Star America Rail Holdco, LLC v. Casey Cathcart and Cathcart Rail Holdco, LLC

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

STAR AMERICA RAIL HOLDCO, )
LLC, )
)
Plaintiff, )
)
v. ) C.A. No. 2024-0883-LWW
)
CASEY CATHCART, )
)
Defendant, )
)
and )
)
CATHCART RAIL HOLDCO, LLC, )
)
Nominal Defendant. )

MEMORANDUM OPINION

Date Submitted: October 18, 2024
Date Decided: December 17, 2024

Raymond J. DiCamillo, Kevin M. Gallagher, Andrew L. Milam, Kaitlyn R. Cannan,
RICHARDS, LAYTON & FINGER, P.A., Wilmington, Delaware; Laura K.
O’Boyle, Nathan C. Strauss, Zachary R. Edelman, GIBSON, DUNN &
CRUTCHER LLP, New York, New York; Colin B. Davis, GIBSON, DUNN &
CRUTCHER LLP, Irvine, California; Counsel for Plaintiff Star America Rail
HoldCo, LLC

Jennifer R. Hoover, Andrew D. Kinsey, BENESCH, FRIEDLANDER, COPLAN
& ARONOFF, LLP, Wilmington, Delaware; Andrew G. Fiorella, Alyssa A.
Moscarino, BENESCH, FRIEDLANDER, COPLAN & ARONOFF, LLP,
Cleveland, Ohio; Counsel for Defendant Casey Cathcart

Tyler J. Leavengood, Charles Wood, POTTER ANDERSON & CORROON LLP,
Wilmington, Delaware; Counsel for Nominal Defendant Cathcart Rail HoldCo, LLC

WILL, Vice Chancellor
Cathcart Rail Holdco, LLC was co-founded by Casey Cathcart, who served as

its CEO. In 2020, the company took on an outside investor. The investor negotiated

for a contractual right to remove Cathcart as CEO and replace him if the company’s

annual EBITDA was below $18 million. When EBITDA fell short of the threshold

in 2023, the investor sought out a new CEO.

Cathcart resisted. He prodded the company’s CFO to alter financial results so

that reported EBITDA exceeded $18 million. Even after the investor sued for a

declaration that Cathcart was validly removed and replaced, Cathcart insisted that

2023 actual EBITDA was disputed. He knew that this position was baseless.

Nevertheless, expedited discovery—including into the calculation of

EBITDA—ensued. On the eve of trial, Cathcart conceded that 2023 actual EBITDA

was less than $18 million. He focused instead on arguing that the investor could not

remove and replace him without other members’ consent.

The unambiguous terms of the contract prove otherwise. The investor was

entitled to remove and replace Cathcart as CEO. It did not act unreasonably or in

bad faith in exercising its discretion to do so. Judgment is entered for the investor

and fees are shifted.

1
I. BACKGROUND

The following facts were stipulated to by the parties or proven by a

preponderance of the evidence at trial.1

A. Cathcart Rail’s Formation

Cathcart Rail HoldCo, LLC (the “Company”) is a privately held Delaware

limited liability company.2 It owns 100% of the membership interests of Cathcart

Rail, LLC—an Illinois entity that operates in the railroad industry.3

In 2015, Casey Cathcart and his father Thom formed Cathcart, Inc. (formerly

T&C Rail Holdings, Inc.).4 Each individual owned 50% of the corporation.

They subsequently formed the Company, with Cathcart, Inc. as its sole

member, to acquire a railcar repair facility.5 Through Cathcart, Inc., Casey and

Thom Cathcart had equal ownership of the Company at the time of its formation.6

1
Joint Pre-trial Stipulation and Order (Dkt. 83) (“PTO”). The trial record includes live
testimony of 3 fact witnesses and 177 joint exhibits (including 4 deposition transcripts).
Trial testimony is cited as “[Name] Tr. __.” See Dkt. 97. Exhibits are cited by the numbers
provided on the parties’ joint exhibit list as “JX __,” unless otherwise defined. See Dkt.
82 Ex. A. Deposition transcripts are cited as “[Name] Dep. __.”
2
PTO ¶ 5.
3
Id.; see Cathcart Tr. 8. This decision refers to Casey Cathcart as “Cathcart.”
4
Cathcart Tr. 12.
5
Id. at 12-13.
6
Id. at 130-31.
2
The Company grew into a successful freight rail platform.7 It functions

mainly in the short line space, meaning rail lines that connect to a larger railroad

network. It has three general divisions: certified railcar service and repair facilities;

rail agent inspection services; and short line railroads that facilitate moving railcars

across lines.8

B. Star Infra’s Investment

By 2020, the Company was demonstrating continued signs of success.9 It

sought out new paths to advance its growth.10

In May 2020, Cathcart was approached by Tikehau Star Infra—an

infrastructure asset investor—about a potential investment in the Company.11

Though Cathcart had some trepidation, he accepted the offer.12 Tikehau Star Infra

established Star America Rail HoldCo, LLC (“Star Infra”) to hold its investment in

the Company.13 Star Infra became a member of the Company alongside

7
Id. at 13, 16.
8
Id. at 8-9.
9
Id. at 15-16.
10
Id.
11
Id. at 16; Melson Tr. 135.
12
Cathcart Tr. 16-17.
13
Melson Tr. 137.
3
Cathcart, Inc.14 It continued to make additional investments in the Company,

totaling $70 million.15

The terms of Star Infra’s investment were outlined in a September 2, 2020

Subscription Agreement among the Company, Star Infra, and Cathcart, Inc.16

Section 1.4 of the Subscription Agreement contemplated that Star Infra could

increase its equity ownership percentage if the Company’s “Actual EBITDA” fell

below its “Target EBITDA.”17 “Actual EBITDA” means “earnings before interest,

taxes, depreciation and amortization” as calculated in accordance with GAAP during

an “Applicable Calculation Period.”18 “Target EBITDA means $4,480,000.”19

On December 14, 2020, the parties executed a second amended limited

liability company agreement and an amended Subscription Agreement.20 Section

1.4 of the Subscription Agreement continued to provide that “in the event Actual

14
PTO ¶ 3. After the investment, Cathcart, Inc. owned 75% of the Company’s issued and
outstanding common units; Star Infra owned 25%. JX 1 at 4. The terms of the Subscription
Agreement were later amended such that each party owned 50% of the Company’s issued
and outstanding common units. JX 7 Ex. B.
15
Melson Tr. 137-39.
16
PTO ¶ 6.
17
Id. ¶ 8; JX 1 at 3.
18
JX 1 Ex. A.
19
Id.
20
PTO ¶¶ 7-8, 11; JX 3; JX 4.
4
EBITDA for the Applicable Calculation Period is less than Target EBITDA,” Star

Infra’s percentage of equity ownership in the Company would be increased.21

C. CEO Replacement Negotiations

In late 2021, the Company’s performance faltered.22 Star Infra notified

Cathcart that Section 1.4 of the Subscription Agreement had been triggered, entitling

it to a greater percentage of Company equity.23 Cathcart asked Star Infra to discuss

a “settlement” to remove this provision of the Subscription Agreement.24 He

proposed that, in exchange, the parties would “explore the option of designating a

permanent CEO so that [he] [could] continue [his] role as Executive Chairman.”25

Star Infra’s representative, Mark Melson, confirmed that they would “work

together to identify a new CEO with the goal of putting that person in place by June

30, 2023.”26 He expressed Star Infra’s hope that Cathcart would remain Executive

Chairman.27

21
PTO ¶ 8; JX 3 § 1.4; see also JX 3 § 1.3 (amending the definition of “Actual EBITDA”).
22
Cathcart Tr. 21-22.
23
PTO ¶ 9; Cathcart Tr. 66-67.
24
PTO ¶ 10; Cathcart Tr. 70-71; JX 12 at 5.
25
Cathcart Tr. 70-71; JX 12 at 5-6.
26
JX 12 at 3.
27
Id. at 2.
5
The parties then exchanged proposals for amending the Company’s limited

liability company agreement and the Subscription Agreement.28 The proposals all

contemplated that Cathcart would step down as CEO by a set date.29 One sticking

point was whether Star Infra would have the sole discretion to select a new CEO or

whether the Company’s board would have a say.30

Negotiations paused for a time and resumed in spring 2022.31 In April,

discussions about a replacement CEO provision shifted from a time-based trigger to

a performance-based one.32 Cathcart proposed that if the Company’s EBITDA fell

below $23.5 million in 2023, he “[would] agree to open a search for a new CEO and

look to appoint one as quickly as one [was] identified,” subject to board approval.33

Star Infra demanded a second, lower EBITDA threshold at which it would have a

unilateral CEO replacement right not subject to board or other member approval.34

On May 12, Star Infra sent Cathcart a draft amendment to the operative limited

liability company agreement that included a two-tier CEO replacement provision in

28
See JX 13; JX 14.
29
See Melson Tr. 149.
30
See Cathcart Dep. 87; JX 20; JX 24; JX 19 at 5; Melson Tr. 150.
31
See Melson Tr. 147-48; JX 17 at 1.
32
See Cathcart Tr. 72; Melson Tr. 152-54.
33
JX 27 at 3; see Cathcart Tr. 73.
34
Melson Tr. 155-57; Cathcart Tr. 74-75.
6
Section 8.3(a).35 The first tier adopted Cathcart’s proposal. It provided that if 2023

EBITDA was below $23.5 million, the Company’s board would launch a search for

a replacement CEO, subject to the approval of Star Infra and Cathcart Inc.36 The

second threshold contemplated that if 2023 EBITDA was below $20 million, Star

Infra could terminate Cathcart and hire a replacement CEO on terms set in its “sole

and absolute discretion.”37

Cathcart provided feedback on May 17.38 His only comment to Section 8.3(a)

was that the calculation of EBITDA needed to “include adjustments / add-backs, not

simply GAAP EBITDA.”39

In response, Star Infra proposed a definition of EBITDA that was consistent

with the Company’s credit agreement with various lenders.40 This definition

“include[d] fewer adjustments” than Cathcart suggested.41 To make Cathcart “more

35
JX 28.
36
Id. at 6 (“On or after December 31, 2023, in the event that the EBITDA for the Company
was less than $23,500,000 for the calendar year ending December 31, 2023, but more than
$20,000,000 the Board will commence with a search for a replacement Chief Executive
Officer, subject to approval of the Star Infra Member and Cathcart Member, acting in the
best interests of the Company and not to be unreasonably withheld conditioned or
delayed.”).
37
JX 28 at 6.
38
PTO ¶ 15; JX 30.
39
JX 30 at 8; see also JX 32.
40
JX 34 at 6; see JX 45 (Credit Agreement).
41
JX 32.
7
comfortable,” Star Infra offered to lower the trigger amounts.42 Star Infra’s proposal

set the upper threshold for a board-led CEO replacement at $21 million and the lower

threshold for Star Infra’s unilateral replacement right at $18 million.43

Cathcart agreed to use the lender’s EBITDA definition at these lower

threshold amounts.44 On June 12, he suggested that Section 8.3(a) “[u]se ‘Actual

EBITDA’ instead of ‘EBITDA’” and that “Actual EBITDA” be “calculated in

accordance with the terms of the Company’s senior loan agreement.”45

D. The Amended LLC Agreement

On July 8, 2023, the parties further amended the Company’s limited liability

company agreement (the “LLC Agreement”).46

The LLC Agreement adopted the negotiated two-tier performance threshold

for replacing the Company’s CEO. If 2023 Actual EBITDA was less than $21

million but greater than $18 million, the Company’s board would launch a CEO

search “subject to the consent of Star Infra and Cathcart Inc. (not to be unreasonably

withheld . . .).”47 If 2023 Actual EBITDA was less than $18 million, Star Infra had

42
PTO ¶ 16; JX 33 at 1.
43
JX 33.
44
JX 36.
45
PTO ¶ 20; JX 38 at 1.
46
PTO ¶ 21; JX 46 (“LLC Agreement”).
47
LLC Agreement § 8.3(a); id. at § 2.1 (defining “Actual EBITDA”).
8
the unilateral right to “terminate” Cathcart as CEO and “hire a replacement” on

“terms and conditions” set in its “sole and absolute discretion.”48

The LLC Agreement also laid out the timing for the Company’s delivery of a

“detailed statement and calculation of Actual EBITDA.”49 The statement had to be

delivered to Star Infra “within 120 days of the end of calendar year ending December

31, 2023.”50

E. The 2023 EBITDA Calculation

On January 17, 2024, Company Chief Financial Officer Kirk Feiler sent Star

Infra a calculation showing 2023 Actual EBITDA of $17.6 million. 51 The figure

was calculated “as defined in the [Company’s] credit agreement.”52 Feiler’s cover

email represented that the numbers “should be final.”53

Feiler confirmed this calculation in reports delivered on February 9, February

16, March 15, April 10, and April 29.54 The Company also sent its lender a draft

compliance certificate on April 22 showing “2023 Consolidated EBITDA” of $17.6

48
Id. § 8.3(a).
49
Id.
50
Id. 120 days after December 31, 2023 is April 29, 2024.
51
JX 47 at 6; Melson Tr. 162-63.
52
Feiler Tr. 243; see also Feiler Dep. 28.
53
JX 47 at 1.
54
JX 50 at 16; JX 51 at 7; JX 53 at 7; JX 60 at 5; JX 66 at 46; see also Feiler Tr. 235-36.
9
million.55 The definition of “Consolidated EBITDA” in the credit agreement has the

same meaning as Actual EBITDA in the LLC Agreement.56

F. The CEO Search

In April 2024, Star Infra retained two executive search firms (Korn Ferry and

BluWave) to seek out CEO candidates.57 It also established a screening committee

to review individuals the firms identified.58 Star Infra was presented with and

considered at least five CEO candidates over several weeks.59

In mid-April, Korn Ferry proposed Jeff Chick as a candidate who “checks all

the boxes” and was the “closest fit” to Star Infra’s criteria “of all the candidates [it

had] presented.”60 Star Infra’s ideal candidate was one “who had dealt with

distressed situations,” which was important to it since the Company had defaulted

on its credit agreement.61

55
JX 63 at 1.
56
See LLC Agreement § 2.1.
57
Melson Tr. 168-69.
58
JX 74 at 23; Melson Tr. 168-70.
59
Melson Tr. 169; JX 74 at 13.
60
JX 74 at 9-10.
61
Melson Tr. 170.
10
Star Infra’s search committee interviewed Chick multiple times.62 In June,

after additional diligence, Star Infra formally hired Chick.63

G. The Altered 2023 EBITDA Calculation

Meanwhile, on May 8, Melson had told Cathcart that Star Infra intended to

remove and replace him as CEO.64 Cathcart responded that Star Infra would “need

to get a court order” to do so.65

On June 1, Cathcart directed Feiler to create a new “[EBITDA] report [for]

Star [Infra].”66 Feiler understood that Cathcart was “looking for $18 million or

more” in 2023 Actual EBITDA.67 When Feiler “counsel[ed] [Cathcart] that there’s

a cap” on addbacks under the credit agreement that made this impossible, Cathcart

asked Feiler to “take out the cap.”68

On June 3, Feiler told Cathcart that even when he “maximized Y[ear] E[nd]

add backs,” there was “only 20k additional [they] could have charged . . . [which]

62
Id. at 169-70; JX 74 at 8-10.
63
JX 72 at 3; Melson Tr. 169, 171-72, 256-57; JX 73.
64
Cathcart Tr. 39-41; see also JX 178.
65
Melson Tr. 167.
66
JX 56 at 2.
67
Feiler Tr. 234.
68
Id. at 242-44.
11
d[id]n’t help with the 18m argument.”69 Cathcart directed Feiler to “[k]eep[]

working through it, [to] get to $18m.”70 He insisted that he “need[ed] that $18m.”71

On June 4, Feiler sent Star Infra a new calculation showing 2023 Actual

EBITDA of approximately $18.3 million.72 This was 36 days after the EBITDA

reporting deadline set by Section 8.3(a) of the LLC Agreement.73 Cathcart told

Feiler not to “provide detail behind [their] statement” and to “[d]rag it out” to

“[m]ake [Star Infra] pay for an audit.”74

H. Cathcart Doubles Down.

On July 9, Cathcart learned that Star Infra had hired Chick.75 The next day,

Cathcart told Star Infra that the Company’s lender had “reviewed and blessed” the

$18.3 million EBITDA figure.76 He represented that the lender had “agreed with the

add-backs and agreed that it conformed to the credit agreement.”77 These statements

were false.78

69
JX 86 at 3.
70
Id. at 1.
71
JX 56 at 3.
72
PTO ¶ 30; JX 88 at 3; see also JX 194.
73
See supra note 50 and accompanying text.
74
JX 56 at 3.
75
Cathcart Tr. 41.
76
JX 105.
77
Id.
78
Cathcart Tr. 104-07; Feiler Tr. 250, 252-54; JX 93.
12
Cathcart also threatened to have Chick “escorted out” if he tried to enter

Company property.79 When Chick arrived at Company headquarters on July 15—

his first day on the job—he was escorted into a conference room by Thom Cathcart.80

Cathcart “joined by phone [and] threatened to call the police to have [Chick]

removed for trespassing . . . .”81

I. A Brief Ceasefire

Amid the hostilities, a “reputable firm” expressed interest in acquiring Star

Infra’s Company equity.82 Cathcart recommended a “60-day ceasefire” to present a

“united front” and close the deal.83 In exchange, he agreed that Chick could join the

Company as Star Infra’s designated “Operating Partner,” allowing Chick to

collaborate with him and participate in discussions with potential buyers, lenders, or

clients.84

But the sale process collapsed and, with it, the ceasefire.85 Attempts to find

compromise were unsuccessful.86 On August 22, Star Infra reiterated that it was

79
JX 105.
80
Melson Tr. 184-85.
81
Id.
82
Id. at 184.
83
JX 103.
84
JX 195.
85
Melson Tr. 186-87.
86
See JX 98 at 2-4; JX 97 at 2.
13
exercising its right under Section 8.3(a) of the LLC Agreement to immediately

replace Cathcart with Chick as CEO.87 Cathcart would remain Executive

Chairman.88

Cathcart responded negatively. He warned of legal action, including to

remove Star Infra personnel from the Company’s offices.89

On August 23, Star Infra filed this action under 6 Del. C. § 18-110.90 It seeks

a declaration that Cathcart was removed as CEO and replaced by Chick pursuant to

the LLC Agreement.91 On September 9, I entered a status quo order designating

Cathcart as CEO for the limited duration of this suit, with Chick remaining the

Operating Partner.92

After expedited discovery, a one-day trial was held on October 18.93 Post-trial

briefing was completed on October 25.94

87
JX 123.
88
Id. at 1-2.
89
JX 124.
90
Dkt. 1.
91
Id.
92
Dkt. 38; see also Dkt. 52 (holding that maintaining the Company’s longstanding CEO
was less disruptive for the Company during this limited period).
93
Dkt. 90.
94
See Def. Casey Cathcart’s Post-trial Br. (Dkt. 94) (“Def.’s Post-trial Br.”); Pl.’s Post-
trial Br. (Dkt. 95).
14
II. ANALYSIS

Star Infra seeks a declaration that it validly terminated Cathcart as CEO and

appointed Chick to replace him. Its claim is brought under Sections 18-110 and

18-111 of the Delaware Limited Liability Company Act, which “vest jurisdiction

with the Court of Chancery in actions involving removal of managers and

interpreting, applying or enforcing LLC agreements.”95 Star Infra has the burden to

prove its claim by a preponderance of the evidence.96

Section 18-110 empowers this court to “hear and determine the validity of

any . . . appointment [or] removal . . . of a manager of a limited liability company.”97

A manager includes “a person . . . [w]hether or not a member of a limited liability

company, who, although not a ‘manager’ as defined in § 18-101 of th[e] [statute],

participates materially in the management of the limited liability company.”98

Cathcart managed the day-to-day business of the Company and—before the

challenged events—was its de facto manager.99

95
Elf Atochem N. Am., Inc. v. Jaffari, 727 A.2d 286, 295 (Del. 1999).
96
See, e.g., Taylor v. State, 748 A.2d 914 n.11 (Del. 2000) (TABLE) (“[T]o establish
something by a preponderance of the evidence means to prove that something is more
likely so than not so.”).
97
6 Del. C. § 18-110(a).
98
Id. § 18-110(c).
99
Dkt. 23 at 1-2, 17.
15
Section 18-111 empowers this court to “interpret, apply or enforce the

provisions of a limited liability company agreement” as well as determine the

“duties, obligations or liabilities among members or managers.”100 Here, Star Infra’s

claim involves the interpretation of the Company’s LLC Agreement. Star Infra

asserts that its removal of Cathcart as CEO and appointment of Chick as CEO was

a proper exercise of its rights under Section 8.3(a).

Cathcart reads the LLC Agreement differently. He contends that Cathcart,

Inc.’s approval is required before the Company’s CEO can be removed or a new

CEO appointed. He also raises an affirmative defense under the implied covenant

of good faith and fair dealing concerning Chick’s selection.101

As discussed below, I find in favor of Star Infra. The parties have now

stipulated that the Company’s 2023 Actual EBITDA was below $18 million. 102 This

result triggered Star Infra’s unambiguous right to remove Cathcart and replace him

in its sole discretion. None of Cathcart’s arguments provides grounds to hold

otherwise.

100
6 Del. C. § 18-111.
101
Def.’s Post-trial Br. 26-33. A party raising affirmative defenses has “the burden to
prove each element of each of [its] affirmative defenses by a preponderance of the
evidence.” TA Operating LLC v. Comdata, Inc., 2017 WL 3981138, at *21 (Del. Ch. Sept.
11, 2017).
102
PTO ¶ 26; see also id. ¶ 31.
16
A. Star Infra’s Unambiguous Removal and Replacement Right

In Section 18-110 suits, “the starting (and end) point almost always is the

parties’ bargained-for operating agreement, and the court’s role in these disputes is

to ‘interpret [the] contract [and] effectuate the parties’ intent.’”103 “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.”104

The court will “give priority to the parties’ intentions as reflected in the four corners

of the agreement” by construing the agreement as a whole and giving effect to all

included provisions.105 “When [a] contract is clear and unambiguous,” the court

must “give effect to the plain-meaning of the contract’s terms and provisions without

resort to extrinsic evidence.”106

103
A & J Cap., Inc. v. L. Off. of Krug, 2018 WL 3471562, at *5 (Del. Ch. July 18, 2018)
(citing GRT, Inc. v. Marathon GTF Tech., Ltd., 2012 WL 2356489, at *7 (Del. Ch. June
21, 2012)); see also Mickman v. Am. Int’l Processing, LLC, 2009 WL 2244608, at *2 (Del.
Ch. July 28, 2009) (“LLC agreements are creatures of contract, which should be construed
like other contracts.” (citing Arbor Place, L.P. v. Encore Opportunity Fund, LLC, 2002
WL 205681, at *4 (Del. Ch. Jan. 29, 2002))).
104
Osborn ex rel. Osborn v. Kemp, 991 A.2d 1153, 1159 (Del. 2010) (citing NBC Universal
v. Paxson Commc’ns, 2005 WL 1038997, at *5 (Del. Ch. Apr. 29, 2005)).
105
GMG Cap. Invs., LLC v. Athenian Venture P’rs I, 36 A.3d 776, 779 (Del. 2012).
106
Sunline Com. Carriers, Inc. v. CITGO Petroleum Corp., 206 A.3d 836, 846 (Del. 2019)
(citation omitted).
17
1. Section 8.3(a) of the LLC Agreement

Section 8.3(a) of the LLC Agreement sets out a two-tier structure for the

removal and replacement of the CEO based on EBITDA thresholds. For the higher

threshold, the Company’s board leads the replacement process:

On or after December 31, 2023, in the event that the Actual
EBITDA for the Company was less than $21,000,000 for the
calendar year ending December 31, 2023, but more than
$18,000,000 the Board will commence with a search for a
replacement Chief Executive Officer, subject to the consent of
Star Infra and Cathcart Inc. (not to be unreasonably withheld
conditioned or delayed) acting in the best interests of the
Company. The Board shall take all Necessary Action to
promptly recruit, vet and hire a replacement Chief Executive
Officer.107

But if a lower EBITDA threshold is hit, Star Infra has the right to terminate

and replace the CEO:

On or after December 31, 2023, in the event that the Actual
EBITDA for the Company was less than $18,000,000 for the
calendar year ending December 31, 2023, Star Infra may
commence with a search for a replacement Chief Executive
Officer, hire a replacement Chief Executive Officer on such
terms and conditions as determined in its sole and absolute
discretion and terminate Casey Cathcart as the Company’s Chief
Executive Officer.108

107
LLC Agreement § 8.3(a) (emphasis added).
108
Id. (emphasis added).
18
Before trial, Cathcart stipulated that the Company’s reported 2023 Actual

EBITDA fell below $18 million.109 He conceded that—despite previously insisting

otherwise—the $18.3 million EBITDA figure Feiler circulated in June 2024

included impermissible addbacks.110 Thus, the lower EBITDA threshold was

implicated—giving Star Infra unilateral removal and replacement rights.

Since EBITDA fell below $18 million, Star Infra had the right to “search” for

a new CEO, “terminate” Cathcart as CEO, and “hire” a replacement CEO.111 It could

do so on “terms and conditions” determined in its “sole and absolute discretion.”112

Nothing in the LLC Agreement limits its exercise of this unambiguous right.

2. Cathcart’s Arguments

Cathcart advances a different reading of the LLC Agreement. He asserts that

the LLC Agreement requires the affirmative vote of at least one

Cathcart, Inc.-affiliated board member to remove the Company’s CEO.113 This

argument implicates two provisions of the LLC Agreement that grant

109
PTO ¶ 26; Cathcart Tr. 101 (conceding that the $18.3 million EBITDA figure was
“[t]rue legally”).
110
PTO ¶ 31; Cathcart Tr. 102; see also infra Section III.A (addressing Star Infra’s request
for fee shifting based on Cathcart’s false statements).
111
LLC Agreement § 8.3(a).
112
Id.
113
See Def.’s Post-trial Br. 18-21.
19
member-affiliated directors consent rights on certain decisions made by the

Company.114

Section 8.2(f) of the LLC Agreement requires the consent of at least one “Star

[Infra] Director” and one “Cathcart[, Inc.] Director” for certain Company “Major

Decisions.”115 It states, in relevant part:

Notwithstanding anything to the contrary contained in th[e]
[LLC] Agreement . . . the Company and its Subsidiaries shall not
. . . take, directly or indirectly on behalf of the Company or any
of its Subsidiaries, and no director, officer, employee, agent or
other representative of the Company or any of its Subsidiaries
shall have any authority to cause or to permit the Company or
any of its Subsidiaries to take, any action, make any decision,
expend any sum or undertake or suffer any obligation which
comes within the scope of any of the following actions [without
consent from one Star Infra and one Cathcart, Inc. director].116

Section 8.2(g) extends similar but more limited consent rights to 730

CTHRAIL LLC (“730 Member”), which became a member of the Company in July

2022.117 It states that, “[n]otwithstanding anything to the contrary contained in th[e]

[LLC] Agreement . . . the Company and its Subsidiaries shall not . . . take [certain]

114
Id. at 20-21.
115
LLC Agreement § 8.2(f).
116
Id. (emphasis added).
117
Id. § 8.2(g); see PTO ¶ 25. Cathcart’s post-trial brief largely focuses on Section 8.2(g)
rather than Section 8.2(f). See Def.’s Post-trial Br. 18-21. At times in prior briefing and in
his testimony, however, he has raised both provisions. Given the overlap, I address Section
8.2(f) alongside Section 8.2(g) for the sake of completeness.
20
action[s] . . . without the consent of the 730 [Member] Director” and at least one

director designated by each of Star Infra and Cathcart, Inc.118

One of the Company decisions that requires member-designated director

consent under Sections 8.2(f) and 8.2(g) is the “appoint[ment], remov[al], or

replace[ment] [of] the chief executive officer.”119

Cathcart points out that “notwithstanding” clauses, like those in Sections

8.2(f) and 8.2(g), “clearly signal[] the drafter’s intention that . . . [those] section[s]

override conflicting provisions of any other section.”120 That is, he believes that the

consent rights afforded members in Sections 8.2(f) and 8.2(g) override Star Infra’s

rights in Section 8.3(a).

But there is no conflict between Sections 8.2(f) and 8.2(g), on the one hand,

and Section 8.3(a), on the other hand.121 Sections 8.2(f) and 8.2(g) place conditions

on certain decisions made by the Company. They do not address actions and

decisions assigned to a member.122 Section 8.3(a), by contrast, expressly grants Star

118
JX 46 § 8.2(g) (emphasis added).
119
Id. §§ 8.2(f)(iii)(A), 8.2(g)(ii).
120
Def.’s Post-trial Br. 19 (quoting Cisneros v. Alpine Ridge Grp., 508 U.S. 10, 18 (1993)).
121
See, e.g., In re Est. of Crist, 863 A.2d 255, 258 (Del. Ch. 2004) (holding that “[d]espite
the inclusion of the word ‘notwithstanding,’” one section in a contract did not trump
another section because the two were “not in conflict”), aff’d, 879 A.2d 602 (Del. 2005)
(TABLE).
122
JX 46 §§ 8.2(f), 8.2(g).
21
Infra—not the Company or its board—the exclusive right to “search for” and “hire”

a replacement CEO if 2023 Actual EBITDA falls below $18 million.123 Unlike

Sections 8.2(f) and 8.2(g), Section 8.3(a) does not grant any other member a consent

right or cabin how Star Infra can exercise its rights.

Delaware courts must interpret contracts “in a way that does not render any

provisions illusory or meaningless.”124 By Cathcart’s reasoning, Cathcart, Inc.

would have a veto right over a decision that the LLC Agreement leaves exclusively

to Star Infra. This reading would eviscerate Star Infra’s rights to “terminate” the

CEO and “appoint” a new one in its “sole discretion.”125

Cathcart’s interpretation would also render superfluous the limits on member

consent rights in Section 8.3(a) where Actual EBITDA is less than $21 million but

more than $18 million.126 In this scenario, Section 8.3(a) gives certain members—

through their board designees—consent rights that cannot be “unreasonably

withheld” and must be exercised in the “best interest of the Company.”127 The major

123
Id. § 8.3(a).
124
O’Brien v. Progressive N. Ins. Co., 785 A.2d 281, 287 (Del. 2001) (citation omitted).
125
LLC Agreement § 8.3(a).
126
See NAMA Hldgs., LLC v. World Mkt. Ctr. Venture, LLC, 948 A.2d 411, 419 (Del. Ch.
2007) (“Contractual interpretation operates under the assumption that the parties never
include superfluous verbiage in their agreement, and that each word should be given
meaning and effect by the court.”), aff’d, 945 A.2d 594 (Del. 2008).
127
LLC Agreement § 8.3(a).
22
decision provisions in Sections 8.2(f) and 8.2(g), however, lack such limitations on

how member-appointed directors may exercise their discretion when approving

certain Company decisions.128

The provision of Section 8.3(a) triggered when EBITDA falls below $18

million would also become meaningless if it required board or other member

consent. There would be no reason to differentiate between the removal mechanism

when EBITDA falls below $18 million, which does not expressly contemplate

consent rights, and when EBITDA falls between $21 and $18 million, which does.

This distinction also “speaks volumes” on the parties’ intent.129 The parties knew

how to make board or member consent a condition to certain acts. But they excluded

such conditions from Star Infra’s removal and appointment rights if the lower

EBITDA threshold was met.

Further, even if Sections 8.2(f) and 8.2(g) conflicted with Section 8.3(a),

Cathcart’s arguments would fail. Delaware courts follow the canon of construction

that “specific terms and exact terms are given greater weight than general

128
See id. §§ 8.2(f), 8.2(g).
129
Kan. City S. v. Grupo TMM, S.A., 2003 WL 22659332, at *3 (Del. Ch. Nov. 4, 2003)
(invoking the inclusio unius est exclusio alterius canon of construction when observing
that the inclusion of “noteholder approval” in one part of a section but not “shareholder
approval” suggested “[shareholder] approval [wa]s not a condition to the [a]greement”).
23
language.”130 If 2023 Actual EBITDA fell below $18 million, Section 8.3(a) created

a specific exception to the more general provision on CEO appointment and removal

in Section 8.2.

Star Infra’s interpretation of the LLC Agreement is the only reasonable one.

It gives meaning and effect to each of the contract’s terms. Conversely, Cathcart’s

interpretation creates multiple inconsistencies.

B. Implied Covenant of Good Faith and Fair Dealing

As an affirmative defense, Cathcart asserts that Star Infra “violated the

implied covenant of good faith and fair dealing.”131 Cathcart argues that Star Infra

exercised its discretion to seek out and hire a CEO in bad faith by selecting Chick.132

He maintains that Star Infra’s recruitment effort was too rushed and that it chose a

person lacking rail experience to “supplant [him]” as “quickly as possible.”133

Any room left in the LLC Agreement for the implied covenant is narrow. The

LLC Agreement not only empowers Star Infra to use its “sole and absolute

discretion” to set “terms and conditions” of the new CEO’s employment;134 it also

130
Restatement (Second) of Contracts § 203(c) (1981); see DCV Hldgs., Inc. v. ConAgra,
Inc., 889 A.2d 954, 961 (Del. 2005) (“[W]here specific and general provisions conflict, the
specific provision ordinarily qualifies the meaning of the general one.”).
131
JX 152 at 29-30.
132
Def.’s Post-trial Br. 30-33.
133
Id. at 30.
134
LLC Agreement § 8.3(a).
24
permits it to exercise its discretion without consideration of other members’ or the

Company’s interests. The LLC Agreement eliminates all fiduciary duties Star Infra

owes to the Company or to any other member and explicitly permits Star Infra to

consider its interests alone.135

Still, the vesting of discretion in Star Infra did not entirely relieve it of the

obligation “to use that discretion consistently with the implied covenant of good faith

and fair dealing.”136 “[W]hen a contract provides discretion to one party and the

scope of that discretion is not specified ‘the implied covenant requires that the

discretion be used reasonably and in good faith.’”137 Good faith under the implied

covenant contemplates “faithfulness to the scope, purpose, and terms of the parties’

contract.”138

To the extent that the implied covenant applies, Cathcart failed to prove that

Star Infra acted in bad faith by recruiting, vetting, or hiring Chick. Star Infra hired

135
See id. § 2.2 (“Wherever in this Agreement a Member is permitted or required to make
a decision or determination or take an action in its ‘discretion’ or its ‘judgment,’ that means
that such Member may take that decision in its ‘sole discretion’ or ‘sole judgment’ without
regard to the interests of any other Person.”); id. § 7.4 (“To the fullest extent permitted by
applicable Law, no Member shall have any fiduciary duties to the Company or to any other
Member.”).
136
Miller v. HCP Trumptet Invs., LLC, 194 A.3d 908, 908 (Del. 2018) (TABLE).
137
Policeman’s Annuity and Benefit Fund of Chicago v. DV Realty Advisors LLC,
2012 WL 3548206, at *12 (Del. Ch. Aug. 16, 2012) (citing Airborne Health, Inc. v. Squid
Soap, LP, 984 A.2d 126, 146 (Del. Ch. 2009)).
138
Gerber v. Enter. Prods. Hldgs., LLC, 67 A.3d 400, 419 (Del. 2013), overruled on other
grounds by Winshall v. Viacom Int’l, Inc., 76 A.3d 808 (Del. 2013).
25
two respected search firms to find a qualified turnaround CEO. 139 Star Infra put

together a screening committee to review proposed candidates.140 Both Star Infra

and the search firms reviewed and interviewed multiple candidates over several

weeks.141 Chick was identified as the best fit and, after several interviews, hired.142

There is nothing unreasonable or nefarious about this process.

Cathcart’s “ideal CEO” candidate would have extensive experience in the

railroad industry.143 But the parties never agreed that such expertise—or any specific

qualification—was a prerequisite for future Company executives.144 Star Infra

decided that there were characteristics, like experience turning around struggling

companies, that were “more important than rail experience, which many

[employees] of the [C]ompany had.”145 Regardless, Chick has been the CEO of four

139
See JX 74 at 23; JX 52 at 15; see also Melson Tr. 168-69.
140
See Melson Tr. 169-70; JX 74 at 15.
141
See JX 74 at 4-23; Melson Tr. 169.
142
See JX 74 at 9-10; Melson Tr. 170-71.
143
Def.’s Post-trial Br. 12; see also Cathcart Tr. 34-35.
144
By that strained logic, an individual with prior experience as the CEO of a fast casual
Mexican restaurant would be unfit to lead a coffee company. See Danielle Kaye & Julie
Creswell, Starbucks Replaces C.E.O With Chipotle’s Brian Niccol, N.Y. Times (Aug. 13,
2024), https://www.nytimes.com/2024/08/13/business/starbucks-ceo-brian-niccol-
chipotle.html.
145
Melson Tr. 171; see also JX 74 at 19 (“Proven ‘turnaround’ experience is more
important that specific industry experience.”).
26
companies, at least two of which had a “similar operation” to the Company.146

Selecting him to lead the Company does not indicate bad faith by Star Infra.147

* * *

Because the Company’s 2023 Actual EBITDA fell below $18 million, Section

8.3(a) of the LLC Agreement gave Star Infra the unambiguous right to replace

Cathcart as CEO. Star Infra opted to exercise that right. It launched a search process,

hired Chick, and terminated Cathcart. Nothing in the LLC Agreement prevented it

from doing so. Nor did the implied covenant of good faith and fair dealing.

Cathcart was aware that the Company’s EBITDA results could lead to this

outcome. As discovery revealed, he tried to fudge the Company’s financial results

to avoid it. But he cannot circumvent the bargain he struck. He was validly removed

as CEO of the Company and Chick was validly appointed as his replacement.

III. SANCTIONS

Star Infra seeks sanctions against Cathcart on two grounds. First, it asks that

the court award its reasonable attorneys’ fees incurred due to Cathcart’s bad faith

146
Melson Tr. 171.
147
Star Infra has invested tens of millions of dollars in the Company. It would be
commercially unreasonable to hire a CEO that it felt was bound to fail.
27
conduct.148 Second, it contends that Cathcart is in contempt of the status quo order

entered in this case.149 The first argument has merit; the second does not.

A. Attorneys’ Fees

“The Delaware Supreme Court has consistently affirmed the American Rule

under which both sides pay their own attorneys’ fees.”150 Although this court has

the discretion to shift fees if circumstances warrant, the American Rule “remains the

default.”151 Exceptions to the American Rule that can merit fee shifting include

situations where:

[(1)] the judge concludes a litigant brought a case in bad faith or
through his bad faith conduct increased the litigation’s cost; and
[(2)] cases in which, although a defendant did not misuse the
“litigation process in any way, . . . the action giving rise to the
suit involved bad faith, fraud, ‘conduct that was totally
unjustified, or the like’ . . . .”152

Both types of bad faith are found here.

Pre-litigation, Cathcart caused Feiler to manufacture an inflated statement of

2023 Actual EBITDA that Cathcart knew was inconsistent with the LLC

148
Pl.’s Post-trial Br. 50-55.
149
Id. at 55-59.
150
In re Straight Path Commc’ns Inc. Consol. S’holder Litig., 2024 WL 4602914, at *5
(Del. Ch. Oct. 29, 2024) (citation omitted).
151
Id.
152
Scion Breckenridge Managing Member, LLC v. ASB Allegiance Real Est. Fund, 68 A.3d
665, 687 (Del. 2013) (citation omitted).
28
Agreement.153 He pressured Feiler to reach a number above $18 million and

suggested that Feiler “look[] for” impermissible addbacks.154 After Feiler circulated

the revised figure, Cathcart falsely informed Star Infra that the Company’s creditors

had “reviewed and blessed” it.155

During litigation, Cathcart continued to obfuscate. He maintained that the

$18.3 million EBITDA figure was operative, though he knew it was untimely and

contravened the credit agreement and the LLC Agreement.156 The court set an

expedited trial schedule based, in part, on Cathcart’s claim that the Company’s 2023

Actual EBITDA was in dispute.157

Discovery into the true EBITDA figure ensued, during which Cathcart

continued to deny that 2023 Actual EBITDA was below $18 million.158 Then, on

the eve of trial, Cathcart withdrew this contention and stipulated otherwise.159 In

doing so, he conceded that he lacked grounds for two out of his three theories for

breach of the implied covenant: (1) that Star Infra delayed credit agreement

153
See supra notes 66-74 and accompanying text.
154
Feiler Tr. 234.
155
JX 105.
156
Dkt. 45 (Answer) 3-5; see also JX 167 at 2.
157
Dkt. 52 at 25-26, 31-33.
158
Compare JX 167 at 2, with JX 86 at 2 and Feiler Tr. 244; see also Dkt. 52 at 25-27
(including the validity of the company’s 2023 EBITDA value as a “discovery topic”).
159
PTO ¶ 26.
29
amendments that affected the 2023 Actual EBITDA calculation, and (2) that Star

Infra “knew” 2023 Actual EBITDA could not be calculated until a year-end audit

concluded.160

Delaware courts have shifted fees where a defendant advanced “multiple

theories” that had “minimal grounding in fact and law” and “made the litigation

more expensive than it should have been.”161 Cathcart’s false statements drove up

litigation costs and unnecessarily expanded the scope of this case. Without his

tactics, the case arguably could have been resolved on summary judgment based on

the terms of the LLC Agreement.

Cathcart’s reliance on a falsity until just before trial warrants fee shifting. Star

Infra is entitled to the reasonable fees it incurred in refuting Cathcart’s baseless

defenses.162

160
Dkt. 45 (Answer) 29-30; JX 181 at 25, 29.
161
Montgomery Cellular Hldg. Co. v. Dobler, 880 A.2d 206, 227-28 (Del. 2005) (citation
omitted); see also Bay Cap. Fin., L.L.C. v. Barnes & Noble Educ., Inc., 2020 WL 1527784,
at *11 (Del. Ch. Mar. 30, 2020) (awarding attorneys’ fees where a party “doubled down”
on misleading statements in court filings, “did not provide a factual basis from which
anyone could reach that conclusion,” and engaged in discovery abuse), aff’d, 249 A.3d 800
(Del. 2021) (TABLE).
162
See Martin v. Med-Dev Corp., 2015 WL 6472597, at *20-21 (Del. Ch. Oct. 27, 2015)
(shifting fees incurred in defending one claim that, although bordering on frivolous, the
plaintiff refused to abandon until shortly before trial); Arbitrium (Cayman Is.) Handels AG
v. Johnston, 705 A.2d 225, 231, 235-37 (Del. Ch. 1997) (awarding fees based on a finding
of defendants’ bad faith where, among other issues, “contemporaneous documents created
by defendants” proved plaintiff’s claims), aff’d, 720 A.2d 542 (Del. 1998); Auriga Cap.

30
B. Contempt

Star Infra next contends that Cathcart violated the status quo order.163 This

court may provide relief “[f]or failure to obey a restraining or injunctive order, or to

obey or to perform any order.”164 A finding of civil contempt for violating a status

quo order is appropriate where a party is (1) bound by the order, (2) has notice of the

order, and (3) nevertheless violates the order.165

The first two factors are met: Cathcart was bound by and had notice of the

status quo order. The third factor is not.

Star Infra has not proven, by a preponderance of the evidence, that Cathcart

meaningfully violated the status quo order.166 Technical violations of the order are

Corp. v. Gatz Props., LLC., 40 A.3d 839, 881-82 (Del. Ch. 2012) (concluding that fee
shifting was appropriate where the defendant “and his counsel simply splattered the record
with a series of legally and factually implausible assertions”), aff’d, 59 A.3d 1206
(Del. 2012); Loretto Literary & Benevolent Inst. v. Blue Diamond Coal Co., 444 A.2d 256,
258, 261 (Del. Ch. 1982) (shifting fees where there was “no evidence in the record
[supporting defendant’s defense],” which the defendant did not abandon until after
discovery, shortly before trial).
163
See Dkt. 95 at 55-59.
164
Ct. Ch. R. 70(b).
165
See DiDonato v. Campus Eye Mgmt., LLC, 2024 WL 368112, at *9 (Del. Ch. Jan. 31,
2024), appeal dismissed, 315 A.3d 517 (Del. 2024) (TABLE).
166
See TransPerfect Glob., Inc. v. Pincus, 278 A.3d 630, 644 n.97 (Del. 2022) (“[T]he
preponderance standard is the appropriate burden for findings of civil contempt.”); cf. In
re Aerojet Rocketdyne Hldgs., Inc. 2022 WL 2180240, at *22-25 (Del. Ch. June 16, 2022).
31
insufficient.167 To merit sanctions, the violation “must constitute a failure to obey

the court in a meaningful way.”168 None of its complaints rises to that level.

First, Star Infra asserts that Cathcart failed to ensure that the Company

responded to Star Infra’s information requests within three days.169 The three-day

deadline has a carveout: “if the requested information is not reasonably available,

the parties will confer in good faith about the requested information, and if

necessary, provide additional time for such information to be provided.”170 The

evidence reflects that Cathcart worked with Feiler and Chick to discuss and satisfy

Star Infra’s information requests.171 Although some information was not

immediately available, Chick later gained access.172 Any violation of the status quo

order was a technical one.

Second, Star Infra argues that Cathcart violated a prohibition on disparaging

Star Infra or Chick.173 In a September 12 email to Melson, Thom Cathcart, Chick,

and three others, Cathcart called Chick a “cookie-cutter CEO-for-hire” who would

167
DiDonato, 2024 WL 368112, at *9.
168
Dickerson v. Castle, 1991 WL 208467, at *4 (Del. Ch. Oct. 15, 1991) (citation omitted).
169
JX 139 § 2(i).
170
Id.
171
See Feiler Tr. 261; Cathcart Tr. 49-50.
172
See Feiler Tr. 262-64; JX 143 at 1.
173
JX 139 ¶ 2(q).
32
“destroy th[e] Company.”174 A discourteous email to a limited group hardly amounts

to disparagement. A contempt finding is unwarranted.

Finally, Star Infra asserts that Cathcart violated the status quo order by

excluding Chick from company meetings.175 On September 16, Cathcart told a

Company officer that he could “say no” to Chick’s request to attend a planning

meeting.176 But the status quo order does not grant Chick unfettered access to

meetings. It requires Cathcart to provide Chick “full access” to the Company’s

employees and to “work collaboratively” with Chick.177 Company employees were

not explicitly required to accede to Chick’s requests to attend meetings.178

IV. CONCLUSION

Star Infra is entitled to judgment in its favor under Sections 18-110 and 18-111

of the LLC Act. Star Infra validly removed Cathcart as the Company’s CEO and

appointed Chick to that role. It had the right to do so under Section 8.3(a) of the

174
JX 153 at 3.
175
Pl.’s Post-trial Br. 58 (citing JX 139 ¶ 2(j)).
176
JX 157 at 1, 6.
177
JX 139 ¶ 2(j).
178
Cf. Mother Afr. Union First Colored Methodist Protestant Church v. Conf. of Afr. Union
First Colored Methodist Protestant Church, 1992 WL 83518, at *9 (Del. Ch. Apr. 22,
1992) (“A cardinal requirement for any adjudication of contempt is that the order allegedly
violated give clear notice of the conduct being proscribed.”).
33
LLC Agreement. Cathcart failed to prove his affirmative defense based on the

implied covenant of good faith and fair dealing.

Star Infra is also entitled to a reasonable award of fees and expenses insofar

as they were incurred because of Cathcart’s bad faith conduct, as set forth above. It

is not entitled to a finding of civil contempt.

The parties are to confer on an order to implement this decision and file it

within one week.

34