GAMCO Asset Management Inc. v. iHeartMedia Inc.

• Court: Court of Chancery of Delaware
• Decided: November 23, 2016
• Docket: CA 12312-VCS
• Status: Published

Opinion

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

GAMCO ASSET MANAGEMENT INC.,

Plaintiff,

v.

iHEARTMEDIA INC., iHEARTCOMMUNICATIONS, INC., BAIN CAPITAL PARTNERS, LLC, THOMAS H. LEE PARTNERS, L.P., ROBERT W. PITTMAN, VINCENTE C.A. No. 12312-VCS PIEDRAHITA, BLAIR HENDRIX, DANIEL G. JONES, OLIVIA SABINE, CHRISTOPHER TEMPLE, DALE W. TREMBLAY and DOUGLAS L. JACOBS,

Defendants,

-and-

CLEAR CHANNEL OUTDOOR HOLDINGS, INC.

Nominal Defendant.

MEMORANDUM OPINION

Date Submitted: September 12, 2016 Date Decided: November 23, 2016

Norman M. Monhait, Esquire of Rosenthal Monhait & Goddess, P.A. of Wilmington, Delaware; Vincent R. Cappucci, Esquire, Andrew J. Entwistle, Esquire, and Joshua K. Porter, Esquire of Entwistle & Cappucci LLP, New York, New York; Mark Lebovitch, Esquire, Christopher J. Orrico, Esquire, and John Vielandi, Esquire of Bernstein Litowitz Berger & Grossmann LLP, New York, New York; and Ned Weinberger, Esquire of Labaton Sucharow LLP, Wilmington, Delaware, Attorneys for Plaintiff. William B. Chandler III, Esquire, Bradley D. Sorrels, Esquire, Shannon E. German, Esquire, and Lori W. Will, Esquire of Wilson Sonsini Goodrich & Rosati, P.C., Wilmington, Delaware; David E. Ross, Esquire and Bradley R. Aronstam, Esquire of Ross Aronstam & Moritz, LLP, Wilmington, Delaware; and Kevin B. Huff, Esquire, David L. Schwarz, Esquire, and Daniel V. Dorris, Esquire of Kellogg Huber Hansen Todd Evans & Figel, PLLC, Washington, D.C., Attorneys for Defendants iHeartMedia, Inc., iHeartCommunications, Inc., Bain Capital Partners, LLC, and Thomas H. Lee Partners, L.P.

SLIGHTS, Vice Chancellor Plaintiff, GAMCO Asset Management Inc., invested in nominal defendant,

Clear Channel Outdoor Holdings, Inc. (“CCOH”), when it knew that CCOH was

locked in a contractually-created symbiotic relationship with its former parent,

iHeartCommunications, Inc. (“iHC”). Through a suite of intercompany

agreements between CCOH and iHC, negotiated and executed when CCOH was

still a wholly-owned subsidiary of iHC, the parties agreed to position iHC so that it

could exercise significant control over nearly every aspect of CCOH’s operations.

These intercompany agreements were put in place in anticipation of an initial

public offering of CCOH’s stock in 2005.

By any measure, the intercompany agreements are highly favorable to iHC.

For instance, iHC contracted to provide comprehensive management, IT, legal and

executive services to CCOH. The two entities entered into mutual financing

commitments that included an agreement whereby CCOH would sweep its excess

cash to iHC on a daily basis. And, through a so-called Master Agreement, iHC

secured the right to pre-approve any significant acquisition or disposition of assets

and any significant debt financing that CCOH might wish to undertake. The

Prospectus for the 2005 IPO disclosed these intercompany agreements in detail.

In 2012, stockholders of CCOH brought derivative suits in this Court

alleging that iHC was abusing its position as controlling stockholder of CCOH by

exploiting the various intercompany agreements, with the consent or acquiescence

1 of the CCOH Board of Directors, to the detriment of CCOH and its stockholders.

At the time of the 2012 litigation, iHC was indebted to CCOH for over $600

million on an intercompany revolving note that was integral to some of the

intercompany agreements. With approval of the Court, the 2012 litigation was

settled after an independent Special Litigation Committee of CCOH (the “SLC”)

determined that CCOH could not breach, or even modify, the various

intercompany agreements with iHC because to do so would bring potentially

irreparable consequences to CCOH. The SLC negotiated a forward-looking

settlement that featured corporate governance reforms designed to address iHC

conflicts on the CCOH Board and to more carefully manage CCOH’s ongoing

relationship with iHC under the intercompany agreements.

Less than three years later, in a move that might have inspired the great Yogi

Berra,1 GAMCO filed a Verified Stockholder Derivative Complaint (“Complaint”)

against members of the CCOH Board, iHC, an iHC affiliate and certain financial

sponsors, in which it resurrects many of the same derivative claims that were

prosecuted in 2012 and settled in 2013. GAMCO alleges that the CCOH Board’s

undisputed compliance with the forward-looking provisions of the settlement

agreement brokered in 2013 does not excuse its failure to extricate CCOH from the

1 “It’s like déjà vu all over again.” Yogi Berra Museum & Learning Center, Yogisms, www.yogiberramuseum.org/just-for-fun/yogisms.

2 intercompany agreements in the face of iHC’s deteriorating financial condition.

GAMCO also alleges that the CCOH Board breached its fiduciary duties and

committed corporate waste when it approved a debt offering and discrete asset

sales in order to fund special dividends for the purpose of enabling iHC to address

its acute need for liquidity.

The defendants have moved to dismiss the Complaint under Court of

Chancery Rule 12(b)(6). They argue that GAMCO’s claims relating to the

intercompany agreements are barred by the settlement of the 2012 litigation and

the doctrine of res judicata. They also contend that the CCOH Board’s decisions

to sell assets, take on debt and declare dividends, which affected all CCOH

stockholders equally, are protected by the business judgment rule.

For reasons explained below, I conclude that GAMCO’s claims relating to

the intercompany agreements must be dismissed because they are barred either by

the 2013 settlement agreement and release or by res judicata. As for the claims

relating to the asset sales and debt offering, I conclude that they also must be

dismissed because the challenged transactions were arms-length transactions with

third-parties that resulted in pro rata benefits to all CCOH shareholders. The

Board’s approval of these transactions is subject to the presumption of the business

judgment rule and GAMCO has failed to allege facts that even come close to

overcoming this presumption. Because GAMCO has failed to state a claim for

3 breach of fiduciary duty, its claim for aiding and abetting a breach of fiduciary

duty against iHC, its affiliate and financial sponsors must also be dismissed.

Finally, GAMCO’s claim for unjust enrichment against iHC, et al. must be

dismissed because the theory underlying the claim is duplicative of, and not

materially broader than, its breach of fiduciary duty claims.

I. BACKGROUND

The facts are drawn from allegations in the Complaint, documents integral to

the Complaint and matters of which the Court may take judicial notice.2

A. The Parties

GAMCO is a Delaware corporation that provides investment advisory

services to open and closed-end funds, institutional and private wealth

management investors and investment partnerships. At the time it filed the

Complaint, GAMCO, along with certain of its affiliates, owned 9.9% of the

outstanding publicly-traded Class A common stock of CCOH.

2 In re Crimson Exploration Inc. S’holder Litig., 2014 WL 5449419, at *8 (Del. Ch. Oct. 24, 2014) (“‘A judge may consider documents outside of the pleadings only when: (1) the document is integral to a plaintiff’s claim and incorporated in the complaint or (2) the document is not being relied upon to prove the truth of its contents.’”) (citation omitted); In re Gardner Denver, Inc., 2014 WL 715705, at *2 (Del. Ch. Feb. 21, 2014) (on a motion to dismiss, the Court may rely on documents extraneous to a complaint “when the document, or a portion thereof, is an adjudicative fact subject to judicial notice.”) (footnotes and internal quotation marks omitted); Narrowstep, Inc. v. Onstream Media Corp., 2010 WL 5422405, at *5 (Del. Ch. Dec. 22, 2010) (same).

4 Defendant iHeartMedia, Inc. (“iHM”) is a Delaware corporation engaged in

the mass media industry. Through its subsidiaries, iHM owns and operates more

than 850 radio stations throughout the United States, making it the largest owner

and operator of radio stations in the nation.

iHC, formerly known as Clear Channel Communications, Inc., is a Texas

corporation and an indirect wholly-owned subsidiary of iHM. iHC owns

approximately 90% of CCOH’s outstanding shares, including more than

10,000,000 shares of Class A common stock and 315,000,000 shares of Class B

common stock, representing approximately 99% of the total voting power of

CCOH stockholders (collectively with iHM, the “iHeart Defendants”).

Defendants Bain Capital Partners, LLC and Thomas H. Lee Partners, LP are

a Massachusetts limited liability company and a Delaware limited partnership,

respectively. Both are private equity funds. Together they own 67% of iHM’s

stock and control iHC with the power to seat all but two of iHC’s directors and to

appoint iHC’s management (collectively, the “Private Equity Defendants”).

Defendants Robert W. Pittman, Vincente Piedrahita, Blair E. Hendrix,

Daniel G. Jones, Olivia Sabine, Christopher M. Temple, Dale W. Tremblay and

Douglas L. Jacobs comprise the CCOH Board of Directors (the “CCOH Board” or

“Board”). Pittman is the Executive Chairman of the Board and has served as

5 CCOH’s CEO since 2011. He also serves as a member of the Board of Directors

and CEO of iHM and iHC.

Nominal Defendant CCOH is a Delaware corporation. It is among the

largest providers of outdoor or “out-of-home” advertising in the United States and

throughout the world. It owns and operates more than 650,000 outdoor advertising

displays worldwide and generated in excess of $2.7 billion in revenue in 2015.

B. The Intercompany Agreements

In November 2005, iHC initiated an initial public offering in which it

offered 35 million shares of CCOH’s Class A common stock for sale to the public.

iHC retained a majority stake in CCOH (owning 90% of all outstanding shares)

and 99% of the voting power. In advance of the IPO, iHC and CCOH entered into

several intercompany agreements (the “Intercompany Agreements”) which govern

the relationship between the two entities. These Intercompany Agreements include

a Master Agreement, a Corporate Services Agreement, an Employee Matters

Agreement, a Tax Matters Agreement and a Trademark License Agreement. Most

relevant to this litigation are the Master Agreement and the Corporate Services

Agreement.

The Master Agreement subjects CCOH to a variety of management and

corporate governance restrictions that limit its ability to access external funding as

well as its ability to make capital investments. For instance, CCOH must obtain

6 iHC’s approval to acquire or dispose of assets in excess of $5 million and before

incurring more than $400 million in debt. CCOH is also obliged to accept certain

management services from iHC including treasury, payroll, cash management,

executive officer services, human resources and benefit services, legal services and

IT support.

The Corporate Services Agreement memorialized a cash management sweep

arrangement whereby all cash generated from CCOH’s operations that remains

after CCOH pays its accounts payable and payroll is transferred daily to iHC in

exchange for a receivable in the form of a revolving promissory note, dated

November 10, 2005, and amended in December 2009 and October 2013 (the

“Revolving Note”). By year end 2015, the Revolving Note carried a balance of

$930 million, approximately 43% of CCOH’s market capitalization of $2.124

billion. As a consequence of the cash sweep arrangement, CCOH does not manage

or control its own excess operating cash.

CCOH fully disclosed the material terms of the Intercompany Agreements in

its IPO Prospectus and its Registration Statement (Form S-1/A) filed with the SEC.

The Prospectus also disclosed that CCOH could not “terminate these agreements or

amend them in a manner [CCOH] deem[s] more favorable so long as [iHC]

7 continues to own shares of [CCOH] common stock representing more than 50% of

the total voting power of [CCOH] common stock.”3

C. The iHC Leveraged Buyout

In November 2006, iHC’s Board agreed to sell iHC for $18.7 billion, or

$37.60 per share, in a leveraged buyout led by a consortium of private equity firms

that included the Private Equity Defendants. The offer price was increased twice

and, in September 2007, the iHC stockholders approved the LBO at $39.20 per

share. Before the LBO could close, however, the global financial markets fell into

crisis, credit seized up, and the banks that had committed to finance the transaction

refused to honor their commitments. After a lengthy legal battle, the parties settled

at a revised buyout price of $36 per share, for a total transaction price of

$17.9 billion. iHC completed its merger with a subsidiary of iHM in July 2008.

As a result of the LBO, iHC took on more than $18 billion in debt, an

amount which has since grown to over $20.8 billion. This debt load quickly led to

questions in the market regarding iHC’s ability to service its debt obligations. In

May 2009, the New York Post reported that iHC was speaking with lenders about

restructuring its debt, including through a pre-packaged bankruptcy. Rumors of

impending bankruptcy made it increasingly difficult, if not impossible, for iHC to

3 Defs.’ Opening Br. in Supp. of Their Mot. to Dismiss Pl.s’ Verified Stockholder Derivative Compl. (“Defs.’ Opening Br.”) Ex. 1 (“Prospectus”) at 20.

8 issue debt in the public market or through arms-length transactions. This, in turn,

caused iHC to depend more heavily upon the cash management sweep arrangement

and the Revolving Note with CCOH for cash flow. Indeed, the Revolving Note

became iHC’s principal source of much needed liquidity. By December 2008, the

balance on the Revolving Note had reached $431.6 million. By the end of 2009,

the maturity date on the Revolving Note was approaching and iHC still had not

restructured its debt obligations from the LBO. This left the CCOH Board with no

choice but to extend the term of the Revolving Note to December 2017.

In December 2009, around the same time the term of the Revolving Note

was extended, Standard & Poor’s downgraded iHC’s debt to a “CCC-” rating.

Over the next few years, the outstanding balance on the Revolving Note continued

to grow. As of the quarter ending March 31, 2012, the balance had reached $702

million.

D. The 2012 Litigation

In March 2012, minority stockholders of CCOH filed a derivative complaint

challenging the decision by CCOH’s Board “to approve the 2009 amendment to

the Revolving Note on commercially–unreasonable terms, and seeking relief

requiring the Board to demand repayment of all or part of the outstanding balance”

(the “2012 Litigation”).4 The plaintiffs in the 2012 Litigation alleged that “the

4 Verified Stockholder Derivative Compl. (“Compl.”) ¶ 56.

9 Board’s letting the balance [on the Revolving Note] increase unabated with no

practical path to repayment was a breach of its duty of loyalty.”5

In response to the 2012 complaint, the CCOH Board appointed the SLC,

comprised of independent directors, to investigate and take all actions it deemed

appropriate to address the claims, including litigation or settlement. The SLC, with

the assistance of counsel, conducted its investigation over the ensuing eight

months, interviewing more than twenty witnesses and reviewing thousands of

documents.

Not surprisingly, the SLC concluded that the Intercompany Agreements very

much favored iHC. Nevertheless, the SLC was satisfied that CCOH was bound by

the Intercompany Agreements and, by their express terms, could not alter or

modify them as long as iHC owned 50% or more of the voting power of CCOH’s

outstanding common stock. The SLC also determined that any attempt to modify

the Corporate Services Agreement could trigger an event of default with respect to

iHC’s LBO lenders which would leave CCOH exposed under its indemnification

obligations to iHC for billions of dollars. Moreover, demanding repayment on the

Revolving Note would yield limited benefits since iHC could exercise substantial

control over CCOH’s use of the funds and all excess cash would simply be swept

back to iHC. The SLC thought it best to settle.

5 Id.

10 In June 2013, the parties entered into a Stipulation of Settlement (the “2013

Settlement”) which included both a specific release of certain defined claims and a

general release. The terms of the 2013 Settlement required the CCOH Board to

make an immediate demand that iHC pay $200 million on the Revolving Note and

simultaneously declare a $200 million pro rata dividend to all CCOH

stockholders. The Board also agreed to establish a special committee comprised of

three independent directors, the Intercompany Note Committee (“INC”), to

monitor the Revolving Note and issue monthly reports on the Revolving Note

balance. In addition, the INC is to monitor iHC’s liquidity position to determine

whether it crosses either of two negotiated triggers. Depending on which of the

triggers is implicated, the INC is empowered to demand repayment of some or all

of the Revolving Note balance without consequence and to declare a dividend

equal to the repayment amount.6

The first of the negotiated triggers focuses on the ratio between the

Intercompany Note balance and iHC’s liquidity. The INC is authorized to demand

repayment of the entire balance if and when iHC’s cash, cash equivalents and

available borrowing, when divided by the amount of the Revolving Note

6 To enable the INC to perform its reporting function, the 2013 Settlement requires iHC to supply monthly and annual reports to the INC and CCOH in which it reports and forecasts the Revolving Note balance and its liquidity position. Defs.’ Opening Br. Ex. 8 (“Stipulation of Settlement”) at 19–21.

11 apportionable to public stockholders, is projected to fall below 2.0x during a

designated projection period.7 The second negotiated trigger focuses solely on the

size of the Revolving Note. The INC is authorized to demand repayment of a

portion of the balance under this trigger if and when the amount of the Revolving

Note apportionable to public stockholders is (or is projected to be) in excess of

$114 million.

As part of the 2013 Settlement, the parties entered into a specific release of

claims that had been asserted in the litigation and a broad release of claims that

could have been asserted. Specifically, the derivative plaintiffs released:

any and all claims that (i) have been asserted in the Derivative Action, or (ii) that could have been asserted in the Derivative Action, or in any other court action or before any court, administrative body, tribunal, arbitration panel, or other adjudicatory body, from the beginning of time through the date of this Stipulation, that are based upon, arise out of, or relate in any way, directly or indirectly, to: (a) the allegations made in, or the subject matter of, the Derivative Action; (b) the matters discussed in [the SLC Findings] filed concurrently with this Stipulation; (c) the issuance by a subsidiary of the Company of the 9.25% Series A Senior Notes Due 2017 and 9.25% Series B Senior Notes Due 2017 and the use of proceeds thereof (including repayment of the $2.5 billion term loan payable by the Company to Clear Channel and the amendment and extension of the Note in connection therewith) including consummation of the issuance in lieu of any other potential transaction considered; (d) the adoption, approval, or 7 Defs.’ Opening Br. Ex. 6 (“SLC Brief”) at 23. Although not expressly referenced in the Complaint, the Court has considered the entirety of the 2013 Settlement documents for context and completeness. See Amalgamated Bank v. Yahoo! Inc., 132 A.3d 752, 797 (Del. Ch. 2016) (the “incorporation-by-reference doctrine permits a court to review the actual document to ensure that the plaintiff has not misrepresented its contents and that any inference the plaintiff seeks to have drawn is a reasonable one.”).

12 amendment of, or the exercise or non-exercise of rights under, the Note; (e) any potential claims relating to the subject matter of the Derivative Action identified by the SLC in the court of its investigation; and/or (f) this Stipulation.8

The 2013 Settlement was presented to the Court for approval at a fairness

hearing on September 9, 2013. No CCOH stockholder objected. In determining

that the settlement was fair and reasonable, then-Chancellor Strine observed that

“the pre-IPO arrangements were formidable and it’s very difficult to complain

about them because they’re not the sort of thing that was the subject of a fiduciary

negotiation. They were disclosed and people bought into them.”9 The Court also

observed that it could not discern “any legal theory that [would allow CCOH] to

break” the Intercompany Agreements and that, “given those realities,” including

“spillover effects” from demanding repayment of the Revolving Note, the forward-

looking settlement provisions would provide “substantial benefits on an ongoing

basis” to CCOH and its stockholders.10

8 Stipulation of Settlement at 14–15, 23–25. 9 Defs.’ Reply Br. in Further Supp. of Their Mot. to Dismiss Pl.s’ Verified Stockholder Derivative Compl. (“Defs.’ Reply Br.”) Ex. 12 (“Settlement H’rg”) at 36–37. 10 Id. at 33, 37–38.

13 E. iHC’s Financial Condition Worsens

The iHeart Defendants’ financial condition continued to deteriorate

following the 2013 Settlement. iHM reported eleven consecutive quarters of

negative net income on a consolidated basis and continued to pay high amounts of

yearly interest expense on its expanding debt. Specifically, in 2015, iHM paid

$1.74 billion in yearly interest on $20.8 billion of debt. $8.5 billion of this debt

will come due in the next three years, with $193 million in notes maturing in 2016

and $8.3 billion of bonds and term loans maturing in 2019. Currently, the iHeart

Defendants’ public debt trades at about 35% of par while iHM’s stock price has

fallen from $7.50 per share in June 2015 to $0.95 per share on May 6, 2016.

Meanwhile, the balance on the Revolving Note has continued to grow. At the start

of the 2012 Litigation, the outstanding balance was approximately $656 million.

All quarter-end and year-end balances beginning with the first quarter after the

2013 Settlement have ranged between $875 million and $950 million.

F. The Note Offering and Asset Sales

Despite the seemingly dire financial condition of its former parent to which

it is contractually (and financially) tethered, in early 2015, CCOH was in an

acquisitions mode. In February and May 2015, the Board received reports of

14 particular acquisition opportunities in strategic markets, such as New York City.11

By September 2015, in a rather abrupt volte-face, the discussion turned from new

acquisitions to potential sales of assets. At a joint meeting of the Boards of CCOH

and the iHeart Defendants on September 29, 2015, the directors in attendance

discussed selling certain CCOH Latin American businesses and certain United

States assets and considered recommendations regarding the retention of financial

advisors for the asset sales.12 At the conclusion of the meeting, CCOH’s Board

voted to retain Moelis & Company.13

In November 2015, the CCOH Board began to discuss the possibility of a

debt issuance. At a meeting on November 13, 2015, the Board asked its advisors if

CCOH could issue debt through a subsidiary and use the proceeds to fund a pro

rata dividend.14 Later that month, at a November 30, 2015 Board meeting, the

Board discussed the ramifications of an iHM bankruptcy.15 Based on projections,

iHM would not have sufficient cash flow to pay its debts beginning in the first

11 Compl. ¶ 75 (quoting Compl. Ex. A, CCOH 2015 Management Update at CCOH001066); Compl. Ex. B (May 13, 2015 Meeting Minutes). 12 Compl. Ex. C (Sept. 29, 2015 Meeting Minutes). 13 Id. 14 Compl. Ex. E (Nov. 13, 2015 Meeting Minutes). 15 Compl. Ex. F (Nov. 30, 2015 Meeting Minutes).

15 quarter of 2017. 16 If CCOH undertook a debt issuance and the asset sales,

however, the resulting distributions to iHC would allow iHM to service its debt

through all of 2017.17

On December 16, 2015, the Board announced that, through its indirect

wholly owned subsidiary, Clear Channel International B.V., CCOH would issue

$225 million in 8.75% Senior Notes maturing in 2020 through which the

subsidiary would receive $217.8 million in net proceeds (the “Note Offering”). On

December 20, 2015, the Board declared a special cash dividend for the entire

$217.8 million, payable pro rata to holders of all Class A and Class B common

stock as of the record date of January 4, 2016 (the “January Dividend”). GAMCO

alleges that in approving the Note Offering, the CCOH Board caused CCOH to

“incur needless interest expense” at an “over-market 8.75% interest rate” and

“worsen [its] credit profile,” all for the sake of infusing the iHeart Defendants with

cash to address their acute liquidity need.18

In the first quarter of 2016, CCOH sold assets in eight strategic United

States markets in a series of transactions that generated $602 million in cash (the

“Asset Sales”). The Asset Sales were approved at Board meetings on

16 Id. 17 Id. 18 Compl. ¶¶ 85–89.

16 December 23, 2015 and January 4, 2016.19 CCOH’s financial advisors reported to

the Board that “a strong and fair process had been run, that such process had led to

serious engagement from all likely parties, and that the strong process [resulted in]

strong OIBDAN valuation multiples.”20

At its next meeting, on January 21, 2016, the CCOH Board considered

whether to dividend the proceeds from the Asset Sales and whether to demand a

repayment of a portion of the Revolving Note to fund a portion of a special

dividend. At the conclusion of the meeting, the Board notified iHC that it would

demand repayment of $300 million of the more than $990 million outstanding on

the Revolving Note effective February 4, 2016. At the same time, the Board

declared special cash dividends payable on February 4, 2016 to all Class A and

Class B stockholders of record in an aggregate amount equal to $540 million, using

proceeds from both the repayment demand and the Asset Sales (the “February

Dividend”). The February Dividend was paid to stockholders of record as of

February 1, 2016.

GAMCO alleges that in approving the Asset Sales the CCOH Board

“divested assets at suboptimal prices” on a “timetable” that benefited only the

19 Compl. Ex. G (Dec. 23, 2015 Meeting Minutes); Compl. Ex. H (Jan. 4, 2016 Meeting Minutes). 20 Compl. Ex. G (Dec. 23, 2015 Meeting Minutes) at CCOH000695; Compl. Ex. H (Jan. 4, 2016 Meeting Minutes) at CCOH000848.

17 iHeart Defendants. 21 As to one of the transactions, the Lamar Asset Sale, the

Complaint alleges that CCOH agreed to reduce the purchase price on the assets by

$1.5 million in order to accelerate the transaction and get cash to the iHeart

Defendants more quickly.

G. GAMCO Initiates This Litigation

GAMCO filed its Complaint on May 9, 2016, after receiving books and

records pursuant to its demand under 8 Del. C. § 220. The Complaint contains five

counts: Count I (breach of fiduciary duty against the iHeart Defendants and the

Private Equity Defendants as controlling stockholders relating to the Revolving

Note, the Intercompany Agreements, the Note Offering and the Asset Sales);

Count II (breach of fiduciary duty against the members of the CCOH Board

relating to the Revolving Note, the Intercompany Agreements, the Note Offering

and the Asset Sales); Count III (aiding and abetting breaches of fiduciary duties

against the iHeart Defendants and Private Equity Defendants); Count IV (unjust

enrichment against the iHeart Defendants and the Private Equity Defendants

related to the Note Offering and Asset Sales); and Count V (waste of corporate

assets against the members of the CCOH Board, the iHeart Defendants and the

Private Equity Defendants related to the Revolving Note, the Intercompany

Agreements, the Note Offering and the Asset Sales).

21 Compl. ¶¶ 5, 72, 100.

18 II. LEGAL ANALYSIS

A. Motion to Dismiss Standard

“[T]he governing pleading standard in Delaware to survive a motion to

dismiss is reasonable ‘conceivability.’”22 Under this standard, the Court will deny

the motion if the plaintiff has pled a reasonably conceivable cause of action. 23 All

well-pled allegations in the complaint will be regarded as true but the Court need

not accept conclusory allegations that lack any factual basis.24

B. The Breach of Fiduciary Duty Claims Related to the Revolving Note Are Barred by the 2013 Settlement

GAMCO argues that the 2013 Settlement does not bar its claims relating to

the Revolving Note for three reasons. First, by its express terms, the 2013

Settlement releases only claims accruing up to the date of the stipulation and

release. Second, the claims asserted here are distinct from the claims asserted in

the 2012 Litigation both temporally and substantively. Third, even if the 2013

Settlement was intended to be “forward looking,” Delaware law is well-settled that

parties cannot relieve a fiduciary from complying with its fiduciary duties by

contract. For the reasons that follow, I conclude that these arguments lack merit

22 Cent. Mortg. Co. v. Morgan Stanley Mortg. Capital Hldgs. LLC, 27 A.3d 531, 537 (Del. 2011). 23 Id. 24 Price v. E.I. DuPont de Nemours & Co., 26 A.3d 162, 166 (Del. 2011); Criden v. Steinberg, 2000 WL 354390, at *1 (Del. Ch. Mar. 23, 2000).

19 and that Counts I and II as they relate to the Revolving Note and Intercompany

Agreements must be dismissed.

1. The Scope of the 2013 Settlement

According to GAMCO, Defendants’ attempt to invoke the 2013 Settlement

as a basis to bar GAMCO’s claims relating to the Revolving Note “ignores the

stipulation’s express limitation that ‘Released Plaintiff Claims’ included only

claims ‘from the beginning of time through the date of this Stipulation.’”25 The

Complaint alleges that even after the 2013 Settlement CCOH continues to funnel

money to iHC while the financial fitness of all iHeart entities continues to

deteriorate, making it all the more likely that iHC will default on its substantial

contractual obligations to CCOH. Since the Complaint pleads facts relating to

events that post-date the 2013 Settlement, GAMCO argues that the claims arising

from those facts could not have been released.

“[A]n effective release terminates the rights of the party executing and

delivering the release and . . . is a bar to recovery on the claim released.” 26 “When

determining whether a release covers a claim, ‘the intent of the parties as to its

scope and effect are controlling, and the court will attempt to ascertain their intent

25 Pl.s’ Answering Br. in Opp’n to Defs.’ Mot. to Dismiss the Verified Stockholder Derivative Compl. (“Pl.s’ Answering Br.”) 20 (citing Stipulation of Settlement at 14– 15). 26 Seven Inv., LLC v. AD Capital, LLC, 32 A.3d 391, 396 (Del. Ch. 2011) (quoting Hicks v. Soroka, 188 A.2d 133, 138 (Del. Super. Ct. 1963)).

20 from the overall language of the document.’”27 “Delaware courts recognize the

validity of general releases,”28 and acknowledge that they are “intended to cover

everything – what the parties presently have in mind, as well as what they do not

have in mind.”29 And “[i]f [a subsequent] claim falls within the plain language of

[a] release, then the claim should be dismissed.”30

The release the parties entered in connection with the 2013 Settlement

released “any and all claims that (i) have been asserted in the Derivative Action, or

(ii) that could have been asserted in the Derivative Action . . . that are based upon,

arise out of, or relate in any way, directly or indirectly, to . . . (a) the allegations

made in, or the subject matter of the [2012 Litigation]; (b) the matters discussed in

the [SLC’s investigation]; (c) . . . the amendment and extension of the [Revolving

Note] . . .; [and] (d) adoption, approval, or amendment of, or on the exercise or

non-exercise of rights under, the [Revolving Note].” 31 The release language

reflects an intent to give both a specific release and the quintessential general

27 Id. 28 Deuly v. DynCorp Int’l, Inc., 8 A.3d 1156, 1163 (Del. 2010), cert. denied, 563 U.S. 938 (2011). 29 Corp. Prop. Assocs. 6 v. Hallwood Gp., Inc., 817 A.2d 777, 779 (Del. 2003) (quoting Adams v. Jankouskas, 452 A.2d 148, 156 (Del. 1982)). 30 Id. 31 Stipulation of Settlement at 14–15.

21 release.32 And while GAMCO is correct that many of the facts on which it bases

its claims relating to the Revolving Note occurred after the 2013 Settlement, it

misses the point when it argues that this temporal separation alone allows its

current claims to survive the extinguishing effects of the release entered in 2013.

In Delaware, the settlement of representative litigation “can release claims

that were not specifically asserted in the settled action . . . if those claims are

‘based on the same identical factual predicate or the same set of operative facts’ as

the underlying action.”33 The operative facts supporting GAMCO’s claims relating

to the Revolving Note are that iHC is significantly burdened with debt and on the

brink of default, that iHC uses CCOH as its primary source of liquidity and that

CCOH has done nothing to demand repayment. 34 To the extent these same or

similar operative facts were asserted to support the same or similar claims in the

2012 Litigation, the broad release of these claims in 2013 would bar GAMCO

from reasserting them here. As discussed below, a comparison of the two

operative complaints reveals that GAMCO’s claims relating to the Intercompany

32 See Corp. Prop. Assocs. 6, 817 A.2d at 779 (discussing language utilized by the parties to reflect their intent to create a general release of claims). 33 In re Phila. Stock Exch., Inc., 945 A.2d 1123, 1146–47 (Del. 2008); see also Deuly, 8 A.3d at 1164 (affirming Rule 12(b)(6) dismissal of claims deemed to be barred by settlement release); Metro. Life Ins. Co. v. Tremont Gp. Hldgs., Inc., 2012 WL 6632681, at *10–13 (Del. Ch. Dec. 20, 2012) (dismissing derivative claims upon concluding they were barred by prior settlement). 34 Compl. ¶¶ 3, 9, 11.

22 Agreements were prosecuted in the 2012 Litigation and released in the 2013

Settlement. 35

2. CCOH Released the Claims Regarding the Intercompany Agreements Set Forth in the Complaint

GAMCO alleges in its Complaint that the 2012 Litigation was brought to

challenge the CCOH Board’s decision to approve the 2009 amendment to the

Revolving Note on commercially-unreasonable terms “and [to seek] relief

requiring the Board to demand repayment of all or part of the outstanding

balance.” 36 Although not pled in its Complaint, GAMCO contends in its

Answering Brief that plaintiffs in the 2012 Litigation sought to force the Board to

“break” the Intercompany Agreements or to hold the Board liable for failing to

terminate the Intercompany Agreements. 37 While plaintiffs certainly advanced

these two themes in the 2012 Litigation, the claims asserted then and resolved in

the 2013 Settlement were much broader. The following chart, taken largely from

the chart submitted with the Defendants’ Opening Brief, lines up the allegations

made in the 2012 Litigation with GAMCO’s allegations here:

35 Defs. Opening Br. Ex. 5 (“2012 Compl.”) at ¶¶ 1–5, 7. 36 Compl. ¶ 56. 37 Pl.s’ Answering Br. 22. The fact that this description of the 2012 Litigation appears for the first time in GAMCO’s Answering Brief reveals GAMCO’s attempt to adjust its characterization of the 2012 Litigation to meet the Defendants’ release argument.

23 2012 Litigation Allegations GAMCO’s Allegations ¶ 1 – “This derivative lawsuit arises ¶ 1 – “This derivative action arises from the decision by [CCOH’s] because CCOH’s Board refuses to controlling shareholder, [iHC], to untangle the Company from compel the Individual Defendants to [Intercompany Agreements] with its approve a $1.0 billion unsecured majority owner iHC . . . that are loan . . . by [CCOH] to [iHC] on terms materially deleterious to the current and so incredibly favorable to [iHC] that no future performance of CCOH. The rational third-party would have ever Intercompany Agreements act as an agreed to lend money on such terms. . . . anchor dragging down CCOH for the [CCOH] faces a severe risk that the benefit of the iHeart and Private Equity unsecured loan will never be paid back Defendants.” because [iHC] has been drowning under a massive debt load since its 2008 leveraged buyout.” ¶ 3 – “In 2008, Bain Capital Partners, ¶ 3 – “While the cash management LLC . . . and Thomas H. Lee Partners, arrangement was never intended to be a L.P. . . . took [iHC] private in a $24 financing source for CCOH’s parents, billion leveraged buyout. The Buyout iHC and iHM, the [Intercompany Note] saddled [iHC] with more than $18 balance has increased as the iHeart billion in debt. This debilitating debt Defendants’ financial health has load has caused concern that [iHC] could deteriorated. Virtually all or a sizable default on its obligations and [iHC]is portion of the cash swept from the currently at risk of going into Company is used for iHC’s day- bankruptcy. Doubts about [iHC’s] to-day operations or to prop up the financial health have made it extremely iHeart Defendants’ unsustainable capital difficult for [iHC] to raise capital.” structure, which is mired in $20.8 billion in debt. To date, the iHeart Defendants ¶ 4 – “Bain and THL [have] forc[ed] have managed to service the suffocating [CCOH] and its public shareholders to debt, but they continue to sustain become an involuntary source of hundreds of millions in losses each year capital.” and face billions of dollars in maturing debt that they have little, if any, prospect ¶ 5 – “To provide much needed liquidity, of repaying or refinancing.” [iHC] has abused its position as controlling shareholder of [CCOH].”

24 2012 Litigation Allegations GAMCO’s Allegations ¶ 7 – “In late 2011, one of [CCOH’s] ¶ 8 – “[T]he Board . . . permits CCOH to shareholders questioned the Board be used as a liquidity source for the regarding the propriety of the iHeart Defendants in wholesale [Intercompany Note]. Instead of derogation of their fiduciary duties.” conducting a legitimate review of the [Note], the Board told the shareholder ¶ 9 – The Board “refus[es] to extricate that the Company could not unilaterally CCOHH from the agreements.” modify or eliminate the contractual obligations under the [Note]. The ¶ 13 – “Any director acting in good faith Board’s response is simply untrue. The and solely in the interests of CCOH and [Note] is payable on demand and if the its minority shareholders would: (i) seek Board was concerned with the public to terminate the cash management shareholders’ best interest, the Board arrangement and normalize CCOH’s would demand immediate repayment.” administrative and operating structure to shield the Company from its exposure to ¶ 61 – “During the week of February 27, the iHC and the iHeart Defendants’ 2012, the Committee sent a letter to JHL unsustainable capital structure; (ii) take informing JHL that the Committee’s all actions necessary to stop dollars from review of the Loan had not revealed a being diverted from CCOH that should way that [CCOH] could unilaterally properly be invested in the Company’s modify or eliminate the contractual own growth and opportunity; and (iii) commitment. The Committee’s conclude that the [Intercompany Note] response is simply wrong and balance should have been and has to be emphasizes that the Board’s loyalty lies reduced or eliminated.” with [iHC] and not the [CCOH’s] public shareholders.” ¶ 110 – “CCOH’s future viability as a public company and achieving ¶ 63 – “In its letter to JHL, the maximum value for its stockholders Committee ignores the fact that [CCOH] plainly requires the Board to extricate could demand repayment of the [Note] the Company from the restrictions that by [iHC] at any time. However, because iHC and the other Defendants have demanding immediate repayment could placed on it. The Board must normalize be damaging to Bain and THL’s multi- the administrative and operational billion dollar investment in [iHC], the structure and reduce operational risk by [CCOH] Board has not taken such severing the administrative relationships action, even though doing so is with the iHeart Defendants whose necessary to protect the interests of the unsustainable debt structure puts CCOH [CCOH’s] public shareholders.” at significant operational and fiscal risk.”

25 2012 Litigation Allegations GAMCO’s Allegations ¶ 54 – “Further, because [iHC] takes all ¶ 4 – “The Intercompany Agreements of Outdoor’s cash on a daily basis, it remain in place solely for the benefit of prevents Outdoor from utilizing that Defendants and serve no rational cash to make alternative investments. In business purpose for CCOH.” essence, therefore, the ‘cash management program’ not only compels ¶ 5 – “[T]he Intercompany Agreements Outdoor to serve as an unsecured and CCOH’s lack of autonomy over its creditor of [iHC] with no control over its own cash have” prevented CCOH from own finances, but also makes [iHC] “making acquisitions” and “investing its Outdoor’s only cash investment capital.” rendering any sort of responsible diversification impossible.” ¶ 40 – “iHC’s dominion over CCOH restricts [CCOH] from exploring its own ¶ 73 – “[T]he [Intercompany Note] favorable business opportunities.” provides no benefit to [CCOH] and could have catastrophic effects on ¶ 62 – Alleging the Board has a [CCOH] in the event [iHC] declares for “continuing and unremitting obligation bankruptcy.” to attempt[] to free the Company from its demonstrably harmful agreements ¶ 86 – “As a result of the actions of the with iHC to permit it to explore Individual Defendants described herein, autonomous business and growth the Company has been deprived tens of opportunities.” millions of dollars in interest payments and risks being forever deprived of being ¶ 111 – “If the Board were acting solely repaid the principal on the borrowings for the Company, it would seek to sever under the [Revolving Note].” the lending relationship to help stabilize the CCOH financial and capital structure and to eliminate the risk of the iHeart Defendants’ dominion over $640 million (historically closer to $1 billion) in CCOH’s cash. Doing so would enable CCOH to deploy that capital to grow the business or to use it in connection with transactions that help unlock value.”

26 2012 Litigation Allegations GAMCO’s Allegations ¶ 85 – “The Individual Defendants have ¶¶ 137–38 – “The Board Defendants breached their duty of loyalty by have breached their duty of loyalty by approving the Amended [Revolving elevating and favoring the interests of Note] which elevates the interests of iHM, iHC, and the Private Equity [iHC] over the interests of [CCOH] and Defendants over the interests of CCOH the Company’s public shareholders.” and its minority stockholders, including by causing the Company, or directing ¶ 95 – “Plaintiff prays for judgment and the Board Defendants to cause the relief as follows: . . . Rescinding the Company to, among other things: (i) [Intercompany Note], and terminating continually loan iHC cash under the the cash management arrangement.” [Intercompany] Note at commercially- irrational rates. . . .”

¶56 – “Then [in 2012], as now, the Board’s letting the balance increase unabated with no practical path to repayment was a breach of its duty of loyalty.”

¶58 – “Plaintiffs in the 2012 Litigation also alleged that CCOH’s Board breached its duties by refusing to demand repayment on the note and allowing the amounts owed to escalate.”

Tellingly, GAMCO’s lead-off allegation is that “CCOH’s Board refuses to

untangle [CCOH] from intercompany agreements . . . that are materially

deleterious to the current and future performance of CCOH.”38 The Complaint

goes on to recite facts, almost all of which model the allegations made by the

derivative plaintiffs in 2012, to support GAMCO’s claims that the CCOH Board is 38 Compl. ¶ 1. Compare 2012 Compl. ¶ 1 (alleging that the CCOH Board committed CCOH to an unsecured loan (the Revolving Note) that placed CCOH at “severe risk” that the loan “will never be paid back”).

27 acting disloyally to CCOH’s stockholders by continuing to abide by the

Intercompany Agreements, especially the Revolving Note. As the comparison of

the complaints reveals, the plaintiffs in 2012 also cited the increasing size of the

Revolving Note and iHC’s increasing reliance on the Revolving Note as bases to

contend that the CCOH Board breached its fiduciary duties by continuing to honor

the Revolving Note and that the Board should “demand immediate repayment.” 39

GAMCO argues that the operative facts supporting its claims here are

distinct from those litigated and released in the 2013 Settlement since the ever-

increasing balance on the Revolving Note and the ever-worsening state of iHC’s

financial fitness occurred after the 2013 Settlement. But the reality is that the

parties to the 2013 Settlement knew full well that the balance of the Revolving

Note was going to continue to grow long after the parties agreed to a broad release

of claims. 40 This is precisely why the 2013 Settlement approved by the Court

included forward-looking liquidity triggers designed to address the concern that the

Revolving Note balance might continue to grow and iHC’s financial condition

might continue to deteriorate to degrees that would require CCOH to demand

repayment of the Revolving Note. GAMCO has not alleged that either of these

39 Compare 2012 Compl. ¶¶ 3, 7; 54, with Compl. ¶¶ 1-3, 56-58, 63–67. 40 Settlement Hr’g at 12–13; Stipulation of Settlement at 3 (“[CCOH] anticipates that the balance on the [Revolving Note] will increase to over $1.0 billion in the next few years . . .”); 2012 Compl. ¶ 5 (“[CCOH] has publicly disclosed that it expects the size of the [Revolving Note] to balloon over $1 billion in the next few years.”).

28 triggers has been pulled or that the INC or CCOH Board have somehow failed to

comply with their monitoring and reporting obligations under the 2013 Settlement.

The growing Revolving Note balance and the worsening financial condition of iHC

are extensions of the same operative facts that were the foundation of the plaintiff’s

claims in 2012 and at the heart of the 2013 Settlement.

Under GAMCO’s view of the 2013 Settlement, and its construction of

Delaware’s “operative facts” test for determining the scope of releases, any CCOH

stockholder could have initiated derivative litigation against the CCOH Board to

challenge the Board’s ongoing commitment to the Intercompany Agreements

before the ink was even dry on the 2013 Settlement based on the logic that iHC’s

financial condition had continued to worsen, the balance of the Revolving Note

had continued to grow, and the CCOH Board had continued to abide by the terms

of the Intercompany Agreements and the 2013 Settlement to the detriment of

CCOH shareholders. This construction of the 2013 Settlement and Delaware

release law would render the 2013 Settlement a practical nullity. It would also be

contrary to the intent of the parties to the 2013 Settlement with regard to the “scope

and effect” of the release and would disrupt the “global peace” they sought to

achieve.41

41 See Seven Inv., LLC, 32 A.3d at 396; In re Countrywide Corp. S’holders Litig., 2009 WL 846019, at *10 (Del. Ch. Mar. 31, 2009) (noting that “settlement often is not possible 29 3. GAMCO Has Not Pled an Actionable Breach of Fiduciary Duty Claim With Respect to the Intercompany Agreements

As noted, GAMCO has not alleged that iHC is in default on the Revolving

Note or that the INC or the CCOH Board have failed to implement or honor the

forward-looking elements of the 2013 Settlement. Instead, they contend that even

if iHC is not in default, even if the CCOH Board has complied with the 2013

Settlement, and even if the specific language of the release could be interpreted to

encompass the claims it has asserted here, the CCOH Board must still be held to

answer for its failure to call the Revolving Note because it is well-settled under

Delaware law that corporate fiduciaries cannot secure a contractual release that

purports to allow them to avoid their fiduciary duties.42 GAMCO points out that

the parties to the 2013 Settlement made clear to the Court during the fairness

hearing that nothing in the settlement would relieve the CCOH Board of its

ongoing fiduciary duties.43 With this in mind, GAMCO argues the CCOH Board

without granting such ‘global peace’”). See also Phila. Stock Exch., 945 A.2d at 1137 (noting that general releases are designed to provide “complete peace”). 42 Pl.s’ Answering Br. 18 (citing Paramount Commc’ns Inc. v. QVC Network Inc., 637 A.2d 34, 51 (Del. 1993)). 43 Settlement Hr’g at 24 (“You always have to be mindful of your fiduciary duties.”).

30 should be even more conscious of its fiduciary duties because the 2013 Settlement

put the Board on notice of its ongoing duty to monitor the Revolving Note.44

GAMCO is correct that, in Delaware, corporate fiduciaries cannot contract

around fiduciary duties.45 But this settled principle of Delaware law cannot take

GAMCO where it wants to go. To understand why, it is helpful to focus again on

precisely what the CCOH Board was confronting in 2013 with respect to the

Intercompany Agreements, and what it has been confronting ever since.

As noted by the SLC when investigating the claims made in the 2012

Litigation, the Intercompany Agreements placed CCOH in a position where (1) it

could not terminate or renegotiate the agreements because iHC and its affiliates

beneficially owned more than 50% of the voting power of CCOH common stock;

(2) it could not breach the agreements because it was obligated to indemnify iHC if

it caused iHC to breach its credit agreements with lenders (a potential liability of

billions of dollars); (3) it could not freely use any of the proceeds it might recover

if it attempted to call the Revolving Note because iHC had the right to pre-approve

any significant asset acquisition or sale; and (4) it could not sit on the cash it

44 Compl. ¶ 62 (“The 2012 Litigation plainly put each of the Board Defendants on notice of the unreasonableness of allowing iHC to increase the Revolving Note balance without limit or regard for the effect on CCOH. It also reminded each Board Defendant of their independent and constant, continuing and unremitting obligation to consider CCOH’s interests . . .”). 45 Paramount Commc’ns Inc., 637 A.2d at 51.

31 received upon calling the Revolving Note while it assessed how best to deploy that

cash because any funds in excess of amounts required to satisfy accounts payable

and make payroll would have to be swept back to iHC the same day they landed in

CCOH’s accounts. 46 Indeed, at the fairness hearing in 2013, then-Chancellor

Strine described the Intercompany Agreements as “formidable” and observed that

he could conceive of no “legal theory that was going to allow [CCOH] to break”

them.47

Given the corner into which the Intercompany Agreements have painted the

CCOH Board, there is no reasonably conceivable basis upon which GAMCO can

establish that the Board has breached its fiduciary duty by adhering to the

carefully-negotiated governance and monitoring provisions agreed to in the 2013

Settlement. 48 Requiring the Board to do anything more under the factual

46 Defs.’ Opening Br. Ex. 7 (“SLC Findings”) at 1–2, 4; Prospectus at 61–62. See Solomon v. Pathe Commc’ns Corp., 1995 WL 250374, at *5 (Del. Ch. Apr. 21, 1995), aff’d, 672 A.2d 35 (Del. 1996) (controlling stockholder “not required to give up legal rights that it clearly possesses.”). 47 Settlement H’rg at 36–37. 48 Nor can GAMCO state a viable breach of fiduciary duty claim against the iHeart Defendants as controllers. Delaware law is clear that a controller is free to exercise its bargained-for contractual rights without breaching its fiduciary duties, even when doing so might be to the detriment of the stockholders to whom the duties are owed. See In re CNX Gas Corp. S’holders Litig., 2010 WL 2291842, at *9 (Del. Ch. May 25, 2010). See also Getty Oil Co. v. Skelly Oil Co., 267 A.2d 883, 888 (Del. 1970) (“[T]he duty [of parent to its subsidiary] does not require self-sacrifice from the parent”); Odyssey P’rs, L.P. v. Fleming Cos., Inc., 735 A.2d 386, 411 (Del. Ch. 1999) (holding that controlling stockholder was under no fiduciary obligation to agree to a proposal that would have “required significant and disproportionate self-sacrifice”). 32 circumstances pled in the Complaint would be a futile gesture and the Complaint

pleads no facts that would suggest otherwise. “Equity ought not to attempt futile

acts.”49 Stated differently, our law does not require corporate boards to engage in

pointless exercises, much less those that pose a serious risk of substantial harm to

the company and its stockholders.50 While circumstances may arise that would

require the CCOH Board, in the proper exercise of its fiduciary duties, to demand

repayment of the Revolving Note even absent one of the liquidity triggers being

reached, GAMCO has not alleged the presence of those circumstances in the

Complaint.

C. The Breach of Fiduciary Duty Claim Related to the Revolving Note Is Barred by Res Judicata

Even if the Complaint was not barred by the 2013 Settlement, GAMCO has

failed to plead facts that would allow it to overcome the preclusive effects of res

judicata. As our Supreme Court has explained, “the doctrine of res judicata serves

to prevent a multiplicity of needless litigation of issues by limiting parties to one

fair trial of an issue or cause of action which has been raised or should have been

49 Freedman v. Rest. Assoc. Indus., Inc., 1987 WL 14323, at *9 (Del. Ch. Oct. 16, 1987) (Allen, C.). 50 See Bershad v. Curtiss-Wright Corp., 535 A.2d 840, 845 (Del. 1987); McMullin v. Beran, 765 A.2d 910, 920 (Del. 2000). See also In re Sirius XM S’holder Litig., 2013 WL 5411268, at *6 (Del. Ch. Sept. 27, 2013) (dismissing breach of fiduciary duty claim where contract prohibited actions plaintiffs claimed directors should take); Hokanson v. Petty, 2008 WL 5169633, at *6 (Del. Ch. Dec. 10, 2008) (same).

33 raised in a court of competent jurisdiction.”51 “Res judicata operates to bar a claim

where the following five-part test is satisfied: (1) the original court had jurisdiction

over the subject matter and the parties; (2) the parties to the original action were

the same as those parties, or in privity, in the case at bar; (3) the original cause of

action or the issues decided was the same as the case at bar; (4) the issues in the

prior action must have been decided adversely to the [party] in the case at bar; and

(5) the decree in the prior action was a final decree.”52

This Court clearly had jurisdiction to resolve the 2012 Litigation. CCOH

was the real party in interest in that action and is the real party in interest in this

action.53 Plaintiffs in the 2012 Litigation did not prevail on most of their claims

and the matter ultimately was resolved with a final decree of dismissal after the

2013 Settlement was approved. 54 These points are not disputed. Accordingly,

51 LaPoint v. AmerisourceBergen Corp., 970 A.2d 185, 192 (Del. 2009) (quoting Taylor v. Desmond, 1990 WL 18366, at *2 (Del. Super. Ct. Jan. 25), aff’d, 1990 WL 168243 (Del. Aug. 31, 1990) (holding that the doctrine bars “all issues which might have been raised and decided in the first suit as well as to all issues that actually were decided.”). 52 Id. (quoting Dover Historical Soc’y, Inc. v. City of Dover Planning Comm’n, 902 A.2d 1084, 1092 (Del 2000)). 53 See Cantor v. Sachs, 162 A. 73, 76 (Del. Ch. 1932) (holding that the corporation is the party in interest in a stockholder derivative suit). 54 See Sternberg v. O’Neil, 1989 WL 137932, at *4 (Del. Ch. Nov. 9, 1989) (“Since the order approving the settlement is a final judgment, it is res judicata.”); Monohan v. N.Y. City Dep’t of Corr., 214 F.3d 275, 289 (2d Cir. 2000) (holding that prior settlement between parties entitled to res judicata effect because otherwise “[t]he efficiencies created by a mutually agreeable settlement would be lost.”).

34 only the third element of res judicata (the similarity of the causes of action or

issues) is relevant here.

Delaware courts will find an identity of issues for res judicata purposes

when “the same transaction formed the basis for both the present and former suits”

and the plaintiff “‘neglected or failed to assert claims which in fairness should have

been asserted in the first action.’”55 To resist a finding that resolution of the 2012

Litigation is res judicata, GAMCO restates most of the same points it raised in

response to the Defendants’ release argument. The core of its res judicata

argument is that “the same transactions did not form the basis for Plaintiff’s claims

[in the Complaint] and those in the 2012 Litigation.”56 According to GAMCO, the

plaintiffs in the 2012 Litigation sought “to force the Board to ‘break’ the

Intercompany Agreements or hold the Board liable for failing to terminate the

Intercompany Agreements,”57 as well as to challenge a 2009 amendment to the

Revolving Note while, in this case, GAMCO attempts “to hold the Board

55 LaPoint, 970 A.2d at 193–194 (citing Kossol v. Ashton Condo. Ass’n, Inc., 1994 WL 10861, at *2 (Del. Jan. 6, 1994)). 56 Pl.s’ Answering Br. 22. 57 Id. (emphasis added). Of course, as noted, several paragraphs of the Complaint take the CCOH Board to task for “[refusing] to untangle [CCOH] from the intercompany agreements. . . .”; “[refusing] to extricate CCOH from the agreements. . .”; “[failing] to attempt to terminate the Company’s participation in the Intercompany Agreements . . .”; “[not seeking] to terminate the cash management arrangement . . .”; and “[not attempting] to terminate the cash-management sweep arrangement or other Intercompany Agreements.” Compl. ¶¶ 1, 9, 11, 13, 61.

35 accountable for refusing to take any steps to protect CCOH from the iHeart

Defendants’ and their worsening financial crisis [by demanding repayment]. . . .”58

GAMCO reiterates that because the events set forth in the Complaint occurred

after the 2013 Settlement, “[t]hose facts were not, and could not have been, known

to plaintiffs in the second action at the time of the first action.”59

GAMCO’s res judicata argument reads a bit like alternative history and does

not square with its own description of the 2012 Litigation in its Complaint. While

GAMCO now argues that the 2012 Litigation was about forcing the CCOH Board

to terminate the Intercompany Agreements (a theme it replays in its Complaint),

and about challenging the decision by the CCOH Board to approve a 2009

amendment to the Revolving Note, 60 its Complaint actually acknowledges the

claims in the 2012 Litigation that sought to hold the CCOH Board accountable for

refusing to take any steps to protect CCOH from the iHeart Defendants’ worsening

financial crisis.61

58 Id. 59 LaPoint, 970 A.2d at 195. 60 Pl.s’ Answering Br. 22 (“Unlike the plaintiffs in the 2012 Litigation, Plaintiff here does not seek to force the Board to ‘break’ the Intercompany Agreements or hold the Board liable for failing to terminate the Intercompany Agreements.”); Pl.s’ Answering Br. 7 (“The 2012 Litigation challenged the decision by CCOH’s Board to approve the 2009 amendment to the Revolving Note on terms alleged to be commercially-unreasonable.”). 61 See Compl. ¶ 56 (“Then, as now, the Board’s letting the balance increase unabated with no practical path to repayment was a breach of its duty of loyalty.”); Compl. ¶ 58 36 To rehash, the fact that the balance on the Revolving Note was going to

increase was well known to the parties and the Court when the 2013 Settlement

was presented for approval, as was the fact that the iHeart Defendants’ financial

fitness may well continue to worsen. Indeed, these facts animated the forward-

looking provisions of the 2013 Settlement agreements and were important to the

Court’s determination that CCOH was securing meaningful benefits from the

settlement. In light of this glaring reality in 2013, GAMCO’s effort to characterize

the 2012 Litigation as a controversy that pre-dated a steadily-increasing Revolving

Note balance and a steadily-worsening iHC financial condition is simply not

credible. The fact that the predictions have materialized—the Revolving Note

balance has increased and iHC’s financial condition has worsened—reflects a

continuation of the “common nucleus of operative facts” that were at the heart of

the 2012 Litigation, not a separate transaction for purposes of res judicata. 62

Consequently, GAMCO’s claims regarding the Revolving Note and Intercompany

Agreements (Counts I & II) are barred by res judicata.

(“Plaintiffs in the 2012 Litigation also alleged that CCOH’s Board breached its duties by refusing to demand repayment on the note and allowing the amounts owed to escalate.”). 62 LaPoint, 970 A.2d at 194 (citing Maldonado v. Flynn, 417 A.2d 378, 383 (Del. Ch. 1980)).

37 D. GAMCO Has Failed to State a Breach of Fiduciary Duty Claim Related to the Note Offering and Asset Sales

GAMCO alleges that the CCOH Board, iHeart Defendants and the Private

Equity Defendants as controllers have breached their fiduciary duties to the

minority stockholders by “caus[ing] [CCOH] to sell valuable assets and incur

interest expense on new debt in order to prop up the iHeart Defendants’

overleveraged and unsustainable capital structure.” 63 These transactions, it is

alleged, “demonstrate commercially-unreasonable stripping of value from CCOH

for Defendants’ benefit [and] constitute serious breaches of fiduciary duty.” 64

Defendants have moved to dismiss these claims because the sale of non-core assets

and the incurrence of debt were arms-length transactions with third-parties that

resulted in pro rata distributions of dividends to all CCOH stockholders, including

GAMCO. This dynamic, according to Defendants, is “fatal to [GAMCO’s]

claim.”65

It is well-settled that “Delaware law imposes fiduciary duties on those who

effectively control a corporation.” 66 iHC, as holder of approximately 90% of

CCOH’s outstanding shares and 99% of the stockholder voting power is, by any

63 Compl. ¶ 1. 64 Id. 65 Defs.’ Opening Br. 38. 66 Quadrant Structured Prods. Co., LTD. v. Vertin, 102 A.3d 155, 183–184 (Del. Ch. 2014).

38 measure, the controlling stockholder of CCOH. iHC is wholly owned by iHM.

The Private Equity Defendants own 67% of iHMs stock and hold the power to

appoint all but two of iHC’s directors as well as all of its senior management. On

these facts, it is not contested that the iHeart Defendants and the Private Equity

Defendants owe fiduciary duties to the minority stockholders by virtue of their

position as controllers of CCOH.67

GAMCO contends that the CCOH Board’s approval of the challenged

transactions must be reviewed for entire fairness because both the Asset Sales and

Note Offering were undertaken for the sole purpose of benefitting the controlling

stockholder and its affiliates by addressing their unique and acute liquidity needs at

the expense of the other GAMCO stockholders. In response, Defendants invoke

the seminal Sinclair Oil Corp. v. Levien68 to argue that the mere fact the challenged

transactions benefited the iHeart Defendants and Private Equity Defendants as

controllers is not a basis to strip the CCOH Board of the cloak of the business

judgment rule when all CCOH stockholders received pro rata benefits. As is often

the case, the threshold determination of the appropriate standard of review by

which the Defendants’ conduct must be measured will be dispositive of the motion

to dismiss GAMCO’s breach of fiduciary duty claim.

67 Because the Defendants have not disputed this point for purposes of this Motion, I have assumed it to be correct for purposes of my analysis. 68 280 A.2d 717 (Del. 1971).

39 1. The Standard of Review in the Controlling Stockholder Context

“Delaware’s default standard of review is the business judgment rule” which

is “a principle of non-review that ‘reflects and promotes the role of the board of

directors as the proper body to manage the business and affairs of the

corporation.’”69 Entire fairness, on the other hand, is the most “onerous” standard

of review under Delaware law.70 In the controlling stockholder context, the entire

fairness standard imposes upon the defendants “the burden of proving that the

transaction . . . was entirely fair to the minority.”71 Entire fairness, however, “is

not implicated solely because a company has a controlling stockholder.”72 Rather,

entire fairness will govern only when “the controller . . . engage[s] in a conflicted

transaction.”73

69 Quadrant, 102 A.3d at 183 (citing In re Trados Inc. S’holder Litig., 2009 WL 2225958, at *6 (Del. Ch. July 24, 2009)). See also Williams v. Geier, 671 A.2d 1368, 1371 (Del. 1996) (holding that directors are presumed to have acted “independently, with due care, in good faith and in the honest belief that [their] actions were in the stockholders’ best interests”). 70 In re Trados Inc. S’holders Litig., 73 A.3d 17, 44 (Del. Ch. 2013). 71 Ams. Mining Corp. v. Theriault, 51 A.3d 1213, 1239 (Del. 2012) (holding defendants have the burden of proving “fair dealing and fair price.”). 72 Crimson, 2014 WL 5449419, at *12. 73 Id.

40 In In re Crimson Exploration Inc. Shareholder Litigation, 74 the Court

identified two instances where a controller engages in the kind of conflicted

transaction that will justify entire fairness review. 75 The first is where the

controller stands on both sides of the transaction. 76 In the transactions at issue

here, the iHeart Defendants and Private Equity Defendants were clearly not on

both sides of the transactions and GAMCO does not allege otherwise.77

The second category of conflicted transactions where Delaware courts will

invoke entire fairness review involve those in which the controller “competes with

the common stockholders for consideration.”78 These cases exist in three subsets:

74 2014 WL 5449419 (Del. Ch. Oct. 24, 2014). 75 Id. at *12. 76 Id. See also Larkin v. Shah, 2016 WL 4485477, at *9 (Del. Ch. Aug. 25, 2016) (“[C]ases where the controller stands on both sides of the transaction present a particularly compelling reason to apply entire fairness: both corporate decision-making bodies to which Delaware courts ardently defer—the board of directors and disinterested voting stockholders—are considered compromised by the controller's influence.”) (citing Kahn v. M & F Worldwide Corp., 88 A.3d 635, 644 (Del. 2014)). 77 Compl. Ex. G (December 23, 2015 Meeting Minutes) at CCOH000693. Because GAMCO acknowledges that this is not a case where the alleged controllers stood on both sides of the transactions, several of the cases it cites in support of its argument that the Court must review the transactions for entire fairness are inapposite. See, e.g., OTK Assocs., LLC v. Friedman, 85 A.3d 696 (Del. Ch. 2014) (involving a controller on both sides of the transaction); In re Ezcorp Inc. Consulting Agmt. Deriv. Litig., 2016 WL 301245 (Del. Ch. Jan. 25, 2016) (same); Teachers Ret. Sys. of La. v. Aidinoff, 900 A.2d 654 (Del. Ch. 2006) (same). 78 Crimson, 2014 WL 5449419, at *12.

41 (1) “disparate consideration” cases; (2) “continuing stake” cases; and (3) “unique

benefit” cases.79

In a “disparate consideration” case, the controller takes more monetary

consideration from the third-party transaction than is given to the minority.80 In

this case, there is no dispute that the challenged transactions led to pro rata

dividends for all stockholders.

In a “continuing stake” case, the controller receives more consideration from

the third-party transaction than the other stockholders in a form other than

money—typically by retaining a continuing equity stake in the surviving entity

while the minority common stockholders are cashed out.81 The “continuing stake”

cases by definition involve acquisition transactions, a scenario not applicable here.

GAMCO argues that this is a “unique benefit” case. In a “unique benefit”

case, “the controller receives some sort of special benefit not shared with the other

stockholders.”82 In essence, “the controller extracts something uniquely valuable

79 Id. at *12–14. 80 See, e.g., In re Tele-Communications, Inc. S’holder Litig., 2005 WL 3642727, at *7 (Del. Ch. Jan. 10, 2006) (class of high-vote stock received $376 million more in consideration than the single-vote stock). 81 See, e.g., In re John Q. Hammons Hotels Inc. S’holders Litig., 2009 WL 3165613, at *7–8 (Del. Ch. Oct. 2, 2009) (a 72% controller of an acquired company received a combination of a small equity stake in the surviving entity, significant liquidation rights, a large line of credit, and various other contractual rights, while other stockholders received only cash). 82 Crimson, 2014 WL 5449419, at *13. 42 to the controller, even if the controller nominally receives the same consideration

as all other stockholders.”83 GAMCO has seized upon a line of cases in which

Delaware courts have applied entire fairness when a controller causes a company

to enter into a transaction for the purpose of addressing an acute liquidity crisis

confronting the controller. In these cases, while the controller receives the same

financial benefit as the other stockholders, it also receives the “unique benefit” of a

quick infusion of cash that it requires to satisfy its need for liquidity.84

In New Jersey Carpenters Pension Fund v. infoGROUP, Inc.,85 for example,

infoGROUP’s largest stockholder, who was also its founder and Chairman of the

Board, had a unique and desperate need for liquidity based on a variety of factors

including past legal actions and a desire to launch a new business.86 Through “a

pattern of threats and bullying,”87 the plaintiffs alleged that the controller was able

to force a sale of the company “at an inopportune time and utilizing a flawed and

inadequate sales process,” which ultimately resulted in the stockholders receiving

83 Id. 84 See N.J. Carpenters Pension Fund v. infoGROUP, Inc., 2011 WL 4825888 (Del. Ch. Oct. 6, 2011); In re Answers Corp. S’holders Litig., 2012 WL 1253072, at *1–2, *7 (Del. Ch. Apr. 11, 2012); McMullin v. Beran, 765 A.2d 910, 921 (Del. 2000). 85 2011 WL 4825888 (Del. Ch. Sept. 30, 2011). 86 Id. at *2–3. 87 Id. at *3.

43 an unfair price for their shares.88 Based on the extreme facts alleged, the Court

held that it was appropriate to require the defendants to prove the entire fairness of

the transaction because the controller was interested in the transaction, exercised

his position of control over the board to force it to provide him with a unique

benefit (the liquidity he desperately needed) and tainted the sales process in a

manner that ultimately resulted in an unfair price to the minority stockholders.89

infoGROUP is an extreme case. 90 As Chief Justice Strine, writing as

Chancellor, noted in In re Synthes, Inc. S’holder Litig.,91 there are “very narrow

circumstances in which a controlling stockholder’s immediate need for liquidity

could constitute a disabling conflict of interest irrespective of pro rata

treatment.”92 “Those circumstances would have to involve a crisis, fire sale where

88 Id. at *2, *6. 89 Id. at *7. 90 As GAMCO correctly points out, infoGROUP does not stand alone as a case where this Court has recognized that the pursuit of a transaction to address a controller’s liquidity need can yield a legally significant unique benefit for the controller. See, e.g., Answers Corp., 2012 WL 1253072, at *1–2, *7 (describing why the allegedly interested entity had a liquidity need that was unique, why a cash sale was necessary for monetization, why an immediate sale was necessary, that the interested entity had in fact sought a fast sale and had threatened to fire Answers Corp.'s entire management team unless a sale was completed in short order); McMullin, 765 A.2d at 921 (describing how the controlling stockholder unilaterally negotiated the transaction, placed cash restrictions on potential bidders, and sacrificed value in the transaction which might have been realized if the transaction had been timed or structured differently). 91 50 A.3d 1022 (Del. Ch. 2012). 92 Id. at 1036.

44 the controller, in order to satisfy an exigent need. . . agreed to a sale of the

corporation without any effort to” engage in a sales process that would reflect the

market value.93 In a footnote, the court cited infoGROUP as a case where the facts

reflected the kind of “narrow circumstances” in which a liquidity need would

create a “unique benefit” for the controller—a case where a “controller forced a

sale of the entity at below fair market value in order to meet its own idiosyncratic

need for immediate cash, and therefore deprived the minority stockholders of the

share of value they should have received had the corporation been properly

marketed in order to generate a bona fide full value bid, which reflected its actual

market value.”94

Synthes did not go out on a limb; it applied the teaching of Sinclair Oil and

its progeny,95 where our Supreme Court held that when the controller “receive[s]

nothing [in a transaction]. . . to the exclusion of [the] minority stockholders,” the

business judgment rule is the proper standard by which to evaluate the board’s

decision to approve the transaction even though the plaintiff alleged that the

controller acted out of a “need for large amounts of cash.”96 In so holding, the

93 Id. 94 Id. 95 See Synthes, 50 A.3d at 1034 (citing Sinclair Oil). 96 Sinclair Oil, 280 A.2d at 719, 721–22. Indeed, as the Defendants point out, if a controller permits a dividend, in any case, that means it wants and likely needs the cash.

45 Supreme Court observed that “[t]he motives for causing the [board to proceed with

the transaction] are immaterial unless the plaintiff can show that the dividend

payments resulted from improper motives and amounted to waste.”97

2. The Complaint Does Not Plead the Kind of “Narrow Circumstances” That Would Justify Entire Fairness Review

The facts of this case line up nicely with Synthes and Sinclair Oil. Unlike

infoGROUP, or the other one-sided conflicted controller transactions where this

Court has determined that a liquidity need caused a controller to exact a legally

significant unique benefit to the detriment of the minority, the allegations here do

not support a reasonable inference that the iHeart Defendants were competing with

the minority common stockholders by sacrificing value either through threats, a

flawed sales process, or an unfair price. As noted, GAMCO acknowledges that

each of the challenged transactions were arms-length transactions with third

parties. The Complaint’s conclusory allegations that the transactions were

“perpetrated to benefit the iHeart Defendants,” “needless,” and undertaken “at

suboptimal prices” and “on Defendants’ timetable to fund the iHeart Defendants”98

are not only lacking in factual support, they are a far cry from the “very narrow

circumstances” where this Court will find that an arms-length transaction with a

97 Id. 98 Compl. ¶¶ 4, 5.

46 third party yielded the kind of unique benefit to a controller that would justify

entire fairness review.

The most GAMCO could muster as specific criticism of the Asset Sales

process was an allegation that CCOH agreed to a $1.5 million reduction in the

purchase price of assets sold to Lamar Advertising Company, in part so that it

could rely on a REIT exemption from Hart-Scott-Rodino review. 99 While

GAMCO characterizes this fact as evidence that the process was rushed so the

proceeds could quickly be swept to the iHeart Defendants, the relatively modest

accommodation on price hardly reflects the kind of “fire sale” that has prompted

this Court to deny a board of the otherwise applicable business judgment

presumption.100 Indeed, the Asset Sales generated $602 million in cash, twelve

times the 2015 OIBDAN for the assets and significantly higher than CCOH’s own

trading multiple.101 CCOH’s financial advisers believed the process and price were

fair and the Board concluded “that, separate and apart from [iHM’s] liquidity

position, such transactions are in the best interest of [CCOH] and all of its 99 Compl. ¶ 97. 100 See Synthes, 50 A.3d at 1036 (noting that the “sort of uncommon scenario” where the Court would review for entire fairness would only arise where the plaintiff made “well- pled” allegations of “a crisis, fire sale where the controller, in order to satisfy an exigent need (such as a margin call or default in a larger investment) agreed to a sale of the corporation without any effort to make logical buyers aware of the chance to sell, give them a chance to do due diligence, and to raise the financing necessary to make a bid that would reflect the genuine fair market value of the corporation.”). 101 Compl. ¶ 93.

47 stockholders in light of the prices offered by the bidders for such non-core

assets.”102

GAMCO’s allegations regarding the Note Offering fare no better. Besides

summarily observing that the Note Offering will cause CCOH to incur substantial

interest expense at an “over-market” rate without lowering the balance on the

Revolving Note, and that it serves no rational business purpose, 103 allegations that

are conclusory and of no inferential value, the Complaint alleges nothing that

would support the notion that the Note Offering was of the nature of a fire sale that

created a unique benefit for the iHeart Defendants to the detriment of CCOH and

its stockholders.

Moreover, even though GAMCO oft-repeats the conclusory allegation that

the CCOH Board focused only on a need to provide liquidity to the iHeart

Defendants,104 and gave no consideration to the potential benefits or detriments to

CCOH or the other stockholders that might flow from the challenged transactions,

these allegations are undercut by the Board minutes to which GAMCO has cited

which reveal that the Board in fact considered and discussed the negative

consequences for CCOH should the iHeart Defendants be forced into

102 Compl. Ex. H (Jan. 4, 2016 Meeting Minutes) at CCOH000848. 103 Compl. ¶¶ 82–91. 104 Compl. ¶¶ 1, 83, 99, 132, 137.

48 bankruptcy.105 Additionally, the Board minutes reflect that the Board identified

and considered benefits from the transactions apart from avoiding liquidity

problems for the iHeart Defendants, including the optimization of non-core assets

for the benefit of stockholders.106

GAMCO has failed to plead the sort of extraordinary facts that would allow

a reasonable inference that the iHeart Defendants extracted a unique benefit from

CCOH at the expense of the other CCOH stockholders. The Asset Sales, Note

Offering and related dividends, therefore, are subject to business judgment

review. 107 Because the Complaint fails to plead facts that overcome the

105 See Compl. Ex. E (Nov. 30, 2015 Meeting Minutes) at CCOH000663 (“At the request of the Board, Kirkland discussed with the Board how a bankruptcy filing at Parent could potentially impact that Company . . . .”); Compl. Ex. H (Jan. 4, 2016 Meeting Minutes) at CCOH000848 (the Board discussed “the potential costs [CCOH] is likely to incur if [iHM] encounters a liquidity problem”). 106 Compl. Ex. H (Jan. 4, 2016 Meeting Minutes) at CCOH000848 (“[I]t is Company management’s belief that, separate and apart from parent’s liquidity position, such transactions are in the best interest of the Company and all of its stockholders in light of the prices offered by the bidders for such non-core assets.”) (“[M]embers of the Board expressed their view that each of the Transactions appear to enable the Board to operate the business appropriately for all stockholders, including in light of the potential costs the company is likely to incur if Parent encounters a liquidity problem. Members of the Board further expressed their initial view that each of the [Transactions] enable the Company to optimize the overall productivity of its assets.”). 107 Since the controlling stockholder was not conflicted, “even if it appointed a majority of the Board, that fact is not relevant to determining the directors’ independence or interestedness in this transaction.” Crimson, 2014 WL 5449419, at *21. If the controller is not conflicted as to the transactions, then Board members associated with the controller would not be interested in the transaction in a manner that would strip them of the presumption of the business judgment rule absent separately-pled board-level interests in the transactions not alleged here. I have not reached the Defendants’ argument that 49 presumption of the business judgment rule, GAMCO has failed to plead a viable

claim for breach of fiduciary duty. 108 And because the claims for breach of

fiduciary duty must be dismissed, GAMCO’s claim for aiding and abetting

breaches of fiduciary duty (Count III) must also be dismissed.109

E. GAMCO Has Failed to State a Claim for Unjust Enrichment

GAMCO’s unjust enrichment theory is that the iHeart Defendants and

Private Equity Defendants enriched themselves at the expense of CCOH and its

minority stockholders through the Revolving Note, the Note Offering, and the

Asset Sales. This exact theory, “simply couched in fiduciary duty terms,” forms

the basis of GAMCO’s fiduciary duty claims against the Defendants.110 Therefore,

“it is fair to say that the unjust enrichment claim depends per force on the breach

GAMCO has failed to plead non-exculpated claims against the independent directors, Tremblay, Temple and Jacobs, because I have concluded that GAMCO has not pled actionable breach claims against any of the Board members. 108 See Sinclair Oil, 280 A.2d at 721–22 (holding that plaintiff failed to plead a claim for breach of fiduciary duty by failing to plead “that the dividend payments resulted from improper motives or waste”). 109 Malpiede v. Townson, 780 A.2d 1075, 1096 (Del. 2001) (stating the four elements of a claim for aiding and abetting a breach of fiduciary duty are: (1) the existence of a fiduciary relationship, (2) a breach of the fiduciary’s duty, (3) knowing participation in that breach by defendants, and (4) damages proximately caused by the breach) (internal citations omitted); see also In re KKR Fin. Hldgs LLC S’holder Litig., 101 A.3d 980, 1003 (Del. Ch. 2014) (“An aiding and abetting claim ‘may be summarily dismissed based upon the failure of the breach of fiduciary duty claims against director defendants.’”) (quoting Meyer v. Alco Health Servs. Corp., 1991 WL 5000, at *2 (Del. Ch. Jan. 17, 1991)). 110 Frank v. Elgamal, 2014 WL 957550, at *31 (Del. Ch. Mar. 10, 2014).

50 of fiduciary duty claim . . .”111 As this Court has said before, “the Court frequently

treats duplicative fiduciary duty and unjust enrichment claims in the same manner

when resolving a motion to dismiss.”112 For this reason, and because the iHeart

and Private Equity Defendants were enriched no more or less than GAMCO,

Count IV of the Complaint must be dismissed.

F. GAMCO Has Failed to State a Claim for Waste

The standard for waste is met if the board’s decision cannot be “attributed to

any rational business purpose.”113 GAMCO has not alleged facts that meet this

high burden because they have not pled facts that allow a reasonable inference that

the challenged transactions were “so one sided that no business person of ordinary,

sound judgment could conclude that the corporation has received adequate

consideration.”114 This is an inference that is difficult to sustain in any case; 115 it is

particularly so here.

The Asset Sales and Note Offering were arms-length transactions that

resulted in pro rata dividends. While GAMCO argues that the CCOH Board gave

111 Id. 112 Id. 113 In re Walt Disney Co. Deriv. Litig., 906 A.2d 27, 74 (Del. 2006). 114 Id. 115 Espinoza v. Zuckerberg, 124 A.3d 47, 67 (Del. Ch. 2015) (noting that a “rare” set of facts will create a reasonable inference of waste).

51 no consideration to any benefit that would flow from the transactions to CCOH,

the documents appended to GAMCO’s own Complaint reveal a different story.116

The Board’s decision to approve arms-length transactions for reasonable value that

provided liquidity for a controlling stockholder to which CCOH, for better or

worse, is inextricably tied by stringent contractual arrangements clearly can be

attributed to a rational business purpose. Because GAMCO has not met its burden

to plead facts that if proven would satisfy the standard for waste, Count V of the

Complaint must be dismissed.

III. CONCLUSION

For the foregoing reasons, GAMCO has failed to state viable claims for

breach of fiduciary duty, aiding and abetting a breach of fiduciary duty, unjust

enrichment or corporate waste. Accordingly, Defendants’ Motion to Dismiss the

Complaint with prejudice is GRANTED.

IT IS SO ORDERED.

116 See supra notes 105 and 106.