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Oxbow Carbon & Minerals Holdings, Inc. v. Crestview-Oxbow Acquisition, LLC

Supreme Court of Delaware

January 17, 2019


          Submitted: December 19, 2018

          Court below: Court of Chancery of the State of Delaware C.A. Nos. 12447-VCL 12509-VCL

          Stephen C. Norman, Esquire, Jaclyn C. Levy, Esquire, Potter Anderson & Corroon LLP, Wilmington, Delaware. Of Counsel: David B. Hennes, Esquire (argued), C. Thomas Brown, Esquire, Adam M. Harris, Esquire, Elizabeth D. Johnston, Esquire, Ropes & Gray LLP, New York, New York for Appellants Oxbow Carbon & Minerals Holdings, Inc., Ingraham Investments LLC, William I. Koch and Oxbow Carbon Investment Company LLC.

          Kenneth J. Nachbar, Esquire, Thomas W. Briggs, Jr., Esquire, Richard Li, Esquire, Morris, Nichols, Arsht & Tunnell LLP, Wilmington, Delaware. Of Counsel: R. Robert Popeo, Esquire, Michael S. Gardener, Esquire, Breton Leone-Quick, Esquire, Mintz, Levin, Cohn, Ferris, Glovsky & Popeo, P.C., Boston, Massachusetts for Appellants Oxbow Carbon LLC.

          Kevin G. Abrams, Esquire, Michael A. Barlow, Esquire, April M. Kirby, Esquire, Abrams & Bayliss LLP, Wilmington, Delaware; Brock E. Czeschin, Esquire, Matthew D. Perri, Esquire, Sarah A. Galetta, Esquire, Richards, Layton & Finger, P.A., Wilmington, Delaware. Of Counsel: Michael B. Carlinsky, Esquire (argued), Chad Johnson, Esquire, Jennifer Barrett, Esquire, Silpa Maruri, Esquire, Quinn Emanuel Urquhart & Sullivan, LLP, New York, New York; Christopher Landau, P.C., Quinn Emanuel Urquhart & Sullivan, LLP, Washington, D.C. for Appellees Crestview-Oxbow Acquisition, LLC and Crestview-Oxbow (ERISA) Acquisition, LLC.

          J. Clayton Athey, Esquire, John G. Day, Esquire, Prickett, Jones & Elliott, P.A., Wilmington, Delaware. Of Counsel: Dale C. Christensen, Jr., Esquire, Michael B. Weitman, Esquire, Seward & Kissel, LLP, New York, New York for Appellee Load Line Capital LLC.

          Before STRINE, Chief Justice; VALIHURA, VAUGHN, SEITZ and TRAYNOR, Justices, constituting the Court en Banc.


         Two of Oxbow Carbon LLC's ("Oxbow") minority Members-Crestview Partners, L.P. and Load Line Capital LLC (together, the "Minority Members")-have attempted to force a sale of Oxbow over the objection of Oxbow's majority Members, William I. Koch and his affiliates (the "Koch Parties").[1] This dispute centers on the proper interpretation of the governing Third Amended and Restated Limited Liability Company Agreement (the "LLC Agreement"). Although the Court of Chancery found that the minority investors affiliated with Koch-Ingraham Investments LLC and Oxbow Carbon Investment Company LLC (collectively, the "Small Holders")-could block the sale unless it met certain payment conditions, the court nonetheless found a contractual gap in the LLC Agreement because the Board did not specify the terms and conditions under which the Small Holders acquired their units. Using the implied covenant of good faith and fair dealing, the Court of Chancery filled that gap by implying a "Top-Off" option for the Small Holders' units, effectively stripping them of the right to block the proposed transaction.

         On appeal, Oxbow claims that (1) the trial court improperly applied the implied covenant, (2) there was no contractual gap, (3) Oxbow did not breach the LLC Agreement, and (4) the court's rulings on remedies are erroneous. We hold that the Court of Chancery correctly interpreted the LLC Agreement's plain language, but erred by finding a contractual gap concerning the admission of the Small Holders. Thus, we AFFIRM in part and REVERSE in part the Court of Chancery's February 12, 2018, decision, and VACATE the August 1, 2018, decision on remedies.

         I. Background Facts[2]

         Oxbow, the leading third-party provider of marketing and logistics services to the global petcoke market, is a Delaware LLC controlled by William I. Koch through Oxbow Carbon & Minerals Holdings, Inc. ("Oxbow Holdings").[3] Koch serves as Oxbow's CEO and Chairman of the Board. To finance two possible acquisitions in 2006, Oxbow explored investment by outside private equity firms. Crestview, a new firm led by Robert J. Hurst and Barry S. Volpert, expressed interest in investing in Oxbow. Hurst and Volpert had a combined fifty years of experience at Goldman Sachs, where both held high-level posts.[4]During the capital-raising process, Oxbow also explored possible investments by ArcLight Capital Partners LLC ("ArcLight")[5] and by John Coumantaros, a wealthy shipping magnate.

         The LLC Agreement was executed on May 8, 2007.[6] Oxbow Holdings made the largest capital contribution of $483, 038, 499.86 in return for 4, 830, 385 units-almost 60% of Oxbow's equity-and the right to appoint six Board members. Several of Koch's family members and affiliates also invested, which meant that Koch and his affiliates owned a combined 67% of Oxbow's equity. Crestview made a capital contribution of $190 million and received nearly 1.9 million units-a 23.48% equity stake-and appointed Hurst and Volpert to the Oxbow Board. Coumantaros made a capital contribution of $75 million through Load Line Capital LLC ("Load Line") in return for 750, 000 units, representing 9.27% of Oxbow's equity. Load Line was entitled to one Board appointment and appointed Coumantaros to Oxbow's Board. Additionally, the Minority Members received a put option that could be exercised after seven years, beginning May 8, 2014 (the "Put Right"). If Oxbow rejected the put, the party exercising the Put Right could attempt to force an "Exit Sale" of all of Oxbow's units.

         In the fall of 2010, Oxbow pursued an acquisition of International Commodities Export Corporation, a large sulfur-trading business. As a part of the acquisition, Oxbow allowed the sulfur company executives to purchase equity in Oxbow. Around the same time, Koch proposed to the Board that members of his family have an opportunity to simultaneously invest in Oxbow with the sulfur company executives. On April 28, 2011, the Board-including the Minority Members' representatives-voted unanimously to issue units to Koch's family members and the sulfur company executives at $300 per unit. Koch's family members invested through Ingraham Investments LLC ("Family LLC"), and the sulfur company executives invested through Oxbow Carbon Investment Company LLC ("Executive LLC"). Koch has controlled Family LLC from its inception, and he is the sole manager of Executive LLC's managing member.

         The Board did not immediately implement the transactions, however, as there were other details to sort out with the sulfur company executives. During that time, Oxbow's then-CFO, Zach Shipley, alerted Koch and Oxbow's corporate secretary to certain procedural requirements in the LLC Agreement that the Board did not follow in its April 28, 2011, vote. In an email, Shipley wrote:

In the context of [Oxbow] selling new equity to members of Bill's family, it has been drawn to my attention that the Operating Agreement of [Oxbow] gives all members certain rights of participation in any equity [issuance] by the Company . . . . I don't think this will have a practical effect on the ultimate outcome of the equity sales to Bill's family, but it does present a procedural requirement. Basically, we have to offer equity to all members at $300 per unit . . . . I expect that, at $300/unit, no one but the intended buyers will buy additional equity, but if they do, maybe that is a good thing.
[T]his does raise a question about whether we need to get a slightly different approval from the Board.[7]

         The issuance of units to Koch's family members also implicated Article III, Section 3(d)(11) of the LLC Agreement (the "Related Party Provision"), which triggers the need for a "Supermajority Vote," defined as approval from a majority of the Board, which approval had to include the Load Line director and at least one Crestview director. Oxbow did not get any additional approvals from the Board for the issuance to Koch's family members. Further, the court found that the Small Holders did not provide Oxbow with the required signature pages and representations and warranties until 2016.

         The Board reevaluated its earlier approval of the issuance of new units to Executive LLC on November 9, 2011, and raised the total number of units to be issued without changing the price. But the Board failed to address the issue of preemptive rights or otherwise comply with the requirements for admitting new Members.[8] Nevertheless, Oxbow issued 66, 667 units to Family LLC for $20 million on December 23, 2011, and issued 50, 000 units to Executive LLC on March 12, 2012, for $15 million. Following those investments, the Small Holders owned a combined 1.4% of Oxbow's equity. And as with the Board vote in April 2011, the Minority Members' Board representatives consented in 2012 to the distribution of funds from the Small Holders' investment.[9] Crestview believed it was giving the Small Holders "a great discount," and Crestview received about $8.2 million from these 2012 distributions.[10]

         As Crestview explored an exit from Oxbow around the time the Small Holders were admitted, Morgan Stanley was advising Oxbow and Crestview that Oxbow's units could be publicly offered at around $400 per unit and that the stock would trade up to around $500 per unit. The LLC Agreement provided Crestview with an option to exit Oxbow via the Put Right beginning on May 8, 2014, the seventh anniversary of the effective date of its investment. Alternatively, if the put failed, Crestview could force an Exit Sale of all Oxbow's units under certain conditions. One of those conditions is that a Member cannot be forced to sell its units in the Exit Sale unless the Member has received distributions equal to or higher than 1.5 times the Member's initial contribution (the "1.5x Clause"). By the time Oxbow admitted the Small Holders, the other Members had received returns sufficient to meet the 1.5x Clause. The Small Holders, however, required a return of $414 per unit, taking into account distributions that had already been paid to them, to satisfy the 1.5x Clause at the time of an Exit Sale. The Court of Chancery found that "[t]here is some reason to think that Crestview's principals were not overly concerned with the issuances to the Small Holders because of the valuation that they placed on Oxbow," which they projected "at close to $560 per unit" for a potential exit in 2015.[11]

         By 2013, Koch had become concerned that Crestview was focused on achieving liquidity for its investment. In response to this concern, Crestview agreed to postpone the date by which it could exercise its Put Right for Oxbow to buy its units, or, in the event Oxbow rejected the Put Right, its right to force an Exit Sale. Crestview and Oxbow amended the LLC Agreement to incorporate this postponement, which they repeated three times before litigation commenced.[12] In February 2014, with the Minority Members' seven-year holding period coming to an end, the parties negotiated Amendment No. 3. The amendment, negotiated after the Small Holders invested, addressed the Exit Sale Right. Notably, the Minority Members did not bargain for a change to the "all, but not less than all"[13] language in the definition of "Exit Sale," even though the parties removed that limitation for the Minority Members' Put Right.[14]

         With an Exit Sale looming, Oxbow searched for replacement capital to redeem Crestview's units. During that process, Christina O'Donnell became a key player. O'Donnell had begun working with Koch as a consultant to his family office, Renegade Management, Inc., where she performed well and gained Koch's trust. In 2014, Koch elevated O'Donnell to become a member of Oxbow's Board and CEO of Renegade Management. She also served as the president of Family LLC and Vice President of Oxbow Holdings. These positions gave O'Donnell significant oversight responsibility of Koch's financial holdings.

         In the midst of a "management crisis" in December 2014 and early 2015, however, O'Donnell developed close relationships with Eric Johnson, Oxbow's President, and Volpert and Hurst. Johnson was at odds with Koch and felt indebted to Crestview following his promotion to President of Oxbow. Eventually, O'Donnell, Johnson, Volpert, and Hurst concluded that Koch should step down from Oxbow's leadership. They evaluated several options, including purchasing enough of Koch's units to acquire control, empowering Johnson to run Oxbow, or bringing in an outside investor to purchase enough of Koch's units to give Crestview and the new investor a majority stake. When they attempted to convince Koch to take a leave of absence to address personal matters, Koch viewed their suggestion as an attempt to undermine his control.

         Amid the heightening tension between Oxbow and Crestview, Koch instructed O'Donnell to run the capital-raising process necessary to purchase some or all of Crestview's units. Koch also informed O'Donnell that he did not want Crestview involved in that process. O'Donnell disregarded that instruction and continued working with Crestview to find outside investors in an effort to remove Koch. O'Donnell and Crestview communicated secretly, using private email accounts, texts, and phone calls. They also reported to potential investors that Koch would transition the CEO role to Johnson and sell enough equity to give up control of Oxbow-even though Koch had committed to do neither. As a result of their efforts, Oxbow received proposed term sheets from ArcLight, Energy Capital Partners, and Trilantic Capital Partners.

         Koch disliked the proposed term sheets because he thought they threatened his control of Oxbow. At O'Donnell's suggestion, Koch sought legal counsel and hired Mintz, Levin, Cohen, Ferris, Glovsky & Popeo, P.C. ("Mintz Levin") to advise him personally. Koch conferred with Mintz Levin and confirmed that the proposed term sheets would be disastrous for his control over Oxbow. Meanwhile, O'Donnell and Crestview attempted to promote a transaction with one of the three private equity firms, which would result in Koch giving up control in favor of Johnson. Koch and Mintz Levin concluded from these efforts "that O'Donnell, Johnson, and Crestview were trying to use the capital raise to stage a coup."[15] Despite his feeling that O'Donnell had betrayed him, Koch opted to keep her at Oxbow.

         Koch proceeded to take control of the capital-raising process, and, in June 2015, he informed the Board that Crestview's interests were at odds with Oxbow's interests. He further informed O'Donnell and Johnson that they could no longer be involved in the process. Crestview exercised its Put Right on September 28, 2015, and demanded that Oxbow purchase all of its units.[16] Oxbow had until January 19, 2016, to accept the put and acquire the Minority Members' units. If it did not, Crestview could attempt to force an Exit Sale. Per the LLC Agreement, Oxbow Holdings sought to hire an investment banker and eventually retained Evercore Group L.L.C. ("Evercore") to conduct a valuation of Oxbow. If Evercore's valuation was within ten percent of the figure calculated by Crestview's investment banker, Duff & Phelps, LLC, the fair market value for purposes of the Put Right would be the average of the two. Otherwise, the parties would retain a third investment bank and the median of the three valuations would control.

         Meanwhile, Oxbow retained Goldman Sachs in October 2015 to raise capital capable of satisfying the put. None of the offers solicited by Goldman exceeded $120 per unit for a minority stake. The trial court found some evidence that the offers could have been low because of Crestview's attempt to influence this process. For example, Crestview continued back-channel discussions with Goldman and considered rolling some of its stake into a control deal with the bidder.[17] O'Donnell and Johnson continued to secretly communicate with Crestview and held private meetings with possible bidders, including Trilantic and ArcLight.

         During the valuation and bidding process, legal counsel for Koch and Oxbow explored ways to handle the put. Aside from Oxbow's preferred option-raising capital to accept the put, thereby nixing any Exit Sale-the attorneys for Koch and Oxbow proposed three options: (1) negotiate a reduced redemption amount with the Minority Members; (2) reject or ignore the put and permit Crestview to exercise its right to an Exit Sale, but then dispute the validity of the Exit Sale because the Small Holders did not satisfy the 1.5x Clause; or (3) accept the put and take the position that Oxbow only had the ability to redeem units periodically over time. Koch's advisors also proposed going public or merging with a public shell company, which would eliminate the Minority Members' ability to exercise the Put Right. However, Evercore advised that there was no time to conduct an IPO.

         In November 2015, Evercore submitted its fair market valuation of Oxbow at $145 per unit-far lower than the Minority Members' valuation of $256.56. Because the valuations differed by more than ten percent, the parties hired Moelis & Company, which advised that the fair market value of Oxbow was $169 per unit. As the median of the three valuations, this figure set the fair market value for the Put Right. The directors appointed by Oxbow Holdings unanimously rejected the put on January 19, 2016, and Koch instructed Oxbow and its counsel to "obstruct [and] derail" the Exit Sale.[18]

         Crestview exercised its right to an Exit Sale on January 20, 2016. To kick off the Exit Sale process, Oxbow began looking for an investment bank to conduct the sale. Crestview had a strong preference for Goldman Sachs and, behind the scenes, Hurst, Volpert, Johnson, and O'Donnell discussed how to convince Koch to hire Goldman. O'Donnell, who now had been sidelined by Koch, emailed Johnson, saying:

Let's take [Koch's] company from him quickly, not a day of relief, put him through the hell he put us through, let's find $30 million of cost savings if he's not running it. Let's make it very personal, just like he did.
Let's remind him we know things about him as well. Let's take his plane, his job, and when it's over let's drink his wine before you take me dancing.[19]

         Oxbow eventually hired Goldman Sachs, but Johnson and O'Donnell suggested that Crestview adopt "the ambush approach" and act as though they had little interest in selling, and then once Oxbow hired Goldman, they would "sell hard."[20] On March 16, 2016, ArcLight sent Oxbow, Crestview, and Load Line a letter of intent to acquire one-hundred percent of Oxbow's equity for $176.59 per unit.

         On June 10, 2016, the Koch Parties filed suit against the Minority Members, Hurst, and Volpert, primarily seeking a declaratory judgment that its interpretation of the LLC Agreement was correct and that the Small Holders could block the Exit Sale. After Koch initiated this litigation and fired Johnson, ArcLight dropped out, not wanting to buy into a pending lawsuit. When the Minority Members asserted counterclaims and sought a declaratory judgment to enforce their interpretation of the LLC Agreement, the Koch Parties filed a separate 144-page complaint against Crestview, Volpert, Hurst, O'Donnell, and Johnson, asserting additional claims of contractual and fiduciary breaches. The Court of Chancery consolidated the actions and the parties cross-moved for summary judgment.

         In its summary judgment opinion, the Court of Chancery suggested that the Minority Members essentially made a "fairly litigable" implied covenant argument:

The Minority Members stress that the 1.5x Return Clause would be satisfied except for the Small Holders. They argue with some force that given the overall structure of the agreement and the concept of the Exit Sale, they never would have agreed that investors with a stake as small as the Small Holders' would be able to block the operation of the Exit Sale Right. That is an implied covenant argument, and it is fairly litigable. One can posit that in the original bargaining position, had the current situation been discussed, then the Minority Members would have insisted on the ability to compensate the Small Holders separately, rather than lose the efficacy of the threat that put teeth into the Put Right. It is also true that the Company, [Oxbow Holdings], and Koch did not historically act as if the Small Holders were an impediment to the Exit Sale Right. But the current cross-motions for summary judgment are not about the implied covenant. They are about the plain language of the Exit Sale Right, which is contrary to the Minority Members' position.[21]

         Although it had raised the implied covenant sua sponte, the court held in its summary judgment order that the "Highest Amount Interpretation" controlled. Under the Highest Amount Interpretation, to initiate an Exit Sale, each Oxbow Member must participate and receive 1.5 times its initial investment by pro rata distribution, resulting in equal consideration for each Member. The trial court rejected Crestview's primary interpretation-the "Leave Behind Theory"-which would allow Crestview to force an Exit Sale of all Members who met the 1.5x Clause through pro rata distribution of Exit Sale proceeds, while leaving behind Members who did not satisfy the 1.5x Clause.

         Heeding the court's suggestion, the Minority Members amended their counterclaims and added a count for breach of the implied covenant of good faith and fair dealing. In their pre-trial briefing, the Minority Members argued that a contractual gap exists because: (1) the LLC Agreement does not expressly permit or prohibit a Top-Off (the "Top-Off Gap"), [22] and (2) the Board had not determined the rights of the Small Holders (the "Small Holders' Rights Gap"). The Minority Members argued that the Top-Off Gap should be filled with a Top-Off payment, but they did not request a specific remedy as to the Small Holders' Rights Gap. In their post-trial briefing, the Minority Members abandoned the Small Holders' Rights Gap Theory, argued only the Top-Off Gap Theory, and claimed that the gap should be filled with a Top-Off payment.

         The parties proceeded through discovery and to trial in July 2017. The Court of Chancery held that the Highest Amount Interpretation was the only reasonable reading of the LLC Agreement based on its plain language, but it ruled in favor of the Minority Members on the basis of the Small Holders' Rights Gap implied covenant theory. As explained more fully below, the trial court found a contractual "gap" concerning the Small Holders' admission. After finding a gap, the court used the implied covenant to allow the Minority Members to satisfy the Small Holders' 1.5x threshold using a Seller Top-Off, thereby allowing for an Exit Sale. On October 10, 2018, the Koch Parties appealed to this Court and the parties submitted a Joint Motion for Expedited Proceedings, which this Court granted on October 25, 2018.

         II. Key Terms of the LLC Agreement

         The terms central to this dispute concern the admission of the Small Holders and the provisions impacting the Exit Sale process. Under Article IV, Section 5 of the LLC Agreement, Oxbow's Board possesses the power to admit new Members (the "New Member Provision"). That section provides:

Section 5. Additional Members. Subject to Article XIII, Section 5, upon the approval of the Directors, additional Persons may be admitted to the Company as Members and Units may be created and issued to such Persons as determined by the Directors on such terms and conditions as the Directors may determine at the time of admission. The terms of admission may provide for the creation of different classes or series of Units having different rights, powers and duties. As a condition to being admitted as a Member of the Company, any Person must agree to be bound by the terms of this Agreement by executing and delivering a counterpart signature page to this Agreement, and make the representations and warranties set forth in Section 7 below as of the date of such Person's admission to the Company. The address, Percentage Interest and Capital Contribution of each such additional Member shall be added to Exhibit A, which shall thereby be amended.[23]

         The LLC Agreement defines "Member" in Article I:

"Member" or "Members" means any Person named as a member of the Company on Exhibit A attached hereto and includes any Person subsequently admitted as a Member.[24]

         The admission of additional Members requires certain formalities. Article XIII, Section 5(a) of the LLC Agreement (the "Preemptive Rights Provision") states: "Subject to the terms and conditions of this Section 5, each Member will have the right to purchase its 'pro rata share' of any Equity Securities (as defined below) that the Company may, from time to time, propose to issue and sell after the Effective Date. . . ."[25] The remainder of Section 5 contains additional procedural requirements regarding the issuance of new equity securities. Most notably, Section 5(b) requires written notice concerning new equity issuances:

(b) Exercise of Rights. If the Company proposes to issue Equity Securities, the Company will give each Member written notice of its intention, describing the Equity Securities and the price and terms and conditions upon which such Equity Securities are to be issued and/or sold. Such Member will have 20 calendar days from its receipt of such notice to elect to purchase up to its pro rata share of the Equity Securities for the price and upon the terms and conditions specified in the notice by providing written notice to the Company which include the quantity of Equity Securities to be purchased. Notwithstanding the foregoing, the Company will not be required to offer or sell such Equity Securities to such Member if such action would result in any of the consequences set forth in Article XIII, Section 2(a)-(e).[26]

         Additionally, certain related-party transactions are prohibited absent supermajority approval by the Board under the Related Party Provision:

(d) Except as contemplated in an Approved Summary Annual Budget, the
Company shall not take, and shall cause its Subsidiaries not to take, any of the following actions without a Supermajority Vote (provided, that the consent of the Crestview Directors (only one of which shall be required to consent) and the Load Line Director shall not be unreasonably withheld, delayed or conditioned in any event):
. . .
(11) the Company's or any Subsidiary's entering into, terminating or amending any transaction, agreement or arrangement with or for the benefit of any Member or any of its Affiliates (or any member of their "immediate family" as such term is defined in Rule 16a-1 of the Securities Exchange Act of 1934) . . . .[27]

         Article XIII, Section 8(a) of the LLC Agreement contains the Minority Members' Put Right:

(a) Subject to the terms herein, and provided that the Company (or its successor) is not Publicly Traded, Crestview shall possess the right and option (the "Put Right"), exercisable in its sole discretion, to require the Company to purchase in cash for Fair Market Value (the "Put Price") all or any portion of the Member Interest and Units then held by Crestview, but in no case less than twenty-five percent (25%) of the Member Interest and Units held by Crestview prior to the first such exercise of its Put Right. . . . In the event Crestview does not exercise its Put Right within sixty (60) calendar days following an event described in the foregoing clauses (ii) or (iii), Load Line shall possess the Put Right, subject to the same limitations described herein (including the foregoing proviso). . . .[28]

         Amended Section 8(e) of Article XIII (the "Exit Sale Right") sets forth the rights of the Minority Members in the event that Oxbow rejects the put:

(e) If (x) the Company rejects the Put Notice in writing or fails to respond to the Put Notice within 180 calendar days of its receipt and (y) the Company is not Publicly Traded:
(A) if at such time Crestview owns ten percent (10%) or more of the outstanding Member Interests and Units of the Company, the Exercising Put Party may require all of the Members to engage in an Exit Sale, on the terms set forth in Section 7(c), Section 7(d) and Section 9(b), in which the aggregate consideration to be received by such Members at the closing of such Exit Sale equal or exceed Fair Market Value; provided, that the Exercising Put Party may not require any other Member to engage in such Exit Sale unless the resulting proceeds to such Member (when combined with all prior distributions to such Member) equal at least 1.5 times such Member's aggregate Capital Contributions through such date . . . .[29]

         The definition of an "Exit Sale" is essential to the interpretation of the Exit Sale Right.

         Article I of the LLC Agreement defines an Exit Sale as:

[A] Transfer of all, but not less than all, of the then-outstanding Equity Securities of the Company and/or all of the assets of the Company to any non-Affiliated Person(s) in a bona fide arms'-length transaction or series of related transactions (including by way of a purchase agreement, tender offer, merger or other business combination transaction or otherwise).[30]

         A transfer requires "all, but not less than all" Equity Securities (the "All Securities Clause"). Thus, for an Exit Sale to take place at the unitholder level, the All Securities Clause means that no Member can be left behind.

Upon the exercise of the Exit Sale Right, the parties had an obligation to use "reasonable efforts" to effectuate the Exit Sale under Article XIII, Section 8(f) (the "Reasonable Efforts Provision"): (f) If the Exercising Put Party elects to require all of the Members to engage in an Exit Sale pursuant to Section 8(e) above . . . each party hereto agrees to use its reasonable efforts to take or cause to be taken or do or cause to be done all things necessary or desirable to effect such Exit Sale. Without limiting the generality of the foregoing, each Member shall vote for, consent to and raise no objections against any Exit Sale pursuant to this Section 8(f) and shall enter into customary definitive agreements in connection therewith.[31]

         As stated in the Exit Sale Right, any Exit Sale must take place "on the terms set forth in [Article XIII, ] Section 7(c), Section 7(d) and Section 9(b)" (collectively, the "Equal Treatment Requirements"). Section 7(c) provides for a pro rata allocation of expenses for an Exit Sale:

(c) In the case of both a Tag-Along Transfer and an Exit Sale, each Member shall be obligated to pay only its pro rata share (based on the aggregate consideration received by such Member in respect of the Units Transferred by such Member) of expenses incurred in connection with a consummated Tag-Along Transfer or Exit Sale to the extent such expenses are incurred for the benefit of all Members and are not otherwise paid by the Company or another Person.[32]

         Importantly, Section 7(d) states that any Exit Sale must be on equal terms and conditions (the "Equal Treatment Provision"): "In the case of both a Tag-Along Transfer and an Exit Sale, (A) each Unit Transferred in such Tag-Along Transfer and Exit Sale shall be Transferred on the same terms and conditions as each other Unit so Transferred . . . ."[33] And like Section 7(c), Section 9(b) provides for a pro rata allocation of indemnification expenses:

(b) No Member shall be obligated in connection with any such Exit Sale (i) to agree to indemnify or hold harmless the Person to whom the Units are being sold with respect to any indemnification or other obligation in an amount in excess of the net proceeds paid to the such [sic] Member in connection with such Exit Sale or (ii) to enter into any non-competition, non-solicitation or other similar arrangement; provided, further, that such indemnification or other obligations shall be pro rata as among the Members other than with respect to representations made individually by a Member (e.g., representations as to title or authority of such Member or the lack of any encumbrance on any of the Units to be sold by such Member). Allocation of the aggregate purchase price payable in an Exit Sale will be determined by assuming that the aggregate purchase price was distributed to [Oxbow Holdings] and the remaining Members in accordance with Article XI, Section 1 hereof.[34]

         The last sentence of the provision quoted above states that proceeds from an Exit Sale will be distributed in accordance with Article XI, Section 1 (the "Distribution Provision"), which in turn refers to Section 2 of Article XI. These sections provide:

Section 1. Distributions. Subject to such conditions as may be imposed under any Financing Arrangements and to the prior payment of distributions pursuant to Article XI, Section 2, all Net Cash Flow shall be distributed on a quarterly basis to the Members in accordance with their Percentage Interests within 45 calendar days after the end of each Fiscal Quarter . . . .
Section 2. Mandatory Distributions. Prior to making any distributions in respect of any quarter pursuant to Article XI, Section 2, the Company will make quarterly distributions to each Member, to the extent of Net Cash Flow, in an amount equal to such Member's Maximum Permitted Tax Amount; provided, that if the amount of Net Cash Flow is not sufficient to make the foregoing payments in full, the amount that is available will be distributed in the same proportion as if the full amount were available. . . .[35]

         Thus, Section 2 of Article XI states that, prior to quarterly distributions, Oxbow will first pay the Members "in an amount equal to such Member's Maximum Permitted Tax Amount . . . ."[36] After that, Section 1 of Article XI provides that the remaining Net Cash Flow-including the Exit Sale proceeds-will be distributed "in accordance with their Percentage Interests."[37]

         III. The Court of Chancery's Decision

         The Court of Chancery first evaluated the Small Holders' status as Members and held that they had not been properly admitted, but that the doctrine of laches barred the Minority Members' claim that they were not Members. Next, the court considered competing interpretations of the LLC Agreement to determine whether the Minority Members could force an Exit Sale. The court held that the plain language of the LLC Agreement did not allow the Minority Members to force an Exit Sale unless the Small Holders would receive 1.5x their initial capital contributions in the transaction, taking into account distributions received. Because the per unit amount must clear this requirement for every Member, and because every Member must receive the same amount, all Members must receive the highest amount needed to satisfy the 1.5x Clause for any particular Member. However, the court further held that a gap exists in the LLC Agreement relating to the terms on which the Small Holders had become Members. Relying on the implied covenant, the court "filled the gap" with a Seller Top-Off and held that the Minority Members can force an Exit Sale. Finally, the court held that Oxbow breached the Reasonable Efforts Provision, and, in a later opinion, crafted remedies in favor of the Minority Members.[38]

         The trial court issued a 176-page post-trial opinion detailing the extrinsic evidence relating to the LLC Agreement and conduct of the parties, which it ultimately determined to be irrelevant in analyzing the plain meaning of the LLC Agreement. Because we conclude that the court erred in employing the implied covenant to imply a Seller Top-Off right, and because we agree with the Vice Chancellor's analysis of the plain meaning of the LLC Agreement, we confine our discussion below to those aspects of the trial court's post-trial decision.

         A. The Small Holders' Status as Members

         The Minority Members argued at trial that Oxbow did not properly admit the Small Holders in 2011 and 2012. Specifically, Oxbow did not comply with the Preemptive Rights Provision, obtain supermajority approval under the Related Party Provision, or obtain the proper signatures, representations, and warranties under the New Member Provision at the time of the Small Holders' investment.

         The Court of Chancery held that Oxbow had the power as an entity to issue new units and to admit new Members, and so the failures to comply with the LLC Agreement were voidable acts subject to equitable defenses.[39] The court also found that, since 2011 and 2012, all relevant parties-including the Minority Members-had treated the Small ...

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