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The Ravenswood Investment Co., L.P. v. Estate of Winmill

Court of Chancery of Delaware

March 21, 2018

THE RAVENSWOOD INVESTMENT COMPANY, L.P., individually, derivatively and on behalf of a class of similarly situated persons, Plaintiff,

          Date Submitted: December 13, 2017

          R. Bruce McNew, Esquire and Scott B. Czerwonka, Esquire of Wilks, Lukoff & Bracegirdle, LLC, Wilmington, Delaware, Attorneys for Plaintiff.

          David A. Jenkins, Esquire and Kelly A. Green, Esquire of Smith, Katzenstein & Jenkins LLP, Wilmington, Delaware, Attorneys for Defendants.


          SLIGHTS, Vice Chancellor

          The Ravenswood Investment Company, L.P., a stockholder of nominal defendant, Winmill & Co., Incorporated ("Winmill & Co." or the "Company"), has brought derivative claims on behalf of the Company against the Company's board of directors, comprising Bassett Winmill and his two sons, Thomas and Mark Winmill, alleging they breached their fiduciary duties in two respects. First, they granted overly generous stock options to themselves (as Company officers). Second, they caused the Company both to forgo audits of the Company's financials and to stop disseminating information to the Company's stockholders in retaliation for Plaintiff's assertion of its inspection rights pursuant to 8 Del. C. § 220. The claims have been tried and the parties' arguments fully briefed.

         One of the pillars of our law with regard to public companies is that they must be run for the benefit of their stockholders. That goal, at times, can be difficult to square with the managers' desire to compensate the company's executives generously for their hard work and commitment to the business. To be sure, it is right and proper to incentivize executives to stay with a company and to work hard for its success. But how much incentive compensation is proper? In many companies, this question can be decided by board members who have no personal interest in the matter and aim to fulfill their fiduciary duties to make informed decisions in the company's best interest. In these instances, the independent directors' disinterested decision generally is entitled to deference under the business judgment rule. But, as is often the case in small, family-run businesses, those making the compensation decisions and those receiving the compensation are one and the same. That dynamic can be problematic. It is made even more so when the self-interested decisions are made without proper documentation (in the form of board minutes or otherwise) and without objective evidence supporting them.

         Unfortunately, that is how the events giving rise to this litigation unfolded. The Company's board decided it needed to incentivize its officers and pay compensation closer to that of their investment management industry peers. Accordingly, the board decided to grant stock options to certain officers. In doing so, however, the board members granted stock options to themselves, as each board member also served in an executive capacity and each was granted stock options in that capacity. When deciding the terms of the option awards, the board chose not to hire a compensation consultant, used a comparable companies analysis that was neither well-documented nor well-substantiated, agreed that a portion of the consideration for the options could be paid over time as evidenced by promissory notes, and then forgave those notes long before they were paid in full.

         The contemporaneous evidence of the board's "process" with respect to the stock option grants is, in a word, thin. Consequently, the Court was left to view the process through a retrospective lens ground in the after-the-fact testimony of the conflicted fiduciaries who made the decisions. As conflicted fiduciaries, Defendants were obliged to prove that the stock options they granted themselves were entirely fair; that is, their burden was to prove that the grant was the product of a fair process that yielded a fair result. They failed to carry that burden. Consequently, I find that Defendants breached their fiduciary duty of loyalty with respect to the option grants.

         But there is another important lesson to be learned from this case. While this court endeavors always to remedy breaches of fiduciary duty, especially breaches of the duty of loyalty, and has broad discretion in fashioning such remedies, it cannot create what does not exist in the evidentiary record, and cannot reach beyond that record when it finds the evidence lacking. Equity is not a license to make stuff up.

         After a decade of litigation, Plaintiff has failed to develop any evidence supporting cancellation, rescission, rescissory damages or some other form of damages as possible remedies for the proven breaches of fiduciary duty. The overwhelming evidence reveals that there is no basis for cancellation. Rescission, likewise, does not work because the Company lacks sufficient funds to repay Defendants what they have already paid for the options-a necessary step if rescission is to perform its function of returning all parties to the status quo before the wrongful conduct occurred. For this same reason, rescissory damages are not viable either. And Plaintiff has failed to present any evidence upon which the Court could fashion a damages award in some other form. Specific performance of the promissory notes that were forgiven might be an option, but Plaintiff has not sought specific performance in any of its several pleadings nor has it even attempted to demonstrate that the remedy is appropriate. Indeed, if anything, Plaintiff put Defendants on notice that it was seeking the opposite of specific performance, namely rescission or cancellation. Consequently, all that can be awarded is a declaration that Defendants breached their fiduciary duties and an assessment of nominal damages against each Defendant in the spirit of equity.

         As for Plaintiff's claims relating to the Company's record keeping and dissemination practices, those claims fail for lack of proof and because, as presented, they reflect an improper attempt to repackage claims already dismissed by the Court.

         This is the Court's post-trial opinion.

         I. BACKGROUND

         The Court held a two-day trial during which it received 99 trial exhibits and heard live testimony from five witnesses. The Court heard post-trial argument on December 13, 2017. All facts are drawn from the stipulated facts, admitted allegations in the pleadings, evidence admitted at trial and those matters of which the Court may take judicial notice. [1] The following facts were proven by a preponderance of the evidence unless otherwise indicated.

         A. The Parties

         Nominal Defendant, Winmill & Co., is a Delaware holding company that "conducts an investment management operation" through its affiliates (in which it has ownership interests of varying degrees).[2] Winmill & Co.'s affiliates manage the assets of several registered investment companies and mutual funds and receive fees in return for those services.[3] At the time of the transactions in question, Winmill & Co.'s stock was traded "in the over-the-counter market formerly known as Pink Sheets." [4] As of 2005, it had approximately $142 million in assets under management.[5]

          Plaintiff, The Ravenswood Investment Company, L.P. is, and at all relevant times was, a holder of Winmill & Co.'s Class A non-voting common stock.[6]It brings these claims derivatively on behalf of the Company.

         Defendants are the Estate of Bassett Winmill (the "Estate"), Thomas Winmill and Mark Winmill.[7] Bassett, Thomas and Mark comprised the entirety of the Company's board of directors (the "Board") at all times relevant to the proceedings.[8]

         The Estate was substituted as a party for Bassett in May 2015 following Bassett's passing.[9] Bassett was the founder of Winmill & Co.'s predecessor and served as the Company's Chairman.[10] Prior to his passing, he owned shares of the Company's Class A non-voting common stock and all of its 20, 000 shares of Class B voting common stock (the only voting stock).[11] Bassett's Class B stock was placed into the Winmill Family Trust (the "Trust") upon his passing.[12] Defendants, Thomas and Mark Winmill (Bassett's sons), serve as the trustees for the Trust.[13]

         Defendant, Thomas Winmill, served (and still serves) as the Company's President and CEO.[14] He has been the general counsel of Winmill & Co. and a member of the Board since the mid-1990s.[15] Thomas was also employed by several Winmill & Co. affiliates during the relevant time period.[16]

         Defendant, Mark Winmill, served (and still serves) as the Company's Executive Vice President.[17] Mark worked at the Company and served on its Board from 1987 to 1999; he returned to the Company in 2004.[18] Like his brother, he also worked for Winmill & Co. affiliates at all relevant times.[19] Both Thomas and Mark own Class A common stock.[20]

         B. Compensation of the Company's Officers

         Since the early 1990s, Winmill & Co.'s Board has determined the proper compensation of its officers on an annual basis by reviewing the compensation structure of companies the Board identifies as the Company's peers.[21] To receive relevant information for this process, the Board would cause the Company to acquire small equity stakes in peer companies. Thereafter, the Board would review those companies' public filings and stockholder disclosures so that it could evaluate the compensation paid to their executives.[22]

         The Board considers as comparable those companies "that [are] competing with [Winmill & Co.] in the investment management business."[23] The evidence revealed, and Defendants acknowledge, that the "comparable companies" routinely identified by the Board are considerably larger than Winmill & Co. when measured by any relevant metric; e.g., outstanding shares, market capitalization, assets under management, revenues, profitability, etc. Nevertheless, in the Board's view, Winmill & Co. was "competing [with these companies] for the same people and [for the same] edge, " making the identified peers proper subjects for comparison.[24]

         1. Thomas, Mark and Bassett's Salaries

         As best I can discern from the often-contradictory trial evidence, the three Defendants received the following compensation from Winmill & Co. during the relevant timeframe:


Thomas (President and CEO)

Mark (Executive VP)

Bassett (Chairman)


$12, 250 (for the year)[25]

$5, 833.33 (for the year)[26]

$27, 666.67 (for the year)[27]


$8, 333.33 (per month)[28]

$1, 666 (per month)[29]



$10, 000 (per month)[30]




$25, 000 (per month)[31]

$1, 666 (per month)[32]

$15, 000 (per month)[33]



$6, 500 (per month)[34]




$15, 000 (per month)[35]


         As President and CEO, Thomas' duties at Winmill & Co. include oversight of operating areas such as legal and compliance, portfolio management, administrative and personnel.[36] "[I]n terms of an allocation of [his] total time spent, " Thomas does not consider his position at Winmill & Co. a full-time position and, in the relevant years, he derived the majority of his income from Company affiliates.[37]

          Mark's responsibilities as the Company's Executive Vice President include general oversight of investment and operating companies, serving as chief investment strategist of certain funds partially owned and advised by the Company through its affiliates, and conducting financial operations, principally of one of the Company's wholly-owned operating entities.[38] Like his brother, Mark also received a majority of his salary from the Company's affiliates during the years leading up to the stock option grants at issue here.[39]

         Finally, Bassett served as the Company's Chairman. The parties did not address his responsibilities in that capacity in any detail and I have found no job description or similar evidence in the trial record.

         2. The 2005 Performance Equity Plan

         Winmill & Co. had adopted a stock option plan in 1995 that was to expire in December 2005.[40] With the expiration of the prior plan approaching, in May 2005, the Board (and the Company's sole voting stockholder, Bassett) adopted the 2005

          Performance Equity Plan (the "PEP") by written consent.[41] The PEP was meant to allow the Company to reward its employees (especially those employees most directly responsible for the Company's success) "for past services by way of current compensation and also to provide an incentive for future exertions on behalf of the corporation."[42]

         The PEP authorized "granting of a maximum of 500, 000 options"[43] on Winmill & Co.'s then approximately 1.5 million outstanding shares of Class A common stock ("Stock").[44] This 500, 000 figure was chosen to ensure that an adequate number of shares would be available for future grants of incentive stock options in compliance with Internal Revenue Service ("IRS") rules.[45]

         The price of the options granted under the PEP was to be "determined by the [Board] at the time of the grant and [][was] not [to] be less than 110% of the Fair Market Value on the date of grant."[46] Nevertheless, in its 2005 Annual Report, the Company stated that stock options would be granted at "fair value, " rather than at "fair market value."[47] This disclosure to stockholders was never corrected. The Board determined that plan beneficiaries could pay for the Stock "in cash to the extent of par value of the Common Stock acquired and by delivery of a promissory note in a form satisfactory to the [Board]."[48]

         C. The Disputed Option Grants

         Immediately following the adoption of the PEP, on May 23, 2005, the Board authorized option awards to Bassett, Thomas and Mark pursuant to the PEP after comparing their compensation with the compensation paid to executives at Board- designated "peer" companies.[49] The Board resolution authorizing the awards reveals that Bassett, Thomas and Mark each received options to purchase 100, 000 shares of Stock at $2.948 per share.[50] At the time of the grant (May 23), the Stock traded at $2.68 per share.[51] The options were to expire in five years if not exercised.[52] The Board set the vesting schedule in accordance with IRS rules limiting incentive stock options to a value of $100, 000 a year (for each recipient).[53]Since the Board estimated that the 100, 000 options granted to each Defendant had an approximate value of $200, 000 to $300, 000 (per recipient), it set a three-year vesting schedule, with one third of the options vesting in each of those years.[54]

         D. The Exercise of the Options

         On December 12, 2006, Bassett and Thomas exercised their respective options to purchase 66, 666 shares of Stock each.[55] Mark followed suit on January 5, 2007.[56]Each Defendant paid $1, 532.39 in cash and gave a $195, 000 promissory note (the "Notes") to the Company for the remainder of the exercise price.[57] The interest rate for each promissory note was fixed at the federal rate set by the IRS.[58] After Defendants executed the Notes, they paid interest on those Notes, mainly through payroll deductions.[59] None of the remaining options were exercised prior to their expiration.[60]

         E. The Forgiveness of the Notes

         In February 2008, less than three months after approving a Company-wide employee bonus of four weeks' salary, [61] the Board resolved to forgive the Notes as a special bonus for the Company's exceptionally good performance in 2007.[62] Once again, the Board based its determination to reward management on an ad hoc comparable companies analysis.[63] Ultimately, the Company recognized and booked the forgiveness of the Notes in 2008 rather than in 2007 so that the beneficiaries could "avoid the immediate requirement to come up with cash to pay for the tax on the forgiveness income."[64]

          In April 2008, the Board rescinded the forgiveness of the Notes when it realized that the Company would immediately have to "mak[e] withholding tax deductions from payroll" for each beneficiary.[65] Soon after, the Board resolved to forgive the entirety of Thomas' Note (who had sufficient funds to "shoulder the additional withholding"), and to forgive Mark's Note in three tranches over three years (to ease the tax burden on Mark).[66] By the time the Board resolved to forgive the Notes, Thomas had paid approximately $12, 000 in interest and Mark approximately $20, 000.[67]

         Upon his request, the Board decided not to forgive Bassett's Note after it rescinded the initial forgiveness.[68] In December 2011, Bassett was unable to pay the Note when due.[69] Accordingly, the Board accepted a new note from Bassett that extended the maturity by an additional five years.[70] The Estate paid off this note following Bassett's death.[71] By that time, Bassett had already paid around $31, 000 in interest. The total interest paid by Bassett (and the Estate) was $49, 000.[72]

         F. Plaintiff's Expert

         At trial, Plaintiff presented expert testimony from Audrey Croley ("Croley").[73] In her prior work, Croley was employed by or collaborated with companies to develop incentive compensation plans. In her report and trial testimony, Croley addressed the reasonableness of the number of shares authorized under the PEP and the number of shares granted to the plan's beneficiaries in May 2005. [74] With respect to the number of shares authorized, she looked at the Company's business cycle and compared the number of shares authorized under the PEP to the number of shares authorized in the plans of the Company's peers. She explained that a company's business cycle is relevant because, in her experience, start-up companies will "set-aside" a higher percentage of shares for incentive plans than companies that have passed beyond their growth period. [75]

         According to Croley, Winmill & Co. was long past its growth period given that it was established several decades ago.[76] Since start-up volatility was not an impediment to attracting and keeping talent, Croley concluded that Winmill & Co.'s 33% "set aside" was excessive and unreasonable.[77] In her deposition testimony, Croley opined that 10-15% would have been an appropriate "set-aside" for a company in Winmill & Co.'s position.[78] She based this opinion on her experience, what "the thinking" is typically at conferences she attends and what she has picked up from "discussions with people."[79]

         For her peer analysis, Croley used a list of 28 companies developed by the Board in 2003.[80] Although she found "the makeup of the [Board's identified] peer companies . . . [to be] inappropriate, " she did not independently attempt to determine an appropriate peer group.[81] She explained that while the Board's chosen companies were comparable in mission and operations, they were not truly comparable because the "size of the vast majority of the organizations [was] significantly larger than Winmill [& Co.]."[82] She determined that a four-company subset of the identified companies would provide a more appropriate compensation benchmark.[83] In that subset, she included companies with assets under management of less than $2 billion.[84] She found no indication among the companies in her chosen subset that any "had a stock option plan that set aside as high an equity percentage as Winmill [& Co.]."[85]

         As of her report and deposition, Croley had not calculated the percentage of shares set aside for option plans within the companies comprising her chosen subset.[86] By the time of trial, however, she had determined that, among her four company subset, two companies had set aside and granted a greater percentage of stock options than Winmill & Co., thus placing "Winmill & Co[.] in the middle . . . [with] two above and two below."[87]

         Turning to the grant of stock options, Croley's opinion was less clear. This partially stemmed from her tendency to use the terms "set-aside, " "authorized" and "granted" interchangeably.[88] Moreover, it appeared that the focus of her opinion shifted from options "authorized" in her report and deposition to options "granted" at trial.[89]

         With regard to the option grant, Croley first identified Thomas, Mark and Bassett's salaries[90] and then compared them and the share option grants to the plans approved by the Company's peers.[91] Finding Defendants' salaries competitive, she concluded that the option grants were unreasonable and excessive.[92] She opined that the "300, 000 options [granted pursuant to the PEP] would be fine" had they been spread across all of the key employees of the Company.[93] Confining the grants to only Bassett, Thomas and Mark, however, could not be justified.[94]

         G. Winmill & Co.'s Financial Reporting

         Prior to 2004, the Company was listed on the NASDAQ Stock Exchange and, thus, was obligated to prepare audited financial statements and send regular financial information to its stockholders.[95] In the fall of 2012, the Company ceased preparing audited financial statements.[96] According to Thomas, his father had wished to continue the auditing process after 2004 even though audited financials were no longer required.[97] When Bassett passed in 2012, Thomas and Mark, for cost reasons, decided not to engage in further audits after completing the 2011 audit that was already in progress.[98] The Company stopped distributing its financial information to stockholders in February 2010.[99] Here again, the decision was driven by costs, a desire for more efficient allocation of resources and a determination that there was no business purpose to be served by regular dissemination of unaudited financials to stockholders when measured against the risk of litigation.[100]

         H. Procedural History

         This litigation has a long, complex history. I reluctantly recite this history at some length in order to explain how Plaintiff's wide-ranging complaints were funneled down to only two discrete claims for trial. Plaintiff's claims were first stated in two separate actions: (1) a fiduciary duty action filed on April 30, 2008 (the "2008 Action"), and (2) a Section 220 action, including a fiduciary duty claim, filed on November 17, 2011 (the "Section 220 Action"). The 2008 Action and the fiduciary duty component of the Section 220 Action were consolidated for purposes of discovery and motion practice and were tried sequentially.[101]

         Plaintiff's complaint in the 2008 Action set forth two counts (one derivative and one direct), both of which alleged that Defendants breached their fiduciary duties by adopting a stock buyback plan, adopting the PEP, issuing the stock options (the "Issuance Claim"), and voting the Company's stock in favor of a transaction involving the sale of Winmill & Co.'s affilitate's interest in a third entity (the "Brexil Claim").[102] On July 9, 2010, Defendants filed a motion to dismiss all claims, except the Issuance Claim.[103] The Court granted the motion in part, denying it only with regard to the Brexil Claim.[104] Thus, after resolution of the motion to dismiss, only the Issuance Claim and the Brexil Claim remained in the 2008 Action.[105] Plaintiff thereafter filed a motion for partial summary judgment (pertaining to the Issuance Claim only), in which it argued that the stock options were invalid because the PEP was not adopted in compliance with Delaware law.[106] That motion was denied.[107]

         Plaintiff's complaint in the Section 220 Action set forth two counts.[108]Count I, against the Company, asked the Court to order the Company to produce certain documents. Count II, against the Company and Defendants, alleged that Defendants breached their fiduciary duties in connection with their "refusal to have [the Company] provide [its] shareholders reasonable and regular financial information, " and asked the Court to order the Company to (1) provide all shareholders with its financial statements for the prior two years and (2) continue to provide "prompt regular disclosure [to shareholders] of financial information about the Company."[109] Defendants filed a motion to dismiss Count II, arguing that a breach of fiduciary duty claim is not properly presented in a Section 220 action and that the claim fails in any event because Delaware does not impose free-standing reporting or disclosure obligations on a corporation's board of directors.[110] The Court heard the motion on October 11, 2012 and determined to (1) separate the fiduciary duty claim from the Section 220 claim and (2) defer resolution of the fiduciary duty claim until after resolution of the Section 220 claim. [111] The Section 220 claim was resolved on May 30, 2014, with an order requiring the Company to produce certain records to Plaintiff.[112]

         Thereafter, on December 15, 2015, the Court heard oral argument on Defendants' motion to dismiss the fiduciary duty claim.[113] In the Court's bench ruling on that motion, the Court explained that "the failure to provide financial reporting, by itself, does not state a claim."[114] The Court also found, however, that a fiduciary duty breach might occur where a board "decides not to prepare financial reporting, . . . which it has provided in the past, . . . because of a troublesome shareholder's use of its Section 220 rights."[115] Thus, "the fiduciary duty claims asserted by [Plaintiff] [did] not survive in as broad a fashion as they ha[d] been brought, but an aspect [did] survive. That involves the timing or potential motivation for stopping the preparation of [] audited financial reports and perhaps other financial information" (the "Financial Reporting Claim").[116]

         On February 2, 2016, Plaintiff filed a motion to amend its complaint in the 2008 Action. [117] The Court partially granted that motion [118] and, as noted, consolidated the 2008 Action and the Financial Reporting Claim from the Section 220 Action for purposes of discovery and motion practice.[119]

         On February 3, 2017, Defendants filed a motion for summary judgment challenging the remaining claims-the Issuance Claim, the Brexil Claim and the Financial Reporting Claim.[120] The Court granted that motion with respect to the Brexil Claim, but denied it with respect to the Issuance Claim and the Financial Reporting Claim.[121] The parties tried these latter two claims in mid-May.[122]

         II. ANALYSIS

         As explained, following the Court's various rulings in the two actions, two claims remained for trial: (1) whether Defendants breached their fiduciary duties by authorizing and granting stock options to themselves (the Issuance Claim)[123]; and (2) whether the Board's decision to cease preparing audited financial statements and distributing financial information to stockholders was an improper decision in retaliation against Plaintiff for its Section 220 Action (the Financial Reporting Claim). I address each claim in turn.

         A. The Issuance Claim

         Plaintiff maintains that entire fairness review applies to the Issuance Claim because Defendants' grant of stock options to themselves is a clear instance of self-dealing. Applying that standard, Plaintiff contends that Defendants have failed to prove that the process of authorizing and granting the options was entirely fair because (1) they have not proven the actual terms, much less the proper adoption or implementation, of the PEP; (2) the number of options authorized under the PEP was not fair; and (3) the number of options granted was not fair. Plaintiff further argues that the price paid for the options was not fair because the price selection was improper and Defendants paid for the options, in part, with notes they later inexplicably determined, as a Board, should be forgiven.

         Defendants counter that the business judgment rule should apply to the Issuance Claim because Plaintiff "has not put forth sufficient evidence to subject this to entire fairness."[124] Even if entire fairness does apply, however, Defendants assert that the number of options authorized is irrelevant, that Defendants' process was fair and that the number of options granted, according even to Plaintiff's expert, was fair when compared to grants under similar plans adopted by the Company's peers. The grants were at a fair price, according to Defendants, because they were set at 110% of the fair market value in accordance with IRS rules, Defendants had no reason to believe the Notes would be forgiven at the time the grants were made and, in any event, the forgiveness of the Notes was fair when considered in the context of Defendants' overall compensation package.

         I agree with Plaintiff that entire fairness review applies and that Defendants have failed to meet their burden under that standard of review. Accordingly, I find that Defendants breached their fiduciary duty of loyalty to the Company. How to remedy that breach, however, presents a more perplexing question.

         1. Entire Fairness Is the Standard of Review

         "Directors who stand on both sides of a transaction have the burden of establishing its entire fairness." [125] Here, there is no question that, in 2005, Winmill & Co.'s directors were Bassett, Thomas and Mark Winmill and that they also were the three officers receiving option grants under the PEP. Under these circumstances, the business judgment presumption must give way to entire fairness review.[126]

         Entire fairness requires a showing that the directors acted with "utmost good faith and the most scrupulous inherent fairness of the bargain."[127] To demonstrate entire fairness, Defendants were required to prove both fair dealing and fair price.[128]The fair dealing analysis concentrates on "when the transaction was timed, how it was initiated, structured, negotiated, disclosed to the directors and how approvals of the directors and the shareholders were obtained."[129] In the fair price analysis, the court looks at the economic and financial considerations of the transaction to determine if it was substantively fair.[130] I will take up the elements of entire fairness in turn, but first must address Plaintiff's argument that Defendants have failed to present competent evidence to prove the terms of the PEP.

         a. The Terms of the PEP were Adequately Proven

         Plaintiff contends that Defendants have been unable adequately to demonstrate the PEP's terms and that this evidentiary gap somehow precludes a finding that Defendants have met their burden of proof on the Issuance Claim.[131] I disagreed at trial and disagree now.[132] The PEP offered as an exhibit at trial demonstrates its terms and the consents approving the PEP demonstrate that the Board, in fact, approved the plan.

         b. Fair Process

         The PEP authorized the issuance of 500, 000 stock options. While it is, at best, unclear whether Plaintiff ever fairly raised a complaint regarding the number of shares authorized in the PEP, [133] at this point, with the PEP long expired, it is no longer relevant how many shares were authorized.[134] The litigation has outlived the PEP. The focus now must be on the options granted when the PEP was in force.

         As mentioned, the same day the Company adopted the PEP (and authorized the 500, 000 stock options), the Board granted Defendants 100, 000 stock options each. Thomas testified that the option grants were awarded to "reward for past services by way of current compensation and also to provide an incentive for future exertions on behalf of the corporation, "[135] and that the number of options was determined in accordance with the Company's usual compensation practices.[136]

         There are several indications that the Board's process in deciding to grant options and then determining the terms of those grants was not fair. At the outset, I note that the term "process" does not really fit here; the evidence reveals that there really was no process. There are no Board minutes or any other contemporaneous records reflecting specifically why the Board decided that a grant of options was appropriate or how the Board determined the number of options to be granted. There is no indication that the Board sought out the advice of outside legal, financial or compensation consultants.[137] Nor is there evidence that the Board consulted any literature or other authoritative sources with regard to incentive compensation. Indeed, Defendants were hard-pressed to recall any of the specifics of their deliberative process more than ten years ago and, instead, were forced to rely upon their likely compliance with usual practices with respect to compensation issues.[138]Beyond the troubling lack of any contemporaneous evidence of process, the sole analytical tool on which Defendants "usually" relied (and, therefore, presumably relied in this instance) is severely flawed. Defendants testified that the Board used its customary comparable companies analysis when it determined to authorize and grant the stock options (and when it decided to forgive the Notes in 2008).[139] With respect to that analysis, Defendants were unable to produce the 2005 comparable companies list they used and could not otherwise confirm the companies they considered in 2005 with any certainty.[140] The only list they were able to offer (a 2003 list) compiled a group of companies that did not resemble Winmill & Co. beyond the fact that they also engaged in investment management activities.[141] Yet Defendants presented no evidence (contemporaneous or otherwise) that they fully appreciated, much less accounted for, this significant disconnect when making decisions regarding the implementation of the PEP.[142]

         While it may be true, as Defendants maintain, that companies of comparable size did not exist, that would be all the more reason to enlist independent, expert guidance in determining proper compensation, or at least to consult appropriate industry materials when making compensation decisions, particularly given the conflicted status of the decision makers.[143] The fact that each Defendant received the exact same number of options despite differences in job responsibilities and income (without explanation) further supports a conclusion of an unfair process.[144]

         Moreover, the reason offered by Defendants for their choice of peer companies is simply not credible. Specifically, I cannot believe that the Board actually viewed the selected peer companies as comparable because they were "competing for the same people."[145] Given that the designated peer companies were so much larger in size than Winmill & Co. (when measured by any relevant metric), the Board could not reasonably have believed that it was competing (or could have competed) with these companies to recruit the same people to fill senior management positions.[146] It also is not credible that any of the Defendants actually considered leaving their family company because they were not receiving adequate compensation.[147] As of 2005, all Defendants had been with the Company for years and were personally invested in the Company's success. [148] Bassett, in fact, established the Company in the 1970s, attached his family name to the business in the late 1990s, and brought on his sons, Thomas and Mark, to work for the Company very early in their professional careers.[149] And each of Bassett, Thomas and Mark received significant compensation from the Company's affiliates, making their departure even less likely.[150]

         Even if the Board that made these executive compensation decisions had been disinterested, the lack of process would be problematic. But this Board was not disinterested; each of its members was a beneficiary (indeed they were the only beneficiaries) of the option grants in May 2005. The need to employ conflict neutralizing measures was omnipresent here and yet the Board did nothing meaningful to ensure that the decisions it made were fair to Winmill & Co.

         In a final attempt to justify the option grants, Defendants point to Plaintiff's expert, Croley, and characterize her testimony as proof that the option grants were fair.[151] According to Defendants, Croley conceded that two companies within her chosen peer subset authorized and granted more shares under their plans than Winmill & Co. authorized and granted under the PEP.[152] Setting aside the fact that I did not find Croley's testimony to be helpful on any issue, I note that Croley did not offer any specific opinions regarding the processes by which the Board made decisions with respect to the PEP. Rather, her opinions focused on the outcomes of those decision-making "processes, " such as they were.[153] Simply stated, Croley's testimony was no more helpful to Defendants than it was to Plaintiff.

         The Board's decisions to grant options, to fix the number of options granted, and to fix the terms of those options were arbitrary and not justified as providing any commensurate benefit to the Company or its stockholders. Consequently, Defendants failed to prove fair process.[154] Given this finding, I arguably could end the analysis here.[155] For the sake of completeness, however, I address Defendants' arguments and evidence regarding the fairness of the price below.

         c. Fair Price

         Plaintiff argues that the price set for the options was unfair and that the price paid (according to Plaintiff: nothing) was also unfair. Defendants counter that the price paid for the options was fair because (1) the Court has already determined that the price set by the Board in devising the PEP was fair; (2) the price paid was based on the compensation Defendants received in comparison to market compensation; and (3) Defendants took seriously their obligations under the Notes and paid interest thereon until the Board determined that the Notes should be forgiven (a decision justified by the Company's exceptional performance in 2007).

         I agree with Defendants that the Court previously determined the price set for the options in the PEP was fair.[156] I see no basis to revisit that finding. But that is not the end of the fair price inquiry. The Court still must assess the fairness of what Defendants actually paid for their stock options. That is where Defendants' case falls short.

         Defendants each were granted options valued at approximately $300, 000. Yet they each paid less than $2, 000 in cash (the par value) to exercise those options and then, in lieu of cash, made a promise to pay the substantial balance owed with interest as reflected in the Notes.[157] As discussed above, the Board forgave those Notes long before the principal balance was even touched. [158] Under these circumstances, the fair price analysis must turn on the fairness of Defendants' collective decision (as a Board) to forgive the Notes as purported compensation for the Company's success in 2007.[159]

         Defendants testified that their compensation was consistently below the industry average and that, in light of the Company's strong performance in 2007 (because of their hard work), they determined it was appropriate to forgive the Notes. They purportedly made this determination after once again employing their ad hoc comparable companies analysis. Aside from pointing to the positive revenue results of 2007 (which Plaintiff vigorously challenges), however, Defendants have failed to show why such significant compensation was justified, especially considering the Company-wide bonus that was awarded to each of the Defendants (along with the Company's other employees) less than three months prior. Here again, there was no attempt to document the specific efforts or initiatives undertaken by Defendants in 2007 that would justify the forgiveness of their substantial debt to the Company, no documented attempt to compare 2007 to past years as a means to justify the extraordinary level of additional compensation paid only to Defendants and, of course, no expert analysis of the propriety of the Board's self-interested decision or its impact on the Company. In light of the very limited time Defendants spent working on behalf of Winmill & Co. during the relevant years, the compensation Defendants received from other Company affiliates and the lack of objective evidence supporting Defendants' claim of inadequate compensation, I cannot find that Defendants carried their burden of proving that the amount they paid for their stock options was fair.[160]

         Finally, I am satisfied that the Board's failure to implement a fair process when granting the option awards and when deciding to forgive the Notes ultimately "infect[ed] the fairness of the price."[161] In addition to the process infirmities already discussed, it cannot be ignored that the Board remained focused on the personal interests of the individual beneficiaries of the option grants (themselves) throughout its decision making with respect to the PEP. Recall, for example, that the Board initially forgave the Notes in February 2008 but then rescinded that decision when the debtors determined they were not prepared to deal with the tax consequences of loan forgiveness. Once the tax issues were addressed, the Board caused Thomas and Mark's Notes to be forgiven again but honored Bassett's request to keep his Note in place. When Bassett could not pay upon the Note's maturity, the Board extended the maturity of his payment obligation without consideration. These decisions might make perfect sense if this "family business" was, actually, a "family business" where the members of the Winmill family were the only stakeholders. But there were other stakeholders here, namely the public stockholders. Defendants owed those stockholders fiduciary duties of care and loyalty; they could not make decisions just because those decisions suited their needs or interests. By acting only out of self-interest, Defendants have diminished any confidence that the price they actually paid for their stock options was fair.[162]

          2. The Remedy

         Having found that Defendants breached their duty of loyalty, I turn next to the difficult question of what relief is appropriate to remedy the breach.[163] With regard to the Issuance Claim, Plaintiff requested in the Complaint that the Court award damages "in an amount to be determined at trial, " cancel "the options and all shares acquired using the options" and award "such other further relief" as might be justified.[164] In the Pre-Trial Order and its pre-trial opening brief, Plaintiff requested "[r]escission of all of the challenged Stock issued to the Individual Defendants in 2005."[165] In its post-trial opening brief, Plaintiff again requested cancellation of the "options issued under the [] PEP, " but additionally requested that the Court not return to Defendants the money they paid to exercise their options.[166]

         At trial, Plaintiff failed to present any evidence in support of its prayers for relief. When the Court expressed its concern during closing arguments that the evidentiary foundation for Plaintiff's requested remedies was lacking, counsel appealed to the Court's sense of equity and urged the Court to employ its broad discretion in fashioning relief to remedy a loyalty breach.[167] Of course, Plaintiff is correct in asserting that this court has "significant discretion . . . in fashioning an appropriate remedy."[168] Indeed, "[i]n determining damages, the Court's 'powers are complete to fashion any form of equitable and monetary relief as may be appropriate.'"[169] And, in cases where the court has found a breach of the duty of loyalty, recovery is "not to be determined narrowly." [170] To be sure, in these circumstances, "potentially harsher rules come into play."[171] But the Court still must have some basis in the evidence upon which to grant relief.[172] After carefully reviewing the record, I am satisfied that there is no legal or evidentiary basis to grant a remedy to the Company beyond nominal damages.

         a. There is No Evidentiary Basis for Granting Compensatory Damages

         As a general matter, I agree with Plaintiff that compensatory damages are an appropriate means by which to remedy a breach of the duty of loyalty.[173] Plaintiff, however, presented absolutely no evidence upon which the Court could justify an award of compensatory damages to the Company. [174] Thus, any award of compensatory damages would be the product of rank speculation and, as a matter of law, improper.[175]

         b. Neither Cancellation nor Equitable Rescission nor Rescissory Damages are Warranted

         With respect to Plaintiff's request for cancellation of the shares, Defendants argue that (1) Plaintiff provided no basis for cancellation without the return of both Plaintiff and Defendants to the status quo[176]; and (2) the Pre-Trial Order should govern and Plaintiff requested rescission in the Pre-Trial Order, not cancellation.[177]To the extent the Court considers rescission, Defendants point out that this remedy would harm rather than help the Company since the Company cannot afford to repay Defendants the amounts they paid for their options.[178] Once again, Plaintiff offered little by way of guidance in response to this argument.[179]

         Based on the record presented, I agree with Defendants that (1) Plaintiff has not presented a basis for cancellation without a mutual return to the status quo; (2) equitable rescission would not be in the Company's best interest under the unique circumstances presented here[180]; and (3) Plaintiff has failed to present evidence upon which I could fashion an award of rescissory damages.[181] I explain each of these findings below.

         To start, it is important to understand what the terms "cancellation" and "rescission" mean under Delaware law. Rescission can be sought at law or in equity.[182] By ordering rescission, whether at law or in equity, the court endeavors to unwind the transaction and thereby restore both parties to the status quo.[183] While rescission at law refers to the "judicial declaration that a contract is invalid and a judicial award of money or property, "[184] equitable rescission offers a platform to provide additional equitable relief, such as cancellation of a valid instrument-the formal annulment or setting aside of an instrument or obligation.[185] In this form, equitable rescission is often referred to as cancellation, [186] although it is generally accompanied by further relief (such as restitution)[187] in order to achieve a complete restoration to the status quo ante.[188]

         In its Complaint and post-trial briefing, Plaintiff clearly requested cancellation of the shares.[189] It has not presented, however, a basis in law or the trial evidence to warrant cancellation of the shares without a corresponding requirement that the Company return to Defendants the funds they expended to exercise their options. Generally, cancellation without restitution is only warranted where there has been a total failure of consideration (including as a result of fraud).[190] The court has, however, denied cancellation without restitution even in cases of fraud and misrepresentation where there has been some exchange of consideration.[191] Here, Defendants' exercise of the stock options is supported by some consideration (the payment of par value and some interest) and Plaintiff has not alleged, much less proven, any fraudulent conduct on Defendants' part. Because I have determined that there is no support for "pure" cancellation, I need not-and do not-address Defendants' argument that Plaintiff waived any right to cancellation by not requesting it in the Pre-Trial Order.

         That leaves the question of whether Plaintiff is entitled to cancellation of the shares accompanied by a return of the funds to Defendants-an award of true equitable rescission. There is no question that equitable rescission is generally an effective remedy for a breach of the duty of loyalty.[192] Even so, "a court of equity will only grant rescission, as an exercise of discretion, when that remedy is clearly warranted."[193] The remedy is not warranted here for the simple reason that the Court cannot "restore the parties substantially to the position which they occupied before" the option grants were made.[194]

         As discussed, the restoration of the status quo would require the cancellation of the stock as well as the Company's return to Defendants of the funds they paid to exercise the stock options. While Defendants' stock is voidable and could, therefore, be cancelled, [195] the Company's return of the funds Defendants paid for their options would significantly reduce (if not completely eliminate) the Company's available cash resources.[196] Under these circumstances, because rescission would afford no benefit to the Company, the Court cannot conclude that the remedy is "warranted."[197]For the same reasons rescission is not warranted, rescissory damages, "the monetary equivalent of rescission, "[198] are also inappropriate. To start, Plaintiff did not request rescissory damages.[199] Regardless, that remedy is only available in cases where rescission is warranted but not feasible. [200] Here, because rescission is not warranted, rescissory damages also are not warranted.

         Assuming, arguendo, that rescission were warranted (but somehow not feasible), rescissory damages would still not be an available remedy because there is no adequate basis on which to calculate them.

In a case where a disloyal fiduciary wrongfully deprives its beneficiary of property, the rescissory damages measure seeks (i) to restore the plaintiff-beneficiary to the position it could have been in had the plaintiff or a faithful fiduciary exercised control over the property in the interim and (ii) to force the defendant to disgorge profits that the defendant may have achieved through the wrongful retention of the plaintiff's property. In a case involving corporate stock, rescissory damages can be measured at the time of judgment, the time of resale, or at an intervening point when the stock had a higher value and remained in control of the disloyal fiduciary.[201]

         When awarding rescissory damages, "[t]he law does not require certainty in the award" but allows, instead, "[r]easonable estimates that lack mathematical certainty . . . so long as the court has a basis to make a responsible estimate of damages."[202] But even rescissory damages "may only be considered if they are susceptible of proof and appropriate to all the issues of fairness."[203]

         The problem here is that Plaintiff again has provided no evidentiary basis for even a "responsible estimate" of rescissory damages.[204] The trial evidence suggests that the current value of Winmill & Co. stock (approximately $1 per share) is eclipsed by the sum(s) Defendants have already paid to the Company (in the form of par value and interest payments). A grant of rescissory damages based on this share value, given the need to award appropriate offsets to Defendants for amounts paid for their options, would cause a net loss for the Company.

         There is evidence in the record that the trading price of the Stock at the time the stock options were granted was $2.68 per share.[205] That marker might provide a basis upon which to formulate a principled rescissory damages award (e.g., by awarding the difference between the "the highest intervening [per share] value" of the Stock since the time of the wrong and the current value of the Stock) if the Court could conclude that the Company "could have disposed of [the stock] at the higher intervening price."[206] But there is no evidence in the record that would support the conclusion that the Company "could have disposed of" 199, 998 shares of Stock at $2.68 per share at any time between May 23, 2005 and now. Consequently, any award of rescissory damages based on that marker would be unduly speculative and, thus, inappropriate.[207]

         That leaves the Court to its own imagination as to what remedy to award. One could imagine a scenario where Bassett's estate (having paid the entirety of Bassett's Note principal) keeps its stock and rescission is ordered as to Thomas and Mark only. This scenario might eliminate the "net loss" problem in that the value of the shares would exceed the amount due back to Thomas and Mark. But there are still too many unknowns with regard to a rescission remedy that targets only the Winmill brothers. Are the Company's current cash resources sufficient to pay Thomas and Mark their expended funds? Even if the Company has sufficient funds, would it benefit the Company to receive back shares that are worth significantly less now than when the share options were granted? Again, Plaintiff has not presented evidence or argument in support of this approach and I have no basis to know whether the approach offers any remedy at all to the Company.[208]

         In attempting to fill the gap left by Plaintiff's failure to plead, prove or argue for appropriate remedies, the Court has also considered the possibility of ordering specific performance of the promissory notes given by Thomas and Mark that were forgiven by the Board.[209] Plaintiff did not ask for specific performance in any of its pleadings. Nevertheless, as a general matter, a prayer within a complaint for "such other further relief as justified, " such as the one included in the Complaint, could encompass, in an appropriate case, an award of specific performance. [210] But this is not that case. Not only did Plaintiff not seek specific performance in any of its complaints, it did not do so in the Pre-Trial Order, in its Pre-Trial Brief, at trial, in its Post-Trial Briefs or during Post-Trial argument.[211] Indeed, Plaintiff sought the opposite of specific performance; it sought rescission or cancellation of the option grants (without any assessment, apparently, of whether that remedy would actually benefit the Company).[212]

         "The essence of due process is the requirement that a person in jeopardy of serious loss be given notice of the case against him and opportunity to meet it."[213]Plaintiff's basic failure meaningfully to address the remedy question at any stage of these proceedings has created a vacuum that the Court cannot fill, even in the spirit of equity, without offending fundamental notions of due process. This case has been pending for almost ten years. Both sides have had more than ample opportunity to formulate their positions, develop supporting evidence and make their case at trial. Under these circumstances, it is not appropriate to re-open the trial record to allow Plaintiff to do what it should have done in the first place.

         c. An Award of Nominal ...

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