Leo Investments Hong Kong Limited v. Tomales Bay Capital Anduril III, L.P.

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

LEO INVESTMENTS HONG KONG )
LIMITED, a limited liability company )
organized under the laws of Hong Kong, )
)
Plaintiff, )
)
v. ) C.A. No. 2022-0175-JTL
)
TOMALES BAY CAPITAL ANDURIL III, )
L.P., a Delaware limited partnership, )
TOMALES BAY CAPITAL ANDURIL III GP, )
LLC, a Delaware limited liability company, )
and IQBALJIT KAHLON, Managing Member )
of Tomales Bay Capital Anduril III GP, LLC, )
)
Defendants. )

POST-TRIAL OPINION

Date Submitted: March 31, 2025
Date Decided: June 30, 2025

A. Thompson Bayliss, Adam K. Schulman, ABRAMS & BAYLISS LLP, Wilmington,
Delaware; Andrew W. Stern, Nicholas P. Crowell, Charlotte K. Newell, Peter J.
Mardian, SIDLEY AUSTIN LLP, New York, New York; Attorneys for Plaintiff.

David E. Ross, Eric D. Selden, Thomas A. Barr, Gage Whirley, ROSS ARONSTAM &
MORITZ LLP, Wilmington, Delaware; Aaron H. Marks, Amal El Bakhar, Ahson T.
Azmat, Elina Chen, Ava I. Roche, KIRKLAND & ELLIS LLP, New York, New York;
Attorneys for Defendants Tomales Bay Capital Anduril III, L.P., Tomales Bay Capital
Anduril III GP, LLC, and Iqbaljit Kahlon.

LASTER, V.C.
An investment fund had an opportunity to buy a hot commodity: shares of

Space Exploration Technologies Corp. (‘SpaceX’). The fund principal solicited capital

from an affiliate of a publicly traded entity headquartered in the People’s Republic of

China. The investor bargained for the right to make specific disclosures, including

the name of the investment. When the investor made those disclosures, the Chinese

media eagerly covered the investor’s involvement with a high-profile American

company.

SpaceX saw the coverage and was not happy. SpaceX believed the coverage

created problems for its ability to compete for sensitive government contracts. SpaceX

told the fund manager that he would not be able to buy SpaceX shares if the investor

remained in the fund.

The fund principal quickly complied. Relying on a contractual provision in the

fund’s governing document, he kicked the investor out of the fund and returned its

capital contribution.

Now the investor was not happy. It sued the fund, the fund manager, and the

fund principal claiming breaches of fiduciary duty and breaches of contract. This post-

trial opinion rules in favor of the defendants on all but one claim.

The lone claim on which the investor prevailed is for breach of the duty of

candor. When the fund principal spoke with the investor after SpaceX’s decision, he

was not candid. But that breach did not lead to any meaningful loss for the investor

or benefit for the fund principal. The investor can recover nominal damages for the

breach.
I. FACTUAL BACKGROUND

The facts are drawn from the post-trial record. Trial took place over three days.

The parties submitted 810 exhibits, lodged eight depositions, and reached agreement

on seventy-six stipulations of fact. Six witnesses testified live.1

The plaintiff bore the burden of proving facts by a preponderance of the

evidence, The defendants faced a higher burden, because Iqbaljit Kahlon spoliated

evidence. He largely communicated through ephemeral messaging services and failed

to turn off his auto-delete function, resulting in the loss of many electronic

communications. As a sanction, the court increased Kahlon’s burden of proof from a

preponderance of the evidence to clear and convincing evidence.2

After evaluating the credibility of witnesses and weighing the testimonial and

documentary evidence as a whole, the court has used those burdens of proof to make

the following findings.

A. Kahlon and His Business

In 2016, Kahlon formed Tomales Bay Capital, L.P. (“TBC”), an investment

adviser registered with the SEC and FINRA. Kahlon is TBC’s managing partner,

1 Citations in the form “[Name] Tr.” refer to witness testimony from the trial

transcript. Citations in the form “[Name] Dep.” refer to witness testimony from a
deposition transcript. Citations in the form “PTO ¶ __.” refer to paragraph in the pre-
trial order. Citations in the form “JX __ at __” refer to trial exhibits. Citations in the
form “Dkt. __” refer to docket entries in this action.

2 See Dkt. 232 at 81.

2
chief compliance officer, and sole decisionmaker. He and his family trust are its sole

owners.

Through TBC, Kahlon forms and manages investment funds that serve as

special purpose vehicles for acquiring shares in technology companies, most of which

are privately held. Kahlon’s bread and butter has been creating funds that serve as

special purpose vehicles for acquiring shares in SpaceX.3

SpaceX is privately held, so investors cannot buy its shares on the open market.

SpaceX also has a right of first refusal (“ROFR”) on any shares that are offered for

sale, enabling SpaceX to control who acquires its shares. 4 But existing investors

(including SpaceX employees) often want liquidity, so SpaceX works with

intermediaries to assemble groups of investors to buy shares from those who want to

sell. The intermediaries pool the investors’ capital in a fund that the trusted

intermediary controls. The fund purchases the SpaceX shares. Once an investment

vehicle becomes a SpaceX stockholder, however, SpaceX has no legal ability to control

sales of equity interests in the fund.5 Hence the need for SpaceX to work with a small

group of intermediaries that it trusts.6

3 See PTO ¶ 37.

4 Johnsen Tr. 188, 195–96; accord JX 9 at19.

5 See Johnsen Tr. 167–68; see also JX 531 at 49; Kahlon Tr. 219–20.

6 See Kahlon Tr. 207–08; JX 38 at 6.

3
Kahlon gained trusted status by leveraging his connections to the Founders

Fund, Peter Thiel’s venture capital firm and one of the first investors in SpaceX.7

Roughly a decade ago, Kahlon convinced Thiel to sell him some SpaceX shares. 8

Kahlon then met the SpaceX insiders, including CFO Bret Johnsen, and developed a

“close” relationship with them.9

That close relationship has made Kahlon a rich man. Due to the relative

scarcity of SpaceX shares, Kahlon has been able to charge high fees for access. For

the fund at issue, Kahlon charges most of the limited partners a 2% annual

management fee, plus a carried interest giving him 20% of the upside.10 Kahlon also

hopes to leverage the SpaceX relationship to facilitate investments in other Musk-

affiliated companies.11

SpaceX has unwritten preferences for who it wants as beneficial owners of its

shares. Before November 2021, Johnsen told Kahlon that SpaceX prefers not to have

investors based in the People’s Republic of China, citing regulatory and political

7 See Johnsen Tr. 167–68; Kahlon Tr. 206–08.

8 See Kahlon Tr. 206; Kahlon Dep. at 76.

9 Kahlon Tr. 206–08.

10 See JX 535 §§ 4.3, 5.2(a)–(b), 9.1 [hereinafter “LP Agreement” or “LPA”];

accord JX 36 (attaching template LP Agreement with the same economic terms); see
also JX 446 ¶ 53; JX 306 at 14; JX 536.

11 Kahlon Tr. 313–14; see also JX 17 at 17.

4
concerns.12 Even so, Kahlon understood that “it is acceptable to have those investors

if the investments are structured properly,” such as by setting up an intermediate

structure using entities from Hong Kong or the Cayman Islands.13 Over the years,

Kahlon had “investors in its funds acquiring SpaceX shares that originated from

China.” 14 Before the events giving rise to this case, he had never had a Chinese

investor whose shares were listed publicly on an exchange.15

SpaceX expects its trusted fund managers to start a conversation about any

potentially controversial investors before accepting them into a fund. SpaceX also

expects its trusted fund managers to identify any disclosure requirements that the

investors may have.16 Although SpaceX does not want to be surprised, the company

has always permitted legally required disclosures. 17 Consistent with this approach,

many investors have disclosed their investments in SpaceX, including Kahlon

himself.18

12 Johnsen Tr. 170, 199.

13 Kahlon Tr. 212.

14 Id. at 213.

15 Kahlon Tr. 213, 304; see also JX 536; JX 537.

16 Id. at 173, 177, 191; see also JX 42.

17 Kahlon Tr. at 202.

18 See Kahlon Tr. 315–19; see, e.g., JX 305; JX 324; JX 338; JX 1023; JX 1024;

JX 1026; JX 1030; JX 1032; JX1033.

5
Kahlon relies on a number of third party firms to locate potential investors for

his funds. In exchange, they receive a finder’s fee calculated as a percentage of the

investment. One of those firms is Gulf Asia Venture Group (“Gulf Asia”), where

Kahlon works with Farhan Hussain and George Yang.19 Gulf Asia also introduced

Kahlon to Kirkland & Ellis LLP, the firm he uses as outside counsel, where Hussain

connected Kahlon with Kamran Bajwa, a Kirkland partner whom Hussain has known

since high school.

B. Gulf Asia Contacts Leo Group.

The transaction at issue has its roots in a dispute between SpaceX and Suhail

Rizvi, one of its existing investors. Johnsen viewed Rizvi as “persona non grata” after

he leaked SpaceX financials to The Wall Stret Journal.20 Johnsen had not let Rizvi’s

fund buy any more SpaceX shares, but his fund continued to own shares valued at

$528 million (the “Rizvi Shares”). Johnsen thought Kahlon would be a “better

custodian of these shares” and wanted Kahlon to buy them.21 Sensing opportunity,

19 The investors pay the finder’s fee, but it was apparent that Gulf Asia’s
interests were aligned with Kahlon’s and that Gulf Asia sought to support him in this
litigation. See JX 531.

20 Kahlon Tr. 218–20.

21 Kahlon Tr. at 221; see JX 75 at 6..

6
Kahlon was determined to “deliver and take it all.”22 He set up several investment

vehicles and tasked Gulf Asia with finding investors.23

The fund at issue is Tomales Bay Capital Anduril III, L.P. (the “Fund”). Its

general partner, Tomales Bay Capital Anduril III GP, LLC (“General Partner”),

manages the Fund. Kahlon is the General Partner’s managing member. For Fund

decisions, all roads lead to Kahlon. Kahlon also formed a second vehicle that would

pool its capital with the Fund through an aggregator vehicle to acquire the Rizvi

Shares.24

In early October 2021, Gulf Asia contacted Steven Xubo Zhang about investing

in the Fund. Zhang is a director and vice president of Leo Group Co., a firm

headquartered and organized under the laws of the People’s Republic of China. Leo

Group has two main lines of business: manufacturing and digital marketing.25 It also

has segments devoted to industrial and financial investment.26 Leo Group’s shares

trade publicly on the Shenzhen Stock Exchange, a major Chinese stock exchange.

22 JX 75 at 6.

23 See generally JX 531.

24 The other fund is Tomales Bay Capital Anduril II, L.P. The aggregator is

TBC Dragon Investments VI, L.P. Kahlon controls those entitles as well. JX 76; JX
184; JX 541 at 4.

25 JX 449 at 2.

26 Id. at 3.

7
Gulf Asia told Zhang that the Fund expected to buy a block of SpaceX stock at

$560 per share. After Zhang expressed interest, Kahlon, Gulf Asia, and Zhang had a

zoom meeting to discuss matters further. The meeting mostly concerned SpaceX’s

prospects and the economic terms of the Fund.27

During the meeting, Zhang noted that if Leo Group invested, then the rules of

the Shenzhen Stock Exchange would require that Leo Group “issue a public

announcement” and that “the public announcement would set out the terms of the

contract and also give information on the GP and the LPs.” 28 Kahlon initially

observed that “it would be best not to disclose the name of SpaceX or information

concerning the other LPs in the SPV” because “[t]hey deemed that information to be

quite sensitive”29 Kahlon never hinted that either the Fund or SpaceX would object

to a regulatory disclosure. 30 He did not suggest that SpaceX had any reluctance about

Chinese investors. He also did not say that he needed to check with SpaceX before

letting Leo Group invest. Nor did the parties discuss any power Kahlon would have

to remove a limited partner.

27 JX 38 at 6–10; accord JX 54.

28 Zhang Tr. 18; see also JX 38 at 9–10.

29 Zhang Tr. 18; see also JX 38 at 10, 13.

30 See Zhang Tr. 19.

8
C. The Negotiated Disclosure

Leo Group wanted to invest, and Kahlon wanted their capital, so the next step

was to negotiate terms. Kahlon primarily relied on Gulf Asia to relay his

understanding of the deal to Zhang. Kahlon communicated principally through

ephemeral messaging services with Gulf Asia. He intermittently enabled the auto-

delete setting, so many of his messages with Gulf Asia were lost.31

On November 11, 2021,32 Zhang of Leo Group asked Yang of Gulf Asia for some

basic information about the Fund and the deal to “prepare[] board materials and

announcement materials.”33 Yang forwarded the questions to Kahlon.34

Several hours later, Leo Group’s lawyers at MagStone Law LLP emailed

Kahlon and asked him to address similar issues. They called out Leo Group’s

regulatory obligation to disclose the name of the Fund, its general partner, its fund

manager, and the nature of the investment—acquiring shares of SpaceX.35 MagStone

31 See Dkt. 232 at 78–80.

32 The authors of texts and emails in this case lived in different time zones:

Pacific Daylight or Standard Time (UTC−7 or UTC −8), and China Standard Time
(UTC +8). Different versions of the same communications therefore bear different
times and dates. The parties helpfully tried to use Pacific Time, and this decision
follows their lead.

33 JX 74 at 8.

34 Id.

35 See JX 72 at 1.

9
attached a draft side letter that waived restrictions on Leo Group providing the Fund

documents to Chinese authorities.36

After a few hours. Kahlon answered MagStone’s questions. He noted that his

lawyers “will be adding a side letter clause stating that the investor must seek [the

General Partner’s] consent for any disclosures.”37 Kahlon also stated that he would

have his lawyers work with Leo Group “to make sure we are disclosing the minimum

that will pass the requirements on their side.”38 MagStone forwarded Kahlon’s reply

to Zhang.39

Yang and Zhang agreed that making a regulatory disclosure would be fine but

the disclosure should be minimized.40 Zhang noted that although Leo Group might

initially get away with identifying the investment target as an “internationally

leading company in the field of commercial aviation and aerospace,” the Shenzhen

Stock Exchange would likely ask for clarification, so it would be better to identify

36 Id. at 1, 3–4.

37 JX 64 at 1.

38 Id.

39 JX 71 at 4.

40 JX 74 at 9–10.

10
SpaceX up front.41 Yang said that was “fine,” as long as the disclosure “complies with

the minimum requirements of the China Securities Regulatory Commission.”42

On November 12, 2021, MagStone described Leo Group’s disclosure obligation

to Kirkland, stating:

[A]s a public company, our client has to fulfill its obligations to disclose
certain information of this investment to China Securities Regulatory
Commission and other relevant PRC governmental agencies. We also
understand that the fund is sensitive to any investor disclosure and
currently is enforcing a strict non-disclosure policy. To meet both
parties’ requirements, could you please advise what scope of disclosure
made by our client for fulfilling its regulatory obligations would be
acceptable to the fund? 43

MagStone thus directly asked Kirkland to address “what scope of disclosure . . . would

be acceptable . . . ?”

Kahlon had worked with Chinese investors before, but he had never taken an

investment from a Chinese public company. 44 He had no experience with the

regulatory filings that Chinese public companies must make, nor with rules of the

Shenzhen Stock Exchange. Kahlon is not a lawyer, and he lacked any meaningful

knowledge of Chinese law.45

41 Id. at 9.

42 Id. at 10.

43 PTO ¶ 54; accord JX 65 at 2–3.

44 Kahlon Tr. 213, 304; see also JX 536; JX 537.

45 Id. at 304.

11
Within an hour, MagStone followed up, iterating that Leo Group needed to

disclose “at least” five items, including the “Name of the Fund, GP, Management

Company, and SpaceX.” 46 MagStone also stressed that agreeing on permissible

disclosures was a gating issue for Leo Group: “[I]f the fund cannot agree to the

disclosure scope as I mentioned (i.e., the specific items), please let me know as soon

as possible. Due to regulatory concerns, we may not have sufficient wiggle room to

compromise on those specific items.”47

Kirkland reiterated that the side letter would address these matters.48 Before

sending back the revised draft, a Kirkland associate forwarded MagStone’s emails to

Carol Liu, an investment funds partner in Kirkland’s Hong Kong office. The two

exchanged six emails over about three hours, but the defendants redacted the

substance, invoked privilege, and refused to let their witnesses testify about the

contents.49

Kirkland then sent MagStone a revised side letter. 50 MagStone promptly

responded that “[t]he revised side letter does not address our specific concern”

46 JX 65 at 1–2.

47 Id. at 1.

48 Id. at 1.

49 JX 63 at 1–3.

50 JX 70 at 1, 6.

12
because there was not “any provision addressing the disclosure scope.” 51 MagStone

also asked to remove a requirement that Leo Group obtain an legal opinion to the

effect that disclosures were required by law. 52

On the evening of November 12, 2021, Yang of Gulf Asia suggested that Leo

Group prepare a document for Kirkland’s review spelling out the minimum that it

needed to disclose.53 Zhang liked that approach and told Yang he would send the

disclosure to him first.54 Zhang expressed surprise at how difficult the negotiations

had been, but Yang assured him that Kahlon “says it’s not a big problem to mention

the fund or SpaceX.”55

On November 13, 2021, Zhang sent the proposed disclosure to Yang. It was

almost entirely in Mandarin and titled “Information To Be Disclosed in the

Announcement of Leo Group.”56 Yang forwarded it to Kahlon without translation,

describing it as the announcement Leo Group “will send to China Securities

Regulatory Commission (CSRC).” 57 The Mandarin text contemplated Leo Group

51 JX 73 at 1.

52 Id.

53 JX 83 at 10.

54 Id.

55 Id.at 13–14.

56 PTO ¶ 55; JX 92 at 13; see also JX 92 at 9–11; accord id. at 20–22; JX 77 at

6–8.

57 PTO ¶ 55; JX 77 at 1–4; accord id. at 6–8; JX 92 at 20–22.

13
disclosing that “Leo Investments will invest US$50 million in Tomales Bay Capital

Anduril III, L.P.” 58 It also contemplated disclosing that the Fund “will invest

exclusively in the SPACE X [sic] project.”59 Even in the Mandarin version, “SPACE X

[sic]” and the full name of the Fund appeared in English.60

Kahlon used Google Translate to convert the document into English, reviewed

it, then sent it to Kirkland with a long cover email.61 The defendants redacted the

substance of the communication, invoked privilege, and refused to allow their

witnesses to testify about its content.62

About two hours later, MagStone sent an English transaction to both Kahlon

and Kirkland. The translated title was “Intended Disclosure.”63 MagStone wrote:

To assist K&E team and TBC in evaluating the disclosure issue, please
see attached a draft of intended disclosures to be made by Leo for its
regulatory compliance purposes. Our client believes only some basic
information re Fund, GP, management of the Fund, and distribution are
contemplated therein. Please consider.64

58 JX 92 at 20; accord JX 77 at 6.

59 JX 92 at 20; accord JX 77 at 6.

60 Id. at 9; accord JX 77 at 2.

61 JX 78 at 1, 16; Kahlon Tr. 246–47.

62 See JX 78 at 1, 16; Kahlon Tr. 354–55.

63 JX 81 at 1, 9–10.

64 PTO ¶ 55; accord JX 81 at 1, 9–10.

14
The transaction stated in English that the “[o]bjective” of the investment was to

“invest into Space Exploration Technologies Corp., (‘SpaceX’).’”65

Kirkland had been working on the version of the disclosure it received from

Kahlon, so Kirkland was able to quickly send back a revised copy of the draft side

letter. That draft attached the Mandarin document from Zhang, without any

revisions, as Exhibit A.66 Kirkland’s proposed language in the side letter stated:

Notwithstanding anything to the contrary in Section 7.12(a) of the
Partnership Agreement, to the extent that the Investor is required by
law to do so, the Investor may disclose the information described in
Exhibit A without the consent of the General Partner and without
delivering an Opinion of Limited Partner’s Counsel to the General
Partner pursuant to Section 7.12(a) of the Partnership Agreement.67

In the cover email, Kirkland called out that modification, explaining “[w]e also have

provided that the requirement for a legal opinion will be waived in connection with

the disclosure contemplated by new Exhibit A (which we understand summarizes the

legally required disclosure).”68

That was it. MagStone sent back a revised side letter later that night without

substantive revisions.69 On November 14, 2021, Kirkland accepted that draft as the

65 JX 81 at 9.

66 PTO ¶ 55; JX 76 at 1, 12–14, 20–22; accord JX 77 at 2–4, 6–8; JX 92 at 9–11,

20–22.

67 JX 76 at 8, 25.

68 Id. at 1.

69 JX 80 at 1, 20.

15
execution version (the “Side Letter”). 70 The parties did not heavily negotiate any

other terms.

The final closing documents consisted of the LP Agreement, a subscription

agreement, and the Side Letter with Exhibit A. The parties executed the documents

on November 15, 2021. With the execution of the documents, Leo Group became a

limited partner in the Fund. 71 Leo Group promptly wired its $50 million capital

contribution to the Fund.

Kahlon did not anticipate any problems with Leo Group’s investment. Based

on his past collaboration with SpaceX, Kahlon believed that having Leo Group as an

indirect investor would be acceptable.72 He had taken on investors from China and

knew other intermediaries that had done the same.73 The investment would be made

through a non-mainland Chinese vehicle, and SpaceX did not have any official policy

against investors from China. 74 Kahlon did not tell Leo Group that he needed to

70 JX 90 at 1

71 Technically, the investor was plaintiff Leo Investments Hong Kong Limited,

a limited liability company organized under the laws of Hong Kong (the “Investment
Vehicle”). The Investment Group is an indirect, wholly owned subsidiary of Leo
Group. Although the distinctions between Leo Group and the Investment Vehicle
remains important for many reasons, they are not critical to this case. This decision
refers for simplicity to Leo Group.

72 See Kahlon Tr. 206–09, 212.

73 Id. at 213.

74 Id. at 212; Johnsen Tr. 169.

16
discuss the investment with SpaceX before closing, nor did he suggest that Leo Group

make any effort to minimize media coverage when announcing the investment.

Kahlon did not consult with SpaceX before admitting Leo Group to the Fund,

much less inform SpaceX about the Side Letter containing Leo Group’s authorized

disclosures. 75 He did not usually disclose the identities of his limited partners to

SpaceX, and SpaceX did not require that he do so.76 And despite having been directly

involved in negotiating the Side Letter, agreeing to Leo Group’s intended public

disclosure in Exhibit A, and participating in discussions about its contents with Gulf

Asia and Kirkland, Kahlon somehow did not think that a disclosure by Leo Group

was imminent. Strange as that might seem, it did not occur to him, perhaps because

he had not previously had a Chinese public company as an investor.

Evidencing his lack of concern about Leo Group’s involvement, Kahlon used

the investment to solicit other Chinese investors.77 After signing the deal with Leo

Group, Kahlon contacted Lance Liu, an investor and “friend” based in China, and

asked if he had “any folks interested in spcex [sic] still?”78 Kahlon added: “If it helps

we just got a 50m [sic] check from LEO.cn [sic] between us. So might help with folks

75 See Johnsen Tr. 180–83.

76 Kahlon Tr. 211, 248.

77 Id. at 368–69.

78 JX 101 at 1.

17
in terms of speed. I don’t know if leo [sic] is well known in China but it’s a 18b[illion]

business.”79

D. Leo Group Makes The Agreed-Upon Announcement.

On November 16, 2021, at 6:36 p.m. HKT (2:36 a.m. PST), Leo Group filed the

agreed-upon disclosure as an announcement with the Shenzhen Stock Exchange.80

The announcement tracked the disclosures in Exhibit A to the Side Letter.81

The announcement drew considerable media attention, both because of

SpaceX’s renown and the large size of the investment. Multiple media articles

generated millions of views.82 All of the reports attached Leo Group’s announcement.

The body of the reports included information from the announcement, added the

reporter’s own spin, and occasionally included a comment from Leo Group.

Kahlon has asserted that Leo Group affirmatively sought to publicize its

investment and has equated that with a breach of the confidentiality provision in the

LP Agreement (the “Confidentiality Provision”). 83 That provision governs

unauthorized disclosure of information; it does not address the dissemination of

79 Id. at 1–2.

80 PTO ¶ 63; accord JX 105; JX 453.

81 See JX 105; JX 100; see also Dkt. ¶ 5.

82 See, e.g., JX 156; JX 163; JX 193.

83 See LP Agreement § 7.12(a).

18
information that has been made public because of a disclosure required by law.84 And

here, Kahlon and the Fund had agreed to the disclosure that Leo Group made.

Regardless, Leo Group did not seek to publicize any information beyond the

agreed-upon scope. Leo Group placed one news story on several media platforms

through its public relations firm, Golden Wheat.85 The piece was titled “Leo Group

Co., Ltd. invests US $50 million in SpaceX to explore new investment track.” 86 The

contents were spare. It began by stating that Leo Group had invested in the Fund to

purchase SpaceX stock using language from Exhibit A. It then added a paragraph

describing of SpaceX, drawn from public sources.87 It concluded with a paragraph

touting Leo Group’s general investment capabilities and its other holdings in the

technology sector.88

Zhang testified credibly that Leo Group used its public relations firm to place

the story primary to circulate factual information about the announcement and limit

84 Kahlon claims that this obligation arises from a limited partner’s general

obligation “keep confidential and . . . not disclose . . . any information or materials
regarding the Partnership Entities or the other Partners or Parallel Fund Partners
(whether or not such information or materials have been designated by the General
Partner as Confidential Information).” LP Agreement § 7.12(a). But once information
has been disclosed as required by law, it cannot be kept confidential, and any further
sharing of the public information is not an act of disclosure.

85 See JX 110 at 5; JX 139 at 5.

86 JX 110 at 5; JX 139 at 5; see, e.g., JX 2004.

87 See also Zhang Tr. 139.

88 JX 2004 at 6.

19
market speculation.89 The story did not contain Confidential Information under the

LP Agreement. 90 Zhang also instructed Leo Group’s representatives to minimize

response to financial press inquiries and not to “disclose anything beyond the scope

of the announcement.”91

On November 16, 2021, Kahlon saw one of the news articles. Even though he

was involved throughout the negotiation of the Side Letter and the Exhibit A, had

agreed to Leo Group’s contemplated public disclosure, and participated in discussions

of its contents, Kahlon was genuinely surprised by the announcement.92

Kahlon’s first instinct was to try to push the deal through. To that end, he

quickly took three steps.

First, Kahlon sent the Fund’s stock purchase agreement to SpaceX to start the

thirty-day clock for SpaceX to exercise its ROFR.93 Rizvi wanted to close on selling

89 Zhang Tr. 39; see also JX 139 at 5 (Golden Wheat reporting to Leo Group on

media report coverage).

90 Kahlon asserted unpersuasively that the story contained confidential
information. That is not true. The information was public because Leo Group had
made the agreed-upon disclosure as required by law.

91 See JX 1049 at 14–15, 17 (Zhang instructing Leo Group representative: “Just

those. That’s it. In line with the content of the announcement. Don’t disclose anything
beyond the scope of the announcement. Just don’t let him talk nonsense, and it’ll be
fine.”).

92 JX 121 at 3 (“F***[,] Leo announced it[.] M*****f*****s.”).

93 JX 184 (proposing to purchase 357,143 shares for $200m and 587,475 shares

for $329m on November 29, 2021, and December 15, 2021, respectively); JX 261
(correcting typo in closing dates); JX 541 (proposed structure); JX 531 at 48–49

20
the Rizvi Shares by year end for tax reasons, and SpaceX had thirty days in which to

exercise its ROFR, so Kahlon wanted to start the ROFR clock. Assuming SpaceX

waived its ROFR, Kahlon expected that the Fund would buy an initial block of shares

on November 29, then a second block of shares on December 15.94

Second, Kahlon asked Leo Group to contain the media attention. Even though

Leo Group had bargained for the right to make the agreed-upon disclosure and then

did what it bargained for the right to do, Leo Group accommodated Kahlon’s

request. 95 Leo Group convinced many of the media platforms to take down or

minimize circulation for the articles discussing the investment. 96 Leo Group also

asked the Shenzhen Stock Exchange and the local office of the Securities Regulatory

Bureau to make any requests for further information on a confidential basis.97 Yang

told Zhang that Kahlon appreciated the Lego Group’s efforts:

He has . . . seen [Leo Group’s] efficiency and sincerity . . . and is
particularly grateful for the support [Leo Group] has given him. For
now, the spacex [sic] management has not raised any questions to him.
Now is the critical moment for TBC Fund and SpaceX to close this round
of financing. . . . He has been busy with this matter for the past few days.

(texting Hussain that “Pray for me over the next 24 hrs. Sent spa [sic] to cfo [sic] for
signing. . . . Pray that spa [sic] signs [sic]. Once it is signed I will feel way better. Not
that it can’t blow up then.”); JX 155 at 1 (Kahlon: “Sent spa to company for signing.
Hope this doesn’t below [sic] up.” Bajwa: “[Praying hand emoji].”).

94 JX 261 at 2.

95 See JX 2015 at 8; Zhang Tr. 46–47, 98–99.

96 See e.g., JX 147; JX 149; JX 150; JX 152; JX 172; see also Zhang Tr. 47.

97 See JX 171; JX 173; see also JX 176 at 15.

21
[Kahlon] hopes that we will continue to pay attention to the media in
these days. Protect him.98

Third, Kahlon and Gulf Asia began looking for investors to replace Leo Group

if SpaceX objected. Kahlon thought the deal was “gonna die” and they would need to

replace Leo Group.99 He also wondered about his own relationship with SpaceX and

whether he would “survive this.” 100 But Kahlon said nothing to SpaceX, hoping

SpaceX would not find out.

It did.

E. SpaceX Notices The Chinese Press Coverage.

On November 19, 2021, SpaceX’s head of governments affairs in Washington

D.C. noticed the Chinese press coverage. He sent Johnsen a link to an English

language article titled “Elon Musk gets backing from a prolific Chinese tech

investor.”101 The article cited Leo Group’s announcement, noted that Leo Group had

invested through a fund, briefly described SpaceX and Leo Group, and commended

Leo Group for investing in a visionary technology company. 102 Except for the

compliment, Kahlon had approved each detail by signing off on Exhibit A.

98 JX 176 at 14; see also Zhang Tr. 47.

99 JX 531 at 53 (“Bro I think this deal is gonna die. We need to find capital fast.

To replace Leo [sic].”)

100 Id. at 56 (“No communication from company which [sic] also messes with

me . . . I don’t know if I will survive this.”).

101 See Johnsen Tr. at 198–99; JX 183 at 2.

102 JX 183 at 3.

22
For Johnsen, the title of the article alone created problems: SpaceX’s

competitors for sensitive government contracts could attack SpaceX its “backing”

from a Chinese investor. Johnsen emailed Kahlon with the subject line “Leo

Investments?” 103 The body of the email included a link to the article and asked “What

is this?”104

Kahlon immediately called Johnsen. Neither recalls the exact words that were

used, but Johnsen expressed his surprise and displeasure. 105 He particularly

discussed why the headline’s suggestion that SpaceX had “backing” from Leo Group

presented problems for SpaceX. 106 Johnsen also alluded to concern that the

investment could trigger review by the Committee on Foreign Investment in the

United States, known as CFIUS. SpaceX’s head of government affairs had flagged

that possibility, and Johnsen passed it on.107

Kahlon blamed the media attention on Leo Group. He did not tell Johnsen that

the disclosure was legally required. He did not mention that he knew about the

disclosure and authorized it in advance. He did not recount the four days spent on

hammering out disclosure terms, the Side Letter, or the agreed-upon disclosure

103 JX 183 at 1.

104 Id. at 1–3.

105 Johnsen Tr. 186, 188.

106 Id. at 184.

107 Kahlon Tr. 262.

23
documented in Exhibit A. He did not explain that Leo Group’s announcement

faithfully tracked the agreed-upon disclosure.108 Johnsen did not learn any of these

facts until his deposition in this litigation.109

For Kahlon, setting up Leo Group to take the blame was part of the plan. He

wanted to preserve his relationship with SpaceX. As he later explained his hope in a

text message to Hussain, “[S]x [sic] is gonna blame leo [sic] on all this. . . . i [sic]

should be fine.”110

Kahlon also did not push back on the CFIUS issue. Kahlon had obtained legal

advice on CFIUS risk years before, and he knew that an indirect investment of the

size that Leo Group made would not have any CFIUS implications.111 But he did not

correct Johnsen’s misperception.

At the end of the call, Johnsen made clear that he would not let the Fund buy

SpaceX shares if Leo Group remained a limited partner.112 He testified:

Q: [A]fter Leo’s disclosure, was there any point at which you were going
to allow Leo to invest in SpaceX through Tomales Bay if Leo remained
an investor in the fund?

A: No.

108 See Johnsen Tr. 187–89.

109 Id.

110 JX 531 at 74.

111 Kahlon Tr. 213; Khalon Dep. 686; see also Kahlon Dep. 101, 467–68.

112 Johnsen Tr. 188, 201; see also JX 184.

24
...

Q: Did you make that clear to Kahlon?

A: I believe I did.113

Kahlon left the call with that understanding. 114 Kahlon apologized and assured

Johnsen he would “fix it,” meaning that Leo Group “would not be investing.”115

F. Kahlon Removes Leo Group From The Fund.

After the call with Johnsen, Kahlon immediately sought to remove Leo Group

from the Fund (the “Forced Withdrawal”). Kahlon believed he had to move quickly

because SpaceX was deciding whether to exercise its ROFR and, if SpaceX declined,

the initial closing was scheduled to take place in ten days—on November 29, 2021.

Kahlon also did not think there was any possibility that Johnsen would change his

mind. Johnsen had been upset over the media stories, and that coverage could not be

changed.

Kahlon first drafted and sent to Gulf Asia a communication plan that involved

telling Leo Group that the Fund could not invest in SpaceX unless he removed Leo

Group from the Fund.116 Kahlon spent only about thirty minutes drafting his plan,

113 Johnsen Tr. 203–04, 204. See also id. at 201–04 That testimony was
credible.

114 Kahlon Tr. 263–64.

115 Johnsen Tr. at 186–87.

116 JX 196 at 3–5.

25
and he did not seek any input or assistance from counsel.117 Kahlon admitted during

discovery that the plan was “basically bullshit written to make them feel better so

they would do what was the right thing to do.”118

Kahlon did not contemplate taking any responsibility for failing to clear Leo

Group’s participation with SpaceX in advance. Instead, he would blame the problem

on a supposed “cultural gap” resulting in Kahlon “not realizing how disclosures to

regulators end [sic] up in a public forum.”119 Kahlon planned to say:

In the US, funds and their terms and underlying information is never
shared with the public such that press can get involved. With SpaceX,
no investor ever comments or releases information on any financing. We
have never announced that we are invested in SpaceX or ever been in
the press concerning SpaceX.120

Those statements were not true.

Kahlon also sought to control what, if anything, Leo Group would say about its

withdrawal from the Fund. As a starting point, Kahlon wanted to know, “Do you have

to disclose to the regulator what happened?”121 If so, then Kahlon wanted to sign off

on the content, telling Leo Group:

117 Kahlon Tr. 391.

118 Kahlon Tr. 395.

119 JX 196 at 4.

120 Id. at 4–5.

121 Id. at 6.

26
• If you do, you will need our consent to disclose / use our name. We
need to be thoughtful about further press and communication w/
(sic) the regulator to limit damage to you all, us and SpaceX.

• We would like to approve the disclosure to the regulator. We will
assume that it will end up in the press.

• Our prefferred (sic) language: “We will no longer be investing in
TBC Anduril III, LP [sic]; and therefore we will not be investing
in the funds’ [sic] target company.”122

Kahlon took these positions to protect himself and his relationship with SpaceX. He

told Gulf Asia that “[i]f they have to give a reason [in a disclosure], we want something

very generic like ‘market conditions’ or something.”123

On November 20, 2021, Gulf Asia told Zhang that Kahlon intended to remove

Leo Group from the Fund, saying that SpaceX insisted.124 Kahlon, Zhang, and Gulf

Asia had a two-hour zoom meeting the next day.125 During the call, Zhang presented

his own analysis of the situation and told Kahlon that Leo Group would “be exposed

to harrowing consequences if TBC truly insisted on removing” them from the Fund.126

But Kahlon had made the decision. He insisted that there was no choice: Leo Group

would be “kick[ed] out.”127

122 Id. at 6–7.

123 Id.

124 JX 208 at 13–17; see also JX 200 at 25.

125 JX 203; Kahlon Tr. 270.

126 Zhang Tr. 62–63.

127 Id. at 63.

27
Before the call had ended, Kahlon sent Zhang a proposed letter agreement to

carry out the removal.128 The agreement asked Leo Group to commit to an ongoing

confidentiality obligation and acknowledge that removal was necessary because Leo

Group’s “ongoing participation in the [Fund] would impose materially burdensome

compliance obligations on both [Leo Group] and the [Fund] under U.S. and/or Chinese

regulations.”129

Leo Group responded with a letter explaining that it could not agree to the

ongoing confidentiality obligation and that its withdrawal from the Fund would have

serious consequences:

[O]nce the project is terminated, [Leo Group] will have to publish
another announcement in accordance with the stock exchange
regulations in China . . . which may result in severe consequences,
including (i) investigation by [the] China Securities Regulation
Commission, (ii) significantly dropping of our stock price, which may
result [in] a trading halt in China and cause huge losses to our investors
and expose us to the risk of class actions; and (iii) triggering follow-up
reports on the event, which may expected to be larger, more lasting and
highly uncontrollable.130

The letter urged Kahlon to keep Leo Group in the Fund and to “continue to work with

[them] and maintain active communication with SpaceX to help retain [Leo Group’s]

LP share.”131

128 See JX 202 at 1; JX 203.

129 Id. at 2.

130 JX 201 at 3.

131 Id. at 4.

28
Kahlon was unmoved. He invoked a provision in the Fund’s LP Agreement and

forced Leo Group to withdraw (the “Withdrawal Provision”). He texted Johnsen hours

later, writing: “[T]hey are out of our fund.”132 Kahlon then spoke briefly with Johnsen,

with Kahlon letting Johnsen conclude that Leo Group was a “bad actor.”133

On November 22, 2021, Leo Group reiterated its refusal to sign the letter

agreement.134 Kahlon returned Leo Group’s funds anyway.135 Kahlon then turned the

letter agreement into unilateral termination letter and sent it to Leo Group.136 The

termination letter cited “materially burdensome compliance obligations” if Leo Group

remained in the Fund but did not reference any specific provision of the LP

Agreement.

Later than afternoon, Kahlon sent Johnsen a letter purporting to document

“what happened.”137

• The letter claimed the Fund “was established to invest in a portfolio of late
stage technology companies.”138 It was not. The Fund was formed to buy the
Rizvi Shares.

132 JX 204.

133 Kahlon Tr. 403.

134 JX 219.

135 PTO ¶ 83; JX 226.

136 JX 218.

137 Johnsen Tr. 189–190; JX 215.

138 JX 215 at 2.

29
• The letter claimed “[e]ver since the announcement, [Kahlon] ha[s] worked to
remove [Leo Group] from [the] Fund.”139 He had not. Kahlon hoped SpaceX
would not notice.

• The letter expressed “regret that this specific investor used their investment
with our firm to seek public notoriety given our longstanding relationship with
SpaceX.” 140 That was not true either. Leo Group made the regulatory
disclosure that it bargained for the right to make in the Side Letter.

Johnsen was pleased with the apology.141

G. Leo Group Seeks An Explanation.

On November 23, 2021, MagStone emailed Kahlon contending that the Forced

Withdrawal violated the LP Agreement. MagStone asked Kahlon to justify the Forced

Withdrawal and provide an “Opinion of the Fund’s Counsel or other documentation

evidencing that Leo Investments’ continuance as a limited partner in the Fund will

create a Partnership [R]egulatory Risk, or cause a material adverse effect on the

Fund.”142

Kahlon brought in Kirkland litigators.143 He sent a Kirkland-drafted reply to

MagStone that stated:

As you note below, it is the reasonable judgment of the GP that your
client’s status as an LP would result in a significant and adverse delay
to the proposed deal we had discussed and therefore we had to exercise
our rights under the LPA for a unilateral withdrawal. Please note that

139 Id.

140 Id.

141 Johnsen Tr. 190.

142 JX 246 at 2.

143 See JX 272 at 5, 46.

30
I have explained the background to your client which is that the target
company for investment simply would not do the deal with our fund if
your client remained as an LP given the regulatory, media and other
issues that arose. Please also note that under the LPA, as GP, we do not
need LP consent for taking such action and the money has already been
returned to your client so we consider the matter fully closed.”144

MagStone then asked Kahlon to provide written evidence that SpaceX would not let

Leo Group invest. Neither Kahlon nor Kirkland responded.145

H. Kahlon Tries To Move Forward.

On November 24, 2021, Kahlon gave SpaceX a list of the investors in the

Fund.146 The list omitted Leo Group but included Kirkland.147

On November 25, 2021, Leo Group made a public filing about its removal from

the Fund. 148 Its stock price dropped 10.11% from the prior day’s close.149

On December 13, 2021, SpaceX exercised its ROFR on the Rizvi Shares. 150

SpaceX did not exercise the ROFR because of Leo Group’s brief involvement in the

Fund. Instead, Johnsen told Kahlon that Musk wanted to buy the shares.151

144 JX 245 at 2.

145 Id. at 1–2.

146 JX 1040.

147 See id.

148 JX 248.

149 PTO ¶ 66.

150 JX 273.

151 Kahlon Tr. 289–90.

31
Musk did not buy all of the Rizvi Shares. 152 On December 17, 2021, the

Kahlon’s investment vehicles bought 178,571 shares, representing 19% of the 944,618

shares Kahlon hoped to buy.153

About two weeks later, Kahlon sent a letter to the Fund’s limited partners

implying that SpaceX exercised its ROFR for all of the Rizvi Shares.154 Kahlon offered

the limited partners the opportunity to withdraw from the Fund. Thirteen of

seventeen did, taking with them $110 million of the Fund’s original $290 million in

capital.155

Five months later, the Fund purchased more SpaceX shares. On May 26, 2022,

the Fund bought 2,571,428 shares at a split-adjusted price of $70.00 per share (after

a 10-for-1 stock split).156 By then, Kahlon had admitted eleven new investors to the

Fund.157

I. This Litigation

On February 23, 2022, Leo Group sued Kahlon, the Fund, and the General

Partner. The complaint asserts that the Fund and the General Partner breached the

152 See JX 276.

153 JX 277 at 1; JX 184 at 1.

154 JX 282; see, e.g., JX 286; JX 287.

155 JX 286; JX 343.

156 PTO ¶ 96; accord JX 320 at 12.

157 JX 343 at 3.

32
LP Agreement by removing Leo Group from the Fund. It also asserts that the General

Partner and Kahlon breached their fiduciary duties by removing Leo Group from the

Fund.

The defendants moved to dismiss the complaint as failing to state a claim on

which relief can be granted. On March 8, 2023, the court denied the motion as to the

contract claim but dismissed the fiduciary duty claim. 158 On August 15, the court

granted the parties’ stipulation for the production and exchange of confidential

information (the “Confidentiality Stipulation”). The stipulation contains a forum

selection clause binding the General Partner, the Fund, Kahlon, and Leo Group to

assert all claims arising out of or relating to the stipulation in this court.159

On August 27, 2024, after fact discovery, Leo Group amended its complaint to

reinstate its fiduciary claim.160 The defendants moved to dismiss that claim again,

and the court denied the motion on November 4, 2024.161 The court simultaneously

granted partial summary judgment sua sponte in favor of Leo Group, holding that

Section 2(a) and (c) of the Side Letter rendered the Confidentiality Provision

inapplicable to a disclosure of the information in Exhibit A.162

158 Dkt. 29; see also Dkt. 30 (TRANSCRIPT).

159 Dkt. 41 ¶ 30 (ORDER).

160 Dkt. 167.

161 Dkt. 185 (ORDER).

162 JX 523 ¶¶ 5–6.

33
The General Partner and the Fund filed two suits against Leo Group. On

August 6, 2024, as discovery in this case was ending, the General Partner and the

Fund filed an action in the United States District Court for the Northern District of

California (“California Action”). 163 The complaint asserted that Leo Group always

intended to announce its investment in the Fund and committed fraud by promising

to abide by the LP Agreement.

On November 18, 2024, the General Partner and the Fund filed an action in

the Delaware Superior Court (the “Superior Court Action”). 164 The complaint

asserted the same fraud claim as the California Action while also alleging that Leo

Group tortiously interfered with the LP Agreement by causing the Investment

Vehicle to announce the investment.

Both of the other cases were stayed pending the outcome of this proceeding.

On December 16, 2024, this case proceeded to trial.

II. LEGAL ANALYSIS

Leo Group sought to prove at trial that Kahlon and the General Partner

breached their fiduciary duties when carrying out the Forced Withdrawal. Leo Group

did not succeed in a meaningful way on any of its claims for breach of fiduciary duty.

Leo Group proved that Kahlon and the General Partner breached their duty of candor

163 JX 1006.

164 JX 1005.

34
when informing Leo Group about the Forced Withdrawal, but that breach only

entitles Leo Group to nominal damages of $1.

Leo Group also sought to prove at trial that Kahlon, the General Partner, and

the Fund breached the LP Agreement when engaging in the Forced Withdrawal.

Kahlon is not a party to the LP Agreement and cannot be liable for breach of that

contract. Regardless, Leo Group failed to prove any of its contract claims.

A. Breach of Fiduciary Duty

Leo Group sought to prove that the General Partner and Kahlon breached their

fiduciary duties when engaging in the Forced Withdrawal. Leo Group’s claims failed

largely because Leo Group misunderstands the nature of the fiduciary duties that the

General Partner and Kahlon owed. They did not owe fiduciary duties to Leo Group;

they owed fiduciary duties to the Fund and its partners as a whole.

Leo Group failed to prove a breach of the duty of care or loyalty sufficient to

rebut the business judgment rule. Assuming for purposes of analysis that Leo Group

had proven a breach, Kahlon’s exercise of the Withdrawal Provision was entirely fair

to the Fund and its partners as a whole. Under Nemec v. Shrader, the General

Partner and Kahlon did not owe fiduciary duties to Leo Group when exercising the

Withdrawal Provision.165

Leo Group proved that the General Partner and Kahlon breached a duty of

candor they owed to Leo Group when communicating directly with Leo Group about

165 991 A.2d 1120, 1129 (Del. 2010).

35
the Forced Withdrawal. That breach, however, did not cause Leo Group any

meaningful harm. Leo Group lacked any ability to avoid the Forced Withdrawal, did

have to make any investment decision, and did not take any other action in reliance

on the General Partner and Kahlon’s misrepresentations and omissions. The General

Partner and Kahlon also did not capture any benefit from the breach other than

proportionately through the exercise of the Withdrawal Provision, which they

exercised properly and in compliance with their fiduciary duties. But in light of the

proven breach of the duty of candor, Leo Group is entitled to nominal damages of $1.

1. The Governing Law

A claim for breach of fiduciary duty is an equitable tort.166 The basic elements

of a common-law tort are familiar: The plaintiff must prove existence of a duty, a

breach of that duty, injury, and a causal connection between the breach and injury

that is sufficient to warrant a remedy, such as compensatory damages.

The equitable tort for breach of fiduciary duty has only two formal elements:

(i) the existence of a fiduciary duty and (ii) a breach of that duty.167 The first element

166 Hampshire Gp., Ltd. v. Kuttner, 2010 WL 2739995, at *54 (Del. Ch. July 12,

2010) (“A breach of fiduciary duty is easy to conceive of as an equitable tort.”); see
Restatement (Second) Torts § 874 cmt. b (Am. L. Inst. 1979), Westlaw (database
updated Oct. 2024) (“A fiduciary who commits a breach of his duty as a fiduciary is
guilty of tortious conduct.”); see generally J. Travis Laster & Michelle D. Morris,
Breaches of Fiduciary Duty and the Delaware Uniform Contribution Act, 11 Del. L.
Rev. 71 (2010).

167 See Beard Research, Inc. v. Kates, 8 A.3d 573, 601 (Del. Ch. 2010); accord

ZRii, LLC v. Wellness Acq. Gp., Inc., 2009 WL 2998169, at *11 (Del. Ch. Sept. 21,
2009) (citing Heller v. Kiernan, 2002 WL 385545, at *3 (Del. Ch. Feb. 27, 2002)).

36
resembles the corresponding aspect of a common-law tort: The plaintiff must prove

that the defendant owed a fiduciary duty to the plaintiff. The second element departs

from the common law model in significant respects. For a common-law tort, the court

analyzes breach using the standard of conduct that the defendant was expected to

follow.168 For a breach of fiduciary duty, the court evaluates breach using a standard

of review.169 The standard of review is always more forgiving towards the defendant

fiduciary and more onerous for the plaintiff beneficiary than the standard of

conduct. 170 Delaware decisions traditionally did not acknowledge the distinction

168 Seegenerally Melvin Aron Eisenberg, The Divergence of Standards of
Conduct and Standards of Review in Corporate Law, 62 Fordham L. Rev. 437, 461–
67 (1993).

169 Chen v. Howard-Anderson, 87 A.3d 648, 666 (Del. Ch. 2014); In re Trados

Inc. S’holder Litig. (Trados II), 73 A.3d 17, 35–36 (Del. Ch. 2013); see also William T.
Allen, Jack B. Jacobs & Leo E. Strine, Jr., Realigning the Standard of Review of
Director Due Care with Delaware Public Policy: A Critique of Van Gorkom and its
Progeny as a Standard of Review Problem, 96 Nw. U. L. Rev. 449, 451–52 (2002)
[hereinafter Realigning the Standard]; William T. Allen, Jack B. Jacobs & Leo E.
Strine, Jr., Function over Form: A Reassessment of Standards of Review in Delaware
Corporation Law, 56 Bus. Law. 1287, 1295–99 (2001) [hereinafter Function Over
Form].

170 Chen, 87 A.3d at 667 (“The numerous policy justifications for this
divergence largely parallel the well-understood rationales for the business judgment
rule.”). For cogent explanations, see Function over Form, supra note 169 at 1296, and
Realigning the Standard, supra note 1699, at 455, 451–58; accord Eisenberg, supra
note 168, at 461–67; E. Norman Veasey & Christine T. Di Guglielmo, What Happened
in Delaware Corporate Law and Governance from 1992–2004? A Retrospective on
Some Key Developments, 153 U. Pa. L. Rev. 1399, 1421–28 (2005); Julian Velasco, The
Role of Aspiration in Corporate Fiduciary Duties, 54 Wm. & Mary L. Rev. 519, 553–
58 (2012). Opinions articulating the policy rationales for applying standards of review
that are more lenient than the underlying standards of conduct include Brehm v.

37
between the standard of conduct and the standard of review,171 but Delaware jurists

now do so openly to explain the divergence between the normative framing of what

fiduciary duties require and their practical application to the facts of a case.172

Although a claim for breach of fiduciary duty has only two formal elements, a

beneficiary cannot obtain a meaningful remedy without additional showings that

parallel the other elements of a traditional common-law tort. One is harm to the

beneficiary or a benefit wrongly received by the fiduciary.173 Another is a sufficiently

Eisner, 746 A.2d 244, 255–56 (Del. 2000) and Gagliardi v. TriFoods Int’l, Inc., 683
A.2d 1049, 1052 (Del. Ch. 1996) (Allen, C.).

171 See David Kershaw, The Foundations of Anglo-American Corporate
Fiduciary Law 185, 221–22 (2018). Despite the lack of open acknowledgement, the
divergence could be seen in earlier cases, such as decisions distinguishing between
the articulated duty of directors to exercise reasonable care and the liability standard
of gross negligence. See, e.g., Aronson v. Lewis, 473 A.2d 805, 812 (Del. 1984); In re
Walt Disney Deriv. Litig. (Disney I), 907 A.2d 693, 749–50 (Del. Ch 2005), aff’d, 906
A.2d 27 (Del. 2006). Professor Kershaw notes that New York cases maintained a
similar distinction from the late nineteenth century until the codification of the
fiduciary standard of care in 1961. See Kershaw, supra, at 185–86.

172 See, e.g., Manti Hldgs., LLC v. Carlyle Gp. Inc., 2022 WL 1815759, at *7

(Del. Ch. June 3, 2022) (Glasscock, V.C.); Totta v. CCSB Fin. Corp., 2022 WL 1751741,
at *15 (Del. Ch. May 31, 2022) (McCormick, C.); In re MultiPlan Corp. S’holders
Litig., 268 A.3d 784, 809 (Del. Ch. 2022) (Will, V.C.); In re Pattern Energy Gp. Inc.
S’holders Litig., 2021 WL 1812674, at *30 (Del. Ch. May 6, 2021) (Zurn, V.C.);
Cumming v. Edens, 2018 WL 992877, at *18 (Del. Ch. Feb. 20, 2018) (Slights, V.C.);
In re Ebix, Inc. S’holder Litig., 2014 WL 3696655, at *27 n.202 (Del. Ch. July 24,
2014) (Noble, V.C.); Reis v. Hazelett Strip-Casting Corp., 28 A.3d 442, 457–59 (Del.
Ch. 2011) (Laster, V.C.); Cargill, Inc. v. JWH Special Circumstance LLC, 959 A.2d
1096, 1112 (2008) (Parsons, V.C.); see also Ramsey v. Ga. S. Univ. Advanced Dev. Ctr.,
189 A.3d 1255, 1275 n.102 (Del. 2018) (Strine, C.J.).

173 See Kahn v. Kolberg Kravis Roberts & Co., L.P., 23 A.3d 831, 838 (Del. 2011)

(“[I]t is inequitable to permit the fiduciary to profit from using confidential corporate

38
convincing causal linkage between the breach and the remedy sought.174 A court may

award nominal damages when a breach does not warrant a meaningful remedy.175

2. The Existence Of A Fiduciary Duty

For purposes of this case, the defendants’ fiduciary status is straightforward.

The Fund is a limited partnership. The general partner of a limited partnership owes

fiduciary duties to the partnership for the ultimate benefit of the partners, unless the

information. Even if the corporation did not suffer actual harm, equity requires
disgorgement of that profit.”); Doug Rendleman, Measurement of Restitution:
Coordinating Restitution with Compensatory Damages and Punitive Damages, 68
Wash. & Lee L. Rev. 973, 990 (2011) (“Actual harm to the corporation is not . . . a
prerequisite for a plaintiff to state a claim for restitution-disgorgement.”).

174 See In re J.P. Morgan Chase & Co. S’holder Litig., 906 A.2d 766, 773, 775

(Del. 2006) (explaining that when seeking post-closing damages for breach of
fiduciary duty based on false or misleading disclosures, plaintiff must prove a causal
link between disclosure violation and quantifiable damages); ACP Master, Ltd. v.
Sprint Corp., 2017 WL 3421142, *20 (Del. Ch. July 21, 2017) (finding transaction was
entirely fair where controller engaged in acts of unfair dealing, but third party bidder
intervened and severed any causal connection between controller’s actions and
ultimate deal price), aff’d, 184 A.3d 1291, 2018 WL 1905256 (Del. Apr. 23, 2018); see
also In re Wayport, Inc. Litig., 76 A.3d 296, 314–15 (Del. Ch. 2013) (“A failure to
disclose material information in [the context of a request for stockholder action] may
warrant an injunction . . . but will not provide a basis for damages from defendant
directors absent proof of (i) a culpable state of mind or non-exculpated gross
negligence, (ii) reliance by the stockholders . . . , and (iii) damages proximately caused
by that failure.”).

175 See, e.g., Ravenswood Inv. Co., L.P. v. Est. of Winmill, 2018 WL 1410860, at

*2, 19, 25 (Del. Ch. Mar. 21, 2018) (awarding nominal damages for breach of duty);
Lake Treasure Hldgs., Ltd. v. Foundry Hill GP LLC, 2014 WL 5192179, at *1, 9, 13
(Del. Ch. Oct. 10, 2014) (same); In re Nine Sys. Corp. S’holders Litig., 2014 WL
4383127, at *51 (Del. Ch. Sept. 4, 2014) (same); Oliver v. Bos. Univ., 2006 WL
1064169, *25, 29, 30, 32, 34–35 (Del. Ch. Apr. 14, 2006) (same).

39
limited partnership agreement eliminates or limits them.176 The LP Agreement does

not eliminate or limit the fiduciary duties that the General Partner owes.

A human who controls a general partner is also a fiduciary. 177 Kahlon

controlled the General Partner, making him a fiduciary as well.

Establishing a defendant’s status as a fiduciary is only a starting point. As

Justice Felix Frankfurter famously observed:

To say that a man is a fiduciary only begins analysis; it gives direction
to further inquiry. To whom is he a fiduciary? What obligations does he
owe as a fiduciary? In what respect has he failed to discharge these
obligations? And what are the consequences of his deviation from
duty?178

The answers to these questions depend on the facts of each case. Fiduciary duties are

“unremitting,” meaning that they are always operative, but their application is

context-dependent, meaning that “the exact course of conduct that must be charted

to properly discharge that responsibility will change in the specific context of the

action the [fiduciary] is taking.”179

176 Feeleyv. NHAOCG, LLC, 62 A.3d 649, 662 (Del. Ch. 2012); see Metro
Ambulance, Inc. v. E. Med. Billing, Inc., 1995 WL 409015, at *3 (Del. Ch. July 5, 1995)
(identifying “general partners” among the relationships that “carry the ‘special’
nature of a fiduciary relationship”); McMahon v. New Castle Assocs., 532 A.2d 601,
605 (Del. Ch. 1987) (Allen, C.) (same).

177 Feeley, 62 A.3d at 669–70; In re USACafes, L.P. Litig., 600 A.2d 43, 47–50

(Del. Ch. 1991) (Allen, C.).

178 Sec. & Exch. Comm’n v. Chenery Corp., 318 U.S. 80, 85–86 (1943).

179 Malone v. Brincat, 722 A.2d 5, 10 (Del. 1998).

40
Recall that Delaware law distinguishes between the standard of conduct and

the standard of review. The standard of conduct describes what corporate fiduciaries

are expected to do and is defined by the content of the duties of loyalty and care. 180

The standard of conduct thus answers Justice Frankfurter’s first two questions: To

whom does the fiduciary owe obligations, and what obligations are owed? 181 The

standard of review is the test that a court applies to the facts of the case to determine

whether the fiduciaries have met the standard of conduct. 182 It answers Justice

Frankfurter’s third question: How has the fiduciary failed to discharge its

obligations?183 The remedy the court imposes answers the fourth question: What are

the consequences of the deviation from duty?

a. The Standard of Conduct

The general partner of a limited partnership owes fiduciary duties that run to

the limited partnership for the benefit of the partners as a whole. 184 With rare

180 Trados II, 73 A.3d at 36.

181 See Chenery, 318 U.S. at 85–86.

182 Trados II, 73 A.3d at 35–36.

183 Chenery, 318 U.S. at 85–86.

184 Zoren v. Genesis Energy, L.P., 836 A.2d 521, 528 (Del. Ch. 2003)
(“Undoubtedly, a corporate general partner and the directors of that general partner
owe a fiduciary duty of loyalty to a limited partnership and its limited partners.”); In
re Bos. Celtics Ltd. P'ship S’holders Litig., 1999 WL 641902, at *4 (Del. Ch. Aug. 6,
1999) (“It is well settled that, unless limited by the limited partnership agreement,
the general partner of a Delaware limited partnership and the directors of a corporate
General Partner who control the partnership, like the directors of a Delaware

41
exceptions, a general partner does not owe fiduciary duties to an individual limited

partner. 185 Just as directors owe fiduciary duties to the corporation and the

undifferentiated equity,186 the general partner owes duties to the limited partnership

and the undifferentiated partnership interest.

Only rarely will a general partner and its human controller owe duties to a

particular partner or subset of partners. For purposes of this case, the only setting

where Kahlon and the General Partner owed fiduciary duties to Leo Group itself—

rather than the Fund and its partners as a whole—was when they chose to speak to

Leo Group. The General Partner and Kahlon did not owe fiduciary duties to Leo

corporation, have the fiduciary duty to manage the partnership in the partnership's
interests and the interests of the limited partners.” (footnotes omitted)); Sonet v.
Timber Co., L.P., 722 A.2d 319, 322 (Del. Ch. 1998) (“Delaware's limited partnership
jurisprudence begins with the basic premise that, unless limited by the partnership
agreement, the general partner has the fiduciary duty to manage the partnership in
its interest and in the interests of the limited partners.”); Boxer v. Husky Oil Co., 429
A.2d 995, 997 (Del. Ch. 1981) (“[I]t is clear that the general partner in a limited
partnership owes a fiduciary duty to the limited partners.”); Paul M. Altman &
Srinivas M. Raju, Delaware Alternative Entities and the Implied Contractual
Covenant of Good Faith and Fair Dealing Under Delaware Law, 60 Bus. Law. 1469,
1470 (2005) (“[A] general partner owes fiduciary duties to both the limited
partnership and to the limited partners of the limited partnership.”).

185 Cf. Nemec, 991 A.2d at 1129 (holding that directors did not owe any
fiduciary duties to retired executives in their capacities as stockholders when
exercising a redemption right); Riblet Prods. Corp. v. Nagy, 683 A.2d 37, 40 (Del.
1996) (holding that directors did not owe any fiduciary duties to employee as
stockholder for purposes of exercising termination right); McRitchie v. Zuckerberg,
315 A.3d 518, 550 (Del. Ch. 2024) (discussing director duties towards stockholder
collective versus duties towards individual stockholders).

186 McRitchie, 315 A.3d at 550 (discussing director duties towards stockholders

qua residual claimants).

42
Group when exercising the Withdrawal Provision. When making that decision, they

owed duties to the Fund and its partners as a whole.

A general partner owes fiduciary duties of loyalty and care. 187 The duty of

loyalty requires that the general partner act without any conflicts of interest that

would impair its ability to act in the best interest of the partnership and its partners.

The duty to act loyally includes an obligation to act in good faith, which means the

general partner must seek subjectively to promote the best interests of the

partnership. Stated in the contrapositive, a general partner acts in bad faith when

acting with a purpose other than advancing the best interests of the partnership. The

duty of care requires that the general partner exercise a level of care no less than that

of a director of a corporation.188

The Delaware Limited Partnership Act does not restrict service as a general

partner to natural persons, opening the door to entities serving in that role.189 This

187 Bos. Celtics, 1999 WL 641902, at *4 (“Delaware law requires the general

partners of limited partnerships to exercise due care and to act in the best interest of
the partnership and the limited partners.”).

188 See Boxer, 429 A.2d at 997.

189 See 6 Del. C. § 17–101(7) (“‘General partner’ means a person who is named

as a general partner in the certificate of limited partnership or similar instrument
. . . and who is admitted to the limited partnership as a general partner . . . .”); id.
§ 17–101(16) (“ ‘Person’ means a natural person, partnership (whether general or
limited), limited liability company, trust . . . , estate, association . . . , corporation . . .
or any other individual or entity (or series thereof) . . . .”). See generally Robert W.
Hamilton, Corporate General Partners of Limited Partnerships, 1 J. Small &
Emerging Bus. L. 73 (1997) (discussing the origins and implications of corporate
general partners).

43
court soon confronted the question of what to do with the human controllers of an

entity fiduciary. In USACafes, 190 Chancellor Allen considered whether limited

partners of USACafes, L.P., could sue the directors of USACafes General Partner,

Inc., its corporate general partner, for breach of fiduciary duty. Defendants Sam and

Charles Wyly comprised two of the six directors on the board of the corporate general

partner, owned 100% the stock of the corporate general partner, and held 47% of the

limited partnership units. In the challenged transaction, USACafes sold its assets to

Mesa Acquisition Corp., a third party acquiror, for $72.6 million, representing $10.25

per partnership unit. Metsa allegedly paid an additional $15 to $17 million to the

Wylys and the other directors of the corporate general partner in the form of

consideration for covenants not to compete, releases of claims, forgiveness of loans,

and payments under employment agreements.191 The defendants conceded that the

general partner owed fiduciary duties to the limited partners, but they argued that

the members of the board of the corporate general partner only owed fiduciary duties

to its stockholders, not to the limited partners.192

Chancellor Allen rejected the defendants’ argument. Finding no precedent on

point, Chancellor Allen started from the general principle that “one who controls

property of another may not, without implied or express agreement, intentionally use

190 USACafes, 600 A.2d 43.

191 See id. at 45–48.

192 Id. at 51

44
that property in a way that benefits the holder of the control to the detriment of the

property or its beneficial owner.”193 He then noted the equitable tradition of looking

to the substance of where control lay, observing that “[w]hen control over corporate

property was recognized to be in the hands of shareholders who controlled the

enterprise, the fiduciary obligation was found to extend to such persons as well.”194

Analogizing the corporate general partner to a corporate trustee, a structure where

there was a longer tradition of an entity acting as fiduciary, Chancellor Allen noted

that courts held the individuals who controlled or made decisions for the corporate

trustee liable for breaches of trust. 195 He concluded that “[t]he theory underlying

fiduciary duties is consistent with recognition that a director of a corporate general

partner bears such a duty towards the limited partnership.”196

Chancellor Allen recognized that the resulting fiduciary duty “may well not be

so broad as the duty of the director of a corporate trustee.”197 He left to future cases

the task of delineating the full scope of the duty, holding only that “it surely entails

the duty not to use control over the partnership’s property to advantage the corporate

193 Id. at 48.

194 Id.

195 See id. at 48–49 (citing A. Scott & W. Fratcher, The Law of Trusts vol. 4, §

326.03, at 304–06 (4th ed.1989)).

196 Id. at 49.

197 Id.

45
director at the expense of the partnership.” 198 In subsequent decisions involving

limited partnerships, this court has followed USACafes consistently for loyalty

breaches, but has declined to extend the doctrine to breaches of the duty of care. 199

Under established precedent, therefore, the human controller of the general partner

does not owe a duty of care, only a duty of loyalty.

b. The Standard Of Review

When litigation arises, fiduciaries are not judged by the standard of conduct

but using a standard of review. Two standards of review are pertinent to this case:

the business judgment rule and entire fairness.

When a general partner takes action, Delaware’s default standard of review is

the business judgment rule.200 That standard of review affords general partners “a

presumption that they acted on an informed basis and in the honest belief that they

acted in the best interest of the partnership and the limited partners.”201 Unless a

plaintiff rebuts one of the elements of the rule, “the court merely looks to see whether

the business decision made was rational in the sense of being one logical approach.” 202

198 Id.

199 See Largo Legacy Gp., LLC v. Charles, 2021 WL 2692426, at *14 (Del. Ch.

June 30, 2021); 2009 Caiola Fam. Tr. v. PWA, LLC, 2015 WL 6007596, at *25 (Del.
Ch. Oct. 14, 2015); Feeley, 62 A.3d at 670–72; Bay Ctr. Apartments Owner, LLC v.
Emery Bay PKI, LLC, 2009 WL 1124451, at *10 (Del. Ch. Apr. 20, 2009).

200 Zoren, 836 A.2d at 528.

201 Bos. Celtics, 1999 WL 641902, at *5.

202 In re Dollar Thrifty S’holder Litig., 14 A.3d 573, 598 (Del. Ch. 2010).

46
Only when a decision lacks any rationally conceivable basis will a court infer bad

faith and a breach of duty.203

Delaware’s most onerous standard of review is the entire fairness test. To

trigger entire fairness, the plaintiff must rebut one of the presumptions of the

business judgment rule. 204 If the plaintiff meets its burden, then the defendant

fiduciary must prove that its conduct was entirely fair. 205 When entire fairness

governs, the defendants must establish “to the court’s satisfaction that the

transaction was the product of both fair dealing and fair price.” 206 “Not even an

honest belief that the transaction was entirely fair will be sufficient to establish entire

fairness. Rather, the transaction itself must be objectively fair, independent of the

board’s beliefs.”207

203 See Brehm, 746 A.2d at 264 (“Irrationality is the outer limit of the business

judgment rule. Irrationality may be the functional equivalent of the waste test or it
may tend to show that the decision is not made in good faith, which is a key ingredient
of the business judgment rule.” (footnote omitted)); In re J.P. Stevens & Co. S’holders
Litig., 542 A.2d 770, 780–81 (Del. Ch. 1988) (Allen, C.) (“A court may, however, review
the substance of a business decision made by an apparently well motivated board for
the limited purpose of assessing whether that decision is so far beyond the bounds of
reasonable judgment that it seems essentially inexplicable on any ground other than
bad faith.” (emphasis in original)).

204 Bos. Celtics, 1999 WL 641902, at *4.

205 Id.

206 Cinerama, Inc. v. Technicolor, Inc. (Technicolor Plenary IV), 663 A.2d 1156,

1163 (Del. 1995) (emphases in original) (internal quotation marks omitted).

207 Gesoff v. IIC Indus., Inc., 902 A.2d 1130, 1145 (Del. Ch. 2006).

47
In this case, the analysis starts with the business judgment rule. The question

then becomes whether Leo Group proved facts sufficient to rebut the presumptions of

the business judgment rule, thereby elevating the standard of review to entire

fairness. If Leo Group met its burden, then the burden shifts to Kahlon and the

General Partner to prove that their actions were entirely fair.

i. Leo Group’s Attempt To Establish A Conflict Of
Interest

Leo Group argues that both Kahlon and the General Partner—functionally

synonymous in this context—breached their duty of loyalty when engaging in the

Forced Withdrawal. They say Kahlon acted disloyally by seeking to preserve his

relationship with SpaceX rather than promoting the value of the Fund. That theory

fails because Kahlon’s interests were aligned with the Fund’s, so serving his own

interests equated to acting loyally.

Johnsen’s email and call to Kahlon catalyzed the Forced Withdrawal. Coming

out of that call, Kahlon believed—both subjectively and reasonably—that Johnsen

would not permit the Fund to buy SpaceX shares if Leo Group remained in the Fund.

Kahlon also believed—both subjectively and reasonably—that to enable the Fund to

acquire SpaceX shares, he needed to get back into Johnsen and SpaceX’s good graces.

That meant eliminating the problem that Leo Group posed by ending their

participation in the Fund.

To be sure, preserving the Fund’s ability to acquire SpaceX shares also served

Kahlon’s self-interest: Through the General Partner, he would earn a 2%

management fee and 20% of the upside. That alignment of interests was no accident;
48
it is one of the justifications for equity compensation. In the corporate context,

Delaware decisions presume that a director who is also a stockholder is more likely

to have interests that align with the best interests of the stockholders as a whole.208

As then-Vice Chancellor Strine wrote: “[I]t is useful to have directors with, as Ross

Perot was wont to say, skin in the game. Such directors have a personal interest in

ensuring that the company is managed to maximize returns to the stockholders.”209

The same is true of general partners and those who control them.

It is equally true that Kahlon’s interests were not fully aligned with those of

the Fund and the partners as a whole. He wanted to preserve his relationship with

SpaceX and the Musk-iverse across time, multiple funds, and every possible Musk-

controlled entity. He conceivably might have sacrificed the Fund to protect his long-

term relationship. Or he might have prioritized the interests of another fund that he

had formed. But he didn’t. Here, Kahlon zeroed in on ensuring that the Fund could

close the Rizvi Shares transaction to invest in SpaceX shares.

To do that, Kahlon effectuated the Forced Withdrawal. That was not a breach

of the duty of loyalty to the Fund and its limited partners, any more so than it

208 See McRitchie, 315 A.3d at 553 & n.95 (collecting cases).

209 In re PNB Hldg. Co. S’holders Litig., 2006 WL 2403999, at *10 (Del. Ch.

Aug. 18, 2006); accord In re Oracle Corp., 867 A.2d 904, 930 (Del. Ch. 2004) (“[M]any
sophisticated commentators believe that it is a good idea that corporate insiders own
company stock because having, as Ross Perot would say, ‘skin in the game’ will tend
to align their interests with those of the public stockholders.”), aff’d, 872 A.2d 960
(Del. 2005) (TABLE).

49
constitutes a breach of a director’s duty of loyalty to benefit a corporation by

exercising a contractual redemption right to the detriment of retired executives who

are also stockholders (Nemec) or a contractual termination right to the detriment of

an executive who is also a stockholder (Riblet). 210 Nor is it a breach of duty for

directors to take action to avoid triggering contractual rights of preferred stock. 211

Directors fulfill their duties if they benefit the corporation and its stockholders by

exercising contractual rights or avoiding contractual obligations, even if a stockholder

is the contractual counterparty. The same is true for a general partner and its human

controller in a general partnership.

Leo Group failed to prove that Kahlon and the General Partner breached their

duty of loyalty when exercising the Withdrawal Provision. That avenue of attack does

not rebut the business judgment rule or lead to entire fairness.

210 See supra note 185.

211 Trados II, 73 A.3d at 39 (Del. Ch. 2013) (“A board does not owe fiduciary

duties to preferred stockholders when considering whether or not to take corporate
action that might trigger or circumvent the preferred stockholders’ contractual
rights.”); see LC Cap. Master Fund, Ltd. v. James, 990 A.2d 435, 438 (Del. Ch. 2010)
(“[O]nce the QuadraMed Board honored the special contractual rights of the
preferred, it was entitled to favor the interests of the common stockholders.”); Fletcher
Int’l, Ltd. v. ION Geophysical Corp., 2010 WL 2173838, at *7 (Del. Ch. May 28, 2010)
(“[R]ights arising from documents governing a preferred class of stock, such as the
Certificates, that are enjoyed solely by that preferred class, do not give rise to
fiduciary duties because such rights are purely contractual in nature.”); MCG Cap.
Corp. v. Maginn, 2010 WL 1782271, at *15 (Del. Ch. May 5, 2010) (“[D]irectors do not
owe preferred shareholders any fiduciary duties with respect to [their contractual]
rights.”).

50
ii. Leo Group’s Attempt To Prove Bad Faith

Leo Group next argues that both Kahlon and the General Partner—again

functionally synonymous in this context—breached their duty of loyalty by failing to

act in good faith. They again say Kahlon acted disloyally by seeking to preserve his

relationship with SpaceX rather than promoting the value of the Fund. This line of

attack differs from the prior duty of loyalty argument because while the former

examined objectively whether Kahlon and the General Partner fell victim to conflicts

of interest that caused them to act contrary to the interests of the Fund and its

partners, the current inquiry examines what Kahlon subjectively sought to achieve.

Was he seeking subjectively to promote the best interests of the Fund, or was he

pursuing some other purpose and thus acting in bad faith?

A plaintiff can rebut the business judgment rule and cause the standard of

review to intensify to entire fairness by showing that a fiduciary acted in bad faith.212

One way that a plaintiff can plead bad faith is by alleging facts which support an

inference that the defendant “acted with scienter, meaning they had actual or

constructive knowledge that their conduct was legally improper.” 213 The necessary

212 IBEW Loc. Union 481 Defined Contribution Plan & Tr. ex rel. GoDaddy, Inc.

v. Winborne, 301 A.3d 596, 619 (Del. Ch. 2023) (“The plaintiff argues that the
complaint's allegations support a reasonable inference that the Voting Directors
acted in bad faith. That contention, if correct, rebuts one of the presumptions of the
business judgment rule, causing the standard of review to shift to entire fairness.”).

213 McElrath v. Kalanick, 224 A.3d 982, 991 (Del. 2020) (internal quotation

marks omitted).

51
mental state can range from an “intentional dereliction of duty,” such as a “conscious

disregard for one’s responsibilities”214 to an intent to act “with a purpose other than

that of advancing the best interests of the [entity],”215 to an “actual intent to do harm”

to the partnership or its partners.216 Another way of pleading bad faith matches the

standard for a claim for waste, defined as a decision “so egregious or irrational that

it could not have been based on a valid assessment of the [entity’s] best interests.”217

Bad faith is a state of mind. In an observation that remains as apt today as in

the Victorian era, the nineteenth-century English judge Charles Bowen remarked,

“The state of a man’s mind is as much a fact as the state of his digestion.” 218

Expressed less pithily, a mental state like bad faith is a question of fact. When

making a factual finding about mental state, a fact finder only has access to

observable indicia. “Without the ability to read minds, a trial judge only can infer a

party’s subjective intent from external indications. Objective facts remain logically

214 In re Walt Disney Co. Deriv. Litig. (Disney II), 906 A.2d 27, 66 (Del. 2006).

215 Id. at 67 (internal quotation marks omitted).

216 Id. at 64.

217 White v. Panic, 783 A.2d 543, 554 n.36 (Del. 2001).

218 Edgington v. Fitzmaurice (1885) 29 Ch D 459 at 483 (Eng.). For Bluebook

afficionados, the reporter during this period is cited without punctuation. The
Bluebook: A Uniform System of Citation tbl. T2.46 (Columbia L. Rev. Ass’n et al. eds.,
22d ed. 2025).

52
and legally relevant to the extent they permit an inference that a defendant lacked

the necessary subjective belief.”219

The trial judge’s task is harder because humans rarely act for only one purpose.

One of a trial court’s hardest jobs is to assess the mental states of fiduciaries who act

for multiple purposes. After scrutinizing the evidence, a trial judge may conclude that

a fiduciary was sufficiently motivated by an inequitable purpose to warrant a finding

of bad faith, or a court may reach the opposite conclusion. The answer depends on the

facts and circumstances, credibility assessments, and how the fact finder weighs the

evidence.

In this case, Kahlon acted with two subjective purposes. He sought selfishly to

protect his own relationship with SpaceX and its leadership. He also sought to protect

the Fund’s ability to purchase SpaceX shares. The latter motivation was proper. The

former was not, but here that motivation aligned with the proper motivation and led

him to act in a way that served the best interests of the Fund. Kahlon therefore did

not commit disloyal acts, even though he acted with mixed motives.

Under the circumstances, Kahlon’s mixed motives do not provide grounds to

rebut the business judgment rule on grounds of bad faith. But if I am wrong about

that and, as a matter of law, the selfish component to Kahlon’s subjective motivation

219 Allen v. El Paso Pipeline GP Co., L.L.C., 2014 WL 2819005, at *7 (Del. Ch.

June 20, 2014) (citing Allen v. Encore Energy P’rs, L.P., 72 A.3d 93, 106 (Del. 2013)).

53
is sufficient alone to trigger entire fairness, then the Forced Redemption was fair to

the Fund and its partners as a whole for the reasons discussed below.

iii. Leo Group’s Attempt To Prove Gross Negligence

Leo Group argues that both Kahlon and the General Partner breached their

duty of care when engaging in the Forced Redemption. Unlike with the arguments

based on disloyalty, including bad faith, Kahlon and the General Partner are not

interchangeable for this purpose. Only the General Partner owed a duty of care.

To prove that the General Partner breached its duty of care, Leo Group must

prove that the General Partner was grossly negligent. In civil cases not involving

business entities, the Delaware Supreme Court has defined gross negligence as “a

higher level of negligence representing ‘an extreme departure from the ordinary

standard of care.’”220 Under that framework, gross negligence “signifies more than

220 Browne v. Robb, 583 A.2d 949, 953 (Del. 1990) (quoting W. Prosser,
Handbook of the Law of Torts 150 (2d ed. 1955)). This test “is the functional
equivalent” of the test for “[c]riminal negligence.” Jardel Co., Inc. v. Hughes, 523 A.2d
518, 530 (Del. 1987). By statute, Delaware law defines “criminal negligence” as
follows:

A person acts with criminal negligence with respect to an element of an
offense when the person fails to perceive a risk that the element exists
or will result from the conduct. The risk must be of such a nature and
degree that failure to perceive it constitutes a gross deviation from the
standard of conduct that a reasonable person would observe in the
situation.

11 Del. C. § 231(a). The same statute provides that a person acts recklessly when “the
person is aware of and consciously disregards a substantial and unjustifiable risk
that the element exists or will result from the conduct.” Id. § 231(e). As with criminal
negligence, the risk “must be of such a nature and degree that disregard thereof

54
ordinary inadvertence or inattention,” but it is “nevertheless a degree of negligence,

while recklessness connotes a different type of conduct akin to the intentional

infliction of harm.”221 In Delaware entity law, by contrast, Delaware cases have held

consistently that that gross negligence encompasses recklessness.222

Leo Group failed to prove that the General Partner acted recklessly when

implementing the Forced Withdrawal. Though Kahlon resolved to remove Leo Group

as a limited partner after a single, short call with Johnsen, the implication of that

constitutes a gross deviation from the standard of conduct that a reasonable person
would observe in the situation.” Id.; see id. § 231(a).

221 Jardel, 523 A.2d at 530.

222 In re Lear Corp. S’holder Litig., 967 A.2d 640, 652 n.45 (Del. Ch. 2008)

(“[T]he definition [of gross negligence in corporate law] is so strict that it imports the
concept of recklessness into the gross negligence standard . . . .”); Albert v. Alex. Brown
Mgmt. Servs., Inc., 2005 WL 2130607, at *4 (Del. Ch. Aug. 26, 2005) (“Gross
negligence has a stringent meaning under Delaware corporate (and partnership) law,
one which involves a devil-may-care attitude or indifference to duty amounting to
recklessness.” (cleaned up)); Tomczak v. Morton Thiokol, Inc., 1990 WL 42607, at *12
(Del. Ch. Apr. 5, 1990) (“In the corporate context, gross negligence means reckless
indifference to or a deliberate disregard of the whole body of stockholders or actions
which are without the bounds of reason.” (internal quotation marks omitted)); Solash
v. Telex Corp., 1988 WL 3587, at *9 (Del. Ch. Jan. 19, 1988) (Allen, C.) (explaining
that to be grossly negligent, a decision “has to be so grossly off-the-mark as to amount
to reckless indifference or a gross abuse of discretion” (citation and internal quotation
marks omitted)); see McPadden v. Sidhu, 964 A.2d 1262, 1274 (Del. Ch. 2008)
(“[F]rom the sphere of actions that was once classified as grossly negligent conduct
that gives rise to a violation of the duty of care, the Court has carved out one specific
type of conduct—the intentional dereliction of duty or the conscious disregard for
one’s responsibilities—and redefined it as bad faith conduct, which results in a breach
of the duty of loyalty. Therefore, Delaware’s current understanding of gross
negligence is conduct that constitutes reckless indifference or actions that are without
the bounds of reason.”).

55
call was clear: Kahlon had to remove Leo Group from the Fund or the Fund would

not be able to purchase SpaceX shares.

Leo Group argues that Johnsen did not care about Leo Group’s presence in the

Fund because that involved the “relationship between [Kahlon] and his limited

partners.”223 But that was not true for Leo Group after the publicity its investment

received. Johnsen displayed his displeasure with Leo Group’s presence in the Fund,

referenced SpaceX’s ability to exercise the ROFR to prevent the Fund’s from

purchasing the shares, and made clear that the Fund could not acquire SpaceX shares

as long as Leo Group remained in the Fund. Johnsen wanted Leo Group out of the

Fund. How Kahlon accomplished that was a matter for Kahlon to handle, because it

turned on the Fund-level relationship between Kahlon and Leo Group.224

Leo Group argues that Kahlon had time to consider and weigh other options

after the call. In fact, he didn’t. SpaceX was already considering whether to exercise

its ROFR, and there were only ten days until the date for the Fund to close on its

purchase of the first tranche of shares. Kahlon also needed to act quickly and

meaningfully to restore Johnsen’s confidence. As Hussain noted, “Even [Johnsen]

knows returning $50m check is big. . . . U doing it without question . . . is pretty

impressive.”225

223 Johnsen Tr. 187–88.

224 Id.; Kahlon Tr. 384–86.

225 JX 531 at 77.

56
To be sure, by acting quickly, Kahlon foreclosed the possibility that he could

convince Johnsen to allow the Fund’s purchase to go forward with Leo Group as a

limited partner. That, however, was unlikely. Kahlon believed—subjectively and

reasonably—that Johnsen would not let the Fund acquire SpaceX shares if Leo Group

remain involved. Johnsen was upset about the publicity that had already occurred,

including the headline claiming that a Chinese company was backing SpaceX. That

bell could not be unrung. The only answer for SpaceX was to prevent Leo Group from

investing so that if a competitor tried to use the press coverage against SpaceX, the

company could say that the stories were wrong and the transaction never happened.

Leo Group correctly points out that Kahlon was to blame for not going to

Johnsen earlier. Leo Group also correctly points out that Kahlon hid his own

responsibility by failing to mention the Side Letter and Exhibit A. But Leo Group did

not make a convincing case that sharing that information would have changed

Johnsen’s mind. The press coverage about Leo Group’s involvement would exist

regardless. If Kahlon had come clean about his own involvement and his failure to

bring Johnsen into the loop, it simply would have revealed that Kahlon had been part

of the problem. For Kahlon to have revealed his own involvement could have further

jeopardized his relationship with SpaceX and foreclosed the Fund’s ability to

participate in any transactions.

Leo Group also correctly points out that Kahlon could have explained to

Johnsen that Leo Group’s involvement did not raise any CFIUS concerns. Kahlon had

obtained CFIUS advice years earlier, understood there was nothing barring indirect

57
Chinese investment through a Hong Kong entity, and had used that structure for

such investors. 226 The lack of any formal regulatory problem, however, would not

have assuaged Johnsen’s concern that a SpaceX competitor could use the headlines

about Leo Group’s involvement in the Fund against SpaceX when competing for

government contracts.

Leo Group’s strongest argument for recklessness stresses Kahlon’s failure to

mention the Withdrawal Provision when engaging in the Forced Withdrawal. Kahlon

stated in the letter agreement and the unilateral termination letter that Leo Group’s

participation in the Fund imposes “materially burdensome compliance

obligations.” 227 That language did not clearly track any provision of the LP

Agreement. Only after MagStone sought clarification did Kahlon invoke the “adverse

delay” language from the Withdrawal Provision. Regardless, Kahlon had the power

as General Partner to remove Leo Group. Relatedly, Leo Group argues that Kahlon

should have consulted counsel, but Kirkland drafted the termination letter, so

Kirkland was involved. 228

Kahlon’s conduct was hardly commendable from a moral standpoint. He let

Leo Group take the fall when they were blameless, and he did not reveal his own

226 Kahlon Tr. 213 (“[P]rior to November 2021, did Tomales Bay have investors

in its funds acquiring SpaceX shares that originated from China? A. Yes, we did.”);
see also Khalon Dep. 686; see also Kahlon Dep. 101, 467–68.

227 JX 202 at 1; JX 218 at 2.

228 JX 272.

58
involvement or take responsibility for the problem he created. It was not his finest

hour.

Leo Group did not show that Kahlon acted recklessly. Leo Group proved that

Kahlon acted callously towards one of his investors. Leo Group would be justified in

never doing business with Kahlon again, and other investors might want to think

twice. But Leo Group did not show that Kahlon breached his duty of care.

c. The Business Judgment Rule And The Alternative
Application Of Entire Fairness

Because Leo Group failed to rebut any of the presumptions of the business

judgment rule, that standard of review protects Kahlon’s decision to invoke the

Withdrawal Provision as long as the decision was rational. The decision was plainly

rational. It was perhaps the only choice available.

Even if Leo Group had proven a breach of duty and rebutted one of the

presumptions of the business judgment rule, the burden of proof would shift to

Kahlon to prove that his conduct was entirely fair. 229 The transaction must be

229 Disney II, 906 A.2d 27, 52–53 (explaining that Delaware law “clearly
permits a judicial assessment of director good faith” and that the business judgment
rule can be rebutted by establishing “the directors breached their fiduciary duty of
care or of loyalty or acted in bad faith” such that “[i]f that is shown, the burden then
shifts to the director defendants to demonstrate that the challenged act or transaction
was entirely fair to the corporation and its shareholders”); accord Brehm, 746 A.2d at
264 n.66; Technicolor Plenary IV, 663 A.2d at 1163; Cede & Co. v. Technicolor, Inc.,
634 A.2d 345, 363, 369 (Del. 1993); eBay Domestic Hldgs., Inc. v. Newmark, 16 A.3d
1, 40 (Del. Ch. 2010). Chief Justice Strine has argued that a breach of the duty of care
should not rebut the business judgment rule and trigger entire fairness. He posited
in an opinion written while serving as a Vice Chancellor that if a corporation has an
exculpatory provision and if the plaintiff only seeks damages, then a breach of the

59
entirely fair to the entity and its undifferentiated equity. For purposes of the Forced

Withdrawal, Leo Group was not a beneficiary of fiduciary duties; Leo Group was a

contractual counterparty subject to the rights and duties in the LP Agreement.

The entire fairness standard has two dimensions: substantive fairness (fair

price) and procedural fairness (fair dealing). 230 Though a court may analyze each

aspect separately, they are not distinct elements of a two-part test. “All aspects of the

issue must be examined as a whole since the question is one of entire fairness.”231

The substantive dimension of the fairness inquiry examines the transactional

result. The cases that developed the entire fairness test historically involved freeze-

outs or squeeze-outs. The earliest freeze-outs involved corporations selling all of their

assets for a package of consideration, typically cash, then dissolving and distributing

the net cash to stockholders. 232 After mergers became the preferred transactional

vehicle, the leading cases involved squeeze-outs in which the minority shares were

duty of care should not elevate the standard of review. Goodwin v. Live Ent., Inc.,
1999 WL 64265, at *24 n.17 (Del. Ch. Jan. 25, 1999). He offered similar criticisms in
a series of articles. See Function over Form, supra note 169, at 1301–05; Realigning
the Standard, supra note 169, at 460–62; and Leo E. Strine, Jr. et al., Loyalty’s Core
Demand: The Defining Role of Good Faith in Corporation Law, 98 Geo. L.J. 629, 673–
84 (2010). There is a fair argument for treating the duty of care differently, but this
decision hews to the Delaware Supreme Court precedent.

230 See Weinberger v. UOP, Inc., 457 A.2d 701, 711 (Del. 1983).

231 Id.

232 See Stream TV Networks, Inc. v. SeeCubic, Inc., 250 A.3d 1016, 1033–34

(Del. Ch. 2020) (describing history of asset sales and mergers).

60
converted into the right to receive a specific amount of cash. 233 The substantive

fairness of the transaction therefore largely turned on the price that the minority

stockholders received, and “fair price” became the dominant nomenclature for the

substantive dimension. In that setting, the fair price inquiry generally involved

comparing what the stockholders received with their proportionate share of the

corporation’s value as a going concern. Thus, in the canonical framing, fair price

“relates to the economic and financial considerations of the proposed merger,

including all relevant factors: assets, market value, earnings, future prospects, and

any other elements that affect the intrinsic or inherent value of a company’s stock.”234

But the substantive dimension of the entire fairness inquiry does not focus narrowly

on evaluating a price. The true “test of fairness” is whether the minority stockholder

receives at least “the substantial equivalent in value of what he had before.”235

The procedural dimension of the entire fairness inquiry examines the process

that generated the result to determine how closely it replicated arms’ length

233 Id.

234 Weinberger, 457 A.2d at 711.

235 Sterling v. Mayflower Hotel Corp., 93 A.2d 107, 114 (Del. 1952); accord
Rosenblatt v. Getty Oil Co., 493 A.2d 929, 940 (Del. 1985) (“[T]he correct test of
fairness is ‘that upon a merger the minority stockholder shall receive the substantial
equivalent in value of what he had before.’” (quoting Sterling, 93 A.2d at 114)); see
Lawrence A. Hamermesh & Michael L. Wachter, The Fair Value of Cornfields in
Delaware Appraisal Law, 31 J. Corp. L. 119, 139 (2005) (arguing for a remedial
standard that “provides the minority shareholders with the value of what was taken
from them”).

61
bargaining. Known as “fair dealing,” it “focuses upon the conduct of the corporate

fiduciaries in effectuating the transaction.”236 In the canonical framing, it “embraces

questions of when the transaction was timed, how it was initiated, structured,

negotiated, disclosed to the directors, and how the approvals of the directors and the

stockholders were obtained.”237

Economic fairness can be the predominant, even dispositive dimension of the

fairness inquiry. 238 But the procedural dimension also matters because the

substantive dimension is usually contestable. “The concept of fairness is of course not

a technical concept. No litmus paper can be found or [G]eiger-counter invented that

236 Kahn v. Tremont Corp. (Tremont II), 694 A.2d 422, 430 (Del. 1997).

237 Weinberger, 457 A.2d at 711.

238 In re Dole Food Co. S’holder Litig., 2015 WL 5052214, at *34 (Del. Ch. Aug.

27, 2015) (“Fair price can be the predominant consideration in the unitary entire
fairness inquiry.”); accord In re Tesla Motors, Inc. S’holder Litig., 298 A.3d 667, 718
(Del. 2023) (citing Dole Food, 2015 WL 5052214, at *34); Kahn v. M & F Worldwide
Corp., 88 A.3d 635, 645 (Del. 2014) (“Following Weinberger v. UOP, Inc., this Court
has consistently held that, although entire fairness review comprises the dual
components of fair dealing and fair price, in a non-fraudulent transaction ‘price may
be the preponderant consideration outweighing other features of the merger.’”
(internal quotation marks omitted)); Ams. Mining Corp. v. Theriault, 51 A.3d 1213,
1244 (Del. 2012) (“Evidence of fair dealing has significant probative value to
demonstrate the fairness of the price obtained. The paramount consideration,
however, is whether the price was a fair one.”); Weinberger, 457 A.2d at 711 (“[W]e
recognize that price may be the preponderant consideration outweighing other
features of the merger.”); see In re Sears Hometown & Outlet Stores, Inc. S’holder
Litig., 309 A.3d 474, 520 (Del. Ch. 2024) (citing Dole Food, 2015 WL 5052214, at *34)
; ACP Master, Ltd. v. Sprint Corp., 2017 WL 3421142, at *27 (Del. Ch. July 21, 2017)
(same).

62
will make determinations of fairness objective.”239 Consequently, the two aspects of

the entire fairness standard interact.240 “A strong record of fair dealing can influence

the fair price inquiry, reinforcing the unitary nature of the entire fairness test. The

converse is equally true: process can infect price.” 241 If fiduciaries successfully

replicate arm’s length bargaining, then that evidence of procedural fairness can

validate a debatable substantive outcome. But the opposite is also true: a dubious

239 Kahn v. Tremont Corp. (Tremont I), 1996 WL 145452, at *8 (Del. Ch. Mar.

21, 1996) (Allen, C.) (“A fair price is a price that is within a range that reasonable
men and women with access to relevant information might accept.”), rev’d on other
grounds, 694 A.2d 422 (Del. 1997).

240 Weinberger, 457 A.2d at 711 (“[I]n a non-fraudulent transaction we
recognize that price may be the preponderant consideration outweighing other
features of the merger.”); Dole, 2015 WL 5052214, at *34 (“Fair price can be the
predominant consideration in the unitary entire fairness inquiry.”); eBay Domestic
Hldgs., Inc. v. Newmark, 16 A.3d 1, 42 (Del. Ch. 2010) (“Price, however, is the
paramount consideration because procedural aspects of the deal are circumstantial
evidence of whether the price is fair.”). Even a fiduciary that engaged in an unfair
process an prove fairness at trial by establishing an indisputably fair price. See
Trados II, 73 A.3d 17 (holding that fiduciaries did not breach their duties when they
failed to follow a fair process yet nevertheless approved a transaction that yielded a
fair price). Some Delaware decisions, however, have treated comparable scenarios as
involving a breach of duty but no damages. See, e.g., In re Nine Sys. Corp. S’holders
Litig., 2014 WL 4383127, at *52 (Del. Ch. Sept. 4, 2014) (finding breach of duty where
transaction provided a fair price but process was not fair), aff’d sub nom. Fuchs v.
Wren Holdings, LLC, 129 A.3d 882 (Del. 2015); Oliver v. Bos. Univ., 2006 WL
1064169, at *25 (Del. Ch. Apr. 14, 2006) (finding a breach of the duty of loyalty based
on a process failure but awarding only nominal damages because of a fair price). The
distinction makes a difference. An adjudicated breach of duty can have significant
knock-on effects for the availability of insurance and indemnification, as well as the
fiduciary’s status under various regulatory regimes.

241 Reis v. Hazelett Strip-Casting Corp., 28 A.3d 442, 467 (Del. Ch. 2011)
(collecting authorities).

63
process can call into question a low but nominally fair price. 242 “Factors such as

coercion, the misuse of confidential information, secret conflicts, or fraud could lead

a court to hold that a transaction that fell within the range of fairness was

nevertheless unfair compared to what faithful fiduciaries could have achieved.”243

The entire fairness inquiry “is not itself a remedial calculation.” 244 “For

purposes of determining fairness, as opposed to crafting a remedy, the court’s task is

not to pick a single number, but to determine whether the transaction price falls

within a range of fairness.” 245 Once a court determines that a transaction is not

entirely fair, then the court determines what remedy to award.

Here, Kahlon and General Partner proved that their actions were entirely fair

to the Fund and its partners as a whole. By forcing Leo Group to withdraw from the

Fund in return for its original $50 million capital contribution, Kahlon minimized the

potential cost to the Fund and its partners. If Kahlon had sought to negotiate with

242 See Tremont II, 694 A.2d at 432 (“[H]ere, the process is so intertwined with

price that under Weinberger’s unitary standard a finding that the price negotiated by
the Special Committee might have been fair does not save the result.”); Basho Techs.
Holdco B, LLC v. Georgetown Basho Invs., LLC, 2018 WL 3326693, at *37 (Del. Ch.
July 6, 2018) (“Just as a fair process can support the price, an unfair process can taint
the price.”), aff’d sub nom. Davenport v. Basho Techs. Holdco B, LLC, 221 A.3d 100
(Del. 2019); Bomarko, Inc. v. Int’l Telecharge, Inc., 794 A.2d 1161, 1183 (Del. Ch. Nov.
4, 1999) (“[T]he unfairness of the process also infects the fairness of the price.”), aff’d,
776 A.2d 437 (Del. 2000) (per curiam).

243 Sprint Corp., 2017 WL 3421142, at *19.

244 Reis, 28 A.3d at 465.

245 Dole, 2015 WL 5052214, at *33.

64
Leo Group, then Leo Group likely would have insisted on receiving something in

return for leaving the Fund. And if Kahlon had not acted quickly and invoked the

Withdrawal Provision, then the delay could have harmed the Fund by preventing it

from ever having the opportunity to invest in SpaceX shares.

Under Nemec, the analysis does not consider the substantive fairness to Leo

Group, and Leo Group was not forced to accept a financially unfair result by being

required to accept the Forced Withdrawal on the terms contemplated by the

Withdrawal Provision. Kahlon’s actions were substantively fair from an economic

perspective to the beneficiaries of his duties—the Fund and its partners as a whole.

The same is true for the procedural dimension of entire fairness. Kahlon acted

in a fair manner towards the Fund and its partners as a whole by acting quickly to

eliminate the problem that Leo Group posed. Under Nemec, the analysis does not

consider the procedural fairness to Leo Group, and Leo Group was not forced to accept

a procedurally unfair result by being required to withdraw in compliance with the

Withdrawal Provision in the LP Agreement.

Kahlon’s actions were therefore entirely fair to the beneficiaries of his duties—

the Fund and its partners as a whole.

d. Leo Group’s Proven Claim For Breach Of The Duty Of
Candor

In contrast to its earlier failures to prove a breach of duty, Leo Group proved

that Kahlon breached his duty of candor. But Leo Group failed to prove its

entitlement to any remedy other than nominal damages.

65
Absent contractual modification, a general partner owes fiduciary duties that

include a duty of full disclosure. 246 That duty includes an obligation not to speak

falsely, whether through affirmative falsehoods or material omissions. 247 “Partial

disclosure, in which some material facts are not disclosed or are presented in an

ambiguous, incomplete, or misleading manner, is not sufficient to meet a fiduciary’s

disclosure obligations.” 248 The duty applies when one partner communications

directly with another.249

For the duty of disclosure, there is no separate standard of review. A question

of disclosure “is not a fact concerning the business of the Company,” so “the

independence (or good faith or due care) of [the fiduciary] is not directly relevant to a

determination whether a disclosure obligation has been satisfied (disclosure not being

a question of business judgment).”250 The plaintiff must prove the elements of a claim

246 Lonergan v. EPE Hldgs., LLC, 5 A.3d 1008, 1023 (Del. Ch. 2010).

247 Id.

248 Appel v. Berkman, 180 A.3d 1055, 1064 (Del. 2018) (internal quotation
marks omitted).

249 See Sussex Life Care Assocs. v. Strickler, 1988 WL 156833, at *4 (Del. Ch.

June 13, 1989) (noting that duty applied when buying partner communicated with
selling partner).

250 In re Mobil Comm. Corp. Consol. Litig., 1989 WL 997182, at *1, *2 (Del. Ch.

Apr. 3, 1989) (Allen, C.) (citation omitted); accord In re Anderson, Clayton S’holders’
Litig., 519 A.2d 669, 675 (1986) (Allen, C.); In re Tri–Star Pictures, Inc. Litig., 1990
WL 82734, at *8–9 (Del. Ch. June 14, 1990) (same); Lewis v. Leaseway Transp’n Corp.,
1990 WL 67383, at *6 (Del. Ch. May 16, 1990) (same). Whether the disclosure was

66
made disloyally, in bad faith, or with insufficient care may be relevant for other
purposes, such as exculpation.

A line of cases could be read to suggest that the business judgment rule
protects a decision about what to disclose. In the 3Com decision, when denying a
motion seeking expedited discovery into disclosure claims, this court remarked that
“[s]o long as the proxy statement, viewed in its entirety, sufficiently discloses and
explains the matter to be voted on, the omission or inclusion of a particular fact is
generally left to management’s business judgment.” In re 3Com S’holders Litig., 2009
WL 5173804, at *1 (Del. Ch. Dec. 18, 2009). For that proposition, the court cited
Kaplan v. Goldsamt, 380 A.2d 556 (Del. Ch. 1977), a post-trial decision which said
something similar. Id. at 565. The Kaplan decision in turn relied on Schiff v. RKO
Pictures Corp., 104 A.2d 267 (Del. Ch. 1954), which involved an application to enjoin
an interested sale of assets to a dominant stockholder and was issued after an
evidentiary hearing. One of the issues was whether the proxy statement should have
provided values for a film library and a share of the profits from a movie called “The
Robe.” Chancellor Seitz viewed those assets as particularly difficult to value, noting
that “much of the success of the movie industry is dependent upon the whims of a
fickle public” and that managers in the movie business “often succeeded only by the
application of unorthodox business methods.” Id. at 276. In that context, he declined
to find that the omissions of valuations for these assets constituted disclosure
violations, observing that the omission or inclusion of that type of valuation was
“within an area of management judgment.” Id. at 280. Chancellor Seitz’s observation
was thus far more limited than how 3Com and Kaplan portrayed it.

A decade ago, only two decisions referenced the 3Com formulation. See Ehlen
v. Conceptus, Inc., 2013 WL 2285577, at *2 (Del. Ch. May 24, 2013) (citing 3Com,
2009 WL 5173804, at *1); In re Micromet, Inc. S’holders Litig., 2012 WL 681785, at
*10 (Del. Ch. Feb. 29, 2012) (same). Recently, the phrase experienced a renaissance,
and it has appeared in five decisions in the last four years. See In re Anaplan, Inc.
S’holders Litig., 2024 WL 3086013, *7 (Del. Ch. June 21, 2024); Teamsters Loc. 677
Health Servs. & Ins. Plan v. Martell, 2023 WL 1370852, at *10 (Del. Ch. Jan. 31,
2023); In re Match Gp., Inc. Deriv. Litig., 2022 WL 3970159, at *27 (Del. Ch. Sept. 1,
2022); City Pension Fund for Firefighters & Police Officers in City of Mia. v. Trade
Desk, Inc., 2022 WL 3009959, at *16 (Del. Ch. July 29, 2022); Teamsters Loc. 237
Additional Sec. Benefit Fund v. Caruso, 2021 WL 3883932, at *29 (Del. Ch. Aug. 31,
2021).

None of the cases actually apply the business judgment rule to a disclosure
issue. If 3Com simply means that a disclosure should be read as a whole, then the
ruling makes sense. See In re GGP, Inc. S’holder Litig., 282 A.3d 37, 73 (Del. 2022)

67
that is tied to the standard of conduct itself. When a beneficiary who communicated

directly with the fiduciary seeks to recover damages, the beneficiary must prove (1) a

material misrepresentation or omission, (2) reliance, and (3) causally related

damages.251

To begin, Leo Group argues that Kahlon misled them by failing to disclose

SpaceX’s preferences regarding investors from China and public disclosures. That

claim fails. The time when Kahlon would have disclosed that information was when

Leo Group and Kahlon were negotiating Leo Group’s investment in the Fund. At that

point, Leo Group was not yet a limited partner and so not yet a beneficiary of Kahlon’s

fiduciary duties.

Next, Leo Group argues that Kahlon lied when failing to mention the Side

Letter or its Exhibit A to SpaceX. Kahlon did not owe a duty of candor to SpaceX, and

his failure to disclose that information to SpaceX did not harm the Fund nor its

(Traynor, J., concurring in part) (“When determining whether there has been a
disclosure violation, a proxy statement should be read as a whole.” (quoting IRA Tr.
FBO Bobbie Ahmed v. Crane, 2017 WL 7053964, at *18 (Del. Ch. Dec. 11, 2017), and
two other decisions, including 3Com and its reference to “management’s business
judgment.”)). Fiduciaries should get the benefit of the doubt on hard disclosure calls
made under factually ambiguous circumstances. But 3Com should not be read to
suggest that the business judgment rule protects any rational decision that a
fiduciary makes about what to disclose. That interpretation would replace the duty
to disclose material information with a duty to disclose only what the fiduciary
rationally believes constitutes sufficient material information.

251 See Dohmen v. Goodman, 234 A.3d 1161, 1168 (Del. 2020); In re Wayport,

Inc. Litig., 76 A.3d 296, 315 (Del. Ch. 2013).

68
relationship with SpaceX. Kahlon had a duty to act in the best interests of the Fund,

and maintaining his relationship with SpaceX served the best interests of the Fund.

Leo Group does better when arguing that Kahlon formulated what he

described as a “bullshit” communication plan to convince Leo Group to withdraw from

the Fund consensually.252 Relatedly, Kahlon sent letters to Leo Group and SpaceX

that contained conflicting accounts, neither of which was accurate. And in their

discussions with Leo Group, Kahlon and Gulf Asia depicted Johnsen’s reaction as

capricious and concealed that he was both uninformed and misinformed.

When Kahlon chose to speak to Leo Group in these settings, he took on a duty

to speak honestly and completely. He could not engage in partial or misleading

disclosures. By speaking falsely and partially, Kahlon failed to comply with his duty

of candor.

Leo Group failed, however, to prove reliance or any causally related harm. Leo

Group did not act to its detriment in reliance on Kahlon’s misstatements. Leo Group

did not agree to a consensual withdrawal, could not avoid the Forced Withdrawal,

and did not suffer any other harm. Kahlon did not gain any benefit other than

through the exercise of the Withdrawal Provision, and the Fund was already entitled

to that contractual benefit through the provision’s valid exercise. As discussed below,

he exercised the Withdrawal Provision in compliance with its terms. As discussed

above, he did so in a manner that was entirely fair to Leo Group.

252 See Kahlon Tr. 395.

69
Still, Leo Group proved a breach of duty, and that breach warrants an award

of nominal damages. The General Partner and Kahlon are liable to Leo Group in the

amount of $1 for breaching their duty of candor.

3. Conclusion Regarding The Breach Of Duty Claim

Except for the breach of the duty of candor, Leo Group failed to prove a

fiduciary breach. Assuming Leo Group did rebut one of the elements of the business

judgment rule, Kahlon and the General Partner proved that their actions were

entirely fair to the Fund and its partners as a whole. On that basis, judgment on the

breach of fiduciary duty claim will be entered in their favor on those claims. Kahlon

and the General Partner are, however, liable for breaching he duty of candor. Leo

Group is only entitled to nominal damages on that claim.

B. Breach of the LP Agreement

Leo Group sought to prove that Kahlon breached the LP Agreement in several

ways: first, by engaging in the Forced Withdrawal; second, by failing to use

reasonable efforts to avoid any need to engage in the Forced Withdrawal, and third

by acting too quickly when engaging in the Forced Withdrawal.

The elements of a claim for breach of contract are (i) a contractual obligation,

(ii) a breach of that obligation by the defendant, and (iii) a causally related injury that

70
warrants a remedy, such as damages or in an appropriate case, specific

performance.253

1. Principles of Contract Interpretation

The LP Agreements a contract governed by Delaware law. 254 When

interpreting a contract, Delaware courts “give words their plain meaning unless it

appears that the parties intended a special meaning.”255 “If a writing is plain and

clear on its face, i.e., its language conveys an unmistakable meaning, the writing

itself is the sole source for gaining an understanding of intent.”256 “The true test is

not what the parties to the contract intended it to mean, but what a reasonable person

in the position of the parties would have thought it meant.”257 “And, in the case of an

undefined term, the interpreting court may consult the dictionary, if that is deemed

useful, when determining the term’s plain meaning.”258

253 Trifecta Multimedia Hldgs. Inc. v. WCG Clinical Servs. LLC, 318 A.3d 450,

470 (Del. Ch. 2024).

254 See 6 Del. C. § 17-1101(b).

255 Norton v. K-Sea Transp. P’rs L.P., 67 A.3d 354, 360 (Del. 2013).

256 City Investing Co. Liquidating Tr. v. Cont’l Cas. Co., 624 A.2d 1191, 1198

(Del. 1993).

257 Rhone-Poulenc Basic Chems. Co. v. Am. Motorists Ins., 616 A.2d 1192, 1196

(Del. 1992).

258 Wenske v. Blue Bell Creameries, Inc., 2018 WL 3337531, at *10 (Del. Ch.

July 6, 2018).

71
“Contract language is not ambiguous merely because the parties dispute what

it means. To be ambiguous, a disputed contract term must be fairly or reasonably

susceptible to more than one meaning.”259 “Even if the Court determines that one

party’s reading of the contract is more reasonable or natural, that does not preclude

a finding of ambiguity.”260 If parties have engaged in “bilateral negotiations,” and the

contract that resulted from those negotiations contains an ambiguous term, then

courts may look to extrinsic evidence to resolve the ambiguity.261

In other circumstances, however, extrinsic evidence is unhelpful. “If the

contractual language at issue is ambiguous and if [one party] did not negotiate for

the agreement’s terms, [Delaware courts] apply the contra proferentem principle and

construe the ambiguous terms against the drafter.” 262 If “the articulation of contract

terms . . . appears to have been entirely within the control of one party . . . that party

bears full responsibility for the effect of those terms.” 263 This is because “[a]s the

259 Alta Berkeley VI C.V. v. Omneon, Inc., 41 A.3d 381, 385 (Del. 2012) (footnote

omitted).

260 AM Gen. Hldgs. LLC v. Renco Gp., Inc., 2017 WL 2167193, at *2 n.8 (Del.

Ch. May 17, 2017) (cleaned up).

261 SI Mgmt. L.P. v. Wininger, 707 A.2d 37, 43 (Del. 1998).

262 Norton, 67 A.3d at 360.

263 SI Mgmt., 707 A.2d at 44.

72
entity in control of the process of articulating the terms of the [agreements], it [is]

incumbent on the [drafter] to make their terms clear.”264

2. The Possible Defendants

A breach of contract claim can be asserted only against parties to the

contract. 265 The Fund and the General Partner are parties to the LP Agreement.

Kahlon is not. On that basis, judgment on the breach of contract claim will be entered

as to Kahlon. For simplicity, however, this decision will continue to refer to Kahlon

as the principal actor.

3. Breach of the Withdrawal Prohibition

Section 7.4 of the LP Agreement addresses when a limited partner can be

forced to withdraw from the Fund. Subject to specified exceptions, the provision states

that “no Limited Partner may withdraw as a Partner of the Partnership, nor shall

any Limited Partner be required to withdraw from the Partnership . . . .” (the

“Withdrawal Prohibition”). Unless an exception applies, Kahlon breaches the

Withdrawal Prohibition by forcing an investor to withdraw.

The Withdrawal Provision authorizes the General Partner to force a limited

partner to withdraw from the Fund “in the reasonable judgment of the General

Partner, a Limited Partner’s status as a Partner would be reasonably likely to result

264 Juul Labs, Inc. v. Grove, 238 A.3d 904, 911 (Del. Ch. 2020) (cleaned up).

265 Gotham P’rs, L.P. v. Hallwood Realty P’rs, L.P. (Gotham III), 817 A.2d 160,

172 (Del. 2002) (“[O]nly a party to a contract may be sued for breach of that
contract.”).

73
in a significant and adverse delay with respect to the activities of, or an extraordinary

expense of, or a material adverse effect on, the Partnership, any of its Portfolio

Companies or any of their respective Affiliates.266 Because the Withdrawal Provision

operates as an exception to the Withdrawal Prohibition, Kahlon bore the burden of

proving that it came within its terms.267

In this litigation, Kahlon relied on having a “reasonable judgment” that Leo

Group’s participation was “reasonably likely” to result in (i) a “significant and adverse

delay” and (ii) a “material adverse effect on the [Fund].” Kahlon proved with clear

and convincing evidence that both exceptions were satisfied. Assuming the contrary,

Leo Group failed to prove causally related harm.

266 LP Agreement § 7.7(b)(ii).

267 Texas Pac. Land Corp. v. Horizon Kinetics LLC, 306 A.3d 530, 565 (Del. Ch.

2023) (“Because the Investor Group seeks to establish an exception to the Voting
Commitment, the Investor Group has the burden of proving that the extrinsic
evidence supports the existence of an exception.”), aff’d, 314 A.3d 685 (Del. 2024);
Menn v. ConMed Corp., 2022 WL 2387802, at *25 (Del. Ch. June 30, 2022) (holding
that where the plaintiff proved that the defendants breached their obligation under
a stock purchase agreement, the defendants bore “the burden of proving the existence
of [an] exception”); Snow Phipps Gp., LLC v. Kcake Acq., Inc., 2021 WL 1714202, at
*29 (Del. Ch. Apr. 30, 2021) (“Kohlberg bore the initial, heavy burden of proving that
an event had occurred that had or would reasonably be expected to have a material
adverse effect on DecoPac. If Kohlberg met that burden, then Plaintiffs bear the
burden of proving that the relevant event fell within the exception . . . .” (footnote
omitted)); AB Stable VIII LLC v. Maps Hotels & Resorts One LLC, 2020 WL 7024929,
at *51 (Del. Ch. Nov. 30, 2020) (“Buyer had the burden to prove that Seller suffered
an effect that was material and adverse. After that, Seller had the burden to prove
that the source of the effect fell within an exception.”).

74
a. A Reasonable Judgment

The Withdrawal Provision requires a reasonable judgment. Kahlon proved

that he made a reasonable judgment before engaging in the Forced Withdrawal.

When a contract uses a term like “reasonable” and “reasonably,” the provision

incorporates both a subjective and objective component. Subjectively, the party

making the decision must have actually believed the justification proffered.

Furthermore, the court must agree that an objective, reasonable person would view

the justification as sufficient. 268 Applied to this case, Kahlon had to believe

subjectively that Leo Group’s continued status as a limited partner would be

reasonably likely to result in a significant and adverse delay or cause a material

adverse effect on the Fund, and that belief had to be objectively reasonable.

Leo Group argues that making a reasonable judgment means acting

reasonably when making the judgment, effectively introducing a duty to use

reasonable care. Kahlon proved that he acted reasonably.

First, Johnsen made clear during their call that he would not let the Fund buy

SpaceX shares as long as the Fund remained a limited partner. Kahlon believed—

reasonably and in good faith—that he would not be able to change Johnsen’s mind.

Johnsen objected to press coverage that could not be unrung, including a news story

268 E.g., Allen v. Encore Energy P’rs L.P., 72 A.3d 93, 104, 107 (Del. 2013); In

re Riviera Res., Inc., 291 A.3d 1091, 1099, 1100 (Del. Ch. 2023).

75
claiming that SpaceX was being backed by Leo Group. SpaceX needed to say that the

headline was not true, which meant Leo Group could not be allowed to invest.

Given that the publicity was the problem, Kahlon had no alterative other than

to remove Leo Group from the Fund. Explaining that Leo Group was not to blame for

the publicity would not change the reality of the situation. Kahlon had to move

quickly because SpaceX was considering whether to exercise its ROFR and the

planned closing for the Fund to buy the first tranche of shares was only days away.

Kahlon also had to move quickly because showing contrition and loyalty was

necessary for him to not become “persona non grata” in SpaceX’s small circle of

trusted intermediaries.269

Albeit insincerely, Kahlon initially attempted to negotiate a consensual

withdrawal. When Leo Group refused, Kahlon worked with Kirkland to prepare a

letter effectuating a Forced Withdrawal.

A reasonable process need not be optimal. It need not even be pretty. Under

the circumstances, Kahlon followed a reasonable process.

b. Significant and Adverse Delay

The Withdrawal Provision allows a forced withdrawal if “in the reasonable

judgment of the General Partner, a Limited Partner’s status as a Partner would be

reasonably likely to result in significant and adverse delay with respect to the

activities of [the Fund].” Kahlon proved that was the case here.

269 See Kahlon Tr. 220.

76
The trial record established that Johnsen would not let the Fund acquire

SpaceX shares as long as Leo Group remained a limited partner. The longer Leo

Group remained in the Fund, the longer it would be until SpaceX permitted the Fund

to buy SpaceX shares. That reality gave Kahlon an objectively reasonable basis to

force Leo Group to withdraw from the Fund.

Kahlon subjectively held that belief. Admittedly there is no evidence that

Kahlon contemporaneously considered the delay-oriented language in the

Withdrawal Provision, he clearly had in mind the reality that Johnsen would not let

the Fund acquire SpaceX shares as long as Leo Group remained in the Fund. Kahlon

therefore met both the subjective and objective requirements of the Withdrawal

Provision.

c. Material Adverse Effect

The Withdrawal Provision also allows a forced withdrawal if “in the reasonable

judgment of the General Partner, a Limited Partner’s status as a Partner would be

reasonably likely to result in . . . a material adverse effect on, the [the Fund].”

Through the General Partner, Kahlon satisfied that requirement.

Leo Group contends that “material adverse effect” is a term of art that means

the same thing it does in Delaware M&A jurisprudence.270 Accepting that framework

270 Hexion Specialty Chems., Inc. v. Huntsman Corp., 965 A.2d 715, 738 (Del.

Ch. 2008).

77
for purposes of analysis, Johnsen’s reaction to Leo Group’s involvement in the Fund

caused a material adverse effect.

The Fund’s reason for existence was to acquire SpaceX shares. Leo Group

bargained in the Side Letter for confirmation that its capital contribution could be

used only to acquire SpaceX shares.271 If the Fund could not acquire SpaceX shares

with Leo Group in the Fund, then the Fund could not fulfill its purpose. The Fund’s

investors—including Leo Group—would have would own a vehicle that could not buy

SpaceX shares despite having contributed their capital for that purpose. When an

entity cannot achieve the purpose for which it was created, the entity has suffered a

material adverse effect. That reality gave Kahlon had an objectively reasonable basis

to force Leo Group to withdraw from the Fund.

Here again, there is no evidence that Kahlon contemporaneously considered

the material-adverse-effect language of the Withdrawal Provision when engaging in

the Forced Withdrawal. Nevertheless, after speaking with Johnsen, he clearly had in

mind that Johnsen would not let the Fund acquire SpaceX shares as long as Leo

Group remained in the Fund, as well as the disastrous consequences that would have

for himself and the Fund. Kahlon again met both the subjective and objective

requirements of the Withdrawal Provision.

271 JX 76 at 1; JX 100.

78
d. A Contractually Anticipated Reason

Leo Group argues that Kahlon could not rely on the consequences of its public

announcement to justify the Forced Withdrawal because the Side Letter specifically

authorized Leo Group to act as it did. If Kahlon argued that the announcement

standing alone warranted invoking the Withdrawal Provision, then Leo Group could

be correct. But what justified the Forced Withdrawal was Johnsen’s reaction to Leo

Group’s announcement and the attendant publicity, not the announcement itself.

Kahlon had not bargained away the General Partner’s ability to respond to how

SpaceX viewed the announcement and accompanying publicity. The existence of the

Side Letter authorizing Leo Group’s announcement therefore does not prevent

Kahlon from relying on the Withdrawal Provision.

e. No Causally Related Harm Warranting A Remedy

Assuming for purposes of analysis that Kahlon in fact breached the

Withdrawal Provision, Leo Group failed to prove that the breach resulted in causally

related harm warranting a remedy. Because of the Forced Withdrawal, Leo Group

lost the opportunity to invest in SpaceX shares. If Leo Group had remained in the

Fund, the Fund would have lost the opportunity to invest in SpaceX shares. Leo

Group would be in the same position regardless. What caused harm to Leo Group was

(i) Johnsen’s assessment of the risk to SpaceX resulting from the publicity

surrounding Leo Group’s announcement of its investment and (ii) Johnsen’s

determination not to allow the Fund to invest as long as Leo Group remained involved

because of the risk that SpaceX’s competitors would use Leo Group’s involvement as

79
a weapon against SpaceX in Washington, D.C.272 Johnsen’s decisions meant that Leo

Group could not achieve an investment in SpaceX through the Fund, meaning that

Leo Group was not harmed by the Forced Withdrawal.

f. No Breach Of The Withdrawal Prohibition

The General Partner did not commit an actionable breach of the Withdrawal

Prohibition by engaging in the Forced Withdrawal. Judgment will be entered in favor

of the General Partner on this issue.

4. No Breach of the Efforts Prohibition

The Withdrawal Provision contains other exceptions to the Withdrawal

Prohibition. Many envision regulatory issues that would prevent a limited partner

from continuing as an investor in the Fund. Some contemplate the limited partner

raising the issue; others envision the General Partner raising the issue. Except for

the type of withdrawal at issue here, the exceptions contemplate the party raising

the issue obtaining an opinion of counsel supporting the regulatory problem. Section

7.7(c) then contemplates that the General Partner will have a period of 180 days (or

as short as 90 days if the opinion of counsel reasonably recommends a briefer period)

to cure the regulatory problem. During that period, the General Partner must use

reasonable efforts to correct the regulatory issue or otherwise find a solution (the

“Efforts Provision”). Leo Group claims the General Partner breached Efforts

Provision by not trying to cure the basis for the Forced Withdrawal.

272 Johnsen Tr. 199.

80
Leo Group’s claim of breach fails in the first instance because the Efforts

Provision only applies to a regulatory issue identified through an opinion of counsel.

The Efforts Provision states that if a basis for a forced withdrawal exists, then:

The General Partner shall have a period of 180 days (or such lesser
period reasonably recommended in the counsel’s opinion delivered
pursuant to Section 7.7(b), but in no event less than 90 days, except
where a period of less than 90 days is explicitly required under relevant
law) following receipt of such counsel’s opinion (the ‘Remedy Period’) to
use its reasonable efforts to eliminate the necessity for such withdrawal
whether by correction of the condition giving rise to the necessity of the
Regulated Partner’s withdrawal . . . .273

By its terms, the Efforts Provision applies only when the General Partner has

received and acts based on a regulatory issue identified in an opinion of counsel.

The Efforts Provision does not apply in this case because the General Partner

did not invoke the Withdrawal Provision based on a regulatory issue identified in an

opinion of counsel. Kahlon acted in response to Johnsen’s clear message that he would

not allow the Fund to purchase SpaceX shares as long as Leo Group was a limited

partner.

Assuming the Efforts Provision did apply, then the General Partner did not

breach it. Under the Efforts Provision, the General Partner must “use its reasonable

efforts to eliminate the necessity of such withdrawal . . . provided that the General

Partner shall not be required to forgo any investment opportunity on behalf of the

273 LP Agreement § 7.7(c).

81
Partnership or the Parallel Fund to solve a Limited Partner Regulatory Problem.”274

Kahlon proved that there were no reasonable steps for him to take and that delay

would have cost the Fund its ability to buy SpaceX shares.

During their call, Johnsen made clear to Kahlon that the Fund could not buy

shares if Leo Group remained a limited partner. Kahlon concluded—reasonably—

that he could do nothing to change Johnsen’s mind. Even if he or Leo Group explained

the existence of the Side Letter and Exhibit A, it would not change the press coverage

or the headline claiming that a Chinese company was backing SpaceX. To avoid a

threat that a competitor could use that headline against SpaceX, Johnsen could not

let the Fund invest if Leo Group remained involved. If Kahlon had waited until the

end of the cure period, the Fund would have lost its ability to acquire SpaceX shares.

Kahlon properly acted to avoid foregoing an investment opportunity.

But even if the General Partner breached the Efforts Provision, Leo Group

failed to prove that the breach resulted in causally related harm warranting a

remedy. Here again, Johnsen’s testimony established that SpaceX would not let the

Fund acquire shares while Leo Group remained an investor. After the efforts period

expired, the Fund still would not have been able to invest in SpaceX shares. Leo

Group would be in the same position it is in now. The only difference would be that

the Fund would suffer in addition to Leo Group.

274 Id. (emphasis in original)

82
Judgment will be entered in favor of the General Partner on the claim for

breach of the Efforts Provision.

5. Breach of the Timing Requirement

Section 7.7(f) of the LP Agreement states that the General Partner can only

effect a forced withdrawal on “the last day of the calendar quarter during which the

election or demand for withdrawal is made” (the “Timing Requirement”). Leo Group

claims that Kahlon caused the General Partner to breach the Timing Requirement,

but that claim fails as well.

The timing requirement states:

If the General Partner does not sell the Regulated Partner’s interest
pursuant to a Regulatory Sale or provide for a Regulatory Solution or
otherwise correct the condition giving rise to the necessity of the
Regulated Partner’s withdrawal within the Remedy Period, then such
Regulated Partner may withdraw or be required to withdraw in whose
or in part from the Partnership following the expiration of the Remedy
Period as of the date that is the earlier to occur of (i) the last day of the
calendar quarter during which the election or demand for withdrawal is
made and (ii) such date for withdrawal as may be recommended in the
Opinion of the Partnership’s Counsel or the Opinion of Limited Partner's
Counsel, as appropriate.

It thus applies to a withdrawal triggered by a regulatory problem supported by an

opinion of counsel. It does not apply to the Forced Withdrawal at issue.

Even if the Timing Requirement applied, Kahlon still did not breach it. The

Timing Requirement turns on the “Remedy Period,” defined in the Efforts Provision.

The Timing Requirement also acknowledges that “the General Partner shall not be

83
required to forgo any investment opportunity on behalf of the Partnership.”275 Kahlon

could not wait. The Fund needed to invest in SpaceX shares. If Kahlon had waited

any longer, the Fund would have lost any chance at buying shares.

Even assuming breach, Leo Group would not be entitled to a meaningful

remedy. Leo Group does not point to any economic harm from the breach of the

Timing Requirement, such as a loss of a distribution. Leo Group asserts instead that

the breach deprived Leo Group of its information rights, with Leo Group sought to

invoke on December 17, 2021,276 but the General Partner ignored.

Leo Group has not proven breach, so judgment will be entered in favor of the

General Partner on this claim. Assuming a breach existed, the court only would

award nominal damages.

6. Breach of the Forum Selection Provision

In its final contract claim, Leo Group asserts that the defendants breached a

forum selection provision by filing the California Action and the Delaware Superior

Court Action. That claim fails.

A party can recover damages for breach of a forum selection provision

measured by the expenses (including attorneys’ fees) incurred litigating in the

foreclosed forum.277 Here, there was no breach.

275 LP Agreement § 7.7(c).

276 JX 1004; see also LP Agreement § 11.1.

277 See Namdar v. Fried, 2025 WL 1604402, at *3 (Del. Ch. June 6, 2025).

84
Neither the LP Agreement nor the Side Letter contains a forum selection

provision. The subscription agreement contains a one-way forum selection provision.

It requires that a limited partner like Leo Group sue in Delaware, but does not bind

the Fund, the General Partner, or their affiliates. 278

That leaves only the Confidentiality Stipulation. That stipulation at least

contains a forum selection clause that selections the Delaware courts. It states that

each party “agrees that all claims in respect of [any suit, action, or proceeding arising

out of or relating to this Stipulation] shall be brought, heard, and determined

exclusively in the Delaware Court of Chancery (provided that, in the event that

subject matter jurisdiction is unavailable in that court, then all such claims shall be

brought, heard, and determined exclusively in any other state or federal court sitting

in the State of Delaware.279 None of the defendants breached that provision.

After Leo Group filed suit, the General Partner and the Fund filed the

California Action. They asserted that Leo Group fraudulently promised to abide by

the LP Agreement to become a limited partner and announce the investment.

The General Partner and the Fund also filed the Superior Court Action. They

asserted the same fraud claim as in the California Action, and they also asserted that

Leo Group tortiously caused the Investment Vehicle to breach the LP Agreement by

announcing the investment.

278 See JX 102 § 5(i).

279 Dkt. 41 ¶ 30.

85
The filing of the California Action did not breach the forum selection provision

because the asserted claim related to the underlying events, not the Confidentiality

Stipulation. The filing of the Superior Court Action did not breach the forum selection

provision for the same reason.

The forum selection clause in the Confidentiality Stipulation encompasses

disputes over the Confidentiality Stipulation. It does not operate as an umbrella

forum selection clause concentrating all litigation relating to the underlying events

in this court. Leo Group failed to prove breach.

III. CONCLUSION

Judgment will be entered in favor of Leo Group in the amount of $1, reflecting

an award of nominal damages against Kahlon and the General Partner for breach of

the duty of candor. Otherwise, judgment will be entered in favor of the defendants

and against Leo Group. Within thirty days, the parties must submit a proposed final

order, agreed as to form. If there are issues to address before a final order can be

entered, then the parties must submit a joint letter identifying those issues and

proposing a path forward. Any remaining items must be existing issues that need to

be addressed to end this proceeding. This instruction is not an invitation for the

parties to raise new issues or seek a do-over.

86