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Nama Holdings, LLC v. Related WMC LLC

Court of Chancery of Delaware

November 17, 2014

NAMA HOLDINGS, LLC, Plaintiff,
v.
RELATED WMC LLC, THE RELATED COMPANIES, L.P., and WMC VENTURE, LLC, Defendants.

Date Submitted: August 21, 2014

Stephen C. Norman, T. Brad Davey, Jordan A. Braunsberg, POTTER ANDERSON & CORROON LLP, Wilmington, Delaware; Attorneys for Plaintiff NAMA Holdings, LLC.

William M. Lafferty, Kevin M. Coen, MORRIS, NICHOLS, ARSHT & TUNNELL LLP, Wilmington, Delaware; Stacie E. Tobin, VENABLE LLP, Baltimore, Maryland; Attorneys for Defendants Related WMC LLC, The Related Companies, L.P., and WMC Venture, LLC

MEMORANDUM OPINION

LASTER, VICE CHANCELLOR.

In 2006, NAMA Holdings, LLC ("NAMA") gave notice to Related WMC LLC ("Related Sub") that NAMA had disputes with entities controlled by Shawn Samson and Jack Kashani. Related Sub had agreed to hold any funds in dispute while the competing claimants pursued arbitration. As a result, Related Sub came to hold approximately $11.8 million in a segregated account (the "Disputed Amounts'').

In 2009, an arbitral panel (the "Panel") issued a decision that awarded NAMA over $13 million in damages and monetary sanctions against Samson and Kashani's entities (the "Arbitral Decision"). Under the custodial agreement, Related Sub could have released the Disputed Amounts upon receipt of the Arbitral Decision. Instead, Related Sub's sole member, The Related Companies, L.P. ("Related Parent"), caused Related Sub to continue holding the Disputed Amounts and then to release them to Samson as part of a quid pro quo.

At the time, Related Parent wanted access to funds in a different escrow account that Samson and Kashani controlled. Samson and Kashani had refused to let Related Parent access the funds unless Related Parent gave them a personal loan. Related Parent would not provide the loan because Samson and Kashani could not post collateral. Related Parent had evaluated whether Samson and Kashani could use their entities' share of the Disputed Amounts as collateral, but Related Parent concluded that after the Arbitral Decision, Samson and Kashani's entities would not receive any of the funds.

Related Parent, Samson, and Kashani then realized they could skip the intermediate step of a loan by orchestrating a release of the Disputed Amounts that would get a portion of the money into Samson and Kashani's pockets. In exchange for access to the escrowed funds that Samson and Kashani controlled, Related Parent arranged with Samson to wire him the Disputed Amounts. Samson then immediately wired them out again, before NAMA knew anything was going on. Approximately $5.9 million ended up in accounts controlled by Samson, Kashani, or their affiliates. Although NAMA received its pro rata share of the Disputed Amounts, NAMA was prevented from using all of the funds to satisfy the damages awarded by the Arbitral Decision.

Believing that Related Sub had violated its custodial obligations, NAMA threatened to sue Related Sub for breach of contract and breach of the implied covenant of good faith and fair dealing. Related Sub and an affiliate, World Market Center Venture, LLC ("WMCV"), filed suit, seeking a declaration that they had complied with their contractual obligations. This court granted partial summary judgment in their favor, holding that they technically complied with the letter of the custodial contract. World Mkt. Ctr. Venture, LLC v. NAMA Hldgs., LLC, 2010 WL 1756876 (Del. Ch. Apr. 30, 2010) (the "Summary Judgment Opinion" or "SJ Op."). NAMA then brought claims against Related Parent, including a claim for tortious interference with contract. After some procedural developments, this court ruled that NAMA's claims against Related Sub for breach of the implied covenant of good faith and fair dealing and against Related Parent and WMCV for tortious interference with contract would proceed to trial.

This post-trial decision holds that Related Sub breached an implied term of the custodial contract that required Related Sub to act neutrally as to the Disputed Amounts. By holding the Disputed Amounts beyond the point when they could have been released, then arranging to release them into Samson's control, knowing that Samson and Kashani intended to pocket a portion of the funds under circumstances where they otherwise would not see any of the money, Related Sub breached its implied obligation. By causing Related Sub to take these steps as part of a quid pro quo for its own benefit, Related Parent tortiously interfered with the custodial contract between Related Sub and NAMA. Related Parent and Related Sub are jointly and severally liable to NAMA in the amount of $5, 894, 391, plus pre" and post-judgment interest.

I. FACTUAL BACKGROUND

Trial took place from May 6-8, 2014. The following facts were proven by a preponderance of the evidence.

A. The World Market Center

In 1999, Samson and Kashani found commercial inspiration in a retail shopping mall dedicated to furniture and home furnishings located in High Point, North Carolina. Samson and Kashani envisioned the World Market Center (the "Center"), which would be an even larger mall dedicated to furniture and home furnishings located in Las Vegas, Nevada. They planned for the Center to consist of eight buildings to be constructed in eight phases, one phase for each building.

In 2000, Samson and Kashani began looking for investors. A business contact put Samson in touch with Nigel and Mousa Alliance (the "Alliance Brothers").

In 2001, Alliance Network, LLC was formed as the vehicle for owning, developing, and managing the Center. The members of Alliance Network were (i) Prime Associates Group, LLC ("Prime"), owned by Samson and Kashani, (ii) Crescent Nevada Associates, LLC ("Crescent"), owned by Kashani's relatives, and (iii) NAMA, owned by the Alliance Brothers. Prime contributed 10% of the initial capital, Crescent contributed 20%, and NAMA contributed 70%.

The operating agreement for Alliance Network vested broad management authority in its sole manager, defined as Samson and Kashani jointly. NAMA received veto rights over certain actions (the "Veto Rights").

B. Disputes Lead To A Restructuring

After purchasing the land for the Center, Alliance Network needed additional capital to begin Phase 1. NAMA would not fund the entire amount, and soon the Alliance Network members were embroiled in disputes.

In 2003, Samson identified Related Parent as a well-heeled financial backer. Headquartered in New York City, Related Parent is a privately held real estate firm engaged in the business of owning, developing, and operating real estate projects. Its extensive portfolio of properties includes apartment buildings, hotels, commercial developments, and exhibition facilities in the United States and abroad.

Related Parent was interested in the Center but concerned about the adversarial relationship between the Alliance Brothers and Samson and Kashani. Related Parent conditioned its participation on (i) the creation of a new entity that would insulate the Center from Alliance Network member disputes, (ii) Samson and Kashani serving as Alliance Network's sole authorized representatives for managing the Center, and (iii) NAMA giving up its Veto Rights.

A deal was struck. On the first issue, Alliance Network and Related Parent formed WMCV as the new entity for owning, developing, and managing the Center. WMCV had two members: Network World Market Center, LLC ("Network") and Related Sub. Network was a wholly owned subsidiary of Alliance Network.[1] Related Sub was a wholly owned subsidiary of Related Parent. Through Related Sub, Related Parent obtained a one-third interest in Phase 1 and a 50% interest in all future phases of the Center.

On the second issue, the operating agreement for WMCV (the "WMCV Operating Agreement") provided that Samson and Kashani were the sole authorized representatives of Network. For day-to-day operating decisions, Related Sub could rely on either Samson or Kashani. For more significant matters, defined as "Major Decisions, " Samson and Kashani had to act jointly.

On the third issue, NAMA agreed to give up its Veto Rights, but NAMA insisted on a mechanism for resolving future disputes over Alliance Network matters. Assisted by counsel, NAMA and Samson and Kashani negotiated Section 11 of the amended operating agreement for Alliance Network (the "Alliance Network Operating Agreement"), which required that the WMCV Operating Agreement contain a section that (i) gave any Alliance Network member the right to send Related Sub a notice identifying a dispute over the cash flows from the Center, and (ii) called for Related Sub to hold the disputed amounts in a segregated, interest-bearing account pending resolution of the dispute through arbitration. Section 11 of the Alliance Network Operating Agreement led to Section 12.18 of the WMCV Operating Agreement, which NAMA and its counsel helped draft. NAMA was made a third-party beneficiary of Section 12.18, which could not be amended without NAMA's prior written consent.

Section 12.18(g) of the WMCV Operating Agreement established the notice procedure and segregated-account mechanism. It stated:

Upon receipt by Related [Sub] of a written notice from any member of Alliance Network (a "Disputing Alliance Member") certifying to Related [Sub] that there is a bona fide dispute between the Disputing Alliance Member and the other members and/or the managers of Alliance Network (the "Affected Alliance Members") or any of them regarding the parties [sic] respective shares of, and/or the allocation, calculation, timing or distribution of Affiliate Fees, other fees, Cash Available for Distribution, net income or any other amount due Network (or any other Person who is a part of the Alliance Network Group) under this Agreement and specifying the items that are in dispute (the "Disputed Items"), then notwithstanding any provision in this Agreement to the contrary, Related [Sub], shall retain from any future distributions or payments of the Disputed Items due Network, (or any other person who is part of Alliance Network Group) on account of the Disputed Items with respect to any Phase of the [Center] or Ancillary Business in which Network has a direct, or indirect, Interest and shall instead, deposit such amounts (the "Disputed Amounts") in a segregated bank account of the Company until such time as either: (i) the parties to such Dispute direct and authorize Related [Sub], by joint written instructions, to release the Disputed Amount; or (ii) Related [Sub] receives a copy of the decision of the Person arbitrating such dispute under the Provisions of Article [XI] of Alliance Network Operating Agreement, subject in any case to the superior rights of Related [Sub] and any [Center] Lender to such Disputed Amounts in accordance with the this [sic] Agreement.

JX 6 § 12.18(g).

Section 12.18(h) of the WMCV Operating Agreement defined the nature of Related Sub's obligations when performing its duties under Section 12.18(g). It stated:

(i) In no event shall Related [Sub] be deemed to be a fiduciary in connection with any monies held by it pursuant to Section 12.18(g).
(ii) Related [Sub] shall be protected in acting or refraining from acting as provided for in Section 12.18(g) on any instrument believed to be genuine and to have been signed or presented by the proper party or parties.
(iii) Related [Sub] shall have no liability under, or duty to inquire into the terms and provisions of Section 12.18(g).
(iv) It is agreed that [Related Sub's] duties pursuant to Section 12.18(g) are purely ministerial in nature and that Related [Sub] shall incur no liability whatsoever for any action taken or omitted by Related [Sub] pursuant to Section 12.18(g) except for willful misconduct, gross negligence, or bad faith, so long as Related [Sub] acted in good faith.
(v) If Related [Sub] is uncertain as to its obligations pursuant to Section 12.18(g) or if any conflicting demands shall be made upon Related [Sub] pursuant to Section 12.18(g), Related [Sub] shall not be required to determine the same or to take any action thereon other than continuing to retain Disputed Amounts and depositing them as provided for in Section 12.18(g), rather, Related [Sub] may await settlement of the controversy.
(vi) Network and each of the members of the Alliance Network shall jointly and severally indemnify Related [Sub], its officers, directors, partners, employees, agents and counsel (each herein called a "Section 12.18(g) Indemnified Party") against, and hold each Section 12.18(g) Indemnified Party harmless from, any and all losses, costs, damages, expenses, claims and attorney's fees, including but not limited to costs of investigation, litigation, suffered or incurred by any Section 12.18(g) Indemnified Party in connection with or arising from or out of any action taken or omitted by Related [Sub] pursuant to Section 12.18(g), except such acts or omission as may result from the willful misconduct or gross negligence or bad faith of such Section 12.18(g) Indemnified Party. Related [Sub] shall not be liable for any tax liability or loss on investments arising from Related[] [Sub's] retention of Disputed Amounts and deposit thereof as provided for in Section 12.18(g).

JX 6 § 12.18(h).

C. Samson, Kashani, And Related Parent Try To Buy Out NAMA.

Related Parent's arrival altered the relationship among the Alliance Network members. With Related Parent as their new partner, Samson and Kashani no longer needed NAMA, and they no longer had to worry about NAMA's Veto Rights. Related Parent did not have much use for NAMA either. But Samson and Kashani were helping Related Parent develop and manage the Center, and they soon found common ground.

In 2004, Samson, Kashani, and Related Parent reached an agreement to develop a condominium project (the "Icon Center"). Samson and Kashani received the right to invest on favorable terms, thereby violating a prohibition in the Alliance Network Operating Agreement against Samson, Kashani or any of their affiliates "deriv[ing] any personal benefit, salary, compensation or other benefit" from "Related [Sub], its subsidiaries, or affiliates" other than as permitted by the Alliance Network Operating Agreement. JX 5 at § 15. Related Parent, Samson and Kashani did not disclose the Icon Center project to NAMA, and NAMA did not learn of it until 2007.

Samson, Kashani, and Related Parent also tried to induce NAMA to sell its interest in the Center. In June 2005, after refinancing Phase 1, WMCV had $18 million available for distribution to the Alliance Network members. At the time, Marty Burger was the point person for Related Parent. Samson and Burger agreed to keep the existence of the funds secret and hold them within WMCV. Samson thought NAMA might sell, and Samson and Burger believed that withholding the distributions and keeping the amount of cash secret would lead the Alliance Brothers to undervalue their interest and be more eager to exit. Samson changed his mind about withholding the distribution when he needed money to buy into the Icon Center. At first, Burger did not want to jeopardize the plan to buy out NAMA, but he gave in to Samson. WMCV ended up distributing the funds at the end of June.

The next year, Related Parent, Samson, and Kashani tried again. This time, WMCV had $12.8 million available for distribution. Once again, NAMA did not know that the funds were available. Samson thought the Alliance Brothers would sell, so he did not want to make a distribution or disclose the existence of the funds. Burger was skeptical and sought guidance from Jeff Blau, the President of Related Parent. Blau agreed to withhold the funds to facilitate a possible buyout of NAMA's interests. Network's 50% share of these funds would end up as part of the Disputed Amounts.

D. The Phase 3 Financing

As noted, the plan for the Center called for developing eight buildings in eight separate phases. Phase 1 was completed in July 2005 at a cost of approximately $220 million. Phase 2 was completed in January 2007 at a cost of approximately $300 million. In September 2006, as Phase 2 was nearing completion, Related Parent, Samson, and Kashani began planning for Phase 3. On September 20, 2006, Related Parent entered into a term sheet with Hypo Real Estate Capital Corporation ("Hypo") to finance the construction of Phase 3. Hypo conditioned the loan on Related Parent and Network entering into a master lease agreement for the Phase 3 space (the "Master Lease Agreement"). Under the Master Lease Agreement, Network would fund half of the monthly rent payment due for the Phase 3 space; Related Parent would fund the other half. Related Parent guaranteed Network's half, making Related Parent liable for the full amount. As security for its portion, Network deposited approximately $11 million in an escrow account (the "Network Escrow"), which Samson and Kashani controlled. Related Sub was not a party to the Master Lease Agreement.

By letter dated October 20, 2006, Alliance Network made a capital call on its members for Phase 3 (the "Funding Notice"). The Funding Notice explained that as a 50% owner of Phase 3, Network was obligated to contribute $46.4 million, comprising (i) a $6.75 million equity contribution, (ii) $25.65 million to satisfy Network's share of pre-leasing requirements for Phase 3, and (iii) $14 million cash collateral for advances of fees due to Network. The Funding Notice called on NAMA to fund 70.35% of this amount, or $32, 642, 400. The Funding Notice stated each member would have until November 20, 2006, to provide its share; otherwise, the member would be subject to the remedies in the Alliance Network Operating Agreement, including a possible forced sale of its interest.

NAMA disputed the Funding Notice. NAMA contended that Samson and Kashani had increased the amount of capital that WMCV needed, knowing that NAMA would have to fund approximately of 70% of it and expecting that NAMA would not be able to do so, thereby subjecting NAMA to a forced sale. NAMA further contended that Samson and Kashani conspired with Related Parent and Hypo to secure benefits for themselves out of the grossed-up figure. For example, NAMA contended that the contribution of $14 million as cash collateral was included so that Hypo could increase its loan amount dollar for dollar. That, in turn, allowed Samson and Kashani to receive back approximately $7 million as an advance payment of their portion of certain fees payable to Network. Samson and Kashani came out ahead, because the $7 million far exceeded the $1.4 million that Prime paid as its share of the grossed-up figure. NAMA also contended that Samson and Kashani had failed to provide NAMA with the information necessary to evaluate the Funding Notice.

Notwithstanding its objections, NAMA elected to invest in Phase 3, but did on certain conditions. Samson and Kashani rejected NAMA's conditions. On December 14, 2006, Samson and Kashani notified NAMA that it had not timely accepted the capital call. The next day, Samson and Kashani informed their business associate, Mendi Gertner, that NAMA had defaulted. Samson and Kashani then purported to sell NAMA's interests to Gertner's entity, Fordgate World Market Center, LLC ("Fordgate").

E. The Section 12.18 Notices

In December 2006, NAMA sent Related Sub four notices pursuant to Section 12.18 (the "Section 12.18 Notices"). The Section 12.18 Notices identified twelve points of dispute among NAMA, the other members of Alliance Network, and Samson and Kashani as managers of Alliance Network (the "Disputed Items"), and they called on Related Sub to place all amounts due to Network in a segregated account pending resolution of the Disputed Items. These funds became the Disputed Amounts.

After receiving the Section 12.18 Notices, Samson, Kashani, and Related Sub formally allied against NAMA. By agreement dated December 21, 2006, Network and Related Sub committed, among other things, to "develop and . . . pursue a common defense in connection with all NAMA Claims (including, without limitation, coordination of any counterclaims against NAMA)." JX 37 at 8 (the "Joint Defense Agreement"). They agreed that any claims against Related Parent or WMCV "shall be jointly defended with counsel mutually acceptable to the Managing Members, " i.e. Network and Related Sub. Id. They also agreed that Network would indemnify Related Parent and Related Sub for all costs, expenses, and liabilities with respect to claims by NAMA. Id. at 6-7. NAMA did not learn of the Joint Defense Agreement until December 2008.

F. The Segregation Action

On December 19 and 28, 2006, NAMA asked Related Sub to confirm, in writing, that WMCV had not made any distributions to Network since Related Sub's receipt of the first Section 12.18 Notice and that WMCV would not make any distributions until the Disputed Items were resolved. Related Sub refused to provide confirmation. NAMA responded by filing suit in this court seeking specific performance of Related Sub's obligation under Section 12.18 to segregate funds (the "Segregation Action").

On May 14, 2007, the parties resolved the Segregation Action by stipulation, which the court approved as an order (the "Segregation Order"). Related Sub acknowledged that, since December 2006, it had deposited more than $11 million into a segregated account pursuant to Section 12.18(g). The Segregation Order provided that

WMCV shall continue to maintain the Account and all sums deposited into the Account (plus interest) until such time as either:

(i) the parties to such Dispute direct and authorize Related [Sub], by joint written instructions, to release the Disputed Amount; or (ii) Related [Sub] receives a copy of the decision of the Person arbitrating such dispute under the provisions of Article [XI] of Alliance Network Operating Agreement, subject in any case to the superior rights of Related [Sub] and any Center Lender to such Disputed Amounts in accordance with the WMCV Operating Agreement . . . (the "Release Event").

Segregation Order, ¶ 1. This language paralleled the language of Section 12.18(g).

Both NAMA and Related Sub understood the Segregation Order to mean that Related Sub could not release the Disputed Amounts until the Disputed Items were resolved. Both NAMA and Related Sub expected that the Disputed Items would be resolved by a pending arbitration that Samson and Kashani had initiated..

G. The Arbitration

On March 26, 2007, after NAMA filed the Segregation Action, Samson and Kashani caused Network and Alliance Network to commence an arbitration proceeding (the "Arbitration"). Samson and Kashani filed personally as co-claimants in their capacities as managers of Alliance Network. The demand named as respondents NAMA and the Alliance Brothers. The demand alleged that NAMA failed to tender its capital contribution for Phase 3 and thus forfeited its right, title, and interest in Alliance Network and in any future phase of the Center, except for distributions on Phase 1.

In October 2007, the Alliance Brothers moved for dismissal to the extent the demand named them individually, arguing that they only signed the Alliance Network Operating Agreement on behalf of NAMA, not as individuals. The Panel granted the motion.

In November 2007, NAMA filed a counter-demand which named as respondents the purported members of Alliance Network (Prime, Crescent, and Fordgate) and Samson and Kashani as managers. The counter-demand alleged that Samson and Kashani tried to force NAMA out of the Center. NAMA sought a declaration that NAMA retained its membership interest, damages, and the removal of Samson and Kashani as managers.

In May 2008, Prime filed a counter-counter-demand against NAMA and the Alliance Brothers. The Alliance Brothers again sought and obtained dismissal because they had not signed the Alliance Network Operating Agreement as individuals.

In an effort to limit the Panel's ability to impose liability on them personally, Samson and Kashani took the position that they were parties to the Arbitration only in their capacity as managers and not as individuals. To address this odd defense, NAMA moved to confirm that Samson and Kashani were parties to the Arbitration as individuals. In November 2008, the Panel granted NAMA's motion, concluding that "Mr. Samson and Mr. Kashani were each sued as individuals." JX 74 at ¶ 1. This ruling backfired on NAMA, because Samson and Kashani then moved for dismissal on the same grounds twice offered by the Alliance Brothers, namely that they had not signed the Alliance Network Operating Agreement as individuals. This was a perplexing argument for Samson and Kashani to make, because they had commenced the Arbitration as co-petitioners in their capacities as individuals who served as managers of Alliance Network. Unlike the Alliance Brothers, Samson and Kashani had executed the Alliance Network Operating Agreement and were parties to it as managers. The Alliance Network Operating Agreement confirmed that, as managers, Samson and Kashani owed both contractual and fiduciary duties to Alliance Network and its members. Yet based a goose-and-gander approach, the Panel dismissed Samson and Kashani from the Arbitration.

NAMA previously had filed an action in New York state court against a law firm that had represented concurrently WMCV, Related, Network, and Samson and Kashani in the Phase 3 financing. After Samson and Kashani were dismissed from the Arbitration, NAMA added them as defendants in the New York action. That lawsuit remains pending.

In a marked reversal of position, Samson and Kashani then filed an action in California federal court to compel NAMA to arbitrate the claims brought against them in the New York action, which were the very same claims that Samson and Kashani had convinced the Panel to dismiss. The federal court held that Samson and Kashani had acted in bad faith by adopting contradictory positions and making inconsistent arguments depending on what suited their convenience at the time. Samson v. NAMA Hldgs., LLC, 637 F.3d 915, 928, 931-34 (9th Cir. 2011).

The Arbitration would last until 2009. During this time, Related Sub continued to hold the Disputed Amounts.

H. Related Parent's Desire To Access The Network Escrow

In late 2008, Phase 3 fell short of required occupancy levels, triggering Network and Related Parent's obligation to pay at least $1.2 million per month under the Master Lease Agreement. Network could not pay its portion, leaving Related Parent responsible as guarantor for entire amount. By December 2008, Related Parent had paid approximately $3 million on Network's behalf. As readers will recall, 2008 was a difficult time for the economy in general and for real estate firms in particular. Related Parent was highly motivated to limit its exposure under the Master Lease Agreement, and it wanted to use the Network Escrow to pay Network's share.

By this time, Burger was no longer Related Parent's point man for the Center. Michael Brenner, an executive vice-president and CFO of Related Parent, had taken over that role. Brenner also served as an executive vice-president of Related Sub and as Related Sub's authorized representative for WMCV matters. Brenner asked Samson whether he and Kashani would cause Network to consent to Related Parent's use of the Network Escrow for Network's share of the payments due under the Master Lease Agreement. Samson responded that they only would consent if Related Parent provided them with a personal loan of $1.5 million.

On December 31, 2008, Brenner e-mailed Blau, the President of Related Parent, and summarized the status of his discussions with Samson:

I have been discussing the release of the $11.2 million "Network Master Lease Escrow" with Shawn so that we don't end up funding the entire Master Lease payment.
. . . .
As part of his "settling'' this matter with us—Shawn has asked for a $1.5 million loan for him, Jack and Fordgate. He is trying to tie it all together— which is not appropriate.

JX 85. In addition to not being appropriate, the loans would have violated Section 15 of the Alliance Network Operating Agreement, which prohibited Samson and Kashani from "deriv[ing] any personal benefit, salary, compensation or other benefit" from "Related [Sub], its subsidiaries, or affiliates" other than as permitted by the Alliance Network Operating Agreement. JX 5 at § 15. Related Parent initially did not take any action on the escrow-access-for-personal-loan trade.

I. Related Parent Tries To Extend A Personal Loan To Samson And Kashani.

In April 2009, Samson again proposed the escrow-access-for-personal-loan trade, explaining that WMCV had not made any distributions from the Center since 2006 and that he and Kashani desperately needed funds. This time, having made additional payments under the Master Lease Agreement, Related Parent felt less inhibited by the impropriety of the request. The hurdle was collateral.

Brenner asked Jordan Bailowitz to consider whether Related Parent could obtain a security interest in Prime's share of the Disputed Amounts. Bailowitz asked Samson for a "flow of funds" estimate showing the portion of the Disputed Amounts "distributable to each of the members of Alliance Network" upon release. JX 101. Samson argued that Prime would be entitled to approximately $4.8 million of the Disputed Amounts, but Bailowitz could not find any way that Related Parent could be assured of obtaining a security interest in those funds.

While Bailowitz was evaluating the availability of the Disputed Amounts, Samson pushed hard for the loan. He asked Bailowitz to "expedit[e]" his review, and he begged Benner to "please finalize this matter." JX 112. On June 2, 2009, Brenner told Samson that Related Parent would not provide a loan without suitable collateral.

J. The Possibility Of A Distribution Of The Disputed Amounts

At this point, the prospect of an imminent decision by the Panel caused Samson to focus on the Disputed Amounts themselves as a potential source of liquidity. Between January 5 and March 19, 2009, the Panel had conducted a merits hearing that included twenty-six days of evidence. Samson and Kashani attended, and Samson testified for twelve days. The Panel asked for post-hearing briefing, which was completed on May 29.

In early June 2009, Samson thought the Panel might issue a decision soon, so he prepared a draft demand letter that he contended would be sufficient to cause Related Sub to release the Disputed Amounts. On June 8, Samson asked Brenner to review the draft, writing: "We expect the decision of the arbitrators this month. Please review the attached draft so that you are in a position to instruct and authorize the transfer of funds when we forward to you the decision of the arbitrators." JX 119.

After receiving the letter, Brenner reviewed the pleadings in the Arbitration to "understand the issues" and "get prepared for anything that might have a bearing on the distribution of this money." JX 123; Brenner[1] 82-91. On June 18, 2009, Brenner emailed Samson his response:

In terms of releasing the money in escrow—based on a reading of the relevant documents, our lawyers think that the money was escrowed because there was a dispute about the distribution/allocation of the money in escrow (among other things). Will the arbitration decision address the appropriate distribution of the money in escrow?
I am concerned about walking into a lawsuit from your partners.
I think our lawyers should talk about the precise conditions for release of the funds. We don't think that it is entirely a 12.18(g) matter if the arbitration decision does not address the issues giving rise to the escrow.

JX 130. In short, Brenner did not agree that any decision from the Panel automatically would trigger a release of the Disputed Amounts. Brenner and his lawyers believed that the Disputed Amounts could not be released unless the Arbitral Decision resolved the Disputed Items. Related Sub would take the opposite position when making ...


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