International Rail Partners, LLC v. American Rail Partners, LLC

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

INTERNATIONAL RAIL PARTNERS, )
LLC, )
)
Plaintiff, )
)
v. ) C.A. No. 2021-1029-PAF
)
AMERICAN RAIL PARTNERS, LLC, )
GULF & ATLANTIC RAILWAYS, )
LLC, and NEWCO SBS HOLDINGS, )
LLC, )
)
Defendants. )

MEMORANDUM OPINION

Date Submitted: May 16, 2024
Date Decided: March 31, 2025

Andrew S. Dupre, Brian R. Lemon, AKERMAN LLP, Wilmington, Delaware;
Attorneys for Plaintiff International Rail Partners, LLC.

Michael A. Barlow, QUINN EMANUEL URQUHART & SULLIVAN, LLP,
Wilmington, Delaware; Kevin S. Reed, Nicholas A.S. Hoy, QUINN EMANUEL
URQUHART & SULLIVAN, LLP, New York, New York; Attorneys for
Defendants American Rail Partners, LLC and Newco SBS Holdings, LLC.

William M. Lafferty, Kevin M. Coen, Elizabeth A. Mullin Stoffer, Kirk C.
Andersen, MORRIS, NICHOLS, ARSHT & TUNNELL LLP, Wilmington,
Delaware; Geoffrey L. Harrison, SUSMAN GODFREY L.L.P., Houston, Texas;
Elisha B. Barron, SUSMAN GODFREY L.L.P., New York, New York; Emily K.
Cronin, SUSMAN GODFREY L.L.P., Los Angeles, California; Attorneys for
Defendant Gulf & Atlantic Railways, LLC f/k/a RailUSA, LLC.

FIORAVANTI, Vice Chancellor
The purpose of a settlement is to end litigation. When a settlement involves

a mere exchange of money, there is often little to do other than to pay up in

accordance with the payment terms. But when a settlement requires future conduct

by the parties, especially parties that distrust one another, there is greater risk that a

settlement will come off the rails, leading to more litigation over performance of the

settlement.

This case falls into the latter category. Two investors formed a business to

acquire and operate short line railroads. Distrust and finger-pointing ensued shortly

after the business left the station. Litigation followed. In connection with a global

settlement that involved the sale of the railroads, the minority investor and its

favored bidder were given the right to submit the last bid. The minority investor and

its favored bidder were not chosen to buy the railroads. The minority investor claims

the majority investor, which controlled the sale process, unfairly favored the winning

bidder in violation of the settlement agreement.

In this post-trial opinion, the court finds the majority investor breached the

settlement agreement and violated the implied covenant of good faith and fair

dealing, but the minority investor did not prove damages. Accordingly, judgment

will be entered in favor of the defendants.
I. BACKGROUND
These are the facts as the court finds them after trial.1

A. The Parties

Gary Marino is a former commercial banker who developed an interest in

short line railroads more than four decades ago.2 Since then, he has acquired and

operated a number of railroads through various entities.3 One of those entities is the

plaintiff in this action, International Rail Partners, LLC (“IRP” or “Plaintiff”), a

Delaware limited liability company headquartered in Florida.4 In February 2018,

Marino approached Oaktree Capital Management, L.P. (“Oaktree”), a global

investment firm, to partner with Marino in acquiring the Grenada Railroad, LLC

(“Grenada Railroad”), a short line railroad operating between Canton, Mississippi

1
Other factual findings are contained in the analysis of the claims. Trial exhibits are cited
as “JX”; stipulated facts in the pretrial 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 at trial are cited in the form “Tr. (X),”
with “X” representing the surname of the speaker, if not clear from the text. When
resolving factual disputes, this opinion generally gives more weight to contemporaneous
evidence. See Lynch v. Gonzalez, 2020 WL 4381604, at *5 (Del. Ch. July 31, 2020)
(“[T]he relative weight given to any particular piece of evidence, and particularly witness
testimony, is a matter for the court to determine as the trier of fact.” (alteration in original)
(internal quotation marks omitted)), aff’d, 253 A.3d 556 (Del. 2021) (TABLE); see, e.g.,
BCIM Strategic Value Master Fund, LP v. HFF, Inc., 2022 WL 304840, at *2 (Del. Ch.
Feb. 2, 2022) (“The witness testimony often conflicted with the contemporaneous record.
In resolving factual disputes, this decision generally has given greater weight to the
contemporaneous documents.”).
2
Tr. 317:1–318:6 (Marino).
3
Id. at 317:1–321:7 (Marino).
4
PTO ¶ 21; Tr. 321:23–322:16 (Marino).

2
and Memphis, Tennessee. 5 In August 2018, Marino and Oaktree formed Defendant

American Rail Partners, LLC (“ARP”), a Delaware limited liability company

headquartered in Florida.6

ARP was governed by a “board of managers” (the “ARP Board”), and its

ownership interests were “designated as stock.”7 Marino held his equity interest in

ARP through IRP, and Oaktree held its equity interest through Defendant Newco

SBS Holdings, LLC (“SBS,” and together with ARP, the “Sellers”).8 Following

ARP’s formation, Equity Group Investments (“EGI”) became a stockholder of SBS.9

SBS owned all of the preferred stock and a majority of the common stock of ARP.10

5
Tr. 322:17–23 (Marino) (“[IRP] had an investment banker by the name of Oppenheimer
& Company that introduced us to Oaktree”); id. at 597:14–22 (Quick) (“[T]he first
transaction in RailUSA . . . was Grenada Railroad. . . . [Marino] hired Oppenheimer to go
out and raise capital to fund that acquisition. And Oppenheimer approached us and we
were able to agree on terms. So effectively we financed the acquisition.”); see JX 550 at
30.
6
PTO ¶ 22; JX 29 at 4; JX 158 at 5.
7
PTO ¶ 25. This opinion adopts the parties’ terminology as used in the pretrial order,
which is inconsistent with the ARP limited liability company agreement. The agreement
refers to the management structure as a board of directors and the equity as units. See JX
29 at 5, 16, 28–29. This inconsistency in labeling is not material to the outcome of this
case. See generally New Enter. Assocs. 14, LP v. Rich, 295 A.3d 520, 580 (Del. Ch. 2023)
(“Using the contractual freedom that the LLC Act confers, the drafters of an LLC
agreement can create a manager-managed entity, label the managers a ‘board of directors,’
refer to the LLC interests as ‘shares,’ and provide that the LLC will be governed by the
DGCL and operate as if it were a Delaware corporation.”).
8
JX 29 at 51; JX 389 at 184:7–8 (Quick Dep.).
9
Tr. 596:3–7 (Quick); id. at 811:19–812:26 (Harwood). EGI is a family office and
investment firm of private equity investor Sam Zell. Id. at 810:18–23 (Harwood).
10
PTO ¶ 26.

3
IRP owned the rest of ARP’s common stock. 11 SBS appointed three directors to the

ARP Board; IRP appointed the other two directors. 12 The SBS-appointed directors

were Evan Harwood, Rahul Sen, and Aaron Zell. 13 The IRP-appointed directors

were Marino and Bennett Marks.14

ARP was a holding company that indirectly held its operating railroad assets

through its wholly owned subsidiary, Gulf & Atlantic Railways, LLC f/k/a RailUSA,

LLC (“RailUSA”).15 Simultaneously with ARP’s formation in August 2018, ARP,

IRP, RailUSA, and SBS entered into a “Management Agreement,” pursuant to which

IRP would provide management, consulting, and financial services to ARP and its

subsidiaries (i.e., its railroad assets).16 Later that month, RailUSA acquired Grenada

Railroad.17 In June 2019, RailUSA acquired the Florida Gulf & Atlantic Railroad,

LLC (“FGA”), a railroad that operated between Baldwin, Florida and Pensacola,

Florida with a separate line running between Tallahassee, Florida and Attapulgus,

11
JX 29 at 51; PTO ¶ 21.
12
PTO ¶¶ 26–27.
13
Tr. 844:2–7 (Harwood). Harwood, Sen, and Zell are all employees of EGI. JX 392 at
22:21–23:3 (Harwood Dep.); JX 497 at 1; JX 284 at 1.
14
JX 29 at 30.
15
RailUSA is a Delaware limited liability company headquartered in Florida. JX 443 ¶ 6.
In January 2023, RailUSA formally changed its name to Gulf & Atlantic Railways, LLC.
PTO ¶ 58.
16
JX 43 at 104–15; Tr. 235:8–11 (Ventrcek). JD Ventrcek joined IRP in 2016 and is IRP’s
current President. Id. at 233:21–234:19 (Ventrcek).
17
Tr. 235:16–19 (Ventrcek); id. at 595:23–596:2, 597:14–16 (Quick).

4
Georgia.18 Both FGA and Grenada Railroad were wholly owned subsidiaries of

RailUSA.19

B. RailUSA’s Owners’ Relationship Deteriorates, and Marino Looks
for an Exit.

RailUSA got off to a bumpy start.20 In spring of 2019, Marino retained

Barbara Wilson as a consulting chief financial officer (“CFO”) for RailUSA, a

decision that Marino soon came to regret. 21 RailUSA missed its projections by a

wide margin.22 SBS, unsurprisingly, blamed IRP and Marino’s management style

for RailUSA’s poor performance, which ultimately led SBS to terminate the

Management Agreement with IRP on July 18, 2019.23 Marino lamented that the

Management Agreement was terminated before he had the chance to terminate

18
Tr. 245:23–246:12 (Ventrcek); JX 24; JX 55 at 19.
19
PTO ¶ 24.
20
The parties spill considerable ink sparring over whether external factors or IRP’s
performance under Marino’s management caused RailUSA to underperform. The finger-
pointing over IRP’s performance highlights the animosity among the parties and their
principals, but that dispute is not one that needs to be resolved in this case.
21
JX 387 at 14:4–22, 20:7–9 (Wilson Dep.); JX 394 at 272: 4–23 (Marino Dep.)
(explaining that Marino had “second thoughts about” hiring Wilson). Wilson reported to
Marino during this time. JX 387 at 14:23–24 (Wilson Dep.).
22
IRP projected to Oaktree in June 2018 that it could achieve an adjusted EBITDA of
$17.5 million in 2019 for the Grenada Railroad. JX 25; JX 551 at 5; Tr. 601:2–8 (Quick).
In March 2019, IRP revised the projected adjusted EBITDA numbers down to $5.5 million.
JX 25; Tr. 601:24–602:3 (Quick). Ultimately, Grenada Railroad’s adjusted EBITDA for
2019 was $2.8 million. JX 25; Tr. 601:13–15 (Quick).
23
JX 543; Tr. 597:23–599:7 (Quick). IRP points to a number of other issues for RailUSA’s
poor performance, including a government shutdown and bad weather. Id. at 236:9–243:22
(Ventrcek) (discussing RailUSA’s performance issues).

5
Wilson.24 The following month, RailUSA hired Wilson as its President and CFO.25

Marino’s relationship with SBS (i.e., Oaktree and EGI) went downhill from there.

As David Quick, Oaktree’s managing director who oversaw SBS’s investment,

mildly put it: “[C]learly, things were not working well as a partnership between IRP

and us, EGI and Oaktree.” 26

Marino first sought to end his acrimonious relationship with SBS by

purchasing the railroads. He embarked on a strategy that included the financial

backing of IIF Acquisitions LLC (“IIF”), an investment fund controlled by J.P.

Morgan Investment Management, Inc. (“J.P. Morgan”). 27 In the fall of 2019 and

again in 2020, IIF and IRP offered to acquire RailUSA from ARP.28 Both times,

SBS determined that the offer was too low, and the discussions broke down.29

24
JX 394 at 272:4–23 (Marino Dep.).
25
JX 387 at 13:15–14:10 (Wilson Dep.).
26
Tr. 617:10–12 (Quick).
27
JX 93; Tr. 330:1–15 (Marino); id. at 617:3–15 (Quick) (“So as a means to helping solve
some of the difficulty, [Marino] thought if J.P. Morgan could come in and buy us out, that
would be a means to an end of resolving that.”). The parties often refer to IIF and J.P.
Morgan interchangeably. See Tr. 368:4–6 (Marino).
28
Tr. 617:3–7, 617:21–618:20 (Quick). IRP and IIF initially began discussions concerning
a potential partnership in the short line rail industry in 2019. JX 391 at 41:18–42:9 (Li
Dep.). In May 2021, IRP and IIF once again discussed a potential partnership in the short
line rail industry, this time specifically to acquire RailUSA. Id. at 69:18–70:11 (Li Dep.);
Tr. 13:16–14:9, 15:3–10 (Bastone). Paul Bastone is IRP’s CFO. Id. at 5:20–21 (Bastone).
29
Tr. 617:16–618:1 (Quick).

6
SBS took a more aggressive approach with Marino and IRP. In February

2020, ARP and RailUSA filed a complaint against IRP, alleging that IRP

mismanaged RailUSA. 30 Not to be outdone, IRP filed counterclaims against ARP

and RailUSA and instituted a second suit for advancement (collectively, the “Prior

Litigation”).31

In the spring of 2021, during the pendency of the Prior Litigation, ARP

decided to sell RailUSA. 32 IIF and IRP were given an opportunity to bid before ARP

30
PTO ¶ 28; JX 38. The case was originally filed in the Superior Court of the State of
Delaware and was later transferred to this court. See Am. Rail P’rs, LLC v. Int’l Rail P’rs,
LLC, C.A. No. N20C-02-283 EMD CCLD (Del. Super.), Dkts. 1, 24; Am. Rail P’rs, LLC
v. Int’l Rail P’rs, LLC, C.A. No. 2020-0890-PAF (Del. Ch.).
PTO ¶ 28; see Int’l Rail P’rs LLC v. Am. Rail P’rs, LLC, C.A. No. 2020-0177-PAF (Del.
31

Ch.), Dkt. 1; Am. Rail P’rs, LLC v. Int’l Rail P’rs, LLC, C.A. No. 2020-0890-PAF (Del.
Ch.), Dkt. 7.
32
JX 391 at 40:9–16 (Li Dep.).

7
formally put RailUSA on the market.33 The negotiations did not progress far, and

that failure was partially attributable to the overhanging litigation. 34

C. ARP Launches a Formal Sale Process.

In August 2021, ARP commenced a formal process to sell RailUSA (the “Sale

Process”), retaining Northborne Partners, LLC (“Northborne”) as its financial

adviser.35 Northborne contacted potential buyers and distributed confidential

33
Id. at 39:13–40:6 (Li Dep.); Tr. 618:2–8 (Quick). During this time, Hai-Gi Li, a
managing director at J.P. Morgan, approached Harwood to inquire whether ARP would
sell RailUSA directly to IIF. JX 391 at 26:3–19, 44:14–46:9 (Li Dep.). IRP was not
involved in this discussion. Harwood told Li that a sale process would be taking place and
encouraged IIF to participate. Id. at 45:19–24 (Li Dep.). Harwood ultimately questioned
the seriousness of IIF’s interest due to the parties’ prior business relationship. Tr. 820:3–
14 (Harwood) (“Our view of IIF at that stage was we didn’t know how real they actually
were. Our history, my history with IIF dated back some time, where they had I believe in
three different instances tried to partner with IRP and buy RailUSA. In all three instances,
they either -- they either verbally promised one thing and didn’t serve up, you know, a term
sheet that matched that number, or their term sheet was wrought with contingencies and
clawbacks.”).
34
Tr. 618:2–619:2 (Quick). ARP, IRP, RailUSA, and SBS had hoped to resolve the on-
going litigation in connection with the possible sale. Id. at 618:4–8, 618:21–24 (Quick).
Li explained that IIF was concerned about becoming entangled in the on-going litigation.
JX 391 at 51:13–53:17 (Li Dep.) (“But when legal language around litigation and legal
language around liability was introduced in the document that -- where IIF, for me, were
simply interested in the asset. When we – when we saw this language that we did not
recognize and were uncomfortable with, we asked -- we asked for separate documents --
separate agreements.”).
35
PTO ¶ 29. Once IRP and Marino got wind of the Sale Process, IRP filed motions for
expedition and for entry of a status quo order in the Prior Litigation, which sought to stop
the sale process. Am. Rail P’rs, LLC v. Int’l Rail P’rs, LLC, C.A. No. 2020-0890-PAF
(Del. Ch.), Dkts. 61–63. Those motions were mooted when the parties settled the Prior
Litigation, the terms and performance of which are now the subject of this action. Id. Dkts.
80–82.

8
information to parties that signed a non-disclosure agreement, including IIF.36

Northborne set a September 14, 2021 deadline for bidders to submit an initial

indication of interest (“IOI”). 37 By that time, Marino and SBS were close to

resolving the Prior Litigation, paving the way for Marino, through IRP, to assist IIF

with bidding on the railroads.

Nine bidders submitted formal IOIs by the September 14 deadline.38 One of

the bidders, Macquarie Infrastructure and Real Assets Inc. (“Macquarie”), submitted

a $192.9 million IOI.39 Macquarie’s IOI was on the high end of the bids Northborne

had received.40 Northborne indicated that Macquarie had been actively engaged in

the Sale Process and suggested that the Sellers consider advancing and fast-tracking

Macquarie’s bid. 41 IIF and another bidder informed Northborne that their IOIs

would be delivered the next day, and Northborne recommended that ARP advance

both of them to the next round before receiving their formal IOIs. 42

36
PTO ¶ 30. Benjamin Marks was the lead Northborne representative facilitating the Sale
Process. See JX 59; JX 343.
37
PTO ¶ 30.
38
JX 88 at 2; JX 91 at 4, 7.
39
PTO ¶ 31.
40
JX 91 at 7.
41
Id. at 5, 7.
42
Id. at 7; JX 391 at 62:23–63:8 (Li Dep.).

9
SBS and Wilson did not fancy the prospect of Marino having a role in running

the railroads with IIF. Even before IIF’s bid came in, Wilson, who by then was

RailUSA’s President and Chief Executive Officer,43 derided IIF as “a joke,” to which

Quick “[a]gree[d].”44 Wilson also remarked that it was “good news to [her]” that

IIF had not submitted a bid yet.45 On September 16, 2021, IIF deadpanned with a

$215 million IOI, the highest IOI to date, by far.46

D. Between Bids, IRP Obtains a Unique Right While Settling the Prior
Litigation.
On September 16, 2021, the same day IIF submitted its IOI, the parties to the

Prior Litigation reached an agreement in principle to settle those actions.47 The

prospect of a final settlement did not ease the animosity among the parties. Despite

IIF having submitted the highest IOI by a significant margin, RailUSA and SBS

denigrated IIF, which was Marino and IRP’s favored buyer. In a September 22,

2021 email about IIF, Quick remarked that “a fool and his money are some party

43
JX 387 at 14:13–15 (Wilson Dep.).
44
JX 87 at 1.
45
JX 92 at 1.
46
JX 93; JX 94; JX95; JX 91 at 7 (identifying $209 million as the highest IOI as of
September 14, 2021).
47
JX 363 at 3–4.

10
[sic].” 48 A few days later, Quick suggested that IIF’s bid was not “real,” pointing to

the fact that only a few IIF representatives had been present for a recent diligence

call. 49 Quick was not alone. RailUSA’s management team, and particularly Wilson,

were averse to IRP and, by association, IIF. 50

While the parties to the Prior Litigation were negotiating the terms of their

settlement agreement, 51 Macquarie heard from an industry consultant that IIF and

Marino might be teaming up to make a bid for RailUSA.52 This was a surprise to

Macquarie, which had been told by Northborne at the outset of the Sale Process that

Marino had been ousted from his role managing RailUSA.53 Henry Blackford, a

senior vice president at Macquarie,54 recounted that his contact said that Marino’s

48
JX 109 at 1; cf. Tr. 692:4–12 (Quick) (“Q. Sir, during the sale process you referred to
Hai-Gi Li of IIF as a fool; correct? A. In a joking email. I used the phrase that my neighbor
often used, a fool and his money are some party, as a joke. I wasn’t calling him a fool
directly. Q. But in your email, the fool referred to [] Li; correct? A. Referred to that J.P.
Morgan team.”).
49
JX 118 at 1.
50
Tr. 695:19–24 (Quick); JX 472 at 18:2–14 (Quick Dep.) (“Q: Are you aware of anyone
associated with any of the defendants did not want to sell RailUSA to IRP or J.P. Morgan?
A: I believe the management team had a strong preference not to sell to . . . the former
managers . . . Q: When you say the management team, who are you referring to? A:
Barbara Wilson and -- and several other managers in the line including Trevor who ran the
[Grenada] Railroad.”).
51
JX 102; JX 113; JX 134; JX 142.
52
JX 122 at 1.
53
JX 57 at 1.
54
JX 245 at 12.

11
involvement with a potential buyer was “especially surprising given the

relationship” and “ongoing litigation.”55 Blackford stated that “[he’s] not entirely

sure what to make of that” and that it “seem[ed] to [him] that would be very

messy.”56

On October 4, 2021, Northborne sent a letter to the remaining bidders in the

Sale Process, including IIF and Macquarie, outlining the process for preparing final

offers (the “Process Letter”). 57 The Process Letter stated that each bidder’s “Final

Offer should represent [its] best and final offer” and cautioned that bidders “should

not assume that [they] will be given the opportunity to rebid or revise the terms of

or increase the amount of [their] Final Offer.” 58 The Process Letter also reserved

the right for RailUSA “to modify the process outlined above in any manner without

notice and to terminate discussions at any time,” and established a deadline to submit

final offers by 12:00 p.m. Eastern Time on November 9, 2021.59

55
JX 122 at 1.
56
Id.
57
PTO ¶ 33; JX 126; JX 127.
58
JX 126 at 2; JX 127 at 2.
59
JX 126 at 2–3; JX 127 at 2–3.

12
On October 13, 2021, ARP, IRP, RailUSA, and SBS executed a final

settlement agreement to resolve the Prior Litigation (the “Settlement Agreement”).60

Contemporaneously, the parties executed a side letter to the Settlement Agreement

providing IIF and IRP with certain rights in the Sale Process (the “Side Letter”).61

In the Settlement Agreement and the Side Letter, the parties made commitments

about their conduct in the then-ongoing Sale Process. The Settlement Agreement

provided, in pertinent part:

Current Sale Process. The Parties understand that the ARP Board has
decided to cause ARP to sell RailUSA and/or its Subsidiaries and has
initiated an auction process to facilitate the sale (the “Current Sale
Process”).

(a) The ARP Parties agree to use commercially reasonable
efforts to complete the Current Sale Process and to
consummate a sale.
(b) The IRP Parties agree to use commercially reasonable
efforts to ensure they do not hinder or interfere with the
Current Sale Process in any way. The Parties agree that
the IRP Parties are not hindering or interfering with the
Current Sale Process by working with IIF Acquisitions
LLC on the buy-side therein, as is described more fully in
this Section 3.

(c) The ARP Parties consent to the IRP Parties aiding IIF
Acquisitions LLC in the Current Sale Process, and waive

60
PTO ¶ 34; JX 140 (“Settlement Agreement”). On October 15, 2021, the parties filed
stipulations of dismissal in the Prior Litigation. PTO ¶ 35; see Int’l Rail P’rs LLC v. Am.
Rail P’rs, LLC, C.A. No. 2020-0177-PAF (Del. Ch.), Dkt. 75; Am. Rail P’rs, LLC v. Int’l
Rail P’rs, LLC, C.A. No. 2020-0890-PAF (Del. Ch.), Dkt. 82.
61
PTO ¶ 34; JX 141 (“Side Letter”).

13
any objection to the IRP Parties’ involvement with IIF
Acquisitions LLC in the Current Sale Process.62

There are two key terms in the Side Letter that sit at the core of the dispute in

this action, which provide that:

1. If the final Conforming Bid submitted by IIF Acquisitions LLC
is not the highest and best final Conforming Bid submitted within the
timing set forth by the Current Sale Process, then IIF Acquisitions LLC
shall be informed of the price of the then-highest final Conforming Bid.

2. IIF Acquisitions LLC shall not be eliminated from the Current
Sale Process at any time prior to the receipt of the last bid permitted to
be submitted within the Current Sale Process.63

E. Wilson Encourages a Deal with Macquarie, and Sellers Negotiate
Terms to Push Macquarie’s Bid to the Top.
The day after ARP, IRP, RailUSA, and SBS executed the Settlement

Agreement and Side Letter, Wilson joined Blackford and two Macquarie consultants

for a site visit to Grenada Railroad, with dinner to follow.64 After the dinner,

Blackford and Wilson met privately. Blackford’s objective was unmistakable:

extract information that would give Macquarie an edge in the Sale Process.

Blackford testified that he asked a broad scope of questions to “validate [his]

understanding of who was involved in the process” and obtain information on “how

[Macquarie] might potentially be positioned in the field from a valuation

62
Settlement Agreement § 3. Marks resigned from the ARP Board in connection with the
Settlement Agreement. PTO ¶ 27; Settlement Agreement § 2.
63
Side Letter at 1.
64
JX 475 at 95:25–97:25 (Blackford Dep.); Tr. 468:7–469:5 (Wilson).

14
perspective.”65 Wilson testified that she merely “confirmed” what Blackford already

knew.66 This testimony, like most of Wilson’s testimony throughout this action, is

not credible. Other witnesses and contemporaneous documentary evidence revealed

that Wilson gave Macquarie game-changing information—as Blackford put it in a

post-meeting email to his colleagues: “the full landscape.”67 For example, Wilson

not only “provided feedback on whether [Blackford’s] assumptions were correct”

with direct answers, but she also “provid[ed] general descriptions” and information

on different bidders’ positioning in the field. 68 Blackford reported to his team that:

• [JP Morgan] is in fact backing [] Marino as “dumb money”, and
they are the high bid, but there are concerns around them having
“contingencies” in the markup to the purchase agreement
• Fortress’ high end of the range is the next highest bid, but their
low end of the range is below several bidders, and they have not
engaged diligence advisors as aggressively

• Then [Macquarie] - clear that we have done the most diligence
to date and are being granted more access than any other bidder

• 3i/Regional is also around our level, but does not appear to be
“getting it”

• Lastly, G&W,69 who, however, indicated that they would have
some value to move up

65
JX 475 at 98:9–20 (Blackford Dep.).
66
Tr. 470:7–10, 476:23–477:2 (Wilson).
67
JX 148 at 1.
68
JX 475 at 98:9–99:8 (Blackford Dep.).
69
This is a reference to Genesee & Wyoming (“G&W”), another bidder in the Sale Process.
JX 245 at 10.

15
[Wilson] never gave a specific value and claimed not to know, but said
it had to start with a 2. Sounds like [JP Morgan] is ahead by a bit of a
margin, but people are wary of their bid. Apparently [Marino] still has
a seat on the [ARP] Board (1/4, the other 3 are Oaktree/EGI), which is
a complicated situation to say the least.

[Wilson] reiterated that we are clearly the most prepared, and that
closing by the end of the year is very important to both Oaktree and
EGI, but that we probably need to move up a little.70

Upon hearing only a snippet of the “full landscape” that Wilson shared with

Blackford, Ryan Ratledge, a consultant for Macquarie, remarked: “Wow. You did

well!”71 And Louis Paul, a managing director at Macquarie, 72 replied: “We have to

give [Wilson] cover given what she told you.” 73 A particularly important disclosure

from this conversation was that “[Marino] still ha[d] a seat on the [ARP] [B]oard,”

which prompted Macquarie to ask whether any bidders held a right of first refusal.74

Macquarie’s inquiry set off a flurry of activity that fundamentally changed the

Sale Process. When Macquarie initially asked about the right of first refusal,

Northborne “assured [Macquarie] there [was] absolutely no ability for the former

70
JX 148 at 1.
71
JX 143 at 3.
72
JX 245 at 12.
73
JX 147 at 6.
74
Id. at 5–6 (“One item I wonder if it’s worth chasing down with Ben Marks is whether []
Marino has a ROFR on this. . . . [M]y concern would be the only reason Gary could still
have a Board seat is if he owns part of the Company, and whether that ownership affords
him a ROFR.”); JX 148 at 1 (October 14, 2021 email from Blackford to Paul discussing
Marino’s current seat on the ARP Board).

16
management team to mess with the sale process in any way” and that “no shareholder

ha[d] a pre-emptive right.”75 Quick had a different perspective and proposed

sending the terms of the Settlement Agreement and Side Letter to all of the active

bidders in the Sale Process.76 By October 21, 2021, Macquarie had full knowledge

of the Settlement Agreement and IIF and IRP’s preferential rights in the Sale

Process. 77 On October 27, 2021, the ARP Board formed a special committee made

up of the three SBS-appointed directors: Harwood, Sen, and Zell (the “Special

Committee”). 78

Now aware of the terms of the Settlement Agreement, Macquarie’s

investment committee “expressed concern that [Macquarie] may be materially

disadvantaged in the auction and should not proceed unless cost recovery could be

secured.” 79 Paul issued an ultimatum to Sellers, via Northborne, on October 27,

2021: “[Macquarie] will need to go pens down . . . today unless we can agree on the

commercial terms of a cost recovery.”80 Paul proposed a $2.5 million expense

reimbursement, but only in the event IIF and Marino were the winning bidder and

75
JX 158 at 1.
76
JX 159.
77
JX 169 at 2.
78
PTO ¶ 36.
79
JX 169 at 2.
80
JX 183 at 1.

17
Macquarie submitted a final offer higher than its IOI.81 Paul cleverly justified the

demand to Sellers by recounting what they had previously represented to him:

“[Macquarie] view[s] this as completely reasonable and, based on what [Macquarie]

ha[s] been told, zero cost to your clients because a sale to [Marino] has a probability

of 0%.” 82 The Sellers ultimately agreed to Macquarie’s request for an expense

reimbursement, but Harwood noted to Macquarie that “this is an accommodation

that no one else not only required, but even asked for or hinted at,” and that “while

81
Id.
82
Id. There is testimony in the record from multiple fact witnesses denying that the Sellers
told Macquarie that Marino had a zero percent chance of winning the auction and
suggesting that Paul used the language in his October 27 email solely to gain leverage for
Macquarie in negotiating an expense reimbursement. Tr. 628:15–629:22 (Quick) (“Q. Did
you ever tell Macquarie that there was a zero percent chance that IIF would win this
auction? A. No.”); id. at 823:21–824:15 (Harwood) (“Q. Did you at any point ever tell
[Macquarie] there’s a zero percent chance that IIF would win the auction? A. No, not that
I recall.”); id. at 727:16–729:23 (Paul) (“Q. You sent your [October 27] email to
Northborne’s Ben Marks. Had he told you that Gary Marino, or the team with which he
was bidding from J.P. Morgan, had a zero percent chance of winning? A. No one told us
any -- that [] Marino had a zero percent chance of winning. . . . Q. If no one told you that
Marino had a zero percent chance, and if you expected Ben Marks to disagree with what
you wrote, why did you phrase your email as you did? A. Because I wanted to give him
two options, one which was absolutely ridiculous and one that then he couldn’t refuse. And
so the comment around the zero percent chance was just so silly, so false that he had to
then admit to giving us . . . the cost recovery. . . . Q. Was this a false statement, that
someone had told you zero percent probability? A. Absolutely. . . . [I]t was a negotiating
tactic, and it worked the way that I had hoped it would work.”). The court does not find
this testimony to be credible, and there are no contemporaneous Macquarie documents in
the record that refute the representations made in Paul’s October 27 email.

18
I absolutely think you guys would be great partners to the business and its

management team, you are not the high bidder at the moment.”83

On October 29, 2021, Macquarie and RailUSA executed an expense

reimbursement letter agreement (the “Expense Reimbursement”). 84 The Expense

Reimbursement provided that:

If a Seller Alternative Transaction occurs, then [RailUSA] will
reimburse Macquarie in accordance with this letter agreement for all
actual and documented out-of-pocket fees and expenses reasonably
incurred by Macquarie [during the Sale Process] . . . up to a maximum
reimbursement amount payable to Macquarie equal to $2,500,000.00.85

The Expense Reimbursement defines “Seller Alternative Transaction” as “a

direct or indirect sale to IIF . . . or its affiliate(s) of all or substantially all of the assets

or a majority of the equity (whether by merger, other business combination or similar

transaction) of [RailUSA].”86 The Expense Reimbursement was necessary to keep

Macquarie in the Sale Process. 87 After the Expense Reimbursement had been

83
JX 193 at 2.
84
PTO ¶ 37; JX 193 at 4–6.
85
JX 193 at 4.
86
Id. at 5.
87
JX 168 at 1–2 (October 20, 2021 text message from Quick to Oaktree representative
stating Macquarie is “still super nervous about [Marino] and might walk” but “think we
can reassure them”); Tr. 720:3–20 (Paul) (explaining that “the deal team, but certainly the
investment committee, thought it wasn’t worth us spending time and, indeed, a lot of
money on trying to acquire the railroads with that kind of disadvantage. So in order for us
to go ahead, we wanted our costs covered to at least cover the costs -- the cost piece of it”);

19
finalized, IIF discovered that the Sellers had uploaded the Settlement Agreement and

Side Letter to the data room.88 The Sellers did not disclose to IIF that the Settlement

Agreement and the Side Letter had been shared with the other bidders in the Sale

Process.

F. The “Final” Bids

Three bidders submitted bids by the November 9 deadline provided in the

Process Letter: Macquarie, IIF, and G&W. 89 This time, Macquarie’s bid was the

clear standout, offering $221.8 million in “total consideration,” which Northborne

identified as an almost $30 million increase in Macquarie’s valuation of RailUSA

since its IOI. 90 Northborne indicated that Macquarie’s “Level of Engagement” had

been high throughout the Sale Process.91 By contrast, IIF’s $212 million “base

purchase price” bid was $3 million lower than its IOI.92 Northborne remarked that

JX 169 at 3 (memorializing that Macquarie’s investment committee “tabled the budget
request and in turn requested that the deal team provide additional information on the
company’s revenue model and clarifications relating to risks and mitigating steps in
connection with [] Marino’s involvement as a potential bidder before approving additional
budget or providing any formal support for the transaction”).
88
Compare JX 193 (finalizing the Expense Reimbursement on Friday, October 29, 2021),
with JX 196 (IIF internal email on Monday, November 1, 2021 flagging “the settlement
documents that were updated in the VDR over the weekend” and attaching copies of the
Settlement Agreement and Side Letter).
89
JX 245 at 5.
90
JX 238 at 3; JX 245 at 5.
91
JX 245 at 5.
92
JX 240 at 2; JX 245 at 5.

20
IIF’s “Level of Engagement” had improved since the IOI stage and was now on par

with that of Macquarie. 93 G&W’s “Level of Engagement” had waned since the IOI

stage, which was reflected in its latest bid of $180 million.94

On November 11, 2021, the Sellers’ counsel informed IRP’s counsel that “the

price of the highest final Conforming Bid received is: $221.8 million.” 95 This was

the bid submitted by Macquarie.96 Sellers’ counsel did not disclose any information

about the Expense Reimbursement.97 That same day, the Special Committee met

and agreed to give G&W “the opportunity to come up on their bid or bow out,” but

otherwise focused on advancing IIF and Macquarie. 98 The Special Committee’s next

steps would be keyed off of the timing of IIF’s response.99 If IIF indicated it would

respond quickly, the Special Committee would wait for IIF’s response before getting

back to Macquarie. 100 On the other hand, if IIF indicated it would take a few days

to rebid, the Special Committee would “let [Macquarie] know they did not win and

there are others that are more competitive on all other terms other than purchase

93
JX 245 at 5.
94
Id. G&W’s IOI was between $145 million and $160 million. Id.
95
PTO ¶ 41; JX 255.
96
PTO ¶¶ 38, 41; JX 238 at 3; JX 245 at 5.
97
JX 255.
98
JX 244.
99
Id.
100
Id.

21
price.”101 Based on this observation, it is apparent to the court that, as of November

11, 2021, the Special Committee viewed IIF’s bid as superior to Macquarie’s bid in

every respect other than its offered purchase price.

IIF responded quickly, submitting a revised bid on November 12, 2021, with

a “base purchase price” of $223 million. 102 There were no other monetary

considerations contained in IIF’s bid outside of its offered “base purchase price.”103

The Special Committee met the following day.104 Based on the potential closing

risks associated with IIF’s bid, the Special Committee decided to “keep the other

bidders, especially [Macquarie], engaged in the process.”105 The Special Committee

also discussed that Macquarie had conditioned its bid on the assumption that ARP

could obtain a new contract with the Canadian National Railway (the “CN

Agreement”).106 The Special Committee expressed uncertainty as to whether ARP

could obtain an extension of the CN Agreement on an expedited timeline and satisfy

this condition.107 The Special Committee decided to provide issues lists to IIF and

101
Id. at 2.
102
JX 262 at 2.
103
Id. at 2–4.
104
JX 271 at 1.
105
Id.
106
Id.; JX 245 at 8; Tr. 770:12–22 (Paul).
107
JX 271 at 1.

22
Macquarie.108 The issues lists “include[d] a deadline to sign and close,” asked the

bidders to address “how [they] would treat the management team,” and “direct[ed]

the bidders to respond to the issues list[s] no later than 12:00 pm CT on November

15.”109

On November 13, 2021, Wilson called Macquarie at the request of Harwood

and Quick.110 Wilson spoke with Blackford and Paul from Macquarie three separate

times that day.111 Macquarie pressed Wilson to learn what it needed to do to outbid

108
Id.
109
Id. at 1–2; JX 275 at 1.
110
Tr. 474:9–14 (Wilson).
111
JX 265 at 1; JX 387 at 162:5–20 (Wilson Dep.); Tr. 474:23–475:9, 475:23–476:17,
478:15–479:7 (Wilson); see JX 147 at 13 (“Give [Wilson] a call. Ask her what price we
need to win if we drop cp.”). There is much dispute as to what was discussed over these
three calls between Wilson and the Macquarie representatives. The record contains a
number of hand-written notes taken by Blackford. See JX 163. Notably, following
Wilson’s first call with Blackford, Blackford wrote a note stating that Wilson told him, “no
one wants to sell to Gary.” Id. at 8. The record shows that, on these calls with Wilson, the
Macquarie representatives were seeking the exact numbers necessary to outbid IIF. JX 475
at 131:4–132:23 (Blackford Dep.). Macquarie confirmed that Wilson did not in fact share
the specific $223 million bid number from IIF, nor did she confirm that $223.5 million
would outbid IIF. JX 473 at 97:11–21 (Paul Dep.). Following these calls with Wilson,
Blackford and Paul gamed out the price they suspected would outbid IIF on their own. JX
163 at 9; JX 473 at 104:16–105:11 (Paul Dep.); JX 475 at 140:2–24 (Blackford Dep.).
Macquarie updated its investment committee on November 18, 2021, on its best and final
offer of $223.5 million. JX 306 at 5. Had Macquarie definitively known about IIF’s $223
million bid, it likely would have included that number in its investment committee
presentation, rather than simply stating IIF had improved its bid above Macquarie’s
previous bid of $221.8 million. JX 307 at 2 (Investment committee presentation providing
a “Deal Update” and indicating that the Sale Process “[p]rogressed to Best and Final Offer
Round following [IIF] increasing [its] bid above $221.8M,” and Macquarie “submitted

23
IIF. When Wilson reported back to Harwood and Quick between the calls, Quick

cautioned her that the Sellers had “a confidentiality provision on [IIF’s] bid to not

disclose”; Harwood stated that “[Macquarie] just ha[s] to increase [its] bid and

improve on [its] other stuff.”112 Wilson discussed the CN Agreement with

Macquarie and encouraged Macquarie to submit its best bid. 113 Wilson then

informed Harwood and Quick that the “[m]essage [was] delivered.”114 Although

Wilson provided Macquarie with significant information, there is no direct evidence

in the record that Wilson disclosed the top line number of IIF’s bid.

G. The “Best and Final” Bids

On November 15, 2021, Macquarie submitted a final bid of $223.5 million, a

mere $500,000 above IIF’s November 12 bid. 115 Macquarie’s bid removed the

condition of the CN Agreement and allowed the Sellers to keep payouts of up to

$1.3 million from an R&W insurance policy that were expected to be received after

Best and Final Offer November 15th at $223.5 million”); JX 306 at 5 (Paul discussing
presentation at investment committee meeting and stating that “following [IIF] increasing
its bid above US$221.8 million, [Macquarie] subsequently submitted a [best and final
offer] of US$223.5 million”).
112
JX 267 at 1–2. The record shows that Wilson did not disclose the price of IIF’s active
$223 million bid, although she disclosed IIF’s “stale” bids. Tr. 528:14–24 (Wilson); JX
471 at 64:16–21 (Wilson Dep.).
113
Tr. 478:15–479:7 (Wilson).
114
Id. at 479:7 (Wilson); JX 267 at 2.
115
PTO ¶¶ 42, 44; JX 289.

24
closing (the “Insurance Claim”).116 The bid also indicated that Macquarie intended

to “retain [Company] management and the workforce more broadly” for at least six

months post-closing and to “implement an incentive compensation program.”117

Subsequently, the Sellers’ counsel informed IRP’s counsel that IIF’s November 12

bid of $223 million was no longer the “highest and best final conforming bid

submitted.”118 Sellers requested an updated bid from IIF within 24 hours and

informed IRP that the Special Committee would then review the best and final bids

on a holistic basis.119 When the Sellers disclosed “the price of current highest final

Conforming Bid” to IRP, they did not include information about the Sellers’

treatment of the $2.5 million Expense Reimbursement or the proceeds from the $1.3

million Insurance Claim. 120

The Special Committee met on the evening of November 15.121 Northborne

informed the Special Committee of Macquarie’s $223.5 million bid. 122 The Special

Committee reviewed both IIF’s and Macquarie’s responses to the November 12

116
JX 289 at 3, 9; see JX 290 at 2 (identifying the value of the Insurance Claim as up to
$1.3 million).
117
JX 289 at 3.
118
PTO ¶ 46; JX 282.
119
JX 282.
120
Id.
121
PTO ¶ 45; JX 283 at 1.
122
JX 283 at 1.

25
issues lists123 and raised concerns over closing timelines, specifically IIF’s indication

that additional due diligence might be necessary.124 The meeting minutes indicate

that the Special Committee suspected that Marino might introduce last minute issues

which could jeopardize closing with IIF. 125 After discussion, the Special Committee

did not make a final decision as to a winning bid; rather, the Special Committee

decided to wait and see if IIF would submit a higher bid and to ask both IIF and

Macquarie clarifying questions about their respective proposals. 126

On November 16, 2021, IIF submitted a revised topping bid of

$224 million.127 This was the final bid of the auction. 128 The Special Committee

met that evening to consider IIF’s and Macquarie’s best and final bids, discussing a

“detailed comparison of the economic terms” and other material considerations, such

as the ability to “choose a buyer soon and sign quickly.” 129 In comparing the

economic terms of the two bids, the Special Committee valued IIF’s bid at

approximately $2.6 million less than Macquarie’s bid.130 That estimate was a result

123
Id.
124
Id. at 1–2.
125
Id.
126
Id.
127
PTO ¶ 47; JX 296 at 2.
128
Tr. 615:1–10 (Quick).
129
PTO ¶ 48; JX 294 at 1–2.
130
JX 290 at 2.

26
of the Special Committee subtracting the $2.5 million Expense Reimbursement from

IIF’s base purchase price and adding the $1.3 million Insurance Claim as “[o]ther

[c]onsideration” to Macquarie’s base purchase price.131 The Special Committee

again raised concerns over IIF’s ability to close, potential last minute issues from

Marino, and the possibility of employee departures.132 As explained later in this

opinion, the threat of mass employee departures was overblown and misinformed.

At the end of the meeting, the Special Committee unanimously agreed that, under a

holistic assessment, Macquarie’s bid was stronger than IIF’s bid. 133 The Special

Committee directed Northborne “to move expeditiously to sign a contract with

[Macquarie] if certain final changes could be obtained.” 134 The Special Committee

also instructed Northborne to simultaneously seek additional follow-up information

from IIF in the event that Macquarie did not agree to execute on acceptable terms or

an acceptable timeline. 135

131
Id.
132
JX 294 at 2 (“[T]he Special Committee members again raised the possibility that several
employees could quit if IIF was the bidder. One of the participants noted that one employee
had already quit earlier in the year for this very reason . . . and they had been told by
Barbara Wilson that other employees would likely quit as well.”); Tr. 484:6–16 (Wilson).
133
JX 294 at 2.
134
Id. (requesting that Macquarie agree to “(i) provide further clarity and certainty on the
purchase price allocation, (ii) remove accrued bonuses from indebtedness, (iii) remove the
environmental indemnification and (iv) . . . honor director indemnification obligations of
the Company following Closing”).
135
Id.

27
On a November 18, 2021 call with Wilson, IIF insisted that they discuss

management plans. 136 What transpired is hotly disputed. Wilson surmised from this

call that three of RailUSA’s most senior female executives would be fired if IIF

became the ultimate purchaser. 137 IIF denies that version of the call. 138 Wilson also

suspected that IIF might require further due diligence, even though IIF’s final bid

was delivered with no “diligence outs.”139

On November 19, 2021, the Special Committee met and received an update

from Northborne on Wilson’s discussion with IIF about IIF’s management plans for

RailUSA.140 Quick proposed that IIF agree to fund a $5 million management

retention plan for RailUSA if IIF were the prevailing bidder. 141 The Special

136
JX 305 at 1.
137
Tr. 482:7–21 (Wilson).
138
See JX 308 (November 18, 2021 email from Li to Marks from Northborne stating that
IIF’s plan is “to ask the corporate management team to stay on for a transition period no
shorter than [three] months” and “to discuss with each team member their plans and . . .
explore longer term employment opportunities individually”); JX 341 (November 22, 2021
email from Li to Marks stating “Never once did I suggest to [Wilson] that any roles would
be terminated”); see also Tr. 559:1–25 (Li).
139
JX 277 at 10; Tr. 481:11–17 (Wilson); JX 302 at 1.
140
PTO ¶ 48; JX 320 at 1 (“[Northborne] said it was [] Wilson’s impression that IIF would
terminate the entire management team after three months.”). The Special Committee relied
on Wilson’s reporting and did not separately investigate IIF’s management plans. Tr.
854:24–856:16 (Harwood) (“Q. So the special committee relied exclusively on [] Wilson;
correct? A. Ms. Wilson was the CEO of the company, and we relied on her. There’s no
reason for us to doubt anything the CEO of our company would relay to us about her
employees.”).
141
JX 320 at 1; JX 315 at 3.

28
Committee concluded that Macquarie’s bid offered better terms than IIF’s bid and

instructed its advisers to continue to seek improvements from Macquarie while

pressing IIF to accept the proposed management retention plan. 142

Under the proposed management retention plan, seven RailUSA executives

would each be paid a specified amount if they ultimately chose to leave RailUSA

after a transition period. 143 Quick acknowledged that this was a high starting

position, and IIF countered with a significantly lower offer of $550,000 as a

“commercially reasonable bonus payment” with a six-month transition period.144

During these discussions, Northborne encouraged IIF to increase its bid by another

$1 million, for a total bid of $225 million. 145 Over the course of the next few days,

IIF continued to send diligence requests to Northborne.146

Meanwhile, Harwood continued to work with Macquarie to finalize its bid,

providing details on the specific terms in need of improvement.147 Macquarie’s

attorneys provided an updated draft of the purchase agreement on November 19,

142
JX 320 at 2.
143
JX 312 at 3; JX 315 at 2; JX 389 at 144:15–145:17 (Quick Dep.).
144
Tr. 660:4–13 (Quick); JX 350 at 1–2; Tr. 858:20–23 (Harwood) (“Q. Right. And they
offered in writing to put $550,000 in escrow for three members of RailUSA’s management
team as an incentive; correct? A. That’s right.”).
145
JX 320 at 2.
146
See, e.g., JX 334 at 1.
See, e.g., JX 319 at 2 (“My advice would be – we sent you the answer key, of sorts. I
147

would have Sidley follow it.”); JX 327.

29
2021. 148 Paul and Wilson continued to communicate over the following days. In

response to a question from Paul asking whether there was “still concern about

[Marino],” Wilson confirmed that “[RailUSA] continue[s] to answer questions for

both you and [IIF]. Goal is to keep both rolling and get you signed up.” 149

On November 22, 2021, IIF informed Northborne that it expected to deliver

another turn of a near-final purchase agreement early the next day, and that IIF can

“sign tomorrow if [the Sellers] want.”150 IIF indicated to Northborne that it would

be “likely to accept” the Sellers’ retention of any payouts from the $1.3 million

Insurance Claim, but IIF would not alter its base purchase price from

$224 million.151 IIF further clarified that it would agree to a “‘commercially

reasonable’ retention package for the top three executives . . . to be paid on the [six]

month anniversary of the deal.”152

The Special Committee met in the afternoon on November 22 to discuss IIF’s

and Macquarie’s bids. 153 The Special Committee remarked that the two bids were

“relatively comparable economically,” but that Macquarie’s bid presented less

148
JX 317.
149
JX 332 at 1; see JX 336; JX 337; JX 338.
150
JX 343.
151
Id.
152
Id.
153
PTO ¶ 48; JX 346 at 1.

30
execution and closing risk and was still stronger on other material terms, including

retention and management issues. 154 In that regard, the minutes of the meeting

indicate that “[m]embers of the Special Committee raised concerns that [IIF’s]

package would not be acceptable to management and would not help with the

retention risk between signing and closing that had previously been discussed.”155

The Special Committee ended the meeting with the goal of reaching a final

agreement with Macquarie within the next 24 hours. 156

ARP and RailUSA entered into a purchase agreement with Macquarie on

November 23, 2021, for Macquarie to purchase all of ARP’s issued and outstanding

equity interests in RailUSA. 157 The agreement between Macquarie and the Sellers

did not include employment guarantees for management or any other RailUSA

employee.158 On November 24, 2021, the Sellers’ counsel informed IRP’s counsel

that the auction had closed and that ARP had entered into a definitive purchase

agreement with a different buyer.159

154
JX 346 at 1.
155
Id.
156
Id. at 2.
157
PTO ¶ 49; JX 349.
158
JX 349 at 53.
159
PTO ¶ 50; JX 354.

31
H. IIF and IRP Attempt to Negotiate Terms to Govern Their Business
Relationship.

In parallel with the Sale Process, IIF and IRP discussed a potential business

relationship in the event that IIF prevailed in the auction and ultimately acquired the

railroads. Those discussions generally occurred between October 21, 2021, and

November 9, 2021, and are memorialized in a draft memorandum of understanding

(the “November 2021 MOU”).160 The November 2021 MOU was not signed, though

IRP and IIF had agreed on some material terms. These terms included the ownership

stake IIF and IRP would respectively hold in the post-closing entity, the structure of

the board of directors and Marino’s position as an initial board member, and IRP’s

role in providing management services to the railroads. 161 The November 2021

MOU was expressly non-binding and contingent on “the execution . . . of definitive

agreements” and “final investment committee and board approval for IIF.”162

160
Tr. 17:10–18:6 (Bastone); JX 237. The November 2021 MOU is a redline from an
earlier draft. JX 237.
161
JX 237 at 2–4; Tr. 270:12–20 (Ventrcek) (“Q. During the [S]ale[] Process . . . IRP did
not have any sort of commitment from IIF because we don’t have a signed MOU; right?
A. We did not have a signed MOU, correct. Q. And IRP did not have any sort of
commitment from IIF; right? A. Had a verbal agreement. A verbal agreement.”); id. at
25:20–26:2 (Bastone) (“Q. And so as of November 9, 2021, where did you understand
things stood between IIF and IRP? A. We were -- we were done. We had agreed to key
commercial terms. We had what we considered a verbal agreement, a handshake
agreement. We were done. The partnership was -- on both sides, we were ready to move
forward with this partnership.”).
162
JX 237 at 2; Tr. 565:17–566:16 (Li).

32
I. Procedural History
On November 24, 2021, Plaintiff initiated this action against RailUSA and the

Sellers (collectively, the “Defendants”) alleging breach of contract and breach of the

implied covenant of good faith and fair dealing. 163 With its complaint, Plaintiff also

filed motions for expedited proceedings and for a temporary restraining order to

block the sale of RailUSA to Macquarie. 164 The court denied Plaintiff’s motion for

a temporary restraining order on November 30, 2021, 165 and granted Plaintiff’s

motion for expedited proceedings on December 2, 2021.166

On January 23, 2022, Plaintiff filed a motion for a preliminary injunction,

again asking the court to block the sale of RailUSA to Macquarie. 167 On February

22, 2022, the court denied Plaintiff’s motion for a preliminary injunction.168 In

denying Plaintiff’s motion, the court concluded, based on the current record, that

IRP had demonstrated a reasonable probability of success on the merits of its breach

of contract claim, but IRP had not established a sufficient threat of irreparable harm

because IRP’s alleged harm could, in large part, be remedied by money damages.169

163
Dkt. 1.
164
Dkts. 2–3
165
Dkt. 21.
166
Dkt. 27.
167
Dkt. 134.
168
Dkt. 170.
169
Dkt. 182 at 27:8–11, 31:14–34:2.

33
The court observed that IRP’s alleged harm resulting from the loss of its business

prospects arising from the November 2021 MOU seemed “speculative” and subject

to “numerous conditions” being met, including that “IIF and IRP would need to

finalize their non-binding, tentative conditional MOU that was contingent upon IIF’s

acquiring RailUSA,” IIF “would need to win the auction for RailUSA,” and “IIF and

the defendants would have to agree on a final set of terms and close the

transaction.”170 The court further observed that IIF is not a party to this action. 171

Eight days later, on March 2, 2022, Plaintiff filed a second motion for a

temporary restraining order, along with a motion for expedited proceedings, asking

the court to enjoin Defendants from distributing $45 million out of the total proceeds

received from the RailUSA sale.172 Following expedited briefing, the court denied

both motions on March 10, 2022.173

The next day, Plaintiff and IIF executed a memorandum of understanding

documenting the terms of their business relationship (the “March 2022 MOU”).174

As explained later in this opinion, the terms of the March 2022 MOU differed

170
Id. at 29:22–30:15 (internal quotation marks omitted).
171
Id. at 30:19–20.
172
Dkts. 176–77.
173
Dkts. 185–86, 192–93.
174
PTO ¶ 53; JX 405 at 6.

34
materially from those in the unsigned November 2021 MOU.175 Not long thereafter,

Plaintiff filed an amended complaint,176 and IIF moved to intervene. 177 The court

granted IIF’s motion to intervene on April 4, 2022, 178 and IIF filed its complaint

against Defendants on April 6, 2022, asserting claims for (i) breach of the non-

disclosure agreement IIF entered into at the start of the Sale Process, (ii) breach of

the Settlement Agreement, and (iii) breach of the implied covenant of good faith and

fair dealing. 179

On June 1, 2022, Defendants filed motions to dismiss both complaints.180

After the motions were briefed but prior to the court holding oral argument, IIF

entered into a confidential settlement and agreed to dismiss its claims with

175
For example, the March 2022 MOU provides that “IRP will be entitled to invest up to
$5 million of new cash equity capital for up to a 2.2% ownership interest” as part of the
ownership structure, and adds two EBITDA initiatives. JX 405 at 1, 7; Tr. 56:18–57:12
(Bastone). The March 2022 MOU also contains a Delaware governing law provision,
while the November 2021 MOU contains a New York governing law provision. Compare
JX 237 at 7 (New York law), with JX 405 at 6 (Delaware law); Tr. 56:11–13 (Bastone).
176
Dkt. 199.
177
Dkt. 204.
178
Dkt. 209.
179
Dkt. 211.
180
Dkts. 228–31.

35
prejudice.181 On February 27, 2023, the court denied Defendants’ motions to dismiss

IRP’s complaint,182 and IRP pursued its claims through trial.183

II. ANALYSIS

The parties dispute whether the Sellers accurately disclosed the “price” of

Macquarie’s bid in accordance with their obligations under the Side Letter. Sellers

contend that they were only required to disclose the “headline” dollar amount of

Macquarie’s bid; Plaintiff contends that the Sellers were required to disclose and

account for the value credited to Macquarie’s bid based on avoiding the Expense

Reimbursement and the Sellers retaining the proceeds from the Insurance Claim.

The parties also dispute whether the Sellers were permitted to accept a second final

bid from Macquarie after IIF had submitted its first topping bid. Lastly, the parties

dispute whether the Sellers were required to treat Plaintiff “fairly” in the Sale

Process, and whether their purported failure to do so constituted a breach of the

implied covenant of good faith and fair dealing.

A. Breach of Contract

To prevail on its breach of contract claim, Plaintiff must establish by a

preponderance of the evidence: “(i) a contractual obligation, (ii) a breach of that

181
Dkt. 281.
182
Dkts. 303–04
183
Dkt. 454.

36
obligation by the defendant, and (iii) a causally related injury that warrants a remedy,

such as damages or in an appropriate case, specific performance.” AB Stable VIII

LLC v. Maps Hotels & Resorts One LLC, 2020 WL 7024929, at *47 (Del. Ch. Nov.

30, 2020), aff’d, 268 A.3d 198 (Del. 2021). The parties agree that the Settlement

Agreement and Side Letter are valid contracts and that they executed both

agreements. 184 The issues for the court revolve around the second and third elements

of the Plaintiff’s claim.

Plaintiff requests that the court find the Sellers breached the Settlement

Agreement by (1) failing to disclose the financial impact of the Expense

Reimbursement and the Insurance Claim that the Sellers credited towards

Macquarie’s bid, and (2) accepting a second final bid from Macquarie after IIF had

submitted its first topping bid.

“The proper construction of any contract . . . is purely a question of law.”

Rhone-Poulenc Basic Chems. Co. v. Am. Motorists Ins. Co., 616 A.2d 1192, 1195

(Del. 1992). Delaware courts “adhere[] to the ‘objective’ theory of contracts, i.e. a

contract’s construction should be that which would be understood by an objective,

reasonable third party.” Osborn ex rel. Osborn v. Kemp, 991 A.2d 1153, 1159 (Del.

2010) (internal quotation marks omitted). The court must read the contract “as a

184
PTO ¶ 34.

37
whole and enforce the plain meaning of clear and unambiguous language.” Manti

Hldgs., LLC v. Authentix Acq. Co., 261 A.3d 1199, 1208 (Del. 2021).

If the contractual language is clear, the 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.” In re Viking Pump, Inc., 148 A.3d

633, 648 (Del. 2016) (internal quotation marks omitted). Contractual language is

clear “[w]hen the plain, common, and ordinary meaning of the words lends itself to

only one reasonable interpretation.” Sassano v. CIBC World Mkts. Corp., 948 A.2d

453, 462 (Del. Ch. 2008).

If a contract’s language is ambiguous, then the court must look to other

sources to determine what an objectively reasonable third party would have

understood the parties’ intent to be. United Rentals, Inc. v. RAM Hldgs., Inc., 937

A.2d 810, 834–35 (Del. Ch. 2007). “A contract is not rendered ambiguous simply

because the parties do not agree upon its proper construction. Rather, a contract is

ambiguous only when the provisions in controversy are reasonably or fairly

susceptible of different interpretations or may have two or more different meanings.”

Rhone-Poulenc, 616 A.2d at 1196. Nor is a contract unambiguous simply because

both sides contend that its meaning is plain. See Sunline Com. Carriers, Inc. v.

CITGO Petroleum Corp., 206 A.3d 836, 847 n.68 (Del. 2019) (explaining that

“whether a contract is unambiguous is a question of law; this Court cannot find an

38
ambiguous contract unambiguous because each party interprets the contract

differently to find it unambiguous”).

Instead, ambiguity exists if “the provisions in controversy are fairly

susceptible of different interpretations.” Eagle Indus., Inc. v. DeVilbiss Health Care,

Inc., 702 A.2d 1228, 1232 (Del. 1997). “The determination of ambiguity lies within

the sole province of the court.” Osborn, 991 A.2d at 1160. “[T]he introduction of

extrinsic, parol evidence does not alter or deviate from Delaware’s adherence to the

objective theory of contracts”; rather, “the extrinsic evidence may render an

ambiguous contract clear so that an ‘objectively reasonable party in the position of

either bargainer would have understood the nature of the contractual rights and

duties to be.’” United Rentals, 937 A.2d at 835 (quoting U.S. W., Inc. v. Time

Warner Inc., 1996 WL 307445, at *10 (Del. Ch. June 6, 1996)).

1. RailUSA did not owe obligations under the Side Letter.
A threshold question is which among the several Defendants had contractual

obligations under the Settlement Agreement and Side Letter that are alleged to have

been breached. RailUSA argues it “did not owe obligations under the Side Letter,

and did not breach obligations it did not have.” 185

185
RailUSA’s Answering Br. 4.

39
a. The plain language of the Side Letter is ambiguous.

The court starts with the plain language of the Side Letter, which provides

that:

The undersigned desire to enter into this letter agreement and hereby
agree as follows: [] If the final Conforming Bid submitted by IIF [] is
not the highest and best final Conforming Bid submitted within the
timing set forth by the Current Sale Process, then IIF [] shall be
informed of the price of the then-highest final Conforming Bid.186

It is undisputed that RailUSA is one of the “undersigned” signatories. 187 “As a

matter of ordinary course, parties who sign contracts and other binding documents

. . . are bound by the obligations that those documents contain.” Off. Comm. of

Unsec. Creds. of Motors Liquidation Co. v. JP Morgan Chase Bank, N.A., 103 A.3d

1010, 1015 (Del. 2014). However, not all signatories are automatically bound to

every obligation within a contract. See, e.g., Tygon Peak Cap. Mgmt., LLC v. Mobile

Invs. Investco, LLC, 2022 WL 34688, at *13 (Del. Ch. Jan. 4, 2022) (concluding, at

the pleadings stage, that a signatory did not have an obligation to reimburse the

plaintiff where contract provision plainly provided that a different entity owed the

reimbursement obligation and dismissing breach of contract claim against

signatory), aff’d sub nom. Mobile Invs., LLC v. Tygon Peak Cap. Mgmt., LLC, 315

A.3d 445 (Del. 2024) (TABLE).

186
Side Letter at 1.
187
Id. at 3.

40
RailUSA contends that it “had a materially different position and played a

materially different role than the Sellers . . . in the [P]rior [L]itigation, . . . in the

settlement negotiations, and . . . in the Sale Process.”188 In short, RailUSA insists

that it was the entity being sold, but was not a party involved in the “Current Sale

Process.”

The Side Letter is drafted in the passive voice and does not specify which of

the signatories holds the obligation to inform IIF of the “price of the then-highest

final Conforming Bid.” The surrounding language in the Side Letter does not aid

the court’s analysis, either. Cf. DG BF, LLC v. Ray, 2021 WL 776742, at *12–13

(Del. Ch. Mar. 1, 2021) (concluding that provisions in an operating agreement

mandating that board meetings “shall be held,” drafted in passive voice, placed the

obligation on the board, not the individual directors, because the operating

agreement delegated the “full and entire management of [its] business and affairs”

to the board).

The Side Letter does, however, make reference to the “Current Sale Process,”

which is governed by the Process Letter. The Process Letter provides, in pertinent

part:

RailUSA expressly reserves the right in its sole and absolute discretion
to (i) evaluate the terms and conditions of any offers; (ii) reject any or all
offers without assigning any reasons; (iii) negotiate with one or more

188
RailUSA’s Answering Br. 3.

41
prospective buyers; (iv) terminate at any time further participation in the
process by any party; and (v) enter into a definitive Purchase Agreement,
and in each of the foregoing cases, at any time without prior notice to
other prospective buyers.189

The Process Letter unambiguously articulates RailUSA’s “absolute” discretionary

authority over the Sale Process. Further, the Settlement Agreement defines RailUSA

as one of the “ARP Parties” that “agree[s] to use commercially reasonable efforts to

complete the Current Sale Process and to consummate a sale.”190 The plain language

of the Settlement Agreement imposes obligations on RailUSA in the Sale Process.

One reasonable reading of the Process Letter, the Settlement Agreement, and

the Side Letter, considered together, is that RailUSA had certain rights and

obligations with respect to the Sale Process. Because the Side Letter is drafted in

the passive voice and does not identify an obligor, it is ambiguous with respect to

who owes the obligations thereunder.

b. The extrinsic evidence demonstrates that RailUSA did
not owe obligations under the Side Letter.
The extrinsic evidence indicates that the parties did not intend to impose

obligations on RailUSA under the Side Letter. During negotiations, the parties

contemplated that the Sellers would be providing the Plaintiff with its rights under

the Side Letter. For example, in an October 1, 2021 email concerning the settlement

189
JX 126 at 3–4.
190
Settlement Agreement at 2.

42
of the Prior Litigation, IRP’s counsel stated that “ARP can provide IRP/[JP Morgan]

the right to make a final topping bid after all the auction information is set in

stone.”191 In an October 13, 2021 letter, IRP’s counsel again confirmed that “ARP

will provide IIF [] the right to make that final bid.” 192 Other emails exchanged

between October and November 2021 conspicuously contained the subject line

“IRP/ARP/OakTree Settlement” with no reference to RailUSA. 193 And despite

Wilson’s general lack of credibility, IRP offered no persuasive contemporaneous

evidence to refute her testimony that no one from RailUSA ever spoke to anyone at

EGI, IRP, or Oaktree about the terms of the Settlement Agreement and Side Letter

until after the documents were executed.194

The parties’ conduct subsequent to executing the Settlement Agreement and

Side Letter further confirms they understood that the Sellers controlled IRP’s rights

in the Side Letter. The subject line of the November 11, 2021 email informing IRP’s

counsel that IIF did not submit the highest bid read “ARP/IRP Letter Agreement.”195

Similarly, the subject line of the November 15, 2021 email informing IRP’s counsel

that IIF again did not submit the highest bid read “ARP/IRP – 10/13 Letter

191
JX 546 at 3 (emphasis added).
192
JX 142 at 11 (emphasis added).
193
Id. at 1–10.
194
Tr. 458:21–459:10 (Wilson).
195
JX 255.

43
Agreement Information.”196 That email also stated that “the ARP Special Committee

will proceed to assess all bids on a holistic basis.” 197 And in a November 13, 2021

email, Marino also recognized that the Sellers controlled the bids. 198

Based on the extrinsic evidence, the parties had a shared understanding at the

time of contracting that RailUSA did not owe any obligations under the Side Letter.

The parties’ post-contracting conduct confirms this understanding.

2. Sellers failed to disclose the “price” of Macquarie’s bid.

Plaintiff argues that Sellers breached the Settlement Agreement and Side

Letter199 by failing to accurately disclose the “price” of Macquarie’s bid. The

resolution of this issue turns on the meaning of the term “price,” which is not defined

in the Side Letter. Plaintiff contends that the Sellers were required to disclose not

only the headline price of Macquarie’s bid, but also the value the Sellers credited to

Macquarie’s avoiding the Expense Reimbursement and the Sellers retaining the

proceeds of the Insurance Claim. Sellers contend that they were only required to

disclose the specific cash amount of the highest bidder’s bid.

196
JX 282.
197
Id. (emphasis added).
198
JX 270 (“Guys, JPM submitted their topping bid of $223mm to ARP at 7:40pm this
evening. Now we wait. Talk soon.”).
199
The Side Letter may well be incorporated into the Settlement Agreement, and the parties
often use the terms interchangeably, but the court refers to them separately for clarity.

44
The parties’ respective positions stem from their differing interpretations of

the term “price.” As used in the Process Letter, “Purchase Price” means “the specific

dollar valuation (and not a range) that [a bidder] intend[s] to pay for 100% of the

equity interests of [RailUSA].”200 Plaintiff derives its interpretation of “price” from

Delaware case law and dictionary definitions. Under Plaintiff’s reading, the term

“price” does not simply mean “cash,” but instead is essentially equivalent to

“consideration”; in other words, Plaintiff contends that “price” refers to all material

consideration that a seller receives in a transaction.201 Sellers, by contrast, contend

that the surrounding language in the Side Letter “makes clear that ‘price’ is defined

to mean headline ‘Purchase Price,’ consistent with the Process Letter.” 202

The court starts with the plain language of the Side Letter. It requires Sellers

to “inform[] IIF [] of the price of the then-highest final Conforming Bid” if “the final

Conforming Bid submitted by IIF [] is not the highest and best final Conforming Bid

submitted within the timing set forth by the Current Sale Process.” 203 The Side

Letter does not specify that the term “price” refers to the defined term “Purchase

Price” as used in the Process Letter. If the parties wanted the term “price” to carry

200
JX 126 at 2.
201
Pl.’s Opening Br. 30 (quoting Union Oil Co. of Cal. v. Mobil Pipeline Co., 2006 WL
3770834, at *13 (Del. Ch. Dec. 15, 2006)).
202
Seller Defs.’ Answering Br. 31.
203
Side Letter at 1.

45
a meaning other than its plain meaning, they knew how to contract to do so. Indeed,

they did so elsewhere in the Side Letter. 204 Thus, when a term is undefined, the court

customarily turns to a dictionary to discern its meaning. See Lorillard Tobacco Co.

v. Am. Legacy Found., 903 A.2d 728, 738 (Del. 2006) (“Under well-settled case law,

Delaware courts look to dictionaries for assistance in determining the plain meaning

of terms which are not defined in a contract. This is because dictionaries are the

customary reference source that a reasonable person in the position of a party to a

contract would use to ascertain the ordinary meaning of words not defined in the

contract.” (footnote omitted)).

Black’s Law Dictionary defines “price” as “[t]he cost of something; the

amount of money or other consideration at which something is or is expected to be

bought or sold.” Price, Black’s Law Dictionary (12th ed. 2024). Further, and

contrary to the Sellers’ contentions, this court’s decision in Union Oil Company of

California v. Mobil Pipeline Company, 2006 WL 3770834 (Del. Ch. Dec. 15, 2006),

is instructive here. In that case, the holder of a right of first refusal argued that it

was only required to match the “price” per share (and not the non-price terms)

because the contract referenced only “price,” not “price and terms.” Id. at *13. This

court found that the rightholder’s position was “based on an overly simplistic reading

204
Id. (defining terms “Current Sale Process” and “Conforming Bid”).

46
of the term ‘price,’ that is not warranted in the context of a transaction between . . .

sophisticated business entities.” Id. This court explained that “among sophisticated

business entities, the word ‘price’ does not simply mean ‘cash.’ ‘Price’ is essentially

equivalent to ‘consideration,’ and in the context of the ROFR, it simply refers to all

of the material things that the seller will get in the deal—i.e., all of the consideration-

related terms.” Id. (citing Price, Black’s Law Dictionary (8th ed. 2004)).

Plaintiff contends that the price of Macquarie’s bid that the Sellers transmitted

to IIF and IRP did not include two elements that should have been disclosed. First

is the $1.3 million credit towards Macquarie’s bid based on the Sellers retaining

proceeds from the Insurance Claim. Sellers argue that, even if “price” encompasses

all other consideration, the Insurance Claim proceeds fall under “value,” not

consideration.205 Sellers contend that the Insurance Claim proceeds are not “paid by

[Macquarie]” and thus do not constitute consideration. 206 Not so. “Delaware courts

define consideration as a benefit to a promisor or a detriment to a promisee pursuant

to the promisor’s request.” Cont’l Ins. Co. v. Rutledge & Co., Inc., 750 A.2d 1219,

1232 (Del. Ch. 2000). Macquarie’s agreement to forgo its contractual right to

205
Seller Defs.’ Answering Br. 31 (“‘Consideration is a benefit to a promisor or a detriment
to a promisee’ that the promisor requires as a condition of entering into a contract.”
(quoting Cigna Health & Life Ins. Co. v. Audax Health Sols., Inc., 107 A.3d 1082, 1088
(Del. Ch. 2014))); id. (“Value, by contrast, encompasses all benefits that a party receives
from a contract, including those not provided by the counterparty.”).
206
Seller Defs.’ Answering Br. 32.

47
proceeds from the Insurance Claim207—a detriment to Macquarie—constitutes

“consideration.” See CPC Mikawaya Hldgs., LLC v. MyMo Intermediate, Inc., 2022

WL 2348080, at *12 (Del. Ch. June 29, 2022) (“Plaintiff’s promise to forgo its

contractual rights, a detriment to Plaintiff, is valid consideration to support the

[agreement].”). Sellers’ retention of proceeds from the Insurance Claim was a

consideration-related term encompassed by “price.”208 Accordingly, the $1.3

million value Sellers credited to Macquarie’s bid based on retaining the proceeds of

the Insurance Claim should have been disclosed to Plaintiff as part of the “price,”

and Sellers’ failure to do so constituted a breach of the Side Letter.

Second, Plaintiff argues that the $2.5 million Expense Reimbursement should

have been included in the “price” that the Sellers disclosed to IIF and IRP. Sellers

argue that the Expense Reimbursement is not consideration, but instead is part of the

overall value of Macquarie’s bid.209 When evaluated from the standpoint of

Macquarie’s bid, the Expense Reimbursement was neither a benefit to the Sellers

207
The insurance policy was written for the benefit of RailUSA, meaning any recovery
from the policy would presumably flow through RailUSA to its ultimate buyer. JX 389 at
134:18–136:11 (Quick Dep.); JX 387 at 42:10–18 (Wilson Dep.); Tr. 489:17–490:2
(Wilson). The Sellers negotiated to retain the proceeds from any insurance payouts even
after a sale closed.
208
ARP’s own summary comparison of the bids added $1.3 million to Macquarie’s base
purchase price based on the payouts from the Insurance Claim. JX 290 at 2.
209
ARP’s own summary comparison of the bids counted the Expense Reimbursement as
negative consideration for IIF’s bid. Id. (describing bottom line amount as “Estimated
Purchase Price + Value of All Other Considerations”).

48
nor a detriment to Macquarie. The Expense Reimbursement would only come into

play if Sellers sold RailUSA to IIF. As such, the Expense Reimbursement was not

part of the consideration that Macquarie agreed to provide to the Sellers. Instead,

the Expense Reimbursement was a penalty counted against IIF’s bid—it was not

affirmatively factored into Macquarie’s bid at all. Accordingly, the value Sellers

credited to Macquarie’s bid based on avoiding the Expense Reimbursement was not

encompassed in “price,” and Sellers’ failure to disclose it did not constitute a breach

of the Side Letter.

3. IIF submitted the “Final Bid” in the Sale Process.

Plaintiff claims that the Sellers’ acceptance of Macquarie’s subsequent bid

after IIF submitted its November 12, 2021 bid breached the Side Letter.210 Sellers

contend that “nothing in the Side Letter required the Sellers to end the auction on

November 12” and that the Sellers were not prohibited from “soliciting bids after

IIF made its first topping bid.” 211

The Side Letter mandated that “IIF [] shall not be eliminated from the Current

Sale Process at any time prior to the receipt of the last bid permitted to be submitted

210
Pl.’s Opening Br. 32.
211
Seller Defs.’ Answering Br. 35.

49
within the Current Sale Process.”212 The Process Letter specified that final offers

were to be submitted by 12 p.m. Eastern Time on November 9, 2021.213 On

November 9, 2021, Macquarie submitted a bid to purchase RailUSA reflecting a

purchase price of $221.8 million, and IIF submitted a bid reflecting a purchase price

of $212 million. 214 In accordance with the Side Letter, on November 11, 2021,

Sellers’ counsel informed IRP’s counsel that Macquarie submitted a bid reflecting a

purchase price of $221.8 million.215 IIF submitted a revised bid with a purchase

price of $223 million on November 12.216 On November 15, Macquarie submitted

a revised bid with a purchase price of $223.5 million, and Sellers’ counsel informed

IRP’s counsel of the $223.5 million bid that same day.217 The next day, IIF

submitted a further revised bid with a purchase price of $224 million. 218 This was

the last bid submitted. On November 23, ARP and RailUSA entered into a purchase

212
Side Letter at 1; see also JX 142 at 1 (email confirming the parties’ “mutual counsel-to-
counsel understanding that [IIF] [had] the right to submit the ‘final bid’ in the current sale
process, after being informed of the other then-highest bid price (if any)”).
213
JX 126 at 2.
214
PTO ¶¶ 38–39; JX 238; JX 240.
215
PTO ¶ 41; JX 255.
216
PTO ¶ 42; JX 262 at 2.
217
PTO ¶¶ 44, 46; JX 289; JX 282.
218
PTO ¶ 47; JX 296.

50
agreement with Macquarie to purchase all of ARP’s issued and outstanding equity

interests in RailUSA.219

It is undisputed that IIF submitted the “final bid” on November 16. 220 But

Plaintiff argues that this misses the point. Plaintiff argues that IIF’s November 12

bid was the “last bid permitted to be submitted” and should have ended the Sale

Process. 221 Plaintiff’s position is not supported by the express language of the

agreements or the testimony of its own witnesses. Plaintiff’s witnesses conceded

that nothing in the Side Letter required Sellers to end the auction on November 12

(i.e., after IIF made its first topping bid). 222 Rather, the Process Letter expressly

permitted Sellers “to modify the process . . . in any manner without notice and to

terminate discussions at any time.” 223

219
PTO ¶ 49; JX 349.
220
PTO ¶¶ 47–50; JX 296.
221
Pl.’s Opening Br. 33.
222
Tr. 371:15–372:4 (Marino) (in response to a question asking where the Side Letter
prohibited Sellers from “soliciting bids after IIF made its first topping bid,” Marino stated
“[i]t doesn’t”); id. at 48:6–11 (Bastone) (“Q. You said that nothing in the strict verbiage
of the side letter requires sellers not to seek further bids after IIF makes an initial topping
bid. Correct? A. Yes.”); id. at 554:8–15 (Li) (“Q. What language in [the Side Letter]
prohibited the seller from accepting a bid after IIF had submitted its initial topping bid? . . .
A. Yeah, the language doesn’t appear to prohibit that.”). IRP’s witnesses also conceded
that Sellers had the right to “decide whether to accept bids after the initial[] deadline” in
the Process Letter. Id. at 264:7–11 (Ventrcek); id. at 552:4–10 (Li) (“[Q.] And now under
that reservation and what follows in that paragraph, was it your understanding that the
seller had the right to seek additional bids or revised bids after final bids had been
submitted? [A.] Based on -- based on my reading of this letter now, yes.”).
223
JX 126 at 3.

51
Plaintiff’s position is further undermined when considering the business

relationship between the parties and the commercial context of the agreements. See

Chicago Bridge & Iron Co. N.V. v. Westinghouse Elec. Co. LLC, 166 A.3d 912,

913–14, 927 (Del. 2017) (“In giving sensible life to a real-world contract, courts

must read the specific provisions of the contract in light of the entire contract. . . .

The basic business relationship between parties must be understood [for the court]

to give sensible life to any contract.”). Marino agreed that best-and-final offer

rounds are typical, 224 and Sellers’ expert confirmed the same.225 In addition, on

November 12, Li asked IIF for “flexibility to improve” IIF’s bid up to $225 million

“to be competitive,”226 an acknowledgement that the November 12 bid was not the

end of the auction. Macquarie likewise “[e]xpect[ed] a Best-And-Final-Offer . . .

round to follow” the November 9 “final round bids.”227

224
Tr. 361:20–24 (Marino) (“Q. You know from your experience that in an auction . . .
sellers will often conduct many rounds of bidding to get to the best price? A. Several
rounds.”).
225
JX 481 at 51 (expert report explaining that “sophisticated and experienced bidders such
as [Macquarie] and IIF . . . would expect a private M&A sale transaction to proceed
through multiple rounds, have changing bid submission deadlines, and have a ‘best and
final offer’ round where the top bidders are able to submit revised best and final bids after
the ‘final bid’ deadline”); see also Tr. 690:11–16 (Quick) (“You’re submitting in a final
bid your first draft of a mark-up to a purchase agreement. That is the first we get to see of
it. And it’s ordinary for it to take weeks to go from the final bid to actually having this
signable document. That is just standard for selling a business.”).
JX 254 at 1; Tr. 554:16–556:1 (Li) (explaining the IIF provided authority to increase its
226

$212.8 million bid “in the event [IIF] had to make a second topping bid”).
227
JX 197 at 3.

52
The plain language of the agreement, supported by the commercial context

and the fact that IIF itself continued to engage in the Sale Process after November

12, shows that the Sellers were not required to end the auction after IIF submitted its

November 12 topping bid. IIF was entitled simply to submit the “final bid” in the

Sale Process, which it did on November 16. Sellers did not breach the Side Letter

by holding a best-and-final offer round after November 12.

B. Breach of the Implied Covenant of Good Faith and Fair Dealing
As a fallback argument, IRP relies on the implied covenant of good faith and

fair dealing. Specifically, Plaintiff argues that the Sellers “breached the implied

covenant of good faith and fair dealing because their conduct frustrated the purpose

of the Settlement Agreement and ignored the bargain struck therein.” 228

“The implied covenant is inherent in all contracts and ensures that parties do

not frustrate the fruits of the bargain by acting arbitrarily or unreasonably.” Baldwin

v. New Wood Res. LLC, 283 A.3d 1099, 1116 (Del. 2022) (cleaned up). “The

covenant of good faith and fair dealing embodies the law’s expectation that each

party to a contract will act with good faith toward the other with respect to the subject

matter of the contract.” Id. (internal quotation marks omitted). Courts utilize the

implied covenant “to infer contract terms to handle developments or contractual gaps

that the asserting party pleads neither party anticipated, and courts will invoke the

228
Pl.’s Opening Br. 33.

53
implied covenant to imply terms when necessary to protect the reasonable

expectations of the parties.” Id. (cleaned up). This court in particular must be careful

when considering a plea to invoke the implied covenant. Although this is a court of

equity, this court may not use the implied covenant as “an equitable remedy for

rebalancing economic interests after events that could have been anticipated, but

were not, that later adversely affected one party to a contract.” Id. at 1116–17.

To prevail on an implied covenant claim, a plaintiff must prove a “specific

implied contractual obligation, a breach of that obligation by the defendant, and

resulting damage to the plaintiff.” Cantor Fitzgerald, L.P. v. Cantor, 1998 WL

842316, at *1 (Del. Ch. Nov. 10, 1998). The party asserting an implied covenant

claim has the burden of proving “that the other party has acted arbitrarily or

unreasonably, thereby frustrating the fruits of the bargain that the asserting party

reasonably expected.” Baldwin, 283 A.3d at 1118. In determining the parties’

reasonable expectations, the court analyzes “whether the parties would have

bargained for a contractual term proscribing the conduct that allegedly violated the

implied covenant had they foreseen the circumstances under which the conduct

arose.” Id.

1. Sellers breached the implied covenant of good faith and fair
dealing by acting in bad faith to thwart Plaintiff’s rights.

When determining whether to invoke the implied covenant, the court “first

must engage in the process of contract construction to determine whether there is a

54
gap that needs to be filled.” Allen v. El Paso Pipeline GP Co., LLC, 113 A.3d 167,

183 (Del. Ch. 2014), aff’d, --- A.3d ----, 2015 WL 803053 (Del. Feb. 26, 2015)

(TABLE). “Through this process, a court determines whether the language of the

contract expressly covers a particular issue, in which case the implied covenant will

not apply, or whether the contract is silent on the subject, revealing a gap that the

implied covenant might fill.” NAMA Hldgs., LLC v. Related WMC LLC, 2014 WL

6436647, at *16 (Del. Ch. Nov. 17, 2024). The court must determine whether a gap

exists “because the implied covenant is, by definition, implied, and because it

protects the spirit of the agreement rather than the form, it cannot be invoked where

the contract itself expressly covers the subject at issue.” Fisk Ventures, LLC v. Segal,

2008 WL 1961156, at *10 (Del. Ch. May 7, 2008), aff’d, 984 A.2d 124 (Del. 2009)

(TABLE).

Under Delaware law, a party may breach the implied covenant by taking

action in bad faith; in other words, a party may breach the implied covenant by acting

maliciously in an effort to harm its contractual counterparty. See Baldwin, 283 A.3d

at 1119. The purported “gap” to be filled in such scenario is an agreement not to

intentionally harm each other. The court in ArchKey Intermediate Holdings Inc. v.

Mona, 302 A.3d 975 (Del. Ch. 2023), explained:

For purposes of the implied covenant, . . . in the original bargaining
position, the parties would have viewed a promise not to harm each
other intentionally as so obvious that neither side would have raised it.
It also means that if one side suggested that intentional harm would be

55
acceptable, then the other would reject that idea immediately. Absent
an idiosyncratic taste for masochism, the rational response to the
question “After we enter into this contract, can I intentionally seek to
harm you?” is a resounding “No.”

Id. at 1005; see also id. at 1005–06 (concluding that seller pled facts and introduced

evidence that supported a claim for breach of the implied covenant where

purchaser’s adjustments to the balance sheet, which resulted in a significantly lower

purchase price, were so extreme as to indicate malice but deferring consideration of

such claim until parties submitted dispute to independent accountant as provided in

the purchase agreement).

Plaintiff argues that the gap to be filled in the Settlement Agreement and Side

Letter is one of “[s]imple fairness.”229 Plaintiff contends that the Sellers had an

“implied obligation to treat IRP fairly throughout the Sale Process,” and that the

Sellers failed to do so. 230 Sellers argue that they were not impliedly required to treat

IIF or the Plaintiff “fairly” in the auction because “[t]he Process Letter did not give

any bidder a right to be treated ‘fairly’” and “bidders could be kicked out of the

process at any time and for any reason.” 231 However, other bidders were not parties

to the Settlement Agreement and Side Letter, as the Plaintiff was here. The Side

Letter specifically provided IIF and IRP with unique rights during the Sale Process,

229
Pl.’s Opening Br. 35.
230
Id.
231
Seller Defs.’ Answering Br. 38.

56
including the right for IIF to “not be eliminated from the Current Sale Process at any

time prior to the receipt of the last bid permitted to be submitted within the Current

Sale Process.”232 IIF and IRP’s rights under the Settlement Agreement and Side

Letter also carried with them an obligation that the Sellers “do not frustrate the fruits

of the bargain by acting arbitrarily or unreasonably.” Baldwin, 283 A.3d at 1116

(cleaned up).

Plaintiff argues that the Sellers failed to treat IIF and IRP fairly throughout

the Sale Process in various ways. First, Plaintiff argues that Sellers never intended

to sell RailUSA to IIF because Sellers “harbored significant animus towards Marino

and IRP.”233 Second, Plaintiff argues that Wilson disclosed confidential details

about the Sale Process and IIF’s bid to Macquarie and coached Macquarie to craft a

winning bid.234 Third, Plaintiff argues that Wilson lied about the risk of RailUSA

executives quitting pre-closing to manufacture fake “closing risk” associated with

IIF. 235 Last, Plaintiff argues the execution of the Expense Reimbursement put IIF’s

bid at a clear disadvantage and incentivized a sale to Macquarie. 236 Sellers dispute

232
Side Letter at 1.
233
Pl.’s Opening Br. 36.
234
Id. at 38.
235
Id. at 42.
236
Id. at 37.

57
each of Plaintiff’s arguments. The court analyzes each in turn to determine whether

Sellers acted maliciously in an effort to harm the Plaintiff.

First, the Sellers maintain that “their goal in the auction was to ‘maximize

value,’ consistent with their fiduciary duties” and that they “took IIF seriously until

the end.”237 Sellers argue there was no implied covenant obligation for them to “like

bidders equally.”238 The court agrees. Even assuming arguendo that the Sellers

were averse to selling to IIF, the Sellers did not intentionally harm Plaintiff by

treating other bidders, namely Macquarie, more favorably. See ArchKey, 302 A.3d

at 1005 (“[T]he intent to harm intentionally—malice—goes beyond an intent to take

self-interested action that happens to inflict consequential or collateral harm.”).

Second, the Sellers refute the Plaintiff’s allegation that Wilson disclosed the

price of any of IIF’s active bids.239 Wilson testified that she did not disclose any of

IIF’s active bids to Macquarie; Plaintiff nevertheless argues that the court should

infer Wilson’s disclosure of the $223 million bid from other evidence. 240 Based on

237
Seller Defs.’ Answering Br. 40–41.
238
Id. at 40.
239
Id. at 43.
240
Pl.’s Opening Br. 40–42.

58
the record, the court finds that Wilson disclosed only IIF’s stale bids.241 Plaintiff

was not intentionally harmed by Wilson disclosing stale bids.

Third, Sellers claim the closing risk associated with executive departures was

not manufactured.242 Wilson testified that two RailUSA employees told her they

would not work for IRP, and that she inferred the same intent from other employees’

prior comments about IRP and other factors.243 Even assuming that Wilson

“manufactured” closing risk, this purported intentional harm is unrelated to the

purpose of the underlying contract—the Side Letter—and does not constitute a

241
Tr. 528:14–24 (Wilson) (“Q. And the bid that you testified that you disclosed to
Macquarie was IIF’s November 9th, 2021, $212 million final offer; correct? A. It was the
bid submitted on November 9th for $212 million, correct. Q. So to be clear, on November
13th, 2021, you informed Macquarie that IIF had bid $212 million in the auction. Correct?
A. That the stale bid that was a prior round of the auction was indeed discussed as $212
million.”); JX 471 at 64:16–21 (Wilson Dep.) (“Q. Did RailUSA communicate any
information about that bid to Macquarie? . . . A. To the best of my knowledge, after it was
a stale bid, I may have communicated something about that bid to Macquarie.”).
242
Seller Defs.’ Answering Br. 44–47.
243
Tr. 484:6–16 (Wilson) (“I had a conversation with [] Quick from Oaktree where he
asked me about what I thought would happen with members of the management team. I
was able to tell him that two members of the management team had said definitively to me
that they would not work for IRP. That was Trevor Costilow, the general manager at
Grenada Railroad, and Patricia Bencivenga, our CFO.”); JX 384 at 19:20–20:5 (Costilow
Dep.) (“Q. If IRP had become manager of RailUSA again, would you have left RailUSA?
A. Yes, sir. Q. Did you state to anyone that you would resign if RailUSA was sold to a
buyer that would reinstate IRP as the manager? A. Yes, sir. Q. Who did you tell? A.
Barbara Wilson. Q. Anyone else? A. Patricia Bencivenga.”). Wilson’s credibility
regarding this point is questionable. See, e.g., JX 383 at 21:6–13 (Bencivenga Dep.) (“Q.
Did you state to anyone that you would resign if RailUSA was sold to a buyer that would
reinstate IRP as the manager? A. I do not recall. Q. Did any RailUSA employees tell you
that they would resign if RailUSA was sold to a buyer that would reinstate IRP as manager?
A. I don’t recall.”). However, the court’s conclusion is the same regardless.

59
breach of the implied covenant. See ArchKey, 302 A.3d at 1003–04 (“An implied

covenant claim . . . is not a free-floating duty unattached to the underlying legal

document. . . . Fair dealing in this context means an obligation to deal fairly in the

sense of consistently with the terms of the parties’ agreement and its purpose. . . .

[G]ood faith does not envision loyalty to the contractual counterparty, but rather

faithfulness to the scope, purpose, and terms of the parties’ contract.” (citations and

internal quotation marks omitted)).

Last, the Sellers claim that the failure to disclose the Expense Reimbursement

does not constitute a breach of the implied covenant because “price disclosure” is

covered by the express terms of the contract. 244 The Side Letter addresses the

Sellers’ obligation to disclose the “then-highest final” bid if IIF were not the highest

bidder. It does not affirmatively address the Sellers’ obligation to disclose terms

counted against IIF’s own bid. Sellers’ failure to disclose the Expense

Reimbursement is not covered by the express terms of the contract.

Sellers then argue that they fought back on the Expense Reimbursement and

were not “driven by an improper purpose” to favor Macquarie. 245 However, the

Sellers’ execution of the Expense Reimbursement, and their motivations for entering

into it, are not the problem—the problem is the Sellers’ failure to disclose the amount

244
Seller Defs.’ Answering Br. 41.
245
Id. at 42.

60
the Expense Reimbursement would be counted against IIF’s bid. See Albert v. Alex.

Brown Mgmt. Servs., Inc., 2005 WL 2130607, at *7 (Del. Ch. Aug. 26, 2005)

(explaining that a contract requiring disclosure of information carries with it “the

duty that such information not be false or misleading” and the party with the

disclosure obligation “ha[s] a contractual duty to provide the information in good

faith”). The purpose of the Side Letter was to give IIF an opportunity to top the

“then-highest final” bid. If the Plaintiff had a right to top the price of the then-

highest bid, it surely also had a right to know that its own bid price was going to be

reduced by $2.5 million. Sellers’ decision not to disclose that the Expense

Reimbursement counted against IIF’s bid deprived IIF and IRP of the fruits of their

bargain, constituting a breach of the implied covenant of good faith and fair dealing.

C. Damages

Having concluded that the Plaintiff has proven breach, the court turns next to

the issue of damages. “To satisfy the final element [of a breach of contract claim],

a plaintiff must show both the existence of damages provable to a reasonable

certainty, and that the damages flowed from the defendant’s violation of the

contract.” eCommerce Indus., Inc. v. MWA Intel., Inc., 2013 WL 5621678, at *32

(Del. Ch. Oct. 4, 2013). “While a plaintiff must prove the fact of damages by a

preponderance of the evidence, the proof required to establish the amount of damage

is not as great as that required to establish the fact of damage.” AbbVie Endocrine

61
Inc. v. Takeda Pharm. Co. Ltd., 2023 WL 5704055, at *3 (Del. Ch. Sept. 5, 2023)

(emphasis and internal quotation marks omitted).

Under Delaware law, the general measure of damages for breach of contract

is based on the injured party’s expectation interest. Duncan v. Theratx, 775 A.2d

1019, 1022 (Del. 2001). Expectation 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.” Paul v. Deloitte & Touche, LLP, 974 A.2d 140,

146 (Del. 2009).

When determining expectation damages, courts determine an amount
that will give the injured party the benefit of its bargain by putting that
party in the position it would have been but for the breach. The primary
element of expectation damages is the value that the performance
would have had to the injured party, or the loss in value caused by the
deficient performance compared to what had been expected.
Leaf Invenergy Co. v. Invenergy Renewables LLC, 210 A.3d 688, 695 (Del. 2019)

(footnote and internal quotation marks omitted). However, “when acting as the fact

finder, this Court may not set damages based on mere speculation or conjecture

where a plaintiff fails to adequately prove damages.” Beard Rsch., Inc. v. Kates, 8

A.3d 573, 613 (Del. Ch. 2010) (internal quotation marks omitted), aff’d sub nom.

ASDI, Inc. v. Beard Rsch., Inc., 11 A.3d 749 (Del. 2010).

Plaintiff’s damages theory is based upon numerous assumptions. At bottom,

it assumes that, but for Defendants’ breach of the Settlement Agreement and Side

Letter: (1) IIF would have acquired RailUSA; (2) IRP would have derived profits

62
from IIF’s acquisition of RailUSA through a contractual relationship with IIF; and

(3) RailUSA would have performed to certain projected levels.246 Defendants

maintain that the Plaintiff did not prove that any of these assumptions had or would

have come to fruition. 247 The court focuses on the first and second assumptions

because they are dispositive.

1. Plaintiff did not prove that it was more probable than not
that IIF would have acquired RailUSA absent the breach.
IRP insists that it would have “won the auction” had the Defendants not

breached.248 According to IRP, absent the Defendants’ breach, the Defendants

would have disclosed the “true price” of Macquarie’s November 9 bid as $225.6

million—$221.8 million base purchase price, plus the (i) $2.5 million Expense

246
Pl.’s Opening Br. 51–57. These three categories essentially condense several
assumptions. See Seller Defs.’ Answering Br. 47–48 (detailing the list of contingencies
that Plaintiff and Plaintiff’s witness agreed would need to be met in order for IRP to recover
any damages, such as “IIF would have to win the auction; IIF and sellers would have to
negotiate and sign a purchase and sale agreement; IRP and IIF would have to form a
[binding] partnership . . . unlike what they had; IRP and IIF would have to negotiate and
sign the master services agreement; IIF would have to approve the capital expenditures
necessary to pursue the initiatives; IIF would have to agree that the initiatives not already
listed as qualifying on the table actually did qualify; IRP would have to, within that 12-
month time requirement, meet the necessary threshold for qualification of the EBITDA
initiatives; IRP would then have to successfully operate and generate EBTIDA from the
initiatives within whatever IIF viewed as the qualifying time period; and the hypothetical
Holdco board controlled by IIF would have to review the EBITDA initiative status,
contribution achieved, and decide whether or not to award IRP additional equity”
(emphasis and internal quotation marks omitted)).
247
Seller Defs.’ Answering Br. 51–53.
248
Pl.’s Opening Br. 46.

63
Reimbursement and (ii) $1.3 million carve-out for the Sellers retaining the proceeds

from the Insurance Claim. 249 Then, IIF would have beaten Macquarie’s $225.6

million bid, and the Sellers would have ended the auction and declared IIF the

winner.250 This argument is flawed and unconvincing.

First, the Settlement Agreement and Side Letter did not obligate Sellers to

declare IIF the winning bidder merely because its bid price was the highest bid. IRP

tried to obtain that right in the settlement negotiations but was unsuccessful. 251 So

even if IIF’s bid was higher than Macquarie’s bid, IIF could not have been assured

of prevailing. Second, it is not apparent to the court that IIF would have topped

Macquarie’s “true price” of $225.6 million or that it could have done so by a

249
Id. at 30.
250
Id. at 33.
251
Compare JX 139 (Settlement negotiations regarding “proposed topping bid term”), with
JX 140 (final Settlement Agreement with no topping bid term), and JX 141(final Side
Letter with no topping bid term); Tr. 267:13–268:2 (Ventrcek) (“Q. During the course of
negotiations by your company . . . IRP wanted, and tried to get, a provision requiring the
seller to accept IRP’s bidding partner’s bid as long as it submitted a topping bid; right? A.
Correct. Q. While IRP tried to get that guarantee, the fact is it was not successful . . .
There is no such guarantee; right? A. Right.”); id. at 616:7–11 (Quick) (“Q. To your
understanding, does this side letter obligate the sellers to accept any bid that IIF might
submit? A. No. That was requested multiple times and denied. And this letter says
nothing to the sort.”).

64
significant amount. The court reaches this conclusion based upon the following

review of the record.252

The maximum amount that IIF was authorized to bid, and “the maximum . . .

[IIF was] willing to pay,” was $225 million. 253 Li was clear that he “didn’t want to

pay the full $225 million” that was authorized, because he needed a “cushion” to

account for other elements of value and IIF’s “additional closing expenses.”254

Plaintiff is correct that when IIF made its final $224 million bid, IIF had also agreed

to the $1.3 million carve-out for the Insurance Claim,255 as had Macquarie. Thus,

under the Plaintiff’s damages formulation, and taking into account that both IIF and

Macquarie had agreed to the insurance carve-out, the value of IIF’s bid was

$225.3 million, and the value of Macquarie’s bid was $225.6 million. Based on the

record, it is not apparent to the court that IIF would have gone any higher than its

final bid. Even if IIF were inclined to do so, the court concludes it would have only

252
The court sat through the trial and reviewed the entire evidentiary record. Merely
because the court did not cite a specific exhibit or witness testimony in this opinion does
not mean that the court failed to consider the entire evidentiary record.
253
JX 254 at 1; JX 482 at 28:15–29:23 (Lequin Dep.); JX 391 at 136:19–140:14, 202:13–
203:2 (Li Dep.). Clara Lequin is an executive director at J.P. Morgan who worked with Li
during the Sale Process. JX 482 at 8:23–9:5, 12:19–24 (Lequin Dep.)
254
JX 391 at 137:14–138:18, 140:9–14 (Li Dep.).
255
JX 343 (“Regarding purchase price, [IIF is] not going to come up to $225mm, but [is]
likely to accept a few more items being excluded from debt that should have similar impact
(at a minimum insurance financing and Blue Chip RWI claim reimbursement).”).

65
been a marginal increase and not enough to significantly exceed the value of

Macquarie’s last bid.

Sellers also identified potential closing risks associated with IIF’s bid. On

that score, the Sellers considered Macquarie’s bid “better on other materially

important terms, including retention and management issues and . . . execution and

closing risk.” 256 Plaintiff persuasively showed that some of these identified risks

were pretextual, such as concerns about Marino attempting to “raise last minute

issues that could jeopardize the transaction” 257 and mass employee departures.258 On

the other hand, IIF had a documented track record of false starts when inquiring

256
JX 346 at 1.
257
JX 294 at 2. Marino was not the bidder in the Sale Process, IIF was. Although Marino
had a history of attempting to renegotiate deals after he had reached an agreement in
principle with a contractual counterparty, he was contractually bound not to interfere in the
Sale Process. JX 389 at 163:18–165:8 (Quick Dep.); Tr. 498:8–499:5 (Wilson); id. at
815:15–20, 829:15–830:19 (Harwood); id. at 636:18–638:8 (Quick); JX 383 at 28:2–7
(Bencivenga Dep.); JX 389 at 137:23–138:9 (Quick Dep.); Settlement Agreement at 2.
There is no evidence that Marino attempted to interfere.
258
The Special Committee claimed concern that several RailUSA employees might quit
pre-closing if IIF won the auction. JX 294 at 2. Yet, the Special Committee did no
independent investigation and conducted no employee interviews. Tr. 856:3–10
(Harwood). Rather, they relied on Wilson. Id. at 649:19–23 (Quick); id. at 855:13–856:18
(Harwood). Sellers accepted Wilson’s representations about potential employee departures
without critically assessing her obvious distaste for Marino and her motivation to remain
as RailUSA’s CEO under Macquarie. Sellers had been at daggers drawn with Marino for
years, so it is not surprising that they accepted Wilson’s representations without making
further inquiry. As it turns out, Wilson did not even speak to five of the seven employees
“at risk” of quitting. See JX 386 at 22:7–21 (Dull Dep.); JX 385 at 22:14–21 (Cucci Dep.);
JX 383 at 21:6–17 (Bencivenga Dep.); JX 387 at 212:2–215:18 (Wilson Dep.); Tr. 544:22–
545:3 (Wilson). And the one employee who had quit did so for reasons not specific to IIF.
Tr. 857:1–9 (Harwood).

66
about purchasing RailUSA on several prior occasions.259 And although IIF had

communicated that it had no further diligence inquiries and was prepared to close

immediately, 260 its submission of “high priority” diligence requests to Northborne

as late as November 20, 2021, indicated otherwise.261

2. Plaintiff did not prove that it was more probable than not
that IIF would have partnered with IRP on the terms it has
presented.

At trial, the Plaintiff proceeded as though its damages should be measured by

what it would have received under the March 2022 MOU with IIF had RailUSA

performed as IRP and its experts projected. 262 But as the Defendants convincingly

showed, the March 2022 MOU was a litigation-driven document that was created

months after the breaching conduct in November 2021, undermining the Plaintiff’s

original theory of damages. See Siga Techs., Inc. v. PharmAthene, Inc., 132 A.3d

1108, 1132–33 (Del. 2015) (“[T]he standard remedy for breach of contract is based

on the reasonable expectations of the parties that existed before or at the time of the

breach” (internal quotation marks omitted)); Comrie v. Enterasys Networks, Inc.,

259
Tr. 617:3–618:20, 620:19–621:5 (Quick); JX 470 at 43:17–23 (Kruse Dep.). Jordon
Kruse is a managing director at Oaktree. JX 470 at 12:4–16 (Kruse Dep.)
260
Tr. 591:2–18 (Li).
261
JX 334 at 1 (emphasis omitted).
262
JX 462 at 320:12–16 (Bastone Dep.) (“Q. [I]s IRP’s damages theory based on the
executed March 2022 MOU or the draft November 9, 2021 MOU? A. The March [2022]
MOU.”); see JX 500 (Lesovitz expert report) (assessing damages using the March 2022
MOU); JX 501 (Sussman expert report) (same).

67
837 A.2d 1, 17 (Del. Ch. 2003) (observing that “[d]amages are to be measured as of

the time of the breach”); BTG Int’l, Inc. v. Wellstat Therapeutics Corp., 2017 WL

4151172, at *19 (Del. Ch. Sept. 19, 2017) (explaining that contract damages are

determined by “expectations of the parties before or at the time of the breach”

(internal quotation marks omitted)), aff’d, 188 A.3d 824 (Del. 2018) (TABLE).

Indeed, the Plaintiff essentially concedes that the March 2022 MOU was executed

to give IRP a basis to present a damages case. 263

Plaintiff then pivoted after trial, insisting IIF and IRP had “finalized a

partnership” in November 2021.264 Plaintiff even backtracked from that position in

its post-trial reply brief, claiming only that IIF and IRP had “finalized the framework

for their partnership as of November 9, 2021.” 265 Neither position is credible,

263
Tr. 54:5–9 (Bastone) (“Q. Right. And you spoke to [] Li and you said, we need an
MOU to include with our amended complaint in this case? A. Correct. As per
conversations with our attorneys.”); id. at 386:7–11 (Marino) (agreeing that “one of the
purposes” of the March 2022 MOU was “to bring certainty to the damages claim”); id. at
585:19–21 (Li) (“Q. Was the pending litigation one of the reasons why you executed the
MOU in March? A. Yes.”).
264
Pl.’s Opening Br. 8.
265
Compare id. (arguing that IIF and IRP had “finalized a partnership”), with Pl.’s Reply
Br. 18 (arguing that IIF and IRP had “finalized the framework for their partnership as of
November 9, 2021” (emphasis added)).

68
because even their principals understood that they “did not have a partnership” at

that time or even as of trial.266

In the face of its own admission that it did not have a formal partnership with

IIF in November 2021, Plaintiff nevertheless argues that its damages should be

measured by what it would have received under the terms of the November 2021

MOU with IIF had RailUSA performed as IRP and its experts projected.

Defendants, unsurprisingly, contend that the Plaintiff cannot demonstrate the fact of

damages because the unsigned, redline draft November 2021 MOU was indefinite

and speculative. Having considered the terms of the November 2021 MOU itself

and the circumstances surrounding its drafting, the court agrees with the Defendants’

position.

The genesis of the November 2021 MOU was IRP’s execution of the Side

Letter on October 12, 2021. After executing the Side Letter, Marino told IIF that he

had secured “an absolute right to submit the final bid and be the winning bidder for

the transaction.”267 That statement was not accurate.268 In any event, up until that

266
Tr. 560:5–7 (Li) (“First of all, we didn’t have a -- at that point [November 18, 2021] we
didn’t have a partnership. We still don’t.”); JX 394 at 27:8–11 (Marino Dep.) (“Q. You
actually, even today, don’t have any sort of formal partnership with IIF, right? A. That’s
correct.”).
267
JX 391 at 79:3–9 (Li Dep.).
268
When Li saw the language in the Side Letter on November 1, he learned that IIF actually
did not have “the right to top absolutely.” JX 195 at 1. As Lequin aptly put it: “[I]t’s all

69
time, IIF was “[n]ot actively considering” partnering with IRP. 269 In October 2021,

IIF and IRP began negotiating the terms of an MOU to govern a possible

partnership.270

On November 8, 2021, IIF sought approval from its investment committee to

bid on RailUSA.271 The investment committee presentation indicated that IIF’s

“base case” was “that there’s no change to the management teams.” 272 The deal

team also included an alternative plan “to hire an interim management team” with

non-IRP executive Mike Cory as “a strong interim CEO candidate.”273 The

presentation did not reference a partnership with IRP, the November 2021 MOU, a

topping bid right, or an ownership structure in which IIF owned anything less than

100% of RailUSA.274 Although Li claims he raised the “possibility of [IRP]

participating in equity ownership,” this scenario did not make it into the presentation,

Gary really got for us. . . .” Id. While IIF negotiated the draft November 2021 MOU over
the next week, the deal team was privately dismissive, saying that the MOU was “absurd,”
negotiations were “not good,” and the proposed partnership was “effectively robbery” that
“would bring so little upside.” JX 213 at 3–4; JX 222 at 3.
269
JX 391 at 78:3–8 (Li Dep.).
270
Id. at 81:24–82:5 (Li Dep.).
271
JX 216.
272
Tr. 559:9–560:1 (Li).
273
JX 216 at 14. Cory was the former Chief Operating Officer of Canadian National
Railway. Id.
274
Id.

70
no terms were discussed, and he did not secure approval to sign the current draft of

the November 2021 MOU. 275

The following day, on November 9, the November 2021 MOU was exchanged

for the last time—in redline—and IIF and IRP went pencils-down. 276 The November

2021 MOU was expressly non-binding and contingent on investment committee and

board approval for IIF, which IIF never obtained. 277 The redline indicated that IIF

would own 90% of the equity in the holding company and IRP would own 10%.278

But Bastone admitted that other material terms remained undecided. 279 This is

reflected in the redline document, which leaves material economic terms blank or

bracketed, including IRP’s capital contribution for additional equity in the parties’

joint venture, Railroad Holdco, the amount of equity IRP could be awarded, and the

“Qualifying EBITDA Initiatives” by which IRP could increase its equity stake. 280

275
Tr. 562:5–10, 565:17–566:8 (Li).
276
JX 237; Tr. 50:2–22 (Bastone); id. at 584:1–11 (Li).
277
JX 237 at 2; Tr. 565:17–566:16 (Li).
278
JX 237 at 2.
279
Tr. 78:4–16 (Bastone); (“Q. You hadn’t agreed to the percentage of equity that you
could purchase or the purchase price; right? A. Right. Q. And that was pretty material?
A. Again, it’s material to us. Is it material to getting a deal done? No. . . .”); id. at 56:18–
57:5 (Bastone); see id. at 575:13–576:1 (Li). Notably, the November 2021 MOU
characterized the scope of IRP’s management services as an “open item.” JX 237 at 4.
280
JX 237 at 1, 9. The record also contains a “clean copy of the IIF MOU” that was
circulated at 4:49 p.m. on November 9. JX 236. This document, too, is unsigned and
contains blanks and brackets for dates and material economic terms. Compare JX 236 at
1, 4, 8–9, with JX 237 at 1, 9. It is apparent to the court that this document is just a “clean”
version of the redline document that was circulated earlier that afternoon.

71
The unsigned, non-binding, incomplete redline draft of the November 2021

MOU and the evidence surrounding its drafting and negotiation demonstrate that

IRP’s supposed harm resulting from the breach of the Settlement Agreement and

Side Letter was “uncertain, contingent, conjectural [and] speculative.”

Pharmathene, Inc. v. SIGA Techs., Inc., 2010 WL 4813553, at *11 (Del. Ch. Nov.

23, 2011). Contrary to IRP’s position, the court is not persuaded IIF and IRP had

“finalized a partnership” or even “finalized the framework” for a partnership.

Marino’s history of renegotiating deals further undermines the notion that IIF and

IRP had reached an agreement.281 The fact that IIF and IRP did nothing further until

months later, after the court had indicated at the preliminary injunction stage that

IRP established a reasonable probability of success in establishing breach, is also

281
JX 389 at 163:18–165:8 (Quick Dep.) (“Q. And can you expand a little bit on your
concerns with potential re-trading by [IIF] and IRP? A. Yeah. Historically, I think
[Marino] had a reputation of starting the negotiation once the contract is signed. . . . Q.
[W]ere you concerned that Gary Marino and IIF or JP [Morgan] were going to engage in
similar re-trading in connection with a - - the sales process even if [IIF’s] bid was accepted?
A. Yes. . . . Things will come up and you’ll need to get approval from the buyer to make
certain decisions . . . the context of bringing those to [IIF] . . . would cause me a lot of
concerns, that they would be viewed as an open door to re-trade other points in the
agreement besides just the general experience of subtle points being attempted to be re-
traded in the -- in the litigation Settlement Agreement.”); Tr. 815:15–20 (Harwood) (“Q.
What was the re-trade? Who initiated the re-trade? A. IRP initiated a re-trade. We had a
settlement agreement in principle, and then IRP made a litany of other requests that all had
to do with the auction process.”); id. at 829:15–830:19 (Harwood); id. at 636:18–638:8
(Quick); JX 383 at 28:2–7 (Bencivenga Dep.); JX 389 at 137:23–138:9 (Quick Dep.).

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noteworthy. 282 If the parties had reached a partnership in November, there was no

need to go pencils down on November 9, let alone to subsequently enter into an

agreement months later. For IIF and IRP to have stopped negotiations at that time

and then to execute a different, made-for-litigation MOU four months later (i.e., the

March 2022 MOU), inspires no confidence that the November 2021 MOU reflected

terms of a “partnership” that supports IRP’s claim that it suffered damages from the

breach of the Settlement Agreement and Side Letter.

Accordingly, the court concludes that the Plaintiff has failed to prove its fact

of damages by a preponderance of the evidence.

III. CONCLUSION
In conclusion, judgment shall be entered in favor of the Defendants. The

parties are directed to submit an implementing order within ten business days of the

date of this opinion.

282
Plaintiff’s assertion that Li did not need further approval to sign an MOU with IRP
based upon the November 2021 MOU terms is not credible. Plaintiff points to no
contemporaneous document supporting that position. Instead, it is apparent to the court
that the IIF-IRP deal would be driven by the final acquisition terms. As Li explained, IIF
was not going to finalize a MOU with IRP “until [IIF] came to the view that [it] would be
the owners of RailUSA.” Tr. 577:22–578:1 (Li). This indicates that the terms of the
“partnership” between IIF and IRP would not be determined until after IIF had won the
auction and knew the precise terms of its contract with the Sellers. The views of IIF
executives that Marino had oversold the benefits of the Settlement Agreement and Side
Letter suggest that IIF was not wedded to the terms of the draft November 2021 MOU. See
JX 213; JX 222.

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