Court Opinion

ID: 4535297
Source: CourtListenerOpinion
Date Created: 2020-05-19 16:03:48.340296+00
Date Added: 2024-06-11T09:27:29.932359
License: Public Domain

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

HOMF II INVESTMENT CORP., OBD                   )
PARTNERS, LLC, and BRETT                        )
JEFFERSON,                                      )
                                                )
               Plaintiffs,                      )
                                                )
       v.                                       )   C.A. No. 2017-0293-JTL
                                                )
JOAQUIN ALTENBERG, and VERT                     )
SOLAR FINANCE, LLC,                             )
                                                )
               Defendants,                      )
                                                )
               and,                             )
                                                )
VERT SOLAR FUND I, LLC,                         )
                                                )
               Nominal Defendant.               )

                              MEMORANDUM OPINION

                             Date Submitted: February 19, 2020
                               Date Decided: May 19, 2020

Sidney S. Liebesman, Johnna M. Darby, E. Chaney Hall, FOX ROTHSCHILD LLP,
Wilmington, Delaware; Attorneys for Plaintiffs.

David E. Wilks, Andrea S. Brooks, Adam J. Waskie, WILKS, LUKOFF &
BRACEGIRDLE, LLC, Wilmington, Delaware; Attorneys for Defendants Joaquin
Altenberg and VERT Solar Finance, LLC.

LASTER, V.C.
       Defendant Joaquin Altenberg convinced the plaintiffs to invest in VERT Solar Fund

I, LLC (the “Fund”), a newly created investment fund. The plaintiffs were its only

investors. Altenberg managed the Fund through now-bankrupt defendant VERT Solar

Finance, LLC (“Finance”), an entity that he controlled.

       The plan was for the Fund to acquire solar projects, own them through special

purpose vehicles, and provide the equity capital necessary to bring them to commercial

operation. Altenberg represented that once a project achieved commercial operation, it

could be refinanced with long-term debt, which would enable the Fund to recover its equity

investment, plus a return. In addition, the Fund would own the project and thus would have

a right to ongoing cash flows. Altenberg represented that he could take a project from

acquisition to refinancing in as little as three to six months, enabling him to revolve the

Fund’s equity through multiple projects and generate munificent gains.

       The Fund performed disastrously. The plaintiffs contributed a total of $6,829,500

in capital to the Fund. Nothing remains. Finance, however, received $2.37 million in fees,

reflecting 35% of the plaintiffs’ investment.

       The plaintiffs filed this lawsuit against Altenberg and Finance and pursued it

through trial. During post-trial briefing, the plaintiffs emphasized four claims. First, they

contended that Altenberg fraudulently induced them to invest in the Fund. Second, they

contended that Altenberg committed fraud during the life of the Fund. Third, they

contended that Altenberg breached his fiduciary duties. Fourth, they contended that

Finance breached its contractual obligations to the Fund and that Finance’s entity veil

should be pierced so that Altenberg would be held personally liable for the damages.
       The evidence at trial demonstrated that Altenberg induced the plaintiffs to invest in

the Fund by making false representations, that the plaintiffs relied on those false

representations, and that they suffered damages as a result. Ordinarily, these findings would

result in the plaintiffs receiving a remedy. In this case, however, the plaintiffs did not

introduce a fraudulent inducement theory in a procedurally proper way. They did not put

Altenberg on notice of that theory before trial, and they did not seek to conform the

pleadings to the evidence after trial. Judgment thus will be entered in favor of Altenberg

on this claim.

       The plaintiffs failed to prove that Altenberg committed fraud during the life of the

Fund. Judgment will be entered in favor of Altenberg on this claim.

       The plaintiffs proved that Altenberg breached his fiduciary duty of loyalty while

managing the Fund. The plaintiffs proved that Altenberg engaged in self-interested

transactions, and Altenberg failed to prove that his actions were entirely fair.

       This decision does not determine a remedy for Altenberg’s breaches of the duty of

loyalty. The parties focused primarily on liability in their post-trial submissions. Although

the record currently contains sufficient information to quantify roughly the damages from

certain breaches, further proceedings are warranted to clarify the record and assist the court

in tailoring an appropriate remedy.

       This decision does not address the breach of contract theory. In June 2019, with trial

looming, Altenberg caused Finance to declare bankruptcy. All claims against Finance were

stayed. This court therefore cannot adjudicate the claim against Finance that is the predicate

to potentially holding Altenberg personally liable.

                                              2
                           I.       FACTUAL BACKGROUND

       Trial took place over three days. The parties introduced 1,502 exhibits and lodged

eleven deposition transcripts. Five fact witnesses testified live. The parties agreed to 163

stipulations of fact in the pre-trial order.1

       The standard of proof for all of the claims in this case was a preponderance of the

evidence. See Estate of Osborn ex rel. Osborn v. Kemp, 2009 WL 2586783, at *4 (Del. Ch.

Aug. 20, 2009), aff’d, 991 A.2d 1153 (Del. 2010); Triton Constr. Co. v. E. Shore Elec.

Servs., Inc., 2009 WL 1387115, at *6 (Del. Ch. May 18, 2009), aff’d, 988 A.2d 938 (Del.

2010). The burden of proof differed depending on the claim being asserted. For the claim

of breach of fiduciary duty, the plaintiffs bore the burden of proving that Altenberg had

engaged in self-interested conduct. Once the plaintiffs carried that burden, Altenberg had

the burden of proving that his conduct was entirely fair. See Ams. Mining Corp. v.

Theriault, 51 A.3d 1213, 1239 (Del. 2012). For the other claims, the plaintiffs bore the

burden of proof.

       1
         Citations in the form “PTO ¶ ––” refer to stipulated facts in the pre-trial order.
Dkt. 261. Citations in the form “[Name] Tr.” refer to witness testimony from the trial
transcript. Citations in the form “[Name] Dep.” refer to witness testimony from a
deposition transcript. Citations in the form “JX –– at ––” refer to a trial exhibit with the
page designated by the last three digits of the control or JX number or, if the document
lacked a control or JX number, then by the internal page number. If a trial exhibit used
paragraph numbers or sections, then references are by paragraph or section.

                                                3
A.    Jefferson Becomes Interested In Solar Projects

      Plaintiff Brett Jefferson is a professional investor who controls Hildene Capital

Management, an investment management firm. Hildene has $9.6 billion in assets under

management.

      In 2014, Jefferson became interested in solar projects after moving to the Virgin

Islands. Sensing that financing solar projects might provide an investment opportunity, he

spoke with a few colleagues, who put him in touch with Altenberg.

      Jefferson and Altenberg had crossed paths in 1996 when they worked at Smith

Barney LLC. They subsequently went their separate ways, with Altenberg holding a series

of jobs in the finance industry. See JX 1198 at 28–34; Altenberg Tr. 305–09. In 2008,

Altenberg entered the renewable energy field by creating VERT Investment Group, LLC,

an entity that he personally owns and controls. PTO ¶ 10; Altenberg Tr. 309–10. Altenberg

eventually became associated with Open Energy Group, Inc. (“Open Energy”), a small

broker-dealer that arranged and securitized debt financing for renewable energy projects.

PTO ¶ 20; Jefferson Tr. 146.

      By 2013, Altenberg had become interested in developing and financing solar

projects. See JX 98. In January 2015, he formed Finance to focus on middle-market solar

projects. PTO ¶ 33; Altenberg Tr. 328. Shortly after Altenberg formed Finance, Jefferson

spoke with him about financing solar projects in the Virgin Islands. JX 102; JX 105;

Jefferson Tr. 14, 16–17.

      Altenberg is a smooth talker, and Jefferson was impressed with him. In February

2015, Jefferson asked Altenberg if he would like to work on his Virgin Islands projects “in

                                            4
a more formal way.” JX 107. Altenberg responded that he was “happy to support this

effort.” Id. Altenberg testified at trial that Jefferson asked whether he could invest in

Finance. Altenberg Tr. 33839. That testimony was not credible. Jefferson was looking for

backing from Open Energy to pursue his own projects in the Virgin Islands, and he wanted

Altenberg to come work for him. He was not looking to invest with Altenberg. See JX 110;

JX 111; JX 112; Jefferson Tr. 15759.

B.     Altenberg Solicits An Investment From Jefferson.

       In May 2015, Altenberg pitched Jefferson on investing $15 million in Finance.

Jefferson Tr. 161. On May 14, Altenberg emailed Jefferson a set of materials for the

purpose of seeking an investment from Jefferson. Altenberg Tr. 510; see JX 3; JX 121.

       Jefferson told Altenberg that if he decided to move forward with the investment,

then he might want to bring other investors with him. That was fine with Altenberg, so

Jefferson shared Altenberg’s solicitation materials with other investors that he knew. See,

e.g., JX 122; JX 123; JX 124; JX 125. Jefferson successfully recruited James Murphy, a

close friend who managed plaintiff OBD Partners, LLC, a small investment fund with

around $3 or $4 million under management.2 On May 28, 2015, Altenberg provided

Jefferson with a slightly updated set of materials for Jefferson and Murphy to review. JX

126.

       2
         JX 123; JX 127; Murphy Tr. 743, 744–45, 749. This decision refers to Murphy
and OBD Partners interchangeably because Murphy invested in the Fund through OBD
Partners, and no one else from OBD Partners was involved with the investment.

                                            5
       Altenberg’s solicitation materials described three tiers of solar projects. The bottom

tier involved small projects, typically residential installations. The top tier involved large

projects, typically for utilities. In between was the middle market, which involved projects

for commercial and smaller-scale industrial users. A middle-market project could range

from 500 kilowatts, such as a roof-mounted system for a small grocery store, to 20

megawatts, such as a field of solar panels on 80 to 100 acres. See JX 3 at ’071; JX 126 at

’111; Altenberg Tr. 313.

       Altenberg’s solicitation materials explained that it was challenging to invest in the

bottom and top tiers because a handful of players already dominated them. See JX 3 at

’071; JX 126 at ’111. Altenberg represented that the middle market was highly fragmented,

making it an ideal investment opportunity. See JX 3 at ’071–73; JX 126 at ’111–13.

       Altenberg’s solicitation materials summarized a three-stage process for completing

a solar project: (1) design and development, (2) construction and financing, and

(3) commercial operations and re-financing. JX 3 at ’076, ’088; JX 126 at ’116, ’128.

During the first phase, the developer performs the preliminary work necessary to begin

construction, including:

      obtaining a lease for the site from the site owner,

      entering into a power purchase agreement with the site owner under which the site
       owner agrees to purchase power from the developer once the project is operational;

      conducting site assessments to plan the project,

      obtaining permits,

      entering into an interconnection agreement with the transmission system operator
       so that the project can add its power to the electric grid, and

                                              6
      conducting an environmental study.

See JX 3 at ’095; JX 126 at ’135; Altenberg Tr. 312–16.

       Once a developer has completed the preliminary work and received its permits, then

the county or municipality where the project is located issues a “notice to proceed” with

construction, referred to as “NTP.” JX 1499; Altenberg Tr. 312. At that point, the project

enters the second phase: construction and financing. JX 1499; Altenberg Tr. 316.

       The financing of a solar project is highly complex because of the availability of

federal tax credits. The Internal Revenue Code authorizes the owner of a project to claim

an energy investment tax credit in the year after the project becomes operational. See 26

U.S.C. § 48. For any project that started construction before 2022, the credit is equal to

30% of the amount invested in the project. Id. § 48(a)(2)(A)(i)(II), (III).

       Altenberg’s solicitation materials explained that because of the availability of tax

credits, the financing of a solar project typically has three components: a tax-equity

investment, traditional debt financing, and traditional equity financing. See JX 3 at ’075;

JX 126 at ’115; JX 1499. To grossly oversimplify a highly complex structure, the tax-

equity investor purchases an equity stake in the project at a discount to the expected value

of the tax credit. The developer uses the tax-equity investor’s up-front payment as part of

the construction financing package. After the project is completed, the tax-equity investor

claims the full value of the tax credit.

       Altenberg’s solicitation materials represented that Finance was “a leading tax equity

expert” with “extensive relationships with tax equity investors.” JX 3 at ’078; JX 126 at

’118. On a slide titled “Established Relationships Across the Industry,” Altenberg

                                              7
represented that Finance had “pre-existing relationships with leading industry players,” and

identified the following companies as “Tax Equity Providers”: Google, JP Morgan, US

Bank, MetLife, and Bank of America. JX 3 at ’077; JX 126 at ’117. In this litigation,

Altenberg stipulated that Finance has never received tax equity financing from Google, JP

Morgan, US Bank, MetLife, or Bank of America. PTO ¶¶ 133–37. His materials also

represented that Finance “will have a dedicated tax equity fund to support the capitalization

of each projects [sic] on a fixed term and structured basis.” JX 3 at ’078; JX 126 at ’118. It

never did.

       The second component of project financing is debt financing, initially as part of the

construction financing package and subsequently as multi-year term loan once project

achieves commercial operation. See JX 1499. Altenberg’s solicitation materials

represented that Finance had a dedicated sources of debt financing. On a slide titled “VERT

Solution,” under a heading titled “Dedicated Sources of Capital,” the solicitation materials

listed “Debt Financing (Open Energy Group)” with a checkmark beside it, indicating that

this component already had been secured. JX 3 at ’075; JX 126 at ’115. Three pages later,

on a slide titled “Dedicated Capital,” under a heading titled “Debt,” Altenberg again

identified Open Energy. JX 3 at ’078; JX 126 at ’118. The same slide noted that Altenberg,

the “founder” of Finance, was “also a co-founder of” Open Energy. JX 3 at ’078; JX 126

at ’118. On the slide titled “Established Relationships Across the Industry” Finance

identified its “pre-existing relationships with leading industry players.” JX 3 at ’077; JX

126 at ’117. That slide identified the following companies as “Lenders”: Open Energy,

CoBank, Morgan Stanley, US Bank, and Bank of America. In this litigation, Altenberg

                                              8
stipulated that Finance has never entered into a loan agreement with Open Energy, CoBank,

Morgan Stanley, Bank of America, US Bank, or any of their affiliates or subsidiaries. PTO

¶¶ 126–27, 129–31. Altenberg had only the loosest of ties to two of the identified lenders.

Through VERT Investment Group, Altenberg entered into a loan agreement with CoBank

for a wind project in 2010. PTO ¶ 128. And VERT Investment Group once had obtained a

loan from US Bank. PTO ¶ 132.

       Altenberg told Jefferson and Murphy that because of his relationships, the debt-

financing component was “a lock.” Jefferson Tr. 20; Murphy Tr. 759–60. Jefferson

believed that debt financing was the most difficult component of the financing package to

obtain. Jefferson Tr. 11–12, 26, 27. Jefferson decided to move forward with the deal, in

part, because Altenberg “had [Open Energy], and [Open Energy] was going to get the

[debt] financing because he was the cofounder of [Open Energy], and that’s what they did.”

Jefferson Tr. 277. Murphy likewise viewed the Open Energy connection as “incredibly

important” to his decision to invest. Murphy Tr. 748.

       The third component of the financing package—equity financing—was what

Altenberg represented that he needed to make the business work. Jefferson Tr. 2627.

Altenberg’s solicitation materials stated that he was looking for an equity investor to

provide the traditional equity portion of the financing package. JX 3 at ’078; JX 126 at

’118; see JX 98; Jefferson Tr. 26; Altenberg Tr. 521. On the slide titled “VERT Solution,”

under a heading titled “Dedicated Sources of Capital,” Altenberg listed check marks beside

both “Debt Financing (Open Energy Group)” and “Tax Equity (Fund).” JX 3 at ’075; JX

                                            9
126 at ’115. He put a red “X” beside “Equity,” indicating that equity was all he needed. JX

3 at ’075; JX 126 at ’115; Jefferson Tr. 26; Murphy Tr. 746.

       The solicitation materials depicted the equity component as a short-term, high-

return investment. Altenberg represented that to obtain construction financing, a project

required an equity investment equal to 20% of the total cost of construction. Jefferson Tr.

20; see Altenberg Tr. 319. He represented that once a project reached its commercial

operation date (“COD”), it would be possible to refinance the project with long-term debt

supported by the revenue from the power purchase agreement. With the tax equity staying

in the deal, the long-term financing would be sufficient to pay off the construction

financing and allow the equity investor to receive back its capital and a potential return on

equity. The equity then could be reinvested in the next project. As Altenberg explained it

in his solicitation materials, “We will reinvest the equity from each project into the next

project thereby revolving the equity as we complete construction and refinancing at

commercial operations (COD).” JX 3 at ’078; JX 126 at ’118; see JX 1499. What made the

investment particularly attractive was that even after the equity investors received a return

of their equity capital, the Fund would own the project, meaning that the Fund would be

entitled to receive the free cash flow from the project over its multi-year life. Jefferson Tr.

20, 172–73; see Altenberg Tr. 319–20.

       Altenberg represented that he would complete a project and reinvest the Fund’s

equity in three to six months. According to his solicitation materials, the “Timing per

Project” would be “3 to 6 months from project selection to commercial operations.” JX 3

at ’079; JX 126 at ’119; see Jefferson Tr. 23–24; Murphy Tr. 753. The equity component

                                              10
thus could be recycled at least twice per year to generate high returns. Jefferson Tr. 30–31;

see JX 3 at ’078; JX 126 at ’118. Altenberg’s solicitation materials provided four case

studies depicting projects that had been refinanced at COD to generate proceeds that

equaled or exceeded the original commitment of debt and equity capital during the

construction phase. See JX 3 at ’09194; JX 126 at ’131–34.

       Altenberg proposed that Jefferson and Murphy invest $15 million in Finance in

return for Series A Preferred Shares that could be called at par after two years and would

be convertible into 40% of Finance’s equity. Jefferson Tr. 25; see JX 3 at ’079; JX 126 at

’119. He represented that their investment would be “backed by hard assets,” i.e., the solar

projects themselves. JX 3 at ’079; JX 126 at ’120. He projected that annual operating

expenses would equal 2% of the cash available for investment. JX 3 at ’079. He proposed

that the preferred stock earn a dividend of 8% annually. In the May 14 version of his

solicitation materials, Altenberg provided financial projections that forecast a return of 8.0x

invested capital in five years, reflecting an internal rate of return of 60%. JX 3 at ’080. In

the May 28 version of his solicitation materials, he reduced the figures to 7.9x invested

capital and an internal rate of return of 51%. JX 126 at ’120. In the May 28 version,

Altenberg removed the line item projecting that annual operating expenses would equal

2% of the cash available for investment. See id. at ’119.

C.     The Fund

       After considering Altenberg’s proposal, Jefferson and Murphy declined to invest

directly in Finance because they did not want to give their capital to Altenberg to use to

fund Finance’s business as he pleased. See Jefferson Tr. 19, 31–32. To give the investors

                                              11
more control over their investment, Altenberg proposed that Jefferson and Murphy invest

directly in the solar projects through a dedicated fund. See Jefferson Tr. 34; Murphy Tr.

754–55.

       On June 1, 2015, Altenberg sent Jefferson and Murphy a flow-of-funds diagram that

depicted how an investment in the Fund would work. JX 136; see JX 1495. The investors

would commit capital to the Fund, which would be managed by Finance. JX 1495; Murphy

Tr. 766. Once Finance identified a project, it would create a special purpose entity for the

project that would be a subsidiary of the Fund. Finance then would make a capital call for

the development expenses, and the Fund would contribute the capital to the project

company. Other parties, such as a co-developer, might receive an equity stake in the project

company. The project company would develop the project. At NTP, Finance would make

a second capital call for the additional equity necessary to obtain construction financing,

and the Fund would contribute the capital to the project company. Once construction was

complete and the project reached COD, then the project company would refinance the

project with a long-term financing package, pay a development fee to Finance, and return

the equity in the project company up to the Fund. See JX 1495.

       The flow-of-funds diagram did not show any funds flowing to Finance from the

Fund, only from the project companies. JX 1495; Jefferson Tr. 35; Murphy Tr. 766–67.

Jefferson and Murphy understood this to mean that Finance would receive any fee at COD,

when the project was refinanced. Murphy Tr. 767. The flow-of-funds diagram indicated

that after COD, when the equity was returned to the Fund, the profits would be divided

50/50 between the investors and Finance. JX 1495. Under this arrangement, the primary

                                            12
source of compensation for Finance would be its rich carried interest in each project

company, reflecting a full 50% of the profits. Jefferson Tr. 47.

       Jefferson told Altenberg that the flow-of-funds diagram “makes sense.” JX 137.

After they had a call to discuss it, they asked their lawyers to prepare an operating

agreement for the Fund. See JX 139.

       Other evidence in the record corroborates Jefferson and Murphy’s understanding of

how Altenberg said that the Fund would work. During the same period when he was

soliciting an investment from Jefferson and Murphy, Altenberg solicited an investment

from Tamra-Tacoma Capital Partners. JX 133. Altenberg misrepresented Jefferson’s

commitment, describing the “Jefferson Investor” as having committed “$3M – $50M” to

the Fund. Id. at ’122. The rest of his description of the deal with Jefferson matched his

representations to Jefferson and Murphy. He depicted a “Representative Transaction” that

would cost $10 million from acquisition though commercial operation. Id. at ’123. He

showed a total of $2 million coming from the Fund, with half ($1 million) for project

development to bring the project to NTP, and the other half ($1 million) for the equity

component of the construction financing package. Id. At COD, he showed the $2 million

being returned to the Fund and estimated that there would be “[e]xcess proceeds from

refinancing of $1.3M” that would be used to cover Finance’s fees of $700,000 and provide

a return to the Fund. Id. at ’124. This idea was not new for Altenberg. He previously had

outlined a similar concept in a document dated March 14, 2013, which described the flow

of funds for “VERT Solar Finance Company” in a manner that closely resembled the deal

that Altenberg pitched to Jefferson and Murphy. JX 98 at ’264.

                                            13
D.     Project Cali

       In addition to rejecting the idea of investing directly in Finance, Jefferson told

Altenberg that he and Murphy would not invest $15 million all at once. Jefferson Tr. 31.

They wanted Altenberg to demonstrate that his concept would work by completing an

initial project. Id.; Murphy Tr. 751. Altenberg responded by identifying “Project Cali” as

the Fund’s initial project. See Jefferson Tr. 36, 38, 39–40; Murphy Tr. 756–58. Altenberg

represented that Project Cali was lined up and required a prompt investment. Jefferson Tr.

40, 44; Murphy Tr. 756–57; see Altenberg Tr. 527.

       At the end of May 2015, after he had sent the updated solicitation deck to Jefferson

and Murphy, Altenberg provided them with a financial model for Project Cali. See JX 4;

JX 131; Jefferson Tr. 39. It depicted a project in California City, California, that was being

developed by American Solar Utility LLC. JX 4 at 4. The project size was about 2.25

megawatts, and it would generate an investment tax credit of $6,069,060. Id. The

presentation showed how the investors’ money would be used, what the debt financing

would look like, and the projected payback. Jefferson Tr. 40–41.

       The model also illustrated how the long-term financing would replace the initial

financing package at COD. At that point, the presentation depicted $382,126 in fees paid

to Finance, $1 million in capital being returned to the Fund, and a return of $325,098 for

Finance and the Fund’s investors. JX 4 at 5. Finance notably would receive its fee at COD,

not before COD. Id.; see Murphy Tr. 762–73.

       Jefferson and Murphy understood that the presentation materials for Project Cali

depicted a specific and actionable project. Jefferson Tr. 36; Murphy Tr. 756–58. The

                                             14
presentation materials reinforced this impression. The second page of the presentation

stated: “This Financial Model (the ‘Model’) has been provided to you in relation to Project

Cali . . . and relates to the offering of equity stakes in a solar PV generating plant located

in California (the ‘Project’).” JX 4 at 2. Although the page contained customary disclaimers

regarding reliance on the projections and other forward-looking statements, there was

nothing to suggest that Project Cali was not an available project. By all appearance and

accounts, it was a project that Finance had authority to offer to potential investors.3

       In addition to the financial model, Altenberg provided Jefferson and Murphy with a

term sheet from Open Energy for Project Cali. JX 1501. Although not a binding

commitment, the term sheet appeared actionable. See JX 1501. The only information that

was redacted from the term sheet was the name and address of the potential borrower. JX

1501 at ’619, ’624, ’626.

       Jefferson understood that Project Cali was the first project in which he would invest.

Jefferson Tr. 40. He based his decision to invest with Altenberg on the presentation about

Project Cali. Jefferson Tr. 36, 39, 42; see JX 1502 (Murphy following up on “the California

City investment” as “the first and principal investment we funded”).

       3
        See, e.g., id. (“The Model is being delivered . . . to a limited number of parties who
may be interested in a potential purchase of the Project.”); id. (“The sole purpose of the
Model is to assist the recipient in deciding whether to proceed with a further investigation
of the Project.”); id. (“[Finance] acting through themselves and their affiliates have been
authorized to act as the exclusive agent in the direct sale of the Project described in this
Model.”).

                                             15
       At trial, Altenberg testified that that the presentation on Project Cali was simply an

illustration. He claimed it was only a model based on “numbers that [were] indicative” of

a “project in California City” that Altenberg was “trying to get.” Altenberg Tr. 527.

Altenberg testified that he thought it was a helpful example to explain to Jefferson and

Murphy how a project might work. That testimony was not credible. The evidence supports

Jefferson’s testimony that Altenberg presented Project Cali as the Fund’s first project. See

Jefferson Tr. 164.

E.     The Operating Agreement

       Because of the plan to invest in Project Cali, the parties rushed through the process

of negotiating and drafting an operating agreement, which took only eleven days. During

the negotiations, the parties agreed on the following points:

      “EACH PROJECT UNDER THIS FUND WILL BE IN A SEPARATE SPE . . . .”
       JX 143 at ’395.

      “[T]he fees to [Finance] will be capped at $170K per MW.” Id. at ’394.

      “[A]fter each project the proceeds are returned to the Fund . . . .” Id.

Importantly, the parties agreed that “no additional capital will be called from the

Investment Members [until after] long-term financing is secured for the initial California

project.” JX 143 at ’392; see id. at ’391. This was a reference to Project Cali. Jefferson Tr.

36. Jefferson made clear that he viewed the Fund as “a ‘one project at a time’ set-up with

a rollover option following the completion of each project.” JX 143 at ’392. Contrary to

the parties’ explicit agreement, Altenberg testified that he believed at all times that the

Fund would invest in portfolios of projects. Altenberg Tr. 353–54, 356. He claimed,

                                             16
contrary to the evidence, that it “was never contemplated” “to do a one-off project.” Id. at

356. That testimony was not credible.

       The original operating agreement for the Fund was signed on June 11, 2015. PTO

¶ 22; JX 175.4 It memorialized the parties’ understanding of the business relationship in

the purpose clause for the Fund:

       Subject to the limitations set forth in this Agreement, the purpose of the
       [Fund] shall be to identify, finance, acquire, develop, manage and dispose of
       Projects, to arrange and provide financing and other services relating thereto,
       and to engage in any other lawful act or activity for which limited liability
       companies may be organized under the Act. The [Fund] has the power to do
       any and all acts necessary, appropriate, proper, advisable, incidental or
       convenient to or in furtherance of the foregoing purposes and has, without
       limitation, any and all powers that may be exercised by a limited liability
       company under the Act.

       The Members intend that the [Fund] own one (1) or more ProjectCos, as
       separate limited liability companies, each to exist solely for the ownership,
       development, construction, operation, and potential sale or transfer of a
       Project.

       Each ProjectCo shall be owned and managed solely by the [Fund] (and/or a
       wholly owned subsidiary of the [Fund]) until such time that each Project or
       each ProjectCo is sold or transferred (other than pursuant to any sale-
       leaseback financing); provided, however, that the [Fund] may grant non-
       voting profit interests in one or more ProjectCos to third parties in

       4
        The parties amended the operating agreement on several occasions. See JX 14; JX
174; JX 175; JX 396. None is significant for purposes of the case, except for the amendment
dated March 30, 2016, that added HOMF as an Investment Member. PTO ¶ 31. For
purposes of this litigation, the parties agree that the governing version of the operating
agreement is the Amended and Restated Operating Agreement of VERT Solar Fund I,
LLC, dated March 30, 2016. JX 396 (the “Operating Agreement” or “Op. Agr.”); see PTO
¶¶ 24–27, 29, 31, 35. Unless otherwise noted, all citations in this decision are to the March
2016 version.

                                             17
       consideration of services rendered by such third parties to the applicable
       ProjectCo(s).

Op. Agr. § 1.2 (emphasis and formatting added). The Operating Agreement defined a

“Project” as “a renewable energy development project selected by the Manager for

investment by the [Fund].” Id. at 24 sched. 2. It defined a “ProjectCo” as “each Delaware

limited liability company to be owned and managed by the [Fund], whose sole purpose is

to develop, hold the assets of, construct, own, operate, maintain and obtain take-out project

finance for each Project and/or otherwise dispose of such Project or its assets.” Id. The

purpose clause thus reflected the parties’ business agreement that Finance and the Fund

would create and operate through project companies owned by the Fund (the “Project

Company Requirement”).

       The Operating Agreement divided the Fund’s members into a “Management

Member” and the “Investment Members.” The original Investment Members were

Jefferson and OBD Partners. Jefferson agreed to commit total capital of $2 million, and

OBD Partners agreed to commit total capital of $500,000. PTO ¶ 36. The Fund’s total

available capital was thus $2.5 million. See JX 174 at ’646; JX 175 at ’380.

       The Operating Agreement established a manager-managed governance structure

and appointed Finance as the Manager. Op. Agr. § 5.1. Under the Operating Agreement,

Finance had “full, exclusive and complete discretion in the management and control of the

business and affairs of the [Fund], subject to Section 5.2 . . . .” Op. Agr. § 5.1A.

       There were, however, two significant limitations on Finance’s ability to take action.

The first concerned capital calls. Until it reached its total capital commitment, each

                                              18
Investment Member was obligated to fund a capital call within five business days after

receiving a notice that provided the following information:

       (i) the aggregate amount requested from all Investment Members,

       (ii) the amount requested from such Investment Member, and

       (iii) a description of the projected uses of such funds, including the following
       information with respect to each new Project selected by the Manager:

              (a) Project description;

              (b) Capital Requirements;

              (c) Project status and permitting status;

              (d) Transaction status;

              (e) Financial model and indicative returns;

              (f) Risks identified; and

              (g) Projected timetable.

Op. Agr. § 3.2B (the “Capital Call Provision”) (formatting added).

       Although the Capital Call Provision generally obligated the Investment Members to

fund capital calls once Finance provided the requisite information, it was subject to a

proviso: “Notwithstanding the foregoing, an Investment Member shall not be required to

make any additional Capital Contributions . . . until the [Fund] has made apportionments

(and distributions, if applicable) of Available Cash attributed to the long-term financing of

the [Fund]’s initial Project . . . .” Id. Through this proviso, the Operating Agreement

memorialized the parties’ agreement to start with a single project, which Jefferson and

Murphy understood to be Project Cali. The Investment Members were not obligated to fund

                                             19
any additional capital calls until the Fund had refinanced its initial project with long-term

financing, i.e., once the initial project had reached COD.

       The second major limitation appeared in Section 5.2B and required Finance to

obtain approval from a majority of the Investors before taking certain actions. It stated:

       Notwithstanding any [sic] to the contrary contained herein, the Manager and
       the [Fund] are expressly prohibited from taking the following actions without
       the prior approval of the Investment Members holding a majority of the IM
       Percentages:

       (i) Acquire any equity or debt securities, other than securities issued by a
       ProjectCo for a Project;

       (ii) Incur indebtedness other than in the ordinary course of business;

       (iii) Take any action in contravention of this Agreement;

       (iv) Possess property, or assign rights in specific property, for other than a
       [Fund] purpose;

       (v) Voluntarily take any action that would cause a bankruptcy of the [Fund]
       or file the [Fund] in bankruptcy;

       (vi) Change significantly the nature of the [Fund]’s business;

       (vi) Admit any additional Members other than pursuant to this Agreement;
       and

       (vii) Effect any transaction between the [Fund] and any Manager, any
       Investment Member, the Management Member, or any of their respective
       Affiliates.

Op. Agr. § 5.2B (the “Investment Member Approval Requirement”).

       In Section 3.3, the Operating Agreement memorialized the agreement that the

Investment Members could withdraw their capital from the Fund after a successful project.

That provision gave each Investment Member “the right, exercisable from time to time in

its sole discretion, to demand that with respect to any one or more Projects, the [Fund]

                                             20
make a distribution to the Investment Member from Available Cash attributable to such

Project(s) in an amount equal to the Investment Member’s Unreturned Capital Contribution

with respect to such Project(s) . . . .” Op. Agr. § 3.3 (the “Capital Withdrawal Provision”).

       For purposes of distributions from each project, the Operating Agreement stated that

proceeds first would be allocated to return the Investment Members’ capital. Op. Agr.

§ 4.2(i). The remaining proceeds, reflecting profits, would be distributed with 50% going

to the Investment Members and 50% to the Management Member. Op. Agr. § 4.2(ii). The

Investment Members’ share of capital and profits would remain in the Fund and would be

available for reinvestment unless an Investment Member exercised its right to withdraw

capital under the Capital Withdrawal Provision.

       Finally, the Operating Agreement memorialized the parties’ agreement that Finance

could receive fees for managing individual projects in addition to participating in the upside

with the Investment Members. Section 2.9 of the Operating Agreement stated that Finance

       may receive compensation for services rendered to or on behalf of any
       Project, and that such compensation shall be treated in each case as (i) a
       capitalized expense of the Project prior to the Project’s Commercial Online
       Date (“COD”); provided, however, such capitalized fees shall not exceed
       $170,000 per MW for such Project prior to COD, and (ii) an operating
       expense of the Project after COD; provided, however, such operating
       expense fees shall not exceed 3% of revenues for such Project.

Op. Agr. § 2.9 (emphasis in original); see JX 143 at ’394.

F.     The Five-Month Delay

       On June 11, 2015, the same day that that the Operating Agreement was signed,

Jefferson and Murphy each wired $500,000 to the Fund. PTO ¶¶ 37–38. They expected

                                             21
Altenberg to tell them that Project Cali was moving forward. They heard nothing. Murphy

Tr. 763–64, 769–70.

       Instead, Altenberg issued a misleading press release in which he claimed that

Finance had secured a $2.5 million investment. JX 185. The announcement was titled

“Houston energy tech company closes investment round, prepares for acquisition” and

claimed that “Vert Solar Finance, a solar power project acquisition platform, has raised

$2.5 million as it prepares to acquire solar projects around Houston and the United States.”

Id. But Jefferson and Murphy had not invested in Finance; they invested in the Fund.

       At the end of the month, Altenberg told Jefferson that Project Cali was on hold. See

JX 1502. On July 2, 2015, Murphy emailed Altenberg and asked about the project:

       I was curious as to the progress on the California City investment and
       recently speaking with Brett on other matters was surprised to learn that it
       appears to have fallen through at least for the time being. Although hopefully
       that is not the case, I would appreciate it if you could let me know its status
       and any planned next steps.

       As it was the first and principal investment we funded, clearly I am interested
       in status from time to time[,] particularly significant changes when known.

JX 1502 (emphasis added); see Murphy Tr. 764. This email corroborates Jefferson and

Murphy’s testimony that Project Cali would be the Fund’s first project. Murphy Tr. 768.

       In early August 2015, Altenberg emailed Jefferson and Murphy that he was focused

on acquiring projects and developing relationships with engineering partners. JX 162. His

email included a “Pipeline report,” which described projects that he was investigating. Id.

       In early September 2015, Altenberg told Jefferson that Project Cali was not going

forward. Jefferson Tr. 43; Murphy Tr. 769–70. Altenberg sent Jefferson another update

                                             22
and attached a pipeline report. JX 205. When Jefferson called him, Altenberg said that “he

ha[d] a plethora of deals.” JX 204. Jefferson shared that information with Murphy. JX 204;

JX 205.

       Murphy was concerned. He believed that the Fund was going to invest in Project

Cali, and he reminded Jefferson that the Operating Agreement “did not contemplate [the

Fund] with no projects.” JX 207. He reached out to Altenberg to schedule a call. JX 210.

Altenberg emailed back that Finance was “in the final throws [sic] of putting together the

first project,” which he described as “a 513 kW project in Newark, NJ,” and asked for “a

couple more days to finalize the terms . . . .” JX 222. Altenberg also represented that

“[b]ehind this we have 50MWs of projects in various stages of perfecting and it is going to

be an exciting year.” Id. The Newark project never materialized. Altenberg Tr. 568.

       On November 2, 2015, Murphy again emailed Altenberg to ask about the delay in

finding a project and whether it was “time to consider returning [our] initial investment

until such time as it is needed.” JX 222. The plaintiffs learned through discovery that

Altenberg could not have returned their money because he already had used some of it to

reimburse himself for expenses associated with setting up the Fund. Altenberg Tr. 560–61.

       The next day, Altenberg reassured Murphy that Finance had “been making

tremendous progress on the pipeline” and that he had “just arrived into New York to

finalize our pipeline agreement with Blue Sky Utility.” JX 223. Altenberg also sent an

updated project pipeline. JX 224. Murphy responded, “[W]e need to see a live deal before

years [sic] end,” and he told Altenberg that he wanted to meet with him in person while

Altenberg was in New York. JX 225.

                                            23
       Murphy and Altenberg met at Michael Jordan’s Restaurant in Grand Central Station.

Murphy Tr. 828. Murphy bluntly conveyed his disappointment about the Fund’s failure to

proceed with Project Cali, and he asked for his money back. Altenberg stressed to Murphy

that he expected to sign an agreement with Blue Sky Utility LLC that night. Murphy told

Altenberg that if the agreement did not result in a project, he wanted his money back. See

JX 233.

G.     The Blue Sky Agreement

       On November 4, 2015, Finance entered into a Solar Development Asset Purchase

Agreement with Blue Sky under which Finance purchased the rights to twenty-one solar

projects that Blue Sky was developing in California (the “Blue Sky Portfolio”). PTO ¶ 48;

JX 226. The projects had a nameplate capacity of 13.68 megawatts. JX 226 at 3 (Recital

A). Finance agreed to pay (i) $150,000 for each megawatt that a project produced when

completed, plus (ii) the development costs for the project, which would become due as

Blue Sky achieved milestones set forth in the agreement. At closing, Finance became

obligated to pay the “Cash Advance,” defined as 20% of the aggregate pre-development

fee for an 8-megawatt portion of the projects, plus 20% of the estimated development cost

for that portion of the projects. Id. §§ 1.1.19, 2.2.2. The pre-development fee was equal to

$150,000 per megawatt. Id. § 2.2.1. The estimated development was $170,000 per

megawatt. JX 1486 at 3. Finance thus became obligated at closing to pay $512,000 to Blue

Sky, plus additional fees over time as Blue Sky achieved project milestones. Finance also

agreed to give Blue Sky a 15% equity interest in each project. In substance, Finance was

                                            24
buying the nascent projects, paying Blue Sky to complete them, and granting Blue Sky an

equity interest in the projects as a co-developer.

       On November 5, 2015, Altenberg emailed a copy of the Blue Sky agreement to

Jefferson and Murphy, writing, “[W]e finally have the contracts in place and structure for

what we all expect to be a fruitful and long relationship. We will begin construction on the

first project with Blue Sky immediately and you will find the initial pipeline included in

the contract.” JX 230.

       By acquiring the Blue Sky Portfolio, Altenberg took a very different approach than

what the parties originally contemplated. Instead of pursuing a single project to completion

as proof of concept, Altenberg acquired a portfolio of twenty-one projects. At trial,

Altenberg claimed that he planned to proceed first with the projects that were closest to

NTP (i.e., the preliminary work was finished) and to devote the Fund’s limited resources

to those projects. Altenberg Tr. 359. The reality was that Altenberg had committed Finance

to projects that required more equity than Jefferson and Murphy had committed to invest.

       During this litigation, Altenberg admitted that by acquiring the Blue Sky Portfolio,

he was no longer adhering to his agreement with Jefferson to pursue one project at a time.

Altenberg Dep. (Aug. 28, 2018) 49395. He claimed that Finance “was acquiring the

projects in anticipation of selling them into the Fund to build up a pipeline.” Id. at 497. He

claimed that he “didn’t know which projects were going to ultimately be approved into the

Fund, which is why we built up a pipeline.” Id. He also contended that “the Fund owners”

would make a decision as to whether a project received “acceptance back in the Fund.” Id.

at 499. This testimony was not credible. Neither the parties’ business deal nor the Operating
                                             25
Agreement contemplated Finance initially buying projects and then later selling them to

the Fund. Moreover, Altenberg used the Fund’s capital to acquire the Blue Sky Portfolio.

The Fund thus was paying for the projects, not Finance. In his post-trial submissions,

Altenburg has denied vigorously that the “Fund owners” had any right to approve what

projects were acquired by the Fund. See, e.g., Dkt. 279 at 35–43.

H.     The Placerville, Orland, And Hanford Projects

       On November 16, 2015, Altenberg told Jefferson and Murphy that work would

begin on the first three Blue Sky projects, which were located, respectively, in Placerville,

Orland, and Hanford, California. He provided project summary reports that included an

overview of each project and preliminary financial analysis. JX 235; JX 242.

       The total estimated cost of the Placerville project was $1,765,000, with an equity

investment from the Fund of $353,000. JX 240 at ’388; JX 242 at ’267. The total estimated

cost of the Orland project was $1,928,000 with an equity investment from the Fund of

$385,600. JX 240 at ’389; JX 242 at ’261. The total estimated cost of the Hanford project

was $5,032,000, with an equity investment from the Fund of $1,006,400. JX 240 at ’388;

JX 242 at ’255. The total construction cost for the three projects thus was approximately

$8.725 million, with a total equity investment from the Fund of $1.745 million. JX 241. At

the time, Altenberg only had capital commitments from the Investment Members totaling

$2.5 million. Committing to the Placerville, Orland, and Hanford projects left Altenberg

with $755,000 in available capital.

       On November 17, 2015, Altenberg, Jefferson, and Murphy met to discuss these

projects. JX 240. Jefferson and Murphy approved them. PTO ¶¶ 52, 55, 59. That same day,

                                             26
Altenberg wired $512,000 from the Fund’s bank account to Blue Sky Utility LLC. PTO

¶ 49.

        On November 30, 2015, Altenberg formed VSF Blue Sky Portfolio I LLC (the “Blue

Sky ProjectCo”) as a project company for all of the projects in the Blue Sky Portfolio. PTO

¶ 60. He also executed an assignment agreement between Finance and Blue Sky ProjectCo,

which he backdated to November 4, 2015. Compare JX 258, with PTO ¶ 61. The Fund

owned 85% of Blue Sky ProjectCo, and Blue Sky owned the remaining 15%. But contrary

to the Project Company Requirement, Altenberg did not complete the paperwork necessary

to actually transfer the rights to the projects from the Finance to the Blue Sky ProjectCo.

The transfer was not completed until February 2017, after the parties’ relationship had

broken down. See JX 947. Also contrary to the Project Company Requirement, Altenberg

never created individual project companies for the projects in the Blue Sky Portfolio.

        Shortly after work began on the Placerville, Orland, and Hanford projects, a team

from Hildene explored whether the Fund would be a worthwhile investment opportunity

for one of its funds. See JX 251. Several Hildene employees held a call with Altenberg,

who told them that the Fund needed an additional $12.5 million to fund its current pipeline

of projects. JX 262. Altenberg already could not finance his pipeline using his existing

capital. Jefferson signed off on Hildene making an investment, and Altenberg and the

Hildene employees began working on the documents. See JX 268.

        In late November 2015, Altenberg began working with DynaSolar EPCM, LLC

(“DynaSolar”), a consulting firm that provided engineering, procurement, and project

management services. JX 246; Altenberg Tr. 439. On December 30, 2015, Finance entered

                                            27
into a Master Consulting Services Agreement with DynaSolar to provide engineering and

project management services for the Fund’s projects. PTO ¶ 62; JX 271. The consulting

agreement called for DynaSolar to work on a minimum of 8 megawatts worth of projects

and to receive a minimum fee of $640,000. JX 271 at 32, 35; Altenberg Tr. 58283.

Altenberg expected the Fund to pay DynaSolar’s fees. See Altenberg Tr. 583.

      Altenberg testified that he hired DynaSolar because he had never handled the details

of a solar project, so he needed “very experienced engineers” for support. JX 1198 at 176.

Among other things, he wanted DynaSolar “to oversee the work of the construction team.”

Altenberg Tr. 439. Jefferson and Murphy were surprised to learn that Altenberg had hired

DynaSolar because they thought that Altenberg would be handling some of the tasks that

the services agreement assigned to DynaSolar. Jefferson Tr. 69–70, 222.

I.    The Sunrise Projects

      After work started on the Placerville, Orland, and Hanford projects, Altenberg

began sending weekly updates to Jefferson and Murphy. On January 26, 2016, he sent a

weekly update that mentioned an “[i]ntroduction to Sunrise Energy.” JX 304 at ’368. The

next weekly update described Sunrise Energy has having (i) a 400-kilowatt project in

Bakersfield, California, and (ii) “what could prove to be a large portfolio of 1-3 MW

projects in Pennsylvania.” JX 319 at ’387.

      A few days later, Altenberg reported that DynaSolar was looking into buying solar

panels “on the secondary market” so that the Fund could use them “to maximize the IRR

and lower project costs across the portfolio.” JX 326 at ’438. A week later, Altenberg

reported that DynaSolar had “located approximately 8.3 MW of tier 1 solar modules for

                                             28
sale on the secondary market . . . .” JX 329 at ’238. There also was bad news on the Hanford

project; the site needed a new roof and the quote was more than twice the amount that

Altenberg had expected. Id. at ’239.

       By this point, Altenberg had started working with BrightPower, Inc., an affiliate of

Blue Sky, to provide engineering services for the Blue Sky Portfolio. He caused the Blue

Sky ProjectCo to enter into an agreement with BrightPower, calling the document a

“Limited Notice to Proceed.” See id. at ’039. Altenberg’s “Limited Notice to Proceed” was

different than a “Notice to Proceed,” which marks the point when a municipality or county

determines that a project can start construction. Altenberg’s “Limited Notice to Proceed”

simply meant that he was instructing BrightPower to start work on documentation. See JX

331 at ’826.

       On February 18, 2016, the Fund entered into a Solar Development Asset Purchase

Agreement with Sunrise Energy, under which the Fund (i) acquired the Bakersfield project

and (ii) purchased options on the Pennsylvania projects. PTO ¶ 66; see JX 330. The basic

structure of the deal paralleled the acquisition of the Blue Sky Portfolio. The Fund agreed

to pay $175,000 for the Bakersfield project, with $17,500 due at closing, plus additional

payments according to a schedule set forth in the agreement. JX 330 §§ 1.1.16; 2.2.1. For

the Pennsylvania projects, the Fund agreed to pay $50,000 per megawatt at completion

according to a schedule set forth in the agreement. Id. § 2.2.2.

       On February 23, 2016, Altenberg informed Jefferson and Murphy by email that he

had signed the agreement with Sunrise Energy. JX 339 at ’086. He identified the “VERT

Portfolio” as consisting of five projects: the Orland, Placerville, and Hanford projects from

                                             29
Blue Sky, the Bakersfield project from Sunrise Energy, and an additional project from

Sunrise Energy in Licking Creek, Pennsylvania. Id. at ’088. Altenberg reported that the

Orland, Placerville, and Hanford were four months behind schedule. Id. at ’086.

       In his update, Altenberg provided the following breakdown of how the Investment

Members’ initial contribution of $1 million had been spent:

           Description                         Debit               Balance
           BlueSky Utility                  $512,000              $488,000
           VSF Acq Exp                      $148,985              $339,015
           Legal Svcs                       $103,080              $235,935
           Insurance                         $16,999              $218,936
           Accounting                         $3,827              $215,109
           Bank Fees                            $467              $214,642

Id. Altenberg then stated that he would need $250,000 for the Bakersfield project, another

$1,150,000 for the Hanford project, and $250,000 for a deposit on $4 million worth of solar

panels. Id. The identified needs totaled $1,650,000, excluding the balance due for the solar

panels. Altenberg nevertheless identified a “Funds Needed” figure of $509,627. He

attached two funding requests, one for $365,736 for the Orland project and another for

$358,533 for the Placerville project. Those requests did not add up to $509,627 either. See

id. at ’093, ’103.

       After receiving Altenberg’s report, Murphy emailed Jefferson to express concern

that the Fund was working “a bit different then [sic] I think was envisioned at the get go.”

JX 343 at ’962. He asked Jefferson for a call “to make sure we are on the same page.” Id.

At the time, Jefferson was not paying close attention, and he was not worried about the

sums involved. He emailed an investor who previously had asked him about Altenberg,

writing, “Joaquin is starting to fund and it looks really interesting.” JX 342.
                                             30
       On February 26, 2016, Jefferson and Murphy each contributed an additional

$255,000 to the Fund. JX 356; JX 1496. This contribution brought their total amount

invested capital to $1.51 million, with $990,000 remaining on their commitments. The

Fund did not have enough capital to fund the $1,650,000 in uses that Altenberg had

identified, much less to pay what Altenberg had indicated would be an additional $3.75

million to complete the purchase of the solar panels.5

J.     Altenberg Looks At More Projects.

       During March 2016, Altenberg sent updates to Jefferson and Murphy in which he

reported that he was investigating still more projects in Michigan, Puerto Rico, the Virgin

Islands, Hawaii, and California. JX 369 at ’361; JX 373 at ’283. In addition to the new

projects, Altenberg reported that Blue Sky was moving forward with two additional

projects from the Blue Sky Portfolio—Quincy and Colusa—and expanding the Placerville

project. JX 369 at ’361.

       On March 29, 2016, Altenberg reported that he was examining “the Georgia

Avocado portfolio of projects proposed by Beltline Solar for construction this year.” JX

395 at ’235. What became known as the “Beltline Portfolio” consisted of “about twenty-

two . . . projects totaling approximately 34 [megawatts].” Id. Altenberg also said that he

was evaluating a new project in Farmington, Illinois. Id. at ’234, ’235; JX 379 at ’290. In

       5
        At around this time, Jefferson and Murphy agreed that as between themselves, they
would split the $2.5 million that they had originally agreed to contribute, with each
responsible for $1.25 million. See JX 851 at ’573; JX 905 at ’456; Altenberg Tr. 403. This
decision continues to use the capital commitments set forth in the Operating Agreement.

                                            31
the same update, Altenberg reported that he planned to close the following week on the

purchase of 8.3 megawatts of solar panels. JX 395 at ’234, ’235.

K.     HOMF Invests In The Fund.

       On March 30, 2016, HOMF formally became an Investment Member in the Fund.

See JX 387; JX 396. At the time, HOMF was a subsidiary of Hildene Opportunities Fund

II. Jefferson Tr. 8.

       HOMF committed to contribute up to $5 million in capital and wired the Fund an

initial capital contribution of $3.02 million. PTO ¶ 43; see Op. Agr. at 21 sched. 1. Before

HOMF invested, Jefferson and OBD Partners had provided the Fund with $1.51 million in

capital, and they had $990,000 remaining on their commitments. HOMF’s investment

brought the total investment in the Fund to $4.53 million, with $2.97 million remaining in

untapped commitments.

L.     Altenberg Buys The GCL Panels.

       On April 1, 2016, Altenberg executed an agreement between the Fund and GCL

Solar Energy, Inc. to purchase 8.3 megawatts of solar panels (the “GCL Panels”) for

$3,625,126.88. PTO ¶ 97; JX 416. When Altenberg pitched Jefferson and Murphy on

investing in the Fund, he never suggested having the Fund purchase solar panels or other

hard assets. The Fund only was going to own project companies.

       The GCL Panels were sold “as is,” with the seller disclaiming all warranties. JX 416

§ 9. The GCL Panels had been sitting in a warehouse for several years and thus were not

the latest technology, but they were new in the sense that they had never been taken out of

the packaging. DynaSolar had recommended purchasing them. See PTO ¶ 98; JX 326 at

                                            32
’438. Altenberg did not do any of his own due diligence before purchasing the GCL Panels,

and he allowed DynaSolar to negotiate the contract for him. JX 1198 at 232.

       At trial, Altenberg claimed that the GCL Panels would have paid for themselves

because Finance could have used them on the Fund’s projects to lower the cost and increase

returns. Altenberg Tr. 445. The issue was timing. Altenberg had to pay for the GCL Panels

at closing, yet the Fund would not reap any benefits from having the GCL Panels until

projects reached COD and were refinanced, which would not happen for months (or

longer), if ever. As it happened, the GCL Panels could not be used in any of the Fund’s

projects.

       In April 2016, Altenberg began negotiating for Finance to acquire an interest in

DynaSolar. JX 456. Altenberg justified the transaction as a means of acquiring an

engineering team and yet another portfolio of projects. Altenberg Tr. 440–41. Altenberg

testified at trial that the DynaSolar acquisition would bring “a huge portfolio” of over 1,000

megawatts of commercial and industrial projects to the Fund. Altenberg Tr. 441.

       Altenberg spoke to Jefferson about the deal with DynaSolar. Altenberg Tr. 442.

Jefferson regarded it as a transaction involving Finance that did not affect the Fund. See

Jefferson Tr. 60. Jefferson told Altenberg that if he thought it was good for his business,

then he should do it. Altenberg Tr. 442–43.

       On May 1, 2016, Finance entered into an agreement to purchase a 60% membership

interest in DynaSolar for $7 million (the “DynaSolar Acquisition”). PTO ¶ 72; JX 475. The

agreement obligated Finance to pay $3.5 million to DynaSolar on May 1, 2016; $1.75

million one year later; and another $1.75 million the year after that. JX 475 at 2, 17.

                                              33
Altenberg claimed at trial that he thought the transaction “wasn’t going to require any

capital from the Fund.” Altenberg Tr. 443. In reality, as he testified in a different action,

he planned to use money that he already had drawn from the Fund and tell the Investment

Members that the money was being used to purchase the rights to projects that DynaSolar

would provide to the Fund. JX 1205 at 3031.

       At trial, Altenberg claimed that the DynaSolar transaction would pay for itself

because DynaSolar had a portfolio of “over a thousand megawatts” of projects. Altenberg

Tr. 441, 443. As with the GCL Panels, the obvious problem was timing. A payment of $3.5

million was due at signing, yet the DynaSolar projects would not generate cash flows until

they reached commercial operation at some indefinite point in the future. See Altenberg

Tr. 704.

M.     The Beltline Portfolio.

       On May 4, 2016, Finance entered into a Solar Development Asset Purchase

Agreement with Beltline Energy to acquire the Beltline Portfolio. PTO ¶¶ 70; JX 480.

Under the Beltline asset purchase agreement, Finance committed to pay $50,000 per

megawatt for sixteen “Awarded Projects,” totaling 24.01 megawatts, that Georgia Power

Company had approved for development. See JX 480 § 2.2, Ex. A. Finance acquired a right

of first refusal on a series of projects totaling another 9.68 megawatts that were

“Waitlisted.” See id. § 5.3, Ex. A. Ten percent of the purchase price for the Awarded

Projects ($120,050) was due at closing, with another 40% due at NTP and the final 50%

due at completion. Id. § 2.2. At closing, Finance also had to reimburse Beltline Power for

deposits in the amount of $168,300. Id. § 2.2.2. Contrary to the Project Company

                                             34
Requirement, Altenberg never assigned the rights to the projects to the Fund and never

created project companies for them.

      When Altenberg entered into the asset purchase agreement for the Beltline Portfolio,

HOMF, Jefferson, and OBD Partners had provided the Fund with $4.53 million in capital

and had $2.97 million remaining on their commitments. Altenberg estimated that it would

require $7.86 million of equity to complete the Awarded Projects. See JX 581 at ’044.

Altenberg also had committed the Fund to pay $3.6 million to purchase the GCL Panels.

And he was still in the midst of developing the six projects from the Blue Sky Portfolio

and two from Sunrise Energy.

N.    The Houston Meeting

      After hearing about the Beltline Portfolio, Jefferson and Murphy became concerned.

Jefferson Tr. 81. Murphy was scheduled to travel to Houston to visit his cousin, and he

asked to meet with Altenberg in person at Finance’s office. See JX 509; Murphy Tr. 780–

81.

      The meeting took place on June 15, 2016. See PTO ¶ 105; JX 536. Jefferson sent

Jason Spear, a Hildene analyst, to attend in his place. Jefferson Tr. 81. Spear had been

monitoring HOMF’s investment in the Fund since April 2016. See JX 424; JX 427; JX 443.

Spear reviewed the weekly reports, summarized them for Jefferson, and shared his analysis

with Murphy. See JX 443; JX 453.

      Spear had worked with Altenberg to establish a “tracker” system that categorized

progress “on a scale of 1-5.” JX 449. Spear had proposed the following scale:

      1 – conducting initial diligence/site review/prepping RFPs

                                           35
       2 – physical construction initiated and less than 50% complete

       3 – construction more than 50% complete

       4 – solar site fully functional

       5 – deal refinancing and equity is ready to be rolled into next deal.

JX 449 at ’332. Altenberg revised phase 2 to delete the word “physical,” claiming that

phase 2 was “broad” and should include “engineering design and component procurement”

and “mobilization” in addition to “physical construction.” JX 449 at ’331. Under his

revised system, Altenberg could categorize projects as having reached the construction

phase even though physical construction had not begun.6

       In preparation for the Houston meeting, Murphy told Altenberg that he wanted to

       discuss the business model a bit on a project basis and the current success in
       moving those projects underway or soon to be into a refinancing position.
       From weeklies see that there is a lot of action and want to make sure we are
       getting to finish/refinance with sort of metrics that provide comfort and
       scalability.

JX 536. In other words, Murphy wanted Altenberg to complete a project.

       6
         See, e.g., JX 527 at ’577. Later, Altenberg unilaterally changed the categorization
so that phase “2” simply meant that the Fund had invested equity and phase 3 referred to
different levels of construction, including “3.1 – Construction Prep / EPC,” “3.2 –
Construction Funding,” “3.3 – Construction Financing in Place. Procurement / site prep,”
“3.4 – Mid-Construction,” and “3.5 – End-Construction.” JX 484 at ’515; see Spear Tr.
862–63. This revised categorization was misleading because it made projects seem further
along in the development and construction process, i.e., they were closer to 5, than they
would have seemed if they instead had been categorized according to Spear’s tracker
system. Spear Tr. 86263 (“Q. And what does status 3.4 mean now? A. Well, apparently
that’s the old 2. Q. So if you did didn’t realize that changes had been made to the status
key and you were looking at the project status, what would you have thought a ranking of
2 meant? A. You would think that a project was nearing 50 percent completion.”).

                                             36
       Murphy’s cousin ran an investment fund, and Murphy brought him along to the

meeting. Altenberg viewed Murphy’s cousin as a potential investor, and he began the

meeting by giving Murphy, his cousin, and Spear a presentation that largely consisted of

the same slides he had used when soliciting Jefferson and Murphy to invest. See JX 19;

Murphy Tr. 78384. As with his pitch to Jefferson and Murphy, Altenberg represented that

“[t]he key is equity recycling.” JX 543 at ’698. He also claimed that Open Energy provided

both construction financing and long-term debt for Finance’s projects. Id. He claimed that

Finance was “one of [Open Energy’s] pipelines” and that “[t]he majority of loans they do

each month is VERTs.” Id.; see Spear Tr. 864 (“He told us that things are going very well

with Open Energy.”). One of the new pages in the presentation was titled “Active Pipeline

Summary – Past 4 months.” JX 19 at 12 (emphasis in original). It listed 111.10 megawatts

of projects, with a notation that “[t]his is a subset of over 650MWs currently in the pipeline

[and] does not include 35 MW in GA and 18 MW in MA.” Id. Referring to the 111.10

megawatts of projects, Altenberg represented that “[a]ll projects can begin construction

within the next 3 months or are already proceeding.” Id. At the time, Altenberg did not

have any projects in the construction phase.

       After the meeting, Altenberg sent Spear a two-page summary of how the Fund

operated. Dated September 2015, it included a flow chart for a representative solar project

during three phases of ownership: (i) before NTP, (ii) post-NTP and pre-COD, and

(iii) post-COD. Consistent with Altenberg’s representations to Jefferson and Murphy, the

flow chart showed the Fund owning the project through a project company from the time

the project was acquired. It showed the Fund investing in the project company to bring the
                                               37
project to NTP. It then showed the Fund investing in the project company at NTP as part

of the construction financing. It then showed Finance receiving its developer’s fee at COD

as an expense paid by the project company. See JX 538.

       Murphy and Spear asked about the Fund’s ability to develop the Beltline Portfolio.

Altenberg said that he was “not necessarily moving forward” with the projects because he

was “[n]ot seeing the returns they wanted to see.” JX 543 at ’699. Altenberg admitted that

he did “not have enough capital to complete the project.” Id. He also explained that the

Fund already had invested $522,000, including $168,000 in deposits. Id. Murphy was

disappointed and said they would need to schedule a call with Jefferson to determine “what

happened and where mistakes were made.” Id.

       Murphy and Spear also asked about the GCL Panels. Id. Altenberg said that he was

moving forward with the purchase because “they can put them anywhere or sell them if

they need to.” Id. He argued that it was “[d]ifficult to procure equipment,” so the purchase

had been a good idea. Id. Altenberg described the GCL Panels as “brand new” and “still in

the box.” Altenberg Tr. 653 (playing audio clip from JX 5188D). The GCL Panels were

still in their boxes, but they were not “brand new.” They were between three and five years

old.

       Murphy told Altenberg that he needed to complete a project. Altenberg claimed that

the Placerville and Orland projects could be completed by September 2016. JX 543 at ’700;

see JX 544. He also claimed that he was in conversations to raise another $10 to $12.5

million for the Fund. JX 543 at ’700. Neither statement appears to be accurate.

                                            38
       A follow-up call with Jefferson took place on June 27, 2016. JX 570 at ’722; see

Jefferson Tr. 84–85. Murphy asked Altenberg why he had signed the deal for the Beltline

Portfolio despite not having the capital to complete the projects. JX 570 at ’722. Altenberg

claimed that aspects of these projects were “top-notch.” Id. Jefferson asked Altenberg why

he was not doing a series of small deals as they had originally agreed, and Murphy pointed

out that Altenberg had yet to put together a construction financing package. Id. Jefferson

told Altenberg that he needed to complete a project. Id.

       Also on the call, Altenberg told Jefferson and Murphy that he needed another $1.5

million in capital to satisfy the contractual commitments that he had made under the

Beltline asset purchase agreement. Id. at ’723 He also said that he needed another $1

million in financing to complete the existing Blue Sky projects. Id. Altenberg claimed that

he could complete at least one of the six California projects by the fourth quarter of 2016.

Id.; see JX 566.

O.     A Month Of Bad News

       In early July 2016, Altenberg discovered that the GCL Panels could not be used in

any of the Fund’s projects. DynaSolar had made a mistake. Altenberg began to look into

reselling the panels, but it would mean taking a loss. JX 588 at ’341. He also learned that

panel prices were dropping, so the loss would get bigger over time. See JX 605 at ’500.

       Later that month, DynaSolar notified Altenberg that Finance was in breach of the

DynaSolar Acquisition agreement because Finance had not (i) paid the $3.5 million due at

closing, (ii) provided draft employment agreements for the two principals of DynaSolar, or

                                            39
(iii) provided other necessary documentation. JX 598. DynaSolar was Altenberg’s

principal consultant for all of his projects. See, e.g., JX 596.

       Contemporaneously, Altenberg told Jefferson and Murphy that he actually would

need approximately $1.7 million in capital to meet his obligations for the Beltline Portfolio.

JX 603 at ’327; Murphy Tr. 789; see JX 605; JX 1198 at 152. On July 27, 2016, Altenberg

then noticed a capital call for $1.8 million. JX 614. After satisfying the capital call, HOMF,

Jefferson, and OBD Partners had invested $6.33 million, with $1.17 million in untapped

commitments. See JX 1496.

       When noticing the capital call, Altenberg sent Jefferson and Murphy a

memorandum arguing why they should continue to develop the Beltline Portfolio. JX 614

at ’981. Jefferson and Murphy told Altenberg to sell the Beltline Portfolio and recover the

Fund’s money. Jefferson Tr. 8485.

P.     Things Fall Apart.

       Over the next five months, Altenberg’s business unraveled as he simultaneously

tried to accomplish all of the following tasks:

      meeting his contractual obligations under the Beltline asset purchase agreement;

      selling the Beltline Portfolio;

      minimizing the loss on the GCL Panels;

      resolving the dispute with DynaSolar;

      moving forward with the three original Blue Sky projects (Hanford, Orland, and
       Placerville), plus the three additional Blue Sky projects (Quincy, Colusa, and the
       Placerville expansion), and the Sunrise Energy project in Bakersfield.

                                              40
Altenberg testified that during this time, the Beltline projects were “in flux” and the Blue

Sky and Sunrise Energy portfolios “had their own issues.” JX 1198 at 114. As a result,

“There was [sic] literally fires going off constantly. Everything was going wrong.” Id. He

quite obviously had taken on too much.

       To his credit, Altenberg succeeded in selling the Beltline Portfolio, although not

without additional capital from the Investment Members. On September 22, 2016,

Altenberg was forced to notice another capital call, this time for $500,000, to fund

additional costs associated with the Beltline Portfolio. PTO ¶ 75. The Investment Members

funded the capital call on the same day, bringing their total investment in the Fund to $6.83

million. At this point, the Fund had only $670,000 in untapped commitments.7

       By the end of October 2016, Altenberg had contacted twenty-two bidders who

showed varying levels of interest in the Beltline Portfolio. See JX 712 at ’568. During

November, he engaged with one of the bidders, Boviet Solar USA, LLC (“Boviet”).

JX 743. In late November 2016, Boviet signed a term sheet to purchase the Beltline

Portfolio for $2.3 million, plus a development of $0.025 per watt. JX 484; JX 743. The

Beltline Portfolio totaled 35 megawatts, so the development fee could have been as high

as $875,000. See JX 484; JX 743. Altenberg expected it to be $625,000. JX 278 at ’337.

Finance later accrued a receivable of $634,200 for the fee. JX 745 at 17; Altenberg Tr.

63940. Altenberg represented to Jefferson and Murphy that at least a portion of the fee

       7
        Due to a ministerial error, Jefferson omitted $50,000 from his September 2016
contribution. He provided the additional funds in December 2016. See JX 5; JX 1496.

                                             41
would be returned to the Fund. See JX 816 (“[W]e have secured a development fee on top

of the funds that are expected to generate additional proceeds to the Fund of $300k - $400k

depending on the ultimate number of projects. This would result in 1.1x  1.2x money on

an approximate 6 month investment”). Altenberg later reneged on that commitment.

       The projects in the Blue Sky Portfolio did not fare as well. Even before Finance

acquired the Beltline portfolio, Altenberg had been dissatisfied with Blue Sky’s work. He

felt that Blue Sky was not “getting the documentation” completed, and his relationship

with Blue Sky “started getting very tense.” Altenberg Tr. 450.

       After Finance acquired the Beltline Portfolio, the situation with Blue Sky worsened.

Most of the projects in the Blue Sky Portfolio remained in the development stage.

Altenberg and Blue Sky began having disputes, and the principal projects suffered

setbacks. At Hanford, Finance eventually was able to obtain a building permit, but the

project nevertheless remained stalled: the site required a new roof, the lease obligated the

project developer to provide it, and that requirement made the project infeasible. See

JX 765 at ’582. Finance sold the Hanford project back to Blue Sky. JX 1198 at 7172.

Problems also emerged on the Orland and Placerville projects because the owners had

credit issues, the engineering documents were flawed, and the leases had problems. JX 7

at ’612–13. By the end of 2016, Blue Sky still had not brought a project to NTP. Altenberg

Tr. 463. Altenberg declared Blue Sky in default under the contract. Id. at 464.

       The situation with Sunrise Energy also had deteriorated. After a dispute with

Altenberg, Sunrise Energy terminated the asset purchase agreement and initiated dispute

                                            42
resolution proceedings. See JX 765 at ’582; JX 758; JX 792. In December 2016, Sunrise

Energy commenced an arbitration. PTO ¶ 67.

       Altenberg also struggled to address the problems with the GCL Panels. A dispute

initially arose over Altenberg’s failure to take possession of the panels and fees that

consequently were owed for storage. See, e.g., JX 593; JX 731.

       Altenberg’s dispute with DynaSolar broadened. Altenberg blamed DynaSolar for

his decisions to purchase the GCL Panels and enter into the Beltline asset purchase

agreement, and he refused to pay some of DynaSolar’s invoices. Altenberg Tr. 45359. In

September 2016, DynaSolar notified Altenberg that Finance had breached the Master

Consulting Services Agreement for failing to pay invoices totaling $1,125,146.83.

DynaSolar terminated the agreement. JX 768 at ’678. Altenberg later told Jefferson and

Murphy that he had terminated the relationship. See JX 765 at ’584. He also falsely claimed

in a dispute letter to DynaSolar that he had not authorized the purchase of the GCL Panels.

See JX 824.

       The dispute with DynaSolar escalated further in December 2016 when DynaSolar

placed liens on all of the projects in the Beltline Portfolio, jeopardizing the sale to Boviet.

PTO ¶ 81; JX 763. Jefferson, Murphy, and Spear had several calls with Altenberg and

decided that they needed to become more involved. See JX 763; JX 765; Jefferson Tr. 93–

95. Jefferson suggested to Murphy and Spear that they insist on a “deal committee”

consisting of Jefferson, Murphy, and Altenberg, who would have to approve any new deals.

JX 774 at ’851. Jefferson told Spear that Altenberg needed “to get on our agenda or it is

over.” JX 794.
                                              43
       Jefferson and Altenberg had a series of calls and emails in which Jefferson criticized

Altenberg’s handling of the Fund. See JX 798 at ’024; JX 808. Jefferson brought in one of

his own lawyers to deal with the DynaSolar liens, and the lawyer was able to get some of

the liens removed. On December 30, 2016, Finance closed on the sale of the Beltline

Portfolio to Boviet. The $2.3 million purchase price was paid into an escrow account. See

JX 812; JX 813.

Q.     The Parties’ Relationship Fractures.

       After the Boviet sale closed, Jefferson was no longer concerned about Altenberg’s

dispute with DynaSolar. He believed that DynaSolar only had claims against Finance, not

the Fund, and he thought that the Fund held all of the rights to the various projects through

special purpose entities. He thought that, if necessary, Altenberg simply could form a new

entity to manage the Fund. See Jefferson Tr. 96, 98; JX 842. Then, on January 5, 2017,

Jefferson learned that Altenberg had not placed the projects in special purpose entities

owned by the Fund. Jefferson emailed Altenberg, stating, “You have a big problem. I am

calling you at 8am CST.” JX 855.

       To address Altenburg’s failure to assign the rights to the projects to the Fund,

Altenberg’s lawyer prepared a side letter, which provided that all “third party agreements

shall be deemed to be entered into by [Finance] for the sole benefit of the [Fund] and its

Members.” JX 874 at ’947. Jefferson signed it, but Altenberg never did. JX 873. The side

letter never became effective.

       On January 13, 2017, DynaSolar commenced an arbitration against Finance. See JX

868. On January 14, Altenberg circulated an overview of all of the Fund’s projects, along

                                             44
with his recommendations on a path forward. JX 875; accord JX 872. He described the

consideration for the sale of the Beltline Portfolio, which consisted of (i) $2.3 million in

cash that would be released from escrow as projects achieved NTP and (ii) a development

fee of $0.025 per watt payable 50% at NTP and 50% at COD. Altenberg proposed to split

the development fee on the projects up to 25 megawatts between Finance and the Fund. He

estimated that the fee for this portion would be $625,000, so the Fund would receive about

$312,500. Altenberg proposed that Finance should receive the development fee for projects

beyond 25 megawatts, which he estimated would be another $250,000. See JX 872 at ’098.

Altenberg also proposed to fight the DynaSolar arbitration and to assert a counterclaim for

damages. Id. at ’09899.

       On the GCL Panels, Altenberg proposed to accept a settlement offer from GCL

under which GCL would release modules valued at $1.635 million, the total amount that

the Fund already had paid. The Fund then would buy the balance of the panels at a

discounted price and try to resell them. This strategy would require an additional cash

outlay of $564,000. Id. at ’099100.

       On the Blue Sky projects, Altenberg estimated that construction financing could be

obtained for the Colusa project with an additional cash outlay of $557,106 and for the

Orland project for an additional cash outlay of $709,663. To reach these figures, he had to

assume that Blue Sky would defer a portion of its fee and that a tax equity investor would

contribute 25% of the total amount needed. See id. at ’102. For the Bakersfield project with

Sunrise Energy, Altenberg proposed funding it fully with an additional cash outlay of

$766,329. Id. at ’103.
                                            45
       To cover these amounts, Altenberg proposed using all of the proceeds from the sale

of Beltline Portfolio, plus all of the profit that he assumed he could achieve by reselling

the GCL Panels. That still left him with a shortfall of $340,000. Altenberg wanted the

Investment Members to contribute capital to make up the shortfall. Id. at ’103.

       During a call on January 15, 2017, Jefferson and Murphy told Altenberg that he

should resolve the DynaSolar arbitration and address the GCL Panels before moving

forward with any projects. Altenberg insisted that they should proceed with Bakersfield

and Colusa because otherwise “they [would] cancel [the] project[s].” JX 876. By this point,

Jefferson and Murphy had lost confidence in Altenberg. In an email to Jefferson, Murphy

doubted whether Altenberg “actually knows and can model the construction of a project in

any realistic manner” and noted that Altenberg seemed “to outsource almost everything.”

JX 877.

       During a call on January 17, 2017, Jefferson and Murphy told Altenberg that they

wanted all proceeds from the sale of the Beltline Portfolio, including the development fees,

to be placed in a lockbox account. They also wanted a plan for reselling the GCL Panels

and an assessment of whether the Sunrise Energy projects and the Blue Sky Portfolio could

be sold. JX 879; see JX 888. Altenberg countered that Finance should receive all of the

development fees. See JX 885 at ’957. Spear researched the GCL Panels and learned that

they were three-to-five years old and would be difficult to sell. See JX 892; JX 894.

       At this point, Jefferson had several angry interactions with Altenberg. See JX 878;

JX 895; JX 898; JX 899. On January 26, 2017, the Investment Members sent notices under

the Capital Withdrawal Provision. JX 908. The notices had little effect because the Capital

                                            46
Withdrawal Provision only gave the Investment Members the right to withdraw “Available

Cash” from projects. Until a project reached COD and was refinanced, it did not generate

any Available Cash.

       The parties’ lawyers began sending letters and document retention notices. See JX

929; JX 933; JX 937. Altenberg had his lawyers complete the paperwork to transfer the

rights to the Blue Sky Portfolio from Finance to the Blue Sky ProjectCo. See JX 947. The

assignment was executed effective March 31, 2017. JX 1040. The lawyers also engaged in

settlement discussions, which were unsuccessful. See JX 952; JX 962; JX 965.

       On February 24, 2017, the Investment Members made a series of demands,

including that they receive any cash held by the Fund and any proceeds received by Finance

or the Fund. The Investment Members also demanded to inspect the Fund’s books and

records. See JX 974; JX 980.

       On March 16, 2017, Altenberg’s lawyer informed the Investment Members that the

Fund would produce its books and records and intended “to make distributions to the

members that have submitted Capital Withdrawal Notices in accordance with Section 4.2

of the Fund’s [Operating Agreement].” JX 1024. Because there was no Available Cash to

distribute in accordance Section 4.2, that was an empty promise.

       Meanwhile, Spear continued trying to find buyers for the GCL Panels. See JX 969;

JX 972. Altenberg ultimately agreed to sell them through a liquidator that Spear had found.

The Fund suffered a loss of approximately $2.6 million on the sale. See PTO ¶ 97;

Altenberg Tr. 469.

                                            47
       On March 1, 2017, Altenberg uploaded an investment proposal for the Colusa

project to a website that he used to provide documents to the Investment Members.

Jefferson and Murphy reviewed the report, which they had never seen before. It was dated

June 2016, but the metadata indicated that it was created on March 1, 2017. See JX 987.

Altenberg also uploaded a revised investment report for the Orland investment that

increased the requested amount of equity funding. Id. The Investment Members objected

to these documents, believing them to be fraudulent. Id. The Investment Members asked

Altenberg to provide evidence that he had not backdated these reports. See JX 1034.

Altenberg did not respond.

       Altenberg previously had proposed that the Fund receive half of the development

fee from Boviet for the first 25 megawatts of projects that Boviet developed. On March 7,

2017, he instructed his accountants not to credit any amount to the Fund. See JX 1002.

Finance ended up keeping the full fee. At trial, Altenberg recalled that the amount was

around $400,000. Altenberg Tr. 640. It was only at trial that Jefferson and Murphy learned

that Altenberg had kept the fee. Murphy Tr. 799.

       In April 2017, Finance and Sunrise Energy agreed to rescind the asset purchase

agreement and return the Bakersfield project to Sunrise Energy in return for a cash payment

of approximately $151,000 from Sunrise Energy to the Fund, which the Fund received on

April 17, 2017. JX 1073. The Fund had invested $157,000 in project-related expenses for

the Bakersfield project and had paid approximately $40,000 in legal fees for the arbitration

with Sunrise. See Altenberg Tr. 624–26. The Fund thus lost another $46,000 on that project.

                                            48
       During the same period, the Fund received payments of $1.05 million from the

escrowed sale proceeds for the Beltline Portfolio. JX 1498; see JX 917, JX 1038, JX 1111.

The Fund did not receive the remaining $1.25 million, which was still subject to liens from

DynaSolar. See Altenberg Tr. 475. Altenberg later agreed that DynaSolar could have the

$1.25 million to settle DynaSolar’s claims against Finance. As a result, the Fund lost $1.25

million on the Beltline Portfolio. Altenberg Tr. 641.

       For the first three months of 2017, Altenberg charged the Fund a management fee

of $94,700 per month. For the balance of the year, he charged the Fund a management fee

of $86,050 per month. He charged these fees based on the nameplate megawatts that the

projects identified in Finance’s pipeline would generate if completed, even though most

were only in the development stage and had not reached NTP. These monthly billings alone

totaled $1,058,550. Taking into account other withdrawals, Finance charged the Fund

$1,214,790.42 in management fees during 2017. See JX 1498.

R.     This Litigation

       On April 17, 2017, the plaintiffs filed this action. Dkt. 1. Before filing the lawsuit,

Jefferson bought Hildene’s interest in HOMF at cost so that the fund would not suffer a

loss or be exposed to the litigation. See Jefferson Tr. 13941.

       The plaintiffs moved for a status quo order to stop the Fund from taking any action

outside the ordinary course of business pending the outcome of the litigation. They also

asked the court to remove Altenberg as the manager of the Fund and replace him with

Jefferson. The court denied the application for a status quo order, finding that damages

could provide an adequate remedy. See Dkt. 19 at 20–29.

                                             49
       Altenberg and Finance answered the complaint. Dkt. 23. In their answer, they

admitted that “Finance and Altenberg, pursuant to the Operating Agreement, were required

to obtain approval from the [Fund]’s Investment Members before investing in any new

project.” Id. ¶ 36.

       After Altenberg failed to comply with his discovery obligations, the court required

the parties to enter into a discovery plan. See Dkt. 55 at 18–20. The plaintiffs learned that

Altenberg was causing the Fund to advance his fees and expenses in this litigation and

sought a temporary restraining order to prevent it. Relying on Havens v. Attar, 1997 WL

55957 (Del. Ch. Jan. 30, 1997), this court granted the motion. See Dkt. 81; Dkt. 90. The

ruling only addressed Altenberg’s ability to advance himself moneys from the Fund going

forward. It did not address amounts that Altenberg had advanced to himself before this

court issued its order.

       The plaintiffs later sought discovery sanctions after learning that Altenberg had

failed to retain evidence. The parties resolved the motion by stipulation, with Altenberg

agreeing to pay $23,479.75. See Dkt. 92. Altenberg failed to comply with the stipulated

order, and the plaintiffs moved for contempt. That motion also was resolved by stipulation.

Dkt. 99. At that point, Altenberg’s first set of counsel withdrew. Dkt. 105.

S.     The DynaSolar Litigation

       Meanwhile, Finance and DynaSolar were engaged in an arbitration. PTO ¶ 94. In

May 2017, Finance filed a plenary action against DynaSolar in a California state court.

PTO ¶ 85. That same month, Finance filed an action against DynaSolar in a Georgia federal

                                             50
court, seeking to invalidate the remaining liens on the Beltline Portfolio. PTO ¶ 91; see JX

1086.

        The litigation between DynaSolar and Finance ultimately settled. As noted,

Altenberg agreed that DynaSolar could receive the $1.25 million that was still in escrow

from the sale of the Beltline Portfolio and would otherwise have been returned to the Fund.

See Jefferson Tr. 104; Altenberg Tr. 462–63, 477. In exchange, the Fund received a

payment of $366,806.97 from DynaSolar’s insurer. PTO ¶ 96; see JX 1243; JX 1258. When

the money arrived, the balance in the Fund’s account was negative $386.76. In a series of

transactions over the next three weeks, Altenberg transferred $250,000 from the Fund to

Finance. JX 1266; Altenberg Tr. 616.

        In August 2017, Blue Sky gave notice that Finance had breached the asset purchase

agreement by failing to pay Blue Sky for the Colusa and Orland projects, which Blue Sky

represented were complete. JX 1140. Blue Sky exercised its right to take control of the

projects. Id. Altenberg wrote a letter acknowledging Blue Sky’s right to control the

projects. Altenberg Tr. 585–86. Altenberg later commenced an arbitration against Blue Sky

in which he sought damages of $2.1 million. Jefferson Tr. 112; see Altenberg Tr. 58687.

        Altenberg testified that by the end of 2017, the Fund had used up all of its capital.

Altenberg Tr. 449. That was not true, as Altenberg continued to make withdrawals from

the Fund’s accounts during 2018. See JX 1498.

T.      The Amended Complaint

        On May 3, 2018, the plaintiffs filed an amended complaint. Dkt. 108. The amended

complaint asserted nine causes of action against Finance, Altenberg, and his wife:

                                             51
      Count I asserted a claim against Finance and Altenberg for having breached the
       express provisions of the Fund’s Operating Agreement.

      Count II asserted a claim against Finance and Altenberg for having breached their
       fiduciary duties while managing the Fund.

      Count III asserted a claim against Altenberg’s wife for having aided and abetted
       breaches of fiduciary duty by Finance and Altenberg.

      Count IV asserted a claim against Finance and Altenberg for having breached the
       implicit provisions of the Fund’s Operating Agreement that are supplied by the
       implied covenant of good faith and fair dealing.

      Count V asserted a claim for fraud against Finance and Altenberg.

      Count VI asserted a claim for fraud against Finance, Altenberg, and his wife for
       having paid a salary to Altenberg’s wife when she was not a bona fide employee.

      Count VII asserted a claim against Altenberg and his wife for having conspired to
       commit fraud by paying a salary to Altenberg’s wife even though she was not a
       bona fide employee.

      Count VIII sought an accounting from Finance and Altenberg.

      Count IX asserted that to the extent Altenberg did not himself owe fiduciary duties
       to the Fund, then he aided and abetted Finance in breaching its fiduciary duties.

Among other relief, the plaintiffs sought “rescissory or compensatory damages to

Plaintiffs, including pre- and post-judgment interest.” Id. at 51.

       Altenberg and Finance again answered the complaint. Dkt. 122. In their answer,

they again admitted that “Finance and Altenberg, pursuant to the Operating Agreement,

were required to obtain approval from the [Fund]’s Investment Members before investing

in any new project.” Id. ¶ 40. The parties subsequently agreed to dismiss the claims against

Altenberg’s wife without prejudice. Dkt. 168.

                                             52
       The plaintiffs next discovered that Altenberg had used money from the Fund to pay

his legal expenses, notwithstanding this court’s order. They moved for contempt. This court

granted the motion, required Altenberg to repay the amounts he withdrew from the Fund

with interest and ordered Altenberg to bear the costs that the plaintiffs incurred bringing

the motion. Dkt. 197; Dkt. 199 at 12. The ruling did not address amounts that Altenberg

had advanced to himself from the Fund before the court issued the injunction against that

practice.

U.     Dans Mountain And Energy Nexus

       In April 2018, Altenberg and Finance entered into a letter of intent to acquire a

project from Dans Mountain Solar for $70,000 per megawatt. The estimated size of the

project was 24.20 megawatts, with 10% of the purchase price paid at signing, 40% paid at

NTP, and the remaining 50% paid at the commercial operation date. See JX 1263.

       In November 2018, VSF Devco 1, LLC (“VSF Devco”) entered into a Membership

Interest Purchase Agreement to purchase the Dans Mountain project. JX 1340. Altenberg

represented in the agreement that VSF Devco had immediately available funds sufficient

to make all of the payments called for by the agreement. At the time, VSF Devco did not

have any money. Altenberg Tr. 69495. Altenberg explained at trial that if he could not

come up with the money, he planned to “just default on the contract.” Id. at 695.

       Altenberg had formed VSF Devco in August 2016 as a wholly owned subsidiary of

the Fund. The Fund paid for the legal work to create the entity and draft its operating

agreement. See JX 624; JX 1476; Altenberg Tr. 687. Altenberg testified at trial that he

                                            53
purchased the Dans Mountain project for the benefit of the Fund hoping that he could use

the project to settle this litigation. Altenberg Tr. 692.

        In September 2018, Altenberg created a new company called Clean Energy Nexus

LLC (“Energy Nexus”). PTO ¶ 13; see JX 1324. Altenberg owns and controls Energy

Nexus. PTO ¶ 13. Its only employees are Altenberg and Daniel Gonzales, who was

Altenberg’s right-hand man at Finance. PTO ¶ 15.

        In solicitation materials that he prepared for potential investors, Altenberg described

Energy Nexus as “a relaunch of VERT Solar Finance . . . .” JX 1400 at ’537. When

soliciting investors for Energy Nexus, Altenberg used materials that closely resembled the

materials that he used for Finance. Compare JX 1400, with JX 3. He described a similar

process for developing transactions, identified the same business partners (although he

omitted Open Energy), and projected similar financial returns. See JX 1400 at ’52529,

’533.

        In the solicitation deck, Altenberg identified the Dans Mountain project as one of

sixteen projects in the Energy Nexus “project portfolio” (he only listed fourteen). JX 1400

at ’530. Altenberg also described the Dans Mountain project elsewhere as a project being

offered by Energy Nexus. JX 1340; JX 1404.

        Later in 2018, Altenberg got into a dispute with the developer of the Dans Mountain

project. Altenberg Tr. 696–97.

V.      Finance Declares Bankruptcy.

        In April 2019, Altenberg’s second set of counsel withdrew. Dkt. 222. Shortly

thereafter, Altenberg’s current counsel appeared. Dkt. 230.

                                               54
       On June 14, 2019, Finance filed for bankruptcy under Chapter 7 of the Bankruptcy

Code. See Dkt. 257; Altenberg Tr. 449. Altenberg tried to cause the Fund to file for

bankruptcy, but he did not have authority to take that step without the Investment

Members’ approval. See Op. Agr. § 5.2B(v); Jefferson Tr. 46, 60. The automatic stay went

into effect, but the bankruptcy court lifted the stay to allow the plaintiffs to proceed with

their claims against Altenberg. Dkt. 259.

W.     Altenberg’s Track Record

       Altenberg never brought a project to NTP for the benefit of the Fund. The fourteen

Awarded Projects in the Beltline Portfolio all reached NTP, but only after the execution of

the master purchase agreement between Finance and Boviet. JX 1198 at 47, 73. Those

projects also subsequently reached COD. Id. at 98; JX 1205 at 20.

       Five of the Blue Sky projects reached NTP. JX 1198 at 47. In March 2017, Finance

obtained construction financing for Orland and Colusa from a small regional bank. JX 1205

at 19. After Blue Sky exercised its right to reacquire the Colusa and Orland projects, they

began construction, and under Blue Sky’s management, both reached COD. JX 1198 at 61,

100. The Sunrise Project did not reach NTP. JX 1198 at 47.

       Finance never received a loan from Open Energy. JX 1205 at 11. Altenberg

submitted applications for Colusa, Orland, and Hanford, but none were accepted. Id. at 13–

14. Altenberg claimed that the projects were too large for Open Energy to finance. Id. at

14.

                                             55
                              II.      LEGAL ANALYSIS

       When addressing the legal issues in the case, the parties’ post-trial briefs were less

helpful than they could have been. Both sides raised numerous issues, often in an

abbreviated way. The parties also engaged in simultaneous post-trial briefing, with each

filing an opening post-trial brief and an answering post-trial brief. As often happens when

this sequence is used, the parties did not clearly engage with each other’s arguments. This

decision attempts to grapple with the result.

       In their post-trial briefs, the plaintiffs emphasized four claims: fraud in the

inducement, fraud during the operation of the Fund, breach of fiduciary duty, and breach

of contract.

       The evidence at trial established that Altenberg fraudulently induced the plaintiffs

to execute the Operating Agreement and invest in the Fund. The problem for the plaintiffs

is that they did not advance this claim in a procedurally proper way. They did not plead a

claim for fraudulent inducement in their original complaint or in their amended complaint,

although that omission was not necessarily fatal. Delaware has adopted the system of notice

pleading that the Federal Rules of Civil Procedure ushered in, which rejected the antiquated

doctrine of the “theory of the pleadings”—i.e., the requirement that a plaintiff must plead

a particular legal theory. The plaintiffs thus could have taken action at some point to put

Altenberg on notice that they were pursuing a claim for fraudulent inducement. But they

never did. They did not outline the claim in their pretrial briefs, nor did they identify it as

an issue of law in the pretrial order. They also did not make a motion during or after trial

to amend the pleadings under Rule 15(b).

                                                56
       Although the plaintiffs’ procedural misstep could have obviated the need to analyze

the fraudulent inducement claim, this decision addresses it. Contrary to the conclusion

reached in this decision, the plaintiffs contend that they adequately raised a claim for

fraudulent inducement. The plaintiffs also point out that they did not elicit the testimony

establishing the most critical of Altenberg’s misrepresentations until trial. If a reviewing

court were to conclude that the plaintiffs should have been allowed to present the fraudulent

inducement claim, and if this court did not address it on the merits, then a remand would

be necessary. At this point, the court has spent an extensive amount of time with the factual

record, making it more efficient to analyze it now. In addition, the evidence that Altenberg

engaged in fraud when inducing the plaintiffs to invest has affected this court’s assessment

of his credibility generally and the overall equities of the case. Setting forth the underlying

reasons for that assessment promotes transparency.

       In contrast to their claim that Altenberg made fraudulent misrepresentations when

soliciting their investment, the plaintiffs failed to prove at trial that Altenberg engaged in

fraud while managing the Fund. In their post-trial submissions, the plaintiffs only advanced

two grounds for fraud during this time period. Neither supported a fraud claim. Part of the

problem may have been the scattershot nature of the plaintiffs’ briefing. As discussed

below, Altenberg provided communications to the plaintiffs that appear to have been

materially misleading or to have contained material omissions, but the plaintiffs did not

adequately demonstrate that Altenberg committed fraud.

       The plaintiffs proved that Altenberg breached the fiduciary duty of loyalty that he

owed to the Fund and its members as the human controller of the Fund’s managing

                                              57
member. For purposes of this claim, this court has ruled on the issue of liability and

provided preliminary rulings on the potential remedy. Given the state of the briefing and

the record, further proceedings will be necessary to tailor a specific remedy.

       This decision does not rule on the breach of contract claim. Through it, the plaintiffs

sought to establish that Finance breached its obligations under the Fund’s Operating

Agreement, then hold Altenberg personally liable by piercing the entity veil of Finance.

Because Finance is in bankruptcy, the predicate claim for breach of contract against

Finance has been stayed.

A.     Fraud In The Inducement

       In their post-trial reply brief and during post-trial argument, the plaintiffs gave pride

of place to their claim that Altenberg had fraudulently induced them to execute the

Operating Agreement and commit to invest in the Fund. The evidence supported this claim.

The problem for the plaintiffs was procedural; they never put Altenberg on notice before

trial that they were pursuing a claim for fraudulent inducement, Altenberg objected at trial

to the introduction of evidence relating to that claim, and the plaintiffs never sought to

conform the pleadings to the evidence under Rule 15(b). The plaintiffs therefore failed to

establish a procedurally proper basis for asserting the claim.

       1.     The Elements Of Fraud

       Under Delaware law, a claim of common law fraud has five elements:

       1) a false representation, usually one of fact, made by the defendant[];

       2) the defendant’s knowledge or belief that the representation was false, or
       was made with reckless indifference to the truth;

                                              58
       3) an intent to induce the plaintiff to act or to refrain from acting;

       4) the plaintiff’s action or inaction taken in justifiable reliance upon the
       representation; and

       5) damage to the plaintiff as a result of such reliance.

Stephenson v. Capano Dev., Inc., 462 A.2d 1069, 1074 (Del. 1983). The plaintiffs proved

each element.

       2.       Knowingly False Representations

       The plaintiffs proved that Altenberg made three false representations to induce them

to invest in the Fund. First, he misrepresented that the Fund’s first project would be Project

Cali, which he would use to demonstrate that the Fund’s business model worked. Second,

he misrepresented that the Fund would acquire projects that could be completed within

three to six months so that he could recycle the Fund’s capital and generate outsized returns.

Third, he misrepresented that Open Energy would be a dedicated source of financing for

the Fund. Altenberg’s solicitation materials contained other untruths and exaggerations,

but these three undergird the plaintiffs’ fraud claim.8

       8
         In their post-trial answering brief, the plaintiffs argued that to induce them to invest
in the Fund Altenberg also misrepresented (i) when and how Finance would charge
management fees, (ii) whether Altenberg would obtain investor approval before investing
in projects, (iii) whether Altenberg would use the Fund’s money for investments other than
solar projects, such as the acquisition of DynaSolar and the purchase of the GCL Panels,
and (iv) the extent to which administrative expenses would be billed to the Fund, such as
the salary for Altenberg’s wife. These additional assertions raise factual issues about the
extent of the misrepresentations and require weighing the strength of Altenberg’s
statements against competing considerations, including provisions in the Operating
Agreement. This decision has discussed some of these issues for purposes of assessing
Altenberg’s credibility. See infra Part II.A.6. It is unnecessary to reach these additional
issues for purposes of the claim for fraudulent inducement because Altenberg’s
                                               59
              a.     Project Cali

       The plaintiffs proved that Altenberg made false representations about Project Cali.

Altenberg presented Project Cali as an actionable project that would be the Fund’s first

investment. He admitted at trial that Project Cali was not an actionable project.

       In May 2015, when Altenberg solicited an investment from Jefferson and Murphy,

they told Altenberg that they wanted to see if his concept worked by completing an initial

project. Jefferson Tr. 31; Murphy Tr. 751. Altenberg responded by identifying “Project

Cali” as the Fund’s initial investment that would demonstrate proof of concept. See

Jefferson Tr. 36, 38, 3940; Murphy Tr. 756, 758. Altenberg represented that the project

was lined up and required a prompt investment. Jefferson Tr. 40, 44; Murphy Tr. 756; see

Altenberg Tr. 527.

       Both Jefferson and Murphy testified credibly that Altenberg represented to them

that Project Cali would be the Fund’s first project. Jefferson Tr. 36, 39–40; Murphy Tr.

756. Murphy explained that Altenberg told Jefferson and Murphy that he needed them to

“close this thing [in] less than two weeks” and “get the money quick” so that he could

invest the money in Project Cali. Murphy Tr. 756–57.

       Altenberg bolstered his oral representations about Project Cali by providing

Jefferson and Murphy with a financial model for the project. See JX 4; JX 131; Jefferson

misrepresentations about Project Cali, the three-to-six-month time frame for projects, and
Open Energy’s status as a dedicated source of debt financing are sufficient to support the
claim. To analyze these additional claims would excessively burden an already long
opinion.

                                            60
Tr. 39; Murphy Tr. 75658. The presentation materials depicted a specific and actionable

deal. Even the introductory disclaimers in the presentation depicted Project Cali as a project

that (i) Finance had exclusive authority to present and (ii) was available for investment.

Although the disclaimer language noted that Project Cali was owned by American Solar

Utilities LLC, the same disclaimer stated that “[Finance] acting through themselves and

their affiliates have been authorized to act as the exclusive agent in the direct sale of the

Project.” JX 4 at 2. This is significant because the plaintiffs were dealing directly with

Altenberg, who was the human principal of Finance. The disclaimer further stated that the

presentation was being delivered “to a limited number of parties who may be interested in

a potential purchase of the Project.” Id. The disclaimer language further recited, “This

Financial Model (the ‘Model’) has been provided to you in relation to Project Cali . . . and

relates to the offering of equity stakes in a solar PV generation plant located in California.”

Id. It added that the Model was being provided “to assist the recipient in deciding whether

to proceed with a further investigation of the Project.” Id. Although the page contained

customary language disclaiming reliance on the projections in the Model and other

forward-looking statements, there was nothing to suggest that Project Cali was not a real

project that was available for investment. See id. The materials also stated that they “may

not be used or relied upon for any purpose other than as specifically contemplated by a

written agreement with VERT Solar Finance,” but the plaintiffs are not relying on the

materials themselves. They are citing the fact that Altenberg gave them the presentation to

corroborate their testimony that Altenberg represented that Project Cali would be the

Fund’s first project.
                                              61
       In addition to the financial model, Altenberg provided Jefferson and Murphy with a

term sheet from Open Energy for a loan for Project Cali. JX 1501. Although not a binding

commitment, the term sheet appeared to be bona fide. See id.9

       Still other evidence corroborates the plaintiffs’ credible testimony that Altenberg

represented that Project Cali would be the Fund’s first project. Because of Altenberg’s

representations about Project Cali, the parties rushed to negotiate the Operating Agreement,

which they completed in less than two weeks and signed on June 11, 2015. During those

negotiations, Hildene’s general counsel asked Altenberg to ensure that the Operating

Agreement reflected “that no additional capital will be called from the Investment

Member(s) prior to the date on which long-term financing is secured for the initial

California project.” JX 143 at ’392 (emphasis added); see Jefferson Tr. 36. The Capital

Call Provision in the Operating Agreement stated that the Investment Members “shall not

be required to make any additional Capital Contributions (i) until the [Fund] has made

apportionments (and distributions, if applicable) of Available Cash attributed to the long-

term financing of the [Fund]’s initial Project . . . .” Op. Agr. § 3.2B (emphasis added). In

       9
          At trial, while cross examining Murphy, Altenberg’s counsel pointed to features
of the term sheet that were more consistent with long-term financing at COD, rather than
construction financing at NTP. Murphy candidly acknowledged that fact, and it appeared
to be the first time he had realized it. See Murphy Tr. 822–26; Dkt. 294 at 84 (Altenberg’s
counsel noting during post-trial argument that he thought Murphy “was a little embarrassed
by that”). Murphy’s testimony and demeanor suggests that he was misled by the term sheet
when Altenberg first provided it and did not perceive those details until they were pointed
out at trial.

                                            62
other words, the Investment Members would not have to put in any more money until the

initial California project—Project Cali—reached COD.

       After the parties began negotiating the Operating Agreement, Altenberg contacted

a minority investor in Finance to report his anticipated deal with Jefferson and Murphy. JX

177. When describing the terms of the investment, Altenberg explained that the investors

had a “[o]ne time withdraw [right] at COD of First Project (i.e. Project Cali) and then

locked through December 31, 2016 . . . .” JX 177 at ’355 (emphasis added).

       On June 11, 2015, the parties executed the Operating Agreement, and Jefferson and

Murphy each wired $500,000 to Altenberg. See JX 1496. That was the exact amount of

equity called for in the Project Cali presentation. JX 4 at 5. One month later, in July 2015,

Altenberg told Jefferson that Project Cali was on hold. Murphy promptly emailed

Altenberg and asked about “the progress on the California City investment.” JX 1502.

Murphy noted that “it was the first and principal investment we funded,” and he asked

Altenberg to give him updates on its “status from time to time[,] particularly significant

changes when known.” Id.

       At trial, Altenberg’s testimony established that his representations about Project

Cali were false. He testified that Project Cali was not a real project, but only an “illustration

of how a project might work.” Altenberg Tr. 729. He claimed it was intended to show

“what the economics could be.” Altenberg Tr. 524. He further testified that “the California

City project [was] not really a project that was being offered to the Investment Members.”

Altenberg Tr. 524. He added that for purposes of soliciting Jefferson and Murphy, the

“project [did] not exist.” Altenberg Tr. 531.

                                                63
              b.     The Three-To-Six-Month Project Timeline

       The plaintiffs proved that Altenberg made false representations about his ability to

complete projects in three to six months, which was critical to his ability to recycle the

Fund’s equity and generate outsized returns. The evidence established that Altenberg had

no ability to achieve this timeline and to recycle the Fund’s capital to the extent that he

claimed.

       Altenberg represented that he could roll over each investment in three to six months.

His solicitation materials stated that the “Timing per Project” would be “3 to 6 months

from project selection to commercial operation.” JX 3 at ’079; JX 126 at ’119; see Jefferson

Tr. 23–24; Murphy Tr. 753. Altenberg’s representations about the timeline were critical to

his claim that he could generate outsized returns. Altenberg’s solicitation materials

represented that “[w]e will reinvest the equity from each project into the next project

thereby revolving the equity as we complete construction and refinancing at commercial

operations.” JX 3 at ’078; JX 126 at ’118; see JX 1499. Altenberg thus claimed that he

could recycle the equity component at least twice (and as many as four times) per year.

Jefferson Tr. 30–31; see JX 3 at ’078; JX 126 at ’118.

       At trial, Altenberg admitted that projects could not be completed in three to six

months. Altenberg Tr. 352–53. He testified that he had never seen a solar project take three

to six months from project selection to COD. Altenberg Tr. 520. He instead testified that it

takes “about 12 to 18 months.” Altenberg Tr. 321–22; accord Altenberg Tr. 353. At another

point, he testified that a project might as little as five months and as much as thirteen

months. Altenberg Tr. 737. To justify his representation that projects could be completed

                                            64
in three to six months, Altenberg claimed that he was referring to a project that was already

at NTP. Altenberg Tr. 351, 724–25. His solicitation materials did not say that. Altenberg

represented in unqualified terms that projects would take three to six months to complete.

       In any event, Altenberg did not purchase late-stage projects that had already reached

NTP and potentially could be completed within three to six months after acquisition.

Altenberg purchased portfolios of early-stage projects that were a long way from NTP. In

November 2015, Finance purchased the Blue Sky Portfolio. All of its projects were early-

stage projects; none had reached NTP. JX 226; JX 230. By September 2016, almost a year

later, not one project had been completed. JX 662. Altenberg initially prioritized five of

the Blue Sky projects. By September 2016, three were still in the permitting phase, meaning

that they had not yet reached NTP. See id. The other two had received building permits,

but physical construction on the projects had not begun. See id.

       The same was true for the Sunrise Energy projects, which Finance acquired in

February 2016. JX 330. The Sunrise Energy portfolio consisted of one meaningful project

(Bakersfield), one project that Altenberg listed on his weekly updates but that never moved

beyond due diligence (Licking Creek, Pennsylvania), and other nascent projects in

Pennsylvania. All of these projects were early-stage projects. By September 2016, physical

construction on the Bakersfield project had not started. JX 662. By the January 2017

update, Altenberg had dropped the Licking Creek project, and the Bakersfield project was

still in “Construction Prep.” JX 856.

                                             65
              c.     Dedicated Financing From Open Energy

       The plaintiffs proved that Altenberg made false representations about his ability to

secure financing through Open Energy. Altenberg presented Open Energy as a dedicated

source of financing and told the investors that obtaining financing for the Fund’s projects

was “lock.” In reality, Open Energy did not have the capacity to finance the Fund’s

projects.

       In the solicitation materials that Altenberg sent to Jefferson and Murphy, Altenberg

represented that Finance had ready access to debt financing through its relationship with

Open Energy. On a slide titled “VERT Solution,” under a heading titled “Dedicated

Sources of Capital,” the solicitation materials listed “Debt Financing (Open Energy

Group)” with a checkmark beside it, indicating that this component was secured. JX 3 at

’075; JX 126 at ’115. Three pages later, on a slide titled “Dedicated Capital,” under a

heading titled “Debt,” Altenberg again identified Open Energy. JX 3 at ’078; JX 126 at

’118. The solicitation materials noted that Altenberg, the “founder” of Finance, was “also

a co-founder” of Open Energy. JX 3 at ’078; JX 126 at ’118.

       At trial, both Jefferson and Murphy testified that Altenberg, had described debt

financing from Open Energy Group as a “lock,” which they understood to mean that it

effectively was guaranteed. See Jefferson Tr. 20, 27, 109; Murphy Tr. 759–60. Altenberg

underscored and reinforced his representations about Open Energy by providing Jefferson

and Murphy with a term sheet from Open Energy for financing on Project Cali. JX 1501.

       The evidence at trial established that Altenberg’s representations about Open

Energy were false. At trial, Altenberg testified that Open Energy’s financial resources

                                            66
consisted of a $1 million investment that it received in 2015 from a “group out of London.”

Altenberg Tr. 333. Open Energy had no other sources of capital. Id. For projects, Open

Energy solicited investors using a crowd-funding model. Id. at 334. If investors did not

want to invest, then Open Energy could not provide financing.

       The parties stipulated that Altenberg submitted multiple loan requests on behalf of

the Fund to Open Energy, but “[t]he requested loans were never provided by [Open Energy]

and no financing was ever obtained.” PTO ¶ 157. They further stipulated that “[Open

Energy] recognized that the proposed projects from Altenberg would never be completed

and were bad deals.” PTO ¶ 55. The parties stipulated that “Finance has never entered into

a loan agreement with Open Energy Group or any of its affiliates or subsidiaries.” PTO

¶ 126. Jefferson testified to the same effect. Jefferson Tr. 79–80, 107–08.

       Altenberg depicted Open Energy as more than it was. It was not a dedicated source

of financing, and it could not provide debt financing for the Fund’s projects.

       3.     Altenberg’s Intent To Induce Reliance

       The plaintiffs proved that Altenberg intended for the plaintiffs to rely on his false

representations. He sent his solicitation materials, a “pitch deck,” to the plaintiffs for the

admitted purpose of seeking an investment in Finance. Altenberg Tr. 510. He expected the

plaintiffs to rely on the representations in his solicitation materials. Id. The

misrepresentations about the three-to-six-month timeline and about Open Energy appeared

in the solicitation materials. See JX 3; JX 121; JX 126.

       Altenberg’s subsequent behavior also shows that he intended to induce the plaintiffs

to invest based on these representations. He made a similar representation about the

                                             67
timeline for project completion in September 2015, when he was worried that the plaintiffs

would want their money back after telling them that Project Cali had fallen through. This

time, Altenberg told Jefferson and Murphy that “[Finance] will use a majority of the

proceeds from [the Investment Members] in VERT Solar Fund I to acquire late stage

projects . . . to be operational within 3-6 months.” JX 202. That was false. Altenberg was

looking at portfolios of early-stage projects, and two months later, Finance acquired the

Blue Sky Portfolio. It only contained early-stage projects.

       Altenberg made similar representations during a meeting in Houston on June 15,

2016. Murphy’s cousin attended the Houston meeting, and Altenberg regarded him as a

potential investor. Altenberg distributed a presentation that included many of the same

slides that he had used when soliciting an investment from Jefferson and Murphy. See JX

19. Altenberg represented that the equity investment would be a short-term investment and

stressed that “[t]he key is equity recycling.” JX 543 at ’698. Consistent with his

representation to Jefferson and Murphy that projects could be completed in three-to-six

months, Altenberg listed a pipeline of 111.10 megawatts of projects and represented that

“[a]ll projects can begin construction within the next 3 months or are already proceeding.”

JX 19 at 12. At the time, Altenberg did not have any projects in the construction phase.

Altenberg again claimed that Finance had a durable relationship with Open Energy, and he

represented that Open Energy provided both the construction financing and long-term debt

for Finance’s projects. JX 543 at ’698. Elaborating, he claimed that Finance was “one of

[Open Energy’s] pipelines” and that “[t]he majority of loans they do each month is

VERTs.” Id.

                                            68
       Altenberg also intended for the plaintiffs to rely on his representations about Project

Cali. Altenberg introduced Project Cali into the discussions after Jefferson and Murphy

said that they wanted to invest in a single project to test whether Altenberg’s business

model would work. Knowing that he needed to present Jefferson with an actionable project

to secure his investment, Altenberg served up Project Cali. When he presented it, he told

the plaintiffs that they would “need[] to get the money quick because he was concerned he

could lose the project.” Murphy Tr. 757.

       4.     The Plaintiffs Reasonably Relied On Altenberg’s Representation

       Jefferson and Murphy reasonably relied on Altenberg’s misrepresentations when

they executed the Operating Agreement on June 11, 2015, committed to provide $2.5

million in capital, and wired an initial $1 million to the Fund. As Altenberg intended, his

representations about Project Cali catalyzed the investment. The term sheet for Project Cali

was dated May 26, 2015. JX 1501. Altenberg sent a copy of the Project Cali presentation

to Jefferson on May 30, 2015. JX 131. After a conversation with Altenberg, Murphy

understood that the investment in Project Cali could “close . . . [in] less than two weeks.”

Murphy Tr. 756. Immediately after these exchanges, the parties started negotiating the

Operating Agreement. On June 11, 2015, after less than two weeks of negotiations, they

signed the Operating Agreement. PTO ¶ 22. The $1 million that Jefferson and Murphy

wired to the Fund was the precise amount that Altenberg said he needed for Project Cali.

       The plaintiffs also reasonably relied on Altenberg’s representations about the three-

to-six-month timeframe for completing projects. Altenberg touted his experience in the

energy industry, and it was reasonable for the plaintiffs to rely on his representations about

                                             69
how long it would take for him to complete the projects that he selected. It is true that the

Operating Agreement provided for a management fee of $170,000 per megawatt based on

the parties’ discussions that a project could take as long as seventeen months. That

provision, however, was not inconsistent with Altenberg’s representation that the Fund

would select projects that could be completed in three to six months, because the seventeen

months was an outer boundary for how long a project would take. Altenberg represented

that he would select projects that could be completed in three to six months so that he could

recycle the Fund’s equity and generate outsized returns.

       The plaintiffs also reasonably relied on Altenberg’s representations about his ability

to obtain funding from Open Energy. Altenberg was a co-founder and the Chief Financial

Officer of Open Energy, so it was reasonable for the plaintiffs to believe that Altenberg

knew whether Open Energy would underwrite the types of projects that he planned to select

for the Fund. Altenberg also provided the Investment Members with a detailed term sheet

for a loan from Open Energy for Project Cali, which Altenberg represented would be the

Fund’s first venture. See Jefferson Tr. 10809, 296. Based on the term sheet, which

appeared to be actionable, it was reasonable for the plaintiffs to conclude that Open Energy

was more than a hypothetical source of debt financing for the Fund.

       Jefferson reasonably relied on the same misrepresentations when he caused HOMF

to execute the Operating Agreement and commit to invest in the Fund. Jefferson approved

the concept of HOMF investing in December 2015, and the formal documents were

executed in March 2016. At neither point had Jefferson learned enough to suspect that

Altenberg’s representations were false. Altenberg told Jefferson and Murphy that Project
                                             70
Cali had fallen through. It was not until trial that the plaintiffs learned that Project Cali

never was available as a project in the first place. Jefferson also did not yet have reason to

doubt Altenberg’s representation about bringing projects to completion within three to six

months. Altenberg acquired the Blue Sky Portfolio in early November 2015 and told

Jefferson and Murphy that he was starting work on Placerville, Orland, and Hanford on

November 16, 2015. By December 2015, only one month had passed, and by March 2016,

only four months had passed. Nor did Jefferson know that Open Energy was not a dedicated

source of funding. The plaintiffs did not uncover that fact until 2017, after their relationship

with Altenberg had broken down. HOMF invested in the Fund in March 2016 based on the

same false representations that Jefferson and Murphy relied on when investing in June

2015.

        5.     Damages

        The plaintiffs proved that they suffered damages as a result of relying on

Altenberg’s false representations. Having executed the Operating Agreement, the plaintiffs

were contractually bound to fulfill their capital commitments. Between June 2015 and

December 2016, the plaintiffs invested a total of $6,829,500. They lost it all.

        6.     Other Evidence Regarding Altenberg’s Credibility

        The core misrepresentations about Project Cali, the three-to-six-month timeline for

project completion and equity recycling, and the availability of dedicated financing from

Open Energy were not the only examples of Altenberg’s misstatements. There is ample

evidence in the record of other misrepresentations; this evidence undercuts Altenberg’s

overall credibility.

                                              71
       First, in addition to the principal misrepresentations on which plaintiffs rely,

Altenberg’s solicitation materials contained other misrepresentations. The solicitation

materials represented that Finance was “a leading tax equity expert” with “extensive

relationships with tax equity investors.” JX 3 at ’078; JX 126 at ’118. On a slide titled

“Established Relationships Across the Industry,” the solicitation materials represented that

Finance had “pre-existing relationships with leading industry players,” and identified the

following companies as “Tax Equity Providers”: Google, JP Morgan, US Bank, MetLife,

and Bank of America. JX 3 at ’077; JX 126 at ’117. Altenberg stipulated that Finance had

never received tax equity financing from Google, JP Morgan, US Bank, MetLife, or Bank

of America. PTO ¶¶ 133–37. His materials also represented that Finance “will have a

dedicated tax equity fund to support the capitalization of each projects [sic] on a fixed term

and structured basis.” JX 3 at ’078; JX 126 at ’118. Finance did not have and never created

a dedicated tax equity fund.

       In addition to misrepresenting the nature of his relationship with Open Energy,

Altenberg’s solicitation materials also misrepresented his relationships with other

providers of debt financing. On the slide titled “Established Relationships Across the

Industry” Finance identified its “pre-existing relationships with leading industry players.”

JX 3 at ’077; JX 126 at ’117. The solicitation materials identified the following companies

as “Lenders” in addition to Open Energy: CoBank, Morgan Stanley, US Bank, and Bank

of America. Altenberg stipulated that Finance had never entered into a loan agreement with

Open Energy, CoBank, Morgan Stanley, Bank of America, US Bank, or any of their

affiliates or subsidiaries. PTO ¶¶ 126–27, 129–31. Altenberg only loose ties with the other

                                             72
two lenders. Through VERT Investment Group, Altenberg had entered into a loan

agreement with CoBank for a wind project in 2010. PTO ¶ 128. And VERT Investment

Group once had obtained a loan from US Bank. PTO ¶ 132.

       Second, Altenberg misrepresented significant aspects of his plans for the Fund.

When soliciting an investment from Jefferson and Murphy and when negotiating the

Operating Agreement, Altenberg agreed that the Fund would pursue an initial project and

complete it before acquiring other projects. The Operating Agreement reflected this point

in the Capital Call Provision, which relieved Jefferson and Murphy of their obligation to

fund any project until the first project was complete. At trial, Altenberg testified that he

never intended to pursue a single project but only portfolios of projects. Altenberg Tr. 353,

35556. He also claimed that it was not possible to buy individual projects. Id. 355–56,

536. Although the plaintiffs never invoked this aspect of the Capital Call Provision,10

Altenberg’s deviation from the parties’ understanding of their business deal nevertheless

shows how he approached his discussions with the plaintiffs.

       Along similar lines, Altenberg misrepresented how the Fund would use project

companies. When soliciting an investment from Jefferson and Murphy, Altenberg

represented that each project would be placed in a separate project company and owned by

the Fund from the point of project acquisition. See JX 136; JX 1495; see also JX 538;

       10
         After Altenberg claimed that Project Cali had fallen through, Murphy wanted his
money back, but Altenberg convinced him to support the first three projects in the Blue
Sky Portfolio.

                                             73
Altenberg Tr. 664. The Operating Agreement reflected this point in the Project Company

Requirement. At trial, Altenberg testified that he planned to use an entirely different

structure in which Finance would acquire and own the project until COD, and then would

sell the project to a project company owned by the Fund at COD so that the Fund could

receive a step-up in basis. See Altenberg Tr. 358–59, 38788, 523, 532–33. That approach

might well have been effective for minimizing taxes and enhancing returns, but it was

fundamentally contrary to how Altenberg represented that the Fund would operate.

       Altenberg also misled Jefferson and Murphy about the flow of funds and the source

of development fees that would be paid to Finance. Altenberg provided Jefferson and

Murphy with an illustration showing the flow of funds to and from the Fund, which only

depicted Finance receiving fees from the project companies. JX 136; JX 1495. Altenberg

prepared a similar document in September 2015, titled “VERT Solar Finance Company –

Project Acquisition & Finance Summary,” which likewise showed Finance receiving its

fees from the project company when the project was refinanced after COD. JX 538.

Jefferson and Murphy understood that any fees to Finance would be paid at COD. Murphy

Tr. 767, 771. Section 2.9 of the Operating Agreement implemented a different structure in

which Finance could take a fee directly from the Fund and did not have to wait until COD.

The parties certainly could agree to a different fee structure, but this is another example of

a bait-and-switch by Altenberg.

       Third, Altenberg’s communications during the life of the Fund were not a model of

candor. During 2016 and for much of 2017, Altenberg provided weekly updates to

Jefferson and Murphy. Having reviewed all of the weekly updates, I agree with the
                                             74
plaintiffs that they were jargon-filled, complex, and difficult to follow. They seemed to

describe everything Finance was doing, without focusing on matters relevant to the Fund.

They contained heavy applications of positive spin, and they often seemed to provide only

part of the story. One example is the purchase of the GCL Panels. Altenberg referred on

several occasions to the potential purchase of modules, but he did not disclose the full terms

of that purchase until after the agreement was signed. See Spear Tr. 908; JX 443. Altenberg

similarly did not disclose the cost of the Beltline Portfolio until after the deal was signed.

See Jefferson Tr. 8485.

       Fourth, Altenberg provided misleading monthly reports of net asset value (“NAV”).

When HOMF invested in the Fund, HOMF entered into a side letter with Finance to

provide monthly NAV reports, which HOMF needed because it was part of the Hildene

fund complex. See JX 398. HOMF wanted the NAV report to reflect the fair market value

of the Fund’s assets, and Altenberg represented that Finance hired “Duff & Phelps to

provide mark to market analysis and process review.” JX 319; see Jefferson Tr. 77–78

(explaining why HOMF needed to mark to market). Altenberg also hired an accounting

firm, ThayerONeal, to compile the reports. Altenberg Tr. 428–29.

       The NAV reports consistently presented the net asset value of the Fund based on

the amount of cash that Finance had withdrawn from the Fund for each project. As a result,

the NAV reports reflected essentially stable values, even as the projects failed to achieve

key milestones and became impaired. See JX 1497; Jefferson Tr. 122; see also Altenberg

Tr. 594–96. The NAV reports also consistently reported the net asset value of the Fund as

if the Fund owned the projects, when Finance in fact owned the projects. And even though
                                             75
the NAV reports effectively consolidated the assets of Finance and the Fund by presenting

the projects as if they were owned by the Fund, the NAV reports did not present or

otherwise take into account any of the contractual liabilities associated with the projects,

ostensibly because they were obligations of Finance and not the Fund. The NAV reports

thus presented a misleading picture of assets without related liabilities. Jefferson Tr. 122–

23. For example, the NAV Report never disclosed Finance’s liabilities to DynaSolar.

Altenberg Tr. 585. The NAV Report also never identified the liability for the GCL Panels.

Altenberg Tr. 657, 703. As a result, the NAV Reports were misleading and did not provide

the Investment Members with meaningful insight into the value of the Fund.

       Finally, Altenberg lied about little things. For example, in November 2015, he

represented that Don Kendall had joined the board of Finance as executive chair, but that

never happened. Altenberg Tr. 572. He also lied about Elwin Thompson and Erica Engle

working for Energy Nexus, when they did not. See Altenberg Tr. 70709. Compare

JX 1400 at ’515, ’537, with PTO ¶¶ 16–17. And during a deposition taken by the trustee in

bankruptcy, Altenberg testified that Finance had no employees in 2018 even though both

Altenberg and Daniel Gonzalez were employees of Finance in 2018. Altenberg Tr. 498;

Gonzales Tr. 928. When confronted with the inconsistency, Altenberg retreated to a

distinction between employees who receive a W-2 and contractors who receive a Form

1099, claiming that he and Gonzales did not receive W-2s. Altenberg Tr. 501–02. Gonzales

testified that in 2018, he received a W-2 and did not receive a Form 1099. Gonzales Tr.

928.

                                             76
       The record contains over 1,500 exhibits and many pages of testimony. Having

reviewed it in detail, and having evaluated Altenberg’s demeanor at trial, I have concluded

that Altenberg was not a credible witness, nor was he a candid business partner.

       7.     The Merits-Related Defenses

       Altenberg raised three defenses that addressed the merits of the plaintiffs’ fraud-in-

the-inducement claim. None would bar the plaintiffs from a recovery.

       First, Altenberg relies on Section 9.10 of the Operating Agreement, claiming it

forecloses the plaintiffs’ fraud claim. See Dkt. 287 at 20. Titled “Entire Agreement,” this

section states, “This Agreement constitutes the entire agreement among the parties. This

Agreement supersedes any prior agreement or understanding among the parties and may

not be modified or amended in any manner other than as set forth herein or therein.” Op.

Agr. § 9.10. This provision is a standard integration clause, not an anti-reliance provision.

It does not bar reliance on extra-contractual representations, and it does not foreclose a

claim of fraud based on extra-contractual representations. Abry P’rs V, L.P. v. F & W Acq.

LLC, 891 A.2d 1032, 1059 (Del. Ch. 2006).

       Second, Altenberg points out that the plaintiffs did not bargain for a provision in the

Operating Agreement that would require Open Energy to provide financing. Dkt. 279 at

4950; Dkt. 287 at 20, 30. That is true, but it is beside the point. A fraud claim can be based

on extra-contractual representations, and a fraud claim does not depend on the absence of

a contractual commitment to the same effect.

       Third, Altenberg argues that he cannot be liable for fraud based on the

representations in his solicitation materials because those materials solicited an investment

                                              77
in Finance, yet the plaintiffs ended up making an investment in the Fund. There was a direct

and unimpeded path from Altenberg’s solicitation of the investment in Finance to the

plaintiffs’ investment in the Fund. The change in structure was part of Altenberg’s

solicitation and was designed to address Jefferson’s discomfort with investing directly in

Finance. The factual premises for the plaintiffs’ investment remained the same, namely

that Altenberg had everything he needed for a successful business except equity financing,

that the first project would be Project Cali, that Altenberg could generate outsized profits

for the equity investors by recycling their equity every three to six months, and that Open

Energy was a dedicated source of financing. Those representations were false. The change

in the structure of the investment does not insulate Altenberg from liability for fraud.

       8.     The Pleading-Stage Defense

       In his post-trial briefs and during post-trial argument, Altenberg maintained that by

pursuing a claim for fraudulent inducement, the plaintiffs were attempting to prove a cause

of action that was not pled in the complaint. See Dkt. 287 at 2–3, 15–17; Dkt. 294 at 72–

74. The plaintiffs responded that they had pled fraudulent inducement. Dkt. 285 at 39.

       Neither the original complaint nor the amended complaint contained a count titled

“Fraudulent Inducement.” That omission, however, is not dispositive. The notion that a

complaint must plead the legal theories on which the plaintiff intends to proceed is a

throwback to the “theory of the pleadings.” See 5 Charles Allen Wright et al., Federal

Practice and Procedure § 1219 (3d ed. 2004 & Supp. 2020) [hereinafter, “Wright &

Miller”]. Under this doctrine, which was a feature of pleading at common law and of code

pleading in some jurisdictions, a complaint had to “proceed upon some definite theory, and

                                             78
on that theory the plaintiff must succeed, or not succeed at all.” Mescall v. Tully, 91 Ind.

96, 99 (1883). Put differently, a plaintiff had to pick a legal theory at the outset of the case

and stick with it. See generally Fleming James, Jr., The Objective and Function of the

Complaint: Common Law—Codes—Federal Rules, 14 Vand. L. Rev. 899, 910–11 (1961).

If the facts did not support the theory that the plaintiff had picked, then the court would not

grant relief, even if the facts established an entitlement to relief until a different theory. See

id.

       Through a combination of rules, the Federal Rules of Civil Procedure “effectively

abolish[ed] the restrictive theory of the pleadings doctrine, making it clear that it is

unnecessary to set out a legal theory for the plaintiff’s claim for relief.” 5 Wright & Miller,

supra, § 1219 (footnote omitted).

       Rule 8(a) eliminates the concept of “cause of action”; Rule 8(d) provides that
       a party may set forth two or more statements of claim alternatively or
       hypothetically; Rule 15(b) deals a heavy blow to the doctrine by permitting
       amendments as late as the trial and treating issues as if they had been raised
       in the pleadings when they are tried by the express or implied consent of the
       parties; and Rule 54(c) provides that, except in the case of a default judgment,
       the “final judgment should grant the relief to which each party is entitled,
       even if the party has not demanded that relief in its pleadings.”

Id. (footnotes omitted). Under the Federal Rules of Civil Procedure, “particular legal

theories of counsel yield to the court’s duty to grant the relief to which the prevailing party

is entitled, whether demanded or not.” Gins v. Mauser Plumbing Supply Co., 148 F.2d 974,

976 (2d Cir. 1945) (Clark, J.). “The federal rules, and the decisions construing them, evince

a belief that when a party has a valid claim, he should recover on it regardless of his

counsel’s failure to perceive the true basis of the claim at the pleading stage, provided

                                               79
always that a late shift in the thrust of the case will not prejudice the other party in

maintaining a defense upon the merits.” 5 Wright & Miller, supra, § 1219 (footnotes

omitted). See generally Johnson v. City of Shelby, 574 U.S. 10, 11 (2014) (per curiam)

(reversing dismissal of complaint for failure to articulate a claim under 42 U.S.C. § 1983;

explaining that the Federal Rules of Civil Procedure rejected the “theory of the pleadings”

and “do not countenance dismissal of a complaint for imperfect statement of the legal

theory supporting the claim asserted”).

       The Delaware courts embraced the new direction charted by the Federal Rules of

Civil Procedure. “In 1948, the Courts of Delaware shook off the shackles of mediaeval

scholasticism and adopted Rules governing civil procedure modeled upon the Federal

Rules of Civil Procedure.” Daniel L. Herrmann, The New Rules of Procedure in Delaware,

18 F.R.D. 327, 327 (1956) (internal quotation marks omitted). When commenting on the

new rules, Judge Herrmann pointed out that “[t]he de-emphasis upon pleadings and the re-

emphasis upon ascertainment of truth is reflected in . . . the almost automatic amendment

of pleadings. Under Rule 15(b), for example, if issues not raised by the pleadings are tried

without objection, they are treated as though raised in the pleadings . . . .” Id. at 338.

       The real question, therefore, is not whether the amended complaint contained a

count called “Fraudulent Inducement,” nor whether it contained allegations that formally

tracked the elements of that theory. Rather, the question is whether the amended complaint

contained a short, plain statement of facts sufficient to put Altenberg on notice that the

plaintiffs were litigating a claim for fraudulent inducement, along with allegations

sufficient to make it reasonably conceivable that the plaintiffs could be entitled to recover.

                                              80
See Ct. Ch. R. 8(a); Central Mortg. Co. v. Morgan Stanley Mortg. Capital Hldgs. LLC, 27

A.3d 531, 535 (Del. 2011). To argue that the amended complaint satisfied this standard,

the plaintiffs cite paragraph 138 of the operative complaint, which alleges, “Altenberg

intended to induce Plaintiffs from acting to protect their investment or take other legal

action against [him], hoping to finalize the transactions and turn a profit before their

conduct was discovered.” Compl. ¶ 138. Although that allegation uses the verb “induce,”

it does not suggest Altenberg committed fraud when soliciting the plaintiffs’ investment

and convincing them to execute the Operating Agreement and invest. It rather suggests that

Altenberg took action while the Fund was in existence to keep the plaintiffs from

identifying misconduct and acting to protect their investment.

       A review of the amended complaint as a whole confirms that the plaintiffs focused

on how Altenberg operated the Fund, not the solicitation of the plaintiffs’ investment. To

the extent that the amended complaint addressed statements made before the execution of

the Operating Agreement, it described the business negotiations between the parties to

show that Altenberg subsequently operated the Fund in a manner inconsistent with the

agreements reached during the negotiations. The amended complaint did not discuss

Altenberg’s solicitation materials.

       Even still, the failure of the amended complaint to address Altenberg’s solicitation

of the plaintiffs’ investment would not have foreclosed the plaintiffs from conducting

discovery into these issues or seeking to prove a fraudulent inducement clam at trial, if the

plaintiffs had given Altenberg fair notice that they intended to do so. The Federal Rules

contemplate that the parties will identify and frame the issues for decision through

                                             81
discovery, motions for summary judgment, and “the use of pretrial conferences and pretrial

orders under Rule 16.” 5 Wright & Miller, supra, § 1219.

       It is clear that the parties conducted extensive discovery into the early phases of the

parties’ relationship, starting with the first time that Jefferson and Altenberg spoke about

possible solar projects in the Virgin Islands. It also is clear that they thoroughly investigated

the solicitation of the plaintiffs’ investment. But the plaintiffs have not pointed to anything

that put Altenberg on notice that he would face a claim for fraudulent inducement at trial.

       The plaintiffs’ pre-trial brief did not identify fraudulent inducement as an issue for

trial. See Dkt. 253. At most, the brief contained isolated snippets here and there. The

introduction included a cursory reference to the solicitation period, stating, “Although

Altenberg presented himself to Plaintiffs as an expert in the solar industry, he was only just

learning.” Id. at 1. On the same page, in a footnote, the brief stated: “It was only because

Altenberg lied to Jefferson that getting financing from [Open Energy] was not a problem

that Jefferson engaged with Altenberg.” Id. at 1 n.1. In the statement of facts, the entirety

of the discussion of the solicitation phase consisted of the following paragraph:

       In 2015, Altenberg approached Jefferson with an opportunity to invest in
       Finance, Altenberg’s company serving the solar energy sector. The plan was
       for Finance to provide equity investments to new solar energy projects.
       Altenberg would then obtain construction financing from [Open Energy].
       This financing was crucial to launching each project. Altenberg represented
       he was certain to obtain financing from [Open Energy] because of his
       extensive knowledge of [Open Energy]’s business and requirements and his
       being the company’s CEO. Jefferson was interested in Altenberg’s concept
       particularly because Altenberg’s relationship with [Open Energy] promised
       a secure source of financing. But for Altenberg’s misrepresentations
       regarding his relationship with [Open Energy], Jefferson would not have
       invested with Altenberg.

                                               82
Id. at 8–9. The statement of facts thus mentioned that Altenberg had misrepresented his

ability to obtain financing from Open Energy, but it did not examine the solicitation

materials in any detail and did not discuss the three-to-six-month timeline. To the extent

that the brief further discussed the time period before the execution of the Operating

Agreement, it compared and contrasted how Altenberg represented that he would operate

the Fund with how he actually operated the Fund. See id. at 9–10.

       In its legal analysis, the plaintiffs’ pre-trial brief did not provide any meaningful

discussion of a claim for fraudulent inducement. In its “Statement of the Questions

Involved,” the brief asked, “Did Defendants defraud Plaintiffs?”—to which it answered

“Yes.” Id. at 33. But when describing the claim for fraud, the brief focused on Altenberg’s

conduct while operating the Fund. The entire presentation of the claim consisted of the

following two paragraphs:

       Altenberg repeatedly misled, concealed, or flat out lied to Plaintiffs about the
       status of the Fund and its projects. Altenberg induced Plaintiffs to invest in
       the Fund by lying about his experience in the solar finance industry and his
       knowledge of [Open Energy]’s requirements. He continued to lie to Plaintiffs
       throughout the life of the Fund so that he could use Plaintiffs’ capital to build
       his reputation, contacts, and experience in the solar finance industry.
       Altenberg issued misleading and false financial statements to Plaintiffs to
       facilitate his continued fraud against them. When he drained the Fund of all
       of its capital, Altenberg put Finance in bankruptcy and transferred all its
       assets to [Energy Nexus]. Altenberg now enjoys the benefit of Plaintiffs’
       investment by running his lucrative new company.

       Altenberg had a duty to provide information to, or at a minimum not mislead,
       Plaintiffs. Altenberg breached this duty at every turn. Now that Altenberg’s
       misconduct has been uncovered, Plaintiffs are entitled to an order finding
       that Altenberg is a fraud.

                                              83
Id. at 35–36 (emphasis added). Only the highlighted sentence referred to the solicitation

phase, and it did not address Altenberg’s solicitation materials in any detail or mention the

three-to-six-month timeline. It referenced Open Energy, but it discussed Altenberg’s

knowledge of Open Energy’s requirements, not its status as a dedicated source of financing.

       The plaintiffs could have put Altenberg squarely on notice of a fraudulent

inducement claim by identifying the issue in the pre-trial order. Yet the plaintiffs’

description of the nature of the action read as follows:

       This action arises from Plaintiffs’ claims that:

       (A) Defendant violated the terms of the Fund’s Operating Agreement and
       breached his fiduciary duties owed to Plaintiffs and the Fund by, among other
       things:

              (i) failing to obtain Plaintiffs’ approval prior to entering into certain
              transactions;

              (ii) taking fees from the Fund without any basis or approval;

              (iii) using the Fund to pay for costs and fees that were not authorized
              or proper;

              (iv) engaging in ultra vires transactions using the name and/or assets
              of the Fund;

              (v) misrepresenting the Fund’s financials to Plaintiffs;

              (vi) committing the Fund to new projects before completing existing
              projects of the Fund;

              (vii) failing to enter into transactions in the name of the Fund;

              (viii) failing to assign to the Fund interests in transactions not entered
              into in the name of the Fund;

              (ix) failing to form special purpose entities to effectuate projects; and

                                             84
              (x) improperly advancing themselves litigation expenses to pay for
              the defense of the instant litigation; and

       (B) Defendant committed fraud and conspired to commit fraud by keeping
       Plaintiffs in the dark about the unauthorized investment into certain
       transactions and fees taken from the Fund and by making false and
       misleading statements to further the fraud, including about the Fund’s
       financials.

PTO ¶ I.A (formatting added). The plaintiffs thus described a case that would examine the

period after the execution of the Operating Agreement, not the solicitation of the plaintiffs’

investment.

       The plaintiffs’ statement of the issues of fact and law that remained to be litigated

also did not focus meaningfully on the solicitation period. See PTO ¶ III.A. The plaintiffs

identified seventy-two issues to be resolved, but only the following four paragraphs bore

any relationship to the solicitation of their investment:

              18.    Prior to forming the Fund, Altenberg pitched Finance to
       Jefferson seeking an investment into Finance.

              19.    Jefferson declined to invest in Finance expressing a preference
       to form a fund.

              20.   Specifically, the purpose of the Fund was to pool capital of the
       Investment Members to invest in renewable energy development projects,
       which were to be selected by the Fund’s managing member and approved by
       the Fund’s Investment Members for investment by the Fund.

              21.    Plaintiffs are the sole investors in the Fund.

Id. The plaintiffs did not state that the court needed to resolve whether Altenberg

fraudulently induced the plaintiffs to sign the Operating Agreement and invest in the Fund.

       During trial, the plaintiffs’ counsel elicited testimony from Jefferson about

Altenberg’s solicitation materials and misrepresentations. Altenberg’s counsel objected to

                                              85
the testimony, arguing that there was no claim for fraudulent inducement in the case and

that any parole evidence about the terms of the investment was barred because the language

of the Operating Agreement was plain and unambiguous. See Tr. 21, 37. Plaintiffs’ counsel

disagreed and asserted that there was a viable fraud claim in the case. Tr. 21. The parties

agreed to defer the issue until post-trial briefing. Id.

       After Altenberg’s counsel raised this objection, both sides introduced evidence

about the solicitation of the plaintiffs’ investment and the pre-contracting period. The first

180 exhibits dealt with this time period. Both lawyers elicited extensive testimony from

Jefferson, Murphy, and Altenberg about the representations that Altenberg made to the

plaintiffs. During trial, Altenberg gave the critical testimony on which the plaintiffs

subsequently relied as the centerpiece of their fraudulent inducement claim: his testimony

that Project Cali had never been a project that was available to the Fund.

       During post-trial briefing, the plaintiffs emphasized the fraudulent representations

that Altenberg made when soliciting their investment. In their opening post-trial brief,

when describing the facts that had been established at trial, the plaintiffs fully outlined the

basis for a fraudulent inducement claim. See Dkt. 278 at 7–11. In their legal analysis,

however, fraudulent inducement remained a secondary concept, receiving only a page, plus

two lines, of discussion. Even that brief discussion focused heavily on Altenberg’s

description of how the Fund would operate. The false statements in the solicitation

materials received only the following three sentences of attention:

       Altenberg’s false pitch documents fraudulently misrepresented that Project
       Cali was ready for a speedy investment. It was not until trial that Plaintiffs
       learned that Project Cali was never a real project. Altenberg misrepresented

                                               86
       [Open Energy] as a “dedicated” source of financing that was a “lock” even
       though [Open Energy] never made any such commitment.

Id. at 43.

       It was not until the plaintiffs’ post-trial answering brief that the fraudulent

inducement theory became the plaintiffs’ lead claim. The statement of facts in the post-

trial answering brief again spelled out the basis for their fraudulent inducement theory. See

Dkt. 285 at 3–7. This time, however, the fraudulent inducement claim also became the lead

argument in the legal analysis. See id. at 28–41. During post-trial argument, plaintiffs’

counsel likewise emphasized the misstatements in the solicitation materials and the

fraudulent inducement claim. See Dkt. 294 at 27–36.

       Throughout post-trial briefing and during post-trial argument, Altenberg maintained

that the plaintiffs had not properly asserted a fraudulent inducement claim. In his opening

brief, he pointed out that the complaint did not assert such a claim. See Dkt. 279 at 40,

4950. In his answering brief, Altenberg expanded on this argument and sought to refute

the plaintiffs’ allegations of fraud. Dkt. 287 at 16–22. During post-trial argument,

plaintiffs’ counsel emphasized the absence of any claim for fraudulent inducement in the

amended complaint. See Dkt. 294 at 72–74.

       Given the posture of the case and the debate over the fraudulent inducement claim,

the plaintiffs should have moved under Rule 15(b) to amend the pleadings to conform to

the evidence presented at trial. In the pre-trial order, each side “expressly reserve[d] the

right to supplement or amend its pleadings to the extent allowed pursuant to Court of

Chancery Rule 15.” PTO ¶ V. After trial, the defendants moved to amend their answer, and

                                             87
the court granted that motion. See Dkt. 295. The plaintiffs did not move to amend, whether

under Rule 15(b) or otherwise.

       Court of Chancery Rule 15(b) is designed to address this type of situation. It states:

       When issues not raised by the pleadings are tried by express or implied
       consent of the parties, they shall be treated in all respects as if they had been
       raised in the pleadings. Such amendment of the pleadings as may be
       necessary to cause them to conform to the evidence and to raise these issues
       may be made upon motion of any party at any time, even after judgment; but
       failure so to amend does not affect the result of the trial of these issues.

Ct. Ch. R. 15(b). As a leading treatise explains, the federal counterpart to this rule was part

of the drafters’ effort to leave behind the earlier system in which “the pleadings completely

controlled the subsequent phases of the litigation,” under which “[e]vidence offered at trial

that was at variance with allegations in the pleadings could not be admitted, or, if admitted,

would not be allowed to provide the basis for the final disposition of the action.” 6A Wright

& Miller, supra, § 1491. By adopting Rule 15(b) they sought “to promote the objective of

deciding cases on their merits rather than in terms of the relative pleading skills of counsel

or on the basis of a statement of the claim or defense that was made at a preliminary point

in the action . . . .” Id. (footnote omitted).

       If the plaintiffs had moved to amend under Rule 15(b), then it would have presented

a close question as to whether leave should be granted. When a party has objected to the

introduction of evidence on the ground that the material offered is not within the issues

framed by the pleadings, the court must balance the general policy that leave to amend

should be freely granted against the concern that admitting the evidence will prejudice the

party’s action or defense on the merits. See 6A Wright & Miller, supra, § 1495. Delaware

                                                 88
decisions likewise state that the primary consideration is whether the opposing party was

prejudiced. Those Certain Underwriters at Lloyd’s v. Nat’l Installment Ins. Servs., Inc.,

2008 WL 2133417, at *10 (Del. Ch. May 21, 2008), aff’d, 962 A.2d 916, 2008 WL

4918222 (Del. Nov. 18, 2008) (ORDER). “Prejudice under the rule means undue difficulty

in prosecuting a lawsuit as a result of a change of tactics or theories on the part of the other

party.” Deakyne v. Comm’rs of Lewes, 416 F.2d 290, 300 (3d Cir. 1969).

       Altenberg’s counsel claimed during post-trial argument that he was prejudiced

because he was not able to engage in motion practice to challenge a fraudulent inducement

claim and did not have the opportunity to take discovery into that claim. Dkt. 294 at 73.

The former is literally true, but the latter is not. The parties conducted extensive discovery

into the pre-contracting period. It also is difficult to ignore the fact that the principal

evidence on which the plaintiffs rely came from Altenberg himself through his testimony

at trial. Most damaging were Altenberg’s statements about Project Cali never having been

a project in which the Fund or the plaintiffs could invest, but he also gave damaging

testimony about the three-to-six month timeline and about Open Energy. It is not clear what

discovery Altenberg could have conducted or what evidence he could have introduced that

would have altered the record to his benefit on either Project Cali or the three-to-six-month

timeline. He perhaps could have called a witness from Open Energy. Because the most

damaging testimony came from Altenberg himself or from his documents, it does not seem

equitable to posit counterfactually that Altenberg might have defeated the claim (or aspects

of it) at the pleading stage before the plaintiffs were able to develop the necessary evidence.

                                              89
       The plaintiffs, however, did not make a motion under Rule 15(b). It thus remains

the case that a claim for fraudulent inducement has never properly been introduced into the

case. It also remains the case that if the plaintiffs had moved to introduce the claim under

Rule 15(b), then Altenberg would have had the opportunity to advance arguments against

the amendment, doubtless including arguments that this decision has not anticipated.

Accordingly, on the procedural ground that the claim was never validly introduced into the

case, judgment will be entered in favor of Altenberg on the fraudulent inducement claim.

B.     Fraud In The Operation Of The Fund

       For most of the litigation, the plaintiffs claimed that Altenberg committed fraud

while operating the Fund. As discussed in the previous section, the plaintiffs pivoted during

their post-trial briefing to a claim for fraud in the inducement. The reduced emphasis that

they placed on their claim of fraud during the operation of the Fund was insufficient to

prove their claim.

       The plaintiffs primarily attempted to establish fraud during the operation of the Fund

by linking each of their capital contributions to misrepresentations by Altenberg. Except

for the first contribution, which Altenberg induced by making pre-contracting

misrepresentations about Project Cali, the plaintiffs contributed capital under the Capital

Call Provision after Altenberg issued capital call notices. In twin decisions issued in 2014,

this court and the Delaware Superior Court held that the disclosures that fiduciaries make

when exercising a contractual right to call for capital are not properly analyzed under the

rubric of common law fraud. They are instead properly analyzed as disclosure claims under

Malone v. Brincat, 722 A.2d 5 (Del. 1998). See Albert v. Alex. Brown Mgmt. Servs., Inc.,

                                             90
2004 WL 2050527 at, *3–4 (Del. Super. Sept. 15, 2004); Metro Commc’n Corp. BVI v.

Advanced Mobilecomm Techs., Inc., 854 A.2d 121, 157–63 (Del. Ch. 2004). To the extent

that the plaintiffs seek to prove a claim for common law fraud based on the capital calls,

judgment will be entered in favor of Altenberg.

       Regardless of whether the claims are evaluated using the rubric of common law

fraud or through the lens of Malone, the plaintiffs must prove that the Altenberg acted with

scienter by making intentionally false statements or by intentionally withholding material

information. The plaintiffs did not carry their burden.

       In their post-trial opening brief, the sum total of the plaintiffs analysis of the six

capital calls appeared in a chart that spanned less than a page. For each capital call, the

plaintiffs offered a handful of words about “Altenberg’s purported purpose,” then a handful

of words about what they claimed was “Altenberg’s actual, unauthorized and undisclosed

purpose.” Dkt. 278 at 4142. In their post-trial answering brief, the plaintiffs converted

their chart into a single paragraph of discussion. See Dkt 285 at 3233. This abbreviated

treatment was not sufficient to carry their burden to establish scienter. Judgment will be

entered in favor of Altenberg on this claim as well.

       In their post-trial opening brief, the plaintiffs did not point to any instances of fraud

during the operation of the Fund other than the capital calls. In their post-trial answering

brief, the plaintiffs identified eight other purported instances of fraud. Seven were

representations that Altenberg made before the parties entered into the Operating

Agreement, not after entering into the Operating Agreement. See Dkt 285 at 29–32.

                                              91
       The only remaining misrepresentation was Altenberg’s promise that all of the

Fund’s assets would be held in project companies owned by the Fund. See id. at 32. As the

source of Altenberg’s false representation, the plaintiffs cited the Project Company

Requirement. Before the parties executed the Operating Agreement, Altenberg represented

that each project would be held through a separate project company owned by the Fund, so

his representations on that score could have provided yet another basis for a fraudulent

inducement claim. During the operation of the Fund, however, the plaintiffs failed to

identify any false representation that Altenberg made about whether he was placing the

projects in project companies owned by the Fund. He simply ignored the Project Company

Requirement.

       In January 2017, when Altenberg’s counsel mentioned to Jefferson’s counsel that

the projects were not held in project companies owned by the Fund, Jefferson called out

Altenberg about his failure, and Altenberg immediately admitted it. The plaintiffs thus

failed to prove the existence of a false representation that could support a claim of fraud on

this score, as opposed to a claim for breach of the Operating Agreement. See Restatement

(Third) of Torts: Liability for Economic Harm § 9, Reporters Note (Am. L. Inst. 2019 &

Supp. 2020).

       The plaintiffs failed to prove that Altenberg committed fraud during the operation

of the Fund. Judgment will be entered in Altenberg’s favor on this claim.

C.     Breach Of Fiduciary Duty

       As a separate and independent basis for recovery, the plaintiffs sought to prove that

Altenberg breached his fiduciary duties. See Dkt. 278 at 49–52. The plaintiffs proved that

                                             92
Altenberg breached the duty of loyalty that he owed to the Fund and its members in his

capacity as the human controller of the manager of the Fund. Altenberg breached his duty

of loyalty by engaging in self-interested transactions that he did not prove were entirely

fair.

        1.    The Existence Of A Fiduciary Duty

        A claim for breach of fiduciary duty is an equitable tort. 11 It has only two formal

elements: (i) the existence of a fiduciary duty and (ii) a breach of that duty. 12 The first

question therefore is whether Altenberg owed the plaintiffs a fiduciary duty.

        The parties agree that the Operating Agreement did not eliminate or modify default

fiduciary duties. Dkt. 278 at 44; Dkt. 279 at 53. As Altenberg recognizes, he owed a duty

of loyalty to the Fund and the Investment Members as the human controller of Finance.

Dkt. 279 at 5253; see In re USA Cafes, L.P. Litig., 600 A.2d 43, 48 (Del. Ch. 1991). The

plaintiffs argued that Altenberg owed full fiduciary duties in that capacity, including a duty

of care, but that position is contrary to Delaware law. Altenberg owed only a duty of

loyalty, not a duty of care. Feeley v. NHAOCG, LLC, 62 A.3d 649, 670–72 (Del. Ch. 2012).

        11
         Hampshire Gp., Ltd. v. Kuttner, 2010 WL 2739995, at *54 (Del. Ch. July 12,
2010) (“A breach of fiduciary duty is easy to conceive of as an equitable tort.”); see also
Restatement (Second) of Torts § 874 cmt. b (Am. Law Inst. 1979) (“A fiduciary who
commits a breach of his duty as a fiduciary is guilty of tortious conduct . . . .”). See
generally J. Travis Laster & Michelle D. Morris, Breaches of Fiduciary Duty and the
Delaware Uniform Contribution Act, 11 Del. L. Rev. 71 (2010).
        12
          See Beard Research, Inc. v. Kates, 8 A.3d 573, 601 (Del. Ch. 2010); accord ZRii,
LLC v. Wellness Acq. Gp., Inc., 2009 WL 2998169, at *11 (Del. Ch. Sept. 21, 2009) (citing
Heller v. Kiernan, 2002 WL 385545, at *3 (Del. Ch. Feb. 27, 2002)).

                                             93
       2.     The Claimed Breaches Of Duty

       The plaintiffs sought to prove that Altenberg breached his fiduciary duties in

multiple ways. They asserted that he

      “failed to act with care to obtain financing from [Open Energy],”

      “failed to conduct due diligence on the obsolete solar panels,”

      “entered [into] transactions that [the Fund] could not complete,”

      “drew excessive fees” from the Fund,

      “engaged in unauthorized projects and deals,”

      “placed Fund assets into Finance’s name” and paid “project-related fees from the
       Fund” for “projects [that] were not Fund assets,”

      “deprive[d] Plaintiffs of their interest in” the Dans Mountain project, which
       Altenberg is developing through Energy Nexus, and

      used money from the Fund to pay for various legal fees and expenses.

Dkt. 278 at 45–50.

       The plaintiffs explicitly framed the first three of these claims as breaches of the duty

of care. Id. at 48–49. Only Finance is subject to a claim for the breach of the duty of care.

Altenberg is not. See Feeley, 62 A.3d at 671. The plaintiffs therefore cannot prevail against

Altenberg on those claims.

       During post-trial argument, the plaintiffs contended that Altenberg acted for an

improper purpose and to obtain self-interested benefits when he “entered into transactions

that [the Fund] could not complete” because he was trying to increase the amount of fees

that Finance could charge. Dkt. 294 at 109. As described in greater detail below, Altenberg

charged the Fund a fee of $10,000 per megawatt for any project that Finance was

                                              94
developing on behalf of the Fund, regardless of what stage it was in, and without regard to

whether the project had reached any key milestones. Because of this structure, Altenberg

had an incentive to take on more and more projects, even if he never completed any,

because he could charge the Fund more fees.

       Although the evidence supports it, the plaintiffs did not introduce this theory until

post-trial argument. The plaintiffs only argued in their briefs that by pursuing projects that

the Fund could not complete, Altenberg breached duty of care. Because that was the only

theory that the plaintiffs briefed, that is the only theory that this decision addresses.13

       Under USACafes and Feeley, the plaintiffs cannot pursue these claims against

Altenberg. As a consequence, during the remedial phase, Altenberg will not face the

prospect of any remedy based on (i) fees paid to Open Energy to have it evaluate whether

to finance projects, (ii) the acquisition or sale of the GCL Panels, or (iii) amounts that the

Fund paid to third parties unaffiliated with Altenberg in connection with any of the projects.

       3.     The Question Of Breach

       The foregoing analysis leaves five claims in which the plaintiffs contend that

Altenberg breached his duty of loyalty or its subsidiary element of good faith. When

reviewing decisions of corporate directors and fiduciaries who owe comparable duties,

       13
          See Emerald P’rs v. Berlin, 2003 WL 21003437, at *43 (Del. Ch. Apr. 28, 2003);
see also In re Mobilactive Media, LLC, 2013 WL 297950, at *12 n.152 (Del. Ch. Jan. 25,
2013) (“[I]ssues adverted to in a perfunctory manner, unaccompanied by some effort at
developed argumentation, are deemed waived.” (alteration in original) (internal quotation
marks omitted)).

                                              95
Delaware law applies one of three standards of review: the business judgment rule,

enhanced scrutiny, or entire fairness. Reis v. Hazelett Strip-Casting Corp., 28 A.3d 442,

457 (Del. Ch. 2011). When a fiduciary who controls an entity approves a transaction,

makes a decision, or engages in conduct that benefits the fiduciary, and when no

independent decision maker has been involved, then the standard of review is entire

fairness, with the fiduciary having the burden of proof. Ams. Mining, 51 A.3d at 1239.

       “The concept of fairness has two basic aspects: fair dealing and fair price.”

Weinberger v. UOP, Inc., 457 A.2d 701, 711 (Del. 1983). Fair dealing “embraces questions

of when the transaction was timed, how it was initiated, structured, negotiated, disclosed

to the directors, and how the approvals of the directors and the stockholders were

obtained.” Id. Fair price “relates to the economic and financial considerations of the

proposed merger, including all relevant factors: assets, market value, earnings, future

prospects, and any other elements that affect the intrinsic or inherent value of a company’s

stock.” Id. Although the two aspects may be examined separately, “the test for fairness is

not a bifurcated one as between fair dealing and price. All aspects of the issue must be

examined as a whole since the question is one of entire fairness.” Id.

       Fairness does not depend on the fiduciary’s subjective beliefs. Once entire fairness

applies, the fiduciary must establish “to the court’s satisfaction that the transaction was the

product of both fair dealing and fair price.” Cinerama, Inc. v. Technicolor, Inc., 663 A.2d

1156, 1163 (Del. 1995) (emphasis in original) (internal quotation marks omitted). “Not

even an honest belief that the transaction was entirely fair will be sufficient to establish

                                              96
entire fairness. Rather, the transaction itself must be objectively fair, independent of the

board’s beliefs.” Gesoff v. IIC Indus., Inc., 902 A.2d 1130, 1145 (Del. Ch. 2006).

              a.     Paying Excessive Management Fees To Finance

        The plaintiffs contended that Altenberg breached his duty of loyalty by causing the

Fund to pay excessive management fees to Finance. It is undisputed that Altenberg

controlled both Finance and the Fund. Delaware law applies the entire fairness standard of

review to compensation arrangements, consulting agreements, services agreements, and

similar arrangements between a controlled entity and its controller or an affiliate.14

        Altenberg admits that he caused the Fund to pay approximately $2.37 million in fees

to Finance. PTO at 8; see JX 1498. This was an interested transaction, and Altenberg

therefore bore the burden to prove that causing the Fund to pay this amount was entirely

fair.

        14
          See Tornetta v. Musk, 2019 WL 4566943, at *4, *10 (Del. Ch. Sept. 20, 2019)
(applying entire fairness to compensation awarded to CEO who was also the company’s
controlling stockholder); Quadrant Structured Prods. Co. v. Vertin, 102 A.3d 155, 183–85
(Del. Ch. 2014) (applying the entire fairness standard to (i) payments made under a license
agreement between a company and its controlling stockholder and (ii) the company’s
decision not to defer paying interest on junior notes owned by the controlling stockholder);
Dweck v. Nasser, 2012 WL 161590, at *23 (Del. Ch. Jan. 18, 2012) (applying the entire
fairness standard to (i) consulting fees that a corporation paid to its controlling stockholder
and (ii) a joint venture that the corporation entered into with an entity affiliated with the
controlling stockholder); Carlson v. Hallinan, 925 A.2d 506, 529 (Del. Ch. 2006) (applying
the entire fairness standard to (i) compensation paid to a corporation’s controlling
stockholder, who also was a director; (ii) management fees paid to affiliates of the
controlling stockholder; and (iii) the failure to allocate expenses properly to affiliates of
the controlling stockholder, who received services from the corporation).

                                              97
       There is ample evidence that causing the Fund to pay $2.37 million in fees to

Finance was not entirely fair. For starters, Altenberg and Finance never completed a

project, and the plaintiffs lost all of the $6.8 million that they invested. Yet Altenberg

extracted 35% of the Investment Members’ capital through fees paid to Finance ($2.37

million / $6.8 million). Beyond these exorbitant fees, Finance also would have been entitled

to 50% of the upside from any successful deals. This eye-popping level of compensation

goes far beyond the well-known (and itself lucrative) 2-and-20 fee structure for fund

managers.15 As Jefferson testified at trial, this level of compensation “would make

[Altenberg] the highest-paid investment manager in the history of money.” Jefferson Tr.

47.

       Altenberg charged a management fee of $10,000 per megawatt per month,

regardless of the state or stage of the project. The record establishes that industry practice

is to pay fees based on the achievement of project milestones. As a general rule,

approximately 10% is paid when a project is acquired, then 40% when it reaches NTP, and

then 50% when it reaches COD. See Altenberg Tr. 36263. Staging the fees in this fashion

ensures that fees are earned based on results and gives the developer an incentive to move

the project forward. See Altenberg Tr. 366. Altenberg himself refused to pay fees to third

parties when he was dissatisfied with their progress, and he parted ways with Blue Sky and

       15
         See generally William Gray Cochran, Note, Searching for Diamond in the Two-
and-Twenty Rough: The Taxation of Carried Interests, 66 Stan. L. Rev. 953, 95760
(2014) (describing the structure of private equity partnerships and two-and-twenty fee
arrangements).

                                             98
ended up in legal disputes with DynaSolar and Sunrise Energy over what he maintained

was their failure to move projects forward. Yet Altenberg charged the Fund a flat

management fee of $10,000 per megawatt per month without regard to project milestones.

       Altenberg also charged his flat management fee regardless of how many third-party

consultants and advisors he hired to assist him with the projects. When Jefferson and

Murphy invested in the Fund, they understood that Altenberg and Finance would be able

to handle most of the development work. See Jefferson Tr. 69–70, 222; see also JX 877.

Instead, Altenberg hired DynaSolar, BrightPower, and numerous other third parties to

assist him with the projects and charged their fees to the Fund as project expenses. Despite

outsourcing much of the project management work, Altenberg nevertheless charged the

maximum possible amount permitted by the Operating Agreement as a management fee

for Finance.

       In addition, the timing of the bulk of the fees is suspect. During 2016, Altenberg

withdrew $835,500 in fees from the Fund. See JX 1498 at 3031, 43. During 2017, after

his relationship with the plaintiffs fractured, Altenberg withdrew $1,214,790.42 from the

Fund. Id. All but $109,664.60 of this amount was withdrawn after the plaintiffs filed this

litigation. Id. During 2018, Altenberg withdrew another $350,000 from the Fund. Id. at 30–

31.

       To defend his actions, Altenberg points to Section 2.9 of the Operating Agreement,

which provided that Finance “may receive compensation for services rendered to or on

behalf of any Project, and that such compensation shall be treated in each case as . . . a

capitalized expense of the Project prior to the Project’s Commercial Online Date (‘COD’);
                                            99
provided, however, such capitalized fees shall not exceed $170,000 per MW for such

Project prior to COD . . . .” Op. Agr. § 2.9 (emphasis in original).

        The fact that the Operating Agreement authorized Finance to receive a management

fee of up to $170,000 per megawatt does not insulate Altenberg’s self-interested conduct

from fiduciary review. The provision in the Operating Agreement confirmed that Finance

had the power to receive compensation from the Fund, thereby addressing the first step in

Adolf Berle’s famous “twice-tested” framework. It did not address the second step, which

asks whether the fiduciary properly exercised his power. See In re Inv’rs Bancorp, Inc.

S’holder Litig., 177 A.3d 1208, 122223 (Del. 2017). Altenberg’s situation was analogous

to a board of directors that has been authorized to grant itself compensation under a

stockholder-approved plan that allows “directors [to] retain discretion to make awards

under [] general parameters . . . .” Id. at 1222. In that setting, the directors still must prove

that “their self-interested actions were entirely fair to the company.” Id. at 1223; see Sample

v. Morgan, 914 A.2d 647, 66364 (Del. Ch. 2007).

       To justify the fees on the merits, Altenberg does what he elsewhere strenuously

objects to doing: he looks through Finance’s existence as a separate entity to introduce

evidence about how Finance used the fees that it received from the Fund. He testified

generally that the $2.37 million “went to the operations of VERT Solar Finance,” including

“[t]hird parties, legal, consultants, and salaries.” Altenberg Tr. 489–90. He argued that of

this amount, Finance paid $643,500 to third parties for business expenses. Dkt. 279 at

3031 (citing JX 1498). He argued that all of the remaining $1.65 million was used to pay

                                              100
for employees and contractors, with $400,000 going to himself and his wife. See id. at

3031, 54 (citing JX 1498). Altenberg provided a compilation of the inflows and outflows

to and from the Fund and Finance, but it grouped spending into large categories, did not

break out categories such as payments through Bill.com, and did not explain what

particular expenses were for. See JX 1498.

       Doctrinally, the fairness of the fees that the Fund paid to Finance does not turn on

how Finance used the money. It turns on whether the level of fees that Finance drew was

fair to the Fund. If Finance drew a fair fee, then Finance could use the money however it

wanted.16

       As a practical matter, Altenberg’s approach of looking through Finance to justify

the fairness of the fees that he drew assumes that it would be fair for the Fund to bear 100%

of Finance’s operating expenses. Altenberg in fact charged the Fund for Finance’s

operating expenses, such as for sales courses and for a computer programmer who

converted some of Finance’s software from a spreadsheet to a web-based application. See

Altenberg Tr. 564–65, 718–19; see also Altenberg Tr. 667–68 (conceiving of the Fund as

analogous to a working capital facility).

       16
         The plaintiffs attempt a variant of the look-through argument by objecting that
Altenberg unilaterally decided how much to pay himself and also put his wife on the payroll
for Finance at a salary of $75,000 per year. The plaintiffs point out that Altenberg’s wife
was a part-time office manager, and yet she was paid more than any other employee. See
Altenberg Tr. 668671. As long as Finance’s fees were fair to the Fund, it does not matter
how Altenberg allocated those fees within Finance. Minority investors in Finance might
have standing to complain about the payments that Altenberg and his wife received, but
the Investment Members and the Fund do not.

                                             101
       The plaintiffs did not agree to fund all of Finance’s business expenses. They refused

to invest directly in Finance and insisted on investing in a separate entity—the Fund—

precisely so that they would not be providing a source of effectively unrestricted capital to

fund Altenberg’s business. The plaintiffs only agreed to invest in projects, not Finance’s

business.

       The agreement that Altenberg reached with the plaintiffs also benefited him.

Through Finance, Altenberg could develop streams of income independent of the Fund that

he would not have had to share with the Fund. He likewise could secure investments in

Finance that he would not have to share with the Fund. Altenberg succeeded in securing

an investment of $30,000 in Finance from a startup incubator called the Surge Accelerator

in return for 7% of the equity in Finance. See JX 387 at ’398. The record shows that

Altenberg tried to develop alternative streams of income. He also tried to secure other

sources of investment.

       Altenberg failed to carry his burden of proving that it was entirely fair for Finance

to extract $2.37 million in fees from the Fund. He failed to introduce any evidence of fair

dealing. He admitted that he determined the amount of the fee unilaterally. Altenberg Tr.

394. He also admitted that he used his discretion to set the fee at the maximum fee that the

Operating Agreement would allow. Altenberg Tr. 396.

       Altenberg failed to prove that the fees he charged the Fund reflected a fair price.

The parties established the fee cap based on two assumptions: (i) Finance’s fees should not

exceed $10,000 per month per megawatt and (ii) a solar project should be operational

within seventeen months. See JX 159 at ’394; Altenberg Tr. 361–64, 368. Altenberg

                                            102
represented to Jefferson and Murphy that he would bring the Fund’s projects to fruition

within three to six months, and Altenberg agreed with the Investment Members that he

would complete an initial project before embarking on more projects. Once the initial

project had reached commercial operations, it could be refinanced, and the Investment

Members would receive a return of their capital, plus a return from the cash flows that the

project generated. The Investment Members clearly expected Altenberg to get paid for

completing projects and generating returns, not just for working on projects.

       Instead of following the anticipated business model, Altenberg bought large

portfolios of projects and attempted to develop multiple projects at once. Altenberg’s

approach increased the amount of fees that Finance drew from the Fund, because Finance

was working on many megawatts of projects, but Altenberg’s approach was fundamentally

unfair to the Fund. Under his portfolio-based approach, if he started work on multiple

projects that theoretically might generate 100 megawatts if they ever were completed, then

he could charge $1 million in management fees to the Fund every month, even if none of

the projects ever achieved NTP. On a smaller scale, this is what happened. Altenberg

charged the Fund for lots of preparatory work on lots of projects without ever making real

progress toward completing a project for the Fund.

       Altenberg failed to prove that it was entirely fair to charge the Fund on a per-

megawatt basis, without regard to project milestones, when he was pursuing several

projects simultaneously. The approach that he took drained the Fund of its capital and

enriched Finance without providing any returns to the Fund or to the Investment Members.

Once he embarked on his portfolio-based strategy, Altenberg should have identified a fair

                                           103
way to charge expenses to the Fund. The best course of action would have been to agree

on a methodology with the Investment Members. Absent that, Altenberg should have

developed a fair fee structure. He could have charged fees based on the milestones used in

the contracts that he entered into with Blue Sky, Sunrise Energy, and other providers.

Altenberg instead opted to charge the maximum possible fees.

       Altenberg failed to carry his burden of proof and is liable to the Fund for the fees

that he charged. During the remedial phase, the likely remedy for this breach of fiduciary

duty will be to hold Altenberg personally liable for $2.37 million. In connection with the

remedial phase, the parties will specify the exact amount and identify the dates of payment

to facilitate an award of pre- and post-judgment interest.

              b.     Holding The Fund’s Assets In Finance’s Name

       The plaintiffs contended that Altenberg breached his duty of loyalty by “plac[ing]

Fund assets into Finance’s name.” Dkt. 278 at 45. The plaintiffs proved that Altenberg

engaged in self-dealing by holding the Fund’s assets in Finance’s name. Altenberg did not

demonstrate that these actions were entirely fair.

       The Project Company Requirement contemplated that each project would be held

in a special purpose vehicle, which would be a wholly owned subsidiary of the Fund, from

the time of acquisition. PTO ¶ 25; Op. Agr. §1.2. The purpose of holding the projects in

special purpose vehicles owned by the Fund was to ensure that the Fund received value in

return for its investments.

       Altenberg breached the Project Company Requirement, and he did so in a self-

interested manner that implicated his fiduciary duties. Altenberg did not place the Fund’s

                                            104
projects into special purpose vehicles owned by the Fund. He created a project company

for the Blue Sky Portfolio, but he never completed the transfer. It was not until after

Jefferson called out Altenberg for not placing the projects in project companies that

Altenberg and his lawyer completed the assignment, effective March 31, 2017. See

JX 1040. Altenberg also caused Finance to acquire the Beltline Portfolio. See JX 480.

Finance owned those projects, not the Fund.

       By using the Fund’s money but keeping title in Finance’s name, Altenberg conferred

benefits on Finance at the expense of the Fund. Because it held legal title to the assets,

Finance could portray the assets as its own and deploy them as it wished. Finance also

would be protected if any creditor sued Finance because Finance held the assets. In this

way, Altenberg could satisfy liabilities, including money judgments, incurred by Finance

using the assets that it held in its own name, even though those assets technically belonged

to the Fund. By holding the projects in Finance’s name rather than the Fund’s, Altenberg

engaged in self-dealing.

       Altenberg’s actions had serious consequences for the Fund. DynaSolar asserted

claims against Finance to recover the guaranteed minimum payment it was due under the

Master Consulting Services Agreement and the amounts it was due for the DynaSolar

Acquisition. As part of the settlement between Finance and DynaSolar, Altenberg agreed

that DynaSolar could keep $1.25 million from the sale of the Beltline Portfolio to Boviet,

which remained in an escrow account subject to DynaSolar’s liens. As a result, the Fund

lost $1.25 million on the Beltline Portfolio. Altenberg Tr. 641. If Altenberg had caused the

                                            105
Fund to purchase the Beltline Portfolio, then the Fund would have entered into the sale

agreement with Boviet, and the Fund would have received the proceeds.

       Altenberg argues that the Investment Members’ implicitly agreed that he could hold

Fund assets in Finance’s name because he sent them the asset purchase agreements, which

indicated that Finance had purchased the assets. The minimal act of sending an asset

purchase agreement, together with the failure to object, is not sufficient to constitute

ratification. Among other reasons, the fact that Finance was the nominal purchaser did not

prevent Finance from assigning the projects to project companies owned by the Fund, as

contemplated by the Project Company Requirement. The record clearly establishes that the

plaintiffs never approved having Finance hold the rights to the projects; they first became

aware that Altenberg was engaging in this practice in January 2017.

       Altenberg also relies on a side letter that Jefferson signed and produced in discovery,

but which was never fully executed. See Dkt. 279 at 50. In January 2015, Jefferson learned

that Altenberg had not placed any projects in special purpose entities owned by the Fund.

See JX 855. To attempt to remedy the ownership problem, Jefferson’s lawyers had

Altenberg’s lawyer prepare a side letter which provided that all “third party agreements

shall be deemed to be entered into by [Finance] for the sole benefit of the [Fund] and its

Members.” JX 874 at ’947. Jefferson signed it and sent it to his counsel, but ultimately did

not return the document to Altenberg because it also contained provisions favorable to

Altenberg. See Jefferson Tr. 279. Altenberg never signed it. JX 873. The side letter thus

does not reflect an agreement between the parties. Moreover, the point of the side letter

was to recognize that Finance already had kept the Fund’s assets in its name and to

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document that Finance was holding those assets for the benefit of the Fund. The side letter

is evidence of the underlying problem, not evidence that there was no underlying problem.

       Altenberg did not otherwise attempt to prove that his decision to hold Fund assets

in Finance’s name was entirely fair to the Fund. Relying on his own testimony, Altenberg

made a bare assertion that he did not breach the duty of loyalty because “even though a

Fund asset may have been held in the name of Finance, it was treated as an asset of the

Fund.” Dkt. 287 at 35 (citing Altenberg Tr. 701). Altenberg did not back up his self-serving

testimony with actual evidence that he considered and treated the projects as assets of the

Fund. Nor did Altenberg’s self-serving testimony have any effect on whether Finance’s

creditors would treat the projects as assets of the Fund.

       By treating the Fund in this manner, Altenberg forced the Fund to accept terms that

no third party would provide. Any third-party source of equity financing would have

insisted on some ownership interest in return for its funds. Altenberg Tr. 378. Any third-

party source of debt financing would have received a loan agreement, a note, and likely a

security interest in return for its funds. See id. The Fund did not get anything. Id. at 379.

       Altenberg failed to establish that holding the Fund’s assets in Finance’s name was

entirely fair to the Fund and the Investment Members. He therefore breached his duty of

loyalty by failing to hold title to the Fund’s assets in the Fund’s name. During the remedial

phase, the likely remedy for this breach of fiduciary duty will be to hold Altenberg

personally liable for the $1.25 million that the Fund lost on the Beltline Portfolio because

Altenberg agreed to pay that amount to DynaSolar to settle DynaSolar’s claims against

Finance.

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              c.     Causing The Fund To Pay For Project-Related Fees

       The plaintiffs also contended that Altenberg breached his duty of loyalty by causing

the Fund to pay project-related fees for projects that were held in Finance’s name. Dkt. 278

at 46. This argument is the flipside of the plaintiffs’ contention that Altenberg breached his

duty of loyalty by not transferring the projects to the Fund. In this version of the argument,

the plaintiffs accept that Altenberg did not transfer the projects to the Fund and argue that

he therefore should not have spent money from the Fund on projects that did not belong to

the Fund.

       This decision has found that Altenberg breached his duty of loyalty by not

transferring the projects to subsidiaries of the Fund. The Fund should have been the owner

of the projects. Because the Fund was the equitable owner of the projects, it was not a

fiduciary wrong for Altenberg to spend money from the Fund developing the projects.

During the remedial phase, the plaintiffs will not be entitled to any remedy for amounts

that Altenberg caused the Fund to pay to third parties unaffiliated with Altenberg in

connection with any of its projects.

       More narrowly, the plaintiffs argue that after selling the Beltline Portfolio,

Altenberg “did not return the sale proceeds to the Fund or the investors” and “assert[ed]

Plaintiffs are not entitled to the proceeds of the sale.” Dkt. 278 at 46. This appears to refer

to the development fee that Altenberg received from Boviet.

       The development fee was part of the consideration for the sale of the Beltline

Portfolio, which was an asset of the Fund. By unilaterally taking all of the development

fee, Altenberg diverted consideration from the Fund and engaged in self-dealing. Altenberg

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did not make any effort to establish that it was entirely fair for Finance to keep the

development fee. He did not point to any evidence of fair dealing, and he did not address

the fairness of the price.

       Keeping the development fee also ran contrary to his earlier representations to the

plaintiffs. Altenberg represented to Jefferson and Murphy that a portion of the fee would

be returned to the Fund. See JX 816. Altenberg later proposed that the Fund receive half of

the development fee for the first 25 megawatts of projects. After the relationship between

Altenberg and the plaintiffs broke down, Altenberg instructed his accountants not to credit

any of the fee to the Fund. See JX 1002. Finance kept the full development fee, which

Altenberg estimated to be $400,000. Altenberg Tr. 721.

       Altenberg breached his fiduciary duty of loyalty to the Fund by taking the entire

development fee. During the remedial phase, the likely remedy for this breach will be that

Altenberg will be held personally liable for the actual amount of the development fee.

Altenberg testified that this amount was around $400,000, but he was not a credible

witness, and there is evidence in the record suggesting that the amount was higher. See,

e.g., JX 278 at ’337; JX 484; JX 743; JX 952 at ’055–56. In connection with the remedial

phase, the parties shall quantify all amounts that Altenberg (through Finance or otherwise)

received from Boviet and the dates of payment to facilitate an award of pre- and post-

judgment interest.

              d.      Causing The Fund To Pay Legal Fees And Expenses

       In multiple arguments interspersed throughout their briefs, the plaintiffs complain

that Altenberg caused the Fund to pay for various legal expenses. They object that

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Altenberg’s actions “resulted in expensive arbitrations” with DynaSolar, Beltline, and

Sunrise, that the Fund “paid the legal fees for these arbitrations,” and that “[w]hen the

settlement payments were issued, Altenberg transferred the payment from the Fund to

Finance.” Dkt. 278 at 47. They also assert that Altenberg used Fund money to pay his legal

fees in this action. Id. Elsewhere, the plaintiffs argue that Altenberg breached his fiduciary

duties by charging the Fund for legal expenses for lawyers who represented Finance. Id. at

46.

       Unless the Fund was contractually obligated to pay for Finance’s legal fees, then

causing the Fund to pay for Finance’s legal fees was an interested transaction, and

Altenberg would be obligated to prove that having the Fund pay Finance’s legal fees was

entirely fair. See Havens, 1997 WL 55957, at *13. Section 5.3 of the Operating Agreement

contains the following indemnification provision:

       To the fullest extent permitted by law, the [Fund] . . . shall indemnify and
       hold harmless each Indemnified Party who was or is a party or is threatened
       to be made a party to any threatened, pending or completed action, suit or
       proceeding, whether civil, criminal, administrative or investigative
       (including any action by or in the right of the [Fund]), by reason of any act
       or omission or alleged act or omission arising out of such Person’s activities
       as a Manager, executive officer or Member if such activities were performed
       in good faith either on behalf of the [Fund] or in furtherance of the interests
       of the [Fund], and in a manner reasonably believed by such Person to be
       within the scope of the authority conferred by this Agreement or by law or
       by the consent of the Members in accordance with the provisions of this
       Agreement, against losses, damages, or expenses, on as as-incurred basis, for
       which such Person has not otherwise been reimbursed (including attorneys’
       fees, judgments, fines and amount paid in settlement) actually and reasonably
       incurred by such Person in connection with such action, suit or proceeding
       so long as such Person was not guilty of gross negligence, willful misconduct
       or any other breach of duty with respect to such acts or omissions, and, with
       respect to any criminal action or proceeding, and had no reasonable cause to
       believe its conduct was unlawful and provided that the satisfaction of any

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       indemnification and any holding harmless shall be from and limited to [Fund]
       assets and the Members shall not have any personal liability on account
       thereof.

Op. Agr. § 5.3 (the “Indemnification Provision”).

       The parties have not made any effort to parse through the arbitrations and litigations

in which Altenberg and Finance were involved or to grapple with the scope of the

Indemnification Provision for purposes of those disputes. There are many issues that would

have to be addressed, starting with whether Altenberg acted in a covered capacity for

purposes of those proceedings. The arbitrations and litigations with DynaSolar and Sunrise

Energy have concluded, so the analysis also would have to address whether Altenberg was

successful on the merits or otherwise as a result of the settlements. It is possible that the

plaintiffs could show that Altenberg was not entitled to indemnification for some of the

proceedings, and it seems likely that if they had done so, then Altenberg would have been

unable to prove that it was entirely fair to cause the Fund to pay the legal expenses for

those proceedings, but the plaintiffs did not make the necessary threshold showing.

       The parties also have not delved into the amounts that Altenberg spent on legal fees

outside of the arbitrations and litigations. The Indemnification Provision would not apply

to those fees. The question instead would be whether they could be treated legitimately as

project costs that advanced the interests of the Fund. It is possible that the plaintiffs could

show that some of the fees benefitted Altenberg and Finance and should not have been

charged to the Fund. It seems likely that if the plaintiffs had proven that, then Altenberg

would have been unable to prove that it was entirely fair to cause the Fund to pay those

fees. The plaintiffs again failed to make the necessary predicate showing.

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       The plaintiffs also seek to recover amounts that Altenberg advanced to himself to

defend this litigation. Under the Operating Agreement, Altenberg was not entitled to

mandatory advancements, only to indemnification. Dkt. 90 at 26. He nevertheless decided

to advance himself expenses. That decision is a self-interested transaction that is subject to

entire fairness review. See Havens, 1997 WL 55957, at *13.

       Altenberg appears to have advanced himself a total of $179,500.21. See

PTO ¶¶ 108–113, 115; JX 1083; JX 1101; JX 1120. Altenberg did not make any effort to

prove that the advancements that he paid to himself were entirely fair to the Fund and to

the Investment Members. Altenberg breached his fiduciary duties by causing the Fund to

advance these amounts to him. During the remedial phase, the likely remedy will be to hold

Altenberg personally liable for $179,500.21. In connection with the remedial phase, the

parties shall confirm the amounts and identify the dates of payment to facilitate an award

of pre- and post-judgment interest.

              e.     Transferring The Dans Mountain Project To Energy Nexus

       Lastly, the plaintiffs contended that Altenberg breached his fiduciary duties by

“depriv[ing] Plaintiffs of their interest in [Energy Nexus]’s projects.” Dkt. 278 at 50. The

plaintiffs point specifically to Altenberg’s acquisition of the Dans Mountain project using

VSF Devco, a project company that was a subsidiary of the Fund. Id. at 37.

       In April 2018, Altenberg and Finance entered into a letter of intent to acquire the

Dans Mountain project for $70,000 per megawatt. See JX 1263. In November 2018, VSF

Devco purchased the Dans Mountain project. JX 1340. Altenberg formed VSF Devco in

August 2016 as a wholly owned subsidiary of the Fund. JX 624; see JX 1476. In September

                                             112
2018, Altenberg formed Energy Nexus as a wholly owned subsidiary of VERT Investment

Group, his personal holding company. Altenberg subsequently tried to develop the Dans

Mountain project through Energy Nexus. See JX 1400; JX 1404.

       Altenberg claims that he did not use any moneys from the Fund to acquire the Dans

Mountain project or to start Energy Nexus, but the plaintiffs have introduced evidence that

Altenberg used Fund assets during the relevant time period. Between April 30 and

November 31, 2018, Altenberg transferred $350,000 from the Fund to Finance. See JX

1498 at 3031. Altenberg also transferred another $39,700 from the Fund to VERT

Investment Group. Id. at 58. And he tapped the Fund during this period by using Bill.com

and by using his ATM card. See id. at 57, 61. There were some offsetting transfers to the

Fund during this period, but the evidence clearly points to Altenberg’s use of Fund assets

to some degree.

       Otherwise, the plaintiffs complain that Energy Nexus is essentially a re-boot of

Finance. It certainly looks like it. But as long as Altenberg did not use Fund assets, then

there is nothing wrong with that. Although he failed with Finance and the Fund, Altenberg

can try again with Energy Nexus. The plaintiffs do not have any right to the life-lessons

and experience that Altenberg acquired.

       During the remedial phase, Altenberg will account for the Fund assets that he used

during the period when he was acquiring the Dans Mountain project and starting Energy

Nexus. If he cannot demonstrate that he properly used the Fund’s assets, then he will be

forced to disgorge those amounts, together with pre- and post-judgment interest.

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        4.     The Exculpation Defense

        Altenberg argues that even if he breached his fiduciary duties, he cannot be held

liable under Section 5.3 of the Operating Agreement. Dkt. 279 at 55–57. This provision

eliminates monetary damages as a remedy for certain breaches of duty by certain parties.

It states:

        No Manager, executive officer or Member (each an “Indemnified Party”)
        shall be liable, responsible or accountable in damages or otherwise to the
        [Fund] or any Member for any loss or damage incurred by reason of any act
        or omission performed or omitted by such Indemnified Party in good faith
        either on behalf of the [Fund] or in furtherance of the interests of the [Fund]
        and in a manner reasonably believed by such Person to be within the scope
        of the authority granted to such Person by this Agreement or by law or by the
        consent of the Members in accordance with the provisions of this Agreement,
        provided that such Person was not guilty of gross negligence, willful
        misconduct or any other breach of duty with respect to such act or omission.

Op. Agr. § 5.3 (second emphasis added) (the “Exculpation Provision”).

        Altenberg is not entitled to exculpation because the elimination of liability for

monetary damages is qualified in all respects by the following proviso: “provided that such

Person was not guilty of gross negligence, willful misconduct or any other breach of duty

with respect to such act or omission.” This decision has held that Altenberg breached his

fiduciary duty of loyalty. Exculpation therefore is unavailable.17

        17
          Altenberg also falls outside the scope of the Exculpation Provision, which
eliminates monetary liability for a “Manager, executive officer or Member.” The Operating
Agreement defines “Manager” as “the Management Member or any Person appointed by
the Management Member to serve as Manager in accordance with Section 5.1B, in such
Person’s capacity as Manager of the Company.” Op. Agr. at 23 sched. 2. The Exculpation
Provision only grants exculpation to the three categories of named parties. Its plain
                                             114
       5.     The Remedy For Breach Of Fiduciary Duty

       This decision does not specify a remedy for Altenberg’s breaches of fiduciary duty.

The parties focused their efforts at trial, in their post-trial submissions, and during post-

trial argument primarily on the question of liability and not the issue of remedy. The

financial records of the Fund and Finance were maintained poorly, and although the

necessary information to quantify an award for Altenberg’s breaches of fiduciary duty

could well exist in the form of bank statements and invoices that are scattered throughout

the record, the court is not in a position to sift through the information to make or confirm

the specific calculations. Altenberg assembled a summary, but it groups income and

expenses into broad categories, does not provide supporting explanations, and is a

generally confusing document. See JX 1498.

       The parties will need to provide supplemental submissions on the question of

remedy. This decision has indicated what the likely remedies will be and has identified

issues that need to be clarified. Counsel should attempt to reach agreement on these points.

If an agreement cannot be reached, then some limited discovery may be necessary.

       The parties’ supplemental submissions also should address how to account for the

role of the Fund. The plaintiffs’ claim for breach of fiduciary duty appears derivative, so

any recovery from Altenberg presumptively goes to the Fund. There is good reason to think

that because the Fund is effectively defunct, it should be dissolved, its affairs wound down,

language does not extend to their associates or affiliates, or to the parties who control them.
See In re Altas Energy Res. LLC, 2010 WL 4273122, at *7 (Del. Ch. Oct. 28, 2010).

                                             115
and its certificate of formation cancelled. To the extent that this course of action is

warranted, the court has a strong preference for appointing a neutral receiver to carry out

those tasks, but the receiver would need to be compensated.

       The parties doubtless will identify other issues that need to be considered. The

parties will confer and submit a joint list of issues that will need to be addressed during the

remedial phase. The court then will determine whether a conference is warranted to discuss

how to proceed.

D.     Breach Of The Operating Agreement

       The plaintiffs finally argue that Altenberg breached both the explicit terms of the

Operating Agreement and the implicit terms supplied by the implied covenant of good faith

and fair dealing. That theory fails because Altenberg was not a party to the Operating

Agreement. As a fallback, the plaintiffs maintain that they proved that Finance breached

the Operating Agreement and that Finance’s entity veil should be pierced. Because of the

automatic stay that resulted from Finance declaring bankruptcy, this court cannot

adjudicate whether Finance breached the Operating Agreement.

       “It is a general principle of contract law that only a party to a contract may be sued

for breach of that contract.” Gotham P’rs v. Hallwood Realty P’rs, 817 A.2d 160, 172 (Del.

2002) (internal quotation marks omitted). Finance was a party to the Operating Agreement,

both as the Manager of the Fund and as its Management Member. Altenberg, however, was

not a party to the Operating Agreement. See Op. Agr. at 1, 20–23. Doctrinally, Finance can

be sued for breaching the Operating Agreement, but Altenberg cannot.

                                             116
       The plaintiffs contend that Finance breached the Operating Agreement and that

Altenberg can be held personally liable for Finance’s breaches “under a veil piercing or

agency theory.” Dkt. 285 at 53–54. This court cannot adjudicate that issue because it

requires a predicate determination that Finance breached the Operating Agreement.

Finance declared bankruptcy, and because of the automatic stay, this court cannot address

a claim that Finance breached the Operating Agreement. Without a predicate determination

that Finance breached the Operating Agreement, grounds do not exist to assess whether its

separate existence should be ignored and liability imposed on Altenberg.

       Altenberg contends that to the extent that he breached the terms of the Operating

Agreement, the plaintiffs waived those claims or are estopped from asserting them. See JX

279 at 58–59. Because this decision has not reached the breach of contract claims, it is not

necessary to consider those defenses.

                                III.     CONCLUSION

       The record at trial established that Altenberg induced the plaintiffs to invest in the

Fund by making fraudulent misrepresentations, but the plaintiffs are not entitled to receive

a remedy on this theory because they did not present it in a procedurally proper way. The

plaintiffs failed to prove that Altenberg committed fraud while managing the Fund. The

plaintiffs proved that Altenberg engaged in self-interested transactions, and Altenberg

failed to prove that those transactions were entirely fair. Altenberg breached his duty of

loyalty in connection with those transactions. Further proceedings are necessary to craft a

specific remedy. This decision has not reached the plaintiffs’ claim that Finance breached

its contractual obligations under the Operating Agreement and that Altenberg should be

                                            117
held personally liable for the resulting damages after piercing Finance’s entity veil. Finance

has declared bankruptcy, and the claim for breach of contract against Finance has been

stayed.

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