Gb-sp Holdings LLC v. Wayne R. Walker

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

GB-SP HOLDINGS, LLC, on behalf of itself )
and derivatively on behalf of )
BRIDGESTREET WORLDWIDE, INC., )
and DONAL KINSELLA, )
)
Plaintiffs, )
)
v. ) C.A. No. 9413-VCF
)
WAYNE R. WALKER, DAVID )
ORLOFSKY, KEITH R. ALBRIGHT, )
SEAN WORKER, LEE CURTIS, EUGENE )
I. DAVIS, ANTHONY J. LACIVITA, )
MATT DOHENY, BRAD SCHER, VERSA )
CAPITAL MANAGEMENT, LLC, )
DOMUS BWW FUNDING, LLC, and )
BRIDGESTREET WORLDWIDE, INC., )
)
Defendants, )
)
and )
)
BRIDGESTREET WORLDWIDE, INC., )
)
Nominal Defendant. )

MEMORANDUM OPINION

Date Submitted: January 24, 2024
Date Decided: November 15, 2024

Paul D. Brown, CHIPMAN BROWN CICERO & COLE, LLP, Wilmington,
Delaware; Robert O’Hare, Jr. Michael Zarocostas, Andrew C. Levitt, O’HARE
PARNAGIAN LLP, New York, New York; Attorneys for Plaintiffs GB-SP
Holdings, LLC and Donal Kinsella.
Rebeca L. Butcher, Jennifer L. Cree, LANDIS RATH & COBB LLP, Wilmington,
Delaware; Neil A. Steiner, DECHERT LLP, New York, New York; Attorneys for
Defendants Versa Capital Management, LLC and Domus BWW Funding, LLC.

Sean J. Bellew, BELLEW, LLC, Wilmington, Delaware; Attorney for Wayne R.
Walker, David Orlofsky, Keith R. Albright, Sean Worker, Lee Curtis, Eugene I.
Davis, Anthony J. LaCivita, Matthew Doheny, Bradley E. Scher, and BridgeStreet
Worldwide, Inc.

FIORAVANTI, Vice Chancellor
In the early 2010s, BridgeStreet WorldWide, Inc. (“BSW” or the “Company”)

was deep in debt to its lender syndicate. The Company initiated an ultimately

unsuccessful sale process, but one of the bidders for the Company had another idea:

to purchase the Company’s senior secured debt from its existing creditors, with the

ultimate goal of acquiring the entire Company. After BSW defaulted on its debt

obligations, it entered into a forbearance agreement with its new creditor. During

negotiations of the forbearance agreement, the Company’s board refused to honor

the contractual rights of its largest stockholder under a shareholders agreement to

have its designee elected to the Company’s board of directors. The Company and

the board also refused to provide requested information to the stockholder, again in

violation of the shareholders agreement.

As part of the forbearance agreement, the creditor agreed to indemnify the

directors for claims asserted by the Company’s largest stockholder. Senior

management, which included two directors, secured continued employment and

bonuses from the creditor. In addition, the four ostensibly “independent” directors

agreed not to stand for re-election—effectively resigning as part of the transaction.

A few weeks later, five new directors were elected to join the board. Four of

the new directors required the approval of the creditor; the fifth new director was the

designee of the Company’s largest stockholder that had been demanding that he be

seated on the board. The next month, the Company violated the financial covenants
in the forbearance agreement. Following months of negotiations and in consultation

with its advisers, the board approved a consensual foreclosure with the creditor. In

the foreclosure, the Company transferred all of the equity of its operating

subsidiaries to the creditor in exchange for cancellation of approximately $38

million of the remaining $46 million owed to the creditor.

In this action, the Company’s largest stockholder and its director designee

assert a variety of claims. They allege, as headline claims, that the Company and

certain directors breached the shareholders agreement and that the Company’s

directors breached their fiduciary duties in approving the forbearance agreement and

the consensual foreclosure. The plaintiffs further allege that the creditor aided and

abetted the directors’ breach of fiduciary duty. The creditor has asserted a

counterclaim against the stockholder plaintiff, alleging that the stockholder breached

a pledge agreement by filing and maintaining this action.

In this post-trial opinion, the court concludes that the Company and certain

directors breached the shareholders agreement, and the stockholder plaintiff is

entitled to nominal damages for proving those breaches. The court also concludes

that the directors who approved the forbearance agreement breached their fiduciary

duty of loyalty, and that the creditor aided and abetted that breach. As a remedy for

the breach of fiduciary duty, the directors who approved the forbearance agreement

must disgorge and return to the Company all amounts paid to them or their counsel

2
as indemnification from the creditor and management bonuses approved in

connection with the transaction. And, as a remedy for the creditor’s aiding and

abetting that breach, its debt is equitably subordinated as to any amounts collected

or received by or on behalf of the Company from the directors as a result of that

disgorgement.

Finally, the court concludes that the consensual foreclosure was not the

product of a fiduciary breach, and that the stockholder plaintiff did not breach the

pledge agreement by filing this action.

I. BACKGROUND

These are the facts as the court finds them after trial.1

This case involves two groups of director defendants. Between December 24,

2012 and October 11, 2013, BSW’s board of directors comprised Lee Curtis, Eugene

I. Davis, Matthew Doheny, Anthony J. LaCivita, Bradley E. Scher, and Sean Worker

(the “Pre-Forbearance Board” or the “Pre-Forbearance Directors”).2 After October

1
Other factual findings are contained in the analysis of the claims. The record consists of
253 joint trial exhibits, trial testimony from five fact witnesses and one expert, deposition
testimony from seven fact witnesses, and 68 stipulations of fact in the pretrial order. Trial
exhibits are cited as “JX”; stipulated facts in the pre-trial order are cited as “PTO”; and
references to the docket are cited as “Dkt.,” with each followed by the relevant section,
page, paragraph, exhibit, or docket number. Citations to testimony presented at trial are in
the form “Tr. # (X)” with “X” representing the surname of the speaker, if not clear from
the text.
2
PTO ¶¶ 8–13.

3
11, 2013, the BSW board comprised Curtis, Worker, Keith R. Albright, 3 Donal

Kinsella, David Orlofsky, and Wayne R. Walker (the “Post-Forbearance Board” or

the “Post-Forbearance Directors,” and together with the Pre-Forbearance Directors,

the “Director Defendants”).4 Worker, BSW’s CEO, and Curtis, BSW’s President,

served on the BSW board at all relevant times.5

A. The Company’s Business
BSW was a Delaware corporation that serviced apartments and corporate

housing in thousands of locations around the world through its various operating

3
On June 22, 2023, counsel for the Director Defendants filed a suggestion of death advising
the court that Albright had died during the pendency of this litigation. Dkt. 266. Court of
Chancery Rule 25(a)(1) provides that, if a party dies during the pendency of litigation, a
motion for substitution must be filed within 90 days after a suggestion of death is filed on
record. If a motion for substitution is not filed within 90 days, “the action by or against the
decedent must be dismissed.” Ct. Ch. R. 25(a)(1). After counsel filed a suggestion of
death, no motion for substitution was filed. Accordingly, the claims against Albright are
dismissed with prejudice. Wilson v. Joma, Inc., 1989 WL 68304, at *1 (Del. May 19,
1989); Smith v. Pritzker, 1981 WL 88243, at *1 (Del. Ch. Oct. 20, 1981).
4
PTO ¶¶ 8–9, 14–16, 47. Paul Seitz was also elected to the board on October 11, 2013,
but resigned shortly thereafter for reasons not explained in the record. Id. ¶¶ 47–48. Seitz
is not a defendant in this action.
5
Id. ¶¶ 8–9.

4
subsidiaries.6 BSW did not own any real estate.7 Rather, BSW held an inventory

mix of short, medium, and long-term leased units. 8

In 2007, BSW, then known as Amkadian Holdings, Inc., entered into a $30

million credit agreement with a lender syndicate led by Credit Suisse, Cayman

Islands Branch (“Credit Suisse”). 9 Credit Suisse and the lenders obtained a

first-priority lien on substantially all of BSW’s assets, including the capital stock of

BSW’s subsidiaries, with the exclusion of certain foreign subsidiaries.10 In

connection with the credit agreement, Credit Suisse and certain BSW stockholders

entered into a pledge agreement (the “Pledge Agreement”), pledging the

stockholders’ shares as collateral for the loan. 11 The Pledge Agreement appointed

Credit Suisse as attorney-in-fact for the pledgors and gave Credit Suisse the right

6
Id. ¶ 3. BSW filed its certificate of dissolution on March 4, 2014. The court may take
judicial notice of filings with the Delaware Secretary of State. See Swift v. Hous. Wire &
Cable Co., 2021 WL 5763903, at *2 n.14 (Del. Ch. Dec. 3, 2021); D.R.E. 201(b)(2) (“The
court may judicially notice a fact that is not subject to reasonable dispute because it . . . can
be accurately and readily determined from sources whose accuracy cannot reasonably be
questioned.”); id. at 201(c)–(d) (“The court . . . may take judicial notice on its own . . . at
any stage of the proceeding.”).
7
Tr. 441:1 (Halpern).
8
JX 11 at 7; Tr. 441:2–10 (Halpern).
9
JX 4.
10
Id. §§ 4.1(j), 6.8, 6.12(b).
11
JX 6 § 2.1; but see JX 38 at 6 (“CS does not have a pledge of 100% of the equity interests
of the Borrower as a result of the issuance of equity pursuant to the Shareholders
Agreement to certain officers and directors which were not pledged in favor of the
lenders.”).

5
upon an event of default under the credit agreement “to commence and prosecute

any and all suits, actions or proceedings at law or in equity in any court of competent

jurisdiction to collect or otherwise realize on all or any of the Collateral or to enforce

any rights in respect of any Collateral” and “to settle, compromise, compound, adjust

or defend any claims, actions, suits or proceedings relating to all or any of the

Collateral.”12

B. BSW’s Debt Restructuring
In January 2011, BSW restructured its $30 million credit facility and entered

into an amended and restated credit agreement with Credit Suisse (the “Credit

Agreement”).13 In connection with the restructuring, GB-SP Holdings, LLC

(“GB-SP”) acquired 1,470 shares of BSW’s Class A common stock, which

represented more than 60% of BSW’s outstanding common stock.14 At that time,

GB-SP executed a joinder agreement (the “Joinder Agreement”) and became a party

to the Pledge Agreement, which caused GB-SP to pledge its shares of BSW common

12
JX 6 §§ 6.1(a)(i)(C)–(D). The appointment is coupled with an interest and is irrevocable.
Id. § 6.2. Collateral is defined as “the property of the Pledgors described in Section 2.1 in
which Security Interests are granted to the Agent for the benefit of the Secured Parties.”
Id. § 1.3.
13
JX 8; PTO ¶ 5.
14
JX 1 at 1; PTO ¶ 6.

6
stock as collateral. 15 GB-SP also executed an irrevocable proxy (the “Proxy”),

which appointed the Company’s board of directors

as [GB-SP’s] proxy to vote all the Shares . . . now owned or hereafter
acquired, and to exercise all powers which [GB-SP] would be entitled
to exercise if personally present, on all matters upon which [GB-SP]
may be entitled to vote or act at any annual or special meeting of
shareholders of the Company . . . and to sign any written consent of
shareholders on [GB-SP’s] behalf to vote or otherwise act on [GB-SP’s]
behalf with respect to all of the Shares in lieu of any annual or special
meeting of shareholders.16

BSW and its then-stockholders, including GB-SP, entered into a shareholders

agreement (the “Shareholders Agreement”) as part of the restructuring.17 The

Shareholders Agreement dictated stockholder information rights, stockholder voting

rights, and board composition. Section 2.2 required the Company to “furnish to each

Shareholder . . . such information relating to the financial condition, business,

prospects or corporate affairs of the Company as that such Shareholder . . . may from

15
PTO ¶ 5; JX 9. Under the Joinder Agreement, GB-SP agreed that it “pledges, assigns,
transfers and grants to [Credit Suisse] . . . a continuing security interest in and Lien on all
of its right, title and interest in, to and under the Collateral[.]” JX 9 at 1. GB-SP also
agreed that it would “assume[] all obligations and liabilities of a Pledgor under the Pledge
[] Agreement.” Id.
16
JX 7. The Proxy was given “in consideration of the restructuring of the Company and
the agreement of the Senior Lenders . . . to renew their outstanding credit facilities.” Id.
Further, GB-SP expressly agreed that the Proxy “shall be irrevocable and is coupled with
an interest and shall remain in place until payment in full of all obligations” BSW had
under any senior credit agreement. Id.
JX 1. No party has raised a challenge to the validity of any provision of the Shareholders
17

Agreement.

7
time to time reasonably request.” 18 Section 3.3(a) established a board consisting “of

not more than seven (7) members.”19 The seven directors consisted of one director

designated by GB-SP (the “GB-SP Director”), the CEO and President (the

“Management Directors”), and four independent directors designated collectively by

the GB-SP director and the Management Directors, subject to approval by the senior

lenders under the Credit Agreement.20 Each BSW stockholder was required to “vote

all of its Voting Stock and take all other necessary or desirable actions within its

control (whether in the capacity of stockholder, director, member of the executive

committee or officer of the Company or otherwise)” to implement that structure.21

Section 3.3(c) delineated certain qualifications that individuals must meet to serve

as directors.22

The Shareholders Agreement was amended on September 20, 2011.23 Curtis,

Doheny, LaCivita, Scher, and Worker each executed the amendment as a

18
Id. § 2.2.
19
Id. § 3.3(a)(i).
20
Id. §§ 3.3(a)(ii)(A)–(C).
21
Id. § 3.3(a). Section 3.6(d) granted the GB-SP Director and the Management Directors
the right to select and appoint one independent director to serve as chairman of the board,
subject to the lenders’ approval. Id. § 3.6(d).
22
Id. § 3.3(c).
23
JX 10.

8
“shareholder and director.” 24 The amendment revised the director qualifications in

Section 3.3(c), but otherwise maintained the terms and provisions of the original

agreement.25

C. BSW’s Financial Distress and Quest for Strategic Alternatives

Shortly after the January 2011 restructuring, BSW began looking for a

strategic purchaser. 26 BSW retained Houlihan Lokey (“Houlihan”) in November

2011 to market the Company to potential buyers.27 Before embarking on a broad

sale process, Houlihan approached Oakwood Worldwide (“Oakwood”), BSW’s

most logical strategic acquirer.28 In January 2012, Oakwood submitted a

non-binding letter of intent (“LOI”) to purchase BSW for $25 million in cash.29 The

Pre-Forbearance Board rejected the offer as insufficient to pre-empt a broader

marketing process and instructed Houlihan to seek other buyers.30 Houlihan

contacted 75 financial sponsors and 17 strategic buyers.31 Thirty-one financial

sponsors signed non-disclosure agreements (an “NDA”) and received a confidential

24
Id. at 3–8. Curtis executed the amendment on behalf of GB-SP pursuant to the Proxy.
Id. at 3.
25
Id. at 1–2.
26
Tr. 784:2–18 (Worker).
27
PTO ¶ 19; JX 72 at 2.
28
JX 72 at 2.
29
Id.
30
Id.
31
Id.

9
information memorandum (“CIM”). Two private equity firms—Versa Capital

Management LLC (“Versa”) and H.I.G. Capital (“HIG”)—each submitted a

non-binding LOI.32 Of the 17 strategic buyers, six signed an NDA and received a

CIM. 33 Oakwood was the only potential strategic buyer to submit a non-binding

LOI. 34

HIG made the highest offer, bidding $42 million in cash and $5 million in a

note payable with a six-year maturity.35 Following due diligence, HIG rescinded its

offer, noting that its financial diligence had revealed a less attractive value

proposition than initially believed.36 The Pre-Forbearance Board then directed

Houlihan to re-engage with both Oakwood and Versa.37 Oakwood, which had just

acquired Marriott ExecuStay, was not interested in pursuing another acquisition at

that time. 38 Versa, on the other hand, resubmitted a non-binding LOI for $35 million,

after which the parties entered into an exclusivity agreement in July 2012. 39 After a

thorough diligence process, Versa submitted a revised offer in October 2012 to

32
Id.
33
Id.
34
Id.
35
Id. at 3.
36
Id. at 7.
37
Id.
38
Id.
39
Id.

10
acquire BSW and its operating subsidiaries for $30 million free of debt.40 In

December 2012, Versa revised its offer to $30.5 million, and the parties entered into

another non-binding LOI.41 Thereafter, the parties were unable to agree on a

purchase price or deal structure, and Versa walked away from an outright purchase

of the Company.42 On December 31, 2012, BSW failed to make its interest and

principal payments under the Credit Agreement. 43

D. Kinsella Acquires GB-SP
In July 2012, a company owned by Kinsella, IEOT Holdings LLC (“IEOT”),

acquired GB-SP in satisfaction of a €1,262,356 judgment against GB-SP’s former

owner, Sorrento Asset Management (“Sorrento”). 44 Kinsella had invested $1.8

million in Sorrento.45 After Sorrento mishandled Kinsella’s investment, Kinsella

filed suit against Sorrento’s promotors—Darina Heavy, Ken Hely, John Ryan, and

Bryan Turley—in Dublin High Court and prevailed in that litigation. 46 To satisfy

40
Id.; JX 19 at 1.
41
JX 22.
42
PTO ¶ 21; JX 72 at 7.
43
JX 28 at 3; JX 66 §§ 2.1(a)–(b).
44
Tr. 12:20–13:20, 15:15–21 (Kinsella); JX 30 at 3–19.
45
Tr. 12:22–13:3 (Kinsella).
46
Id. at 13:7–8 (Kinsella); JX 30.

11
the judgment, Sorrento’s promoters transferred their ownership interests in GB-SP

to IEOT.47

In a December 24, 2012 letter to BSW, IEOT advised that IEOT “now owns

all of the issued and outstanding common stock in BSW previously owned by GB-

SP” and “hereby appoints [Donal Kinsella] to serve as the [GB-SP] Director” under

Section 3.3 of the Shareholders Agreement.48 IEOT’s letter included a letter of

resignation by GB-SP’s current director designee, Bryan Turley. 49 IEOT’s letter

also demanded information pursuant to Section 2 of the Shareholders Agreement.50

On December 28, 2012, Worker exchanged emails with Kerry Berchem, an

attorney at the Company’s outside counsel, Akin Gump Strauss Hauer & Feld, LLP

(“Akin Gump”) regarding IEOT’s demand. The exchange stated the following:

WORKER: What are the next steps with this group?

BERCHEM: I am reading this weekend. Not sure we can do anything.

WORKER: Really? They are demanding information and calling this
their right? How can they transfer stock that is pledged to Goodbody?

BERCHEM: Arguably could transfer it w the lien. I really haven’t had
time to focus on this. But can take a look at our s/h agreement and the
llc agmt this weekend. That said the letter doesn’t explain how they
got the stock and I think we could push back asking for evidence of the

Tr. 13:13–20 (Kinsella); JX 30. Kinsella testified that the only asset the promoters had
47

was their equity interests in GB-SP. Tr. 74:12–75:1 (Kinsella).
48
JX 23 at 4.
49
Id. at 9.
50
Id.

12
transfer. We could write a letter that there is no evidence of the transfer
and until such cannot effectuate the appointment of Donal Kinsella. Do
you know this person?

BERCHEM: We could also take the position that since GBSP holdings
did not comply w the ROFR in the s/h agmt the transfer is null and void.
A little aggressive but colorable position.

WORKER: I like it, GREAT color[.]51

Worker also replied, “Makes sense to attack this. I do not know Mr. Kinsella[.]”52

IEOT soon dispelled the notion that GB-SP had transferred its BSW stock in

violation of the right of first refusal in the Shareholders Agreement. In a January 4,

2013 letter to BSW, IEOT explained that it had acquired GB-SP itself, and that

GB-SP still owned the BSW shares. 53 With that clarification, GB-SP renewed its

demand to have Kinsella seated on the BSW board and for BSW documents.54

On January 14, 2013, Akin Gump requested documentation from Kinsella’s

counsel of IEOT’s ownership of GB-SP and Kinsella’s qualification as a director

under Section 3.3(c) of the Shareholders Agreement.55 On February 5, 2013,

51
JX 218.
52
JX 217.
53
JX 25 at 1.
54
Id. at 2. BSW claimed that there was confusion as to whether GB-SP had the right to
appoint a director to the board. BSW also claimed that there were questions regarding
Kinsella’s suitability to serve. Tr. 384:4–7, 384:15–24, 388:4–389:20 (Worker).
55
JX 26 at 2.

13
GB-SP’s counsel responded to BSW with the requested documentation.56 GB-SP’s

counsel also reiterated its demand to seat Kinsella as the GB-SP Director and to

supply information pursuant to the Shareholders Agreement and requested a meeting

between Kinsella and a BSW officer or director. 57

BSW was reluctant to seat Kinsella as the GB-SP Director. BSW was

concerned that if it recognized the transaction between GB-SP and IEOT, BSW

would not be able to use its net operating losses (“NOLs”) to offset its income under

the Internal Revenue Code, and BSW would be required to begin paying income

taxes.58 BSW’s general counsel, J.R. Dembiec, noted that a “[p]reliminary analysis

by [BSW’s] accountants indicates that this transaction, if approved, between GB-SP

and IEOT may negatively impact, if not eliminate, our ability to use existing NOLs

56
JX 30.
57
Id. at 2.
58
JX 219 at 1; JX 215 at 1. On February 28, 2013, Worker emailed Davis, Doheny,
LaCivita, and Scher with a board agenda that included IOET’s “request and related issues
(nols, director request)” and a “[h]eavy letter/response” to follow separately. JX 34 at 2.
Worker lacked credibility when he testified at trial that he had “no idea what that was a
response to.” Tr. 722:16–17 (Worker). See also JX 232 at 2 (“Just a reminder that by
recognizing the transfer we will nearly wipe out all of the NOL’s [sic] that are currently on
our books due to IRS change of control rules. You may recall the conversations we had
with Watkins a few months back related to this. I don’t know what Versa’s strategy is
going forward, but if there is an event that produces income to Bridgestreet Worldwide (i.e.
forgiveness of debt) it could put this entity into an income tax paying position.”).

14
in connection with the Versa sale.”59 Berchem from Akin Gump replied, “Don’t

think approval is within our discretion, unless I missed something.” 60

On March 26, 2013, John Holland from Akin Gump sent an email to Davis,

Dembiec, and Worker, stating:

As you know, we’ve received several correspondences from Donal
Kinsella and his attorneys regarding [IEOT’s] acquisition of [GB-SP’s]
equity (the latest of which are attached). IEOT’s counsel, at our
request, also has provided us with documentation of the transfer,
including a purchase agreement, resignation letters and judgments
pursuant to which the transfer was effected. At this time, the equity
transfer appears to be legitimate.

Under the [Shareholders] Agreement, GB-SP [] is entitled to nominate
one director and also is entitled to certain information rights. [] Kinsella
has requested that GB-SP [] be permitted to exercise its right to
nominate [] Kinsella for election to the Board and to receive the
Company’s financials. Please let us know when you’d like to discuss
next steps. 61

In other words, Akin Gump informed BSW that there was no good faith basis to

continue to deny GB-SP’s information requests or its designation of Kinsella as the

GB-SP Director.

On April 11, 2013, Dembiec asked Akin Gump to clarify the status of

GB-SP’s board seat and the implications of GB-SP’s demand to seat Kinsella on the

renewal of the Company’s director and officer (“D&O”) insurance policy:

59
JX 220 at 1.
60
Id.
61
JX 170 at 1.

15
[W]e are discussing a renewal of the current D&O policy which is set
to expire April 30. One question that has come up is the status of the
Board seat for GB[-SP]. My understanding is that GB[-SP] had their
Board seat but when Turley resigned they lost their presence on the
Board. I am not sure how we want to handle that question and would
like your input. Also, I’m not sure how to address the proposed and
pending IEOT transfer and their request for a Board seat.62

Holland pointed Dembiec to Section 3.3(a) of the Shareholders Agreement,

remarking that GB-SP “has the right to nominate someone for election to the Board

of Directors,” and “the official size of the Board still is seven directors, even though

[GB-SP] currently doesn’t have a director on the Board.”63

E. BSW Continues to Default on its Obligations Under the Credit
Agreement, and Versa Acquires BSW’s Debt Through Domus
The Pre-Forbearance Board met on February 4, 2013, with representatives

from Akin Gump and Houlihan to discuss the status of Houlihan’s sale process.64

The minutes of the meeting do not reflect any discussion about seating Kinsella as

the GB-SP Director. 65 Around this time, BSW’s lenders sought permission to

engage Versa directly about selling BSW’s outstanding debt.66 On February 6, 2013,

62
JX 171 at 3.
63
Id. at 2.
64
PTO ¶ 27.
65
JX 29.
66
JX 31 at 2–3; Tr. 447:18–24 (Halpern). Paul Halpern, Versa’s chief investment officer
and Rule 30(b)(6) witness, testified that it was important that BSW’s lenders receive
permission to speak directly to Versa because “it’s really bad for a deal to mess up the
process. This deal was dead stuck, and this was the appropriate next step. But to have --

16
Davis, BSW’s then-board chairman, confirmed that BSW’s lenders could negotiate

a potential acquisition of BSW’s outstanding debt directly with Versa. 67 Versa and

BSW’s lenders scheduled an introductory call for the next day.68 Versa also engaged

in parallel discussions with BSW to acquire the Company. 69

Shortly after BSW again failed to make its interest and principal payments

under the Credit Agreement, the Pre-Forbearance Board met on April 2 and April 9,

2013. 70 The April 2 minutes reference the status of a potential sale of BSW and

Akin Gump’s communications with Plaintiffs’ counsel,71 and the April 9 minutes

reference requests from the Company’s lenders for additional collateral.72

Versa chose to forgo an outright purchase of the Company and, instead,

adopted a loan-to-own strategy.73 On April 11, 2013, Versa, through its newly

to take it unilaterally could ruffle a lot of feathers and possibly implicate commitments the
different parties had to each other.” Tr. 449:17–22 (Halpern).
67
JX 31 at 2; Tr. 448:16–449:5 (Halpern).
68
JX 31 at 1.
69
JX 35; Tr. 452:1–453:1 (Halpern).
70
PTO ¶¶ 30–31; JX 39; JX 40.
71
JX 39.
72
JX 40.
73
A loan-to-own transaction is a change in control transaction by which an acquirer
becomes the target’s senior secured lender and then obtains ownership of the target’s equity
or assets through a liquidation process. See David A. Skeel Jr., The Past, Present and
Future of Debtor-in-Possession Financing, 25 Cardozo L. Rev. 1905, 1921 (2004)
(describing loan-to-own transactions as comparable to change-in-control transactions as
they are often intended to ensure that the acquirer can “purchase the [debtor’s] assets free

17
formed subsidiary Domus BWW Funding LLC (“Domus”), 74 executed the

documents necessary to acquire all of the secured debt of BSW and its subsidiaries

from Credit Suisse under the Credit Agreement. 75 Through Domus, Versa paid

roughly $23 million for the debt and the rights associated with it. 76

An internal Versa presentation dated April 13, 2013, provided an update on

its BSW acquisition strategy. 77 Among other things, the update outlined different

means by which Versa could gain control of BSW’s assets, including through a

consensual transaction, a strict foreclosure, a public foreclosure, or an asset sale

pursuant to Section 363 of the U.S. Bankruptcy Code (the “Bankruptcy Code”).78

The presentation explained that a consensual transaction would require board and

stockholder approval, but indicated that the current independent BSW board

and clear of any existing or future claims, and [] eliminate the claims of [] unsecured
creditors”). Versa specializes in distressed control investments. Tr. 424:14–17 (Halpern)
(“So the investment strategy has been, and remains today, for these funds, control
investments in distress and special situations in middle-market companies in North
America.”).
74
PTO ¶ 18; Tr. 454:6–14 (Halpern) (explaining that Domus was “an entity owned by one
or more of the funds advised by Versa” and “set up to execute these trades and acquire
[BSW’s] debt”).
Tr. 454:1–5 (Halpern); see also JX 211; JX 212; JX 213. These transactions closed on
75

May 1, 2013. Tr. 460:14–17 (Halpern); PTO ¶ 32.
76
Tr. 457:18–458:12 (Halpern).
77
JX 41.
78
Id. at 5.

18
members would not approve a consensual transaction. 79 Because BSW’s board held

the Proxy to vote all of GB-SP’s shares, a stockholder vote would also involve board

approval.80 As an alternative, Versa noted that BSW’s CEO and President—Walker

and Curtis—could vote to replace or fire the independent directors and then approve

the transaction, but acknowledged that replacing or firing the independent directors

could give rise to claims for breach of fiduciary duty or fraudulent conveyance.81

Another alternative was to modify the transaction to facilitate approval from the

current BSW board through (1) enhanced D&O coverage or direct indemnification

of directors; (2) assumption of all liabilities; and (3) removal of the requirement that

BSW remain in existence for two years. 82 The presentation also explained that BSW

could go bankrupt before Versa obtained its assets, but an imminent bankruptcy

filing was unlikely since most of the necessary bankruptcy preparation work had not

been completed. 83

F. The Pre-Forbearance Board Negotiates a Forbearance Agreement
At a board meeting held on May 2, 2013, Credit Suisse informed the Pre-

Forbearance Board that the lenders under the Credit Agreement had sold their

79
Id. at 6.
80
Id.
81
Id.
82
Id.
83
Id.

19
respective interests in BSW’s first and second lien loans to Domus. 84 At this same

board meeting, Worker proposed retention bonuses for himself and members of

senior management. 85 As justifications for the bonus package, Worker cited the

uncertainty facing BSW and the need to ensure the continued employment of certain

BSW executives by underwriting the financial and employment risks of being an

executive at a distressed company.86 The Pre-Forbearance Board then unanimously

approved an executive compensation memorandum of understanding (“MOU”).87

The MOU provided that, in various circumstances, the executives would be paid the

following retention bonuses:

84
JX 43 at 2.
85
Id. at 3.
86
Id.
87
Id. The MOU stated the following in its background section:
The Company is at a critical juncture. It will either be sold in the near future
to a private equity fund investor or, failing the completion of such
transaction, may become subject to a foreclosure action or bankruptcy
proceeding undertaken by the Lenders or others, or subject to other remedies
available to the Lenders under law and as prescribed by the Amended and
Restated Credit Agreement to which the Company and the Lenders are a
party. Such proceedings and/or remedies would allow the Lenders to take
control of the Company’s assets and operations. In light of this situation, and
in view of other reasonably predictable outcomes, there is significant risk and
uncertainty with respect to financial outcomes for the Executives and the
shareholders generally.
Id. at 8.

20
Executive Sale of the Sale or No Sale,
Company Reorganization of the Bankruptcy, or
(Outside of Company (Pursuant Foreclosure90
Bankruptcy) 88 to a Bankruptcy
Filing or Foreclosure
Proceeding)89

Sean Worker $142,199 $150,500 $142,199

Lee Curtis $107,417 $120,500 $107,417

Dale Gingrich $56,777 $85,000 $56,777

JR Dembiec $56,777 $85,000 $56,777

Jeffrey Dunn $36,830 $59,999 $36,830

To be allocated 91 $40,000 $50,000 $40,000

Total Bonus $440,000 $550,999 $440,000

In addition to the retention bonuses, the MOU provided for severance

payments to the BSW executives. 92 The MOU retained the severance provisions in

Curtis’s and Worker’s existing employment agreements with the Company. The

88
Id. at 9.
89
Id. at 10.
90
Id. at 11.
91
Each scenario had additional requirements and terms. For example, in the case of a sale
outside of bankruptcy, the MOU provided that the retention bonus “shall be paid, by the
Company or the acquiring entity, to the Executives upon closing of the Sale Transaction
regardless of whether the Executives (other than Worker and Curtis) continue to be
employed by the acquiring entity.” Id. at 9.
92
Id. at 11.

21
other BSW executives would receive six months of salary and all accrued paid time

off as severance if their employment was terminated without cause. 93 Additionally,

if BSW’s lenders foreclosed on the Company, BSW’s lenders would continue to

employ Curtis and Worker under the terms of their existing employment

agreements. 94

In June 2013, Versa and BSW began exchanging drafts of a forbearance

agreement.95 On July 23, 2013, Akin Gump sent the Pre-Forbearance Directors and

BSW executives a list of issues regarding a potential forbearance agreement.96

Among the issues were (1) indemnification for claims arising from, or relating to,

the forbearance agreement; (2) a release of claims against BSW’s directors and

officers by Versa; and (3) payment of advisers’ fees.97 In exchange for the release

of claims, Versa requested that Davis, Doheny, LaCivita, and Scher deliver

irrevocable resignations to be held in escrow. 98

Meanwhile, GB-SP continued to press for its informational and corporate

governance rights in numerous letters to the Pre-Forbearance Directors and Akin

93
Id.
94
Id.
95
See JX 172.
96
JX 49 at 3–4.
97
Id. at 3.
98
JX 50 at 3. Davis, Doheny, LaCivita, and Scher refused to resign but instead signed
agreements not to stand for re-election or to accept any such nomination. Id. at 2.

22
Gump, even threatening legal action. 99 BSW’s counsel sought to string Plaintiffs

along until after they could finalize a forbearance agreement with Versa. Indeed,

one Akin Gump attorney asked internally, “Is there any additional information that

we can provide to [Plaintiffs’ counsel] to keep them warm while we’re sorting out

the forbearance agreement?”100

The Pre-Forbearance Directors’ continuing refusal to seat Kinsella as the

GB-SP Director created a potential liability that BSW’s insurers were not willing to

cover. The insurers carved out this coverage through a “major stockholder

exclusion.”101 BSW’s D&O policy excluded claims brought by holders of 10% or

99
See JX 44 (May 2, 2013 email indicating that GB-SP had not received information under
the Shareholders Agreement and Kinsella had not been seated as the GB-SP Director in the
“four months since [the] original notice [was sent] to BSW” and demanding that an initial
meeting be scheduled); JX 45 (June 10, 2013 letter restating that GB-SP had designated
Kinsella to serve as the GB-SP Director); JX 47 at 3–5 (June 14, 2013 letter demanding
certain financial statements, organizational documents, minutes of BSW board and
stockholders meetings, and information concerning capital structure); JX 48 at 2 (July 10,
2013 letter reconfirming that Kinsella had been designated as the GB-SP Director,
demanding notice of BSW board meetings, and requesting additional documents); JX 57
at 4 (August 20, 2013 letter complaining that Plaintiffs were being ignored by BSW and
threatening legal action); JX 58 at 1 (August 30, 2013 letter requesting to inspect certain
books and records of BSW pursuant to 8 Del. C. § 220(d)).
100
JX 240 at 2.
101
A “major stockholder exclusion” is a provision in a D&O insurance policy which
removes claims from coverage when they are brought by or on behalf of a major
stockholder of the company, typically a stockholder that owns more than 5–10% of the
company’s outstanding equity. See, e.g., EMSI Acq., Inc. v. RSUI Indem. Co., 787 F. App’x
97, 99 (3d Cir. 2019) (excluding claims from coverage when they are brought by a
stockholder with more than 5% of the company’s equity); McGowan v. Liberty Ins.
Underwriters, Inc., 2020 WL 8186268, at *1 (S.D. Fl. Oct. 26, 2020) (same); Abrams v.
Allied World Assurance Co. (U.S.) Inc., 657 F. Supp. 3d 1280, 1288–98 (N.D. Cal. 2023)

23
more of the Company’s stock.102 On August 1, 2013, BSW’s insurance broker

informed Akin Gump and BSW:

We have requested AIG to remove the Major Shareholder exclusion on
the policy which they denied. We asked them if they could give us an
option, even if that would change some of the terms and conditions i.e.
premium etc. AIG declined this request as well. AIG is concerned with
the fact that GB-SP Holdings does not have active representation on the
board and fear that due to the fact that their investment is at risk that
they may sue. This is exposure that they did not want to pick up as such
they put the exclusion on the policy last year. 103

In an email to the insurance broker the next day, Akin Gump inquired: “If we added

another director to the board from [GB-SP] now, would that help to get the major

shareholder exclusion deleted?”104

Two weeks later, on August 16, 2013, Akin Gump informed Dembiec and the

Pre-Forbearance Directors that, despite its efforts, BSW’s insurance carrier may not

agree to remove the major stockholder exclusion from the D&O policy. 105 To

remedy this gap in coverage, Akin Gump recommended that Versa provide broad

indemnification coverage for any claims brought by GB-SP. 106

(interpreting a “Major Security Holder Claims Exclusion” which excluded claims brought
by a stockholder who owns more than 10% of the company’s equity).
102
JX 174 at 1.
103
JX 173 at 2. Two separate insurers also declined to provide supplemental coverage. Id.
104
Id. at 1. Akin Gump’s inquiry indicates that Akin Gump believed Kinsella could be
seated at any time.
105
JX 174.
106
Id.

24
Around the time the parties were negotiating the proposed forbearance

agreement, Versa contacted Walker about serving as a director on the BSW board.107

Walker is the president and founder of Walker Nell Partners, Inc. (“Walker Nell”),

a business consulting firm focused on corporate restructuring and fiduciary

services.108 Walker did not have a previous relationship with Versa or BSW. 109

Versa also contacted Albright and Orlofsky about serving as directors on the

BSW board.110 Albright was the president of the Pinnacle Group, a consulting firm

that specializes in franchising. 111 Albright does not appear to have had any other

business dealings with Versa or BSW. Orlofsky, on the other hand, had a prior

relationship with Versa. Between 2001 and 2005, Orlofsky served as interim chief

financial officer and chief operating officer of Malden Mills, a company whose

operations a Versa affiliate acquired out of bankruptcy. 112 In addition, Orlofsky

107
JX 55; JX 163 at 35:15–18 (Walker Dep.); Tr. 615:11–19 (Walker).
JX 163 at 8:17–19 (Walker Dep.); id. at 8:22–9:2 (Walker Dep.); Tr. 613:23–614:3
108

(Walker).
109
JX 163 at 27:3–10 (Walker Dep.); id. at 49:1–4 (Walker Dep.); Tr. 615:20–616:19
(Walker). Following the foreclosure, Versa asked Walker to serve as an independent
director on the board of SeaStar Holdings, Inc., which the parties refer to as “Seaborne
Airlines.” JX 163 at 30:7–12 (Walker Dep.); Tr. 699:16–700:21 (Walker); JX 175 at 25.
Seaborne Airlines was acquired by a Versa affiliate following its bankruptcy. Tr. 702:17–
20 (Walker). Between August 2017 and January 2018, Walker Nell earned approximately
$65,000 in fees in connection with Seaborne Airlines’s bankruptcy. JX 175 at 13.
110
See Tr. 585:20–24 (Orlofsky); id. at 514:9–16 (Halpern).
111
JX 62 at 121.
112
JX 166 at 18:6–19:24, 20:16–21:23 (Orlofsky Dep.); Tr. 555:3–9, 581:9–13 (Orlofsky);
id. at 514:2–6 (Halpern); JX 62 at 57.

25
served as chairman and sole board member of American Laser Skincare LLC

(“ALS”) in 2011. 113 As its sole member, Orlofsky caused ALS to file for

bankruptcy, and in February 2012, a Versa affiliate acquired ALS through those

proceedings.114 Orlofsky’s firm, Zolfo Cooper, served as a pre-petition adviser to

ALS, earning approximately $300,000 to $400,000 in fees working on ALS’s

ultimate bankruptcy. 115

G. The Forbearance Agreement
Akin Gump updated the Pre-Forbearance Board on the status of the proposed

forbearance agreement with Domus at a September 17, 2013 board meeting.116

Under the terms of the forbearance agreement, Domus would not exercise its right

to foreclose under the Credit Agreement for a five-month period, so long as BSW

did not otherwise breach the Credit Agreement or fail to satisfy the additional

financial covenants imposed by the forbearance agreement.117 Dale Gingrich,

BSW’s Senior Vice President of Finance, and Worker told the Pre-Forbearance

Board that they believed BSW should be able to satisfy the additional financial

JX 166 at 22:20–23:23 (Orlofsky Dep.); Tr. 581:14–18, 582:10–583:9 (Orlofsky); id. at
113

513:9–14 (Halpern).
114
Tr. 583:10–16 (Orlofsky); JX 166 at 26:8–18, 27:14–18 (Orlofsky Dep.).
115
JX 166 at 8:16–20, 25:13–26:8, 31:20–32:4 (Orlofsky Dep.); Tr. 584:17–585:7
(Orlofsky).
116
JX 61 at 2.
117
Id.

26
covenants based on currently available information. 118 The proposed forbearance

agreement also provided for Domus to extend additional first lien loans to BSW to

cover items such as past due interest payments owed under the Credit Agreement

and BSW’s working capital needs.119 For its part, BSW agreed to grant first priority

interests in additional collateral in favor of Domus and undertake stringent financial

covenants.120

On September 19, 2013, Versa’s counsel at Dechert LLP (“Dechert”)

delivered to BSW’s counsel an updated draft of the proposed forbearance agreement,

along with a draft indemnity agreement. 121 The indemnity agreement required Versa

to indemnify BSW’s directors and officers for claims arising out of the forbearance

agreement, as well as for claims brought by GB-SP, IEOT, or Kinsella.122 Dechert

also transmitted resumes for Albright, Orlofsky, Seitz, and Walker, who Versa

proposed to fill the four independent director positions on the BSW board.123

118
Id.
119
Id.
120
Id.
121
PTO ¶ 43; see also JX 62.
122
See JX 62 at 49–56. The provision did not expressly reference GB-SP but covered
claims by “any Person(s) that own or control (whether beneficially, directly or indirectly)
10% or more of the outstanding stock of the Company” and by “any security holder of the
Company, whether directly or derivatively, unless such security holder’s claim is instigated
and continued independent of, and without the solicitation or assistance of, any Major
Shareholder[.]” Id. at 50. GB-SP was BSW’s majority stockholder. PTO ¶ 6.
123
PTO ¶ 43; see also JX 62.

27
On September 30, 2013, BSW and Domus entered into a forbearance

agreement (the “Forbearance Agreement”), under which Domus advanced

approximately $12.5 million to BSW and agreed to forbear on exercising its right to

foreclose under the Credit Agreement for five months. 124 As consideration for the

loan, Domus received additional security interests in BSW’s foreign subsidiaries.125

BSW utilized the $12.5 million to pay the accrued interest on its debt owed to Versa

and Domus, past due rent payments, its D&O policy, and fees for its legal counsel

and financial advisers. 126

The terms of the executed Forbearance Agreement were materially similar to

those of the drafts that were exchanged earlier that month.127 The Forbearance

Agreement required BSW to maintain the following EBITDA and gross margin

financial ratios for the duration of the five-month forbearance period:

124
PTO ¶ 44; JX 66 § 2.2.
125
JX 66 § 4.1(e).
126
Id. at 35.
127
Compare JX 62 at 2–48, with JX 66.

28
Month Ending Minimum Interest Minimum Gross
Coverage Ratio 128 Margin Percentage129

September 30, 2013 1.10:1.00 18%

October 31, 2013 1.20:1.00 20.5%

November 30, 2013 1.20:1.00 18.9%

December 31, 2013 1.15:1.00 16.9%

January 31, 2014 1.15:1.00 13.8%

If BSW’s financial ratios fell below the above amounts, then BSW would be

in default under the Forbearance Agreement, and Versa could exercise its right to

foreclose on its collateral under the Credit Agreement. 130 The Forbearance

Agreement also provided that BSW, Domus, the Pre-Forbearance Directors, and

certain BSW officers would enter into a mutual release agreement on the date that

the new independent directors were elected to the Company’s board. 131

128
JX 66 § 5.3(a). The minimum interest coverage ratio represented the minimum
threshold for the Company’s ratio of Consolidated EBITDA to Consolidated Interest
Expense. Id.
129
Id. § 5.3(e).
130
Id. §§ 3.1, 3.2(a), 3.3.
131
Id. § 9(b); id. at 39–47. The executed release agreement is not in the record. The
Company agreed to hold its annual meeting of stockholders within 30 days of the funding
of the $12 million loan. Id. §9(a). Davis, Doheny, LaCivita, and Scher agreed to not seek
re-election at the annual meeting of stockholders. See JX 50 at 2; JX 63 at 2–5; JX 226 at
1; JX 234 at 1.

29
That same day, Domus, the Pre-Forbearance Directors, and certain BSW

officers entered into the indemnity agreement (the “Indemnity Agreement”).132 The

material terms of the executed Indemnity Agreement were the same as those in

Dechert’s September 19, 2013 draft. 133 The Indemnity Agreement provided for

Domus to defend and indemnify the Pre-Forbearance Directors against any claim or

proceedings brought by GB-SP, IEOT, or Kinsella related to BSW or its subsidiaries,

and included any judgments or settlements. 134 Domus also successfully limited its

obligation to the costs of “one counsel” for the Pre-Forbearance Directors, unless

otherwise prohibited by the applicable rules of professional responsibility.135

BSW, Domus, Curtis, and Worker also entered into a memorandum of

understanding on September 30, 2013 (the “September 2013 MOU”).136 The

September 2013 MOU obligated Domus, in the event of a consensual foreclosure,

to: (1) assume the employment agreements of Curtis and Worker; (2) pay retention

bonuses for Curtis and Worker; and (3) pay retention bonuses for other BSW

132
JX 70 at 22–36.
133
Compare JX 62 at 49–56, with JX 70 at 22–36.
134
JX 70 at 23.
135
Id.
136
PTO ¶ 45.

30
executives. 137 The September 2013 MOU incorporated the terms of the retention

bonuses from the MOU approved by the Pre-Forbearance Directors.138

H. The Post-Forbearance Events and Consensual Foreclosure

BSW held an annual meeting of stockholders on October 11, 2013.139

Kinsella was elected as the GB-SP Director; Curtis and Worker were elected as the

Management Directors; and Albright, Orlofsky, Seitz, and Walker were elected as

independent directors. 140 Seitz resigned from the BSW board shortly thereafter for

reasons not reflected in the record.141 Walker was named as board chairman.142 On

October 28, 2013, the Post-Forbearance Board held its first meeting with

representatives from Akin Gump and Houlihan.143 At the meeting, the Post-

Forbearance Board discussed with its advisers the various options available in light

137
See JX 67; id. at 7 (“If the Lenders (or any of the Lenders’ affiliates) acquire all or
substantially all of the equity or assets of the Company or its operating subsidiaries, in a
transaction or a series of related transactions, through a reorganization, restructuring,
recapitalization, stock sale, asset sale or foreclosure action or other exercise of any
remedies available to the Lenders under the Credit Agreement or related loan documents,
the Lenders agree to continue to employ Sean C. Worker and H. Lee Curtis under the terms
of their current employment agreements. For the avoidance of doubt, if the Lenders (or
any of the Lenders’ affiliates) acquire the Company or its operating subsidiaries in a Sale
Transaction, the Lenders agree to continue to employ Sean C. Worker and H. Lee Curtis
under the terms of their current employment agreements.”).
138
Compare JX 43 at 8–12, with JX 67.
139
PTO ¶ 47; JX 69.
140
PTO ¶ 47.
141
Id. ¶ 48.
142
Id. ¶ 49.
143
Id. ¶ 50; JX 71.

31
of the forbearance period under the Forbearance Agreement. 144 Houlihan provided

an overview of its prior sale process and opined that effectuating a sale of the

Company “would be very difficult, especially in light of the fact that the Company’s

EBIDTA [sic] had declined since [Houlihan’s] original marketing and sales

efforts.” 145

At the next board meeting on November 18, 2013, BSW management

informed the Post-Forbearance Board that BSW had breached the minimum interest

coverage ratio and the minimum gross margin percentage in the Forbearance

Agreement during the month of October. 146 In an executive session, Kinsella

requested additional information to substantiate these breaches and asked if Domus

might be willing to invest another $10 million in BSW or to waive the breaches.147

BSW’s counsel reminded the directors that the Forbearance Agreement would expire

by its terms in approximately three months, so even if Domus granted a waiver, the

entire amount of the senior secured debt would still be due and owing at that time.148

The Post-Forbearance Board then discussed potential alternatives available to BSW,

such as third-party financing, a sale of the Company or its assets, re-financing the

144
JX 71 at 2.
145
Id. at 2–3.
146
JX 80 at 2.
147
Id.
148
Id.

32
Company’s debt, an out-of-court restructuring, and a bankruptcy filing under either

chapter 7 or chapter 11 of the Bankruptcy Code.149 The Post-Forbearance Board

resolved that BSW would notify Domus of the breaches, as required by the Credit

Agreement, and request a waiver to give the board additional time to examine

potential paths forward. 150

On November 20, 2013, BSW informed Domus of BSW’s default. 151 Domus

responded the next day, declaring that the default terminated the Forbearance

Agreement and reserving Domus’s rights under the Credit Agreement. 152 That same

day, BSW began to discuss the idea of using an assignment for the benefit of

creditors or “ABC” proceeding. 153 Walker instructed the Company to include an

ABC proceeding as a potential restructuring option but emphasized that the

Company’s “primary concern . . . is to make sure that the [Post-Forbearance] Board

149
Id. at 3.
150
Id.
151
JX 83.
152
JX 144.
153
JX 84. In an ABC, the entity, or assignor, assigns its assets to an assignee, which is
charged with liquidating the assets and distributing the proceeds to the assignor’s creditors.
In re Wack Jills, Inc., 322 A.3d 1132, 1145 (Del. Ch. 2024). In Delaware, ABCs are
governed by 10 Del. C. §§ 7381–7387.

33
is advised of and complies with Delaware fiduciary law in the performance of its

duties.”154 Six days later, Domus delivered a foreclosure proposal to BSW. 155

On December 4, 2013, the Post-Forbearance Board met and, over Kinsella’s

opposition, passed a budget for 2014.156 Kinsella wanted a budget that incorporated

aggressive cost cutting, and he demanded more information before approving the

proposed budget.157 The other board members did not share Kinsella’s concerns,

and each voted to approve the budget. 158 In an executive session, Walker reminded

the Post-Forbearance Directors that BSW had defaulted on the terms of the

Forbearance Agreement and had requested a waiver of that default. 159 The

Post-Forbearance Board discussed its various options. Houlihan advised that

refinancing BSW’s debt or selling BSW’s equity or assets was highly unlikely in

light of the Company’s current business operations, the investment market’s overall

154
JX 84 at 1. During this period, Kinsella was regularly requesting additional information
from the Company. See, e.g., JX 87; JX 89.
155
JX 86.
156
JX 91 at 2.
157
Id. at 1–2.
158
Id. at 2.
159
Id. Members of the Post-Forbearance Board inquired whether any additional covenants
under the Forbearance Agreement or Credit Agreement had been breached, and
management responded that, based upon information available as the date of the meeting,
BSW had also breached the “cash covenant” in the Forbearance Agreement. Id.
Management noted, however, that the month was not yet closed from a financial standpoint
and, as such, it was too early to tell whether additional covenants had been breached. Id.

34
condition, and the Company’s senior secured debt.160 The Post-Forbearance Board

discussed the possibility of an additional equity investment from GB-SP or IEOT,

or from an entity known as “Goodbody.”161 Kinsella indicated that he was not

willing to make an additional investment at that time.162 The Post-Forbearance

Board resolved to seek an additional equity investment from Goodbody and to ask

Domus to waive BSW’s technical default under the Forbearance Agreement. 163

On December 16, 2013, Plaintiffs’ counsel sent a letter to BSW outlining

Kinsella’s dissatisfaction with the actions of the Post-Forbearance Board, BSW’s

responses to their requests for information, and BSW’s refusal to seat Kinsella as the

GB-SP Director from December 2012 to October 2013.164 Kinsella urged the board

to chart a course other than a consensual foreclosure.165

The Post-Forbearance Board met the next day. At an executive session,

Albright, Curtis, Orlofsky, Walker, and Worker discussed the correspondence

received from Kinsella’s counsel, but took no specific actions. 166 After Kinsella

160
Id. at 3.
Id. Goodbody appears to be a reference to Goodbody Stockbrokers Nominees Limited,
161

which was the general partner of an entity that once held debt of GB-SP. See JX 1 at 3.
162
JX 91 at 3; see Tr. 136:9–23 (Kinsella) (confirming that Kinsella was not interested in
putting more money into BSW).
163
JX 91 at 3.
164
See PTO ¶ 55; JX 94.
165
JX 94 at 2–3.
166
JX 96 at 1.

35
joined the meeting, Albright and Walker reported that Domus refused to discuss a

default waiver and requested that BSW start working towards a consensual

foreclosure in accordance with Domus’s November 26 proposal.167 The Post-

Forbearance Board discussed the Company’s options. 168 A representative from

Houlihan opined that a sale of the Company or debt refinancing would be extremely

difficult due to the decline in the Company’s EBITDA.169 Akin Gump explained the

differences between a chapter 7 and a chapter 11 bankruptcy.170 Kinsella proposed

that BSW file for bankruptcy, but the motion failed to pass.171 Two days later, Akin

Gump forwarded draft foreclosure documents prepared by Versa and Domus’s

counsel to Walker. 172 Before year’s end, Houlihan delivered a draft chapter 11

bankruptcy analysis to BSW. 173

167
Id. at 2.
168
Id. at 3.
169
Id.
170
Id.
171
Id. The draft minutes indicated that Kinsella had specified a chapter 7 bankruptcy filing.
But at the next meeting, Kinsella insisted that “he had moved to have the company file for
‘bankruptcy’ generally and not a bankruptcy under Chapter 7.” JX 102 at 1. Kinsella also
requested that the minutes reflect that he made the motion because the Company was
insolvent. Id. The December 17 minutes were approved with these changes. Id.
172
JX 98.
173
JX 100 at 1.

36
At the board’s next meeting on January 3, 2014, Walker, Worker, and

Houlihan presented a bankruptcy analysis. 174 They explained that a bankruptcy

filing would require debtor in possession (“DIP”) financing in amounts ranging from

$7 to $9 million and that it would be difficult to obtain DIP financing from any party

other than Versa. 175 They also noted that Versa’s approval would be needed to file

for chapter 11 and that they believed chapter 11 would cause damaging disruptions

to the Company’s ongoing operations. 176 In an executive session, the

Post-Forbearance Board further discussed whether the Company should file for

chapter 11 bankruptcy or if it should agree to a consensual foreclosure.177 The board

minutes state the following:

Mr. Albright stated that, under all the circumstances and weighing the
advice of counsel and the Company’s financial advisors, he didn’t see
a viable option other than a consensual foreclosure. Mr. Orlofsky added
that in light of the combined management and Houlihan Lokey analysis,
a Chapter 11 filing would be difficult and expensive and if the
Company could essentially achieve a similar result while avoiding the
time, costs and damage to the business, he believed a consensual
foreclosure made the most sense. Mr. Kinsella disagreed, stating again
that he felt the Company was insolvent and that a bankruptcy filing was

174
JX 102 at 1–2.
175
Id. at 2. Orlofsky testified that DIP financing would only realistically come from Versa
because there was no value beyond the amount of the bank debt. Tr. 570:4–13 (Orlofsky).
Orlofsky has a background in bankruptcy and corporate restructurings. Id. at 552:16–17,
553:8–10 (Orlofsky) (testifying that he had been in the restructuring business “for the last
23 years” and believed to “have expertise in corporate restructurings”). The court found
Orlofsky to be a credible witness at trial.
176
JX 102 at 2.
177
Id.

37
the best course of action. Mr. Walker encouraged Mr. Kinsella to more
fully explain his reasoning for supporting a bankruptcy filing, but Mr.
Kinsella declined, stating that he didn’t feel a need to add anymore to
his position on the matter. Mr. Worker and Mr. Curtis had no further
comment. 178

After additional discussion, the Pre-Forbearance Board, with the exception of

Kinsella, voted to approve a consensual foreclosure, subject to negotiation and

finalization of definitive documentation. 179

On January 27, 2014, BBK, Ltd. (“BBK”), a business consulting firm that

services under-performing and financially challenged companies, delivered to BSW

a valuation of BSW’s total market value as of December 31, 2013, in anticipation of

a consensual foreclosure.180 BBK determined BSW’s fair market value was $29.7

million as a going concern. 181 That same day, Kinsella sent another letter to BSW

restating his grievances with the board’s management of the Company, his exclusion

from the board, the Company’s refusal to produce documents, and the board’s

apparent single-minded focus on a consensual foreclosure. 182 Kinsella reiterated

many of these same concerns at a board meeting the next day, lamenting that a

178
Id.
179
Id.
180
JX 104.
181
Id. at 8.
182
JX 106 at 1–2.

38
consensual foreclosure would result in the elimination of his equity stake in BSW.183

In an executive session, the Post-Forbearance Board, including Kinsella, discussed

the specifics of a consensual foreclosure and weighed the benefits of an ABC as

opposed to a statutory dissolution. 184 After the executive session, “it was the

consensus of the [Post-Forbearance] Board that the January interest payment to

[Domus] should not be paid under the current circumstances.”185

On February 25, 2014, the Post-Forbearance Board met to address Kinsella’s

letters and concerns. 186 In an executive session, the Post-Forbearance Board

recounted all of its efforts up until that point, highlighting its deliberative process

and the various alternatives to a consensual foreclosure it had considered.187

Midway through, Kinsella, apparently fed up with the board’s recitation, left the

meeting.188 The remaining Post-Forbearance Directors continued to discuss the

work they had done to chart BSW’s course and specifically noted Kinsella’s

183
JX 107 at 2.
184
Id. at 3.
185
Id.
186
JX 111.
187
Id. at 1–4.
188
Id. at 2; Tr. 159:5–7 (Kinsella) (“Q. And so when you got upset at board meetings, you
just walked out; right, sir? A. I probably left. I really did.”).

39
December 4, 2013 statement that neither GB-SP nor IEOT was willing to contribute

any additional capital to BSW.189

On Friday, February 28, 2014, at 4:08 p.m., Holland from Akin Gump sent an

email notice of a telephonic special meeting of the board to be held on Sunday,

March 2, 2014, at 4:00 p.m. ET to each of the Post-Forbearance Directors. 190 The

email included an agenda for the meeting, prior meeting minutes, an executive

summary, draft resolutions, and BBK’s valuation report for the Company as of

December 31, 2013.191 Kinsella was in Ireland at the time the notice was sent.192

Kinsella read the notice on Saturday morning, March 1, and chose not to participate

in the March 2 meeting.193

At the March 2 meeting, Albright, Curtis, Orlofsky, Walker, and Worker all

voted in favor of resolutions authorizing the consummation of a consensual

foreclosure in favor of Domus (the “Consensual Foreclosure”) and to pursue an

ABC.194 Walker’s company, Walker Nell, was chosen to be the assignee.195 Domus

189
JX 111 at 3–4.
190
JX 115.
191
Id.
192
Tr. 60:1–4 (Kinsella).
193
Id. at 61:7–22 (Kinsella).
194
PTO ¶ 65; JX 116. The Post-Forbearance Board also authorized BSW to file a
certificate of dissolution with the Delaware Secretary of State. JX 116 at 10–11.
195
PTO ¶ 66; JX 116 at 9.

40
advanced $425,000 to BSW under the Credit Agreement to fund the services and

expenses of Walker Nell as assignee. 196 The Post-Forbearance Directors also

discussed finalizing Domus’s assumption of Curtis’s and Worker’s employment

agreements with BSW that were memorialized in the September 2013 MOU.197

The Consensual Foreclosure closed on March 3, 2014. 198 At the time of the

Consensual Foreclosure, BSW owed $46,996,687.56 to Domus under the Credit

Agreement.199 As part of the Consensual Foreclosure, BSW transferred its equity

interests in its operating subsidiaries to Domus in satisfaction of $30 million of the

outstanding loan obligations.200 Domus also canceled $9,496,687.56 of the

remaining obligations of $16,966,687.56.201 That left $7.5 million, plus interest,

outstanding. 202

196
PTO ¶ 68.
197
JX 116 at 3. Curtis and Worker executed the amendment and assumption agreements
on March 3, 2014. JX 124; JX 125.
198
PTO ¶ 69; see also JX 118; 119; JX 120; JX 121; JX 122; JX 123; JX 124; JX 125.
199
JX 118 at 2.
200
Id. at 3, 28.
201
Id. at 28.
202
Id.; Tr. 473:4–10 (Halpern).

41
I. Procedural History
1. This Action and the ABC Actions

On March 4, 2014, Plaintiffs commenced this action.203 That same day, BSW

and BridgeStreet Corporate Housing Worldwide, Inc. (“BSW Corporate Housing”)

filed separate ABC actions in this court. Both entities selected Walker Nell as the

assignee for their respective assets.204 These ABC actions have been, for the most

part, dormant. Both remain pending at the time of this opinion.

After Plaintiffs filed their complaint, this action was largely inactive for two

years, prompting the court to request status reports three times. 205 On June 20, 2016,

the parties filed a stipulation of settlement. 206 The settlement provided for Domus

to pay $327,500 to GB-SP and Kinsella in exchange for a release. 207 On November

4, 2016, the court rejected the settlement, noting that the Company would receive

effectively nothing for release of the derivative claims.208

203
Dkt. 1 (“Compl.”).
204
In re BridgeStreet Corp. Housing Worldwide, Inc., C.A. No. 9411-VCF (Del. Ch.), Dkt.
1; In re BridgeStreet Worldwide, Inc., C.A. No. 9412-VCF (Del. Ch.), Dkt. 1.
205
Dkts. 25, 31, 34.
206
Dkt. 47.
207
Id. at 11–13, 16–20.
208
Dkt. 54 at 17:2–18:13.

42
On February 9, 2017, Defendants filed motions to dismiss the complaint under

Court of Chancery Rules 12(b)(6), 23, and 23.1.209 On April 7, 2017, Defendants

filed motions to enforce the stipulation of settlement that the court previously

rejected. 210 Defendants sought enforcement of the settlement as to Plaintiffs’ direct

claims, arguing that the court’s prior ruling does not “alter[] the enforceability of the

release of direct claims executed by the individual Plaintiffs[.]” 211 Defendants also

argued that the existing settlement should be enforced as to the derivative claims

upon payment of $50,000 to the Company.212

On May 31, 2018, the court denied the Defendants’ motion to enforce the

existing settlement and granted in part and denied in part the Defendants’ motion to

dismiss. 213 On June 21, 2018, Versa and Domus (the “Versa Defendants”) filed their

answer to the complaint, along with a counterclaim against GB-SP asserting a breach

of the Pledge Agreement. 214 BSW and the Director Defendants (the “BSW

Defendants”) filed their answer on September 17, 2018.215 Thereafter, the case

moved at a snail’s pace. In August 2019, the court entered a scheduling order

209
Dkts. 55, 57.
210
Dkts. 60–63.
211
Dkt. 61 at 15.
212
Id.
213
Dkts. 88, 92.
214
Dkt. 89. The Versa Defendants filed an amended answer on July 8, 2021. Dkt. 119.
215
Dkt. 93.

43
providing for an October 2020 trial.216 Trial was then rescheduled for May 2021.217

Another period of inactivity required the court to hold a status conference in March

2021 and to reschedule trial a second time. 218 The parties participated in an

unsuccessful mediation in September 2021. 219

After fairly contentious discovery motions, 220 the court held a four-day trial

from January 10–13, 2022, using Zoom technology.221 Following briefing and

post-trial argument,222 the parties provided supplemental authority for the court’s

review on September 22, 2023, and January 24, 2024.223

216
Dkt. 98.
217
Dkts. 105, 108.
218
Dkts. 109, 111–12.
219
Dkts. 126, 128.
220
Dkt. 130 (Plaintiffs’ September 24, 2021 Motion to Compel Discovery); Dkt. 144
(Plaintiffs’ November 18, 2021 Motion to Compel Compliance with Subpoena); Dkt. 151
(Plaintiffs’ November 23, 2021 Motion to Compel Discovery and for Sanctions and Other
Relief); Dkts. 195–97 (Versa Defendants’ December 23, 2021 Motions in Limine); Dkt.
199 (Plaintiffs’ December 28, 2021 Motion in Limine for Spoliation Sanctions); see Dkts.
148, 150, 182–83, 217–20 (addressing discovery disputes).
221
Dkt. 229.
222
Dkts. 237, 243–44, 256, 259, 262, 264. On May 5, 2022, during post-trial briefing, the
Versa Defendants advised the court that they had filed bankruptcy petitions under chapter
11 of the Bankruptcy Code in the United States Bankruptcy Court for the Eastern District
of Pennsylvania. Dkt. 246. Accordingly, this action was subject to the automatic stay in
11 U.S.C. § 362. On September 21, 2022, the bankruptcy court approved a stipulation that
provided relief from the stay to allow this action to proceed. Dkt. 249.
223
Dkts. 267–69, 272.

44
2. The New York Action
This is not the only proceeding related to Domus’s acquisition of BSW’s

assets. On July 3, 2018, a commercial landlord filed an action in New York state

court against BSW, Versa, Domus, and the officers and directors of those entities

regarding a commercial lease agreement. 224 The lease gave BSW’s subsidiary,

BridgeStreet Corporate Housing LLC (“BCH LLC”), the right to sublease

apartments for temporary corporate housing. 225 The action sought, among other

things, enforcement of a guaranty contained in the lease. 226

The New York trial court granted the landlord’s motion for summary

judgment, finding that Versa and Domus were merely continuing the operations of

BCH LLC, and thus remained liable for the lease.227 The New York Supreme Court,

47 E. 34th St. (NY), L.P. v. BridgeStreet Worldwide, Inc., C.A. No. 653057/2018 (N.Y.
224

Sup. Ct. July 3, 2018).
225
Dkt. 267 Ex. A at 2.
226
Id. at 2–3.
227
Id. at 1. Plaintiffs argued in their post-trial reply brief that the New York trial court’s
decision in 47 East 34th Street (NY), L.P. v. BridgeStreet Worldwide, Inc., 2022 WL
1225381 (N.Y. Sup. Ct. Apr. 26, 2022), collaterally estopped Defendants to argue that
entire fairness does not apply to the Pre- and Post-Forbearance Directors’ actions. Pls.’
Post-Trial Reply Br. 1–6. The New York trial court’s decision has since been reversed.
See 47 E. 34th St. (NY) L.P. v. BridgeStreet Worldwide, Inc., 197 N.Y.S.3d 3, 13 (N.Y.
App. Div. 2023). Regardless, the issues before the New York trial court that Plaintiffs rely
upon were not identical to those in this case and were not necessary to the judgment in the
New York action. See D’Arata v. N.Y. Cent. Mut. Fire Ins. Co., 564 N.E.2d 634, 636 (N.Y.
1990) (noting that collateral estoppel bars a party from relitigating an issue decided against
it only when the identical issue was necessarily decided in the prior action). In any event,
the trial court’s decision was reversed, and neither party asks the court to apply collateral

45
Appellate Division, First Department later reversed that decision, finding that there

was no evidence of any conveyance for less than fair value. 228 The landlord’s

subsequent applications for reargument or for leave to further appeal the First

Department’s decision were denied.229

II. ANALYSIS

To succeed at trial, Plaintiffs must prove each element of each of their claims

against each defendant by a preponderance of the evidence. S’holder Representative

Servs. LLC v. Gilead Scis., Inc., 2017 WL 1015621, at *15 (Del. Ch. Mar. 15, 2017),

aff’d, 177 A.3d 610 (Del. 2017) (TABLE). Preponderance of the evidence “has been

defined to mean the side on which ‘the greater weight of the evidence’ is found.”

Taylor v. State, 748 A.2d 914, 914 (Del. 2000) (TABLE) (quoting Reynolds v.

Reynolds, 237 A.2d 708, 711 (Del. 1967)); Del. Express Shuttle, Inc. v. Older, 2002

WL 31458243, at *17 (Del. Ch. Oct. 23, 2002) (“Proof by a preponderance of the

evidence means proof that something is more likely than not. It means that certain

evidence, when compared to the evidence opposed to it, has the more convincing

force and makes you believe that something is more likely true than not.” (internal

quotation marks omitted)).

estoppel based upon the First Department’s September 2023 decision reversing the New
York trial court.
228
Dkt. 267 Ex. A at 13.
229
Dkt. 272 Ex. 1.

46
A. Count V (Breach of Shareholders Agreement)
To prevail on a breach of contract claim, a plaintiff must meet its burden of

proof on, “first, the existence of the contract, whether express or implied; second,

the breach of an obligation imposed by that contract; and third, the resultant damage

to the plaintiff.” VLIW Tech., LLC v. Hewlett-Packard Co., 840 A.2d 606, 612 (Del.

2003).

GB-SP argues that BSW, Curtis, Davis, Doheny, LaCivita, Scher, and Worker

(the “Count V Defendants”) breached the Shareholders Agreement by depriving GB-

SP of its rights to (1) receive information concerning BSW; (2) inspect BSW’s

finances and accounts; (3) designate Kinsella as the GB-SP Director; (4) select and

appoint the independent directors and board chairman alongside the Management

Directors; and (5) have the GB-SP Director attend BSW board meetings held no less

than every other month.230

1. The Count V Defendants are Parties to the Shareholders
Agreement.

Five of the seven Count V Defendants—Davis, Doheny, LaCivita, Scher, and

Worker—argue that they cannot be liable for any breach of the Shareholders

Agreement because they are not parties to the agreement.231 The original

230
Pls.’ Post-Trial Opening Br. 47; see, e.g., JX 1 §§ 2.1(a)–(b), 2.2, 3.3(a)(ii)(A),
3.3(a)(ii)(C), 3.5, 3.6(d).
231
BSW Defs.’ Post-Trial Answering Br. 22.

47
Shareholders Agreement, executed in January 2011, is signed by BSW, GB-SP,

Curtis, Stephen Hanton, Jon Wohlfert, and BridgeStreet Worldwide Management

Company Phantom Share Program Trust. 232 Sections 6.3 and 6.4 of the Shareholders

Agreement state that BSW will sell shares of Class B common stock to Worker, as

CEO, and each of the directors appointed pursuant to Section 3.3(a)(ii)(C).233 Each

purchaser of equity securities pursuant to Sections 6.3 and 6.4 is required to execute

a joinder agreement binding them to the conditions and provisions of the

Shareholders Agreement.234

There are no executed joinder agreements in the trial record for Davis,

Doheny, LaCivita, Scher, or Worker. Nevertheless, it is apparent that Davis,

Doheny, LaCivita, and Scher were each appointed pursuant to Section 3.3(a)(ii)(C),

and under Section 6.6, they were required to execute joinder agreements.235

Additionally, Davis, Doheny, LaCivita, Scher, and Worker each executed the

September 2011 amendment to the Shareholders Agreement, signing “as shareholder

232
JX 1 at 23–24.
233
Id. §§ 6.3, 6.4.
234
Id. § 6.6; id. at 26.
235
Pursuant to Section 3.3 of the Shareholders Agreement, the two Management Directors,
the GB-SP Director, and four independent directors comprised the BSW board. Curtis and
Worker were the Management Directors. Therefore, Davis, Doheny, LaCivita, and Scher
were the four independent directors.

48
and director.”236 Both the Shareholders Agreement and the amendment defined

“shareholders” as “all other holders of shares of capital stock of the Company from

time to time,”237 and the amendment provided that it and the Shareholders

Agreement are “one and the same instrument.” 238 By signing the amendment as

shareholders, each of Davis, Doheny, LaCivita, Scher, and Worker became parties

to and bound by the Shareholders Agreement. Thus, Plaintiffs proved that the Count

V Defendants are all parties to the Shareholders Agreement.

2. The Count V Defendants’ Attempts to Evade Liability are
Without Merit.
The Count V Defendants assert an array of defenses and arguments to evade

liability for breach of the Shareholders Agreement. Each is without merit. First, the

Count V Defendants cite Huff Energy Fund, L.P. v. Gershen, 2016 WL 5462958

(Del. Ch. Sept. 29, 2016), for the proposition that directors or officers “are not liable

on corporate contracts as long as they do not purport to bind themselves

individually.”239 Huff Energy does not help the Count V Defendants. Unlike the

directors in Huff Energy, who bound themselves to the shareholders agreement

236
JX 10 at 3–8. In addition, the stipulation of settlement identified Curtis, Davis, Doheny,
LaCivita, Scher, and Worker as BSW stockholders and was signed on their behalf by their
counsel. Dkt. 47 ¶ 3.
237
JX 1 at 1; JX 10 at 1.
238
JX 10 § 2.
239
BSW Defs.’ Post-Trial Answering Br. 23 (quoting Huff Energy, 2016 WL 5462958, at
*7).

49
solely in their representative capacity, Davis, Doheny, LaCivita, Scher, and Worker

bound themselves individually as “shareholders” to the Shareholders Agreement, as

amended. Cf. Huff Energy, 2016 WL 5462958, at *7 (“While it is true that [the

directors] signed the Shareholders Agreement, it is clear on the face of the document

that they did so in a representative, not individual, capacity. . . . The [directors] were

not personally obligated to perform under the contract and cannot be held liable for

breach of the contract.”).

The Count V Defendants next argue that claims pertaining to the Shareholders

Agreement may only be asserted as part of GB-SP’s fiduciary duty claims.240 This,

too, ignores that Curtis, Davis, Doheny, LaCivita, Scher, and Worker are parties to

the Shareholders Agreement as directors and as stockholders. Cf. Lacey v. Mota-

Velasco, 2021 WL 508982, at *1 (Del. Ch. Feb. 11, 2021) (concluding that claims

asserted against directors, solely in that capacity, for breach of the company’s

certificate of incorporation sounded in fiduciary liability, not contractual liability).

Unlike in Lacey, GB-SP asserted its breach of contract claim against the Count V

Defendants as stockholders and contractual parties to the Shareholders Agreement.

Therefore, Lacey is inapposite, and GB-SP’s claim for breach of the Shareholders

240
Id. at 24.

50
Agreement against the parties to that agreement is a direct claim for breach of

contract.241

The Count V Defendants next contend that they cannot be held liable for

breach of the Shareholders Agreement because they relied on the Company’s

counsel and are protected under 8 Del. C. § 141(e).242 Under Delaware law, directors

are permitted to rely on the advice and counsel of professionals and experts:

A member of the board of directors, or a member of any committee
designated by the board of directors, shall, in the performance of such
member’s duties, be fully protected in relying in good faith upon the
records of the corporation and upon such information, opinions, reports
or statements presented to the corporation by any of the corporation’s
officers or employees, or committees of the board of directors, or by
any other person as to matters the member reasonably believes are
within such other person’s professional or expert competence and who
has been selected with reasonable care by or on behalf of the
corporation.

8 Del. C. § 141(e).

The Count V Defendants’ invocation of Section 141(e) fails for at least three

independent reasons. First, a defense based on Section 141(e) is an affirmative

defense. See Manzo v. Rite Aid Corp., 2002 WL 31926606, at *3 n.7 (Del. Ch. Dec.

19, 2002) (observing that “the protections of § 141(e) would constitute an

241
The Count V Defendants’ argument also ignores that they acknowledged specific
performance and damages would be available against them in the event of a breach of the
Shareholders Agreement. JX 1 § 7.10.
242
BSW Defs.’ Post-Trial Answering Br. 25–27.

51
affirmative defense”), aff’d, 825 A.2d 239 (Del. 2003) (TABLE); In re Trados Inc.

S’holder Litig. (Trados II), 73 A.3d 17, 56 (Del. Ch. 2013) (referring to a defense of

reliance on advisers under Section 141(e) as an “affirmative defense”); In re

Orchard Enters., Inc. S’holder Litig., 88 A.3d 1, 48 (Del. Ch. 2014) (same).

Affirmative defenses are required to be asserted in an answer or in an amended

answer. See Ct. Ch. R. 8(c) (“In responding to a pleading, a party must affirmatively

state any avoidance or affirmative defense.”); Knutkowski v. Cross, 2011 WL

6820335, at *2 (Del. Ch. Dec. 22, 2011) (observing that Court of Chancery Rules

8(c), 12(b), and 15(a) “suggest that a defendant is required to plead affirmative

defenses in her answer, but that, if the defendant fails to do so, the Court has

discretion to allow the defendant to amend her answer”); Anderson v. Hill, 2020 WL

2128738, at *5 n.35 (Del. Ch. May 5, 2020) (“Court of Chancery Rule 8(c) requires

a defendant to raise an affirmative defense . . . in a responsive pleading.”). As a

general rule, the failure to raise an affirmative defense in an answer constitutes

waiver. See Anderson, 2020 WL 2128738, at *5 n.35 (“[An affirmative defense]

was not plead in Defendants’ answer, nor is there a motion before the Court to amend

Defendants’ answer, so that defense is waived unless an amendment is subsequently

sought and allowed.”). Here, the Count V Defendants did not assert a Section 141(e)

defense in their answer and did not at any point seek to amend their answer. Thus,

the defense is waived.

52
Second, the Count V Defendants cite no authority for the proposition that they

can rely on Section 141(e) as a complete defense to claims asserted against them for

breach of the Shareholders Agreement in their capacities as stockholders.243 Third,

the Count V Defendants cite no specific evidence of any attorney advising them that

they could refuse to seat Kinsella as the GB-SP Director or deprive GB-SP of its

information rights under the Shareholders Agreement.244 At best, Akin Gump

created a gauntlet to slow GB-SP from enforcing its rights after it had been acquired

by IEOT. But by March 26, 2013, there could be no mistake that IEOT’s acquisition

of GB-SP had not violated the Shareholders Agreement, and IEOT-controlled

GB-SP had an enforceable right under the Shareholders Agreement to designate

Kinsella as the GB-SP Director and to obtain information as a stockholder.245

3. The Alleged Breaches

With the Count V Defendants’ preliminary defenses resolved, the court

evaluates each provision of the Shareholders Agreement that GB-SP claims was

breached.

243
See id. at 25–27.
244
Worker said it was not in his “purview” to make decisions concerning GB-SP’s rights
and claimed not to know if the Pre-Forbearance Directors discussed Akin Gump’s
conclusions. Tr. 718:4–13, 721:10–17, 728:5–22 (Worker). Worker’s testimony did not
come close to establishing a legitimate defense based on Section § 141(e).
245
See JX 170 at 1.

53
a. Sections 2.1(b) and (c)

Section 2.1(b) of the Shareholders Agreement required BSW to furnish to

each stockholder, as soon as practicable after the end of each fiscal year and in any

event within 120 days thereafter, BSW’s audited consolidated balance sheet, income

statement, and cash flow statement.246 Section 2.1(c) required BSW to furnish to

each shareholder, as soon as practicable after the end of the first, second, and third

quarterly accounting periods and in any event within 45 days thereafter, a

consolidated balance sheet, income statement, and cashflow statement. 247

GB-SP, in all relevant periods to this dispute, was a stockholder of BSW.248

BSW’s fiscal year ended on December 31, 2012. Under the Shareholders

Agreement, BSW had 120 days from that date to provide GB-SP with BSW’s

audited consolidated balance sheet, income statement, and cash flow statement. The

first quarter ended on March 31, 2013, triggering BSW’s obligation to provide

GB-SP with a consolidated balance sheet, income statement, and cash flow

statement within 45 days. On June 14, 2013, more than two months after the yearly

information was due and around a month after the quarterly information was due,

GB-SP had yet to receive the required financial information and sent a letter to BSW

JX 1 § 2.1(b). Section 2.1(b) did not impose an obligation on stockholders, just the
246

Company.
247
Id. § 2.1(c).
248
PTO ¶¶ 6, 25; Tr. 13:13–20 (Kinsella).

54
requesting it. 249 GB-SP again renewed its request on July 10, 2013, asking for

largely the same information 250 and noting that since its last letter, “most of the

demanded documents and other materials have not been provided.” 251

Despite these repeated requests and GB-SP’s contractual rights to receive the

requested information, the Count V Defendants did not fulfill these requests.

GB-SP’s July 10 letter noted that most of the demanded documents had not yet been

delivered. The Count V Defendants do not attempt to argue that these requests were

ever fulfilled. GB-SP should not have even needed to request this information, as

BSW was required to deliver it under the Shareholders Agreement. When BSW

failed to deliver the required information, BSW breached Sections 2.1(b) and (c) of

the Shareholders Agreement.

b. Section 2.2

Section 2.2 of the Shareholders Agreement required BSW to provide a

stockholder with information relating to the financial condition, business, prospects,

249
JX 47.
250
The requests made on June 14, 2013, differ from those made on July 10, 2013, in two
respects. The first request sought an audited consolidated balance sheet, income statement,
and cash flow statement for fiscal years ended December 31, 2012, and December 31,
2013. JX 47 at 3. The second request sought the same information, but for fiscal years
ended December 31, 2011, and December 31, 2012. JX 48 at 4. The second request also
sought “all documents relating to the investment in BSW by Versa [] or any of its
affiliates.” Id. at 5.
251
JX 48 at 2.

55
or corporate affairs of BSW that a stockholder reasonably requested.252 GB-SP’s

June 14 and July 10 letters also requested BSW’s organizational documents, records

from board and stockholder meetings, information about the Company’s capital

structure, and other reasonable categories of information under Section 2.2.253 As

with the financial statements, GB-SP did not receive this information despite

repeated requests over several months. The Company does not dispute the

reasonableness of GB-SP’s requests or contend that the Company had a right to

withhold such information. BSW simply failed to comply with GB-SP’s requests

and kept GB-SP in the dark, thereby violating GB-SP’s inspection rights as a

stockholder under Section 2.2 of the Shareholders Agreement. When BSW failed to

deliver the required information, BSW also breached Section 2.2 of the Shareholders

Agreement.

c. Section 3.3(a)(ii)(A)
Section 3.3 of the Shareholders Agreement detailed the procedures for

electing or designating members to BSW’s board of directors. Section 3.3(a) states:

For so long as any obligations under the Senior Credit Agreement
remain outstanding or the Senior Lenders hold any Shares or the
Warrants, each Shareholder will vote all of its Voting Stock and take
all other necessary or desirable actions within its control (whether in
the capacity of stockholder, director, member of the executive

252
JX 1 § 2.2. Section 2.2 did not impose an obligation on stockholders, just the Company.
253
JX 47 at 3–5; JX 48 at 4–6.

56
committee or officer of the Company or otherwise) in order to
accomplish the following:

(i) Cause the Board to consist of not more than seven (7)
members; and

(ii) If necessary for the election of such individuals to the
Board, vote all of its Voting Stock in favor of the following
persons:

(A) One (1) representative designated by [GB-SP] who
shall not be an executive of the Company . . . (the
“[GB-SP] Director”)[.] 254

Preventing a stockholder from exercising its bargained-for contractual protections in

a stockholders agreement constitutes a violation of the implied obligation to perform

the stockholders agreement in good faith. See Moore Bus. Forms, Inc. v. Cordant

Hldgs. Corp., 1998 WL 71836, at *8 (Del. Ch. Feb. 4, 1998), as revised (Mar. 5,

1998). Section 3.3(a)(ii)(A) required the Pre-Forbearance Directors, as

stockholders, to take all actions necessary or desirable to vote their stock in favor of

electing Kinsella as the GB-SP Director.

On December 24, 2012, IEOT sent a letter notifying BSW that IEOT “now

owns all of the issued and outstanding common stock in BSW previously owned by

GB-SP.”255 The letter also notified BSW that IEOT was appointing Kinsella as the

254
JX 1 § 3.3(a).
255
PTO ¶ 22; JX 23 at 4.

57
GB-SP Director.256 At this point, the Pre-Forbearance Board should have begun

taking the actions necessary to elect Kinsella as the GB-SP Director. Instead, on

December 28, 2012, Berchem from Akin Gump and Worker began scheming to

devise any basis to prevent Kinsella from being seated on the board. First, they

questioned the propriety of Kinsella’s ownership of GB-SP.257 This concern grew

out of GB-SP’s December 24, 2012 letter, which could be read to suggest that GB-

SP had directly transferred its BSW stock to IEOT. A transfer of GB-SP’s BSW

stock might have violated transfer restrictions imposed by GB-SP’s operating

agreement and the notice provisions of the Shareholders Agreement.258 On January

4, 2013, however, IEOT clarified that it had acquired ownership of GB-SP itself, and

GB-SP was still the owner of the BSW shares. 259 Having explained why BSW’s

concerns regarding GB-SP’s letter were unfounded, GB-SP renewed its demand to

have Kinsella seated as the GB-SP Director and to receive the requested

documents.260

256
Id.
257
See JX 217; JX 218.
258
JX 24 at 2.
259
JX 25 at 1.
260
Id. at 2.

58
For the next ten months, BSW and the Pre-Forbearance Directors stonewalled

GB-SP and prevented Kinsella from being seated until October 11, 2013.261 GB-SP

proved that each of the Count V Defendants failed to take “all . . . necessary or

desirable actions within its control” to seat Kinsella on the BSW board. 262 The

ten-month delay in seating Kinsella was antithetical to the Count V Defendants’

obligations in the Shareholders Agreement and constituted a breach of Section

3.3(a)(ii)(A).263 Because the Count V Defendants breached Section 3.3(a)(ii)(A),

GB-SP was deprived of its governance rights in Sections 3.3(a)(ii)(C) and 3.6(d).

4. The Remedy for Breach of the Shareholders Agreement

GB-SP seeks various forms of relief for breach of the Shareholders

Agreement. First, it seeks rescission of all board action taken after the Count V

261
See JX 29, JX 36, JX 39, JX 40, JX 43, JX 46, JX 52, JX 61 (February 4, March 10,
April 2, April 9, May 2, June 12, August 2, and September 17, 2013 board meetings held
without a GB-SP designee); JX 45, JX 47, JX 48, JX 57 (June 10, June 14, July 10, August
20, 2013 letters to BSW and Akin Gump pressing for GB-SP’s informational and corporate
governance rights under the Shareholders Agreement).
262
JX 1 § 3.3(a).
263
The Count V Defendants make two other arguments that do not merit serious
consideration. First, they argue that the delay did not harm Kinsella because “[o]nce
Kinsella was seated on the Board, he had ample opportunity to voice his thoughts on the
best solution to BSW’s debt crisis.” BSW Defs.’ Post-Trial Answering Br. 33. But by
October 2013, the Company had already entered into the Forbearance Agreement, and by
failing to elect Kinsella, the Count V Defendants had already breached the Shareholders
Agreement. Second, the Count V Defendants point to the director exculpation provision
in Section 7(a) of BSW’s amended and restated certificate of incorporation. Id. at 36–37;
see JX 5 § 7(a). Section 7(a) of BSW’s certificate exculpates directors from personal
liability for money damages for duty of care claims, not breach of contract claims in their
individual capacities as parties to the Shareholders Agreement.

59
Defendants refused to seat Kinsella as a director.264 Second, in the alternative, GB-

SP seeks rescissory damages.265 Third, GB-SP seeks an order requiring the

production of information sought under the Shareholders Agreement.266 GB-SP

separately argues that it is entitled to its attorneys’ fees and costs pursuant to Section

7.6 of the Shareholders Agreement.267

a. Rescission

Rescission is an equitable remedy that “results in abrogation or ‘unmaking’

of an agreement, and attempts to return the parties to the status quo.” Norton v.

Poplos, 443 A.2d 1, 4 (Del. 1982). Rescission is an extraordinary remedy and is

granted in “rare scenarios.” Grzybowski v. Tracy, 2013 WL 4053515, at *7 (Del.

Ch. Aug. 9, 2013); see Craft v. Bariglio, 1984 WL 8207, at *12 (Del. Ch. Mar. 1,

1984) (“[R]escission will not be granted unless the Court can and does, by its decree,

restore the parties substantially to the position which they occupied before making

the contract.”). GB-SP acknowledges that rescission is impractical at this stage,

given that the challenged transactions occurred more than a decade ago. 268 Instead,

it seeks the alternative remedy of rescissory damages.

264
Pls.’ Post-Trial Opening Br. 54–56.
265
Id. at 55.
266
Id. at 48.
267
Id. at 49; Pls.’ Post-Trial Reply Br. 7.
268
Pls.’ Post-Trial Opening Br. 11, 55.

60
b. Rescissory Damages

Rescissory damages are the “monetary equivalent of rescission,” and may be

awarded if the remedy of rescission is impractical but otherwise warranted. Lynch

v. Vickers Energy Corp., 429 A.2d 497, 501 (Del. 1981), overruled in part on other

grounds by Weinberger v. UOP, Inc., 457 A.2d 701 (Del. 1983). “Rescissory

damages are designed to be the economic equivalent of rescission in a circumstance

in which rescission is warranted, but not practicable.” Gotham P’rs, L.P. v.

Hallwood Realty P’rs, L.P., 855 A.2d 1059, 1072 (Del. Ch. 2003), aff’d, 840 A.2d

641 (Del. 2003) (TABLE). “[R]escissory damages are the exception, not the rule.”

Universal Enter. Gp., L.P. v. Duncan Petroleum Corp., 2014 WL 1760023, at *6

(Del. Ch. Apr. 29, 2014), aff’d, 99 A.3d 228 (Del. 2014) (TABLE).

An award of rescissory damages “rests in the court’s sound discretion.”

Telstra Corp. v. Dynegy, Inc., 2003 WL 1016984, at *8 n.22 (Del. Ch. Mar 4, 2003).

Rescissory damages are inappropriate here for the simple reason that GB-SP has

delayed far too long in presenting its claim. “It is a well-established principle of

equity that a plaintiff waives the right to rescission by excessive delay in seeking it.”

Gotham P’rs L.P. v. Hallwood Realty P’rs, L.P., 817 A.2d 160, 174 (Del. 2002)

(internal quotation marks omitted); see In re S. Peru Copper Corp. S’holder Deriv.

Litig., 52 A.3d 761, 815 (Del. Ch. 2011) (stating that a “plaintiff’s delay in litigating

the case renders it inequitable to use a rescission-based approach”), aff’d sub nom.

61
Ams. Mining Corp. v. Theriault, 51 A.3d 1213 (Del. 2012). Accordingly, “if

rescission itself is unwarranted because of the plaintiff’s delay, so are rescissory

damages.” S. Peru Copper, 52 A.3d at 815.

GB-SP has unreasonably delayed in seeking rescissory relief. GB-SP could

have asserted its claims to enforce its inspection and director designation rights in

early 2013 after BSW rejected its initial requests. Instead, GB-SP waited until

March 2014 to file this action, five months after Kinsella had already been seated as

a director, and after the Post-Forbearance Board had approved the Consensual

Foreclosure. Moreover, even after filing the complaint, GB-SP delayed for years in

litigating the case. Accordingly, GB-SP is not entitled to rescissory damages for

breach of the Shareholders Agreement. See Cobalt Operating, LLC v. James Crystal

Enters., LLC, 2007 WL 2142926, at *29 (Del. Ch. July 20, 2007) (stating that

rescinding a transaction five years after its consummation would be an extraordinary

remedy), aff’d, 945 A.2d 592 (Del. 2008) (TABLE); S. Peru Copper, 52 A.3d at 815

(declining to award rescissory damages where plaintiffs delayed in litigating their

case); but see Orchard Enters., 88 A.3d at 40–41 (refusing, at the summary judgment

stage, to preclude an award of rescissory damages where plaintiff waited two years

to file its complaint and discussing cases where rescissory damages were awarded

with even greater delays). GB-SP’s delay in asserting its contract claims and then

62
its prolonged delay in bringing its case to trial renders rescissory damages an unjust

result at this stage. 269

c. Compensatory Damages

GB-SP has proved that the Count V Defendants breached the Shareholders

Agreement and that those breaches deprived GB-SP of its information and

governance rights. In a breach of contract case, the non-breaching party is entitled

to recover “damages that arise naturally from the breach or that were reasonably

foreseeable at the time the contract was made.” Tackett v. State Farm Fire & Cas.

Ins. Co., 653 A.2d 254, 265 (Del. 1995). “Contract damages ‘are designed to place

the injured party in an action for breach of contract in the same place as he would

have been if the contract had been performed. Such damages should not act as a

windfall.’” Paul v. Deloitte & Touche, LLP, 974 A.2d 140, 146 (Del. 2009) (quoting

Huggins v. B. Gary Scott, Inc., 1992 WL 179482, at *1 (Del. Super. June 25, 1992)).

269
GB-SP also fails to articulate a coherent rescissory damages theory. “Rescissory
damages restore a plaintiff to the position occupied before the defendant’s wrongful acts.”
Schultz v. Ginsburg, 965 A.2d 661, 669 (Del. 2009) (internal quotation marks omitted),
overruled on other grounds by Urdan v. WR Cap. P’rs, LLC, 244 A.3d 668 (Del. 2020).
GB-SP attempts to equate the value of GB-SP’s equity interest to the value of GB-SP’s
information and governance rights. See JX 157 at 18–19, 20 (Plaintiffs’ expert valuing
GB-SP’s equity interest in BSW as $4.8 million as of December 31, 2012); Pls.’ Post-Trial
Opening Br. 46 (arguing that GB-SP has rescissory damages of either $4.8 million, or
alternatively, $2.5 million, which represents the value of GB-SP’s equity interest as of
December 13, 2013). But GB-SP does not explain how awarding it the value of its equity
stake in BSW would put it in the same position as if GB-SP had received the information
that it requested and if BSW had promptly seated Kinsella as the GB-SP Director.

63
“‘Expectation damages are measured by the losses caused and gains prevented by

defendant’s breach.’” Id. at 146–47 (quoting ATACS Corp. v. Trans World

Commc’ns, Inc., 155 F.3d 659, 669 (3d Cir. 1998)).

Quantifying the value of governance rights is a difficult endeavor. See W.

Palm Beach Firefighters’ Pension Fund v. Moelis & Co., 311 A.3d 809, 860, 865

(Del. Ch. 2024) (explaining that “[g]overnance arrangements . . . involve control

rights [] so the presumptive remedy will be equitable relief enforcing the right” and

“it would be difficult for a court to construct a damages remedy for breach”); see

also Avner Kalay, The Market Value of Corporate Votes: Theory and Evidence from

Option Prices, 69 J. Fin. 1235, 1236 (2014) (explaining that “[s]eparating the value

of voting rights from that of cash flow rights . . . is not trivial” and analyzing three

different methods of estimating the value of voting rights). GB-SP does not attempt

to establish the value of its information and governance rights or to present a

damages theory. The court declines to do so on its own. That does not mean,

however, that GB-SP is entitled to no relief.

“Even if compensatory damages cannot be or have not been demonstrated, the

breach of a contractual obligation often warrants an award of nominal damages.”

Ivize of Milwaukee, LLC v. Compex Litig. Support, LLC, 2009 WL 1111179, at *12

(Del. Ch. Apr. 27, 2009); LaPoint v. AmerisourceBergen Corp., 2007 WL 2565709,

at *9 (Del. Ch. Sept. 4, 2007) (“[W]here the amount of damages may not be

64
estimated with reasonable certainty despite a showing of breach on the part of

defendant, the Court may still award nominal damages.”), aff’d, 956 A.2d 642 (Del.

2008) (TABLE). Nominal damages are “‘usually assessed in a trivial amount,

selected simply for the purpose of declaring an infraction of the Plaintiff’s rights and

the commission of a wrong.’” Ivize of Milwaukee, 2009 WL 1111179, at *12

(quoting Penn Mart Supermarkets, Inc. v. New Castle Shopping LLC, 2005 WL

3502054, at *15 (Del. Ch. Dec. 15, 2005)).

The Count V Defendants argue that the breach of contract claim has no

associated harm, as Kinsella’s vote, numerically, would not have changed the

board’s ultimate decisions. That cannot be the case. Delaware has a board-centric

system. See OptimisCorp v. Waite, 137 A.3d 970, 970 (Del. 2016) (TABLE) (noting

that Delaware “value[s] the collaboration that comes when the entire board

deliberates on corporate action and when all directors are fairly accorded material

information”); J. Travis Laster & John Mark Zeberkiewicz, The Rights & Duties of

Blockholder Directors, 70 Bus. Law. 33, 35 (2015) (“Delaware corporate law

embraces a ‘board-centric’ model of governance. This model expects that all

directors will participate in a collective and deliberative decision-making process.”).

As a foundational case in this jurisdiction has explained:

Each member of a corporate body has the right to consultation with the
others and has the right to be heard upon all questions considered, and
it is presumed that if the absent members had been present they might
have dissented and their arguments might have convinced the majority

65
of the unwisdom of their proposed action, and thus have produced a
different result.

Lippman v. Kehoe Stenograph Co., 95 A. 895, 899 (Del. Ch. 1915) (internal

quotation marks omitted). In recognition of this principle, “[w]e proceed on the

premise that if proper procedures were followed, then even a director in the minority

could, like the 12th juror, sway the rest of his board colleagues to what he believed

was the right answer.” Perry v. Sheth, C.A. No. 2020-0024-JTL, at 51:21–52:1 (Del.

Ch. Jan. 16, 2020) (TRANSCRIPT). The Count V Defendants’ breach of the

Shareholders Agreement prevented GB-SP’s designee from being heard in the

boardroom. They also purposefully delayed seating Kinsella so as to prevent him

from exercising the contractual right to vote on the Forbearance Agreement and to

appoint the independent directors who would replace Davis, Doheny, LaCivita, and

Scher when they agreed not to seek re-election. GB-SP was harmed and is entitled

to a remedy.

Accordingly, having proved breach, but having failed to prove damages, GB-

SP is awarded nominal damages of $1.

d. Attorneys’ Fees and Expenses

“Delaware generally follows the American Rule, under which litigants are

responsible for their own attorneys’ fees, regardless of the outcome of the lawsuit.”

Bako Pathology LP v. Bakotic, 288 A.3d 252, 280 (Del. 2022). An exception to the

American Rule “is found in contract litigation that involves a fee shifting provision.”

66
Id. (internal quotation marks omitted). When a contract contains a fee shifting

provision, Delaware courts will enforce that provision. Id.

Section 7.6 of the Shareholders Agreement provides that the prevailing party

in any dispute “shall be entitled to recover from the losing party all fees, costs and

expenses of enforcing any right of such prevailing party under or with respect to [the

Shareholders] Agreement,” including reasonable attorneys’ fees and expenses.270

Having prevailed in proving a breach of the Shareholders Agreement, GB-SP is

entitled to recover under Section 7.6 its attorneys’ fees and expenses incurred in

proving the Count V Defendants’ breach of the Shareholders Agreement.

B. Count VI (Tortious Interference with Shareholders Agreement)

In the complaint, GB-SP asserted a claim against the Versa Defendants for

tortious interference with the Shareholders Agreement. 271 On May 31, 2018, the

court granted the Versa Defendants’ motion to dismiss this claim with prejudice.272

In their post-trial briefing, however, GB-SP seeks to resurrect this claim.273 GB-SP

may not do so. A “dismissal with prejudice is law of the case.” Sciabacucchi v.

Malone, 2021 WL 3662394, at *1 (Del. Ch. Aug. 18, 2021). “The law of the case

doctrine . . . is intended to prevent pernicious serial litigation of issues already

270
JX 1 § 7.6.
271
Compl. ¶¶ 100–02.
272
Dkt. 92 at 26:1–8.
273
Pls.’ Post-Trial Opening Br. 10–11, 49–51; Pls.’ Post-Trial Reply Br. 19–25.

67
decided in the matter at bar.” Id. “The efficient disposition of a case requires that

each stage of litigation build on the previous stages, and that parties not be free to

relitigate every earlier ruling.” Nebel v. Sw. Bancorp., Inc., 1999 WL 135259, at *5

(Del. Ch. Mar. 9, 1999). “[T]o avoid dismissal under the law of the case doctrine,

the plaintiffs must submit some new information or allegations that would serve to

revitalize the claims that were previously raised, adjudicated, and found deficient.”

Id. Thus, “[o]nly where the moving party can show that justice compels departure

from the doctrine due to clear error, injustice, or a change in circumstances is such

relief granted.” Sciabacucchi, 2021 WL 3662394, at *1.

Plaintiffs do not attempt to address the law of the case doctrine in their

briefing. Accordingly, they have waived any argument against its application. See

Emerald P’rs v. Berlin, 726 A.2d 1215, 1224 (Del. 1999) (“Issues not briefed are

deemed waived.”). As such, here, the law of the case doctrine operates to bar the

re-litigation of Count VI.

C. Count IV (Violation of BSW’s By-Laws)

Count IV alleges that the BSW Defendants breached BSW’s by-laws by not

providing notice of board meetings to Kinsella or permitting him to attend board

meetings from late December 2012 until his election in October 2013. The BSW

Defendants argue that the exclusion of Kinsella from board meetings prior to

October 11, 2013, did not violate the by-laws because Kinsella was not a director

68
prior to that date.274 Because Kinsella was not a director, the BSW Defendants

maintain that Kinsella had no right to be informed of or participate in board

meetings. The court agrees. Under the by-laws, Kinsella had no right to receive

notice of or to attend board meetings until he became a director. 275 The Company’s

refusal to seat Kinsella as a director violated the Shareholders Agreement, not the

by-laws.

In addition, Kinsella claims that the BSW Defendants violated the by-laws

because the March 2, 2014 special meeting of the board was not called by the

President, and Kinsella did not receive timely notice of the meeting. Kinsella argues

that the actions taken at the March 2 special meeting were void ab initio and not

subject to ratification. 276

As a general matter, “[u]nlike with regular meetings, directors must be given

notice of special meetings.” Klaassen v. Allegro Dev. Corp., 106 A.3d 1035, 1045

n.64 (Del. 2014); see also Lippman, 95 A. at 898 (“It is, of course, fundamental that

a special meeting held without due notice to all the directors is not lawful[.]”). The

274
BSW Defs.’ Post-Trial Answering Br. 44.
275
JX 2 Art. III § 6 (“Regular meetings of the Board of Directors may be held with one (1)
day’s notice to each director[.]” (emphasis added)); id. Art III § 7 (“Special meetings of
the Board of Directors may be called by the President on two (2) days’ notice to each
director[.]” (emphasis added)).
276
Pls.’ Post-Trial Opening Br. 52–55.

69
BSW by-laws required two-days’ notice for special meetings of the board.277

Kinsella argues that the BSW Defendants breached the by-laws because notice of

the March 2 special meeting was sent eight minutes after the two-day notice

deadline. Kinsella cites to this court’s decisions in Schroder v. Scotten, Dillon

Company, 299 A.2d 431 (Del. Ch. 1972), Moore Business Forms, Inc. v. Cordant

Holdings Corporation, 1998 WL 71836 (Del. Ch. Feb. 4, 1998), and Rainbow

Mountain v. Begeman, 2017 WL 1097143 (Del. Ch. Mar. 23, 2017), in support of

his position.

In Schroder, a board of directors failed to provide notice to a director of one

special meeting and falsely informed the same director that a second special meeting

was rescheduled. 299 A.2d at 435–36. This court held that the actions taken at both

meetings were invalid because the director did not receive notice of the meetings,

and “special meeting[s] held without due notice to all directors as required by the

by-laws [are] not lawful and all acts done at such [] meeting[s] are void.” Id. at 435.

This court also held that the director’s absence at the second meeting was procured

by trickery because the board chairman represented that the meeting had been

rescheduled, and the director relied on that representation in not attending the

277
JX 2 Art. III § 7. The by-laws do not speak in terms of hours or minutes. The BSW
Defendants concede that the notice was late but argue that the minor delay does not
constitute a breach because Kinsella would not have seen the notice until the next morning
even if it had been sent eight minutes earlier. BSW Defs.’ Post-Trial Answering Br. 46–
48.

70
meeting. Id. at 436 (“A quorum obtained by trickery is invalid, and the reasoning

which forbids trickery in securing a quorum applies equally well to securing the

absence of opposing directors from a meeting by representing that such a meeting

will not be held.” (citations omitted)).

In Moore, a board of directors intentionally did not give notice of a special

meeting to a director. 1998 WL 71836, at *4, *7. At a second special meeting a few

weeks later that the director attended, the board purported to ratify resolutions that

it had adopted at the first special meeting. Id. at *7. This court held that actions

taken at the first special meeting were void and could not be ratified because the

director was intentionally not given notice of the meeting. Id. In doing so, this court

observed that “Delaware law is well settled that board action taken in the absence of

a director, where the absence is obtained by trickery or deceit or where notice of a

special meeting was not given to a director, is void.” Id.

In Rainbow Mountain, the court held that two members were removed without

cause in violation of the company’s by-laws because they were not given notice of

their proposed removal or the opportunity to be heard. 2017 WL 1097143, at *9.

Because the removal contravened the company’s by-laws, the court concluded that

equitable defenses could not be asserted, and the defendant was not estopped to

71
argue that the members were improperly terminated even though he participated in

their removal. Id. at *10.278

These cases are distinguishable. Rainbow Mountain did not involve a dispute

over notice of a special board meeting, so it is inapposite. And, unlike in Schroder

and Moore, there was no trickery employed by the BSW Defendants to procure

Kinsella’s absence at the special meeting. 279 Kinsella received notice of the special

278
The court in Rainbow Mountain cited approvingly the following proposition:
Delaware law distinguishes between (i) a failure to give notice of a board
meeting in the specific manner required by the bylaws and (ii) a contention
that the lack of notice was inequitable. In the former scenario, board action
taken at the meeting is void. In the latter scenario, board action is voidable
in equity, so equitable defenses apply. . . . [T]raditionally when a board took
action in contravention of a mandatory bylaw, the board action was treated
as void.
2017 WL 1097143, at *9 (quoting Klaassen v. Allegro Dev. Corp., 2013 WL 5739680, at
*19 (Del. Ch. Oct. 11, 2013), aff’d, 106 A.3d 1035 (Del. 2014)). The Supreme Court
affirmed the holding in Klaassen but declined to opine on this rule. Klaassen, 106 A.3d at
1046 n.75 (“We need not approve or disapprove that rule, because such a broad
pronouncement is not necessary to decide this case.”). In a later case, this court questioned
whether Klaassen accurately expressed the rule, explaining instead that “action taken in
violation of a bylaw” should be treated “as voidable, not void (as long as it was action that
the corporation otherwise had authority to take under the DGCL and in compliance with
its certificate of incorporation.” XRI Inv. Hldgs. LLC v. Holifield, 283 A.3d 581, 667 (Del.
Ch. 2022), aff’d in part, rev’d in part, 304 A.3d 896 (Del. 2023). The Supreme Court did
not address this issue on appeal. XRI Inv. Hldgs., 304 A.3d at 918 n.93.
279
Both parties cite to this court’s decision in Pepsi-Cola Bottling Company v. Woodlawn
Canners, Inc., 1983 WL 18017 (Del. Ch. Mar. 14, 1983). Unlike in this case, the by-laws
at issue in Pepsi-Cola expressly provided that notice was not required for special board
meetings. Id. at *12. As such, Pepsi-Cola is distinguishable.

72
meeting, appreciated its significance, and decided not to attend. 280 At no time prior

to the meeting did Kinsella complain that the notice failed to comply with the

by-laws.

The purpose of advanced notice for special board meetings is to ensure full

participation in corporate democracy and to disincentivize conduct designed to

prevent directors from participating in board decision making. See Lippman, 95 A.

at 898; OptimisCorp, 137 A.3d at 970. Kinsella was not prevented from

participating in the board’s decision-making process. To the contrary, Kinsella was

aware of the special meeting and could have attended but made the decision not to.281

In light of these circumstances, the court concludes that the minor delay in the

delivery of notice does not warrant invalidating the actions taken at the special

meeting.

Kinsella next argues that the BSW Defendants breached the by-laws because

“the [special] meeting was not called by the President or upon written request by

280
Tr. 61:7–22 (Kinsella) (explaining that he “decided not to attend [the special meeting]
in protest”). Kinsella also conceded at trial that the delay was probably the result of
“human error,” and even if the notice had been sent eight minutes earlier, he still would
not have seen it until the next morning. Id. at 61:17, 163:20–164:20 (Kinsella).
281
JX 161 at 146:19–20 (Kinsella Dep.) (“It would’ve have been no problem to attend [the
special meeting] by telephone.”); Tr. 164:21–165:4 (Kinsella) (“Q. And it would have
been easy for you to attend the board meeting because it was telephonic; right, sir? A. I
think I could have made the phone call, all right, if I -- yes, I think I could. Q. Right. And
you chose not to; right, sir? A. I chose not to, yes.”).

73
two directors.”282 The by-laws provide that “[s]pecial meetings . . . may be called

by the President . . . [and] shall be called by the President . . . upon the written

request of a [sic] two (2) of the directors then in office.” 283 The by-laws further

provide that “[a]ny notice may be given by the Secretary.” 284 At the time the notice

was sent, Holland from Akin Gump was acting as BSW’s secretary. 285 Under the

by-laws, “[t]he Secretary . . . shall perform such other duties as may be prescribed

by the Board of Directors or President, under whose supervision he shall be.”286

There is nothing in the record to indicate that Holland was not acting on behalf of

the board or the President when he sent the notice of the special meeting—BSW’s

President, Curtis, was not deposed and did not testify at trial. 287 As such, the court

concludes that the BSW Defendants did not breach the by-laws.

282
Pls.’ Post-Trial Opening Br. 53.
283
JX 2 Art. III § 7.
284
Id.
See JX 111 at 4 (February 25, 2014 board meeting minutes signed by Holland as “Acting
285

Secretary”); JX 116 at 5 (March 2, 2014 board meeting minutes signed by Holland as
“Acting Secretary”).
286
JX 2 Art. VI § 10.
287
To the extent there is any dispute over whether Holland’s sending of the notice
constituted a breach of the by-laws, the court concludes that no breach occurred. As acting
Secretary, Holland was authorized under the by-laws to send notice of the special meeting.
Id. Art. VI § 10 (“The Secretary shall give, or cause to be given, notice of all meetings of
the stockholders and special meetings of the Board of Directors[.]”). Further, the
requirement of who sends the notice “must be regarded as precatory and ministerial, not
mandatory.” In re Bigmar, Inc., 2002 WL 550469, at *19 (Del. Ch. Apr. 5, 2002); see,
e.g., Sarabyn v. Jessco, Inc., 1978 WL 2504, at *2 (Del. Ch. Sept. 20, 1978) (declining to

74
D. Count I (Breach of Fiduciary Duty)
Count I is a derivative claim for breach of fiduciary duty against the Director

Defendants. 288 “A claim for breach of fiduciary duty requires proof of two elements:

(1) that a fiduciary duty existed and (2) that the defendant breached that duty.”

Beard Rsch., Inc. v. Kates, 8 A.3d 573, 601 (Del. Ch. 2010), aff’d sub nom. ASDI,

Inc. v. Beard Rsch., Inc., 11 A.3d 749 (Del. 2010).

Directors of Delaware corporations owe two fundamental fiduciary duties to

the corporation and its stockholders—the duty of care and the duty of loyalty. Polk

v. Good, 507 A.2d 531, 536 (Del. 1986). “The fiduciary relationship requires that

the directors act prudently, loyally, and in good faith to maximize the value of the

corporation over the long-term[.]” Frederick Hsu Living Tr. v. ODN Hldg. Corp.

(ODN I), 2017 WL 1437308, at *18 (Del. Ch. Apr. 14, 2017), corrected (Apr. 25,

2017) (citing Gantler v. Stephens, 965 A.2d 695, 706 (Del. 2009)); see also Dohmen

v. Goodman, 234 A.3d 1161, 1168 (Del. 2020) (“These duties ‘do[] not operate

intermittently’ but are ‘the constant compass by which all director actions for the

corporation and interactions with its shareholders must be guided.’” (alteration in

original) (quoting Malone v. Brincat, 722 A.2d 5, 10 (Del. 1998))).

issue a TRO to enjoin a special meeting of stockholders where the notices and proxy
materials were sent by the company’s president instead of the secretary as provided by the
by-laws and characterizing the objection as “hyper-technical”).
288
The court previously concluded that demand was excused as to the fiduciary duty
claims. Dkt. 92 at 13:18–15:4.

75
When a Delaware corporation is facing insolvency, a director’s fiduciary

responsibilities “do[] not change: directors must continue to discharge their

fiduciary duties to the corporation and its shareholders by exercising their business

judgment in the best interests of the corporation for the benefit of its shareholder

owners.” N. Am. Cath. Educ. Programming Found., Inc. v. Gheewalla, 930 A.2d

92, 101 (Del. 2007); see also McRitchie v. Zuckerberg, 315 A.3d 518, 546 (Del. Ch.

2024) (“[E]ven in the vicinity of insolvency, the directors remain[] obligated to

strive to increase the value of the corporation for the ultimate benefit of its

stockholders.”).

When a Delaware corporation becomes insolvent, directors “continue to owe

fiduciary duties to the corporation for the benefit of all of its residual claimants, a

category which now includes creditors.” Quadrant Structured Prods. Co., Ltd. v.

Vertin, 115 A.3d 535, 546–47 (Del. Ch. 2015).289 In circumstances of insolvency, a

director’s duty to maximize the long-term value of the corporation does not

necessarily equate to “acting to ensure the corporation’s perpetual existence.” ODN

I, 2017 WL 1437308, at *19. Rather, “the efficient liquidation of an insolvent firm

289
As this court recently explained, when a corporation is insolvent, “the value of the
corporation is insufficient to pay all of its fixed claimants and leave a residuum. The
residual distribution—in the sense of the last money the corporation has—goes at least
partially to pay a class of creditors. Those not-fully-paid creditors therefore enter the class
of residual claimants.” McRitchie, 315 A.3d at 547. Directors, however, “do not owe
fiduciary duties to creditors in their capacities as creditors” after the point of insolvency—
only as residual claimants. Id.

76
might well be the method by which the firm’s value is enhanced.” Prod. Res. Gp.,

L.L.C. v. NCT Gp., Inc., 863 A.2d 772, 791 n.60 (Del. Ch. 2004); see, e.g., Quadrant

Structured Prods., 115 A.3d at 546–47 (noting that directors of an insolvent

company may make a business judgment that “the best route to maximize the firm’s

value” is to cease operations and distribute assets to the company’s creditors).

GB-SP asserts that the Director Defendants breached their fiduciary duties by

approving the Forbearance Agreement and the Consensual Foreclosure and contends

that the court should consider both as a single transaction constituting a single

fiduciary breach by the Director Defendants collectively. While these two

transactions appear, in hindsight, to be causally related, the record does not support

GB-SP’s proffered approach. Simply put, GB-SP challenges two different decisions

made by two different boards separated in time by several months. There is no

evidence that Davis, Doheny, LaCivita, and Scher, who did not stand for re-election

in October 2013, played any role in approving the Consensual Foreclosure. Nor has

GB-SP articulated how Albright, Orlofsky, and Walker, who joined the board in

October 2013, could have breached their fiduciary duties as directors in connection

with a transaction that predated their tenure on the board. Accordingly, the court

considers the merits of the fiduciary claim as against the Pre-Forbearance Directors

77
with respect to the Forbearance Agreement, and as against the Post-Forbearance

Directors with respect to the Consensual Foreclosure.290

1. Approval of the Forbearance Agreement

a. Standard of Review

Delaware has three levels of judicial review for evaluating director decision-

making: the business judgment rule, enhanced scrutiny, and entire fairness. Unitrin,

Inc. v. Am. Gen. Corp., 651 A.2d 1361, 1371 (Del. 1995); Reis v. Hazelett

Strip-Casting Corp., 28 A.3d 442, 457 (Del. Ch. 2011). GB-SP argues that the entire

fairness standard of review applies to the approval of the Forbearance Agreement

because a majority of the Pre-Forbearance Board was interested in the transaction.

The Pre-Forbearance Directors argue that their decision to approve the Forbearance

Agreement is subject to the business judgment rule. 291

The “default standard of review is the business judgment rule, which is a

‘presumption that in making a business decision[,] the directors of a corporation

acted on an informed basis, in good faith and in the honest belief that the action taken

was in the best interests of the company.’” In re Match Gp., Inc. Deriv. Litig., 315

290
Evaluating the facts that underly the fiduciary duty claims is not an easy task on this
record. Only three of the nine Director Defendants testified in this case, either at trial or
by deposition—Orlofsky, Walker, and Worker. Worker was the only Pre-Forbearance
Director that testified. None of the Company’s advisers testified at trial or were deposed,
and the Defendants did not offer any expert testimony. The court must rely heavily on the
documentary record, which is also incomplete in many respects.
291
Neither party argues that enhanced scrutiny is the applicable standard of review.

78
A.3d 446, 459 (Del. 2024) (alteration in original) (quoting Aronson v. Lewis, 473

A.2d 805, 812 (Del. 1984), overruled in part by Brehm v. Eisner, 746 A.2d 244 (Del.

2000)).292 “If the business judgment standard of review applies, a court will not

second guess the decisions of disinterested and independent directors. The

reviewing court will only interfere if the board’s decision lacks any rationally

conceivable basis, thereby resulting in waste or a lack of good faith.” Id.

There are several ways to rebut the business judgment presumption,

“including by showing that: (1) a controlling stockholder stands on both sides of a

transaction or (2) at least half of the directors who approved the transaction were not

disinterested or independent.” In re KKR Fin. Hldgs. LLC S’holder Litig., 101 A.3d

980, 990 (Del. Ch. 2014) (footnotes omitted), aff’d sub nom. Corwin v. KKR Fin.

292
In Brehm, the Delaware Supreme Court overruled seven precedents, including Aronson,
to the extent those precedents reviewed a Rule 23.1 decision by the Court of Chancery
under an abuse of discretion standard or otherwise suggested a deferential appellate review.
See Brehm, 746 A.2d at 253 & n.13 (overruling in part on this issue Aronson, 473 A.2d at
814; Scattered Corp. v. Chicago Stock Exch., Inc., 701 A.2d 70, 72–73 (Del. 1997), as
modified on denial of reh’g (Oct. 22, 1997); Grimes v. Donald, 673 A.2d 1207, 1217 n.15
(Del. 1996); Heineman v. Datapoint Corp., 611 A.2d 950, 952 (Del. 1992); Levine v. Smith,
591 A.2d 194, 207 (Del. 1991); Grobow v. Perot, 539 A.2d 180, 186 (Del. 1988); and
Pogostin v. Rice, 480 A.2d 619, 624–25 (Del. 1984)). The Brehm Court held that going
forward, appellate review of a Rule 23.1 determination would be de novo and plenary. 746
A.2d at 253–54. The seven partially overruled precedents otherwise remain good law.
This opinion does not rely on any of them for the standard of appellate review. Although
the technical rules of legal citation would require noting that each was reversed on other
grounds by Brehm, this decision omits the subsequent history, which creates the
misimpression that Brehm rejected core elements of the Rule 23.1 canon.

79
Hldgs. LLC, 125 A.3d 304 (Del. 2015). 293 “If the plaintiff rebuts the business

judgment presumption, the Court applies the entire fairness standard of review[.]”

Id. (internal quotation marks omitted). “Entire fairness, Delaware’s most onerous

standard, applies when the board labors under actual conflicts of interest.” Trados

II, 73 A.3d at 44. Under entire fairness, the court evaluates whether “the corporate

act being challenged is entirely fair to the corporation and its stockholders.” Match,

315 A.3d at 459. The court considers whether “the transaction was the product of

both fair dealing and fair price.” Cinerama, Inc. v. Technicolor, Inc. (Technicolor

Plenary III), 663 A.2d 1156, 1163 (Del. 1995) (internal quotation marks omitted).

GB-SP does not argue that any of the Pre-Forbearance Directors lacked

independence, but instead argues that they were interested in the transaction. The

Pre-Forbearance Board had six members when it caused the Company to enter into

the Forbearance Agreement: Curtis, Davis, Doheny, LaCivita, Scher, and Worker.

Accordingly, GB-SP must demonstrate that at least three of those directors were

interested in the transaction for entire fairness to apply. Trados II, 73 A.3d at 44

(“To obtain review under the entire fairness test, the stockholder plaintiff must prove

that there were not enough independent and disinterested individuals among the

293
The complaint had originally asserted claims against the Versa Defendants as
controlling stockholders of BSW, but the court dismissed those claims in 2018 because
GB-SP failed to allege facts supporting a reasonable inference that Domus or Versa were
controlling stockholders of the Company. Dkt. 92 at 18:7–19:4.

80
directors making the challenged decision to comprise a board majority.”); see

Delman v. GigAcquisitions3, LLC, 288 A.3d 692, 718 (Del. Ch. 2023) (“[T]he Board

had six members. The plaintiff must demonstrate that at least three of those directors

were interested or lacked independence to support the application of entire fairness

on that basis.”).

A director is interested in a transaction if the director “‘will receive a personal

financial benefit from a transaction that is not equally shared by the stockholders’ or

if ‘a corporate decision will have a materially detrimental impact on a director, but

not on the corporation and the stockholders.’” In re Trados Inc. S’holder Litig.

(Trados I), 2009 WL 2225958, at *6 (Del. Ch. July 24, 2009) (quoting Rales v.

Blasband, 634 A.2d 927, 936 (Del. 1993)); see also Cede & Co. v. Technicolor, Inc.,

634 A.2d 345, 362 (Del. 1993) (“Classic examples of director self-interest in a

business transaction involve either a director appearing on both sides of a transaction

or a director receiving a personal benefit from a transaction not received by the

shareholders generally.”). “The personal benefit must be so significant that it is

improbable that the director could perform her fiduciary duties . . . without being

influenced by her overriding personal interest.” Pfeffer v. Redstone, 965 A.2d 676,

690 (Del. 2009) (alteration in original) (internal quotation marks omitted); Trados I,

2009 WL 2225958, at *6 (explaining that personal benefit received by the director

81
must be “of a sufficiently material importance[] in the context of the director’s

economic circumstances” (internal quotation marks omitted)).

GB-SP argues that all of the Pre-Forbearance Directors were interested in the

Forbearance Agreement because, in connection with their approval of the agreement,

each received: (1) D&O insurance coverage; (2) indemnification from Domus for

claims arising out of the Forbearance Agreement and for any claims related to the

Company asserted by or with the assistance of GB-SP; and (3) a release from Domus

of any claims against them in connection with the Forbearance Agreement. GB-SP

argues that Curtis and Worker were interested in the Forbearance Agreement for the

additional reason that they entered into the September 2013 MOU, which provided

them with continued employment, retention of their salaries,294 and additional

six-figure bonuses if a consensual foreclosure was approved. 295

The court finds the benefits Curtis and Worker obtained in the September

2013 MOU, particularly the guaranty of continued employment in the event of a

294
Worker’s base salary was $465,000. JX 164 at 85:25–86:4 (Worker Dep.); Tr. 408:9–
12, 783:6–10 (Worker). The level of Curtis’s compensation is not a part of the trial record.
Curtis was not deposed and did not testify at trial. Given Worker’s six-figure salary and
Curtis’s six-figure retention bonus, the court finds it more likely than not that Curtis’s
salary was in the six-figure range.
295
If a bankruptcy or foreclosure transaction was approved, Worker would earn a bonus of
$150,500, and Curtis would earn a bonus of $120,500. JX 67 at 4. If a sale outside of
bankruptcy occurred, Worker would receive $142,199, and Curtis would receive $107,417.
Id. at 2. Whereas the bonuses of the other BSW executives were to be paid out regardless
of their retention, Curtis’s and Worker’s bonuses were only to be paid out in the event of a
sale outside of bankruptcy if the acquiring company elected to retain them. Id.

82
foreclosure, rendered them interested in the Forbearance Agreement. “Delaware law

[] recognizes that management’s prospect of future employment can give rise to a

disabling conflict in the sale context.” In re Mindbody, Inc., 2020 WL 5870084, at

*15 (Del. Ch. Oct. 2, 2020) (collecting authorities). “This theory is particularly

viable where the future employment offers a marked increase in compensation from

the status quo.” Id.; cf. In re Cogent, Inc. S’holder Litig., 7 A.3d 487, 498 (Del. Ch.

2010) (concluding, at the preliminary injunction stage, that a director was

disinterested despite receiving a retention bonus because the bonus was for less than

1% of the consideration the director would have received from an alternative

transaction, and the director’s interests were aligned with the company’s

stockholders).

Whether the remaining four directors were materially interested in the

Forbearance Agreement is, however, a closer call. Davis, Doheny, LaCivita, and

Scher received D&O insurance, indemnification from Domus for claims arising

from the Forbearance Agreement and for claims asserted by GB-SP, and a release

of claims by Domus. “Normally, the receipt of indemnification is not deemed to

taint related director actions with a presumption of self-interest. That is because

indemnification has become commonplace in corporate affairs, and because

indemnification does not increase a director’s wealth.” In re Sea-Land Corp.

S’holders Litig., 642 A.2d 792, 804 (Del. Ch. 1993) (citations omitted), aff’d sub

83
nom. Sea-Land Corp. S’holder Litig. v. Abely, 633 A.2d 371 (Del. 1993) (TABLE);

see also Chester Cty. Empls.’ Ret. Fund v. New Residential Inv. Corp., 2017 WL

4461131, at *7 (Del. Ch. Oct. 6, 2017) (concluding, in the demand futility context,

that a director’s receipt of indemnification and exculpation rights did not render him

interested in the transaction); Edgewater Growth Cap. P’rs LP v. H.I.G. Cap., Inc.,

68 A.3d 197, 231–32 (Del. Ch. 2013) (finding post-trial that a secured creditor’s

providing indemnification to directors did not render them beholden to the creditor

or prove any violation of the directors’ fiduciary duties).

Moreover, although it is well-settled that a plaintiff must establish, director-

by-director, the materiality of differential benefits received in connection with a

challenged transaction, GB-SP has not attempted to do so here. See City of Miami

Gen. Empls.’ v. Comstock, 2016 WL 4464156, at *18 (Del. Ch. Aug. 24, 2016)

(“[W]hen a party challenges a director’s action based on a claim of the director’s

debilitating pecuniary self-interest, that party must allege that the director’s interest

is material to that director.” (internal quotation marks omitted)); In re Gen. Motors

(Hughes) S’holder Litig, 2005 WL 1089021, at *8 (Del. Ch. May 4, 2005)

(“[P]laintiffs’ allegations of pecuniary self-interest must allow the Court to infer that

the interest was of a sufficiently material importance [to the director].” (internal

quotation marks omitted)), aff’d, 897 A.2d 162 (Del. 2006). Nevertheless, the

troubling circumstances surrounding the receipt of indemnification in this case lead

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the court to conclude that all of the Pre-Forbearance Directors were materially

interested in the Forbearance Agreement.

At the time the Pre-Forbearance Directors were negotiating the Forbearance

Agreement, they were aware that GB-SP had an unfettered contractual right to

designate a director and that GB-SP had repeatedly demanded Kinsella be seated on

the BSW board.296 As explained above, the Pre-Forbearance Board knew that it did

not have a colorable argument to refuse to seat Kinsella by, at the latest, March

2013. 297 Instead, the Pre-Forbearance Directors resolutely refused to seat Kinsella

and searched for a strategy “to keep [Kinsella and GB-SP] warm while we’re sorting

out the forbearance agreement[.]”298 The resulting real, unmitigated litigation risk

arising from the Pre-Forbearance Directors’ intentional exclusion of Kinsella was

not lost on the Pre-Forbearance Directors—or their D&O insurance providers.

296
See JX 170 at 1 (March 26, 2013 email from Akin Gump to Davis, Dembiec, Worker,
and other BSW executives indicating that GB-SP “is entitled to nominate one director and
also is entitled to certain information rights” under the Shareholders Agreement); JX 44,
JX 45, JX 47, JX 48, JX 57, JX 58 (May to August 2013 correspondence from GB-SP and
Kinsella requesting documents and demanding that Kinsella be seated as the GB-SP
Director); JX 59 at 1 (September 3, 2013 email from Akin Gump to Pre-Forbearance
Directors requesting to schedule a call “to discuss the recent correspondences received on
behalf of [] Kinsella”); JX 208 (September 16, 2013 letter from Kinsella to Worker
regarding director seat on BSW board).
297
See JX 170 at 1.
298
JX 240 at 2.

85
Keenly aware that GB-SP might sue them personally, the Pre-Forbearance

Directors were, in the months leading up to the Forbearance Agreement, persistently

trying to obtain D&O insurance coverage for potential suits by GB-SP. BSW’s

insurance provider, however, refused to remove the major stockholder exclusion

from the Company’s policy.299 BSW’s insurance broker asked two other insurers if

they would provide coverage for major stockholder claims, and both similarly

declined. 300 Due to the high litigation risk, none of the insurers were interested in

negotiating a premium to provide coverage for claims asserted by GB-SP.301

To fill this gap in coverage, Akin Gump recommended that the

Pre-Forbearance Directors ask Versa and Domus to provide broad indemnification

coverage for any claims brought by GB-SP. 302 Acknowledging that “this would be

a new proposal” and “the indemnification issue has been a big point,” Akin Gump

299
JX 51 at 3 (“We have requested AIG to remove the Major Shareholder exclusion on the
policy which they denied.”); JX 174 (“As you know, the Company’s current D&O policy
excludes claims brought by 10% holders.”). The insurer indicated that it might be willing
to eliminate the major stockholder exclusion with respect to the Post-Forbearance Board if
the Company sat Kinsella on the board but did not indicate any flexibility with respect to
the Pre-Forbearance Board’s coverage. Compare JX 51 at 3, with id. at 4.
300
JX 51 at 3.
301
Id. (“In our dialogue with Zurich and Excel who are considering providing excess
coverage, we asked if they could provide a drop down mechanism or a separate policy to
cover this exposure. Both declined this and stated that they would not look to cover the
exposure that the primary is excluding. When asked to provide an option inclusive of
additional premium, they declined as they feel this is a real exposure that they are not
looking to cover.”).
302
JX 174.

86
asked to get “the full board’s input” before sending this request across to Versa.303

Notwithstanding this warning, the Pre-Forbearance Board decided to ask for this

significant new term, and Domus ultimately agreed to provide this expanded

indemnity. 304

The Pre-Forbearance Directors and Domus entered into the Indemnity

Agreement on September 30, 2013, the same day the Pre-Forbearance Directors

executed the Forbearance Agreement.305 The Indemnity Agreement provided the

Pre-Forbearance Directors with indemnification against any claims arising out of the

Forbearance Agreement and against any claims related to the Company or its

subsidiaries asserted by or with the assistance of GB-SP. 306 The scope of the

indemnity goes beyond what is provided in the ordinary course. It is tailored to

specifically address a litigation risk the Pre-Forbearance Directors created for

themselves by refusing to seat Kinsella on the board.

These facts persuade the court that Domus’s agreement to indemnify the

Pre-Forbearance Directors was a material benefit not shared by BSW or its

stockholders generally and rendered the Pre-Forbearance Directors interested in the

303
Id. Earlier on in the negotiations, the Pre-Forbearance Directors sought indemnification
just for claims arising out of the Forbearance Agreement and related transactions. See JX
49 at 1.
304
See JX 59; see also JX 70.
305
JX 70 at 22–36.
306
Id. at 22–23.

87
Forbearance Agreement. Therefore, the decision of the Pre-Forbearance Board to

approve the Forbearance Agreement is subject to review under the entire fairness

standard. Trados II, 73 A.3d at 55 (“A reviewing court deploys the entire fairness

test to determine whether the members of a conflicted board of directors complied

with their fiduciary duties.”).

b. Entire Fairness Analysis

“To satisfy entire fairness review, the defendants bear the burden of

demonstrating that the corporate act being challenged is entirely fair to the

corporation and its stockholders.” Match, 315 A.3d at 459. “[E]ntire fairness is a

unitary test, under which a reviewing court will scrutinize both the price and the

process elements of the transaction as a whole.” Id.

In applying entire fairness, the court “must carefully analyze the factual

circumstances, apply a disciplined balancing test to its findings, and articulate the

bases upon which it decides the ultimate question of entire fairness.” Technicolor

Plenary III, 663 A.2d at 1179. Put differently, the court must make inquiries into

both fair price and fair dealing, evaluate whether and the degree to which the board

has deviated from an acceptable range of conduct in both categories, and balance

those findings to make a unitary decision as to the entire fairness of the transaction.

Weinberger, 457 A.2d at 711. As the Supreme Court explained in In re Tesla

Motors, Inc. Stockholder Litigation, 298 A.3d 667 (Del. 2023), “‘[a] strong record

88
of fair dealing can influence the fair price inquiry, reinforcing the unitary nature of

the entire fairness test. The converse is equally true: process can infect price.’” Id.

at 733 (alteration in original) (emphasis omitted) (quoting Reis, 28 A.3d at 467);

accord HBK Master Fund, L.P. v. Pivotal Software, Inc., 2023 WL 10405169, at

*25 (Del. Ch. Aug. 14, 2023), corrected (Mar. 12, 2024).

i. Fair Dealing
“The element of ‘fair dealing’ focuses upon the conduct of the corporate

fiduciaries in effectuating the transaction.” Kahn v. Tremont Corp., 694 A.2d 422,

430 (Del. 1997). Fair dealing involves “questions of when the transaction was timed,

how it was initiated, structured, negotiated, disclosed to the directors, and how the

approvals of the directors and the stockholders were obtained.” Weinberger, 457

A.2d at 711. This is a fact-specific inquiry, and “[t]he absence of certain elements

of fair dealing does not mandate a decision that the transaction was not entirely fair.”

Tesla, 298 A.3d at 702 n.143 (internal quotation marks omitted). 307

307
Our Supreme Court in Tesla stated a strong preference for trial courts to organize the
fair dealing analysis in a way that independently addresses each of the Weinberger factors.
See Tesla, 298 A.3d at 702, n.146. This case does not lend itself to a clean, carefully
demarcated analysis of the Weinberger factors. The court endeavors to do so here, but
given the overlapping nature of the facts as to each element, it may result in redundancy
and, hence, a longer opinion.

89
1. Initiation and Timing
“The first Weinberger factor examines how the decision under challenge was

initiated.” Tornetta v. Musk, 310 A.3d 430, 527–28 (Del. Ch. 2024) (internal

quotation marks omitted). The scope of the first Weinberger factor is “not limited

to the . . . formal act of making the proposal; it encompasses actions taken . . . in the

period leading up to the formal proposal.” In re Dole Food Co., Inc. S’holder Litig.,

2015 WL 5052214, at *26 (Del. Ch. Aug. 27, 2015).

On May 2, 2013, the Pre-Forbearance Directors learned that Versa, through

Domus, had acquired the Company’s debt from its secured lenders.308 At that time,

BSW was already in default, and the debt was nearing maturity on June 30, 2013.309

When the Forbearance Agreement was executed on September 30, 2013, it identified

15 separate and existing defaults under the Credit Agreement. Among the most

serious defaults were: (a) the failure to make interest payments for the quarters

ending December 31, 2012, March 31, 2013, and June 30, 2013; (b) the failure to

make principal payments at the same three payment dates; (c) the failure to deliver

year-end 2012 audited financial statements; (d) the failure to cause certain of BSW’s

subsidiaries to pay taxes and to remain in good standing where they conducted

308
JX 43 at 2.
309
JX 8 at 17, 28 (identifying the first and second lien loan maturity date as June 30, 2013).
Prior to that time, BSW did not have a forbearance agreement with Credit Suisse or its
secured lenders. See JX 27 at 1. Rather, at that stage, BSW was hoping to finalize a sale
of the entire Company to Versa. Id.; JX 28.

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operations; and (e) the failure to maintain the minimum EBITDA and leverage ratios

for each fiscal quarter since April 2011.310 GB-SP does not dispute the existence of

any of the identified defaults. It is also undisputed that these defaults gave Versa the

unilateral right under the Credit Agreement to foreclose on the collateral, which

consisted of most of the Company’s assets.

The Pre-Forbearance Board also had no immediate prospect for a sale of the

Company that would satisfy BSW’s obligations under the Credit Agreement, let

alone result in any payment to equity holders. BSW, with the help of Houlihan, had

contacted more than 92 parties—both financial and strategic buyers. 311 HIG

rescinded its LOI after conducting due diligence and chose not to pursue an

acquisition, and Oakwood declined to reengage after being denied exclusivity a year

earlier.312 The third option was Versa, which chose to acquire the Company’s debt

at a steep discount with the goal of leveraging its contract rights to acquire the

Company. The Forbearance Agreement was one of the limited options available to

BSW after Versa decided to forgo a direct acquisition of BSW and acquired the

Company’s outstanding debt from the Company’s secured lenders. The initiation

and timing of the Forbearance Agreement in the face of these circumstances does

310
JX 66 § 2.2.
311
JX 72 at 2.
312
Id. at 7.

91
not suggest that the transaction was the product of unfair dealing. Other events,

however, do.

The approval of the Forbearance Agreement was timed to occur before

Kinsella was seated as the GB-SP Director and had any opportunity to weigh in on

its terms or the desirability of entering into the transaction. The Pre-Forbearance

Directors knew that Kinsella had a right to be seated as a director, but they chose not

to elect him out of concern that he or GB-SP might take action to thwart entry into

the Forbearance Agreement, such as by filing litigation.313 In that event, the Pre-

Forbearance Directors faced the prospect of having no D&O insurance to defend

against or settle the claims due to the major stockholder exclusion in the D&O policy

that was, itself, the product of their excluding Kinsella. Moreover, the

Pre-Forbearance Directors chose to approve the Forbearance Agreement only after

obtaining an agreement with Domus to indemnify them against any claims asserted

or supported by GB-SP. It is apparent that the Pre-Forbearance Directors held out

on approving the transaction until these terms were added.

The general initiation and timing of the Forbearance Agreement were the

product of the Company’s financial circumstances. But the Pre-Forbearance

313
The Pre-Forbearance Directors appeared to have some concern that GB-SP could
prevent the Company from entering into the agreement by filing for bankruptcy itself. See
JX 41 at 6; JX 158 at 163:24–164:6 (Halpern Dep.). Although that was a theoretical
possibility, there is no evidence in the record that there was any serious threat of that
occurring.

92
Directors’ intentional timing of the Forbearance Agreement to circumvent Kinsella

and GB-SP’s rights and to ensure that the Pre-Forbearance Directors obtained

valuable personal guarantees was a product of their own making. On balance, this

factor weighs against a finding of fair process.

2. Negotiation and Structure

“The next Weinberger factor examines how the transaction was negotiated

and structured.” Tornetta, 310 A.3d at 529. The Pre-Forbearance Board’s

negotiations with Versa were led by the Company’s counsel at Akin Gump. Akin

Gump was ostensibly independent and regularly kept the Pre-Forbearance Board

apprised of the negotiations. Nevertheless, Akin Gump actively worked to keep

GB-SP in the dark about the Forbearance Agreement until after it was approved.314

Akin Gump took the lead in negotiating the terms of indemnification, D&O

insurance coverage, and releases with Versa on behalf of the Pre-Forbearance

Directors. The prospect of having no D&O insurance coverage in the event of a

GB-SP lawsuit figured prominently in the Pre-Forbearance Directors’ discussions

during the negotiations for, and ultimately the structure of, the Forbearance

Agreement. The Company’s D&O policy was set to expire in April 2013, and the

Company’s insurance carrier had raised concerns about entering into a long-term

314
See JX 240 at 2.

93
renewal. 315 The insurance carrier was also unwilling to waive the major stockholder

exclusion and raised concerns over GB-SP’s lack of board representation.316 The

Company’s efforts to obtain coverage from excess D&O carriers were also

unsuccessful. 317

Even before realizing the gap in their D&O insurance coverage, the

Pre-Forbearance Directors and Akin Gump insisted on Versa indemnifying the

directors for liabilities arising from the Forbearance Agreement. 318 Versa initially

rejected this request, 319 but ultimately agreed to provide indemnity for claims related

to the Forbearance Agreement and for claims initiated or supported by GB-SP.320

Versa also agreed to fund D&O insurance premiums and to release claims against

the Pre-Forbearance Directors. 321 The Indemnity Agreement and the release are

separate agreements, but they were integral to the Pre-Forbearance Directors’

decision to approve the Forbearance Agreement. The four independent

315
JX 42.
316
Id. It appears that in mid-April 2013, BSW was able to temporarily mollify the insurer
by falsely claiming that there was an issue over the “pending transfer of [GB-SP’s] interest
to IEOT.” Id. But by that time, as explained above, BSW knew that GB-SP was not
transferring its interest to IEOT; rather, IEOT acquired GB-SP.
317
See JX 51 at 3.
318
See JX 49; JX 50; JX 51; JX 59.
319
See JX 49; JX 50.
320
See JX 59; JX 62; JX 229; see also JX 70.
321
See JX 50; JX 229.

94
Pre-Forbearance Directors—Davis, Doheny, LaCivita, and Scher—also agreed not

to seek re-election following approval of the Forbearance Agreement, which led to

Versa’s proposed directors being appointed by Curtis and Worker in October

2013. 322

Worker also pushed through the September 2013 MOU in connection with the

Forbearance Agreement. The September 2013 MOU incorporated the terms of the

retention bonuses from the MOU approved by the Pre-Forbearance Directors in May

2013, which provided for Curtis’s and Worker’s continued employment, retention

of salaries, and additional six-figure bonuses if a consensual foreclosure was

approved. 323 Worker saw the negotiation of the Forbearance Agreement as an

opportunity to prompt Versa’s execution of the MOU. During the negotiation of the

Forbearance Agreement, on August 14, 2013, Worker emailed Dembiec and

requested that he contact Versa and ask “when they will sign off on the Retention

322
Had Kinsella been appointed earlier, as he should have been, Kinsella would have had
a say in the appointment of the four new independent directors. Although Kinsella would
have been only one of three votes, his voice should have been heard in the process.
Lippman, 95 A. at 899.
323
See JX 43. Although the MOU was approved by the Pre-Forbearance Directors, BSW’s
counsel at Akin Gump explained that because Versa would need to execute the MOU, it
necessarily had the right to negotiate its terms. See JX 224 at 1 (in response to a question
asking why the resolutions approving the MOU contemplated further negotiation with the
“Company’s Lenders,” counsel at Akin Gump stated that he was “[n]ot sure we can take
the position that Versa needs to execute the MOU, but that Versa doesn’t have the right to
negotiate its terms. If the bonuses will be paid from the additional loans the company may
be receiving from Versa, then we’ll have to have that discussion with Versa anyway.”).

95
Incentive agreement as approved by the Board and assumption of employment

agreements.”324 In the same email, Worker stated that he wanted the MOU to be

“signed in conjunction with the Forbearance Agreement.” 325 On September 24,

2013, six days prior to the execution of the Forbearance Agreement, Worker again

demonstrated the importance of getting Versa to sign the MOU when he requested

that Akin Gump “ensure that [the MOU] is added to all the final docs with

simultaneous signature” and provided that he “would prefer [Versa’s] signature first

as it pertains to this matter.”326

As for what the Company got as part of the transaction, the primary benefit

was time—Domus agreed not to exercise its right to foreclose for five months. But

that benefit was not guaranteed and came with harsh conditions. To avoid defaulting

during the forbearance period, the Company had to satisfy a slew of stringent

financial covenants, and failing even one would permit Domus to immediately

foreclose. Not surprisingly, these financial covenants were not particularly

favorable to BSW. The Forbearance Agreement provided that BSW would

technically default on its obligations if it had a gross margin of less than 20.5% for

the period ended October 31, 2013. 327 For the prior two fiscal years ended 2011 and

324
JX 229 at 1.
325
Id.
326
JX 236 at 1.
327
JX 66 § 5.3(e).

96
2012, BSW had a gross margin of 19.8% and 19.6% respectively. 328 The last time

BSW had a gross margin greater than 20.5% was in the fiscal year ended 2010 and

even then, it only cleared that margin by 0.4%. 329 In addition, the required minimum

gross margin in the Forbearance Agreement jumped from 18% for the period ending

September 30, 2013, to 20.5% for the period ending October 31, 2013.330

While unfavorable, these terms were slightly more favorable than those

presented by Versa in previous drafts. For example, a July 19, 2013 draft of the

Forbearance Agreement required a gross margin of 20.2% for the period ending

September 30, 2013, whereas the final version provided for 18.0%. 331 The Company

likewise received adjustments in its favor as to the minimum occupancy rate

requirements for the period ending September 30, 2013.332 The Company also

received more favorable qualitative terms, extending the period in which they were

required to provide compliance reports from five to 20 days after the end of each

month. 333 In reality, most of these improvements were short term stopgaps, with the

Company’s obligations ballooning to unreduced requirements at the end of October

328
JX 105 at 11.
329
Id.
330
JX 66 § 5.3(e).
331
Compare JX 51 at 22, with JX 66 at 15.
332
Compare JX 51 at 22 (95.1% minimum occupancy rate), with JX 66 at 15 (94%
minimum occupancy rate).
333
Compare JX 51 at 20–23, with JX 66 at 13–15.

97
2013—shortly after the pre-planned departure of the four independent directors on

the Pre-Forbearance Board.

As for the financial component, the Forbearance Agreement facially conveyed

approximately $12.5 million to BSW. Based on the “Use of Proceeds” schedule,

approximately $7.6 million of the funds went directly back to Versa and Domus,

including for the payment of outstanding interest on BSW’s debt and collateral agent

fees.334 Approximately $3.5 million covered BSW’s operating expenses, including

the payment of overdue rent and tax liabilities.335 The remainder of the funds

covered a tail for the Company’s D&O policy, Versa and Domus’s transaction

expenses, and the Company’s adviser fees. 336 Ultimately, the overall economics of

BSW’s debt remained unchanged.

As part of the Forbearance Agreement, BSW and its subsidiaries pledged all

of their equity interests as collateral. 337 This was a critical component of the

334
JX 66 at 35 (allocating $2,848,477.86 for payment of accrued interest on Company’s
outstanding debt, $250,000 for payment of an upfront fee payable to Domus as collateral
agent, and $4,500,000 for payment of a restructuring fee payable to Domus as collateral
agent).
335
Id. (allocating $460,000 for payment of partner catch-up fees, $743,853.63 for payment
of tax liabilities, and $2,300,000 for payment of past due rent).
336
Id. (allocating $189,118 for payment of D&O tail coverage, $550,293.55 for payment
of Versa and Domus’s transaction expenses, and $679,242.65 for payment of BSW’s legal
and financial adviser fees).
337
Id. § 4.1(e) (requiring delivery of “100% of [the] equity interests in any Subsidiary of
such Loan Party over which the Collateral Agent does not currently have the benefit of

98
Forbearance Agreement for Versa and Domus. Long before purchasing the

Company’s debt from Credit Suisse and the Company’s secured lenders, Versa

understood that only 65% of the equity of BSW’s foreign subsidiaries had been

pledged as collateral. 338 In order to obtain control over all of the Company’s

operating assets, Versa would need to obtain the remaining 35% equity in these

subsidiaries, and it achieved that in the Forbearance Agreement.

Overall, the terms of the Forbearance Agreement were not favorable to the

Company. But given its precarious financial position and minimal leverage against

a senior secured creditor that could foreclose at any time, that is not surprising. That

the Company got a bad deal is not, alone, indicative of unfair process, given the

broader circumstances.

The benefits that the Pre-Forbearance Directors got as part of the transaction,

however, are indicative of unfair process, as is the broader negotiation process. It is

apparent that the Pre-Forbearance Directors were not prioritizing the Company’s

best interests during the negotiation process. For example, internal emails in July

2013 identified indemnification and Versa’s release of claims against the Pre-

such security interest (including, but not limited to, BridgeStreet Singapore PTE LTD,
BridgeStreet Australia Pty Limited, BWW Accommodations, Inc., BridgeStreet
Accommodations Ltd. and BridgeStreet Corporate Housing Limited)”).
338
See JX 38 at 6 (Internal Versa presentation dated March 14, 2013); JX 41 at 5 (Internal
Versa presentation dated April 13, 2013); id. at 7 (“In order to ensure that Versa can achieve
the desired flow-through structure, it should obtain a pledge on the remaining 35% equity
interests in the non-U.S. subsidiaries prior to foreclosure.”).

99
Forbearance Directors as main open issues, while the Company’s financial

covenants appeared lower on the list. 339 Additionally, indemnification proved to be

a “big point” in the negotiations, and one which the Pre-Forbearance Directors

consistently pushed and even increased their ask over the course of negotiations.340

Worker was also heavily focused on negotiating and pushing through the September

2013 MOU. The record does not reflect similarly persistent efforts to improve the

Company’s terms, and what few improvements the Pre-Forbearance Board got for

the Company were limited in scope.

On balance, the court concludes the negotiations and structure of the

Forbearance Agreement weigh against a finding of fair process.

3. Approval
The final Weinberger factor examines how the transaction was approved.

Tornetta, 310 A.3d at 532. The Pre-Forbearance Directors formally met to consider

the Forbearance Agreement on September 17, 2013. 341 Prior to that date, they had

received updates from Company management and counsel on the negotiations. At

the meeting, certain board members inquired as to the likelihood that the Company

would be able to meet the financial covenants in the Forbearance Agreement.342

339
Compare JX 49 at 1, with id. at 2.
340
JX 174.
341
JX 61 at 2.
342
Id.

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Gingrich and Worker told the Pre-Forbearance Board that, based on currently

available information, the Company should be able to satisfy the covenants. 343

The Pre-Forbearance Board approved the Forbearance Agreement by

unanimous written consent on or around September 23, 2013. 344 The transaction

was not subjected to a stockholder vote, and none was required. 345 Earlier drafts of

the Forbearance Agreement, however, contemplated GB-SP as a signatory to the

agreement.346 When Akin Gump saw this, it informed BSW’s management and

Worker that “[GB-SP’s] signature may be difficult to obtain and the need for this

signature needs to be discussed.”347 The final draft did not include GB-SP as a party

because doing so would have tipped GB-SP off to the transaction, risking potential

litigation.

Weighing the approval together with the other Weinberger factors, the court

concludes the Pre-Forbearance Directors have not carried their burden to prove that

the process for the Forbearance Agreement was fair. The Company was in a bad

343
Id.
344
See JX 235. The executed written consent is not in the trial record.
Even if stockholder approval had been required, the board had the authority to vote the
345

Company’s stock pursuant to the Shareholders Agreement. See JX 1 § 3.1(b).
346
See JX 51 at 33 (July 19, 2013 draft of the Forbearance Agreement including GB-SP as
a signatory).
347
JX 49 at 2. GB-SP was included as a party to the Forbearance Agreement as late as
September 3, 2013. See JX 59 at 1 (email from Akin Gump stating that “GB-SP [] has
been re-inserted as a party to the Forbearance Agreement. We propose that GB-SP [] be
removed as a party to the Forbearance Agreement”).

101
spot and had minimal leverage going into the negotiations, so a weak negotiating

position is to be expected. But the evidence shows that the Pre-Forbearance

Directors stiff-armed Kinsella and GB-SP throughout negotiations, pushed through

the deal in a manner designed to avoid stockholder detection, and prioritized terms

benefiting them personally over those benefiting BSW. Based on the scant record

before the court, it concludes the process was unfair.

ii. Fair Price
The court’s determination on fair process does not end the inquiry. Even if

the board engaged in an unfair process in approving the transaction, “it is possible

that the pricing terms were so fair as to render the transaction entirely fair.” Valeant

Pharms. Int’l v. Jerney, 921 A.2d 732, 748 (Del. Ch. 2007). “When considering fair

price, the court looks at the economic and financial considerations of the transaction

to determine if it was substantively fair” and the court’s task “is to determine whether

the transaction price falls within a range of fairness.” Buddenhagen v. Clifford, 2024

WL 2106606, at *33 (Del. Ch. May 10, 2024) (internal quotation marks omitted);

see also In re BGC P’rs, Inc. Deriv. Litig., 2022 WL 3581641, at *28 (Del. Ch. Aug.

19, 2022) (observing that the economic inquiry in a fair price analysis is “not a

remedial calculation”), aff’d, 303 A.3d 337 (Del. 2023) (TABLE).

Fair price is a fact intensive, context-specific determination that results in a

unique outcome in every case. Compare Ams. Mining Corp., 51 A.3d at 1249–52

102
(affirming this court’s analysis of the fair price for a challenged transaction, which

resulted in entry of a $1.347 billion post-trial base damages award), with Trados II,

73 A.3d at 76–78 (finding post-trial that the fair value of the company’s common

stock was zero). Here, the Pre-Forbearance Board bears the burden of proving the

Forbearance Agreement was financially fair to the Company at the time it was

entered. Match, 315 A.3d at 459.

The parties devoted little effort to address the financial fairness of the

Forbearance Agreement. Neither side offered expert testimony on the terms of the

Forbearance Agreement,348 sparring instead over the conclusions the court should

draw from the terms and circumstances of the transaction. GB-SP centered its

argument on the personal benefits the Pre-Forbearance Directors received in

exchange for their approval of the Forbearance Agreement and their agreement to

not seek re-election in order to allow Curtis and Worker to appoint four new

directors. 349 For their part, the Defendants lamented the Company’s dire financial

condition, downplaying the personal benefits the Pre-Forbearance Directors

obtained in connection with the transaction. 350

348
Plaintiffs only offered an expert for the purposes of valuing BSW. JX 165 at 26:9–14
(Rosen Dep.). The Defendants elected not to offer expert testimony on any subject.
349
See Pls.’ Post-Trial Opening Br. 58–59.
350
See Versa Defs.’ Post-Trial Answering Br. 21–23.

103
Witness testimony was similarly unhelpful. Only one of the Pre-Forbearance

Directors testified in this case: Worker. Worker’s credibility is suspect for several

reasons. First, Worker led the effort to keep Kinsella off the board until after the

Forbearance Agreement had been approved. 351 Second, Worker’s proffered excuse

that the Company’s counsel advised him that Kinsella did not need to be elected was

false. Worker also led the effort to obtain severance and bonus packages for himself

and Company management in conjunction with the approval of the Forbearance

Agreement. 352 In short, Worker had personal self-interests in the Forbearance

Agreement, as well as the Indemnity Agreement and the September 2013 MOU, and

his testimony was not credible.

On this sparse post-trial record, the court simply has no basis to assess whether

the Pre-Forbearance Directors could have obtained a better deal than the one they

negotiated. Could the Pre-Forbearance Directors have obtained better financial

terms if they had not been so focused on obtaining releases, insurance, and indemnity

from Versa—and in the case of Curtis and Worker—additional compensation? Who

knows? Nothing in the record points convincingly one way or another. Indeed, it is

not even apparent to the court that allowing Domus to foreclose on the collateral

351
See, e.g., JX 217; JX 218.
352
See, e.g., JX 43 at 3 (proposing that the Pre-Forbearance Board approve retention
bonuses for senior management at the May 2, 2013 board meeting); JX 229, JX 236
(pushing for Versa to sign the MOU in connection with the Forbearance Agreement).

104
would have been a worse outcome for the Company than the Forbearance

Agreement. What is clear, however, is that the Pre-Forbearance Directors have the

burden of proving the Forbearance Agreement gave the Company a fair price. That

is not a burden the Pre-Forbearance Directors have satisfied. Based upon the

evidence presented—and perhaps more so by what was not presented—the

Pre-Forbearance Directors did not prove the Company received a fair price in the

Forbearance Agreement.

iii. Unitary Determination
“[T]he entire fairness test is a ‘unitary standard.’” Tesla, 298 A.3d at 733

(quoting Tremont, 694 A.2d at 432). “[T]he test for fairness is not a bifurcated one

as between fair dealing and price. All aspects of the issue must be examined as a

whole since the question is one of entire fairness.” Weinberger, 457 A.2d at 711.

“Th[e] judgment concerning ‘fairness’ will inevitably constitute a judicial judgment

that in some respects is reflective of subjective reactions to the facts of a case.”

Cinerama, Inc. v. Technicolor, Inc. (Technicolor Plenary II), 663 A.2d 1134, 1140

(Del. Ch. 1994), aff’d, 663 A.2d 1156 (Del. 1995).

The Pre-Forbearance Directors’ approval of the Forbearance Agreement was

not entirely fair as to process or price. Although the Company was in default under

the Credit Agreement, the Pre-Forbearance Directors placed their own interests and

Versa’s interests ahead of the Company’s interests. They desperately wanted to be

105
indemnified for any litigation by GB-SP, and indemnification was a central focus of

the negotiation over the Forbearance Agreement even before Akin Gump proposed

asking Versa to indemnify the Pre-Forbearance Directors for any claims brought by

GB-SP.353 In certain circumstances, it might not be a breach of fiduciary duty for

directors to negotiate for and obtain indemnity from a purchaser. See Edgewater, 68

A.3d at 231–32 (concluding post-trial that broad indemnification did not render the

board beholden to the indemnitor). The specific facts of this case, however, lead the

court to conclude that it was here. The prominence that indemnification played

throughout the negotiation of the Forbearance Agreement underscored that the

Pre-Forbearance Directors, who, with the exception of Curtis and Worker, were

planning a mass departure from the Company after its execution, wanted to be

indemnified for any liability that might follow them. In addition to transaction

specific liability, the Pre-Forbearance Directors anticipated that GB-SP or Kinsella,

or both, would initiate litigation once they became aware the Pre-Forbearance

Directors purposefully kept them in the dark and refused to provide GB-SP with

353
See JX 49 at 1–2 (Akin Gump email to BSW management listing director
indemnification and releases, respectively, as the first two of 10 items being negotiated as
of July 24, 2013); JX 50 at 2–3 (listing director releases and indemnification as the first
two “major open points” of negotiation over the Forbearance Agreement); id. at 1–2 (email
from Davis to other Pre-Forbearance Directors and Akin Gump stating that “[i]ndemnity
has to be from dollar 1. . . . Indemnity must come from Versa rather than a thinly
capitalized Newco. . . . We will not provide resignations, but we will sign agreements not
to stand for re-election or to accept any such nomination.”).

106
information until after the Pre-Forbearance Directors approved the Forbearance

Agreement. Notwithstanding this risk, the Pre-Forbearance Directors continued to

stonewall GB-SP, and instead persistently sought expanded D&O insurance

coverage from three different providers to no avail. Unable to obtain coverage for

their self-inflicted litigation risk in the market, they used the Company’s leverage to

get Versa to indemnify them instead. Six of the seven Pre-Forbearance Directors

did not testify to try to persuade the court otherwise, and Worker did not address the

issue. Meanwhile, the Pre-Forbearance Directors placed terms beneficial to the

Company at the bottom of their issues lists and achieved only nominal benefits for

the Company during negotiations.

The Pre-Forbearance Directors did not prove the financial terms of the

Forbearance Agreement were fair, either. They offered no expert testimony to

support the financial fairness of the Forbearance Agreement. Instead, the

Pre-Forbearance Directors merely argued the transaction must be fair because BSW

was in default, and the Forbearance Agreement gave the Company $12 million and

a bit more runway before the ultimate foreclosure. The Pre-Forbearance Directors

brush aside the value of the Indemnity Agreement and the bonuses under the

September 2013 MOU. 354 They also completely ignore the additional collateral that

354
It is particularly difficult to accept the Pre-Forbearance Directors’ dismissal of the value
of the Indemnity Agreement when considering that, unlike additional funds paid to the

107
BSW provided to Versa, including the 35% equity interests in BSW’s foreign

subsidiaries.

Accordingly, the court finds the Forbearance Agreement and related

transactions were not entirely fair to BSW, and the Pre-Forbearance Directors

breached their duty of loyalty.

c. Damages

Determining the Company’s damages resulting from the Pre-Forbearance

Directors’ breach of fiduciary duty is a difficult task based upon the record.355 As

explained above, the Pre-Forbearance Directors did not proffer an expert. Plaintiffs’

expert, Gary Rosen, prepared a valuation of GB-SP’s equity interests in BSW as of

December 31, 2012, but provides no explanation as to how this valuation could be

used to quantify damages to BSW. In fact, Rosen testified that he was not providing

a damages analysis at all.356 Like the harm to GB-SP caused by the breach of the

Company or its management team, this was a real outlay for Domus, from which it could
expect no return on investment or round-trip of funds in the event of ultimate foreclosure.
355
GB-SP incorrectly claims that it is entitled to recover damages for its breach of fiduciary
duty claims. There is no dispute that all of the breach of fiduciary duty claims asserted in
this case are derivative. See Dkt. 92 at 3:22–24 (“[P]laintiffs assert derivative claims on
behalf of [BSW] for breach of fiduciary duty against the directors. . . .”); id. at 4:12–13 (“I
refer to Counts I, II, and III [the breach of fiduciary duty claims] together as the derivative
claims.”). “Because a derivative suit is . . . brought on behalf of the corporation, the
recovery, if any, must go to the corporation.” Tooley v. Donaldson, Lufkin & Jenrette, Inc.,
845 A.2d 1031, 1036 (Del. 2004).
356
JX 165 at 25:18–23 (Rosen Dep.) (“Q. Have you prepared any type of damages report?
A: Not that I recall. . . . Q. Do you consider your valuation report to be a damages report,

108
Shareholders Agreement, the harm to BSW caused by the Forbearance Agreement

is difficult to quantify. The limited trial record provides the court with no basis to

assess the harm the Pre-Forbearance Directors’ breach of the duty of loyalty caused

to BSW. As a result, the court is unable to determine a transactional damages

remedy with any reasonable degree of confidence.

Even if there are no transactional damages resulting from a breach of the duty

of loyalty, “a fiduciary [may] not profit personally from his conduct.” Thorpe v.

CERBCO, Inc., 676 A.2d 436, 445 (Del. 1996). When a fiduciary has breached the

duty of loyalty, the fiduciary must be deprived of all profit flowing from the breach.

Guth v. Loft, Inc., 5 A.2d 503, 510 (Del. 1939) (“If an officer or director of a

corporation, in violation of his duty as such, acquires gain or advantage for himself,

the law charges the interest so acquired with a trust for the benefit of the corporation,

at its election, while it denies to the betrayer all benefit and profit. The rule,

inveterate and uncompromising in its rigidity, does not rest upon the narrow ground

of injury or damage to the corporation resulting from a betrayal of confidence, but

upon a broader foundation of a wise public policy that, for the purpose of removing

all temptation, extinguishes all possibility of profit flowing from a breach of the

an expert report on damages? A. It’s a valuation report.”); id. at 26:9–14 (“Q. Putting
aside whether it’s called a damages report or not, is this an expert report on damages? A.
That’s a hypothetical question. . . . It’s not damages . . . it was done for purposes of valuing
the company.”).

109
confidence imposed by the fiduciary relation.”); accord Mills Acq. Co. v. Macmillan,

Inc., 559 A.2d 1261, 1280 (Del. 1989). To that end, this court has broad equitable

power in fashioning a remedy “for fiduciary breaches based upon the circumstances

of each case.” Technicorp Int’l II, Inc. v. Johnston, 2000 WL 713750, at *53 n.268

(Del. Ch. May 31, 2000) (citing Weinberger, 457 A.3d at 714).

While the harm to the Company is too speculative to quantify, the benefits to

the Pre-Forbearance Directors are clear: each received indemnification for all claims

brought by GB-SP, and Curtis and Worker received lucrative bonuses under the

September 2013 MOU. The Pre-Forbearance Directors cannot retain the benefits

they received as a result of their breaches of fiduciary duty. Therefore, the

Pre-Forbearance Directors are liable to BSW for all amounts paid to them or their

counsel under the Indemnity Agreement. In addition, the bonuses paid to Curtis and

Worker under the September 2013 MOU must be disgorged and returned to BSW.

See Valeant, 921 A.2d at 752–53 (requiring former director and president to disgorge

and return $3 million bonus to the company after he failed to show at trial that the

challenged transaction was entirely fair).

2. Approval of the Consensual Foreclosure
a. Standard of Review

GB-SP argues that the Post-Forbearance Directors’ approval of the

Consensual Foreclosure should also be subject to entire fairness review, contending

110
that a majority of the Post-Forbearance Board was not disinterested or independent.

The Post-Forbearance Directors were Albright, Curtis, Kinsella, Orlofsky, Walker,

and Worker. For the entire fairness standard to apply, GB-SP must demonstrate that

at least three of the six directors on the Post-Forbearance Board were either

interested in the transaction or lacked independence from an interested party. See

Trados II, 73 A.3d at 44.

i. Disinterestedness
GB-SP argues that Curtis and Worker were interested in the Consensual

Foreclosure because of the financial benefits they received under the September

2013 MOU. As explained above, the September 2013 MOU provided that Domus

would assume Curtis’s and Worker’s employment agreements and pay them

retention bonuses in the event of a consensual foreclosure or bankruptcy filing.357

On the other hand, if BSW was sold outside of bankruptcy, Curtis and Worker might

not continue to be employed and, if not retained by the acquiring entity, might not

receive bonuses of $107,417 and $142,199, respectively.358

The Consensual Foreclosure ensured that Curtis and Worker would retain

their management positions and entitlement to retention bonuses. Accordingly, both

Curtis and Worker had an interest in seeing the Consensual Foreclosure occur

357
JX 67 at 3–4.
358
Id. at 2.

111
instead of an open market sale. Lacking evidence in the record that Curtis and

Worker had alternate sources of income, the court finds that their salaries and

guaranteed bonuses were material to them. See, e.g., Trados II, 73 A.3d at 45–46

(concluding post-trial that lucrative payments from a management incentive plan,

coupled with post-transaction employment and directorships, were material financial

benefits to management directors and concluding the management directors were

interested in the challenged transaction); Oliver v. Boston Univ., 2006 WL 1064169,

at *27 (Del. Ch. Apr. 14, 2006) (concluding post-trial that board chairman and CEO

was interested in transaction where he would receive an asset value realization bonus

of 8.5% of net proceeds in the event of any change of control transaction). These

financial benefits led to a misalignment of Curtis’s and Worker’s interests when

considering the Consensual Foreclosure. Although the same benefits would accrue

to Curtis and Worker if BSW filed for bankruptcy and Domus purchased BSW out

of bankruptcy, a disinterested director would have had full flexibility to consider

potential paths forward for the Company on the merits without the influence of

personal financial gain attached to one of the transaction alternatives. See Aronson,

473 A.2d at 816 (explaining that the decisions of a disinterested and independent

director are “based on the corporate merits of the subject before the board rather than

extraneous considerations or influences”). Because of Curtis’s and Worker’s

112
arrangements for bonuses and continued employment under the September 2013

MOU, they cannot be found to be disinterested in the Consensual Foreclosure.

In addition, GB-SP argues that Walker was interested in the Consensual

Foreclosure because his company, Walker Nell, received $425,000 to serve as the

assignee in the ABC proceedings authorized in connection with the Consensual

Foreclosure. Walker first expressed his support in favor of BSW considering an

ABC in November 2013, indicating that he was “very familiar with ABCs, having

served several times as an assignee including in Delaware.” 359 In February 2014,

Walker had discussions with Versa about the available funding to administer an

ABC, including Walker’s fees for serving as assignee.360 At the March 2, 2014

special board meeting where the Post-Forbearance Board approved the Consensual

Foreclosure, the Post-Forbearance Board concurrently authorized BSW and BSW

Corporate Housing to commence ABC proceedings and selected Walker Nell to be

359
JX 84 at 1.
360
Tr. 677:1–13 (Walker) (“Q. Did you negotiate with anyone at Versa concerning how
much money would be left behind in a consensual foreclosure to cover your work as the
assignee under an ABC proceeding? A. I negotiated to cover the work of an assignment
for the benefit of creditors. And that work would include not simply fees for the assignee,
but would also include other expenses associated with the administration and wind-down
liquidation of the affairs. Q. Right. But your fees would be paid out of that pot of money,
if you will; right? A. Yes.”). Walker testified that he specifically spoke with Paul Halpern.
Id. at 677:15–21 (Walker); see JX 108.

113
the assignee,361 through which $425,000 in fees flowed from Domus to Walker

Nell.362

Walker’s approval of the Consensual Foreclosure enabled Walker Nell to

receive substantial fees by facilitating the ABCs. As with Curtis and Worker, the

court concludes that these financial benefits were material to Walker and led to a

misalignment of Walker’s incentives as compared to those of a BSW stockholder.363

Therefore, the court concludes that Walker was interested in the Consensual

Foreclosure.

361
Walker claims to have abstained from voting on the ABCs at the March 2 meeting. Tr.
692:12–693:1 (Walker). Walker’s testimony is not credible and not supported by the
documentary record. The minutes of the March 2 meeting indicate that (1) Walker was in
attendance for the entire meeting; and (2) the Post-Forbearance Directors in attendance
approved the resolutions to proceed with the Consensual Foreclosure and the ABCs. There
is no indication that any board member in attendance abstained or recused himself from
the vote. See JX 116 at 2–3. More important, the pre-trial order stipulates that Walker and
the Post-Forbearance Directors in attendance at the March 2 meeting “unanimously
authorized resolutions and documents to consummate the consensual ‘strict’ foreclosure in
favor of Domus and an assignment for the benefit of creditors in connection with the assets
of BSW.” PTO ¶ 65.
362
JX 116 at 2–3, 9. BSW management originally contemplated $100,000 in expenses in
connection with an ABC proceeding, but the total compensation paid to Walker Nell for
serving as the assignee was significantly higher. JX 84 at 2.
363
The record indicates that between October and December 2013, Walker invoiced
$43,043.79 for working on BSW matters as a director. JX 97. Based on this figure, the
$425,000 fee that Walker received for serving as the assignee in the ABC proceedings was
a substantial financial benefit.

114
ii. Independence
GB-SP argues Orlofsky lacked independence from Versa and Domus. A

director lacks independence when he is beholden to or dominated by an interested

party. Aronson, 473 A.2d at 815. A director’s discretion may be sterilized where a

director expects to be considered for highly compensated directorships at companies

that an interested party launches in the future. See Delman, 288 A.3d at 716, 720

(concluding it was reasonably conceivable that directors lacked independence where

they “had close ties” to the alleged controller and “expect[ed] to be considered for

[future] directorships” (internal quotation marks omitted)); In re MultiPlan Corp.

S’holders Litig., 268 A.3d 784, 814 (Del. Ch. 2022) (explaining that a director’s

discretion may be sterilized where the director expects to be considered for future

directorships); cf. In re MFW S’holders Litig., 67 A.3d 496, 509 (Del. Ch. 2013)

(“Our law is clear that mere allegations that directors are friendly with, travel in the

same social circles, or have past business relationships with the proponent of a

transaction or the person they are investigating, are not enough to rebut the

presumption of independence.”), aff’d sub nom. Kahn v. M & F Worldwide Corp.,

88 A.3d 635 (Del. 2014).

Versa and Domus were interested parties in the Consensual Foreclosure.

Orlofsky had an existing relationship with Versa prior to joining the BSW board.

115
Orlofsky previously served as the CFO and COO of Malden Mills. 364 During his

tenure at Malden Mills, Orlofsky met Gregory Segall of Versa, who joined the

Malden Mills board in conjunction with a bankruptcy process that Orlofsky was

facilitating. 365 Thereafter, Orlofsky served as the chairman and sole board member

of ALS at Segall’s request. 366 As sole board member, Orlofsky authorized ALS to

file for bankruptcy, and a Versa affiliate purchased ALS out of bankruptcy in

2012. 367 Orlofsky’s consulting firm was paid approximately $400,000 to facilitate

ALS’s bankruptcy.368 The following year, Versa tapped Orlofsky again, this time to

serve as a director of BSW. This pattern of director nominations and business

dealings between Orlofsky and Versa indicates that Orlofsky, unlike a typical

independent director, had an expectation that Versa would consider him for future

director appointments. Therefore, the court cannot conclude that Orlofsky was

independent of Versa for the purposes of the Consensual Foreclosure. See Caspian

Select Credit Master Fund Ltd. v. Gohl, 2015 WL 5718592, at *7 (Del. Ch. Sept. 28,

364
JX 166 at 18:6–19:1 (Orlofsky Dep.).
365
Id. at 19:1–11, 20:16–21:3 (Orlofsky Dep.); Tr. 555:3–9, 581:9–13 (Orlofsky).
Orlofsky left Malden Mills in 2005, and several years later, a Versa affiliate purchased
Malden Mills out of a subsequent bankruptcy. JX 166 at 19:18–24 (Orlofsky Dep.).
366
JX 166 at 23:4–11, 27:11–1 (Orlofsky Dep.); id. at 30:21–31:11 (testifying that Segall
contacted him about serving on the board of ALS).
367
JX 166 at 26:8–18, 27:14–18 (Orlofsky Dep.); Tr. 583:5–14 (Orlofsky).
368
JX 166 at 8:16–20, 25:13–26:11, 31:20–32:9 (Orlofsky Dep.).

116
2015) (finding there was reasonable doubt as to two directors’ independence because

of their relationship with the company’s controlling stockholder who had nominated

them to numerous boards and with whom they reasonably had a strong expectation

of future business dealings).369

In sum, the court concludes that Curtis, Walker, and Worker were interested

in the Consensual Foreclosure, and Orlofsky lacked independence from Versa and

Domus. Because a majority of the Post-Forbearance Board was conflicted, the

decision to approve the foreclosure is subject to review under the entire fairness

standard. Trados II, 73 A.3d at 55. 370

b. Entire Fairness Analysis
In applying entire fairness, the court examines whether the challenged

transaction was a product of fair dealing and fair price. Match, 315 A.3d at 459.

369
GB-SP also argues that Walker lacked independence from Versa and Domus. Pls.’ Post-
Trial Opening Br. 7, 30. Walker, however, did not have a previous relationship with Versa
or Domus. JX 163 at 27:3–10 (Walker Dep.); Tr. 615:20–616:11 (Walker). Therefore, the
court finds that Walker was independent from Versa and Domus.
370
At the pleadings stage, the court concluded it was reasonably conceivable that Curtis,
Orlofsky, Walker, and Worker breached their duty of loyalty in approving the foreclosure.
See Dkt. 92 at 13:18–16:17. The court concluded the complaint sufficiently alleged that
Curtis, Walker, and Worker were interested in the foreclosure and received a benefit from
the foreclosure not shared with the other BSW stockholders. Id. at 16:2–7. The court also
concluded the complaint sufficiently alleged that Orlofsky, who had a prior business
relationship with Versa, lacked independence from Versa. Id. at 16:8–17.

117
i. Fair Dealing
The Weinberger factors form the core of the court’s fair dealing analysis.

Tornetta, 310 A.3d at 527. The court considers how the transaction was timed,

negotiated and structured, and approved. Weinberger, 457 A.2d at 711.

1. Initiation and Timing

From a 30,000-foot view, Versa and Domus initiated the foreclosure when

Versa, through Domus, first acquired BSW’s first and second lien loans from Credit

Suisse in April 2013 as part of Versa and Domus’s loan-to-own strategy. The

foreclosure itself began to crystalize at the Company level with the Pre-Forbearance

Board’s approval of the ill-fated Forbearance Agreement. As GB-SP’s counsel aptly

put it at post-trial argument: “at that point, the die was cast.”371 That may be so,

and the court does not blind itself to the circumstances leading up to the Consensual

Foreclosure. As the court has already found, the Pre-Forbearance Board failed to

prove that the Forbearance Agreement was entirely fair, and it is clear from its

substance that by the time the Post-Forbearance Directors made it to the table, the

deck was stacked. But the focus of the analysis with respect to the Post-Forbearance

Directors’ discharge of their fiduciary duties is not the quality of the hand they were

dealt, but how they played it. Here, the determination of whether the

Post-Forbearance Directors breached their fiduciary duties in approving the

371
Dkt. 265 at 21:8–9.

118
Consensual Foreclosure begins with events after the date of the Forbearance

Agreement.

On October 11, 2013, Albright, Kinsella, Orlofsky, and Walker were elected

to the BSW board, along with Curtis and Worker, who were re-elected as the

Management Directors. 372 BSW management informed the board at its November

18, 2013 meeting that the Company had violated two of the covenants in the

Forbearance Agreement.373 One of the violations was the Company’s inability to

achieve a 20.5% gross margin by October 31, 2013.374 Two days later, BSW sent a

letter to Domus notifying it that BSW had defaulted under the Forbearance

Agreement and requesting a waiver of that default.375 Domus responded the next

day, declaring that as a consequence of the default under the Credit Agreement and

Forbearance Agreement: “(i) the Forbearance Period has terminated, (ii) the

Forbearance is of no further force and effect, and (iii) each of the Existing Defaults

is reinstated with the same force and effect as if the Forbearance had not been agreed

to.”376 Domus reserved its rights to commence a collection action, to foreclose on

372
PTO ¶ 47. As noted earlier, Seitz was also elected, but for reasons unknown, resigned
shortly thereafter.
373
See id. ¶ 50.
374
JX 82 at 2, 10.
375
JX 85 at 4; see also JX 82 (attaching draft compliance notice).
376
JX 144 at 1.

119
the collateral, or to take other enforcement actions. 377 Internal documents indicated

that Domus intended to foreclose within the next four weeks.378 Pursuant to this

plan, Domus sent BSW an outline of preliminary foreclosure steps on November 26,

2013. 379

By late November 2013, the Post-Forbearance Board’s hands were tied. This

was not a circumstance akin to a board acceding to a sale transaction to satisfy a

private equity investor’s exit strategy. See, e.g., Trados II, 73 A.3d at 56 (finding

unfair dealing where “directors did not make [the] decision [to pursue a merger] after

evaluating [the company] from the perspective of the common stockholders, but

rather as holders of preferred stock with contractual cash flow rights that diverged

materially from those of the common stock and who sought to generate returns

consistent with their [venture capital] funds’ business model”). Domus had the right

to foreclose on all of BSW’s assets and was taking immediate steps to do so. The

Post-Forbearance Directors had to select the best choice from a menu of unattractive

options and had to do so in a situation when their fiduciary duties required them to

consider the interests of residual claimants. See McRitchie, 315 A.3d at 547. With

input of legal and financial advisers, the Post-Forbearance Directors carefully

377
Id. at 1–2.
378
JX 214.
379
JX 86.

120
evaluated all of the available options, and following rigorous debate over several

months, approved a consensual foreclosure on March 2, 2014. What follows is a

general chronology of the Post-Forbearance Board’s deliberative process.

On December 4, 2013, the Post-Forbearance Board discussed potential

alternatives, including seeking an additional forbearance period via waiver of the

breaches, selling the Company, refinancing the outstanding senior secured debt,

restructuring out-of-court, filing for bankruptcy, or undergoing a strict

foreclosure.380 Houlihan advised that a refinancing of the Company’s debt or a sale

of the Company were “highly unlikely in light of the Company’s current business

operations, the investment market’s overall condition and majority of the

Company’s senior secured debt.”381 The Post-Forbearance Board discussed seeking

additional equity investments in order to disincentivize Domus from exercising its

contractual rights. 382 Kinsella stated that neither GB-SP nor IEOT would be willing

to make an equity investment in the Company.383 The Post-Forbearance Board

resolved to reach out to a third party, Goodbody, to solicit interest in making a capital

investment.384 The Post-Forbearance Board also authorized Albright and Walker to

380
JX 91 at 2–3.
381
Id. at 3.
382
Id.
383
Id.
384
Id.

121
enter into negotiations with Domus, instructing them to reassert the Company’s

request for a waiver of default, seek clarity on the November 26 letter, and discuss

the potential paths forward. 385

At a December 17, 2013 board meeting, Albright and Walker reported that

they had met with Domus representatives and had transmitted the Company’s

request for a waiver of its default.386 Domus refused to engage with this proposal

absent a significant reduction in outstanding debt or the provision of a significant

amount of additional collateral.387 Instead, Domus again requested that the

Company begin taking steps towards a consensual foreclosure in line with its

November 26 letter. 388

The Post-Forbearance Board then discussed the potential alternatives. In

response to a previous request by Kinsella, Gingrich and Worker presented an

analysis of operating costs that could be reduced to increase profitability and pay

down the outstanding debt.389 They warned that such a strategy would present

negative consequences, such as reducing the Company’s EBITDA and risking the

385
Id.
386
JX 96 at 2.
387
Id.
388
Id.
389
Id. at 3.

122
loss of significant international clients. 390 Houlihan reiterated that a potential sale

or refinancing would be very difficult. 391 While the Post-Forbearance Directors

continued to discuss other options, including seeking a sale, refinancing, or

additional forbearance period, they specifically resolved to investigate and review

two parallel paths: the filing of a chapter 11 bankruptcy proceeding or entering into

a consensual foreclosure with Domus.392 The Post-Forbearance Board also

authorized the Company’s officers to continue negotiating a potential consensual

foreclosure with Domus. 393

Walker presented an analysis of a potential chapter 11 filing at a January 3,

2014 board meeting.394 Houlihan reported that a bankruptcy filing would require

between $7 to $9 million in DIP financing, which would be difficult to get from

anyone other than Versa or Domus, who would have to consent to the bankruptcy

filing.395 Worker then reported that filing bankruptcy would have negative

consequences for the business which would result in a “seriously diminished value”

for the enterprise.396 Orlofsky remarked, relying on a combined management and

390
Id.
391
Id.
392
Id. at 3–4.
393
Id. at 4.
394
JX 102 at 1–2.
395
Id.
396
Id.

123
Houlihan analysis, that a consensual foreclosure could achieve a similar result as

bankruptcy while avoiding the time, cost, and damage to the business which would

be incurred in a bankruptcy. 397 Kinsella expressed, but did not elaborate on, a

preference for a bankruptcy filing.398 After the adviser presentations and lengthy

discussion, Albright, Curtis, Orlofsky, Walker, and Worker voted to approve a

consensual foreclosure, “subject to the negotiation and finalization of definitive

documentation.” 399

On January 27, 2014, BBK delivered a draft analysis that valued the Company

at $29.7 million as of December 31, 2013.400 The Post-Forbearance Directors

discussed the status of the Consensual Foreclosure negotiations in a meeting on

January 28, 2014.401 In this meeting, the Post-Forbearance Directors also discussed

the relative advantages and disadvantages of pursuing an ABC proceeding as

397
Id.
398
Id. (“Mr. Walker encouraged Mr. Kinsella to more fully explain his reasoning for
supporting a bankruptcy filing, but Mr. Kinsella declined, stating that he didn’t feel a need
to add anymore [sic] to his position on the matter.”).
399
Id. Kinsella opposed this resolution. Id.
400
JX 104 at 8.
401
JX 107. Prior to Kinsella joining the meeting, the rest of the Post-Forbearance Board
met in executive session to discuss correspondence from Kinsella’s counsel the day before.
Id. at 1.

124
opposed to a statutory dissolution. 402 At a February 25, 2014 meeting, the

Post-Forbearance Directors, in response to multiple letters from Kinsella, reviewed

the available options again.403 During those deliberations, the Company’s advisers

and members of management warned that bankruptcy could be value destructive to

the business.404 After a thorough discussion, “the [Post-Forbearance] Board

affirmed its judgment that due and careful consideration had been given to Mr.

Kinsella’s demands and to the options available to the Company to maximize the

value of the Company and its assets.”405

In light of the foregoing, it is apparent that the Post-Forbearance Board

engaged in a careful evaluation of the Company’s options and elected to initiate and

pursue the Consensual Foreclosure at the conclusion of a deliberative process. This

factor supports a finding of fair process.

402
Id. at 3. During the meeting, Kinsella announced that he “no longer wanted to
participate” and left the meeting but later rejoined and remained for the rest of the meeting.
Id. at 2–3.
403
JX 111. Kinsella refused to remain for the advisers’ discussion of the options that had
been considered and the reasons why alternative paths had been foregone, and instead left
the meeting, this time not rejoining. Id. at 2. Nevertheless, the remaining Post-Forbearance
Directors still considered the full scope of concerns Kinsella had raised, even after his
departure from the meeting. Id. at 2–4.
404
Id. at 2–3.
405
Id. at 4.

125
2. Negotiation and Structure
Turning to the second Weinberger factor, the negotiation and structure of the

Consensual Foreclosure were suboptimal in several ways, but their results were not

unexpected and, on balance, do not tip the scales towards unfair process.

The Post-Forbearance Board’s greatest fault in the negotiation and structure

of the deal arises from the conflicts of one of its negotiators. On December 4, 2013,

the Post-Forbearance Board resolved that Walker and Albright would negotiate with

Domus on the Company’s behalf.406 Albright’s disinterestedness and independence

is unchallenged, and his role as a negotiator is a plus for the Post-Forbearance

Directors on process. But, as explained above, the roughly half a million dollars

paid to Walker Nell for the ABC proceeding renders Walker interested in the broader

transaction, and his role as a negotiator, as well as the structural presence of

payments rendering him conflicted, weigh against a finding of fair process.

On the whole, however, the final structure of the Consensual Foreclosure was

about the best that the Company was going to get. By the time BSW breached its

financial covenants in the Forbearance Agreement, the Company had few remaining

options, and none were preferable to the Consensual Foreclosure. For instance, a

sale to another company that could satisfy BSW’s increased post-forbearance debt

load and deliver value to stockholders—or even more debt relief for the Company—

406
JX 91 at 3.

126
was very unlikely in light of both BSW’s earlier failed sale process and the $29.7

million BBK valuation.407 Versa declined to extend forbearance or to provide the

Company with additional capital.408 Kinsella, GB-SP, and IEOT were also unwilling

to provide additional investment, and other efforts to solicit equity investment were

unsuccessful. That left bankruptcy or foreclosure.

GB-SP argues that the Post-Forbearance Board should have elected to file for

bankruptcy, which it asserts might have provided an opportunity for the stockholders

to receive a marginal recovery on their investment. But GB-SP provides nothing

concrete to indicate that bankruptcy would have allowed for any residual benefits to

flow to the Company’s stockholders or otherwise provide greater value to BSW than

the Consensual Foreclosure. As Kinsella acknowledged, the Company was

insolvent.409 And although Kinsella advocated for bankruptcy, he was unable to

articulate why that was the better option, and he did not explain whether chapter 7

or chapter 11 was the right course, either during the Post-Forbearance Board’s

deliberations or during this case.410

407
JX 110 at 4; JX 104.
408
JX 110 at 4–5.
Tr. 146:16–18 (Kinsella) (“When I say ‘insolvent,’ I’m aware that, in actual fact, the
409

company is insolvent, and it isn’t [able] to pay its debts.”).
410
JX 102 at 2 (January 3, 2014 board meeting where Kinsella indicated that a bankruptcy
filing would be “the best course of action” but declined to “fully explain his reasoning for
supporting a bankruptcy filing”); Tr. 193:22–194:15 (Kinsella) (“Q. [W]hat would have

127
By contrast, the Post-Forbearance Board was repeatedly advised that

bankruptcy could be more disruptive and costly than a friendly foreclosure.

Specifically, the Company’s advisers noted that a bankruptcy would require an

additional $7 to $9 million in DIP financing, whereas wind-up through an ABC

proceeding would require $425,000. 411 The Post-Forbearance Board also

appreciated that such DIP financing would be difficult, if not impossible, to receive

from anyone other than Domus, given its senior secured position—and Domus

wanted to foreclose.412 Moreover, a strict foreclosure provided BSW with the ability

to significantly reduce its indebtedness at a juncture where few other alternatives

were available. The Company would receive $38 million in the form of satisfied

and cancelled indebtedness, which would exceed the BBK valuation of the Company

by more than $8 million.413

Altogether, negotiation was impaired because of Walker’s conflicts, weighing

against a finding of fair process. But those conflicts do not appear to have affected

happened if the company did file for bankruptcy?. . . . A. I believe that a liquidator would
have succeeded in getting decent value for this company, and realizing the equity value
that was in it. . . . Q. Did you have a liquidation analysis done to support that conclusion?
A. No. . . . Q. And have you been involved in a Chapter 7 liquidation process before? A.
No, sir. . . . In a Chapter 7, I must admit, I am without authority there.”).
411
JX 108.
412
See JX 110 at 5; Tr. 574:22–575:8 (Orlofsky) (testifying that bankruptcy “would have
been a last resort” and “was really not a good idea”); id. at 398:18–399:14 (Worker) (noting
that bankruptcy would cost between $7 to $9 million, making it “financially impossible”).
413
JX 110 at 5.

128
the ultimate structure of the transaction. While far from an optimal outcome for the

Company, the Consensual Foreclosure was the best of bad options. On balance, this

factor slightly favors a finding of fair process.

3. Approval
Turning to the final Weinberger factor, the Post-Forbearance Board approved

the foreclosure at a special meeting on March 2, 2014. Kinsella chose not to attend

the meeting. All five of the Post-Forbearance Directors in attendance at the meeting

authorized resolutions to consummate the Consensual Foreclosure and the ABC

proceedings.414 The Post-Forbearance Board also directed that the Company’s

stockholders approve the Consensual Foreclosure and ABC under its authority in the

Shareholders Agreement. 415 Approval of the Consensual Foreclosure came after

three months of negotiations, numerous board meetings, and genuine debate among

the Post-Forbearance Directors.

GB-SP argues that the Consensual Foreclosure was inappropriately approved

on January 3, 2014, without a valuation of BSW or a substantive chapter 11

analysis.416 That argument is contrary to the stipulated facts and mischaracterizes

414
JX 116 at 3.
415
Id. at 10.
416
Pls.’ Post-Trial Opening Br. 61; Pls.’ Post-Trial Reply Br. 41.

129
the meeting.417 At the January 3, 2014 meeting, the Post-Forbearance Board

approved “a consensual foreclosure, subject to negotiation and finalization of

definitive documentation regarding same as well as further and final authorization

by the Board of all relevant and appropriate transaction documents (and related steps

and undertakings).”418 The Post-Forbearance Board authorized the Company’s

executive officers to continue negotiating a consensual foreclosure with Domus, but

did not preclude the exploration of other alternatives.419 At this same January 3

meeting, prior to the resolution, BSW management provided the Post-Forbearance

Board with a “detailed” “quantitative and qualitative analysis of a potential Chapter

11 bankruptcy filing.” 420 Although the Post-Forbearance Board did not receive

BBK’s valuation analysis until after the January 3 meeting, it had already been

informed by its advisers that a sale beyond the value of the Company’s debt was

very unlikely, an observation which had been proven true by the Company’s failed

sale process with Houlihan.421 And after January 3, the Post-Forbearance Board

continued consulting with its advisers and received additional information at its

417
See PTO ¶ 65 (stipulating that the Post-Forbearance Directors in attendance at the March
2, 2014 special meeting “unanimously authorized resolutions and documents to
consummate the consensual ‘strict’ foreclosure”).
418
JX 102 at 2.
419
Id.
420
Id. at 1–2.
421
JX 96 at 3.

130
January 28 and February 25 meetings.422 To the extent the Post-Forbearance

Directors lacked all of the materials Kinsella claims they needed on January 3, that

cannot be said for subsequent meetings, including the March 2 special meeting when

the Consensual Foreclosure was approved.

Outside of this information deficit, GB-SP’s remaining challenge to the

approval of the Consensual Foreclosure is that the Post-Forbearance Board was

conflicted. The court has considered the conflicts of Curtis, Walker, and Worker,

and the evidence and extent to which Orlofsky was not independent of Versa. Each

conflict is concerning, and those issues required the application of the entire fairness

standard of review. But the determination of the applicable standard of review is a

procedural question, and in the resulting substantive analysis, these facts are not

considered in a vacuum. See Trados II, 73 A.3d at 45 (explaining that the application

of entire fairness “does not mean that the [] directors necessarily breached their

fiduciary duties, only that entire fairness is the lens through which the court evaluates

their actions”). In weighing the evidence, the court finds that the Post-Forbearance

Board met several times to discuss BSW’s options, listened, considered, and

responded to Kinsella’s concerns, and received advice from its legal and financial

advisers. 423 The Post-Forbearance Directors carefully evaluated the few remaining

422
JX 107 at 3; JX 111.
423
Plaintiffs did not allege that the board’s advisers were conflicted.

131
options that remained for the Company and chose to enter into the Consensual

Foreclosure.

Overall, all of the Weinberger factors counsel a finding that the

Post-Forbearance Board’s decision to approve the Consensual Foreclosure was the

product of fair dealing, despite the conflicts of a majority of the directors. The

process was not perfect, but “‘perfection is not possible, or expected’ as a condition

precedent to a judicial determination of entire fairness.” Technicolor Plenary III,

663 A.2d at 1179 (quoting Weinberger, 457 A.2d at 709 n.7); see also Wayne Cty.

Empls.’ Ret. Sys. v. Corti, 2009 WL 2219260, at *13 n.71 (Del. Ch. July 24, 2009)

(“While it is possible that the board . . . could arguably have better navigated the sale

process, Delaware law does not require perfection.”), aff’d, 996 A.2d 795 (Del.

2010) (TABLE); BGC P’rs, 2022 WL 3581641, at *18 (explaining that perfection

“is an unattainable standard that Delaware law does not require” (internal quotation

marks omitted)). Despite conflicts, the Post-Forbearance Board navigated the

Consensual Foreclosure process in a thorough, well-advised manner and fairly

evaluated all the options and concerns raised by Kinsella. The court concludes the

Consensual Foreclosure’s process was fair to the Company’s stockholders.

ii. Fair Price

In examining fair price, the court considers whether the price falls within a

range of reasonableness. BGC P’rs, 2022 WL 3581641, at *29. Given BSW’s

132
distressed financial condition and the burden of its debt obligations, the price

received in the Consensual Foreclosure was fair to the Company. In the months

leading up to the Consensual Foreclosure, BSW had defaulted on its debt obligations

and, in the weeks leading up to the Consensual Foreclosure, BSW had stopped

making interest and principal payments to Domus. BBK determined that BSW had

a negative net book value as of November 30, 2013.424 At any point, Domus could

have foreclosed on the collateral without BSW’s consent or could have forced BSW

into bankruptcy due to BSW’s defaults under the Forbearance Agreement and on-

going defaults under the Credit Agreement. Because substantially all of BSW’s

assets secured this debt obligation, which was now in default, BSW had no realistic

prospect of receiving any value in excess of its debt obligations.

The give of the Consensual Foreclosure was 100% of the equity interests in

BSW’s entities and the get was the satisfaction of approximately $38 million of

BSW’s outstanding debt to Domus, which was more than $8 million above BBK’s

valuation of all BSW’s assets. 425 In considering these circumstances, the price was

fair. See Cancan Dev., LLC v. Manno, 2015 WL 3400789, at *26 (Del. Ch. May 27,

2015) (noting that a fiduciary “can satisfy the entire fairness standard in a transaction

where an interest holder receives nothing if the fiduciary proves that ‘there was no

424
JX 104 at 7; see id. at 10–14.
425
JX 116 at 8; JX 118 at 3, 28.

133
future for the business and no better alternative for the [interest] holders.’”

(alteration in original) (quoting Blackmore P’rs, L.P. v. Link Energy LLC, 864 A.2d

80, 86 (Del. Ch. 2004))), aff’d, 132 A.3d 750 (Del. 2016) (TABLE). Because BSW’s

equity interest in its subsidiaries was so deeply underwater, the Consensual

Foreclosure provided fair value for those interests. See Trados II, 73 A.3d at 78

(“[T]he directors breached no duty to the common stock by agreeing to a Merger in

which the common stock received nothing. The common stock had no economic

value before the Merger, and the common stockholders received in the Merger the

substantial equivalent in value of what they had before.”); Frederick Hsu Living Tr.

v. Oak Hill Cap. P’rs III, L.P. (ODN II), 2020 WL 2111476, at *37 (Del. Ch. May

4, 2020) (concluding post-trial that the challenged transaction was substantively fair

where the company’s “common stock would have ended up worthless with or

without the [transaction]” and “[t]he weight of the evidence demonstrate[d] that

there was no acquisition or growth opportunity that the Company’s former

executives and directors could have pursued that would have changed the

outcome”); Jacobs v. Akademos, Inc., --- A.3d ----, 2024 WL 4614682, at *35 (Del.

Ch. Oct. 30, 2024) (“The common stock . . . had no value before the Merger. The

common stockholders received nothing in the Merger, but that was the substantial

equivalent of what they had before. The Merger therefore offered a fair price.”).

134
Plaintiffs’ expert criticizes the BBK report on multiple grounds, none of

which the court finds credible. First, Rosen claims that “the BBK report assumes an

unusually high cost of equity [] of 35%,” which results from BBK’s 20% company

specific risk premium assumption. 426 In disagreeing with the 20% company specific

risk premium, Rosen opines that “[a] more reasonable company specific risk

premium for the Company would be in the 3% range,” without explanation.427 “The

calculation of a company specific risk is highly subjective and often is justified as a

way of taking into account competitive and other factors that endanger the subject

company’s ability to achieve its projected cash flows.” Del. Open MRI Radiology

Assocs., P.A. v. Kessler, 898 A.2d 290, 339 (Del. Ch. 2006). Given BSW’s financial

distress and the fact that it was in continuing default on its loan obligations, Rosen’s

significant downward adjustment of the company specific risk premium is not

credible. In fact, Rosen testified at trial that he did not even consider the financial

distress of the Company or the fact that it was already in default when estimating the

company specific risk premium or preparing his valuation of the Company.428

426
JX 157 at 26–27.
427
Id. at 27.
428
See, e.g., Tr. 316:17–21 (Rosen) (“Q. In selecting 3 percent, you didn’t consider the
financial distress that the company was in, that it was in default on its secured -- on its loan
agreements; right, sir? A. No, I did not.”); id. at 317:22–318:2 (“Q. [D]id the company’s
default due to its failure to make interest payments on its credit agreement as of December
31, 2012, have any impact on your view of the value of the company? A. No.”).

135
Second, Rosen claims that “the BBK Report states that the Market Approach

presented in BBK’s Exhibit H should be adjusted to add estimated working capital

and subtract debt.”429 But that is not what the BBK report says—the BBK report

merely points out that “Amkadian Holdings, Inc. acquired BridgeStreet on January

26, 2007 for a purchase price of $32.0 million plus estimated working capital, less

an amount required at closing to discharge in full the estimated indebtedness.”430

The BBK report, however, does not say that its valuation should be adjusted to add

estimated working capital. In short, the court finds that Rosen’s criticisms of the

BBK report are not persuasive, and Plaintiffs have offered no other evidence to rebut

BBK’s findings.

The evidence in the record supports a finding of fair price. The combination

of BSW’s secured debt obligations and its perpetual defaults resulted in the

Company’s interests in all of its assets, which served as security for Versa’s debt,

being completely underwater. The Company received nothing beyond satisfaction

of the debt secured by the assets foreclosed upon in connection with the Consensual

Foreclosure, but this was a fair exchange. The Post-Forbearance Directors have

carried their burden and shown that the Consensual Foreclosure offered a fair price

to the Company.

429
JX 157 at 27.
430
JX 104 at 7 (emphasis added).

136
iii. Unitary Determination
Having examined fair dealing and fair price individually, the court addresses

whether, under a unitary analysis of both prongs, the Post-Forbearance Directors

proved that the Consensual Foreclosure was entirely fair.

The Post-Forbearance Directors have carried their burden of proving the

fairness of the Consensual Foreclosure by a preponderance of the evidence on both

prongs. The Post-Forbearance Board employed a thorough process when

negotiating the Consensual Foreclosure. Unlike the negotiations of the Forbearance

Agreement, Kinsella was on the board for this process and participated actively

throughout, raising challenges to the proposed transaction, pushing for alternative

structures, and overall promoting boardroom discussion. The Post-Forbearance

Board responded constructively to Kinsella’s vocal dissent and actively explored

alternatives to a foreclosure, received guidance from legal and financial advisers,

and assessed the costs and feasibility of the options available to them. Considering

all relevant evidence in the post-trial record, despite the presence of a conflicted

negotiator, and a majority conflicted board, the Post-Forbearance Directors

succeeded in proving that these conflicts did not interfere with their ultimate

decision-making. That is not to say that the process contained no flaws, but when

considering the initiation, negotiation, structure, and approval of the Consensual

Foreclosure together, the court concludes that the process was entirely fair. See

137
Tesla, 298 A.3d at 710 (affirming this court’s finding that although the sale process

had some flaws, it had “several redeeming features that emulated arms-length

bargaining to the benefit of Tesla stockholders” (internal quotation marks omitted));

ACP Master, Ltd. v. Sprint Corp., 2017 WL 3421142, at *29 (Del. Ch. July 21, 2017)

(noting that subsequent actions “freshened the atmosphere” and led to a fair process

despite acts of unfair dealing occurring early in the process), aff’d, 184 A.3d 1291

(Del. 2018) (TABLE); Technicolor Plenary II, 663 A.2d at 1144 (concluding the

challenged transaction was substantively fair even though “the process followed by

the board in authorizing the corporation to enter into the [challenged] transaction

was flawed”); BGC P’rs, 2022 WL 3581641, at *18 (concluding the deal process,

“albeit imperfect,” was “ultimately fair”).

The Post-Forbearance Directors also proved, by a preponderance of the

evidence, that the price received by the Company for its equity interests in its

subsidiaries in the Consensual Foreclosure was objectively fair under the

circumstances. Specifically, the Post-Forbearance Directors introduced credible

evidence that the Company received satisfaction of debts in material excess of the

fair value of the collateral the Company surrendered, and GB-SP failed to credibly

rebut that valuation of the Company’s equity interests in its subsidiaries. The

Company may not have gotten any cash, or even satisfaction or release of all its

138
debts, but, based on the circumstances, the price BSW received was fair. See Trados

II, 73 A.3d at 76; ODN II, 2020 WL 2111476, at *37.

Accordingly, the court finds the Post-Forbearance Directors have satisfied

their burden of proof to demonstrate that the Consensual Foreclosure was entirely

fair to the Company, and the Post-Forbearance Directors are not liable for a breach

of fiduciary duty for approving the Consensual Foreclosure.

E. Count III (Aiding and Abetting Breach of Fiduciary Duty)
GB-SP seeks to hold the Versa Defendants liable for aiding and abetting the

Director Defendants’ breach of fiduciary duty. To establish a claim for aiding and

abetting a breach of fiduciary duty, a plaintiff must prove: “(i) the existence of a

fiduciary relationship, (ii) a breach of the fiduciary’s duty, (iii) knowing

participation in that breach by the defendants, and (iv) damages proximately caused

by the breach.” RBC Cap. Mkts., LLC v. Jervis, 129 A.3d 816, 861 (Del. 2015)

(citations omitted).

“Knowing participation in a board’s fiduciary breach requires that the third

party act with the knowledge that the conduct advocated or assisted constitutes such

a breach.” Malpiede v. Townson, 780 A.2d 1075, 1097 (Del. 2001). To establish

the requisite level of scienter, a plaintiff “must demonstrate that the aider and abettor

had ‘actual or constructive knowledge that their conduct was legally improper.’”

RBC, 129 A.3d at 862 (quoting Wood v. Baum, 953 A.2d 136, 141 (Del. 2008)).

139
Whether a party acted with scienter is a factual determination. Id. A plaintiff can

prove knowing participation by showing that the third party “attempt[ed] to create

or exploit conflicts of interest in the board.” Malpiede, 780 A.2d at 1097; accord

RBC, 129 A.3d at 862. As with the breach of fiduciary duty claim, the court

addresses the aiding and abetting claim with respect to each transaction separately.

1. Forbearance Agreement
GB-SP argues that the Versa Defendants exploited the Pre-Forbearance

Directors’ conflicts of interest—and thereby aided and abetted their breaches of

fiduciary duty—by offering them “complete insulation from liability and impunity”

through the Indemnity Agreement, the release of claims, and the funding of D&O

insurance coverage.431 As explained above, GB-SP proved the existence of a

fiduciary relationship and a breach of fiduciary duty. Thus, the first two elements

have been satisfied.

The third element has also been satisfied. The Versa Defendants knew that

GB-SP had a right to designate a director on the BSW board and that the

Pre-Forbearance Directors were deliberately delaying seating Kinsella on the board

until the Forbearance Agreement was in place. 432 In addition, the Versa Defendants

431
Pls.’ Post-Trial Opening Br. 65.
432
See, e.g., JX 158 at 98:14–99:5 (Halpern Dep.) (testifying that, as of September 2013,
the Versa Defendants “would not have any objection to [Kinsella] being seated on the
board, and that fighting about it was a waste of time and money,” and that Kinsella was

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knew the Pre-Forbearance Directors were demanding indemnification for any claims

brought by GB-SP. 433 The Versa Defendants exploited the Pre-Forbearance

Directors’ conflicts of interest and induced the fiduciary breach by agreeing to

indemnify them as part of the Forbearance Agreement, which delivered to the Versa

Defendants exactly what they wanted—the remaining 35% equity in BSW’s foreign

subsidiaries and the departure of Davis, Doheny, LaCivita, and Scher from the

board.434

seated on the BSW board following the Forbearance Agreement); id. at 102:8–14 (“Q.
What was the change that was going to take place in terms of composition following the
[F]orbearance [A]greement? A. The -- the -- the number of directors were going to go off
of the board. And then the new directors were going to be named to the board, including
[Kinsella].”).
433
See JX 174; JX 59.
434
The Versa Defendants argue that they cannot be liable for aiding and abetting because
they negotiated the Forbearance Agreement at arm’s length. Versa Defs.’ Post-Trial
Answering Br. 26. The court is not persuaded by this argument. A plaintiff faces a high
burden when asserting an aiding and abetting claim against a transactional counterparty,
and absent actual collusion and facilitation of fiduciary wrongdoing, arm’s length
bargaining does not constitute aiding and abetting. Cambria Equity P’rs L.P. v. Relight
Enters. S.A., 2021 WL 2336984, at *12 (Del. Ch. Jan. 5. 2021). But the record here
demonstrates that the Versa Defendants intentionally facilitated fiduciary wrongdoing. An
April 13, 2013 internal Versa document discussing its loan to own strategy with respect to
BSW highlighted that two issues for Versa were the “Unpledged 35% equity interests” and
that “Current independent board members will not approve the existing transaction.” JX
41 at 6. The same document then explained Versa’s solution: “Versa can modify the
transaction to facilitate approval from current board” by adding “Enhanced D&O coverage
or direct indemnification of directors” and “Assumption of all liabilities.” Id. The Versa
Defendants executed this strategy, capitalized on the Pre-Forbearance Board’s conflicts as
the Versa Defendants discovered them, and intentionally induced a breach of fiduciary duty
at the expense of the Company.

141
Fourth and finally, the Versa Defendants’ conduct proximately caused the

injury to BSW resulting from the Forbearance Agreement. To prove proximate

cause, a plaintiff “‘must show that the result would not have occurred ‘but for’ the

defendant’s action.’” RBC, 129 A.3d at 864 (quoting Mazda Motor Corp. v. Lindahl,

706 A.2d 526, 532 (Del. 1998)). There may be more than one proximate cause of

an injury. Id. Here, the Versa Defendants were in a unique position to exploit the

conflicted Pre-Forbearance Board and cause a fiduciary breach and seized that

opportunity to extract additional benefits from the Company at its own expense.

Specifically, the Versa Defendants diverted potential consideration away from BSW

and into the pockets of the Pre-Forbearance Directors by agreeing to provide broad

indemnification for claims brought by GB-SP to induce the Pre-Forbearance

Directors to grant the Versa Defendants additional collateral. All four elements have

been satisfied, and the court finds that the Versa Defendants are liable for aiding and

abetting the Pre-Forbearance Directors’ breach of the duty of loyalty.

Fashioning a remedy for the Versa Defendants’ aiding and abetting the

Pre-Forbearance Directors’ breach of the duty of loyalty is challenging given the

lack of a damages analysis, and the parties’ failure to argue this issue. Nevertheless,

this court “has broad latitude to exercise its equitable powers to craft a remedy,” and

its “remedial powers are complete to fashion any form of equitable and monetary

relief as may be appropriate and to grant such other relief as the facts of a particular

142
case may dictate.” In re Columbia Pipeline Gp., Inc. Merger Litig., 299 A.3d 393,

494 (Del. Ch. 2023) (internal quotation marks omitted).

The appropriate remedy here, albeit a modest one, is equitable subordination.

“‘Equitable subordination is a doctrine that, based on a creditor’s inequitable

conduct and its effect on other creditors, allows that creditor’s debt to be

subordinated to other claims in bankruptcy or allows the creditor’s liens to be

transferred to the bankruptcy estate.’” Grassi Fund Admin. Servs., Inc. v. Crederian,

LLC, 2022 WL 1043626, at *4 n.43 (Del. Ch. Apr. 7, 2022) (quoting Nelson v.

Emerson, 2008 WL 1961150, at *4 n.13 (Del. Ch. May 6, 2008)).

BSW no longer has any operating business and the Company has been

dissolved. There are long-pending ABC proceedings before this court, through

which the assets of BSW will be paid to its creditors. Based on the record, BSW is

still indebted to the Versa Defendants for at least $7 million.435 As BSW’s first

position creditor, the Versa Defendants would be first in line to receive any of the

amounts collected by BSW from the Pre-Forbearance Directors for their breach of

fiduciary duty. But the Versa Defendants induced the Pre-Forbearance Directors’

fiduciary breach by payment of the very sums the Pre-Forbearance Directors must

now disgorge, and it would be inequitable to permit the Versa Defendants to recover

435
JX 118 at 28; Tr. 473:4–10 (Halpern).

143
from BSW the amounts collected from the Pre-Forbearance Directors as damages.

Just as the disloyal fiduciaries must not be permitted to profit from their breach, nor

should the parties who aided and abetted in the same receive a windfall from a

finding of the fiduciaries’ liability. Therefore, as a remedy for their aiding and

abetting in the Pre-Forbearance Directors’ fiduciary breach, the Versa Defendants’

outstanding BSW debt shall be subordinated to that of BSW’s other creditors as to

any amounts collected or received by or on behalf of BSW from the Pre-Forbearance

Directors pursuant to this ruling.

2. Consensual Foreclosure

The Versa Defendants cannot be held liable for aiding and abetting a breach

of fiduciary duty in relation to the Consensual Foreclosure. To prove a claim for

aiding and abetting a breach of fiduciary duty, the plaintiff must establish an

underlying breach of fiduciary duty. RBC, 129 A.3d at 861; Malpiede, 780 A.2d at

1096. Because the Post-Forbearance Directors did not breach their fiduciary duties

in connection with the Consensual Foreclosure, the Versa Defendants are not liable

for aiding and abetting a breach of fiduciary duty as to the foreclosure. See In re

Wayport, Inc. Litig., 76 A.3d 296, 323 (Del. Ch. 2013) (concluding post-trial that

plaintiff failed to prove a claim for aiding and abetting where there was no

underlying breach of fiduciary duty).

144
F. Count VIII (Indemnification)
Kinsella seeks indemnification under BSW’s by-laws for his attorneys’ fees

and costs in litigating his claims. 436 Article VIII of BSW’s by-laws governs

indemnification. Section 1(a) of Article VIII states, in pertinent part:

The corporation shall indemnify any director or officer of the
corporation . . . who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of
the fact that he is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director . . . against expenses (including attorneys’ fees), judgments,
fines and amounts paid in settlement actually and reasonably incurred
by him in connection with such action, suit or proceeding if he acted in
good faith and in a manner he reasonably believed to be in, or not
opposed to, the best interests of the corporation[.]437

436
In the complaint, Kinsella sought indemnification pursuant to the Shareholders
Agreement, the by-laws, and 8 Del. C. § 145. Compl. ¶¶ 108–11. At the pleadings stage,
the court found that “[g]iven the current stage of this litigation, [Kinsella] actually seek[s]
advancement rather than indemnification.” Dkt. 92 at 29:21–23. Because the Shareholders
Agreement does not provide for advancement, and because advancement is only
permissive under the by-laws and Section 145, the court denied Kinsella’s claim “for
indemnification and advancement at this stage and grant[ed] defendants’ motion to dismiss
that count.” Id. at 31:6–8. Kinsella seeks to revive his claim for indemnification pursuant
to the Company’s by-laws in his post-trial briefing. The BSW Defendants did not raise
any procedural objections in their post-trial briefing and presented substantive arguments.
Any procedural objections are therefore waived. Emerald P’rs, 726 A.2d at 1224. The
court will consider Kinsella’s claim for indemnification pursuant to the BSW by-laws at
this stage of the proceedings.
437
JX 2 Art. VIII § 1(a).

145
Article IX of the by-laws further provides that BSW “shall indemnify its officers and

directors to the fullest extent permitted by the Delaware General Corporation

Law.” 438

“General rules of contract interpretation apply when construing the provisions

of a company’s charter or bylaws.” Krauss v. 180 Life Scis. Corp., 2022 WL 665323,

at *3 (Del. Ch. Mar. 7, 2022). “Words and phrases used in [] bylaw[s] are to be

given their commonly accepted meaning ‘unless the context clearly requires a

different one or unless legal phrases having a special meaning are used.’” Bernstein

v. TractManager, Inc., 953 A.2d 1003, 1008 (Del. Ch. 2007) (quoting Hibbert v.

Hollywood Park, Inc., 457 A.2d 339, 343 (Del. 1983)).

BSW’s by-laws mandate indemnification for current and former directors and

officers. 439 Kinsella is entitled to indemnification if (1) he is or was a party to a

438
Id. Art. IX § 7.
439
The indemnification provision mirrors the statutory language in 8 Del. C. § 145(a) (“A
corporation shall have power to indemnify any person who was or is a party or is threatened
to be made a party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (other than an action by or in the
right of the corporation) by reason of the fact that the person is or was a director, officer,
employee or agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, against expenses (including attorneys’ fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by the person in connection
with such action, suit or proceeding if the person acted in good faith and in a manner the
person reasonably believed to be in or not opposed to the best interests of the
corporation[.]”). Pursuant to 8 Del. C. § 145(f), a corporation may provide for mandatory
indemnification in its corporate charter or by-laws. 8 Del. C. § 145(f); Hibbert, 457 A.2d

146
threatened or pending action, suit, or proceeding by reason of the fact that he is or

was a director of BSW; (2) he actually and reasonably incurred expenses in

connection with such action, suit, or proceeding; and (3) he “acted in good faith and

in a manner he reasonably believed to be in, or not opposed to, the best interests of

the corporation.” 440 Because BSW adopted a mandatory indemnification provision,

BSW has the burden of proof to demonstrate why it should not be required to

indemnify Kinsella. VonFeldt v. Stifel Fin. Corp., 1999 WL 413393, at *3 (Del. Ch.

June 11, 1999) (“By using the phrase ‘shall indemnify,’ the bylaw not only mandates

indemnification; it also effectively places the burden on [BSW] to demonstrate that

the indemnification mandated is not required.”); see Donald J. Wolfe, Jr. & Michael

A. Pittenger, Corporate and Commercial Practice in the Delaware Court of

Chancery § 9.02[f] (2022) (“[T]he Court of Chancery has held that the adoption by

a corporation of a mandatory indemnification provision will place the burden of

proof in any ensuing litigation concerning its application upon the corporation to

demonstrate why it should not be required to indemnify.”).

at 344 (explaining that a corporation is permitted to “grant indemnification rights beyond
those provided by [Section 145]”).
440
JX 2 Art. VIII § 1(a).

147
The parties dispute whether Kinsella acted in good faith and in a manner he

reasonably believed to be in, or not opposed to, the best interests of BSW.441

Kinsella argues that he acted in good faith and in the best interests of the Company

to obtain his corporate governance and information rights as a director, to protect the

Company’s corporate governance procedures, and to compel the BSW Defendants

to abide by Delaware law and the Company’s by-laws. 442 The BSW Defendants

argue that Kinsella failed to act in good faith and in the best interests of BSW

because he brought his claims to recover the value of his equity interests in GB-SP

and to advance his personal interests. 443 According to the BSW Defendants, Kinsella

441
The parties do not dispute that Kinsella is a “party” to this action “by reason of the fact
that he is or was a director” of BSW, or that this action is a covered proceeding under the
by-laws. At post-trial argument, the BSW Defendants argued that Kinsella is not entitled
to indemnification because this proceeding “was styled as a derivative action” and,
therefore, falls within the carveout in the indemnification by-law for “action[s] by or in the
right of the corporation.” Dkt. 265 at 81:23–82:10; see JX 2 Art. VIII § 1(a). The BSW
Defendants did not address this argument in their post-trial briefing. “Issues not briefed
are deemed waived.” Emerald P’rs, 726 A.2d at 1224. Notwithstanding, the BSW
Defendants’ argument misses the mark. GB-SP, as a BSW stockholder, asserted derivative
claims on behalf of the Company. Kinsella did not, nor could he, assert derivative claims
on behalf of BSW as a director of the Company. See Schoon v. Smith, 953 A.2d 196, 210
(Del. 2008) (declining to extend the doctrine of equitable standing to allow corporate
director, who was not a stockholder, to bring a derivative action on behalf of a corporation).
Kinsella did assert that he was deprived of information as a director, and that the BSW
Defendants violated the BSW by-laws. See Pls.’ Post-Trial Opening Br. 52–53.
442
Pl.’s Post-Trial Opening Br. 56; Pl.’s Post-Trial Reply Br. 31–32.
443
BSW Defs.’ Post-Trial Answering Br. 53–55.

148
brought his claims “because he was angry that he had been taken advantage of by

the promoters of Sorrento,” not because it was in the best interests of BSW. 444

The court concludes that Kinsella acted in good faith and, at a minimum, in a

manner he reasonably believed was not opposed to BSW’s best interests. Kinsella

sought to vindicate his rights as a director and to promote corporate policy interests

of the Company.445 BSW points to no credible evidence to the contrary. The record

does not support BSW’s contention that Kinsella’s prior dispute with Sorrento has

any relationship to the claims asserted by Kinsella in this case.

Kinsella’s status as a plaintiff in this case does not change the result. The

Supreme Court has held that a plaintiff may be entitled to indemnification in certain

circumstances. See Hibbert, 457 A.2d at 343–44. In Hibbert, the Supreme Court

held that a group of directors who initiated litigation against an adverse group of

directors in connection with a proxy contest were entitled to indemnification because

the language of the by-laws did not preclude indemnification for affirmatively filed

actions. Id. at 343.446 In doing so, the Supreme Court stated:

444
Id. at 54.
445
Tr. 21:24–22:5, 28:3–9 (Kinsella) (testifying that he made requests to BSW to be seated
on the BSW board and to obtain his information rights as a director).
446
The plaintiff directors voluntarily dismissed their cases in California prior to seeking
indemnification in this court. Hibbert, 457 A.2d at 341. In interpreting the plain language
of the company’s indemnification by-law, the Supreme Court concluded that an
“indemnitee’s role or position in the litigation is not a prerequisite to indemnification; he
must only be involved as ‘a party or otherwise,’” and “‘[p]arty,’ as used [in the by-laws]

149
Plaintiffs, through the California litigation, sought to compel the
defendant directors to attend board meetings and to protect the
independence of the board’s internal auditing procedures. We can not
say that such litigation was entirely initiated without regard to any duty
the plaintiffs might have had as directors. In short, those lawsuits
served, as we see it, to uphold the plaintiffs’ “honesty and integrity as
directors.”

Id. at 344. In Shearin v. E.F. Hutton Group, Inc., 652 A.2d 578 (Del. Ch. 1994),

this court interpreted Hibbert as “recogniz[ing] that permissible indemnification

claims will include those deriving from lawsuits brought by directors, officers,

agents, etc., only insofar as the suit was brought as part of the employee’s duties to

the corporation and its shareholders.” 652 A.2d at 594 (emphasis omitted). There,

Chancellor Allen concluded that the plaintiff, a former officer of the company, was

not entitled to indemnification because the litigation “involve[d] purely the assertion

of plaintiff’s personal rights (i.e., defamation, breach of contract), and thus

advance[d] no interest of, or duty to, [the company].” Id. 447

The BSW Defendants rely on Hibbert and Shearin to argue that Kinsella did

not bring his claims as part of his duties as a director to BSW and its stockholders.448

refers to either the plaintiff or the defendant in a lawsuit.” Id. at 343 (internal quotation
marks omitted).
447
Because the plaintiff’s claims were not “motivated by a fiduciary or other obligation to
the corporation,” and her “demand that the corporation bear her expenses [was] without
merit,” Chancellor Allen denied the plaintiff’s motion for leave to amend her complaint to
add a claim for indemnification. Shearin, 652 A.2d at 594–95.
448
BSW Defs.’ Post-Trial Answering Br. 55–57. The BSW Defendants also cite to this
court’s decisions in Gentile v. SinglePoint Financial, Inc., 787 A.2d 102 (Del. Ch. 2001),

150
The court disagrees. Based on the record, the court cannot conclude that Kinsella’s

claims were “initiated without regard to any duty [Kinsella] might have had as [a]

director[]” of BSW. Hibbert, 457 A.2d at 344. Therefore, the court finds that

Kinsella is entitled to indemnification.449

G. Domus’s Counterclaim

Domus asserts a counterclaim contending that GB-SP’s filing and maintaining

of this action is a breach of the Pledge Agreement. 450 The Pledge Agreement is

aff’d, 786 A.2d 111 (Del. 2001), and Baker v. Impact Holding, Inc., 2010 WL 2979050
(Del. Ch. July 30, 2010). These cases are distinguishable. In Gentile, this court concluded
that the plaintiff, a former officer and director, was not entitled to advancement for
affirmatively filing litigation against the company because the company’s by-laws limited
indemnification and advancement to proceedings in which the indemnitee is named as a
defendant or a respondent. 787 A.2d at 110. Similarly, in Baker, this court concluded that
the plaintiff, a former director, was not entitled to advancement because the company’s
certificate of incorporation “expressly limit[ed] the right of advancement to expenses
incurred by a covered person ‘in defending’ a proceeding asserted against that person.”
2010 WL 2979050, at *6; id. at *9 (“[T]he Advancement Provision requires advancement
only for reasonable expenses actually incurred ‘in defending’ a proceeding and there is no
evidence that [the company] intended to or did mandate advancement for affirmative
claims.”). BSW’s indemnification by-law contains no such limitations.
449
The parties also stipulated that “[u]nder the by-laws of BSW and applicable law, each
of the directors of BSW (including Kinsella) is entitled to indemnification in respect of
threatened and pending actions.” Dkt. 47 ¶ 32. The amount of indemnification and the
claims for which Kinsella must be indemnified must await further proceedings.
450
Dkt. 89. At the pleadings stage, the Versa Defendants argued that GB-SP lacked
standing to assert its claims because it had assigned its right to assert such claims to Credit
Suisse under the Pledge Agreement. Dkt. 61 at 16–18; Dkt. 92 at 10:13–15. The court
rejected that argument. Dkt. 92 at 12:2–10. The Versa Defendants have used their breach
of contract counterclaim to reassert many of the same arguments. Compare Dkt. 61 at 16
(“GP-SP signed away its right to bring any claim by entering into the Pledge Agreement,
pursuant to which GB-SP granted Domus, as successor in interest to Credit Suisse, the
power of attorney to commence and prosecute any suit with respect to its shares of BSW

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governed by New York law. 451 “To recover for a breach of contract, a party must

establish the existence of a contract, the party’s own performance under the contract,

the other party’s breach of its contractual obligations, and damages resulting from

the breach.” Adirondack Classic Design, Inc. v. Farrell, 122 N.Y.S.3d 790, 793

(N.Y. App. Div. 2020).

“Under New York law, as in Delaware, the construction and interpretation of

an unambiguous written contract is an issue of law within the province of the court.”

San Antonio Fire & Police Pension Fund v. Amylin Pharms., Inc., 983 A.2d 304,

313 (Del. Ch. 2009) (internal quotation marks omitted), aff’d, 981 A.2d 1173 (Del.

2009) (TABLE); see Kotler v. Shipman Assocs., LLC, 2019 WL 4025634, at *16

n.191 (Del. Ch. Aug. 21, 2019), corrected (Aug. 27, 2019) (“As to matters of

contract formation and interpretation . . . Delaware and New York law are not in

conflict,” and this court will “look to both Delaware and New York law for basic

principles.”). The court is “required to adjudicate [the parties’] rights according to

the unambiguous terms of the contract and therefore must give the words and phrases

employed their plain meaning.” Laba v. Carey, 277 N.E.2d 641, 644 (N.Y. 1971);

during the pendency of an Event of Default under the Credit Agreement”), with Versa
Defs.’ Post-Trial Answering Br. 51 (“GB-SP [] assigned away its right ‘to commence and
prosecute any and all suits’ arising out of the Collateral—i.e., GB-SP’s shares in the
Company. GB-SP therefore breached the [Pledge] [A]greement by bringing this
lawsuit[.]”).
451
JX 6 § 9.7.

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see Salamone v. Gorman, 106 A.3d 354, 368 (Del. 2014) (“When interpreting a

contract, this Court will give priority to the parties’ intentions as reflected in the four

corners of the agreement, construing the agreement as a whole and giving effect to

all its provisions.” (internal quotation marks omitted)).

Under the Pledge Agreement, GB-SP appointed Credit Suisse as its attorney

in-fact, “with full authority . . . to take any action and to execute any instrument that

[Credit Suisse] may deem reasonably necessary or advisable to accomplish the

purposes of [the Pledge] Agreement.” 452 This includes, upon an “Event of Default,”

for Credit Suisse “to commence and prosecute any and all suits, actions or

proceedings at law or in equity in any court of competent jurisdiction to collect or

otherwise realize on all or any of the Collateral or to enforce any rights in respect of

any Collateral” and “to settle, compromise, compound, adjust or defend any claims,

actions, suits or proceedings relating to all or any of the Collateral.”453

The parties do not dispute that the Pledge Agreement is a valid and

enforceable contract, or that GB-SP became a party to the Pledge Agreement through

execution of the Joinder Agreement.454 Domus contends that, through the Pledge

Agreement, GB-SP assigned away its rights to bring any suit “arising out of the

452
Id. § 6.1(a).
453
Id. §§ 6.1(a)(i)(C)–(D).
454
JX 9.

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Collateral.”455 “Collateral” is defined to include GB-SP’s shares in BSW, 456 which

Domus interprets to mean that the Pledge Agreement irrevocably assigns GB-SP’s

right to “enforce any rights in respect” of those shares, foreclosing GB-SP from

bringing its claims in this action.457

This argument is unpersuasive because it is contrary to the plain language of

the Pledge Agreement. First, the Pledge Agreement does not go so far as to assign

claims “arising out of the Collateral.” Rather, it only provides Domus, as successor-

in-interest to Credit Suisse, the right to “enforce any rights in respect of any

Collateral” and “to settle, compromise, compound, adjust or defend” any claims

“relating to all or any of the Collateral.” 458 Second, reading the plain language of

this subsection in the context of the entire provision, Section 6.1 does not extend to

derivative or direct suits which are unrelated to the purpose of the Pledge Agreement

or to the features of GB-SP’s stock as collateral. 459 Finally, although Section 6.1

allows Domus to bring and defend suits on GB-SP’s behalf, it contains no language

indicating that GB-SP acceded its independent authority to bring suits on its behalf,

455
Versa Defs.’ Post-Trial Answering Br. 51.
456
See JX 6 §§ 1.3, 2.1.
457
Id. § 6.1(a)(i)(C).
458
Id. §§ 6.1(a)(i)(C)–(D).
459
Id. § 6.1(a) (appointing Credit Suisse as “attorney-in-fact” to “take any action and to
execute any instrument” that Credit Suisse “may deem reasonably necessary or advisable
to accomplish the purposes of this Agreement” (emphasis added)).

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as Domus contends. Rather, the language of Section 6.1 grants Domus the non-

exclusive authority to bring suits on behalf of GB-SP in the “Event of Default.”

Therefore, the court concludes that GB-SP did not breach the Pledge Agreement by

bringing its claims in this action.460

III. CONCLUSION

GB-SP proved its direct claims that BSW and the Pre-Forbearance Directors

breached the Shareholders Agreement. GB-SP did not, however, establish its

entitlement to the full scope of damages it sought to remedy those breaches. For

establishing breaches of the Shareholders Agreement, GB-SP is awarded nominal

damages of $1, and judgment on Count V is entered in favor of GB-SP. GB-SP is

also entitled to its reasonable attorneys’ fees and expenses as the prevailing party

under Section 7.6 of the Shareholders Agreement.

GB-SP did not overcome the law of the case with respect to its claim for

tortious interference and, accordingly, Count VI remains barred. Nor did Plaintiffs

460
In the complaint and the pre-trial order, Plaintiffs sought the appointment of a receiver
on behalf of BSW. Compl. ¶¶ 103–07; PTO ¶ 72(M). Plaintiffs did not address the
appointment of a receiver at trial or in their post-trial briefing. As such, the court deems
this request for relief to have been abandoned. Oxbow Carbon & Min. Hldgs., Inc. v.
Crestview-Oxbow Acq., LLC, 202 A.3d 482, 502 n.77 (Del. 2019) (“The practice in the
Court of Chancery is to find that an issue not raised in post-trial briefing has been waived,
even if it was properly raised pre-trial.”); MHS Cap. LLC v. Goggin, 2018 WL 2149718,
at *16 (Del. Ch. May 10, 2018) (treating claims not briefed as abandoned).

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establish a breach of the Company’s bylaws, and judgment is entered in favor of the

BSW Defendants on Count IV.

GB-SP proved, on behalf of the Company, that the Pre-Forbearance Directors

were conflicted in approving the Forbearance Agreement, subjecting their conduct

to entire fairness review. The Pre-Forbearance Directors did not carry their burden

to prove the fairness of the Forbearance Agreement, and, therefore, the court finds

that they breached their fiduciary duty of loyalty. As a remedy for their fiduciary

breach, the Pre-Forbearance Directors must disgorge to BSW all amounts paid to

them or their counsel under the Indemnity Agreement, and Curtis and Worker must

disgorge to BSW the bonuses they received pursuant to the September 2013 MOU.

To this extent, judgment on Count I is entered for GB-SP, on behalf of the Company.

GB-SP also proved, on behalf of the Company, that the Versa Defendants aided and

abetted that breach and, as a remedy, the Versa Defendants’ BSW debt shall be

equitably subordinated as to any amounts collected or received by or on behalf of

BSW from the Pre-Forbearance Directors pursuant to this ruling, and GB-SP, on

behalf of BSW, is entitled to judgment on Count III to the forgoing extent.

GB-SP proved, on behalf of the Company, that the Post-Forbearance

Directors were conflicted in approving the Consensual Foreclosure, subjecting their

conduct to entire fairness review. The Post-Forbearance Directors, however, carried

their burden and proved that the Consensual Foreclosure was entirely fair to the

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Company, and judgment on Count I is entered for the Post-Forbearance Directors

with respect to the Consensual Foreclosure. Accordingly, GB-SP’s claim on behalf

of the Company that the Versa Defendants aided in such breach also fails, and

judgment for Count III is entered in favor of the Versa Defendants as it relates to the

Consensual Foreclosure.

Judgment is entered in favor of Kinsella with respect to Count VIII, but the

amount of indemnification and the claims for which Kinsella must be indemnified

must await further proceedings.

Judgment for Domus’s counterclaim alleging breach of the Pledge Agreement

is entered in favor of GB-SP. Plaintiffs have abandoned their request to appoint a

receiver on behalf of BSW.

The parties shall confer and submit an implementing order to the court within

ten days of this opinion.

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