Review for the In-Kind Distribution

       The Receivership Order appointed the Receiver to wind-up the affairs of

Jeffco. No other court order, statute, or provision of the LLC Agreement required

the Receiver to sell Jeffco’s assets or prohibited the Receiver from distributing

Jeffco’s assets in kind. Just as a manager of Jeffco would have received a deferential

standard of review in exercising business judgment as to the most preferable wind-

up method under these circumstances, the Receiver’s determination to make an in-

kind distribution should receive similar deference.

       Section 11.2 of the LLC Agreement expressly permits Jeffco’s Members to

make an in-kind distribution of assets upon liquidation. Upon dissolution, “[t]he

positive balance of each Member’s Capital Account . . . shall be distributed to the

Members, either in cash or in kind, as determined by all Members . . . .”109 Because

the decision of whether to distribute assets in cash or in kind is left to the business

judgment of the Members, it was likewise an exercise of business judgment for the

Receiver. See B.E. Capital, 171 A.3d at 146; January 28 Letter Opinion, 2021 WL

282634, at *3–4. As such, the Receiver’s decision is afforded the deference of the

business judgment rule. “[W]here business judgment presumptions are applicable,

109
    LLC Agreement § 11.2(a)(ii); see also id. § 11.2(a) (“If the Company is dissolved and
its affairs are to be wound up, the Members shall . . . sell or otherwise liquidate all of the
Company’s assets as promptly as practicable (except to the extent the Members may
determine to distribute any assets to the Members in kind) . . . .”).
                                             29
the [Receiver’s] decision will be upheld unless it cannot be ‘attributed to any rational

business purpose.’” In re Walt Disney Co. Deriv. Litig., 906 A.2d 27, 74 (Del. 2006)

(quoting Sinclair Oil Corp. v. Levien, 280 A.2d 717, 720 (Del. 1971)).

                    b.     Review of the In-Kind Distribution

      Tabak has not shown that the Receiver’s decision to distribute the assets in

kind was anything other than a good-faith exercise of business judgment. Tabak

does not allege that the Receiver was self-interested in this regard; instead, Tabak

argues that the Receiver’s process was flawed because he did not make a serious

attempt to sell Jeffco’s assets. That alleged flaw does not overcome the Receiver’s

protection of the business judgment rule. The Receiver relied on the parties’

submissions, and both Members, including Tabak, expressed the view that a sale of

Jeffco’s ownership interest in MTCO would be unlikely, due to difficulties with the

executive who runs MTAM’s day-to-day operations.110 Tabak offered no evidence

that anyone was interested in acquiring MTCO at any time following the

appointment of the Receiver. The Receiver was justified in not further conducting

a sale process, which would have entailed additional expenses for which Jeffco had

110
   JX 2 (letter from Tabak to the Receiver dated March 25, 2019) at ‘023 (“We have had
two serious buyers interested in the assets of MTAM but both transaction[s] failed during
due diligence. Ultimately, each potential buyer concluded that Michael Pietronico, the
COO and a 25% owner of MTAM (and who runs the business day-to-day) was recalcitrant
and would have difficulty aligning himself with the corporate cultures of the respective
buyers. In short, Pietronico sabotaged both deals.”); see also Tr. 55:11–56:1 (describing
further the two failed sale processes).
                                           30
no funds to pay.111 The Receiver was not required to make distributions in cash, and

his decision not to sell Jeffco’s assets, which the Jeffco LLC Agreement expressly

authorized, does not warrant rejection of the Receiver’s Plan of Distribution.

         Even if the Receiver’s decision on an in-kind distribution is afforded no

deference, I would not have required a sale of assets, because (1) Jeffco did not have

funds to conduct a sale process and (2) Tabak acknowledged that prior efforts to sell

MTAM were fruitless.               The LLC Agreement expressly permits an in-kind

distribution, and it is appropriate here.

                4.     Failure to Perform Valuation and Adjustment

         In deciding to distribute the assets in kind in proportion to the Members’

positive capital account balances, the Receiver did not appraise the value of Jeffco’s

assets, which consisted of the 88.12% ownership interest in MTCO. Tabak argues

that the Receiver’s calculation of the capital account balances “is fatally flawed in

that it is absolutely necessary, under both the terms of the Jeffco LLC Agreement

. . . as well as pursuant to well understood tax and accounting principles and common

business knowledge, that Jeffco’s book capital accounts need to be analyzed and

adjusted.”112 Tabak also argues that “the overall fair market valuation of Jeffco’s

111
      September 2020 Hr’g Tr. 13:12–13.
112
      Objections Letter at ‘171.
                                             31
business and its assets need to be determined and valued as of the liquidation date

(and not based on 2016 or 2017 numbers).”113

                         a.    Standard of Review for the Lack of an Appraisal

            Despite his broad objection, Tabak does not cite any authority other than the

LLC Agreement to support the proposition that the Receiver was required to perform

a valuation or adjustment. Section 1.16 of the LLC Agreement provides:

            [I]f all Members reasonably determine that an adjustment is necessary
            or appropriate to reflect the relative economic interests of the Members,
            the Gross Asset Value of all Company assets shall be adjusted . . . to
            equal their respective gross fair market values, without reduction in
            liabilities, as reasonably determined by the Members, as of the
            following times: (a) a Capital Contribution . . . to the Company by a
            new or existing Member as consideration for an interest in the
            Company; or (b) the distribution by the Company to a Member . . . as
            consideration for the redemption of an interest in the Company; or (c)
            the liquidation of the Company . . . .114

Section 6.3 addresses how an adjustment of Gross Asset Value could affect the

Member’s capital account balances.

            In the event the Gross Asset Value of Company assets is adjusted under
            Section 1.16 . . . the Capital Accounts of the Members shall be adjusted
            to reflect the aggregate net adjustment as if the Company recognized
            Net Profits or Net Losses equal to the amount of such aggregate net
            adjustment and such Net Profits or Net Losses were allocated to the
            Members.115

113
      Id.
114
      LLC Agreement § 1.16(ii).
115
      Id. § 6.3(b).
                                               32
      Tabak argues that contributions or distributions occurred without these

provisions of the LLC Agreement being followed. Thus, according to Tabak, the

Receiver is now required to perform a valuation and then adjust the Members’ capital

account balances pursuant to the LLC Agreement.

      Even accepting Tabak’s argument that there were distributions or

contributions, Tabak’s theory fails because these provisions of the LLC Agreement

are not mandatory. Section 1.16 provides for an adjustment “if all Members

reasonably determine that an adjustment is necessary or appropriate.” Adjustment

of Gross Asset Value is thus optional, subject to the business judgment of Jeffco’s

managers. The LLC Agreement does not mandate that the Receiver, or the Members

that he replaced as the effective manager of Jeffco, always perform a valuation and

adjustment of Jeffco’s assets whenever there is a capital contribution or capital

distribution. If a valuation is not made, a readjustment of the capital account

balances is not triggered. The Receiver’s determination as to the capital account

balances cannot be invalidated based solely on a failure to perform a valuation under

Section 1.16 of the LLC Agreement.

      For similar reasons, a revaluation upon liquidation is not mandatory. In

addition to Section 1.16, discussed above, Section 11.2 addresses a valuation upon

liquidation, when the assets are being distributed in kind: “If any assets of the

Company are to be distributed in kind, the net fair market value of such assets as of

                                         33
the date of dissolution shall be determined by independent appraisal or by agreement

of all Members.”116 Like Section 1.16, Section 11.2 is also discretionary. The LLC

Agreement permits the Members to obtain an independent appraisal, but it does not

require them to do so. When the Receiver took over the management of the

Company, he had the power to determine the value of the assets. His power was not

unbounded; the Receiver’s decision still needed to be a valid exercise of business

judgment. But the Receiver’s determination to not obtain an independent appraisal

is afforded a deferential standard of review.

                      b.    Review of the Lack of an Appraisal

         The Receiver’s decision to forgo an independent appraisal of Jeffco’s assets

does not warrant rejection of the Plan of Distribution. There is no allegation that the

Receiver was somehow conflicted, and the Receiver’s process was sufficient to

satisfy a deferential standard of review. The Receiver looked into having an

appraisal performed, and he determined that an appraisal of Jeffco would cost at least

$15,000, perhaps far more.117 A valuation of Jeffco’s assets would likely have

necessitated appraisal of MTCO and MTAM, further increasing the costs. The

Receiver elected to not hire an appraiser because (1) Jeffco had no funds to do so

and (2) none of the Members raised an issue about the lack of an appraisal until after

116
      LLC Agreement § 11.2(a)(i).
117
      September 2020 Hr’g Tr. 13:7–11.
                                          34
the Receiver’s determinations were made.118 The Receiver was right to consider, as

Tabak put it, “the low dollar value in controversy relative to the disproportionate

cost of litigation.”119

         The Receiver reasonably felt that a valuation and corresponding adjustment

to the capital account balances would not overcome Tabak’s large capital account

deficit. The LLC Agreement provides for liquidation distributions in accordance

with “[t]he positive balance of each Member’s Capital Account.”120                Because

Tabak’s capital account was negative, the valuation process would have been futile,

and the law does not require the doing of a futile act.121

         Likewise, the Receiver did not commit reversible error by using the 2017 tax

returns to determine the Members’ capital account balances.               Tabak has not

presented any authority that would require the Receiver to re-calculate the capital

account balances on the very day this court approves the Receiver’s Plan of

Distribution. Such a requirement would be unworkable, making it impractical for

the Receiver to propose a definite plan for this court to consider. In this case, the

118
   September 2020 Hr’g Tr. 13:12–16; see also JX 2 (Mar. 25, 2019 letter from Tabak to
the Receiver) at ‘022 (“[U]pon the dissolution of Jeffco, the assets of [Miller Tabak + Co.]
and MTAM will become worthless.”).
119
      Tabak’s Supp. Memo. (Dkt. 53) 4.
120
      LLC Agreement § 11.2(a)(ii).
121
   Reserves Dev. LLC v. R.T Props., L.L.C., 2011 WL 4639817, at *7 (Del. Super. Ct.
Sept. 22, 2011) (“An overriding truth is that the law does not require a futile act.”).
                                            35
Receiver’s decision to rely on the 2017 tax return was reasonable. The 2017 tax

return, filed in September 2018, was the latest return prepared at the time that

Receiver was appointed. Similarly, the 2018 tax return filed in September 2019 also

showed Tabak with a negative capital account of more than $600,000.122 Tabak

presented no credible evidence to suggest that his capital account would be positive

at any time after December 31, 2017.123

                5.     Tabak’s Claim for Unjust Enrichment

         In his Objections Letter, Tabak argues that he has a claim against Jeffco,

MTCO, and Miller, jointly and severally, for unjust enrichment.124 Tabak contends

that he was not compensated for the time he spent managing Jeffco’s affairs after

Miller left the business, and that the value of his time should be considered either a

claim against Jeffco or a contribution of capital into Jeffco. After the Receiver and

Miller contested this objection in their responses, Tabak did not address the unjust

enrichment claim in his reply. Tabak’s objection did not place a dollar value on his

122
   JX 60 at ‘582 (showing Tabak with a negative capital account balance of $613,399 in
Jeffco’s 2018 tax return).
123
   At the April 21 hearing, Tabak tried to present a corrected Revised Balance through
Sophos. See JX 82. Tabak contended that recently minted document would show that his
capital account balance was even larger than Sophos had previously stated in the Revised
Balance. I denied Tabak’s last minute attempt to present new evidence. Tr. 170:1–6. Even
so, Tabak’s counsel admitted during argument that if the $850,000 in alleged capital
contributions is rejected, which it is, Tabak’s capital account would be negative even under
the corrected Revised Balance (and that would be if the $300,000 subordinated loan were
credited as a capital contribution). Tr. 231:17–24 (Nealon).
124
      Objections Letter at ‘171.
                                            36
claim of unjust enrichment and did not attempt to document it. The only further

reference to this objection was a brief line of questioning at the April 2021 Hearing,

where Tabak testified that he spent approximately one hour per week managing

“Jeffco or its affiliated entities” since Miller left the business in 2017 and that Tabak

would value his time at $250 per hour.125 In his argument, however, Tabak’s counsel

appeared to have abandoned this claim.126

      Even if the objection has not been abandoned, Tabak’s claim for unjust

enrichment does not justify rejecting the Receiver’s Plan of Distribution. Tabak did

not assert unjust enrichment in a petition or a complaint in any court and thus did

not create a legal claim that the Receiver was obligated to recognize. In raising his

objection, Tabak did not support his claim for unjust enrichment with any legal

authority. Tabak’s claim also lacks persuasive factual support. Tabak provides no

documentary evidence of the amount of Jeffco’s enrichment, or the amount of time

that Tabak devoted to managing the affairs of Jeffco, a holding company, as opposed

to one of its affiliated entities. I did not find Tabak’s testimony credible. With

regard to Tabak’s assertion that his time should be treated as a capital infusion, he

125
   Tr. 53:23–54:13. Tabak testified this “comes out to, in-kind compensation that I think
I’m owed, approximately $251,000.” Tr. 54:11–13.
126
   Tr. 237:22—238:2 (“[T]here is no claim per se for $250,000. That’s simply – it’s not
in our objection, it’s not in our claim, Your Honor. It’s just simply Mr. Tabak trying to
indicate that he invested a lot into this.”).
                                           37
has not argued that he complied with the LLC Agreement’s detailed provisions

governing the contribution of capital,127 and even the full value of his asserted

contributions would not exceed the deficit in his capital account balance.128 For

these reasons, the Receiver’s decision to disregard Tabak’s claim for unjust

enrichment in the proposed Plan of Distribution is approved. Even affording the

Receiver’s decision no deference, I would reach the same result.

         C.     Fee Shifting and Allocation of the Receiver’s Fees

         Following the April 2021 Hearing, Miller filed a motion for fee shifting, in

which Miller seeks an order requiring Tabak to pay: (1) Miller’s attorneys’ fees

from December 2018 to the present, (2) the $20,000 that Tabak diverted from

Miller’s distributions, and (3) all fees and expenses incurred by the Receiver.129

         Under the American Rule, each party is normally obligated to pay only his or

her attorneys’ fees, whatever the outcome of the litigation. RBC Capital Markets,

LLC v. Jervis, 129 A.3d 816, 877 (Del. 2015). Delaware courts recognize certain

exceptions to the American Rule, including a bad faith exception. Id. “[W]hen a

  See LLC Agreement § 6.1 (“No Member shall be required or permitted to make any
127

Capital Contributions to the Company . . . without the unanimous consent of the
Members.”).
128
    Compare Tr. 54:8–13 (Tabak asserting that his contribution of time was worth
approximately $251,000), with JX 60 (Jeffco’s 2018 tax return showing that Tabak had a
capital account balance of negative $613,399).
129
      Dkt. 80 at 11.
                                          38
litigant imposes unjustifiable costs on its adversary by bringing baseless claims or

by improperly increasing the costs of litigation through other bad faith conduct,

shifting fees helps to deter future misconduct and compensates the victim of that

misconduct.” Blue Hen Mech., Inc. v. Christian Bros. Risk Pooling Tr., 117 A.3d

549, 559–60 (Del. 2015). “The bad faith exception applies only in extraordinary

cases, and the party seeking to invoke that exception must demonstrate by clear

evidence that the party from whom fees are sought acted in subjective bad faith.”

Lawson v. State, 91 A.3d 544, 552 (Del. 2014) (internal quotations omitted).

“Although Delaware courts have described the bad faith standard as ‘subjective,’

this court has shifted fees based on litigation conduct without launching a fact-

intensive investigation into the offending party's state of mind.” Pettry v. Gilead

Scis., Inc., 2021 WL 3087027, at *2 (Del. Ch. July 22, 2021).

      “To capture the sorts of vexatious activities that the bad-faith exception is

intended to address, this court employs the ‘glaring egregiousness’ standard.” Id. at

*1. Delaware courts have shifted fees where parties have unnecessarily prolonged

or delayed litigation, falsified records, knowingly asserted frivolous claims, misled

the court, altered testimony, or changed position on an issue. RBC, 129 A.3d at 877;

see also Pettry, 2021 WL 3087027, at *1. Whether to shift fees is a matter of this

court’s discretion. RBC, 129 A.3d at 879.

                                         39
      Similarly, the allocation of the Receiver’s fees and expenses is also a matter

of this court’s discretion:

      Just as the determination of the amount of a receiver’s compensation is
      a matter within the discretion of the trial court, so too is a determination
      of who should bear the expenses associated with the receivership . . . .
      In the absence of statute, the receivership expenses may be adjudged
      against one or the other of the parties or apportioned between them in
      the discretion of the court.

Longoria v. Somers, 2019 WL 2270017, at *3 (Del. Ch. May 28, 2019) (quoting 75

C.J.S. Receivers §§ 364, 464, Westlaw (database updated June 2021)). “[S]uch

expenses should in all cases, as between the parties, be ultimately adjudged on

equitable principles.” Longoria, 2019 WL 2270017, at *3.

      “As a general rule, costs and expenses of a receivership, including

compensation for the receiver, counsel fees, and obligations incurred by her in the

discharge of her duties, constitute a first charge against the property or funds of the

receivership.” Ferry v. Kehnast, 2008 WL 2154861, at *4 (Del. Ch. May 6, 2008)

(internal quotation and alterations omitted). The court may consider several factors

when determining whether to depart from that general rule. One factor is whether

the entity in receivership has sufficient funds to cover the receiver’s fees and

expenses. See Brill v. Southerland, 14 A.2d 408, 413 (Del. 1940) (“Where there is

no fund out of which expenses can be paid, or the fund is insufficient, the usual rule

is that the party at whose instance the receiver was appointed should be required to

provide the means of payment.”). Another factor is which party sought appointment
                                          40
of the receiver. Longoria, 2019 WL 2270017, at *3 (imposing costs of receivership

on the party seeking it); Leslie v. Telephonics Office Techs., Inc., 1993 WL 547188,

*13 (Del. Ch. Dec. 30, 1993) (same). An additional factor is whether one party’s

conduct necessitated the appointment of a Receiver. 75 C.J.S. Receivers § 364 (“It

is a proper exercise of the discretion of the court to tax the costs against the party

whose conduct created the necessity for a receiver.”). The court may also shift the

costs of the receivership to a party whose bad faith conduct has contributed to the

receiver’s increased expenses. See GMF ELCM Fund L.P. v. ELCM HCRE GP LLC,

2019 WL 1501553, at *5 (Del. Ch. Apr. 4, 2019) (requiring the individual defendant

to pay the portion of the receiver’s fees that were caused by his lack of cooperation

with the receiver).

         Some of Tabak’s conduct is glaringly egregious, warranting a shifting of fees

under the bad faith exception to the American Rule. First, Tabak resorted to self-

help during this proceeding, contributing to the appointment of the Receiver. On

December 7, 2018, Tabak redirected Miller’s quarterly profit distribution—

approximately $13,000—as a partial remedy for what Tabak claimed were expenses

owed by Miller.130 This conduct necessitated Miller’s request for the appointment

of the Receiver. In March 2019, while the receivership motion was pending, Tabak

130
      JX 1 at ‘004; Tr. 124:6–125:10.
                                           41
again redirected approximately $7,000 from Miller’s quarterly profit distribution for

the same alleged claim.131 Tabak admitted that he took these actions without

authorization from Miller or any court.132

            Second, Tabak manufactured a false narrative about the Revised Balance.

Tabak’s argument that he had made $850,000 in contributions to Jeffco that were

not reflected as capital contributions on the Company’s tax returns was a litigation

construct. Tabak told Sophos to create a revised capital account statement based on

carefully selected documents “to make [Sophos’s] job easier in getting the correct

figure for [Tabak’s] capital position.”133 When Miller sought to provide context for

Sophos, Tabak chided him, saying “Sophos is perfectly capable of analyzing the data

without your input.”134 Tabak touted that Sophos’s testimony would establish his

claim. But what Tabak did not tell the court, or even his own counsel, is that Tabak

directed Sophos to make that change to the capital accounts and that Sophos told

Tabak that he was never sure that the $850,000 should be credited to Tabak’s capital

account.135 Even Tabak’s counsel, who had been blindsided by the testimony of his

131
      JX 1 at ‘009.
132
      Tr. 120:5–17.
133
      JX 83 at ‘877.
134
      Id.
135
      Tr. 205:17–206:7.
                                           42
client’s star witness, admitted his frustration over the issue, acknowledging that “it’s

upsetting to me because, obviously, time and effort has been spent on that point.”136

         Tabak took other dilatory and wasteful positions in these proceedings. For

example, Tabak forced the Receiver to respond to Tabak’s contention that the parties

were required to move their dispute to arbitration despite having engaged in these

proceedings for over two years, only then to abandon the argument.137 In briefing

Miller’s application for fee shifting, Tabak submitted an opposition that read more

like an unauthorized sur-reply to the merits of his objections to the Receiver’s

motion.138      The 6,564-word opposition was more than double its permissible

length.139 The submission of unauthorized merits arguments—to which Miller’s

counsel had to respond—constitutes glaringly egregious conduct. To be sure, I have

disregarded those arguments as to the merits of the dispute.

         On the other hand, some of Tabak’s actions were best categorized as

“aggressive litigation positions.” See Pettry, 2021 WL 3087027, at *2 (“[T]here is

a fine line between glaringly egregious conduct and an aggressive litigation

136
      Tr. 236:3–237:10.
137
   Objections Letter at ‘169; Tabak’s Supp. Memo. in Further Opposition to Receiver’s
Proposed Plan (Dkt. 53.) at 5.
138
   Dkt. 83; see Ct. Ch. R. 171(a) (“Unless otherwise ordered, no additional briefs or letters
containing argument shall be filed without first procuring Court approval.”).
139
   See Ct. Ch. R. 171(f)(1)(B) (“The opposition to the motion shall not exceed 3,000
words”).
                                             43
position.”). For example, the Receiver’s Plan of Distribution contained very little

explanation for why the Receiver discredited Tabak’s revised capital account

balance calculation and why the Receiver denied Tabak’s claim for reimbursement

of expenses against Jeffco. Tabak was justified in objecting to the Receiver’s

Motion to Approve on these points and in demanding that the Receiver provide

supporting evidence for his determinations. Furthermore, in July 2019, Tabak’s

counsel asked the Receiver to speak with Citrin Cooperman about the Revised

Balance.140 The Receiver told Tabak’s counsel that he would “make arrangements

for [his] professionals to speak to [Citrin] Cooperman,” but that conversation

apparently did not happen prior to the Receiver submitting the proposed Plan of

Distribution.141 That said, even after Tabak submitted the Objections Letter, the

Receiver’s process for substantiating his capital account balance determinations

would have been much more abbreviated if Tabak has been more forthright about

the supporting documentation behind the Revised Balance and about the fact that

Sophos had told Tabak that he was unsure about accuracy of the Revised Balance.

140
      JX 19 at ‘123–24 (July 2, 2019 email from Tabak’s counsel to the Receiver).
141
   JX 19 at ‘123 (July 11, 2019 email from the Receiver to Tabak’s counsel) (“[Y]ou may
alert [Citrin Cooperman] that I may be contacting them.”).
                                             44
       The Company’s funds are unlikely to cover the Receiver’s fees and

expenses.142 Based on the conduct described above, and in the exercise of my

discretion, I am shifting fees in the following manner: I am allocating all of the

Receiver’s fees and expenses to Tabak, and $20,000 of Miller’s reasonable

attorneys’ fees and expenses will be charged to Tabak.

III.   Conclusion

       For the foregoing reasons, the Receiver’s Motion to Approve Plan of

Distribution and Dissolution is granted, all of Tabak’s objections are denied, and

Miller’s Motion for Fee Shifting is granted in part. The Receiver is directed to

submit an affidavit or declaration pursuant to Court of Chancery Rule 88 within ten

business days.

142
    See Tabak’s Opposition to Miller’s Motion for Fee Shifting (Dkt. 83) at 6 (“Upon
information and belief, there is insufficient cash presently on account at Jeffco to even fully
pay the Receiver’s accrued priority expenses . . . .”).
                                              45