PATRIARCH PARTNERS, LLC, PATRIARCH PARTNERS VIII, LLC, PATRIARCH PARTNERS XIV, LLC and PATRIARCH PARTNERS XV, LLC, Defendants Below, Appellants,
ZOHAR CDO 2003-1, LLC, ZOHAR CDO 2003-1 LTD., ZOHAR II 2005-1 LLC, ZOHAR II 2005-1 LTD., ZOHAR III, LLC and ZOHAR III, LTD., Plaintiffs Below, Appellees.
Submitted: June 14, 2017
Below: Court of Chancery of the State of Delaware C. A. No.
VALIHURA, VAUGHN, and SEITZ, Justices
L. Valihura, Justice
19th day of June 2017, having considered this
matter on the oral arguments and briefs of the parties, it
appears to the Court that:
Pending before this Court is an appeal brought by Patriarch
Partners, LLC and associated entities (collectively,
"Patriarch") from the Court of Chancery's
October 26, 2016 Memorandum Opinion and November 3, 2016 Amended
Order and Judgment,  ordering Patriarch to produce documents to
Zohar CDO 2003-1, LLC and associated entities (collectively,
the "Zohar Funds" or the "Funds").
Patriarch's obligation to produce the documents arose
from a series of agreements pursuant to which Patriarch
managed collateral held by the Funds (the "Collateral
Management Agreements" or "CMAs"). Following
Patriarch's resignation as collateral manager, the Zohar
Funds sued Patriarch, seeking declaratory judgment and
specific performance. The Court of Chancery found in the
Funds' favor on both fronts, and Patriarch has appealed.
AFFIRM on the basis of the Court of Chancery's Memorandum
Opinion and Amended Order and Judgment. We address one issue,
namely, Patriarch's argument that the Zohar Funds failed
to prove their own performance and thus have failed to
satisfy their burden of proof as to an essential element of
their breach of contract claims under New York
In his Memorandum Opinion, the Vice Chancellor stated that
the question of the Zohar Funds' performance "was
not tried before me and I have no basis in this record to
conclude one way or the other whether the Zohar Funds have
wrongfully withheld payment from Patriarch for services
rendered under the Patriarch CMAs." He observed that
the question was "squarely before a court in New
Patriarch contends on appeal that, under New York law,
plaintiffs were required to prove their own performance as an
essential element of a breach of contract claim. Patriarch
argues that, because the Vice Chancellor held that he had
"no basis" to rule on the Funds' obligation to
pay Patriarch's fees, the Funds failed to meet their
burden. Further, Patriarch asserts that the Court of Chancery
conflated Patriarch's counterclaims with an element that
the Zohars had to prove affirmatively. Patriarch asks that
this Court reverse the specific performance ruling or,
alternatively, remand for a determination of whether the
Funds adequately performed.
Zohar Funds defend the Court of Chancery's specific
performance ruling on two grounds. First, they
contend that the Vice Chancellor found that an April 1, 2016
letter written by Patriarch principal Lynn Tilton
("Tilton") constituted breach by Patriarch, and
that this finding excuses the Funds' performance under
the contract. Second, the Zohar Funds contend
that Patriarch failed to litigate the issue of the Zohar
Funds' performance below.
Based upon our review of the record on appeal, we are
convinced that the trial court did not misapprehend the
elements of breach of contract under New York law. Rather,
the Vice Chancellor, with input from the parties, narrowed
the issues to be tried in the expedited proceedings and
trial. The record fairly clearly suggests that the parties
did not view the Funds' performance as an issue to be
litigated at trial. The Vice Chancellor communicated to the
parties that he would maintain a narrow focus and avoid
making rulings that might impact the parties' disputes in
other jurisdictions. The Vice Chancellor also stated that the
trial would focus on "the limited question" of
Patriarch's obligations under the CMAs. The manner in
which Patriarch participated in framing the issues before the
Court of Chancery reflects its understanding that the
Funds' performance was not among the issues to be
resolved in the expedited proceedings.
mention of the issue appears in the summary judgment
briefing. To the limited extent the subject of the Funds'
performance was discussed, Patriarch's briefs before the
Court of Chancery presented the Funds' alleged
nonperformance primarily as a defense. Patriarch did
not assert that the Funds could not affirmatively prove their
own performance as required by New York law until its
Moreover, the issue of the Zohar Funds' performance was
raised directly in Patriarch's counterclaims,
and, as the Vice Chancellor noted, "Patriarch agreed to
defer prosecution of its counterclaim until after its
document production under the Patriarch CMAs was
litigated." The Vice Chancellor observed further
that "Patriarch's counterclaim was not included in
the Pretrial Stipulation and Order as an issue of fact or law
to be litigated in this action and Patriarch's statement
for relief in the Pretrial Stipulation and Order requested
only that the Court dismiss the Zohar Funds'
claims."Indeed, the Pretrial Stipulation and
Order provided that "[t]he non-expedited portions of
this action are not addressed herein."
Finally, we note that in his Order Denying Defendants'
Motion for a Stay Pending Appeal, the Vice Chancellor noted
that "the issue of whether the Zohar Funds were first to
breach the Patriarch CMAs, thereby excusing Patriarch's
performance under New York law . . . was not tried as part of
the expedited trial in this case."
Thus, we reject Patriarch's invitation to find fault with
the trial court's post-trial decisions based upon what
was obviously a decision by the parties as to how to frame
and narrow the issues to be tried during the expedited phase
of the proceedings. Patriarch's contention now that the
trial court's ...