B&L CELLULAR, B&R CELLULAR, CELLULAR PLUS OF WATERLOO, INC., INNER-AD, INC., J&J CELCOM, DENNIS P. SHEAHAN, KENNETH L. RAMSEY, and LOWELL E. FERGUSON, Plaintiffs,
USCOC OF GREATER IOWA, LLC, as successor in interest to United States Cellular Operating Company of Waterloo, and UNITED STATES CELLULAR CORPORATION, Defendants.
Submitted: December 5, 2014
Ronald A. Brown, Jr., Marcus E. Montejo, PRICKETT, JONES & ELLIOTT, P.A., Wilmington, DE; Attorneys for Plaintiffs B&L Cellular, B&R Cellular, Cellular Plus of Waterloo, Inc., Inner-Ad, Inc., J&J Celcom, Dennis P. Sheahan, Kenneth L. Ramsey, and Lowell E. Ferguson.
Gregory P. Williams, Lisa A. Schmidt, Thomas A. Uebler, RICHARDS, LAYTON & FINGER, P.A., Wilmington, DE; Attorneys for Defendants USCOC of Greater Iowa, LLC and United States Cellular Corporation.
LASTER, Vice Chancellor.
The defendants used their majority control over a partnership to sell its assets to a related party. Upon closing, the partnership dissolved, and its interest holders received their pro rata share of the sale price. The plaintiffs proved at trial that the transaction was not entirely fair to the minority. This decision awards them their pro rata share of the difference between fair value and the price the partnership received.
I. FACTUAL BACKGROUND
Trial took place on September 22, 2014. The following facts were proven by a preponderance of the evidence.
A. The Partnership And U.S. Cellular
In 1986, Waterloo/Cedar Falls CellTelCo Partnership (the "Partnership") received a license from the Federal Communications Commission ("FCC") to operate a wireless network in the Waterloo/Cedar Falls, Iowa Metropolitan Statistical Area (the "Waterloo Market"). The Partnership is a general partnership operating under the laws of the District of Columbia. The Partnership was governed by the Amended and Restated Waterloo/Cedar Falls Celltelco Partnership General Partnership Agreement dated November 16, 1990 (the "Partnership Agreement").
Defendant United States Cellular Corporation ("U.S. Cellular") is a publicly traded corporation that provides wireless communication services. In 1987, U.S. Cellular began acquiring interests in the Partnership through an indirect wholly owned subsidiary, defendant USCOC of Greater Iowa, LLC ("U.S. Cellular Sub"). U.S. Cellular Sub eventually acquired a 93.0329% interest in the Partnership. The remaining 6.9671% interest was held by the plaintiffs.
The Partnership offered cellular service to the public under the U.S. Cellular brand. In addition to its FCC license, the Partnership owned a network of cellular towers and other equipment that was used to operate a wireless communications network in the Waterloo Market. The Partnership had no employees of its own; it contracted with U.S. Cellular to operate its business and provide a variety other support services including human resources, legal, marketing, customer service, information systems, network engineering, accounting, management, and strategic planning.
B. The Asset Sale
On August 5, 2010, U.S. Cellular gave notice to the plaintiffs that the Partnership was calling a special meeting on August 30. The notice stated that U.S. Cellular would exercise its voting rights at the meeting to cause the Partnership to sell all of its assets to a related party. After that, the Partnership would liquidate, and the partners would receive their pro rata share of the cash paid by the related party for the Partnership's assets (the "Transaction"). U.S. Cellular provided the plaintiffs with a report from Bond & Pecaro, a valuation firm, which appraised the Partnership's assets at $68, 221, 500. U.S. Cellular stated that it would acquire the Partnership's assets for that price.
The plaintiffs objected to the Transaction. Although U.S. Cellular responded to their objections, it did not change the terms. At a special meeting on August 30, 2010, U.S. Cellular voted its interest in favor of the Transaction. The ...