GC Broadway, LLC and Bryan Gortikov v. AN SM 1925 Broadway Holdings, LLC

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

GC BROADWAY, LLC, a California )
limited liability company, and BRYAN )
GORTIKOV, an individual, )
)
Plaintiffs, )
v. ) C.A. No. 2024-1070-LWW
)
AN SM 1925 BROADWAY HOLDINGS,
)
LLC, a Delaware limited liability company,
)
and ALEX NERUSH, an individual,
)
Defendants, )
and )
)
AN SM 1925 BROADWAY, LLC, a )
Delaware limited liability company, )
Nominal Defendant. )
)
ALEX NERUSH, an individual; and AN )
SM BROADWAY HOLDINGS, LLC, a )
Delaware limited liability company, )
)
Counterclaimants, )
v. )
GC BROADWAY, LLC, a California )
limited liability company; and BRYAN )
GORTIKOV, an individual, )
)
Counter-defendants, )
and )
AN SM 1925 BROADWAY, LLC, a )
Delaware limited liability company, )
)
Nominal Defendant. )

MEMORANDUM OPINION

Date Submitted: December 5, 2025
Date Decided: February 26, 2026
Todd C. Schiltz, Angela Lam, FAEGRE DRINKER BIDDLE & REATH, LLP,
Wilmington, Delaware; Robert J. Odson, Benjamin Leventhal Hicks, SHUMENER
ODSON OH LLP, Los Angeles, California; Attorneys for Plaintiffs/Counterclaim-
Defendants GC Broadway, LLC and Bryan Gortikov

Sean T. O’Kelly, O’KELLY & O’ROURKE, LLC, Wilmington, Delaware; Brian
M. Grossman, TESSER GROSSMAN LLP, Los Angeles, California; Attorneys for
Defendants/Counterclaim-Plaintiffs AN SM 1925 Broadway Holdings, LLC and
Alex Nerush

Sean T. O’Kelly, O’KELLY & O’ROURKE, LLC, Wilmington, Delaware; Attorney
for Nominal Defendant AN SM 1925 Broadway, LLC

WILL, Vice Chancellor
This post-trial decision resolves a dispute over a failed commercial real estate

venture in Santa Monica, California. In January 2023, the plaintiffs invested nearly

$8 million to rescue the distressed development project, securing a mandatory

redemption by September 2024 and personal guaranties from defendant Alex

Nerush. The relationship collapsed when the defendants defaulted on the

redemption obligation. It worsened when the plaintiffs discovered Nerush had

secretly leased the property—which was supposed to remain vacant—to a medi-spa

and kept the rental income for himself.

After securing summary judgment on their corporate control claims, the

plaintiffs proceeded to trial to enforce the guaranties and recover their financial

losses. The defendants pursued a series of counterclaims related to usury and fraud,

along with multiple affirmative defenses. The plaintiffs met their burden of proof;

the defendants did not.

The evidence shows that the company failed to pay the required redemption

price, triggering Nerush’s obligation to make the plaintiffs whole under a payment

guaranty. The plaintiffs also proved that Nerush committed fraud by actively

concealing the unauthorized lease and misappropriating the resulting rents, making

him personally liable under a recourse guaranty. The defendants’ attempts to avoid

liability through post hoc counterclaims lack factual and legal support.

1
Accordingly, judgment is entered in favor of the plaintiffs. Nerush is liable

for over $7 million in principal damages for breach of the payment guaranty,

$300,000 in restitutionary damages for the fraud, plus pre- and post-judgment

interest and reasonable attorneys’ fees.

I. BACKGROUND

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

preponderance of the evidence at trial.1

A. The Investment

This suit concerns a development project located at 1925 Broadway in Santa

Monica, California (the “Property”).2 Nominal defendant AN SM 1925 Broadway,

LLC (the “Company”), a Delaware limited liability company, was formed in

December 2022 to hold a 90% interest in the site.3 At the time of the events in

question, the Property was the home of a dilapidated diner and a separate commercial

building, both of which were intended for demolition to facilitate redevelopment.4

1
Joint Pre-trial Stipulation and Order (Dkt. 264) (“PTO”). The trial record includes live
and pre-recorded testimony of 8 fact witnesses, 354 joint exhibits, and 12 deposition
transcripts. Trial testimony is cited as “[Name] Tr.” See Trial Tr. Vols. I, II, and III
(Dkts. 288-90). Exhibits are cited by the numbers provided on the parties’ joint exhibit list
as “JX __,” unless otherwise defined. See Am. Joint Ex. List (Dkt. 272). Pincites refer to
internal pagination or, if a document lacks internal pagination, by the last four digits of
Bates stamps. Deposition transcripts are cited as “[Name] Dep. __.”
2
PTO ¶ 4; Gortikov Tr. 11.
3
PTO ¶ 4.
4
See Gortikov Tr. 74; Nerush Tr. 503-04.
2
Defendant Alex Nerush, a sophisticated California-based real estate investor,

partnered with WS Communities, LLC (“WS”) to acquire and develop the Property.5

Seeking capital to realize their vision, WS and Nerush approached plaintiff Bryan

Gortikov—also a real estate investor—in November 2022.6

On November 28, 2022, WS, Gortikov, and Nerush executed a non-binding

term sheet outlining the preliminary terms for predevelopment funding.7 The term

sheet granted Gortikov the “exclusive right to make [a] Preferred Equity investment”

of at least $9.5 million in exchange for a “Preferred Return.”8 The term sheet

included an “Alternative Structure” provision that gave Gortikov the sole discretion

to “structure the investment as a loan” rather than a traditional equity investment.9

B. Pre-Closing Negotiations

On December 16, 2022, the Company and 1925 Broadway, LLC—an entity

owned by affiliates of WS—purchased the Property as tenants in common.10 The

Company acquired a 90% interest in the Property, while 1925 Broadway (the “10%

Owner”) acquired the remaining 10%.11 To govern their rights and responsibilities

5
Gortikov Tr. 34; PTO ¶ 12.
6
PTO ¶ 8.
7
JX 13; PTO ¶ 9.
8
JX 13 at 9; PTO ¶¶ 9-10.
9
JX 13 at 5; PTO ¶ 11.
10
PTO ¶ 12.
11
Id.
3
regarding the Property, the parties entered into a Tenants in Common Agreement,

which designated the 10% Owner as the party responsible for day-to-day

management.12

The acquisition of the Property was financed through a mix of debt and equity.

The seller, an entity called Carey – 20th and Broadway LLC, provided an $8 million

loan.13 Nerush also contributed $16 million in equity derived from a “1031

exchange.”14 A 1031 exchange, named after Section 1031 of the Internal Revenue

Code, is a tax-deferral transaction allowing real estate investors to sell an investment

property, reinvest the proceeds into a new property, and defer capital gains taxes.15

After the Property was purchased, the parties and their counsel negotiated the

final terms of Gortikov’s investment.16 The investor was plaintiff GC Broadway,

LLC, a California limited liability company managed by Gortikov.17

12
JX 66; PTO ¶ 13.
13
PTO ¶ 14. The original maturity date was extended to January 16, 2025. Id.
14
Id. ¶ 15.
15
See generally Like-Kind Exchanges Under IRC Section 1031, Internal Revenue Serv.
(Feb. 2008), https://www.irs.gov/pub/irs-news/fs-08-18.pdf; see also Fawcett v. State,
697 A.2d 385, 388 (Del. 1997) (explaining that the court may take judicial notice of facts
that are “capable of accurate and ready determination by resort to sources whose accuracy
cannot reasonably be questioned” (quoting Del. R. Evid. 201)).
16
PTO ¶ 16; JX 13.
17
PTO ¶ 5.
4
During negotiations, a dispute arose over the transaction’s structure. On

December 27, 2022, Nerush’s counsel sent an email warning that securing GC

Broadway’s investment with a second deed of trust could be characterized as a loan

from a “related person” under IRS rules.18 Such a characterization, he said, could

“imperil successful 1031 treatment for [Nerush’s] exchange.”19

To mitigate this risk, Nerush’s counsel proposed two “possible alternatives

for moving forward.”20 The first alternative was “eliminat[ing]” the second deed of

trust and proceeding with a previously proposed membership structure for the

Company.21 This approach would allow the “‘related person’ inquiry [to] go[]

away.”22 The second alternative was to restructure the deal so that GC Broadway

“participate[d] as a second trust deed lender” without membership rights in the

Company.23 Counsel noted that the second option would require a “complete ‘re-

set’ and w[ould] push the closing into 2023.”24

18
JX 88.
19
Id.
20
Id.; see PTO ¶ 19; see also Nerush Tr. 476-77 (discussing the two options).
21
JX 88.
22
Id.
23
Id.
24
Id.; see PTO ¶ 19.
5
On January 13, 2023, Nerush’s counsel circulated draft language attempting

to merge these alternatives.25 He proposed that Gortikov “be treated as a creditor”

and that Gortikov’s payments be considered “interest and principal” rather than

capital contributions.26 Gortikov rejected the proposed changes and refused to

recharacterize his equity investment as debt.27 Nerush’s counsel withdrew the

recommendation.28

Before closing, Gortikov raised capital from 19 investors to fund GC

Broadway’s investment.29 No single investor contributed a majority of the funds.30

The first $1 million was invested by the father of Greg Proniloff, a childhood friend

of Gortikov who was then employed by WS.31

The transaction closed on January 19, 2023.32 At closing, GC Broadway was

deemed to have invested an initial $10.5 million, a portion of which was held in

25
JX 108.
26
Id.; see PTO ¶ 20.
27
PTO ¶ 21.
28
Id.
29
Id. ¶ 22.
30
Id.
31
Id. ¶¶ 7, 22; Gortikov Tr. 95-97. Greg Proniloff owned an 18% economic interest in
WS. He was employed by WS at the time the transaction closed but ceased to be affiliated
with WS by mid-2023. PTO ¶ 7.
32
PTO ¶ 23.
6
reserves.33 From these funds, $4,993,806 was wired to Nerush’s personal bank

account.34 Gortikov also paid Greg Proniloff a $21,000 voluntary referral fee from

the commission Gortikov’s entity received.35

C. The LLC Agreement
Also on January 19, the parties executed an Amended and Restated Limited

Liability Company Agreement for the Company (the “LLC Agreement”).36 By its

terms, defendant AN SM 1925 Broadway Holdings, LLC—an entity owned and

managed by Nerush—was labeled the “Sponsor Member” (or “Sponsor”) and GC

Broadway was labeled the “Investor Member” (or “Investor”).37 The Sponsor was

designated the Company’s initial “Managing Member” and the sole common

member; the Investor was the sole preferred equity member.38 The Investor and

Sponsor “constitute[d] all of the Members of the Company.”39

33
Id.; Nerush Tr. 449. Nerush invested the money received into a separate project called
Cloverfield, another building also located in Santa Monica. Nerush Tr. at 496-97.
34
PTO ¶ 23; Gortikov Tr. 64.
35
Gortikov Tr. 98; PTO ¶ 36. Gortikov made the payment through Gortikov Investments,
Inc. It was made as a “voluntary referral fee from [Gortikov’s] brokerage entity[,]” paid
out from the commission it was entitled to under the LLC Agreement. Gortikov Tr. 98.
36
JX 125 (“LLC Agreement”).
37
Id. at 1; see PTO ¶¶ 6, 24.
38
LLC Agreement 1; PTO ¶ 24.
39
LLC Agreement § 1.2; PTO ¶ 25.
7
The LLC Agreement granted the Sponsor broad authority to “manage and

conduct the operations and related contractual, financial and other affairs” and

“make all decisions regarding the Company.”40 This authority had limits. For one,

the Sponsor could not unilaterally approve any “Major Decision” without the

Investor’s written consent.41 The agreement defined “Major Decision[s]” to include

entering transactions with an affiliate of the Sponsor and leasing any portion of the

Property.42

Central to the parties’ economic arrangement was a “Redemption”

mechanism. The LLC Agreement required the Sponsor to “cause the Company” to

redeem the Investor’s entire membership interest by paying the “Full Redemption

Price” on or before the “Redemption Date.”43 The agreement set the Redemption

Date as the earliest of several events: the sale or refinancing of the Property, the

40
LLC Agreement §§ 5.1(a), 5.5.
41
Id. § 5.3(f).
42
Id. at Ex. B (o); id. at (s) (defining “Major Decision[s]” to include “any leasing of the
Project”). The “Project” is defined as “the renovation and development of the Property,”
as determined by the context. Id. at Ex. A-13.
43
Id. §§ 4.1-4.2. “Membership Interest” is defined as the “interest of a Member in the
Company,” including its right to share in the Company’s assets or property. Id. at Exs.
A-9, A-10. “Full Redemption Price” is defined as the sum of various factors, including all
accrued and outstanding interest on loans, principal, preferred returns, and others.
Id. § 4.1(e)(1).
8
removal of the Sponsor as Managing Member, or the fixed maturity date of the

seller’s loan on July 31, 2024.44

Nerush executed the LLC Agreement in both his representative capacity for

the Sponsor and his individual capacity.45 At trial, he admitted he did not read the

LLC Agreement before signing it.46

D. The Guaranties and Ancillary Agreements
Concurrent with the LLC Agreement, the parties executed several ancillary

documents. Each described the transaction as an equity investment. An Amended

and Restated Tenants in Common Agreement between the Company and 1925

Broadway characterized GC Broadway’s contribution as a “preferred capital

investment.”47 A separate Recognition Agreement between GC Broadway, the

Sponsor, 1925 Broadway, and the Company likewise described GC Broadway’s

“Preferred Equity Investment.”48

To secure the investment, Nerush executed two personal guaranties. First,

under a “Payment Guaranty,” Nerush “irrevocably and unconditionally

guarantee[d]” to GC Broadway “the payment and performance of the Guaranteed

44
Id. at Exs. A-13, A-14.
45
PTO ¶ 29.
46
Nerush Tr. 482; see PTO ¶ 29.
47
JX 126; PTO ¶ 31.
48
JX 127; see PTO ¶¶ 32-33. The Seller was also a signatory to the Recognition
Agreement. Id. ¶ 32; see also id. ¶ 14.
9
Obligations” when due, including the “punctual payment . . . of the Full Redemption

Price.”49 Second, under a Guaranty of Recourse Obligations (the “Recourse

Guaranty”), Nerush agreed to be personally liable for the Full Redemption Price

upon a “Full Recourse Event.”50 The Recourse Guaranty also made Nerush liable

for “Recourse Liabilities,” including for “fraud, intentional misrepresentation, or

willful misconduct” and the “misappropriation” of any “Rents.”51

As with the LLC Agreement, Nerush admitted at trial that he did not read any

of these ancillary agreements before signing them.52

E. The Unauthorized Lease

After the execution of the LLC Agreement, Gortikov discovered that Nerush

had leased the existing commercial building on the Property to Dandada, Inc. and

Modern Aesthetica Corp. (the “Occupants”).53 The Occupants operated a clinic

providing elective medical enhancement services.54 Despite the lack of a formal

49
JX 129 (“Payment Guaranty”); see JX 34.
50
JX 128 (“Recourse Guaranty”) § 1.2.
51
Id.; see infra note 323.
52
Nerush Tr. 483; see PTO ¶¶ 31-32, 34-35.
53
PTO ¶ 38; Nerush Tr. 503-04.
54
Nerush Tr. 504 (“Modern Aesthetica provided aesthetics for women, and Dandada
operated doing male enhancement.”).
10
lease agreement, the Occupants paid Nerush $20,000 per month in rent for use of the

premises.55

This tenancy stood in direct contravention of Section 6.1(c)(E) of the LLC

Agreement.56 In that provision, the Sponsor represented that there were “no leases,

tenancies, [or] rental agreements” affecting the Property.57 The vacancy of the

Property was material to the Investor’s business plan, which contemplated

immediate demolition to facilitate redevelopment.58

Despite this representation, on January 18, 2023—one day before signing the

LLC Agreement—Nerush emailed Adam Shekter, a representative of the Property’s

10% Owner, that: “The medical space will be used by me.”59 Consistent with that

email, Nerush permitted Modern Aesthetica to occupy the site.

55
See PTO ¶ 39; JX 149 (checks from Modern Aesthetica to Nerush); see also Moghadam
Dep. 37-38.
56
PTO ¶ 42.
57
LLC Agreement § 6.1(c)(E).
58
See Gortikov Tr. 72-76 (explaining that vacancy was critical to obtain demolition permits
and mitigate historic preservation risks); Walter Dep. 82-85.
59
JX 119; see Nerush Tr. 459-61; see also id. at 551 (identifying Adam Shekhter as the
person who had the keys); id. at 493-94 (identifying Neil Shekhter’s children as involved
in the transaction). The Shekhters are prominent real estate investors in California. See
Gortikov Tr. 94-95, 102; JXs 2-3. Neil Shekhter is also Nerush’s half-brother. Gortikov
Tr. 95.
11
This arrangement was lucrative for Nerush. Between April 2023 and

December 2024, Nerush collected $300,000 in rent from the Occupants.60 Nerush

deposited these funds into the bank account of a personal entity, AN Properties,

Inc.61

To resolve the unauthorized occupancy, the Occupants and their principal

signed an Agreement to Vacate on November 20, 2023.62 That agreement

acknowledged that Modern Aesthetica and Dandada were occupying the building on

the Property.63 It set a “Vacation Date” of September 30, 2024, by which the

Occupants were required to surrender possession.64 They failed to do so.65

F. The LLC Agreement Amendments

After Gortikov’s discovery of the unauthorized lease, the parties twice

amended the LLC Agreement to address delays in the project’s timeline.

60
Nerush Tr. 456-58 (confirming receipt of $20,000 monthly rent); Moghadam Dep. 106
(confirming checks totaling $300,000 were provided).
61
Nerush Tr. 456-58 (admitting rent was deposited into an AN Properties account and not
a Company account).
62
JX 180. The Company, 1925 Broadway, the Investor, and Nerush were also parties to
the agreement. PTO ¶ 43.
63
PTO ¶ 44.
64
JX 180; PTO ¶¶ 44-45. In the lead-up to the Vacation Date, Nerush also permitted other
parties to occupy portions of the Property. PTO ¶ 46.
65
See Gortikov Tr. 118; Moghadam Dep. 81.
12
On May 22, 2024, the Sponsor and Investor executed the First Amendment to

the LLC Agreement, which granted the Sponsor an option to extend the Redemption

Date to August 31, 2024.66 It also expanded the definition of “Removal Event” to

include a default of the Agreement to Vacate.67 Significantly, the First Amendment

stipulated that the Investor’s “outstanding capital contributions” remained at $10.5

million.68 Nerush signed the First Amendment on behalf of the Sponsor and himself

without reading it.69

On August 30, 2024, the Sponsor and Investor executed the Second

Amendment to the LLC Agreement, extending the Redemption Date to

September 30, 2024.70 This amendment included waivers and ratifications. The

Sponsor and Nerush acknowledged that the Investor was “not in default under the

LLC Agreement[,]” that they had “no set-offs, counterclaims, claims, defenses or

other causes of action against Investor [] arising out of the preferred equity

investment[,]” and that the Investor’s then “outstanding capital contributions” stood

at $9,737,064.99.71 They also agreed that any default under the Agreement to Vacate

66
JX 193 §§ 2(c), 2(e), 3.
67
Id. § 2(e); PTO ¶ 48.
68
PTO ¶ 48.
69
Id. ¶ 49.
70
JX 219; PTO ¶ 50.
71
JX 219 § 4; PTO ¶ 51.
13
or the Second Amendment itself would constitute an immediate Removal Event.72

Nerush signed the Second Amendment on behalf of himself and the Sponsor, again

without reading the contract.73

G. The Redemption and Vacation Defaults
The September 30, 2024 Redemption Date passed without performance.74

The Company failed to redeem the Investor’s membership interest or pay any portion

of the Full Redemption Price as required by the LLC Agreement.75 Nor did Nerush

pay the Investor anything on or before that date, as required by the Payment

Guaranty.76

Additionally, the Occupants failed to vacate the Property, maintaining

possession beyond the contractually mandated Vacation Date.77 Nerush has

permitted the Occupants to ignore the Investor’s eviction efforts and continue

occupying the premises.78

72
JX 219 § 2(e); PTO ¶ 51.
73
PTO ¶ 52.
74
Id. ¶ 53.
75
Id. ¶¶ 54-55.
76
Id. ¶ 55.
77
Id. ¶ 56.
78
Gortikov Tr. 117-18; Moghadam Dep. 81-82.
14
H. The California Action

Also on the September 30 Redemption Date, Nerush and the Sponsor filed a

lawsuit in California (“California Action”) against GC Broadway and Gortikov.79

Purportedly acting on the Company’s behalf, they claimed that the Investor’s

preferred equity investment was a disguised debt instrument.80 Based on this

characterization, they alleged that the effective interest rate of the purported debt

violated Article XV of the California Constitution, which generally caps interest on

loans at 10%.81

On October 22, 2024, the Company and Nerush amended their California

complaint to name the Property’s 10% Owner (1925 Broadway) as a defendant and

to add claims for quiet title and partition.82 The same day, Nerush recorded a lis

pendens against the Property, effectively clouding its title.83 The California court

expunged the lis pendens in March 2025 and awarded attorneys’ fees to the 10%

Owner, Gortikov, and GC Broadway.84

79
JX 225.
80
Id.; PTO ¶ 58.
81
PTO ¶ 58; see Calif. Const. art. XV, § 1.
82
JX 237.
83
PTO ¶ 60.
84
Id. ¶ 61.
15
The California Action was voluntarily dismissed in June 2025.85 The

dismissal followed the plaintiffs’ motion in this court to enjoin the defendants from

prosecuting the California Action.86

I. This Litigation

GC Broadway and Gortikov filed this action against the Sponsor and Nerush

in October 2024.87 The operative amended complaint was filed in July 2025.88 The

plaintiffs advance claims for declaratory judgment (Count I), breach of contract

(Count II), breach of guaranty (Count III), and fraud (Count IV).89

Proceedings were briefly stalled by the defendants’ litigation tactics. In

December 2024, the Sponsor filed a voluntary Chapter 11 petition in the United

States Bankruptcy Court for the District of Delaware, triggering an automatic stay.90

In January 2025, the bankruptcy court lifted the stay and allowed this action to

proceed.91

85
Id. ¶ 62; see Dkts. 4-5, 119, 178-80.
86
PTO ¶ 62; see also Mot. for Partial Summ. J. (Dkt. 4).
87
Verified Compl. (Dkt. 1).
88
First Am. Verified Compl. (Dkt. 185) (“Am. Compl.”).
89
Id. ¶¶ 70-105.
90
Suggestion of Bankr. (Dkt. 54).
91
Letter Regarding Lifting Stay and Requesting Scheduling Teleconference (Dkt. 56); id.
at Ex. A (Order from Bankr. D. Del. Granting Mot. for Relief from Automatic Stay to
Resume Del. Ct. Ch. Proceedings); see also Minute Order (Dkt. 58). After the stay was
lifted, the plaintiffs filed their amended complaint. Dkt. 60.
16
On June 9, 2025, this court granted partial summary judgment for the plaintiffs

on Count I and entered an order confirming the Sponsor’s removal and the Investor’s

installation as the Company’s Managing Member.92 It was undisputed that a

“Removal Event” had occurred as defined in the LLC Agreement, and that the

Investor had served two removal notices to which the Sponsor did not respond.93

Although the merits of Counts I and II regarding control of the Company were

resolved, the question of any damages for those counts remains to be decided.94

On July 18, 2025, the defendants filed a counterclaim against GC Broadway

and Gortikov.95 They advance claims for fraudulent concealment (Counterclaim I),

breach of contract (Counterclaim II), and fraud (Counterclaim III).96 The defendants

also seek a declaratory judgment that Gortikov’s “preferred return” is a usurious loan

governed by California law (Counterclaim VI) and assert corresponding direct and

derivative usury claims (Counterclaims IV and V).97

A three-day trial was held beginning on October 15, 2025 to resolve the

remaining claims, including the enforcement of the Payment Guaranty and the

92
PTO ¶ 67.
93
Id. ¶¶ 64-66.
94
Id. at 2.
95
Countercl. (Dkt. 184).
96
Id. ¶¶ 21-42.
97
Id. ¶¶ 43-56.
17
defendants’ counterclaims.98 After post-trial briefing concluded on

December 5, 2025, I determined that post-trial argument was unnecessary and took

the matter under advisement.99

II. LEGAL ANALYSIS
The parties proceeded to trial on the plaintiffs’ claims for breach of the

Payment Guaranty (Count III) and fraud (Count IV).100 Also tried were the

defendants’ counterclaims for fraudulent concealment (Counterclaim I), breach of

contract (Counterclaim II), fraud (Counterclaim III), and usury (Counterclaims IV,

V, and VI).101 After trial, the defendants moved to amend their pleading to add

additional counterclaims.102

The burden of proof on these claims is a preponderance of the evidence.

“Proof by a preponderance of the evidence means proof that something is more likely

than not.”103 Under this standard, “certain evidence, when compared to the evidence

98
Dkt. 271; see Dkts. 288-90 (Trial Trs.).
99
Pls.’ Post-trial Opening Br. (Dkt. 279); Defs.’ Opening Post-trial Br. (Dkt. 281); Pls.’
Post-trial Answering Br. (Dkt. 284); Defs.’ Post-trial Closing Br. (Dkt. 285).
100
PTO 2-3; Dkt. 173 (Order).
101
Countercl. ¶¶ 21-56; PTO 3-6.
102
See infra Section II.B.1.
103
Agilent Techs., Inc. v. Kirkland, 2010 WL 610725, at *13 (Del. Ch. Feb. 18, 2010)
(quoting Del. Express Shuttle, Inc. v. Older, 2002 WL 31458243, at *17 (Del. Ch.
Oct. 23, 2002)).
18
opposed to it, has the more convincing force and makes you believe that something

is more likely true than not.”104

I begin by addressing the plaintiffs’ affirmative claims for breach of the

Payment Guaranty and fraud. I then turn to the defendants’ counterclaims and

affirmative defenses, including their contention that the transaction was a usurious

loan and their various theories of fraud and breach of contract. I conclude by

assessing damages.

A. The Plaintiffs’ Affirmative Claims

The plaintiffs pressed two primary claims at trial. First, they seek to enforce

the Payment Guaranty against Nerush for his failure to pay the Full Redemption

Price (Count III).105 Second, they allege that Nerush committed fraud by

misrepresenting his intention to keep the Property vacant (Count IV).106

The plaintiffs have met their burden on Count III. The evidence establishes

that Nerush executed an absolute and unconditional guaranty, the payment deadline

passed without performance, and no valid defense excuses his breach. The plaintiffs

also proved Count IV. The trial record demonstrates that Nerush made a knowing

104
Id.
105
Am. Compl. ¶¶ 91-97.
106
Id. ¶¶ 98-105.
19
misrepresentation regarding the occupancy of the Property to induce the Investor’s

participation, resulting in a harm distinct from the contractual non-payment.

1. The Payment Guaranty (Count III)

“Delaware adheres to the ‘objective’ theory of contracts, i.e., a contract’s

construction should be that which would be understood by an objective, reasonable

third party.”107 “When interpreting a contract, the [c]ourt will give priority to the

parties’ intentions as reflected in the four corners of the agreement[.]”108 The court

assesses the contract “as a whole and . . . will give each provision and term effect,

so as not to render any part of the contract mere surplusage.”109

The plaintiffs seek to enforce Section 1.2 of the Payment Guaranty, which

makes Nerush personally liable for the Company’s failure to redeem the Investor’s

interest:

Guarantor hereby assumes liability for, hereby agrees to pay, and
hereby guarantees the punctual payment to Investor, and not
merely the collectability, of the Full Redemption Price . . . .110

107
Osborn ex rel. Osborn v. Kemp, 991 A.2d 1153, 1159 (Del. 2010) (quoting NBC
Universal v. Paxson Commc’ns Corp., 2005 WL 1038997, at *5 (Del. Ch. Apr. 29, 2005)).
108
GMG Cap. Invs., LLC v. Athenian Venture P’rs I, L.P., 36 A.3d 776, 779 (Del. 2012).
109
Osborn, 991 A.2d at 1159 (quoting Kuhn Constr., Inc. v. Diamond State Port Corp.,
990 A.2d 393, 396-97 (Del. 2010)).
110
Payment Guaranty § 1.2.
20
A guaranty is a contract.111 To prevail, the plaintiffs must demonstrate: “(1) the

existence of a contract; (2) the breach of a contractual obligation; and (3) resulting

damages.”112 The record establishes all three elements.

First, the Payment Guaranty is a valid and enforceable contract governed by

Delaware law.113 Nerush executed the Payment Guaranty on January 19, 2023.114

He admits that he did not read the contract before signing it.115 His failure to read

the document before execution does not excuse his performance.116

Second, the plaintiffs proved a breach of the contractual obligation. A

guarantor’s liability arises upon the principal obligor’s default.117 The LLC

Agreement required the Company to pay the Full Redemption Price by the

111
FinanceAmerica Priv. Brands, Inc. v. Harvey E. Hall, Inc., 380 A.2d 1377, 1379 (Del.
Super. 1977) (explaining that a “guaranty is a . . . contract”).
112
Anschutz Corp. v. Brown Robin Cap., LLC, 2020 WL 3096744, at *9 (Del. Ch.
June 11, 2020).
113
Payment Guaranty § 5.3(a) (providing that the Guaranty “shall be interpreted and
enforced according to the laws of the State of Delaware”).
114
PTO ¶ 34; Nerush Tr. 465.
115
PTO ¶ 34.
116
See Pellaton v. Bank of N.Y., 592 A.2d 473, 477 (Del. 1991) (holding that a party who
signs a contract is bound by its terms regardless of whether they read it); REM OA Hldgs.,
LLC v. N. Gold Hldgs., LLC, 2023 WL 6143042, at *20 (Del. Ch. Sept. 20, 2023)
(“Avoidance is not justified by a party’s failure to read a contract[.]” (citation omitted)),
aff’d, 320 A.3d 237 (Del. 2024) (TABLE).
117
See Anguilla Re, LLC v. Lubert-Adler Real Est. Fund IV, L.P., 2012 WL 1408857, at *4
(Del. Super. Mar. 28, 2012) (“A contract of guaranty is a promise or undertaking that is
collateral to a principal obligation. The guarantor is bound to perform in the event that the
principal obligor defaults.”).
21
September 30, 2024 Redemption Date.118 The parties stipulated that “[t]he Company

did not pay Investor the Full Redemption Price” by that date.119

The Company’s primary default triggered Nerush’s secondary obligation.120

Section 1.2 of the Payment Guaranty required Nerush’s “punctual payment” to the

Investor of the Full Redemption Price upon the Company’s default.121 Nerush

breached the Payment Guaranty by failing to satisfy that obligation.122 He conceded

at trial that he never paid the Full Redemption Price to the Investor.123

Third, this breach caused damages. As a result of the Company’s default and

Nerush’s non-payment, the Investor has been deprived of its capital and its

contractual return. The quantification of these damages is addressed in the Remedies

section below.124

118
LLC Agreement § 4.2(a).
119
PTO ¶¶ 53-54.
120
See Anguilla, 2012 WL 1408857, at *4.
121
Payment Guaranty § 1.2.
122
PTO ¶¶ 53-54.
123
Nerush Tr. 465 (“Q: And you never paid the full redemption price. Correct? A: That
is correct.”).
124
See infra Section III.A; see also JX 341; Pls.’ Post-trial Opening Br. 30.
22
In defense of his breach, Nerush advances usury and fraud theories to argue

that the contract is void. Those claims fail, as explained below.125 Judgment on

Count III is in the plaintiffs’ favor.

2. Fraudulent Inducement (Count IV)

The plaintiffs press a fraud claim against Nerush based on his representations

in the LLC Agreement about the Property. They assert that Nerush falsely

represented that the Property was vacant and would remain so, while concealing his

pre-existing intent to lease the premises to the Occupants.126

To prevail on a fraud claim, a plaintiff must prove:

1) a false representation, usually one of fact . . . ; 2) the
defendant’s knowledge or belief that the representation was
false, or was made with reckless indifference to the truth; 3) an
intent to induce the plaintiff to act or to refrain from acting; 4)
the plaintiff’s action or inaction taken in justifiable reliance upon
the representation; and 5) damage to the plaintiff as a result of
such reliance.127
To begin, the defendants insist this claim is an impermissible attempt to

“bootstrap” a breach of contract claim into a tort claim. In their view, the claim

hinges on the same factual predicate as a breach of contract—violation of the

vacancy covenant in Section 6.1—and effectively seeks duplicative damages for a

125
See infra Section II.B; see also Defs.’ Post-trial Closing Br. 6.
126
Pls.’ Post-trial Opening Br. 30-33.
127
Gaffin v. Teledyne, Inc., 611 A.2d 467, 472 (Del. 1992).
23
contractual failure.128 Under Delaware law, a plaintiff cannot twist a breach of

contract claim into a fraud claim “merely by alleging that a contracting party never

intended to perform its obligations.”129 But exceptions exist. If a plaintiff can prove

a defendant made a “putative misrepresentation” of “either a past or

contemporaneous fact or a future event that falsely implies an existing fact” that

induced the contract, a fraud claim may lie.130 The evidence at trial proves such a

claim.

First, the Sponsor made a false representation of fact. In Section 6.1(c)(E) of

the LLC Agreement, the Sponsor represented that “[t]o the knowledge of Sponsor

Member . . . there [we]re no leases, tenancies, [or] rental agreements” affecting the

Property.131 The Sponsor further covenanted in Exhibit D-2 to the LLC Agreement

that the Property was “vacant . . . and w[ould] be kept vacant permanently.”132

128
See Defs.’ Pre-trial Br. 8-9 (arguing that “all [the p]laintiffs have is a breach of contract
claim” because there is “no evidence of . . . a pre-existing intent not to perform”).
129
Narrowstep, Inc. v. Onstream Media Corp., 2010 WL 5422405, at *15 (Del. Ch.
Dec. 22, 2010) (citing Iotex Commc’ns, Inc. v. Defries, 1998 WL 914265, at *4 (Del. Ch.
Dec. 21, 1998)).
130
See Winner Acceptance Corp. v. Return on Cap. Corp., 2008 WL 5352063, at *7 (Del.
Ch. Dec. 23, 2008) (“An unfulfilled promise of future performance will . . . convert a
potential contract claim into a claim sounding in fraud . . . [if] at the time the promise was
made the speaker had no intention of performing.”); Carrow v. Arnold, 2006 WL 3289582,
at *8 (Del. Ch. Oct. 31, 2006) (“[A] viable claim of fraud concerning a contract must allege
misrepresentations of present facts . . . that were collateral to the contract and which
induced the allegedly defrauded party to enter into the contract.” (citation omitted)).
131
LLC Agreement § 6.1(c)(E).
132
Id. at Ex. D-2.
24
Second, Nerush knew this representation was false when he caused the

Sponsor to make it. As the manager and sole member of the Sponsor, Nerush’s

knowledge is imputed to the entity.133 On January 18, 2023—one day before signing

the LLC Agreement—Nerush emailed Adam Shekhter to say that the “medical

space” on the Property would be “used by [Nerush].”134 This email confirmed that

while Nerush was warranting vacancy to the Investor, he had an undisclosed plan to

occupy the Property with Modern Aesthetica.135 This is not a mere failure to perform

a future promise. It is a knowing misrepresentation of present intent.136

Third, the plaintiffs justifiably relied on this representation. The vacancy of

the Property was material to the Investor’s business plan, which required immediate

demolition for redevelopment.137 Gortikov credibly testified that had he known of

the unauthorized tenancy, he would not have closed the transaction or would at least

133
See Triton Constr. Co. v. E. Shore Elec. Servs., 2009 WL 1387115, at *16 (Del. Ch.
May 18, 2009) (imputing the knowledge of a “controlling officer” to the entity); Albert v.
Alex. Brown Mgmt. Servs., Inc., 2005 WL 2130607, at *11 (Del. Ch. Aug. 26, 2005)
(“Delaware law states the knowledge of an agent acquired while acting within the scope of
his or her authority is imputed to the principal.”).
134
JX 119; Nerush Tr. 459-61.
135
See Nerush Tr. 503-04.
136
See MicroStrategy Inc. v. Acacia Rsch. Corp., 2010 WL 5550455, at *15 (Del. Ch.
Dec. 30, 2010) (finding scienter adequately pled where defendant allegedly negotiated a
deal while secretly planning to violate it).
137
Gortikov Tr. 72-76.
25
have required different security.138 The integration clause in Section 16.2 of the LLC

Agreement does not bar this claim, as the fraudulent representation is contained

within the contract itself and the agreement lacks an anti-reliance provision

disclaiming such representations.139

Fourth, the plaintiffs suffered distinct damages. The fraud induced the

Investor to forgo a second deed of trust, leaving it exposed when Nerush later

defaulted. The unauthorized tenancy also delayed the redevelopment timeline and

forced the Investor to incur costs to regain possession of the Property. Although the

non-payment of the redemption price is addressed in Count III, damages flowing

from the vacancy fraud—eviction costs and lost time—are recoverable under Count

IV, as addressed below.140

Accordingly, judgment is entered for the plaintiffs on Count IV. As the

Sponsor’s manager, Nerush’s personal participation in the commission of the fraud

subjects him to personal liability.141

138
Id. at 72.
139
LLC Agreement § 16.2; see Abry P’rs V, L.P. v. F & W Acq. LLC, 891 A.2d 1032, 1059
(Del. Ch. 2006) (holding that a standard integration clause does not bar fraud claims based
on written contractual representations).
140
See infra Section III.
141
See Bay Ctr. Apartments Owner, LLC v. Emery Bay PKI, LLC, 2009 WL 1124451,
at *12 (Del. Ch. Apr. 20, 2009) (“[A] corporate officer can be held personally liable for the
torts he commits and cannot shield himself behind a corporation when he is a participant.”
(citation omitted)).
26
B. The Defendants’ Counterclaims and Defenses

The defendants pleaded six counterclaims against the plaintiffs, all of which

seek to invalidate the Payment Guaranty or offset the damages owed. Those

counterclaims are for fraudulent concealment (Counterclaim I), breach of contract

(Counterclaim II), fraud (Counterclaim III), and usury (Counterclaims IV and V).142

The defendants/counterclaim plaintiffs also seek a declaratory judgment that

Gortikov’s “Preferred Return” is a usurious loan governed by California law

(Counterclaim VI).143 After trial, the defendants moved to amend their pleadings to

assert three additional counterclaims (Counterclaims VII, VIII, and IX) to conform

to the trial evidence.144 For the reasons explained below, the counterclaims fail.

1. Procedural Framework

Before addressing the merits of the counterclaims, I pause to address the

procedural posture. In August 2025, the plaintiffs moved to dismiss Counterclaims

IV, V, and VI.145 Briefing ensued, and I deferred ruling on the motion until after

142
Countercl. (Dkt. 184).
143
Id. ¶¶ 53-56.
144
See infra note 147 and accompanying text.
145
Opening Br. in Supp. of Countercl. Defs.’ Mot. for Partial Dismissal of Counts IV, V
and VI, and for Punitive Damages (Dkt. 189).
27
trial.146 The plaintiffs/counterclaim defendants answered Counterclaims I, II, and

III.147

After trial, the defendants moved to amend their pleading to add three

counterclaims to conform to the evidence.148 The counterclaims they seek to add

are: fraudulent concealment (Counterclaim VII); “affirmative fraud” (Counterclaim

VIII) regarding the allegation that the plaintiffs had not raised $10.5 million at

closing; and breach of the implied covenant of good faith and fair dealing

(Counterclaim IX) regarding a referral fee paid to Greg Proniloff.149

Under Court of Chancery Rule 15(b), “[w]hen an issue not raised by the

pleadings is tried with the parties’ express or implied consent, it must be treated in

all respects as if raised in the pleadings.”150 The purpose of this rule is “to encourage

the disposition of litigation on its merits” rather than on procedural technicalities.151

Although “Rule 15 provides in effect that amendments of the pleadings are to be

146
Letter to Counsel Regarding Mot. to Dismiss (Dkt. 262); see also Countercls.’ Opp’n
to Countercl. Defs.’ Mot. for Partial Dismissal (Dkt. 206) (“MTD Countercl.’ Opp’n”);
Reply Br. in Supp. of Countercl. Defs.’ Mot. for Partial Dismissal (Dkt. 212).
147
Countercl. Defs.’ Answer to Countercl. and Aff. Defenses (Dkt. 269).
148
Defs.’ Mot. to Amend Pursuant to Rule 15(b) (Dkt. 278) (“Defs.’ Mot. to Amend”).
149
Id. ¶ 1.
150
Ct. Ch. R. 15(b)(2).
151
See Vichi v. Koninklijke Philips Elecs., N.V., 85 A.3d 725, 759 (Del. Ch. 2014) (citation
omitted).
28
freely granted, it remains a discretionary matter for the judge.”152 I exercise that

discretion here to grant the Rule 15(b) motion as to Counterclaims VII and VIII, and

to deny it as to Counterclaim IX.

Two factors dictate this result: (1) whether consent—express or implied—was

given;153 and (2) whether prejudice will result from granting the motion.154 Consent

is necessary for a Rule 15(b) motion to be granted.155 But it is not necessarily

sufficient, since courts must also consider the existence of prejudice.156

152
Laird v. Buckley, 539 A.2d 1076, 1079 (Del. 1988); Vichi, 85 A.3d at 759 (noting that
the “decision to permit or deny an amendment is left to the discretion of the trial judge”
(citation omitted)).
153
Ct. Ch. R. 15(b).
154
Those Certain Underwriters at Lloyd’s, London v. Nat’l Installment Ins. Servs.,
2008 WL 2133417, at *10 (Del. Ch. May 21, 2008); Bellanca Corp. v. Bellanca,
169 A.2d 620, 622 (Del. 1961) (“A trial judge in his discretion must always permit or deny
the amendment by weighing the desirability of ending the litigation on its merits against
possible prejudice or surprise to the other side.”).
155
Lloyd’s, 2008 WL 2133417, at *9 (“Under the relevant part of Rule 15(b), the parties
must consent, explicitly or implicitly, to the introduction of evidence of the unpleaded
issue.” (emphasis added)).
156
6A Charles Alan Wright, Arthur R. Miller & Mary Kay Kane, Fed. Practice and
Procedure § 1493 (2008) (“Rule 15(b)(2) does not expressly refer to prejudice as a basis
for denying an amendment to conform to issues that have been introduced without
objection; it only speaks of consent. Nonetheless, consideration of this factor is a valid
exercise of the court’s discretion.”); Lloyd’s, 2008 WL 2133417, at *7 n.59 (explaining
that Rule 15 is modeled on Rule 15 of the Federal Rules of Civil Procedure, and that
“Delaware courts routinely look to the federal courts’ application of” the federal rule for
guidance).
29
It is undisputed that the plaintiffs did not expressly consent to the

amendment.157 But their conduct at trial shows implied consent to the introduction

of two of the three proposed counterclaims. Implied consent involves “whether the

parties recognized that an issue not presented by the pleadings entered the case at

trial.”158 Here, the parties fully litigated the factual and legal basis for Counterclaims

VII and VIII concerning funding.159 Because the plaintiffs engaged with this distinct

factual dispute at trial, they “understood that the [admission of such] evidence was

aimed at the unpleaded issue.”160

At the same time, the plaintiffs did not give implied consent for Counterclaim

IX. Implied consent “should not be inferred when ‘evidence relevant to a properly

pleaded issue also incidentally tends to prove [a] fact not pleaded.’”161 Evidence

regarding the payment to Proniloff, which forms the basis of Counterclaim IX, was

157
PTO ¶ 71 (expressing an intention to “oppose . . . an amendment” under Rule 15(b));
Trial Tr. Vol III (Dkt. 290) 609-10 (same); Pls.’ Post-trial Opening Br. 51-61 (same).
158
Lloyd’s, 2008 WL 2133417, at *9.
159
See, e.g., Gortikov Tr. 279-30 (discussing the funds raised at the time of closing,
pertinent to Counterclaim Counts VII and VIII); id. at 352-53 (same); see also LLC
Agreement § 2.2 (same).
160
State ex rel. Structa-bond, Inc. v. Mumford & Miller Concrete, Inc.,
2002 WL 31101938, at *3 (Del. Super. Sept. 17, 2002).
161
Vichi, 85 A.3d at 761 (citation omitted); Pls.’ Post-trial Opening Br. 54-55.
30
already relevant to the existing Counterclaims I, II, and III.162 Because this evidence

was admissible for the pleaded claims, the plaintiffs had no reason to object to its

introduction. Their failure to do so cannot be construed as implied consent to try a

newly minted claim for breach of the implied covenant of good faith and fair

dealing.163

That leaves the issue of prejudice for the claims where consent exists.164

Where consent is given, prejudice will vitiate a claim if the opposing party was

denied a “fair opportunity” to defend against the new theory or offer evidence in

response.165 This requirement prevents unfair “surprise to the other side.”166

162
See Defs.’ Mot. to Amend, Ex. B (First Am. Countercl.) ¶¶ 84-90; see also Gortikov Tr.
98-100 (explaining the nature of a $21,000 payment to Proniloff, relevant to Counterclaim
Count IX and the preexisting Counterclaim Counts I-III).
163
Even if consent were given, this claim would still fail on the merits. The implied
covenant is a gap-filling mechanism that applies only when a contract is silent on a disputed
issue. Nemec v. Shrader, 991 A.2d 1120, 1125 (Del. 2010). It is a “cautious enterprise”
and cannot be used to “override the express terms of [a] contract.” Kuroda v. SPJS Hldgs.,
L.L.C., 971 A.2d 872, 888 (Del. Ch. 2009). The LLC Agreement at issue here is not silent,
however. Section 6.3 governs the subject of broker commissions and defines the scope of
prohibition, limiting it to parties “entitled” to compensation. LLC Agreement § 6.3; see
infra notes 217-229 and accompanying text (explaining why the defendants’ counterclaim
for breach of Section 6.3 fails).
164
Lloyd’s, 2008 WL 2133417, at *10.
165
Id.
166
Bellanca, 169 A.2d at 622.
31
I see no meaningful prejudice to the plaintiffs from the addition of

Counterclaims VII and VIII.167 The relevant issue—whether Gortikov was required

to disclose the funding available at closing—was pressed throughout trial.168 This

discrete issue did not require additional discovery or expand the scope of the trial.169

It also did not cause a “change of tactics or theories” on either side.170

Thus, the operative pleading is deemed amended to include Counterclaims

VII and VIII. The Rule 15(b) motion is, however, denied as to Counterclaim IX.

As for the pending motion to dismiss Counterclaims IV, V, and VI, it is denied

as moot. Because the parties have tried these claims, the sufficiency of the pleadings

is no longer the operative inquiry.171 I proceed to resolve the counterclaims on the

merits.

167
I need not reach the issue of prejudice as to Counterclaim IX, because the plaintiffs did
not give express or implied consent to try this claim.
168
See, e.g., Gortikov Tr. 279-30 (discussing the funds raised at the time of closing,
pertinent to Counterclaim Counts VII and VIII); id. at 352-53 (same); LLC
Agreement § 2.2 (same).
169
Bellanca, 169 A.2d at 622 (stating that, where “no additional evidence” is offered, “there
can be . . . no possible prejudice” for purposes of a Rule 15(b) analysis).
170
HOMF II Inv. Corp. v. Altenberg, 2020 WL 2529806, at *41 (Del. Ch. May 19, 2020)
(citation omitted).
171
Bellanca, 169 A.2d at 622 (explaining that, under Rule 15, “pleadings are not an end in
themselves” and should “assist, not deter, the disposition of litigation on its merits”).
32
2. Usury (Counterclaims IV, V, and VI)

In Counterclaims IV, V, and VI, the defendants/counterclaim plaintiffs ask

this court to disregard the plain terms of the parties’ agreements, recharacterize the

Investor’s capital contribution as a loan, and declare the “Preferred Return” usurious

under California law. Counterclaim VI seeks a declaration that the Investor’s

contribution is a “disguised loan.”172 Counterclaims IV and V concern whether this

purported “loan” violates Article XV of the California Constitution, which generally

caps interest rates at 10%.173

These claims fail for three reasons. First, Delaware law governs the

interpretation of the LLC Agreement. Second, the economic reality of the

transaction confirms it is an equity investment. And third, the defendants are

contractually and equitably estopped from recharacterizing the transaction they

intentionally structured as equity to secure tax benefits.

a. Choice of Law

The defendants insist that California law—rather than Delaware law—should

apply to the determination of whether Gortikov’s investment is debt or equity.174

They note that Nerush is a California resident, GC Broadway is a California entity,

172
PTO 5; Countercl. ¶ 45.
173
Countercl. ¶¶ 43-52.
174
PTO 5-6.
33
the place of negotiation and contracting was California, and the contract itself

concerns property located in California.175 They also highlight that the California

Constitution bans interest rates for debt instruments in excess of 10%, while

Delaware has no analogous law.176 This request is rejected.

The LLC Agreement mandates the application of Delaware law. Section 16.5

states that “[t]his Agreement and the rights of the Parties shall be governed by, and

interpreted and enforced in accordance with, the internal laws of the State of

Delaware without regard to principles of conflicts of laws.”177 Section 1.2 further

confirms that the “rights and obligations” of the Company’s members “shall be

governed by the provisions of the Delaware [Limited Liability Company] Act.”178

“Delaware courts will generally honor a contractually-designated choice of

law provision so long as the jurisdiction selected bears some material relationship to

the transaction.”179 Here, the relationship is indisputable. The plaintiffs are

175
MTD Countercl.’ Opp’n 8.
176
Id. at 4-6.
177
LLC Agreement § 16.5. Section 5.3 of the Payment Guaranty also states that Delaware
substantive law governs the document. Payment Guaranty § 5.3.
178
LLC Agreement § 1.2; see also id. at Ex. A.
179
J.S. Alberici Constr. Co. v. Mid- W. Conveyor, Co., 750 A.2d 518, 520 (Del. 2000); see
also Ashall Homes Ltd. v. ROK Ent. Gp. Inc., 992 A.2d 1239, 1245 (Del. Ch. 2010).
34
enforcing rights to a preferred return arising under the Company’s LLC

Agreement.180

Under the Restatement (Second) of Conflicts of Laws, which Delaware

follows, a choice of law provision will be enforced in the event of a conflict, unless

doing so would violate a “fundamental public policy” of a state with a “materially

greater interest” than Delaware.181 The defendants cannot satisfy this test.

First, no conflict exists between California’s and Delaware’s laws on

recharacterization of debt and equity. California courts are “bound to consider

substance over form . . . to ascertain [the parties’] true intent” when evaluating the

character of an instrument.182 Delaware abides by the same principle.183 The result

would be the same regardless of which state’s laws—California or Delaware—

applied.

180
PTO ¶ 4.
181
NuVasive, Inc. v. Miles, 2018 WL 4677607, at *3, *5 (Del. Ch. Sept. 28, 2018) (citing
Ascension Ins. Hldgs., LLC v. Underwood, 2015 WL 356002, at *2, *3 (Del. Ch. Jan. 28,
2015)).
182
In re Marriage of Umphrey, 218 Cal. App. 3d 647, 657 (Cal. Ct. App. 1990); see also
People v. Sidwell, 27 Cal. 2d 121, 128 (Cal. 1945) (“[T]he substance and not the mere form
of a transaction determines its character.”).
183
Monroe Park v. Metro. Life Ins., 457 A.2d 734, 737 (Del. 1983) (explaining that “equity
regards substance rather than form”); Wolfensohn v. Madison Fund, Inc., 253 A.2d 72, 75
(Del. 1969) (citing Moore v. Am. Fin. & Secs. Co., 73 A.2d 47 (Del. Ch. 1950) to stand for
the proposition that, where “ambiguity” exists as to the nature of an instrument, courts look
to various substantive factors beyond “the terms of [a] contract”).
35
Second, California does not have a materially greater interest in this matter

than Delaware. This dispute concerns the internal affairs of a Delaware limited

liability company—specifically, the classification of a member’s capital

contribution as debt or equity.184 The core issue is the definition of a membership

interest under a limited liability company agreement. To that end, “[a] claim to

enforce [an] entity’s constitutive document necessarily implicates the special interest

that a sovereign has in adjudicating cases involving the internal affairs of entities

created under its laws.”185 Delaware has a paramount interest in providing certainty

and uniformity over the internal governance and capital structure of entities created

under its laws.186

Third, enforcing Delaware law does not violate a fundamental public policy

of California. The defendants posit that applying Delaware law evades California’s

usury cap. But that argument assumes that the instrument is a loan; it is not.187

184
See NuVasive, Inc. v. Miles, 2018 WL 4677607, at *3, *5 (Del. Ch. Sept. 28, 2018)
(holding that California did not have a “materially greater interest” than Delaware where
the parties were sophisticated and represented by counsel, despite California’s strong
public policy against non-competes).
185
Terramar Retail Ctrs., LLC v. Marion #2 Seaport Tr. U/A/D June 21, 2002,
2017 WL 3575712, at *7 (Del. Ch. Aug. 18, 2017).
186
See VantagePoint Venture P’rs 1996 v. Examen, Inc., 871 A.2d 1108, 1112 (Del. 2005)
(holding that the internal affairs doctrine is constitutionally mandated to ensure that “only
one state [has] the authority to regulate a corporation’s internal affairs” to avoid conflicting
demands).
187
See infra Section II.B.2.b.
36
Because California’s usury laws apply only to “loan[s] or forbearance[s,]”

characterizing an equity investment as such does not conflict with California

policy.188

b. Equity or Debt

Under Delaware law, the characterization of an instrument as debt or equity

starts with an “interpretation of the contract between the [entity] and [the] security

holders.”189 Courts should assess the “economic reality of the surrounding

circumstances” and the “intent of the parties” to determine whether a label is a

sham.190 Put differently, the court may consider the overarching question of whether

“the parties called an instrument one thing when in fact they intended it as something

else.”191 Still, the inquiry centers on the substantive rights and obligations created

by the instrument. Here, the plain terms of the LLC Agreement create an equity

interest, and the economic reality confirms that the parties intended that structure.

188
Ghirardo v. Antonioli, 8 Cal. 4th 791, 798 (Cal. 1994).
189
Harbinger Cap. P’rs Master Fund I, Ltd. v. Granite Broad. Corp., 906 A.2d 218, 229
(Del. Ch. 2006) (citation omitted).
190
In re SubMicron Sys. Corp., 432 F.3d 448, 456-57 (3d Cir. 2006) (applying Delaware
law and explaining that the determination considers the “economic reality of the
surrounding circumstances,” and “facts that confer context case-by-case”); see Nelson v.
Emerson, 2008 WL 1961150, at *4 n.13 (Del. Ch. May 6, 2008) (“Recharacterization of
debt to equity looks at whether a debt is really an equity contribution disguised as a debt
[and vice versa].”); Wolfensohn, 253 A.2d at 75 (holding that whether an instrument is debt
or equity depends on the “terms of [the] contract” and intent of the parties).
191
SubMicron, 432 F.3d at 455-56 (applying Delaware law).
37
First, the LLC Agreement unambiguously describes Gortikov’s contribution

as an equity investment.192 The LLC Agreement refers to GC Broadway as the

“Investor Member” and the contribution as a “Preferred Equity Investment.”193

Section 13.2 states that the investment would be treated as debt for tax purposes only

to effectuate Nerush’s 1031 exchange goals.194 Notably, the LLC Agreement

separately defines and describes a “Loan” from the seller, demonstrating that the

parties knew how to create a debt instrument when they intended to.195

The LLC Agreement also confers rights characteristic of equity. The Investor

holds “voting and decision rights” and veto power over “Major Decisions.”196 Such

rights are the prerogatives of an owner with a stake in the enterprise’s success rather

than a passive lender.197 Unlike a loan with a guaranteed repayment schedule, the

192
See Wolfensohn, 253 A.2d at 75 (holding that “[t]he question of whether or not the
holder of a particular instrument is a stockholder or a creditor depends upon the terms of
his contract”).
193
LLC Agreement § 2.2 (“The amounts contributed by Investor Member hereunder shall
sometimes be referred to as the ‘Preferred Equity Investment.’”); see also
id. §§ 2.2(b), 4.2(e); JX 219, Recitals.
194
LLC Agreement § 13.2.
195
Id. § 17.3; see id. at Ex. A-7; see also In re Autostyle Plastics, Inc., 269 F.3d 726, 750
(6th Cir. 2001) (noting that the existence of other outside lending suggests the instrument
at issue is equity).
196
LLC Agreement §§ 1.2, 5.3(f); see id. at Ex. B (defining “Major Decisions”).
197
See Harbinger Cap., 906 A.2d at 231 (noting that even contingent voting rights are
evidence of equity); id. at 231 n.56 (explaining that “the right to vote is necessarily a
characteristic right of equity”); In re Color Tile, Inc., 2000 WL 152129, at *5 (D. Del.
Feb. 9, 2000) (same).
38
Investor’s return is tied to the success of the “Project.”198 The Investor’s preferred

return is subordinate to senior debt and paid only from available “Net Capital

Proceeds” or “Available Cash.”199 The fact that payment depends on the entity’s

business fortunes is consistent with an equity investment.200

Second, the economic reality defeats the defendants’ belief that the transaction

is a “disguised loan.”201 Though the defendants ask me to prioritize substance over

form, the substance confirms that the equity form was purposefully chosen. The

parties considered and rejected a loan structure in favor of equity to secure tax

benefits for Nerush, not to disguise a loan.

The negotiation history is dispositive. A November 2022 “Summary of Terms

and Conditions” in the term sheet initially gave Gortikov the option to pursue an

“Alternative Structure” for the “investment as a loan.”202 Nerush’s counsel then

warned that a secured loan would “imperil” Nerush’s Section 1031 exchange and

advised proceeding with the “Investor membership” (i.e., equity) structure

198
LLC Agreement §§ 2.2, 4.1(a)-(e).
199
Id. § 4.1(a)-(e).
200
Compare SubMicron, 432 F.3d at 455-56 (observing that the repayment of funds “based
on the borrower’s fortunes” is a hallmark of an equity investment), with Autostyle Plastics,
269 F.3d at 749-50 (stating the “[u]se of advances to meet the daily operating needs of the
corporation . . . is indicative of bona fide indebtedness”).
201
Defs.’ Opening Post-trial Br. 22.
202
JX 13 at 5-6 (outlining an “Alternative Structure”).
39
instead.203 Later, in an attempt to secure debt treatment within that structure,

Nerush’s counsel proposed drafting the agreement to deem the Investor’s

contribution “debt and not equity for all purposes.”204 Gortikov rejected that

proposal.205 The parties executed a final LLC Agreement treating the contribution

as equity for all purposes, except tax reporting.206

The defendants’ remaining arguments are unavailing. The defendants insist

that the mandatory redemption provision shows the contribution is a loan.207 But

such provisions do not convert equity into debt because “the rights of shareholders

to redeem shares are not guaranteed” and depend on the entity having available

funds.208 Here, the Investor’s right to redemption is constrained by certain

conditions, distinguishing it from a fixed debt obligation.209 Nor does Gortikov’s

JX 88; see also JX 100 (email from Nerush’s tax advisor, warning that a loan would
203

make the Investor a “related person” and disqualify the 1031 exchange).
204
JX 108 at 85 (draft LLC Agreement, Ex. A-3, defining “Capital Contributions” to be
treated as “debt and not equity for all purposes”); id. at 15 (draft Section 4.1(a) proposing
Investor “be treated as a creditor”); see also JX 88 (proposing that Investor “participate[]
as a second trust deed lender” for purposes of “successful 1031 treatment”).
205
PTO ¶ 21.
206
See LLC Agreement § 4.1(a); id. at Ex. A-3 (final agreement omitting the “debt”
language).
207
Defs.’ Opening Post-trial Br. 25.
208
See Harbinger Cap., 906 A.2d at 225-27 (rejecting an argument that mandatory
redemption feature made preferred stock a debt instrument); LLC Agreement § 4.2(b); see
also Color Tile, 2000 WL 152129, at *5 (same).
209
See LLC Agreement §§ 4.2(b)-(c) (conditioning redemption on satisfaction of
conditions); id. at Ex. A-6 (defining “Full Redemption Conditions”).
40
occasional use of colloquialisms like “lender” in informal emails override the text

of the definitive agreement and evidence of the parties’ overarching intent.210

Accordingly, the Investor’s contribution to the Company is an equity

investment. It is not subject to usury restrictions. Judgment on Counterclaim VI is

entered for the plaintiffs/counterclaim defendants.

c. The Constitutional Claims

Counterclaims IV and V rise and fall with the determination that the

transaction is equity.211 Counterclaim IV concerns the contention that the Investor’s

contribution is a usurious loan in violation of Article XV of the California

Constitution.212 Counterclaim V asserts a direct claim on the same basis.213 Both

fail.

Usury laws generally apply only to debt instruments, such as loans or

forbearances, not to equity investments.214 As explained above, the Investor’s

210
See Wolfensohn, 253 A.2d at 75.
211
PTO 4-5.
212
Id.
213
Id.
214
See, e.g., NY Cap. Asset Corp. v. F&B Fuel Oil Corp., 98 N.Y.S.3d 501, at *6 (N.Y.
Sup. Ct. 2018) (“Usury laws . . . apply only to loans or forbearance, not investments.”);
Ghirardo, 8 Cal. 4th at 798 (explaining that usury laws apply only to “loan[s]” or
“forebearance[s]”); see also 6 Del. C. § 2304(a) (defining usury as “the charge to a
borrower by a lender, directly or indirectly, of a higher rate of interest than that permitted
by law”).
41
contribution was a preferred equity investment. Because no loan exists, no usury

violation can occur.215 Judgment on Counterclaims IV and V is in the

plaintiffs/counterclaim defendants’ favor.

3. The Proniloff Claims (Counterclaims I, II, III)

The defendants advance three counterclaims arising from the same set of facts.

Gortikov Investments, Inc.—Gortikov’s brokerage entity—paid a $21,000 referral

fee to Greg Proniloff in connection with the transaction. The defendants assert that

this payment violated the LLC Agreement, and that the plaintiffs fraudulently

concealed Proniloff’s financial interest to induce Nerush to close the deal. As relief,

they seek rescission.

The defendants/counterclaim plaintiffs have not proven these counterclaims.

The breach of contract claim is meritless because a warranty on commissions was

accurate, and rescission is unwarranted because the payment was immaterial to the

deal’s economics. The fraud claim is meritless. And the “fraudulent concealment”

claim fails because nothing was concealed, and Gortikov had no duty to disclose the

information at issue otherwise.

215
See Langille v. Cent.-Penn Nat’l Bank of Phila., 153 A.2d 211, 213 (Del. Ch. 1959)
(holding that, when a “violation of a usury statute is alleged,” the usury analysis turns on
“whether the transaction in question was the kind of transaction which it was the intention
of the legislature to prevent”).
42
a. Breach of Contract (Counterclaim II)

The defendants/counterclaim plaintiffs claim that the Investor breached

Section 6.3 of the LLC Agreement because Gortikov paid Proniloff a $21,000

commission. Section 6.3 of the LLC Agreement provides:

Except for Gortikov Investments, Inc., d/b/a Gortikov Capital,
each Member (a) represents and warrants to each other Member
that neither it nor its Affiliates have dealt with any brokers,
investment bankers, consultants or other Third Parties who are
entitled to receive a commission or compensation in connection
with the formation and capitalization of the Company . . . and
(b) agrees to indemnify, defend and hold the Company. . .
harmless from and against any Losses for or relating to any
claims for commissions or any other fees due . . . .216

The defendants assert that the $21,000 payment to Proniloff breached this

warranty.217 As a remedy, they request rescission of the entire transaction.218 Their

claim fails for two reasons.

216
LLC Agreement § 6.3 (emphasis added).
217
Defs.’ Post-trial Opening Br. 17-18.
218
Id. at 19.
43
First, the Investor did not breach Section 6.3.219 The warranty applies only to

third parties who are “entitled to receive” a commission.220 The term “entitled”

means “having a right to certain benefits or privileges.”221

Proniloff, however, had no right to a payment. No agreement obligated

Gortikov, the Investor, or the Company to pay Proniloff any amount.222 Gortikov

Investments paid Proniloff a “voluntary referral fee” out of its own commission as a

professional courtesy for helping to facilitate the transaction.223 Because Proniloff

was not entitled to the payment—either when the LLC Agreement was executed or

later—the representation in Section 6.3 was accurate.

Second, even if the payment constituted a technical breach, it was an

immaterial one that cannot support rescission. The equitable remedy of rescission

“is not given for every serious mistake” and “is awarded as a matter of judgment.”224

219
See generally Moore Bus. Forms, Inc. v. Cordant Hldgs. Corp., 1995 WL 662685, at *7
(Del. Ch. Nov. 2, 1995) (setting forth elements for breach of contract); see also supra
note 112 and accompanying text (summarizing the elements for a breach of contract claim);
supra notes 107-109 (summarizing the applicable principles of contract interpretation).
220
LLC Agreement § 6.3.
221
Entitled, Merriam-Webster, https://www.merriam-webster.com/dictionary/entitled (last
visited Feb. 22, 2026).
222
Gortikov Tr. 98-99.
223
Id. at 98.
224
Gotham P’rs, L.P. v. Hallwood Realty P’rs, L.P, 817 A.2d 160, 174 (Del. 2002); see
also In re Sunbelt Beverage Corp. S’holder Litig., 2010 WL 26539, at *14 (Del. Ch.
Jan. 5, 2010) (“[R]escission is an equitable remedy that a court of equity will only grant,
as an exercise of discretion, when that remedy is clearly warranted.”).
44
It is “not generally permitted for casual, technical, or unimportant breaches, or where

the breach is incidental or subordinate to the main purpose of the contract.” 225 The

breach must be “substantial or material.”226

Here, the challenged payment was de minimis: $21,000 in the context of a

$10.5 million investment. It caused no harm to the defendants. The fee came from

Gortikov Investments’ own commission after-the-fact. It neither increased the

Company’s expenses nor altered the deal’s economics.227

The defendants maintain that the purported breach was material because it

created a conflict of interest for Proniloff, depriving Nerush of unbiased advice from

WS.228 But this argument relies on the false premise that Proniloff was Nerush’s

agent. He was not. Proniloff was the representative of the 10% Owner, an adverse

counterparty to Nerush.229 Proniloff owed Nerush no duty, and Gortikov’s

225
26 Williston on Contracts § 68:2 (4th ed.).
226
Id.; see also BioLife Sols., Inc. v. Endocare, Inc., 838 A.2d 268, 278 (Del. Ch. 2003)
(explaining that the materiality of a breach is a question “of degree”); Restatement
(Second) of Contracts § 241 (Am. L. Inst. 1981) (identifying factors to be examined when
considering whether a breach is material, including “the extent to which the injured party
will be deprived of the benefit which he reasonably expected[,]” “the extent to which the
injured party can be adequately compensated for the part of that benefit of which he will
be deprived[,]” and “the extent to which the party failing to perform or to offer to perform
will suffer forfeiture”).
227
Gortikov Tr. 99.
228
Defs.’ Post-trial Opening Br. 18.
229
Nerush Tr. 492-93; Proniloff Dep. 199.
45
post-closing payment to Proniloff created no conflict that could legally harm the

defendants.

b. Fraud (Counterclaim III)

The defendants seek to repackage their claim for breach of Section 6.3 as

fraud. They assert that the plaintiffs falsely warranted that no consultant was entitled

to a commission.230 The fraud claim fails as a matter of law.

To prevail on a fraud claim, a party must prove: (1) a false representation;

(2) knowledge of its falsity; (3) intent to induce reliance; (4) justifiable reliance; and

(5) damages.231 The defendants allege that the plaintiffs committed fraud by falsely

representing in Section 6.3 of the LLC Agreement that no consultant was “entitled

to receive a commission.”232 They contend they relied on this representation and

would not have closed the deal had they known Proniloff would receive a fee.233

The defendant/counterclaim plaintiffs’ claim fails on the first fraud element.

As explained above regarding the breach of contract counterclaim, the representation

in Section 6.3 was accurate. The provision warranted that no third party was

“entitled to receive a commission.”234 Because Proniloff had no contractual right to

230
Countercl. ¶¶ 38-39; PTO ¶ 4.
231
Stephenson v. Capano Dev., Inc., 462 A.2d 1069, 1074 (Del. 1983).
232
LLC Agreement § 6.3; PTO ¶ 4.
233
Countercl. ¶¶ 38-39; PTO 4.
234
LLC Agreement § 6.3.
46
the payment—and received it only as a discretionary referral fee—the Investor and

Gortikov did not make a false statement when executing the LLC Agreement.235

Even if the representation were false, the claim would be barred by the anti-

bootstrapping rule. Delaware law generally prohibits “bootstrapping” a breach of

contract claim into a fraud claim.236 A fraud claim can survive alongside a contract

theory only if the allegations go beyond a mere failure to perform and involve

separate conduct, such as an intention to “plunder” the counterparty or a scheme

collateral to the contract.237

The defendants proved nothing of the sort. They simply point to a warranty

in the contract, claim it was false, and seek rescission—the same argument and

remedy as their breach of contract claim. This counterclaim contrasts with the

plaintiffs’ affirmative fraud claim, which concerns an undisclosed plan to lease the

Property and collect rent.238 Without such separate and distinct conduct or damages,

the counterclaim is duplicative.239

235
See supra note 35 and accompanying text.
236
Narrowstep, 2010 WL 5422405, at *14-15.
237
Id.
238
See supra notes 126-141 and accompanying text.
239
Narrowstep, 2010 WL 5422405, at *14-15; see BAE Sys. N. Am. Inc. v. Lockheed Martin
Corp., 2004 WL 1739522, at *8 (Del. Ch. Aug. 3, 2004).
47
c. “Fraudulent Concealment” (Counterclaim I)240

A second fraud counterclaim concerns a purported duty to disclose rather than

affirmative misrepresentation.241 The defendants/counterclaim plaintiffs allege that

the plaintiffs concealed three facts about Proniloff: (1) Gortikov and Proniloff were

friends; (2) Proniloff received a fee from Gortikov Investments; and (3) Proniloff’s

father was an investor in the fund Gortikov raised to finance the deal.242 They argue

that Gortikov had a duty to disclose this information because Proniloff was acting as

Nerush’s “agent” or “advisor,” and the concealment deprived Nerush of unbiased

advice.243

This claim fails for two reasons. First, the factual premise of the duty—that

Proniloff was Nerush’s agent—is false. Second, even if Proniloff were Nerush’s

240
PTO 3. The plaintiffs refer, erroneously, to the claim as one for “fraudulent
concealment.” Countercl. 8. Fraudulent concealment is a theory used to toll the statute of
limitations. E.g., LGM Hldgs., LLC v. Schurder, 340 A.3d 1134, 1147 (Del. 2025). But
whether the statute of limitations has run is not at issue here, nor is it discussed in the
counterclaim. Countercl. ¶¶ 21-30. Delaware law instructs me to look at the substance of
a claim, not its form. See Monroe Park, 457 A.2d at 737 (“[E]quity regards substance
rather than form.” (citing 2 Pomeroy’s Equity Jurisprudence §§ 378, 383)).
241
See NetApp, Inc. v. Cinelli, 2023 WL 4925910, at *12-13 (Del. Ch. Aug. 2, 2023)
(explaining that “fraud can occur in one of three ways: (1) an overt misrepresentation;
(2) silence in the face of a duty to speak; or (3) active concealment of material facts”
(citation omitted)).
242
Countercl. ¶ 23.
243
Id. ¶ 22.
48
agent, the plaintiffs had no duty to report these facts to a sophisticated counterparty

in an arm’s-length transaction.

i. Agency

Under Delaware law, “[a]n agency relationship is created when one party

consents to have another act on its behalf, with the principal controlling and directing

the acts of the agent.”244 But at trial, Nerush admitted he never had a written or oral

agency agreement with Proniloff, never told Gortikov that Proniloff was his agent,

and never held Proniloff out as his agent.245 Nerush was also contractually obligated

to obtain GC Broadway’s approval before retaining an agent.246 He failed to do so.247

The evidence confirms that Proniloff was an employee of WS (the 10%

Owner), a counterparty to the transaction.248 Other witnesses, including Nerush’s

own counsel, testified they never understood Proniloff to be acting as Nerush’s

agent.249 Because no agency relationship existed, there was no fiduciary conflict for

the plaintiffs to conceal.

244
Fisher v. Townsends, Inc., 695 A.2d 53, 57-58 (Del. 1997) (citation omitted); see also
Restatement (Second) of Agency § 1 (Am. L. Inst. 1958).
245
Nerush Tr. 492-93.
246
Id. at 495; see LLC Agreement § 6.1(e)(iii).
247
Nerush Tr. 495.
248
See supra note 29 and accompanying text.
249
Gotfredson Tr. 441 (testifying that he never believed that Proniloff acted, throughout
the transaction, as a representative or agent of Nerush).
49
ii. Duty to Speak

The plaintiffs had no special duty to Nerush that obligated them to disclose

facts related to the investment. In a commercial arm’s-length transaction, there is

no general duty to disclose facts “absent a special relationship,” such as a fiduciary

relationship.250 That is true even for facts that the other party might “regard as

material in determining his course of action in the transaction in question.”251

Here, the parties were sophisticated actors represented by separate counsel.252

The plaintiffs owed no fiduciary duties to Nerush; in fact, the LLC Agreement

expressly waived them.253 Proniloff was known to be an employee of WS, an

adverse party.254 Thus, Gortikov had no duty to disclose his friendship with

Proniloff or the details of Proniloff’s compensation. Nerush’s decision to rely on

250
Prairie Cap. III, L.P. v. Double E Hldg. Corp., 132 A.3d 35, 52 (Del. Ch. 2015)
(“Absent a special relationship, a party is under no duty to disclose facts of which he knows
the other is ignorant[.]” (citation omitted)); see also Dolan v. Altice USA, Inc.,
2019 WL 2711280, at *11 (Del. Ch. June 27, 2019) (explaining that a party “claiming
equitable fraud must sufficiently plead a special relationship between the parties or other
special equities, such as some form of fiduciary relationship or other similar
circumstances” (citation omitted)).
251
Corp. Prop. Assocs. 14 Inc. v. CHR Hldg. Corp., 2008 WL 963048, at *6 n.51 (Del. Ch.
Apr. 10, 2008).
252
PTO ¶¶ 17, 19; LLC Agreement § 16.14.
LLC Agreement § 10.1(b) (providing that “the Members, Managing Member and the
253

Company hereby waive any and all fiduciary duties”).
254
See Nerush Tr. 492-93.
50
Proniloff was his own choice, not the result of actionable concealment by the

plaintiffs.

4. The Funding Claims (Counterclaims VII and VIII)

The defendants’ final set of counterclaims, amended to conform to proof

under Rule 15(b), alleges that the plaintiffs fraudulently induced the transaction by

misrepresenting the amount of capital raised. The defendants/counterclaim plaintiffs

assert Gortikov falsely represented that GC Broadway had $10.5 million “sitting

dormant” in a bank account at closing, when it had raised just $8.35 million.255

Based on these allegations, the defendants press counterclaims for affirmative fraud

(Counterclaim VIII) and “fraudulent concealment” (Counterclaim VII).256

Both claims are meritless. Judgment is entered for the plaintiffs on

Counterclaims VII and VIII.

a. Affirmative Fraud (Counterclaim VIII)

The defendants/counterclaim plaintiffs allege Gortikov affirmatively

misrepresented that he had the full $10.5 million in hand. This claim fails for failure

to prove a false statement was made to the defendants, or justifiable reliance.257

255
Defs.’ Mot. to Amend ¶ 7.
256
See supra note 240 (explaining that the fraudulent concealment claims are considered
fraud theories).
257
See supra note 231 and accompanying text (listing the elements of a fraud claim); see
also Stephenson, 462 A.2d at 1074.
51
First, the defendants failed to show that a false representation was made to

them.258 At trial, Nerush admitted Gortikov never spoke to him about the specific

amount of funds raised before closing.259 Instead, the defendants rely on an email

Gortikov sent to Proniloff stating, “we have had $10.5 million of our investor funds

sitting dormant in our account,” another email where Gortikov asked Proniloff to tell

Nerush “I am giving him $10.5 million,” and Nerush’s statement that Proniloff

repeated this statement to him.260

Nerush’s testimony on what Proniloff told him about Gortikov’s statements is

inadmissible hearsay.261 Proniloff did not testify at trial to corroborate that the

message was conveyed. Without competent evidence linking Gortikov’s email to a

statement made to the defendants, the chain of representation is broken. As for the

emails, they are neither false nor misleading. They accurately represent that the

Investor would be investing $10.5 million in the Company and the 10% Owner.

258
Prairie Cap., 132 A.3d at 49 (explaining that “[t]o plead fraud, a plaintiff must identify
a false representation” made to it by defendant).
259
Nerush Tr. 479-82; see also Defs.’ Opening Post-trial Br. 2-3 (admitting “there is no
evidence that Gortikov made that misrepresentation [regarding the amount of funds
Plaintiffs had raised] directly to Nerush”).
260
JX 99; see Nerush Tr. 535, 542-44; see also Gortikov Tr. 92-93 (acknowledging that
the email was an exaggeration); Defs.’ Post-trial Opening Br. 3.
261
See Del. R. Evid. 801(c) (defining hearsay as an out of court statement offered “to prove
the truth of the matter asserted”); Del. R. Evid. 802.
52
Second, the defendants cannot establish justifiable reliance.262 The LLC

Agreement—the definitive document governing the transaction—does not represent

that the Investor holds $10.5 million in cash. It merely states the Investor “has

contributed or is deemed to have contributed” that amount.263 This language put the

defendants on notice that the contribution was a “deemed” value, not necessarily a

cash balance. None of the representations made by the plaintiffs are inconsistent

with those terms.

In any event, Nerush admitted he did not read the LLC Agreement.264 Nerush

cannot credibly justify his reliance on oral representations that differ from the terms

of a written contract he chose not to read.265

262
See supra note 231 and accompanying text (listing justifiable reliance as an element of
a fraud claim).
263
LLC Agreement § 2.2 (emphasis added).
264
Nerush Tr. 482.
265
See REM OA Hldgs., 2023 WL 6143042, at *20 (stating that “a party’s failure to read a
contract or insistence that she had not been informed of [its] stated terms” does not
“vitiate . . . [her] written assent” (citing Pellaton, 592 A.2d at 477)), aff’d, 320 A.3d 237
(Del. 2024) (TABLE); Liborio III, L.P. v. Artersian Water Co., 2023 WL 1981824, at *7-8
(Del. Super. Feb. 14, 2023) (explaining that a party who was “more than adequately
represented by counsel . . . failed to fully read its contracts and related documents, so it
cannot possibly claim that reliance on a[] . . . verbal representation. . . was reasonable”),
rev’d on other grounds, 306 A.3d 529 (Del. 2023) (TABLE); Kosachuk v. Harper,
2002 WL 1767542, at *2, *5-6 (Del. Ch. July 25, 2002) (explaining that a party who “ha[s]
an obligation to read and understand” the relevant documents “cannot justify its avoidance
by claiming that he did not read it”).
53
b. “Fraudulent Concealment” (Counterclaim VII)

Finally, the defendants/counterclaim plaintiffs allege that the plaintiffs failed

to disclose the purported “shortfall” in raised capital.266 They insist that the “deemed

to have contributed” language in the LLC Agreement was a “half-truth” that created

a duty to disclose the actual cash position.267 But, once again, this claim fails because

there was no duty to disclose in the context of this arm’s-length transaction.268

Nor was the contract language misleading. Section 2.2 accurately defined the

“deemed” value of the equity for calculating returns and ownership.269 It was not a

representation of liquidity.

The purportedly concealed fact was also immaterial to the transaction’s

failure. The Investor ultimately contributed over $10.5 million to the project and

never defaulted on a funding obligation.270 The project stalled due to defendants’

leasing breaches, not a lack of available capital.

266
Defs.’ Opening Post-trial Br. 10-11.
267
Id.
268
See supra note 250 and accompanying text (explaining that a fraud claim based on
concealment requires a duty to disclose); Ashland v. The Samuel J. Heyman 1981
Continuing Tr., 2018 WL 3084975, at *11 (Del. Super. June 21, 2018) (same); Prairie
Cap., 132 A.3d at 52 (same); Matthews Office Designs, Inc. v. Taub Invs.,
1994 WL 267479, at *2 (Del. 1994) (same).
269
LLC Agreement § 2.2.
270
Gortikov Tr. 88.
54
5. Affirmative Defenses

The defendants assert numerous affirmative defenses to the enforcement of

the Payment Guaranty, including usury, prior material breach of contract, fraud in

the inducement, and unclean hands.271 These defenses rely on the same factual and

legal theories underlying the counterclaims rejected above.

I have determined that the transaction involved preferred equity, the plaintiffs

did not materially breach the LLC Agreement, and no actionable fraud by the

plaintiffs occurred. The corresponding affirmative defenses necessarily fail.272

The usury defense is groundless because the instrument is equity, not debt.273

The defense that the Proniloff payment excused the defendants’ performance

is likewise baseless because the payment caused—at best—an immaterial technical

breach of the LLC Agreement.274 The same is true of the failure of consideration

defense.275 The Investor contributed over $10.5 million to the project as required

271
Defs.’ Am. Ans. to the First Am. Compl. with Aff. Defenses (Dkt. 233) (“Aff.
Defenses”) 39-41.
272
See, e.g., Kuroda, 971 A.2d at 891 (dismissing an unclean hands defense where it was
duplicative of failed counterclaims).
273
See supra Section II.B.2.
274
See supra Section II.B.3.a.
275
See supra Section II.B.4.
55
and never defaulted on a capital call.276 A dispute over when the funds were raised

is immaterial where the consideration was actually delivered.277

The defenses of fraud and unclean hands fail because the plaintiffs made no

actionable misrepresentations and owed no duty to disclose the “concealed” facts.

As a result, they did not engage in the sort of inequitable conduct required to bar

relief.278

Accordingly, the affirmative defenses are rejected in full.

III. REMEDIES

The plaintiffs request several forms of relief from Nerush.279 For breach of

the Payment Guaranty (Count III) and fraud (Count IV), they seek money damages

276
See Gortikov Tr. 88; see also JX 219 (confirming that the Investor “is not in default
under the LLC Agreement”).
277
See In re Mobilactive Media, LLC, 2013 WL 297950, at *13-14 (Del. Ch. Jan. 25, 2013)
(noting that substantial performance defeats a material breach defense).
278
See Nakahara v. NS 1991 Am. Tr., 718 A.2d 518, 522 n.26 (Del. Ch. 1998) (explaining
that the doctrine of unclean hands requires conduct that is “offensive to the dictates of
natural justice” or inequitable).
279
The plaintiffs obtained summary judgment on their claims for declaratory relief
regarding control of the Company (Count I) and an anti-suit injunction (Count II). The
Pre-trial Order noted that the damages phase for Counts I and II, including the plaintiffs’
demand for attorneys’ fees and costs specifically related to those counts, remained to be
resolved. Because the trial focused on the monetary damages under Counts III and IV and
the counterclaims, the parties must confer on and propose a schedule for supplemental
submissions to resolve any outstanding damages or fees exclusively related to Counts I and
II.
56
totaling $13,117,659 plus interest. They also seek attorneys’ fees and costs under a

fee shifting provision in the LLC Agreement.

A. Damages for Breach of Contract (Count III)

The Company failed to redeem the Investor’s interest by paying the “Full

Redemption Price” by the “Redemption Date” (September 30, 2024).280 The “Full

Redemption Price” is defined in the LLC Agreement to include all unreturned capital

contributions, any unpaid “Company Loans” (including interest), all “Investor

Member Expenses,” the contractual “Exit Fee,” and “Accrued PIK” (unpaid

preferred returns).281 Payment of the Full Redemption Price is designed to put the

Investor in the position it would have enjoyed had the Company performed under

the LLC Agreement by causing the redemption to occur.282

280
PTO ¶¶ 53-54.
281
See LLC Agreement § 4.1(e)(i) (defining “Full Redemption Price” to include “all
Unreturned Capital Contributions,” “all accrued and outstanding interest . . . on Company
Loans made by Investor Member,” the principal of such Company Loans, “all unpaid
Investor Member Expenses,” and the “Exit Fee”); see also id. § 1.8 (addressing “Investor
Member Expenses”); id. § 2.4 (defining “Company Loans”); id. § 4.1(c) (defining
“Accrued PIK” as any “Preferred Return or Enhanced Preferred Return not paid when
due”); id. at Ex. A-6 (defining “Exit Fee”); id. at Ex. A-12 (defining “Preferred Return”);
id. at Ex. A-5 (defining “Enhanced Preferred Return”).
282
Duncan v. Theratx, Inc., 775 A.2d 1019, 1022 (Del. 2001) (explaining that expectation
damages are “measured by the amount of money that would put the promisee in the same
position as if the promisor had performed the contract”); Genencor Int’l v. Novo Nordisk,
A/S, 766 A.2d 8, 11 (Del. 2000) (stating that “remedy for a breach should seek to give the
nonbreaching . . . party the benefit of its bargain by putting that party in the position it
would have been but for the breach”).
57
Because the Company failed to pay, Nerush is personally liable under the

Payment Guaranty.283 Although the Company—the primary obligor—is also liable,

judgment on Count III is only against Nerush as the guarantor. The Payment

Guaranty guarantees payment (not just collection).284 At the same time, the Payment

Guaranty limits Nerush’s personal liability, “excluding Company Loans made under

Sections 2.4 and 3.2(f) of the [LLC] Agreement to repay or refinance the initial

principal amount of the Loan or accrued interest thereon[.]”285

In addition, Section 6.5(b) of the LLC Agreement limits the Investor’s

damages:

[U]nder no circumstances shall [the Investor] be entitled to any
lost profits or consequential, special or punitive damages except
if such damages are actually paid to an unaffiliated third party
. . . .286

To show their damages, the plaintiffs primarily rely on the testimony of

Gortikov and a summary spreadsheet he prepared that purportedly calculates the

283
Payment Guaranty § 1.1 (showing that Nerush “unconditionally guarantee[d] payment”
of the Full Redemption Price immediately upon the Company’s default).
284
Id. § 1.2(a) (“Guarantor hereby assumes liability for, hereby agrees to pay, and hereby
guarantees the punctual payment to Investor, and not merely the collectability, of the Full
Redemption Price . . . .”).
285
Payment Guaranty § 1.2(a); see LLC Agreement §§ 2.4, 3.2(f).
286
LLC Agreement § 6.5(b).
58
unreturned capital, accrued preferred returns, and other potential losses.287 The

defendants object to the spreadsheet as inadmissible hearsay and unreliable.288

I disagree that the spreadsheet is hearsay but find it largely without a solid

evidentiary foundation. Gortikov is competent to testify to the Investor’s capital

contributions and payments made to third parties, yet many of the figures in the

spreadsheet are unverified and lack backup.289 Gortikov admitted that he prepared

the spreadsheet for litigation.290

The relevant agreements and reliable evidence support the following

damages:

• Unreturned Capital: $7,946,396. This amount is undisputed. The LLC
Agreement establishes the initial capital contribution of $10.5 million.
The First and Second Amendments to the LLC Agreement, signed by
Nerush, state the outstanding capital balance at those times.291 Bank
records confirm the paydowns made by Sponsor.292

• Recoverable Third-Party Expenses: $277,239. As the plaintiffs proved,
they advanced funds to third parties to cure the defendants’ defaults.
Gortikov’s testimony on these advances is supported by receipts and
bank records. Under the LLC Agreement, the advances are “Company

287
JX 341; JX 341-N; Gortikov Tr. 62-63.
288
Defs.’ Post-trial Closing Br. 6-11 (objecting to the admission of JX 341 and JX 341-N).
289
Gortikov Tr. 170; see id. at 134-36; see also Beard Rsch. v. Kates, 8 A.3d 573, 613 (Del.
Ch. 2010) (explaining that “[r]esponsible estimates of damages . . . are permissible so long
as the court has a basis to make such a responsible estimate”), aff’d sub nom., ASDI v.
Beard Rsch., 11 A.3d 749 (Del. 2010).
290
Id. at 147-50; see also JX 341 (Note 1).
291
JX 193 (First Am.); JX 219 (Second Am.).
292
JX 341-N; Gortikov Tr. 146.
59
Loans” or “Investor Member Expenses” that are added to the Full
Redemption Price.293 They are not subject to the carve-out in Section
1.2(a) of the Payment Guaranty.294

o Past Tax and Insurance Payments: $230,091. The plaintiffs
proved they paid property taxes and insurance premiums to
protect the asset. These payments are shown by tax receipts295
and by bank records.296
o Past Development Costs: $35,825. The plaintiffs also proved
that they paid architectural fees necessary for entitlements. The
payments are supported by the architect’s invoice297 and bank
records.298
o Past Entity Expenses: $11,323. The plaintiffs further proved
payment of necessary filing fees and state taxes to maintain the
Company’s good standing, supported by bank records.299

• Exit Fee: $79,464. The “Exit Fee” is a contractual fee owed to the
Investor upon redemption and a component of the Full Redemption
Price.300 It is contractually fixed at 1% of the capital contributions
under the LLC Agreement.301 This figure is derived from a simple

293
LLC Agreement § 2.4; id. § 1.8.
294
Payment Guaranty § 1.2(a); see supra note 285 and accompanying text. The parties did
not brief the carve out. In fact, the plaintiffs excluded it when quoting the remainder of the
provision. Pls.’ Post-trial Opening Br. 14-15 (“The Payment Guaranty states: ‘Guarantor
hereby assumes liability for, hereby agrees to pay, and hereby guarantees the punctual
payment to Investor, and not merely the collectability, of the Full Redemption Price …
collectively, the ‘Guaranteed Obligations.’” (quoting Payment Guaranty § 1.2(a))).
295
JX 303.
296
JX 349.
297
JX 302.
298
JX 349.
299
Id.
300
LLC Agreement Ex. A-6 (defining “Exit Fee”); see also LLC Agreement § 4.1(e)(i).
301
Id. § 4.1(e)(i).
60
mathematical calculation based on the undisputed capital
contributions.302

• Less Credits: ($869,339). The plaintiffs properly credited the
defendants for the balance of the investor reserves—funds held back by
the Investor to pay certain costs—and associated interest.303

I deny the remaining amounts sought by the plaintiffs for Count III. The

plaintiffs failed to meet their burden of proof for the following categories:

• Senior Loan Payments: $678,954. The plaintiffs advanced this amount
to the senior lender to cure defaults caused by the Sponsor.304 Although
the payments constitute “Company Loans,” they were made to repay
principal and interest in the senior loan, placing them within the
exclusion of Section 1.2(a) of the Payment Guaranty.305 Although the
Company remains liable for this debt, Nerush is not personally liable
for it under the Payment Guaranty.

• Accrued PIK: $3,506,820. The request for “Preferred Returns” and
“Enhanced Preferred Returns” is denied.306 The calculation rests on
Gortikov’s litigation spreadsheet and what Gortikov described as
“published data” for the floating secured overnight financing rate
(SOFR), which he could not identify or authenticate.307 The plaintiffs
also admitted to using the “Preferred Return Reserve” to pay
themselves returns during this period.308 But the record does not show

302
$10.5 million x 1% = $105,000, less amounts previously paid. See Gortikov Tr. 161-62.
303
JX 341-N; Gortikov Tr. 164-70.
304
JX 300; JXs 311-12.
305
Payment Guaranty § 1.2(a) (excluding “Company Loans” made to “repay or refinance
. . . the Loan”).
306
See LLC Agreement § 4.1(c) (defining “Accrued PIK” as “[a]ny Preferred Return or
Enhanced Preferred Return not paid when due”); id. at Ex. A-12 (defining “Preferred
Return”); id. at Ex. A-5 (defining “Enhanced Preferred Return”).
307
Gortikov Tr. 147-50; JX 341-N.
308
See LLC Agreement § 2.2(b) (establishing the “Preferred Return Reserve”); Gortikov
Tr. 168 (confirming that the reserve was used to pay GC Broadway its preferred return);
61
how these payments were credited against the “Accrued PIK” balance
claimed in Gortikov’s spreadsheet.309 Awarding the lump sum sought
for Accrued PIK alongside the retention of the reserves could result in
a double recovery. The plaintiffs provided no third-party bank
statements or validated interest schedules to support this multimillion-
dollar figure or to disentangle the credits.

• Contractual Interest: $47,612. The plaintiffs’ request for this lump sum
in interest on the advances (loan and tax payments) is also denied.310
Like the Accrued PIK figure, the specific calculation rests on the
unverified spreadsheet without independent support.311 The record
lacks underlying data, such as the date each advance was made, to allow
me to verify the interest calculation.312

• Future Damages: ~$1.15 million. The plaintiffs also request future loan
payments, taxes and pre-development costs. I reject the offered
amounts as speculative. They have not been incurred and rely only on
Gortikov’s unsupported estimates of how long it might take to sell the
Property.313

The total principal damages for Count III are $7,433,760, before interest.314

id. at 169 (testifying that the Preferred Return Reserve was administered by GC Broadway
“to pay itself its preferred return” and that the reserve was “exhausted fully”).
309
See JX 341-N; Gortikov Tr. 147-50.
310
This issue is separate from whether the plaintiffs are entitled to prejudgment interest at
the contractual rate, which I address below.
311
JX 341-N.
312
For example, I do not know when the $678,954 senior loan payment or the $240,091
tax payment was made.
313
Gortikov Tr. 151-53; see JX 341-N.
314
$7,946,396 (capital) + $277,239 (expenses) + $79,464 (Exit Fee) - $869,339 (credits) =
$7,433,760 principal damages.
62
B. Fraud Damages (Count IV)

The plaintiffs proved that the defendants fraudulently concealed their intent

to lease the Property and misappropriated the resulting rent from the Occupants.315

The standard remedy for fraud is expectation or “benefit-of-the-bargain” damages,

which are measured by the amount of money that would “put the plaintiff in the

same financial position [it] would have been in if the defendant’s representations

[were] true.”316 That measure is inapt here, where the Property would be vacant had

Nerush’s representations been accurate. Delaware law also provides for

restitutionary relief so that a wrongdoer may not profit from his misconduct.317 Even

if the Investor’s primary goal was a vacant building, Nerush should not retain the ill-

gotten gains from the unauthorized lease.318

Nerush admitted at trial that he collected at least $300,000 in rent from the

Property and deposited it into the account of AN Properties—his personal

315
See supra Section II.C.
316
Stephenson, 462 A.2d at 1076.
317
See Shuttleworth v. Abramo, 1994 WL 384428, at *4 (Del. Ch. July 14, 1994) (observing
that “[g]enerally, the remedies for fraud are restitution or damages”).
318
Schock v. Nash, 732 A.2d 217, 232-33 (Del. 1999) (“Restitution serves to ‘deprive the
defendant of benefits that in equity and good conscience he ought not to keep, even though
he may have received those benefits honestly in the first instance, and even though the
plaintiff may have suffered no demonstrable losses.’” (quoting Fleer Corp. v. Topps
Chewing Gum, Inc., 539 A.2d 1060, 1062 (Del. 1988))).
63
affiliate.319 Additional evidence supports this figure.320 The appropriate sum of

restitution is thus $300,000.321

Restitutionary damages can return misappropriated property to the entity that

was defrauded—here, the Company. The Recourse Guaranty establishes that the

Investor is directly entitled to these funds.322 Under the Recourse Guaranty, Nerush

agreed to be personally liable for “Recourse Liabilities,” which include any

“misappropriation . . . of . . . any Rents.”323 Because the Investor has a priority claim

on Company assets that far exceeds $300,000, the damages rightly belong to the

Investor.324

319
Nerush Tr. 456-58.
320
See JX 346 (rent checks); Moghadam Dep. 44-47.
321
Geronta Funding v. Brighthouse Life Ins., 284 A.3d 47, 64 (Del. 2022) (explaining that
“the measure of recovery [for restitution] is . . . based not on the plaintiff’s loss, but on the
defendant’s gain” (citing Restitution, Black’s Law Dictionary (11th ed. 2019))).
322
Recourse Guaranty § 1.2.
323
Id.; id. at Ex. A § (d)(iv) (defining “Recourse Liabilities” to include “any Rents (as such
term is defined in the Deed of Trust)”); JX 42 (Deed of Trust; defining “Rents” to include
“all rents, issues, profits, damages, royalties, income and other benefits now or hereafter
derived from the [Property]”).
324
See LLC Agreement § 4.1(d) (establishing the priority of distributions). Under the
waterfall established by the LLC Agreement, net cash flow must be distributed to the
Investor to satisfy Unreturned Capital Contributions and Accrued PIK before any
distributions are made to the Sponsor. Because the Investor’s outstanding claim (over $7.9
million) well exceeds the misappropriated amount ($300,000), the Investor would have
been entitled to 100% of these funds had they been directed to the Company rather than
misappropriated by Nerush. Id.
64
Accordingly, judgment is entered against Nerush on Count IV in the amount

of $300,000.

C. Interest

The plaintiffs are entitled to pre- and post-judgment interest on the monetary

damages awarded to them.325 The applicable rates differ for the contract and fraud

claims.

For the judgment on Count III, the parties bargained for specific rates of

return. The LLC Agreement applies a “Preferred Return” rate of at least 19% to

capital contributions and a separate “Company Loan Interest Rate” of 21.5%,

compounded monthly, to “Company Loans.”326 Under Delaware law, the judgment

bears interest at the rate identified in the contract.327 The contractual rates apply to

both pre- and post-judgment interest calculations for certain liabilities, as follows:

• Net Unreturned Capital: $7,077,057. This figure represents the gross
unreturned capital ($7,946,396) less credits and reserves held by the
investor ($869,339). Interest will accrue on this net amount at the

325
See Citadel Hldg. Corp. v. Roven, 603 A.2d 818, 826 (Del. 1992) (“In Delaware,
prejudgment interest is awarded as a matter of right.”).
326
LLC Agreement Exs. A-4, A-12 (defining “Preferred Return” and “Company Loan
Interest Rate”); id. § 2.4 (defining “Company Loan”); see also id. § 4.1(c) (accrual of
Preferred Return); id. § 2.4 (interest on Company Loans).
327
6 Del. C. § 2301(a) (providing that an “expressed contract rate” governs when present);
see id. § 2301(c) (removing the cap on post-judgment interest at the lower of the legal or
contractual rate for commercial transactions exceeding $100,000); see also Sequoia
Presidential Yacht Gp. LLC v. FE P’rs, LLC, 2014 WL 2610577, at *2-3 (Del. Ch.
June 12, 2014) (awarding pre- and post-judgment interest “at the agreed-upon contract rate
of 8.75%” rather than the legal rate).
65
contractual “Enhanced Preferred Return” rate—defined as the
Preferred Rate plus 5.0%—compounded monthly from the Redemption
Date (September 30, 2024).328

• Recoverable Third-Party Expenses: $277,239. Interest will be applied
to this amount at the contractual rate of 21.5% per annum, as specified
in Section 2.4 of the LLC Agreement for Company Loans.329 It will
accrue from the date each respective advance was made.

• Exit Fee: $79,464. The “Exit Fee” is a fixed amount with no specified
interest rate in the contract.330 Interest will therefore accrue at the
statutory legal rate from the Redemption Date (September 30, 2024).

For the fraud damages on Count IV ($300,000), interest is governed not by

the LLC Agreement but by statute.331 The plaintiffs are awarded pre- and post-

judgment interest at the statutory legal rate. The interest will be compounded

quarterly, which “better reflects the financial realities of conducting business” than

flat interest.332

328
LLC Agreement at Ex. A-12 (defining “Preferred Return” as “the greater of (i) SOFR
Rate . . . and (ii) 19.00%, compounded monthly”); id. at Ex. A-5 (defining “Enhanced
Preferred Return” as the Preferred Return plus 5%); see also id. § 4.1(c) (providing that
the Enhanced Preferred Return applies upon a “Removal Event”); id. § 5.6(a) (defining
“Removal Event” to include, among other things, fraud).
329
See id. § 2.4.
330
Id. at Ex. A-6 (defining “Exit Fee”).
331
See 6 Del. C. § 2301.
332
Murphy Marine Servs. of Del., Inc. v. GT USA Wilm., LLC, 2022 WL 4296495, at *24
(Del. Ch. Sept. 19, 2022); see also Doft & Co. v. Travelocity.com Inc., 2004 WL 1152338,
at *12 (Del. Ch. May 20, 2004) (explaining that when the court “award[s] the legal rate of
interest, the appropriate compounding rate is quarterly”).
66
The legal rate is 5% over the Federal Reserve discount rate, including any

surcharge as of the time from which interest is due.333 Interest will run from the

dates each rent payment from Modern Aesthetica and/or Dandada was

misappropriated.334

D. Fee Shifting

Finally, the plaintiffs seek an award of the attorneys’ fees and costs they

incurred in this action. Delaware follows the American Rule, under which each party

must pay its own legal fees and costs unless a statute or contract provides

otherwise.335 Here, the operative agreements contain fee-shifting provisions that

entitle the prevailing party to recover its reasonable attorneys’ fees.

The LLC Agreement states that in any litigation arising out of the agreement,

“upon a final non-appealable judgment . . . the prevailing party shall immediately be

reimbursed by the other party for its costs and expenses (including reasonable legal

fees and expenses).”336 The Payment Guaranty likewise requires the Guarantor

333
See 6 Del. C. § 2301(a).
334
See JX 346. This exhibit reflects 16 monthy rent payments of $20,000 to Nerush,
beginning on August 14, 2023, totaling $320,000. Id. Because damages on Count IV
are $300,000, interest will run on each $20,000 payment chronologically until the principal
sum is reached.
335
See Mahani v. Edix Media Gp., Inc., 935 A.2d 242, 245 (Del. 2007) (“Under the
American Rule and Delaware law, litigants are normally responsible for paying their own
litigation costs. An exception to this rule is found in contract litigation that involves a fee
shifting provision.”).
336
LLC Agreement § 16.13.
67
(Nerush) to reimburse the Investor for “any and all reasonable costs and expenses

(including court costs and reasonable attorneys[’] fees and expenses) incurred” in

connection with the enforcement of the Guarantor’s obligations. 337 The Recourse

Guaranty similarly contains a reimbursement provision for “all reasonable costs and

expenses (including court costs and reasonable attorneys’ fees and expenses)”

incurred by the Investor in enforcing the guaranty.338

The plaintiffs are the prevailing party. They successfully enforced the

Payment Guaranty to recover the Full Redemption Price (Count III), enforced the

Recourse Guaranty to recover damages for fraud (Count IV), and prevailed on the

declaratory relief claim (Count I). The defendants neither obtained relief on their

counterclaims for rescission and usury nor prevailed on their affirmative defenses.

Accordingly, the plaintiffs are entitled to their reasonable attorneys’ fees and

costs. They must file an affidavit under Court of Chancery Rule 88 detailing their

fees and expenses within ten business days of this decision. The defendants will

then have ten business days to file any opposition to the Rule 88 affidavit. Consistent

with Section 16.13 of the LLC Agreement, the defendants’ obligation to pay the fee

337
Payment Guaranty § 1.7.
338
Recourse Guaranty § 1.7.
68
and expense award will become enforceable upon this court’s judgment becoming

final and non-appealable.339

IV. CONCLUSION
Judgment on Counts III and IV is entered for the plaintiffs. Judgment on

Counterclaims I through VIII is entered for the plaintiffs/counterclaim defendants.

The plaintiffs are awarded damages against Nerush of $7,433,760 for Count

III and $300,000 for Count IV, together with pre- and post-judgment interest and

reasonable attorneys’ fees and costs as outlined above. The parties must confer on

and submit a form of implementing order consistent with this opinion, including a

proposed interest calculation, within ten business days. As noted above, they must

also propose a schedule to resolve any remaining issues regarding remedies for

Counts I and II.

339
LLC Agreement § 16.13.
69