Towerhill Wealth Management LLC v. The Bander Family Partnership, LP, C.A. No. 3830-VCS (Del. Ch. June 4, 2010), read opinion here. Two prior decisions in this case by the Delaware Court of Chancery were highlighted on this blog here. This case arose out of the familiar situation (that is addressed in many Chancery cases), related to partners of an investment fund leaving to start a competitor, and “the tug of war” involving investors in their former firm.
The Court of Chancery introduced this 35-page opinion by describing it as a “dispute between a wealthy investor . . . and a local St. Louis, Missouri, investment fund . . ..” After the Court’s prior rejection of an effort by Bander to dismiss this action in favor of binding arbitration, (see link to prior decision above), and unsuccessful appeals of that decision to both the Delaware Supreme Court and the Supreme Court of the United States, Towerhill moved for summary judgment on both its claims and the counterclaims of Bander, which are decided in this opinion.
The dispute in this case arose in connection with the departure from the investment fund called Towerhill of three partners, to start a competing investment firm. The departing partners brought to their new firm a major investor called Bander and about half of the existing clients of Towerhill with them. After Bander, through his L.P. investment vehicle, demanded the redemption of his many millions of dollars, Towerhill retained $1 million from the redemption amount to cover its legal expenses in connection with defending (and pursuing) claims in this matter.
Summary of Holding
The Court found no plausible basis in the relevant contracts for the position of Towerhill (which only allowed the deduction of administrative costs and not attorneys’ fees), and therefore ordered Towerhill to return the $1 million, with interest. In addition, the Court granted the motion for summary judgment in favor of Towerhill, rejecting the counterclaims of Bander.
The Court reviewed the familiar standard for a summary judgment motion under Court of Chancery Rule 56(c) and the copious caselaw construing it. Moreover, the Court observed that under Delaware law, the proper construction of any contract is purely a question of law and “when a plain, common and ordinary meeting of the words lends itself to only one reasonable interpretation, that interpretation controls the litigation.” Importantly, the Court added that “the form of the pleadings should not place a limitation on the Court’s ability to do justice.” (See citation at footnote 45.)
The Court cited to many cases to support the argument that unless modified by contract, the default rule is that interest is available as a component of damages for breach of contract. See footnote 47. The Court rejected the arguments that the redemption payments were not made on a timely basis, and described as “quibbling” the argument that the distribution should have been made a few days earlier.
The plain meaning of the contract did not support the argument of Towerhill that it could deduct legal fees to defend the claims of Bander, nor could it justifiably withhold such estimated amounts, in connection with the redemption. Rather, the relevant “plain meaning” of the terms only allowed for the administrative costs of redemption associated with executing the redemption and not defending claims regarding that redemption.
The Court also reasoned that there was no evidence presented, such as “prior course of performance or course of dealing” to suggest that the parties understood the relevant terms in any other manner. To buttress its analysis, the Court relied on the “American Rule” which requires each party to bear its own litigation expenses, in general, absent contrary statutory authority or a contractual provision to the contrary. The Court explained that the reasoning for the American Rule as it relates to attorneys’ fees is “to avoid stifling legitimate litigation by the threat of a specter of burdensome expenses being imposed on an unsuccessful party.” There was nothing in the agreement of the parties that modified this American Rule.
In rejecting the breach of contract arguments of Bander regarding other fees charged by Towerhill, the Court found that despite extensive discovery, there was no evidence of damages and there was no evidence that the alleged breach had any material impact on a financial level to Bander. For example, being billed on a monthly basis as opposed to a quarterly basis provided for in the agreements, “resulted in no harm.”
Finally, the Court found no triable issue of fact regarding the claim for an accounting, especially in light of the comprehensive discovery produced, along with audit reports provided.