Jay Sunny Bajaj v. OSP Razor Holdings LLC
Opinion
IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
JAY SUNNY BAJAJ, as Unit ) Holder of RAZOR ) MANAGEMENT ) AGGREGATOR LLC, and as ) Management Holder ) Representative of OSP RAZOR ) HOLDINGS LLC and OSP ) RAZOR MANAGEMENT ) AGGREGATOR LLC, )
)
Plaintiff, )
) C.A. No. 2025-0976-BWD v.
)
OSP RAZOR HOLDINGS ) LLC, )
)
Defendant. )
POST-TRIAL MEMORANDUM OPINION
Date Submitted: June 30, 2026 Date Decided: July 17, 2026
Brian E. Farnan and Michael J. Farnan, FARNAN LLP, Wilmington, DE; OF COUNSEL: Travis Robert-Ritter and Michael Showalter, ALBRECHT RITTER, PLLC, Coral Gables, FL; Attorneys for Plaintiff Jay Sunny Bajaj.
Raymond J. DiCamillo, Matthew W. Murphy, Andrew L. Milam, Zachary R. Greer, Daniel Boucot, Madison T. Devlin, RICHARDS, LAYTON & FINGER, P.A., Wilmington, DE; Attorneys for Defendant OSP Razor Holdings LLC.
DAVID, V.C.
The defendant in this action, OSP Razor Holdings LLC (“Defendant” or the
“Company”), was formed in 2021 to acquire Digital Management Holdings, LLC
(“DMI”), an information technology services company founded by the plaintiff, Jay
Sunny Bajaj (“Plaintiff”), who rolled over equity in the acquisition.
The Company is taxed as a pass-through entity. Under its operating
agreement, the Company must make quarterly advance tax distributions to its
members, “subject to having cash available after taking into account reasonable
reserves as determined in the good faith discretion of the Board.” The operating
agreement includes a highly deferential definition of “good faith” under which “the
Board, acting on behalf of the Company or in connection with the Company’s
business and affairs, shall be conclusively presumed to be acting in good faith” if a
majority of the directors participating in the decision “subjectively believe” that the
decision “is in or is not opposed to the best interests of the Company.”
In 2022, the Company incurred a loss of $10 million, but its rollover members,
including Plaintiff, incurred “phantom” tax liability on taxable income. In August
2023, the Company’s board of directors met, considered the Company’s cash
position, and determined that the Company lacked “cash available after taking into
account reasonable reserves” to pay tax distributions. By August 2025, when
Plaintiff filed this action, the Company still had not paid tax distributions.
This memorandum opinion follows an expedited three-day trial in which
Plaintiff sought to prove that the Company has breached its obligation under the
operating agreement to pay tax distributions to the rollover members. Plaintiff seeks
to remedy that breach with an order of specific performance compelling the
Company to pay tax distributions, as well as damages.
At trial, Plaintiff failed to prove that the board acted in bad faith. His primary
theory of bad faith—that the Company’s majority owner caused the board to
withhold tax distributions as a pretext to force a buyout of the rollover members—
did not bear out at trial. Plaintiff did not prove that the board failed to make
“predicate” determinations of “cash available after taking into account reasonable
reserves,” or that the board made determinations in bad faith. Instead, the record of
the Company’s cash position supports a finding that the board reached a rational
decision for comprehensible reasons. Each of Plaintiff’s additional arguments—that
the Company should have incurred additional debt to pay tax distributions, that the
board applied the wrong standard and treated distributions as “optional,” and that
the directors “rewrote” minutes to conceal their misconduct—fail to show that the
board acted in bad faith when deciding that the Company lacked available cash to
pay tax distributions.
Because Plaintiff failed to prove a breach of the operating agreement,
judgment is entered for Defendant.
I. BACKGROUND
The following facts are as the Court finds them following a three-day trial
held April 13 through April 15, 2026.1
A. OceanSound Acquires DMI.
Plaintiff founded DMI, a Delaware limited liability company that provides
information technology services, in 2002.2 Plaintiff served as DMI’s Chief
Executive Officer (“CEO”) from its founding until May 2023.3 Plaintiff’s father,
Ken Bajaj, served as DMI’s Chief Operating Officer (“COO”) until 2021, and
Michael Altshuler served as DMI’s Chief Financial Officer (“CFO”) from 2020 until
2024.4
OceanSound Partners, LP (“OceanSound”) is a private equity firm that
focuses on middle-market technology businesses.5 On September 17, 2021,
OceanSound acquired an indirect majority interest in DMI through the Company for
1 The Stipulation and Pre-Trial Order is cited as “PTO ¶ __”. Dkt. 98. Trial testimony is cited as “Tr. (Witness) at __”. See Dkts. 106–10. Joint exhibits are cited as “JX __” unless otherwise defined. 2 PTO ¶¶ 2, 7; Tr. (Bajaj) at 709:4–15.
3 PTO ¶ 7.
4 Id. ¶¶ 12, 14.
5 Id. ¶¶ 2, 9; Tr. (Benavides) at 60:1–12.
$543.1 million, plus potential earnout payments, pursuant to an equity purchase
agreement (the “Acquisition”).6
The post-Acquisition Company was governed by the Amended and Restated
Limited Liability Company Agreement of OSP Razor Holdings LLC (the “Operating
Agreement”).7 The Company emerged with two members. OSP Razor Equity
Aggregator, LP, an entity indirectly owned by OceanSound, held 82% of the
membership interests in the Company.8 OSP Razor Management Aggregator LLC,
an entity through which Plaintiff and other former DMI equity holders (collectively,
the “Rollover Members”) rolled over $58.9 million of equity into the Company,
owned the remaining 18%.9
After the Acquisition, Plaintiff continued to serve as DMI’s CEO while
nonparty Rocky Thurston replaced Ken Bajaj as COO.10 The Operating Agreement
contemplated a seven-member board of directors (the “Board”) comprising four
classes of directors: one “CEO Director,” one “Rollover Director” appointed by
6 PTO ¶ 17; JX 6; id. § 1.7(a); JX 56 at 18. Plaintiff was entitled to 51% of the earnout payments from the Acquisition. Tr. (Bajaj) at 719:7–9. 7 JX 9 [hereinafter OA]. The Operating Agreement has since been amended, but the parties have not identified any material changes to the provisions relevant to this dispute. See JX 1001. 8 PTO ¶¶ 9, 19.
9 Id.
10 Id. ¶¶ 7, 13.
Plaintiff in his capacity as the “Principal Rollover Seller,” one “Independent
Director,” and four “OSP Directors” appointed by OceanSound.11 At closing,
Plaintiff served as the CEO Director; Ken Bajaj served as the Rollover Director; Joe
Benavides, Addison Nordin, Jeff Kelly, and Theodore Coons served as the OSP
Directors; and the Independent Director seat was vacant. Benavides served as
Chairman of the Board, and the Operating Agreement vested him with “the majority
voting power of the Board.”12
B. The Operating Agreement Contemplates Pass-Through Tax Liability And Tax Distributions.
Section 7.3(d) of the Operating Agreement explains that “[t]he Members
intend that the Company shall be treated as a partnership for federal, state and local
income and franchise tax purposes” and provides that “[e]ach Member and the
Company shall file all tax returns consistent with such treatment.”13
Under federal tax law, a member of a limited liability company that elects
pass-through tax treatment may owe taxes on “phantom income,” taxable income
that is allocated to the member even if the company has operated at a loss and the
member has not received cash distributions from the investment.14 Although the
11 OA § 4.1(b)(i).
12 Id. § 4.1(b)(i)(D).
13 Id. § 7.3(d).
14 See JX 107 at 4. Because OSP Razor Management Aggregator LLC has a lower historical tax basis in the Company and did not receive the purchaser-specific
possibility of owing taxes on phantom income may seem onerous, Section 6.2(c) of
the Operating Agreement confirms that “[t]he Members are aware of the tax
consequences of the allocations made” under the Operating Agreement “and agree
to be bound by the provisions of this Section 6.2 in reporting their shares of items of
Company income, gain, loss and deduction.”15
Section 6.3 of the Operating Agreement provides that “[n]o Member shall
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IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
JAY SUNNY BAJAJ, as Unit ) Holder of RAZOR ) MANAGEMENT ) AGGREGATOR LLC, and as ) Management Holder ) Representative of OSP RAZOR ) HOLDINGS LLC and OSP ) RAZOR MANAGEMENT ) AGGREGATOR LLC, )
)
Plaintiff, )
) C.A. No. 2025-0976-BWD v.
)
OSP RAZOR HOLDINGS ) LLC, )
)
Defendant. )
POST-TRIAL MEMORANDUM OPINION
Date Submitted: June 30, 2026 Date Decided: July 17, 2026
Brian E. Farnan and Michael J. Farnan, FARNAN LLP, Wilmington, DE; OF COUNSEL: Travis Robert-Ritter and Michael Showalter, ALBRECHT RITTER, PLLC, Coral Gables, FL; Attorneys for Plaintiff Jay Sunny Bajaj.
Raymond J. DiCamillo, Matthew W. Murphy, Andrew L. Milam, Zachary R. Greer, Daniel Boucot, Madison T. Devlin, RICHARDS, LAYTON & FINGER, P.A., Wilmington, DE; Attorneys for Defendant OSP Razor Holdings LLC.
DAVID, V.C.
The defendant in this action, OSP Razor Holdings LLC (“Defendant” or the
“Company”), was formed in 2021 to acquire Digital Management Holdings, LLC
(“DMI”), an information technology services company founded by the plaintiff, Jay
Sunny Bajaj (“Plaintiff”), who rolled over equity in the acquisition.
The Company is taxed as a pass-through entity. Under its operating
agreement, the Company must make quarterly advance tax distributions to its
members, “subject to having cash available after taking into account reasonable
reserves as determined in the good faith discretion of the Board.” The operating
agreement includes a highly deferential definition of “good faith” under which “the
Board, acting on behalf of the Company or in connection with the Company’s
business and affairs, shall be conclusively presumed to be acting in good faith” if a
majority of the directors participating in the decision “subjectively believe” that the
decision “is in or is not opposed to the best interests of the Company.”
In 2022, the Company incurred a loss of $10 million, but its rollover members,
including Plaintiff, incurred “phantom” tax liability on taxable income. In August
2023, the Company’s board of directors met, considered the Company’s cash
position, and determined that the Company lacked “cash available after taking into
account reasonable reserves” to pay tax distributions. By August 2025, when
Plaintiff filed this action, the Company still had not paid tax distributions.
This memorandum opinion follows an expedited three-day trial in which
Plaintiff sought to prove that the Company has breached its obligation under the
operating agreement to pay tax distributions to the rollover members. Plaintiff seeks
to remedy that breach with an order of specific performance compelling the
Company to pay tax distributions, as well as damages.
At trial, Plaintiff failed to prove that the board acted in bad faith. His primary
theory of bad faith—that the Company’s majority owner caused the board to
withhold tax distributions as a pretext to force a buyout of the rollover members—
did not bear out at trial. Plaintiff did not prove that the board failed to make
“predicate” determinations of “cash available after taking into account reasonable
reserves,” or that the board made determinations in bad faith. Instead, the record of
the Company’s cash position supports a finding that the board reached a rational
decision for comprehensible reasons. Each of Plaintiff’s additional arguments—that
the Company should have incurred additional debt to pay tax distributions, that the
board applied the wrong standard and treated distributions as “optional,” and that
the directors “rewrote” minutes to conceal their misconduct—fail to show that the
board acted in bad faith when deciding that the Company lacked available cash to
pay tax distributions.
Because Plaintiff failed to prove a breach of the operating agreement,
judgment is entered for Defendant.
I. BACKGROUND
The following facts are as the Court finds them following a three-day trial
held April 13 through April 15, 2026.1
A. OceanSound Acquires DMI.
Plaintiff founded DMI, a Delaware limited liability company that provides
information technology services, in 2002.2 Plaintiff served as DMI’s Chief
Executive Officer (“CEO”) from its founding until May 2023.3 Plaintiff’s father,
Ken Bajaj, served as DMI’s Chief Operating Officer (“COO”) until 2021, and
Michael Altshuler served as DMI’s Chief Financial Officer (“CFO”) from 2020 until
2024.4
OceanSound Partners, LP (“OceanSound”) is a private equity firm that
focuses on middle-market technology businesses.5 On September 17, 2021,
OceanSound acquired an indirect majority interest in DMI through the Company for
1 The Stipulation and Pre-Trial Order is cited as “PTO ¶ __”. Dkt. 98. Trial testimony is cited as “Tr. (Witness) at __”. See Dkts. 106–10. Joint exhibits are cited as “JX __” unless otherwise defined. 2 PTO ¶¶ 2, 7; Tr. (Bajaj) at 709:4–15.
3 PTO ¶ 7.
4 Id. ¶¶ 12, 14.
5 Id. ¶¶ 2, 9; Tr. (Benavides) at 60:1–12.
$543.1 million, plus potential earnout payments, pursuant to an equity purchase
agreement (the “Acquisition”).6
The post-Acquisition Company was governed by the Amended and Restated
Limited Liability Company Agreement of OSP Razor Holdings LLC (the “Operating
Agreement”).7 The Company emerged with two members. OSP Razor Equity
Aggregator, LP, an entity indirectly owned by OceanSound, held 82% of the
membership interests in the Company.8 OSP Razor Management Aggregator LLC,
an entity through which Plaintiff and other former DMI equity holders (collectively,
the “Rollover Members”) rolled over $58.9 million of equity into the Company,
owned the remaining 18%.9
After the Acquisition, Plaintiff continued to serve as DMI’s CEO while
nonparty Rocky Thurston replaced Ken Bajaj as COO.10 The Operating Agreement
contemplated a seven-member board of directors (the “Board”) comprising four
classes of directors: one “CEO Director,” one “Rollover Director” appointed by
6 PTO ¶ 17; JX 6; id. § 1.7(a); JX 56 at 18. Plaintiff was entitled to 51% of the earnout payments from the Acquisition. Tr. (Bajaj) at 719:7–9. 7 JX 9 [hereinafter OA]. The Operating Agreement has since been amended, but the parties have not identified any material changes to the provisions relevant to this dispute. See JX 1001. 8 PTO ¶¶ 9, 19.
9 Id.
10 Id. ¶¶ 7, 13.
Plaintiff in his capacity as the “Principal Rollover Seller,” one “Independent
Director,” and four “OSP Directors” appointed by OceanSound.11 At closing,
Plaintiff served as the CEO Director; Ken Bajaj served as the Rollover Director; Joe
Benavides, Addison Nordin, Jeff Kelly, and Theodore Coons served as the OSP
Directors; and the Independent Director seat was vacant. Benavides served as
Chairman of the Board, and the Operating Agreement vested him with “the majority
voting power of the Board.”12
B. The Operating Agreement Contemplates Pass-Through Tax Liability And Tax Distributions.
Section 7.3(d) of the Operating Agreement explains that “[t]he Members
intend that the Company shall be treated as a partnership for federal, state and local
income and franchise tax purposes” and provides that “[e]ach Member and the
Company shall file all tax returns consistent with such treatment.”13
Under federal tax law, a member of a limited liability company that elects
pass-through tax treatment may owe taxes on “phantom income,” taxable income
that is allocated to the member even if the company has operated at a loss and the
member has not received cash distributions from the investment.14 Although the
11 OA § 4.1(b)(i).
12 Id. § 4.1(b)(i)(D).
13 Id. § 7.3(d).
14 See JX 107 at 4. Because OSP Razor Management Aggregator LLC has a lower historical tax basis in the Company and did not receive the purchaser-specific
possibility of owing taxes on phantom income may seem onerous, Section 6.2(c) of
the Operating Agreement confirms that “[t]he Members are aware of the tax
consequences of the allocations made” under the Operating Agreement “and agree
to be bound by the provisions of this Section 6.2 in reporting their shares of items of
Company income, gain, loss and deduction.”15
Section 6.3 of the Operating Agreement provides that “[n]o Member shall
have the right to demand or receive Distributions of any amount, except as expressly
provided in this Article VI.”16 Section 6.6 governs tax distributions to Members
(“Tax Distributions”). That section states in its entirety:
Notwithstanding any other provision herein to the contrary, so long as [the Company] is treated as a partnership for federal income tax purposes, [the Company] shall, subject to having cash available after taking into account reasonable reserves as determined in the good faith discretion of the Board, make quarterly advance cash distributions to each Member in an amount equal to the Member’s Quarterly Estimated Tax Amount for such quarter (“Tax Distributions”), and the Board shall use commercially reasonable efforts to cause such Tax Distributions to be made at least five days before estimated U.S. federal income tax payments for individuals are due. If, on the date of a quarterly estimated distribution, the cash available to [the Company] (as determined in the good faith discretion of the Board) is not sufficient to distribute to each Member the full amount of such Member’s Tax Distribution that would otherwise be
Section 743(b) adjustment allocated to acquisition goodwill, it does not receive corresponding amortization deductions. See I.R.C. § 743. The resulting taxable income is then passed through to the Rollover Members with no corresponding deductions passed through to offset it. 15 OA § 6.2(c).
16 PTO ¶ 30; OA § 6.3.
required under this Section 6.6, then (A) distributions shall be made by [the Company] to the Members pursuant to this Section 6.6 to the extent of the cash so available in proportion to the amounts that would have been distributed to each Member pursuant to this Section 6.6 if there had been a sufficient amount of cash available to [the Company] to make such Tax Distribution in full, (B) [the Company] shall make future distributions as soon as reasonably practicable following the date on which there exists an amount of cash available to [the Company] after taking into account reasonable reserves as determined in the good faith discretion of the Board sufficient to pay the remaining portion of such Member’s required Tax Distribution and (C) [the Company] shall not, until the remaining portion of each such Member’s required Tax Distribution is so distributed, make a Distribution other than pursuant to this sentence. [The Company] shall make commercially reasonable efforts to ensure that any financing documents allow for full Tax Distributions. Notwithstanding anything to the contrary in this Agreement, all distributions made to a Member pursuant to this Section 6.6 shall be treated as an advance against, and thus reduce, the amount of the next succeeding Distribution or Distributions which would otherwise have been paid to such Member pursuant to Section 6.4 or Section 11.1, if applicable.17
Under Section 4.7(c), the Board is “conclusively presumed” to have acted in
good faith if a majority of the Board participating in a decision subjectively believes
that the decision “is in or not opposed to the best interests of the Company”:
For all purposes of this Agreement, each Covered Person (acting in its capacity as such) and the Board, acting on behalf of the Company or in connection with the Company’s business and affairs, shall be conclusively presumed to be acting in good faith if such Person (or, in the case of the Board, a majority of the Directors participating in the decision) subjectively believe(s) that the action taken (or omitted to be taken), the consent or approval given or withheld, or the decision
17 OA § 6.6 (emphasis added).
or determination made or not made, is in or is not opposed to the best interests of the Company.18
C. The Company Finances The Acquisition With Debt.
To finance the Acquisition, Plaintiff executed a credit agreement on behalf of
the Company and its affiliates (the “Credit Agreement”) that provided for a $265
million term loan (the “Term Loan”) and a $40 million revolving credit facility (the
“Revolver”).19 By 2025, the variable interest rate on the Term Loan had risen to
approximately 11.25%.20
The Credit Agreement includes covenants restricting the Company’s ability to
incur additional debt, sell assets, engage in transactions with affiliates, make
additional investments, or issue dividends.21 Among other restrictions, under
Section 2.8(c) of the Credit Agreement, if the Company disposes of an asset, it must
use the proceeds to pay down its debt to stay within a specified leverage ratio (the
“Consolidated Total Net Leverage Ratio”):
18 Id. § 4.7(c) (emphasis added). Section 4.7(c) also provides that when the Board or a director takes action on behalf of the Company, it “shall be entitled to consider only such interests and factors as it desires, including its own interests, and shall have no duty or obligation (fiduciary or otherwise) to give any consideration to any interest of or factors affecting the Company [or] any of the Members.” Id. § 4.7(c). 19 PTO ¶ 22; JX 15 at 10.
20 JX 15 § 1.1 (defining “LIBOR Rate,” “Base Rate,” and “Applicable Margin”); id. § 2.3; Tr. (Carlson) at 658:14–23. The interest rate on the Revolver is 225 basis points lower than the interest rate on the Term Loan. PTO ¶ 22; JX 15 § 1.1 (defining “Applicable Margin”). 21 PTO ¶ 23.
[P]romptly upon receipt by a Credit Party and/or such Restricted Subsidiary of the Net Cash Proceeds of such Disposition or Event of Loss, the Borrower shall deliver, or cause to be delivered, an amount equal to either (i) solely in the case of a Disposition or Event of Loss pursuant to clause (c)(i), 100% of such excess Net Cash Proceeds or (ii) solely in the case of a Disposition of Identified Assets, the amount of Net Cash Proceeds to the extent required to cause the Consolidated Total Net Leverage Ratio not to exceed 3.50 to 1.00 on a pro forma basis (with no netting of the Net Cash Proceeds of such Disposition in such calculation), in each case, to the Administrative Agent for distribution to the Lenders as a prepayment of the Loans, which prepayment shall be applied in accordance with Section 2.8(f) hereof.22
To obtain additional financing, OSP Razor Intermediate Holdings LLC, a
Company subsidiary,23 also issued a $40 million senior payment-in-kind note
bearing 11.25% interest (the “PIK Note”).24 The PIK Note comes due on October
25, 2028, but requires a payment of approximately $30 million by October 25,
2026.25 Interest on the PIK Note accrues as additional principal.26
D. The Company And OceanSound Execute A Management Consulting Agreement.
In connection with the Acquisition, the Company and OceanSound entered
into a management consulting agreement (the “Management Consulting
22 JX 15 § 2.8(c).
23 Verified Compl. for Equitable Relief [hereinafter Compl.], Ex. A, Dkt. 1.
24 PTO ¶ 26.
25 JX 14 at 6, 8, § 1.4(b); JX 455 at 28; Tr. (Benavides) at 269:1–5.
26 PTO ¶ 26.
Agreement”)27 under which the Company must pay OceanSound an annual
“Advisory Fee” representing “the greater of (i) $1,500,000 (the ‘Base Amount’) and
(ii) three percent (3%) of annual Consolidated EBITDA.”28 The Management
Consulting Agreement also requires the Company to pay OceanSound “Transaction
Fees” for transactions in which OceanSound is involved in “an aggregate
amount . . . equal to the greater of (i) $250,000; and (ii) an amount equal to three
percent (3%) of the Transaction Value.”29
Section 4(c) of the Management Consulting Agreement states:
All Advisory Fees or Transaction Fees shall be paid to the extent permitted under any credit agreement or other definitive documentation concerning the financing of the Company Group (the “Financing Documents”), and if not permitted to be paid, shall be deferred and shall be payable as soon as permitted under the Financing Documents or upon the payment in full of all obligations under the Financing Documents. If any Advisory Fee or Transaction Fee is not timely paid, such Advisory Fee or Transaction Fee, as applicable, shall accrue interest at a rate of five percent (5%) per annum, compounded quarterly, from the date due until the date of payment (the “Interest Payment”).30
E. DMI Makes Acquisitions.
Between March 2022 and early 2023, DMI acquired three additional
businesses. In March 2022, DMI acquired Aurotech, LLC using $14.3 million in
27 PTO ¶ 21; JX 11.
28 PTO ¶ 21; JX 11 § 4(a)(1).
29 PTO ¶ 21; JX 11 § 4(b)(1).
30 JX 11 § 4(c).
cash.31 In October 2022, DMI acquired Ambit Group for $37 million, using cash
and OceanSound equity.32 In early 2023, DMI acquired Simplex Mobility Inc. by
drawing down $16 million on the Revolver.33 The Board, including Plaintiff,
unanimously approved each of those transactions.34
F. The Rollover Members, Including Plaintiff, Incur Tax Liability.
Although the Company incurred a loss of $10 million in 2022, the Rollover
Members were allocated approximately $6.628 million in taxable income for that
year.35 OceanSound did not incur a similar tax burden.36
Plaintiff’s tax advisor informed him of his 2022 tax liability in early 2023.37
Thereafter, Plaintiff began to engage with individuals at the Company about Tax
Distributions to the Rollover Members under Section 6.6 of the Operating
Agreement.
At one point in April 2023, Plaintiff and Benavides spoke on the phone about
distributions. According to Plaintiff, Benavides told him that the Company was “not
in a position anytime soon to make Tax Distributions” but “could maybe buy [his]
31 JX 23 at 4.
32 JX 38 at 4.
33 JX 45 at 6, 10.
34 JX 64 at 94; Tr. (Bajaj) at 735:9–17.
35 JX 85 at 1.
36 JX 107 at 4.
37 Tr. (Bajaj) at 677:16–678:2.
stock back at $0.50 on the dollar to help ease the pain,” remarking that “I’ve been
squeezed by firms worse in the past” and “I do not feel sorry for you.”38 Benavides
denies making those statements.
In May 2023, the Board terminated Plaintiff as CEO of DMI and hired
Thurston to serve in his place.39 Under the terms of a separation agreement,
OceanSound agreed to appoint Plaintiff as an OSP Director so that he would remain
on the Board when he ceased to be the CEO Director.40
G. DMI Management And The OSP Directors Assess The Company’s Financial Position To Determine Whether To Recommend A Tax Distribution.
In the ordinary course, DMI’s finance team prepared 13-week cash flow
forecasts, which were provided to OceanSound to monitor the Company’s
performance.41 On June 20, DMI’s CFO, Michael Altshuler, sent Benavides and
Nordin an update on the Company’s cash flow, explaining with respect to Tax
Distributions that:
All-in, we would need to send tax distr[ibutions] to the management razor partners in the range of $13M this year. This is having a significant negative impact on our cash flow as you can imagine, and
38 Tr. (Bajaj) at 678:21–679:1. The only document purporting to describe this call is an email Plaintiff sent to himself nearly two years later—two months before filing his Complaint. See JX 420. 39 PTO ¶¶ 7, 13; Tr. (Bajaj) at 679:6–16.
40 JX 297 at 7.
41 Tr. (Benavides) at 80:13–81:8; id. (Nordin) at 312:10–22. Nordin also received daily cash updates from DMI. Id. at 314:13–24.
causing downward pressure beginning in August when our interest payment is due through the rest of year. We were already in a difficult cash position given our operational challenges, so this is driving additional challenges. The cash flow that [management] is sending has been updated to reflect the latest forecast.42
After reviewing the forecasts, Benavides’ initial reaction was that the Company
“should not be making [T]ax [D]istributions,” and he asked Nordin for input from
PricewaterhouseCoopers (“PwC”), which OceanSound had engaged to improve the
tax structure of its acquisitions.43
On June 26, Nordin told Altshuler that “we are going to recommend that we
don’t make a [T]ax [D]istribution to shareholders” for 2022 because “[w]e do not
think the company has enough cash flow to do that right now.”44
In early July, Benavides sent other OceanSound partners an email describing
PwC’s recommendations and lessons learned from the tax issues the Rollover
Members at DMI were facing:
We’ve done a deep dive into the tax implications of partnership vs corporate structures due to a $7.8mm tax distribution due at DMI— which we’re going to elect not to make. In short, there is almost always more current tax due under the partnership structure than under the corporate structure (unless the corporate rate exceeds the personal fed[eral] & state tax rates). A benefit of the partnership structure is that tax shields get passed forward but that may have limited value on a future sale. A theoretical benefit is that the tax distributions count as
42 JX 73 at 1.
43 Id.; Tr. (Benavides) at 91:17–92:12; id. at 93:12–24 (“So it was just a teaching moment to the team at OceanSound . . . .”). 44 JX 77 at 2.
return of principal which improve [internal rate of return] but the benefit doesn’t move the needle.
Going forward unless there’s an incredibly compelling and well documented/analyzed reason for using the partnership structure, we will only use fully blocked, corporate structures to set up new portfolio company investments. For example, if there’s a very large [net operating loss] AND we have a good sense for what tax distributions will be for the forward 2-3 years AND our agreements have the flexibility to not make tax distributions, we can use partnership structure.
At DMI, we were fortunate to have complete flexibility to NOT make the payments, but it’s a painful situation for the [Rollover Members].45
OceanSound’s analysis of the Company’s cash position continued into mid-
July. On July 12, Altshuler sent Nordin a new forecast that modeled various
distribution scenarios, recommending that the Company pay a 25% or 50% Tax
Distribution:
Bottom line is the 0% and 25% scenario can be managed through working capital with no need to draw on line. The 50% is closer, and may result in very brief period of time where we could spring. 75% and 100% will definitely spring, and will likely not have enough cash going into next year to manage through the bonus and earnout without putting too much pressure. So my recommendation would be something between the 25% and 50% distr[ibution].46
Thurston responded, “[i]t would be good to cover a portion of this (25%-50% as
Mike suggest[s])—if not for anything other than employee morale and the surprise
45 JX 83 at 2.
46 JX 85 at 1.
news of this matter.”47 Nordin “agree[d] with what [Thurston] [was] saying,”
explaining that “[o]nce we have better visibility on the cash flow scenarios described
below, we will be able to decide quickly.”48
On July 14, however, Altshuler sent a “likely more realistic” updated cash
flow projection, noting “[t]he one I saw earlier this week as I said was a bit on [the]
aggressive side” while the updated forecast was “more in our current reality.”49
Altshuler explained that, “[b]ased on this current cash flow, I would exercise more
caution.”50
The next week, Altshuler told the Company’s second-largest Rollover
Member by equity ownership that management was “going to recommend to the
[B]oard that we cannot fund [Tax Distributions] at this point given our current cash
position.”51 As Altshuler socialized the idea of not paying a Tax Distribution, he
reminded Rollover Members “that the operating agreement only requires that we
fund if we believe there is sufficient liquidity and there [i]s not[,]” explaining that
“[s]ome large cash requirements are coming over the next 6-8 months, including a
47 JX 87 at 2.
48 Id. at 1.
49 Id.
50 Id. The updated cash flow projection showed that if the Company paid a 25% partial Tax Distribution, it would have a negative $2.9 million cash balance in some weeks. Id. at 4. 51 JX 93 at 1; Tr. (Nordin) at 466:7–11; see also JX 95.
few large interest payments, the upcoming earnout payment, and the year-end bonus
payment, all of which we need to manage through.”52 He further explained:
The above items, coupled with the significant rollover of legacy investors that are not able to take advantage of the tax shield[,] is creating the perfect storm of pressure on our near-term cash needs. This is therefore putting us in [a] position where it is not prudent for me to recommend to the board that we fund the tax distributions until we get more visibility into some of these growth opportunities and are able to manage through these near-term cash headwinds.53
On August 3, Altshuler sent an updated 13-week cash flow forecast to
OceanSound, noting significant upcoming payments:
[Y]ou’ll see that we can manage through March next year without accessing additional capital, but starting with March after bonus payment, we will need to pull as much as $20M additional off line at certain points b/w March and June, so will have in excess of $30M on line. This is no growth model . . . . Bottom line is that we go into next year with no cash and $13M on the line. We have $8M in bonuses and $9M in earnout, so $17M, and another $2M in Simplex holdback payment.54
H. The Board, Including Plaintiff, Votes To Not Make A Tax Distribution For Tax Year 2022.
On August 7, the Board held a special meeting to determine whether to pay
Tax Distributions to the Rollover Members.55 In advance of the meeting, the Board
received a “Board Update” presentation describing the Rollover Members’ tax
52 JX 103 at 1.
53 Id. at 2.
54 JX 105 at 2 (emphasis added).
55 PTO ¶ 34; JX 119.
liability, including the factors that “resulted in a scenario where, despite DMI being
in a taxable loss position of $10m, the management aggregator ultimately end[ed]
up with income and a tax bill.”56 The Board Update explained that:
Under the holding/operating company’s limited liability company agreement, DMI is required to make [T]ax [D]istributions to its shareholders to cover projected tax liability if distributions for that year are not sufficient to cover that projected tax liability, unless the board determines that the company does not have sufficient liquidity to support [T]ax [D]istributions[.]
- Due to add-on acquisition expenses, low organic bookings and high restructuring charges, DMI has drawn its revolver to $13.5m (out of $40m capacity) and currently has mid-single digit cash on hand. DMI also has ~$25m of non-operating cash expenses expected to come out of the company over the next 12 months and could further strain liquidity[.]
- As a result, the DMI management and the OSP [Directors]
recommend that the DMI board does not cause the company to make any distributions to shareholders until there is improved liquidity.57
At the meeting, members of management provided an overview of the
Rollover Members’ tax burden and the Company’s financial position, and Board
members asked questions.58 The Board, including Plaintiff, unanimously voted not
to make any Tax Distributions for tax year 2022.59
56 JX 106 at 4.
57 Id.
58 JX 119.
59 Id. at 5.
Two months later, on October 5, Plaintiff sent a letter to the Board “regarding
the issue of [the Company’s] distribution obligations to its Members under Section
6.6 of the [Operating Agreement].”60 The letter asserted that, “[a]lthough I voted [at
the August 7 Board meeting], together with the majority of the Board, in favor of
adopting the recommendation of DMI management and the OSP [Directors] that the
Board not cause DMI to make any distributions to shareholders until there is
improved liquidity, our Board discussion left a number of questions unaddressed.”61
Plaintiff asked “[a]t what point will [the Company] have reached sufficiently
‘improved liquidity’ such that [the Company] will resume fulfilling its obligation to
make the required [T]ax [D]istributions,” and whether “future [T]ax [D]istributions
[would] . . . include amounts sufficient to cover any and all interest and penalties
incurred by [Rollover Members] . . . .”62 Plaintiff also “request[ed] that DMI
management provide updates to the Board on a monthly basis that address the
Company’s then-current cash position, so that Board members can assess when it
would be appropriate for DMI to resume fulfilling its tax distribution obligations
under the [Operating] Agreement and, at the appropriate time, to vote to resume
fulfilling those obligations.”63 In response to Plaintiff’s questions about the
60 JX 134 at 2.
61 Id.
62 Id. at 2–3.
63 Id. at 3.
Company’s liquidity, DMI’s management began sending its 13-week cash flow
forecasts to Plaintiff, in addition to other regular reporting.64
Plaintiff claims that during a Board meeting in September, Benavides stated
that he would reconsider making Tax Distributions only if the Company exceeded a
“20MM quarterly EBITDA threshold.”65 Benavides denies making this statement.
According to Plaintiff, in late October, he called Benavides for more clarity on this
threshold. When Plaintiff explained that the lack of distributions was “very painful,”
Benavides purportedly replied: “I can either pay your tax distributions or I can pay
your earnout. But not both. So you choose.”66 Plaintiff also claims that Benavides
asked him if he would “consider converting [his] earnout into equity.”67
I. Plaintiff Continues To Push For Tax Distributions Despite The Company’s Unimproved Cash Position, And OceanSound Removes Him From The Board.
The Company’s cash position did not markedly improve over the next several
months. On January 30, 2024, Altshuler told Nordin there was “no other way to put
64 See, e.g., JX 152; JX 156; JX 160; JX 165; JX 190; JX 192; JX 196; JX 208; JX 211; JX 213; JX 215; JX 218; JX 223; JX 226; JX 231; JX 238; JX 243; JX 245; JX 253; JX 256; JX 258; JX 261; JX 267; JX 272; JX 277; JX 281; JX 283; JX 286; JX 310; JX 317; JX 320; JX 323; JX 326; JX 329; JX 331. 65 Tr. (Bajaj) at 682:1–12.
66 Id. at 684:20–685:2.
67 Id. at 685:3–6.
it[,] we will miss our numbers significantly. . . . [I] unfortunately don’t need a
crystal ball to say this. [E]ntirely self[-]inflicted.”68
The Board terminated Altshuler as DMI’s CFO and replaced him with Peter
Carlson.69 In February, Ken Bajaj left the Board.70
In the first half of 2024, Plaintiff continued to press for a Tax Distribution. On
a May 10 call, Nordin told Plaintiff that “we very clearly have cash tightness and
that our #1 priority is to dig out of this hole.”71 When Benavides learned of the call,
he asked Nordin if Plaintiff had “thought about selling us his equity? They can take
legal action, and we’ll hose them.”72 Plaintiff says that on another call in June,
Benavides told him that “we do not plan or intend on making any tax distributions.
Maybe you should consider selling your equity back at a discount.”73 Plaintiff then
texted another Rollover Member “to setup a call to debrief you guys on [Benavides’]
stance on the tax and his offer to buy equity back at a discount.”74
On August 19, Plaintiff sent a letter to Benavides addressing “the Board’s
continued failure to authorize [the Company]’s quarterly tax distributions” to the
68 JX 194 at 2.
69 PTO ¶¶ 14, 15; Tr. (Nordin) at 383:7–14.
70 PTO ¶ 12.
71 JX 242 at 2.
72 Id. at 1.
73 Tr. (Bajaj) at 688:8–10.
74 JX 60 at 2.
Rollover Members and “a continued lack of transparency with respect to [the
Company]’s intent and ability to make those required distributions,” among other
issues.75 Plaintiff’s letter claimed that “[o]n September 19, 2023 . . . [Benavides]
informed the Board that no [T]ax [D]istributions would be made to the Members
until [the Company] begins recording EBITDA of at least $20 million on a quarterly
basis.”76
On August 26, Benavides sent a letter responding to Plaintiff’s August 19
letter, which asserted, among other things, that:
Given that the Company’s liquidity position and indebtedness have deteriorated since July 2023 . . . , the Board has had, and continues to have, ample basis for its discretionary determination that its reasonable cash reserves needed exceed the cash available and that Tax Distributions are therefore not required under the [Operating Agreement].77
The letter further responded that Plaintiff’s “assertion that the Board has imposed a
threshold of achieving $20 million in quarterly EBITDA prior to any Tax
Distributions is incorrect.”78
75 JX 287. The letter is dated August 16 but was sent on August 19.
76 Id. at 3.
77 JX 297 at 3–4.
78 Id. at 4.
In addition, Benavides’ August 26 letter notified Plaintiff that OceanSound
had determined to “terminat[e] [Plaintiff’s] status as its designee board member,
effective immediately.”79
J. Plaintiff And Altshuler Request A Buyout. In September, Altshuler asked Nordin “to socialize a potential buyout with the
powers that be if that is a possibility.”80 According to Altshuler’s notes, Altshuler
told Nordin that a discount of “$.50 on [the] dollar for investment . . . was low” but
between “50 cents and $1.3 [wa]s a reasonable discussion.”81
On October 25, Plaintiff sent a letter responding to Benavides’ August 26
letter.82 Plaintiff concluded his letter by requesting that OceanSound buy out the
Rollover Members’ shares:
Given your positive outlook on the investment, our concerns about the investment, and our lack of utility to DMI, if we cannot agree to a meaningful path of course correction, I believe consideration of a negotiated buy-out of our Class A Shares and a corresponding forfeiture of all of our rights under the Class A Agreement is warranted, as I believe it would be in the best interests of both the Class A Rollover Shareholders and OSP.83
79 Id. at 7.
80 JX 308 at 2.
81 JX 147 at 6.
82 JX 336 at 1.
83 Id. at 6.
The same day, another partner at OceanSound emailed Nordin requesting “the
language in the [Operating Agreement] around buyback rights for [Plaintiff]’s
equity[.]”84 At some point, OceanSound purportedly prepared internal documents
modeling a buyout of the Rollover Members “at [a] 50% discount, and current
[management] at cost.”85
K. The OSP Directors Execute A Written Consent Ratifying The Board’s Decisions To Not Make Tax Distributions Through September 2024.
On November 1, OSP Directors Benavides, Nordin, Kelly, and Coons
executed a written consent to “ratify and approve [the Company’s] decision not to
make Tax Distributions in respect of the fiscal quarters ending March 31, 2022
through September 30, 2024” (the “November 1 Written Consent”).86 The
November 1 Written Consent recounted:
[T]he Board has previously determined in various meetings beginning on August 7, 2023, and has now again determined, in its good faith discretion that, after considering the Company’s operating performance and trends, liquidity position, outstanding indebtedness, total leverage ratio, interest and earnout obligations, and cash flow forecasts, among other factors, the Company has historically not had in any fiscal quarter, and does not have in the current fiscal quarter, any cash available after taking into account reasonable reserves for purposes of making Tax Distributions. ...
84 JX 335.
85 JX 510 (undated document); see JX 509; JX 511.
86 JX 343 at 1.
[T]he Company does not have, and has not had at any time during the fiscal quarters ending March 31, 2022 through September 30, 2024 and through the present, any cash available after taking into account reasonable reserves and shall not make any Tax Distributions in respect of the fiscal quarter ending December 31, 2024.87
The November 1 Written Consent resolved “that the Company’s decision not to
make any Tax Distributions in respect of the fiscal quarters ending March 31, 2022
through September 30, 2024 is hereby ratified and approved.”88
Altshuler spoke with Nordin again about a potential buyout in December.89
Altshuler told Nordin that “we would love to discuss a negotiated settlement, even
if it had a small discount.”90 Nordin then purportedly “said [Altshuler] should wait
until the commercial sale is finalized, and then wait about 30 days, and then come
back and we could discuss.”91
L. DMI Pays Down Debt With Proceeds From The Sale Of Its Commercial Division.
In the first half of 2024, the Company began to consider selling its commercial
division as a way to service the roughly $300 million in debt it had incurred. 92 By
87 Id. at 4.
88 Id. at 5.
89 JX 147 at 7.
90 Id.
91 Id.
92 Tr. (Benavides) at 122:3–13; id. (Nordin) at 391:4–392:11; id. (Thurston) at 571:21– 572:14; id. (Carlson) at 649:1–650:2.
early 2025, the Company had a Consolidated Total Net Leverage Ratio of 5.00x,93
which management felt was unsustainable.94
In February 2025, DMI sold its commercial division to nonparty Encora Inc.
(“Encora”) for $150.7 million.95 The sale qualified as a “Disposition” under Section
2.8(c) of the Credit Agreement, requiring the Company to stay within its permitted
Consolidated Total Net Leverage Ratio of 3.50 to 1.00. The Company projected that
a sale at the purchase price before adjustments would cause the Company to exceed
the permissible Consolidated Total Net Leverage Ratio.96 As a result, the Company
and its lenders under the Credit Agreement entered into a Limited Consent
Agreement (the “Limited Consent”) to raise the Consolidated Total Net Leverage
Ratio threshold to 3.75 to 1.00.97 After closing, however, the Company’s actual
Consolidated Total Net Leverage Ratio was only 3.24x.98
The Company incurred transaction-related expenses, including a $5 million
Transaction Fee to OceanSound,99 fees for legal and financial advisors, transaction
93 Tr. (Carlson) at 649:6–650:2.
94 Id.; see also id. (Benavides) at 122:18–123:1.
95 PTO ¶ 36; JX 455 at 27.
96 Tr. (Nordin) at 394:4–21.
97 PTO ¶ 37; JX 381 at 1.
98 JX 455 at 27.
99 Tr. (Benavides) at 274:3–7.
bonuses to employees, and other payments to vendors.100 After expenses, the
Company used the remaining sale proceeds to pay down $124.4 million of the Term
Loan and $27 million of the Revolver.101
M. Plaintiff Appoints A New Rollover Director To The Board. Sometime after Ken Bajaj left the Board in February 2024, Plaintiff
designated Rob Hanson to fill the Rollover Director vacancy. In February 2025,
Benavides met with Hanson to discuss his role on the Board.102
Hanson hoped to gain experience serving as a director. In his Complaint,
Plaintiff alleged that Benavides told Hanson at this meeting: “I am the [B]oard, and
I make all the decisions, and I decide if we want to even have [B]oard meetings or
not.”103 But at trial, Hanson did not recall that exchange. Instead, Hanson
remembered Benavides “sp[eaking] authoritatively when he said there may never be
a [B]oard meeting, meaning [Hanson] may never get the experience that [he]
want[ed] out of this, so [Hanson] [did not] really want to do this.”104
100 JX 379.
101 PTO ¶ 38. I note that $124.4 million plus $27 million exceeds the $150.7 million consideration received in the transaction, but the parties have stipulated that these are the correct amounts. 102 Tr. (Hanson) at 14:9–13; id. at 14:24–15:5.
103 Compl. ¶ 20.
104 Tr. (Hanson) at 26:12–19.
According to Hanson, during this February meeting, Benavides expressed his
desire for the Rollover Members to “go away”105 and “focus on their new business
ventures.”106
Hanson joined the Board in April 2025 and continues to serve as a director.107
N. Plaintiff Claims OceanSound Made Him A Lowball Buyback Offer.
In May or June 2025, Plaintiff called Benavides one last time, “hat in hand,”
and “ask[ed] [him] as a man . . . for the sake of [Plaintiff’s] family” to “please
consider making a [T]ax [D]istribution” so that Plaintiff would not be “financially
ruined.”108 According to Plaintiff, Benavides told him he was “happy to hear . . .
you realize that this decision is in my sole discretion and I’m in control,” and that
Plaintiff should “consider selling [his] stock back at a discount” representing “50
cents on the dollar.”109
On June 27, Nordin emailed Benavides an internal estimate showing that the
Rollover Members faced a 2025 pass-through tax exposure “as high as ~$9m, of
which 95% is [Plaintiff]’s.”110 Benavides told Nordin to “ask [Gibson Dunn &
105 Id. at 26:21–24.
106 Id. at 27:2–7.
107 Id. at 32:6–11.
108 Id. (Bajaj) at 702:2–20.
109 Id. at 702:21–703:16.
110 JX 424 at 1.
Crutcher LLP] to send a recommendation / process for offering the shareholders $1
for their equity to help them w[ith] the tax bill.”111
O. The Company Estimates One-Time Expenses Could Bring Its Cash Position Below Zero By The End Of December 2025.
On September 4, the Board held a quarterly meeting. In advance of the
meeting, the Board received a presentation (the “September Board Deck”).112 The
September Board Deck included a “Capital Structure Overview” showing the
Company was estimated to have $17.6 million of cash on hand in December 2025,
which “d[id] not include the potential impact of several large one-time expenses
[that] could bring the balance below zero[.]”113
One such expense was a $5 million reserve for “Shareholder litigation
defense”—the costs for defending this action.114 Another estimated expense was a
“$20m exposure” for an “Encora indemnity claim,”115 a claim the Company
eventually settled for approximately $20 million.116
111 Id.
112 JX 455 at 1–2.
113 Id. at 27.
114 Id.
115 Id.
116 Tr. (Nordin) at 496:7–13; id. (Thurston) at 594:21–595:1.
P. The Company’s Forecasted Cash Balances Remained Low Between 2023 And 2025.
Between September 2023 and September 2025, the Company’s average
minimum forecasted cash balance was $2.1 million, with a median of approximately
$1.4 million, as reflected on the following chart prepared by Defendant’s expert, Dr.
Michael T. Cliff:117
118
117 JX 484 [hereinafter Cliff Report] ¶ 52. Dr. Cliff holds a Ph.D. in finance from the University of North Carolina at Chapel Hill and is a Managing Principal at Analysis Group, an economic consulting firm. Tr. (Cliff) at 934:3–8, 935:22–936:9. Dr. Cliff provided an expert opinion on whether the Company had cash available to make Tax Distributions. Id. at 938:13–19. 118 Cliff Report ¶ 52, Fig. 1.
Several factors impacted the Company’s volatile cash position, including
payments at different intervals on the Term Loan, the PIK Note, the Management
Consulting Agreement, earnout payments, and employee compensation.119 Low
revenue growth and rising interest rates on the Company’s variable-rate debt added
additional stress.120
While the Company’s forecasted cash balances began to recover in 2025, they
still dipped below $1 million on September 22, 2025.121
As an additional test of the Company’s ability to make Tax Distributions, Dr.
Cliff compared each year’s Tax Distribution liability against ending cash balances
from the Company’s 13-week cash forecasts.122 That analysis showed that if the
Company had paid the full amount of Tax Distributions as they came due, it would
have had a negative weekly ending cash balance several times over the 24-month
period between September 2023 and October 2025.123
Q. Procedural History On August 27, 2025, Plaintiff initiated this action through the filing of a
Verified Complaint for Equitable Relief (the “Complaint”), accompanied by a
119 Id. ¶¶ 36–40.
120 See id. ¶¶ 44–45.
121 Id. ¶ 52.
122 Tr. (Cliff) at 972:23–973:9; see also Def.’s Expert Demonstrative at slide 17, Dkt. 117.
123 Tr. (Cliff) at 973:22–24; Def.’s Expert Demonstrative at slide 17.
motion for expedited proceedings (the “Motion to Expedite”).124 The Complaint
alleges a single count seeking specific performance of the Company’s obligation
under Section 6.6 of the Operating Agreement to pay Tax Distributions for years
2022 through 2025.
In the Complaint and the Motion to Expedite, Plaintiff represented that
“[w]ithout immediate relief, Plaintiff will be required to forfeit his equity . . . given
the magnitude of the tax burden.”125 At a September 17 hearing on the Motion to
Expedite, the Court nonetheless denied Plaintiff’s request for a trial on the merits in
three months, in part because “[P]laintiff was aware of the [C]ompany’s refusal to
make [T]ax [D]istributions years before he filed suit.”126 The Court instead ordered
the parties to proceed to a trial “promptly” in the first or second quarter of 2026.127
The Court held a three-day trial from April 13 through April 15, 2026.128 The
parties completed post-trial briefing on June 30.129 Post-trial oral argument is
unnecessary.
124 Compl.; Pl.’s Mot. to Expedite Proceedings, Dkt. 1.
125 Compl. ¶ 12.
126 Dkt. 16 at 25.
127 Id.
128 Dkt. 102.
129 Pl.’s Post-Trial Br. [hereinafter POB], Dkt. 114; Def.’s Answering Post-Trial Br.
[hereinafter DAB], Dkt. 121; Pl.’s Post-Trial Reply Br. [hereinafter PRB], Dkt. 126.
II. ANALYSIS
In the sole count of the Complaint, Plaintiff seeks an order directing the
Company to specifically perform its contractual obligation under Section 6.6 of the
Operating Agreement to pay Tax Distributions for years 2022 through 2025 to the
Rollover Members.130
“[S]pecific performance is ‘a remedy for a proven breach of contract.’”
S’holder Representative Servs. LLC v. Renesas Elecs. Corp., 2024 WL 5192070, at
*20 (Del. Ch. Dec. 3, 2024) (emphasis omitted) (quoting 26 Cap. Acq. Corp. v. Tiger
Resort Asia Ltd., 309 A.3d 434, 464 (Del. Ch. 2023)). To prove a claim for breach
of contract, a plaintiff must show: (1) the existence of a contract; (2) a breach of an
obligation imposed by that contract; and (3) resulting harm. Thomas v. Am.
Midstream GP, LLC, 2024 WL 5135828, at *5 (Del. Ch. Dec. 17, 2024),
interlocutory appeal refused, 339 A.3d 752 (Del. 2025) (TABLE). “A party seeking
to enforce a contract must prove each element of its breach of contract claim by a
preponderance of the evidence.” Kuramo Cap. Mgmt., LLC v. Seruma, 2024 WL
1888215, at *29 (Del. Ch. Apr. 30, 2024). “Proof by a preponderance of the evidence
means proof that something is more likely than not. It means that certain evidence,
when compared to the evidence opposed to it, has the more convincing force and
130 Plaintiff now also argues that he is entitled to expectation-interest damages, including prejudgment interest, although the Complaint did not make this request.
makes you believe that something is more likely true than not.” 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)).
Plaintiff contends the Company breached Section 6.6 in two ways: first, by
failing to pay Tax Distributions from “cash available after taking into account
reasonable reserves as determined in the good faith discretion of the Board”; and
second, by failing to make commercially reasonable efforts to ensure that financing
documents allowed for Tax Distributions. Alternatively, Plaintiff alleges that the
Company breached the implied covenant of good faith and fair dealing. Plaintiff
failed to prove a breach under any of these theories.
A. The Board Determined In Good Faith That The Company Lacked “Cash Available After Taking Into Account Reasonable Reserves” From Which To Pay A Tax Distribution.
Section 6.6 of the Operating Agreement requires the Company, “subject to
having cash available after taking into account reasonable reserves as determined in
the good faith discretion of the Board, [to] make quarterly advance [Tax]
[D]istributions to each Member.”131 Stated differently, the Company must pay Tax
Distributions unless the Board determines in its good faith discretion that the
Company lacks “cash available after taking into account reasonable reserves” from
131 OA § 6.6.
which to pay the distributions.132 Further, under Section 4.7(c) of the Operating
Agreement, the Board is “conclusively presumed” to have acted in good faith if it is
“acting on behalf of the Company” and “a majority of the Directors participating in
the decision[] subjectively believes that” the decision “is in or is not opposed to the
best interests of the Company.”133
Putting Sections 6.6 and 4.7(c) together, to prove that the Company breached
its obligation to pay Tax Distributions, Plaintiff had to show that the Board did not
act in good faith when deciding that the Company lacked “cash available after taking
into account reasonable reserves,” meaning a majority of the Board subjectively
believed that its determination was not in and was opposed to the best interests of
the Company. That is a high bar Plaintiff did not come close to meeting based on
the trial record summarized above. As explored in more detail herein, many of
Plaintiff’s theories at trial lost sight of the highly deferential contractual definition
of good faith under Section 4.7(c). For instance, a conclusive presumption of good
faith applies when a majority of the Board subjectively believes that its decision is
in or is not opposed to the best interests of the Company, yet Plaintiff focused on
Benavides’ subjective belief, largely ignoring that the Board included up to six other
132 Id.
133 Id. § 4.7(c).
directors.134 Moreover, bad faith requires a subjective belief that a decision is
opposed to the best interests of the Company, but the record does not contain one
iota of evidence that any director actually intended to harm the Company.135
Of course, none of the Board members who testified at trial admitted to a
subjective belief that the Board’s decisions were opposed to the best interests of the
Company. Benavides testified that he “[a]bsolutely” “tr[ied] to act in the best
interests of the [C]ompany”136 and that he believed “[t]he company did not have the
ability to make [T]ax [D]istributions”137 and doing so “would have a significant
negative impact on the company cash flow” because “the [C]ompany didn’t have the
cash” to pay them.138 Benavides insisted that “[t]he full [B]oard discussed [whether
Tax Distributions should be made] a number of times” but concluded the Company
did not “have sufficient cash available to make [T]ax [D]istributions.”139 Nordin
134 See DAB at 43 (“Plaintiff has not demonstrated (and cannot demonstrate) that any member of the Board—let alone a majority of the Board—acted in bad faith by determining that the Company was unable to make tax distributions.” (emphasis added)). 135 See id. (“Plaintiff has presented no theory as to how deciding to keep cash in a struggling company instead of making distributions could possibly amount to a decision not in the company’s best interests.”); id. at 64 (“OceanSound, as the Company’s largest investor, has the most to lose if the Company performs poorly. Plaintiff has not explained why OceanSound would want the Company to perform poorly just to hurt Plaintiff.”). 136 Tr. (Benavides) at 73:4–7.
137 Id. at 119:11–15.
138 Id. at 87:5–10.
139 Id. at 95:14–18, 113:18–20.
similarly testified that he “th[ought] that withholding [T]ax [D]istributions was in
the best interest of the [C]ompany,”140 that it was “very clear to [him] that the
operations of the [C]ompany needed . . . proceeds and taking any out for distributions
was not in the best interest of the [C]ompany,”141 that he believed a partial Tax
Distribution “could not have been made,”142 and that “[T]ax [D]istribution payments
would have a significant negative impact on company cash flows.”143 That
testimony was, by and large, credible.144
Although credibility plays an important role in the subjective bad faith
determination, the Court must also look to objective facts to reach a conclusion about
the Board’s intent. For instance, some conduct is “so egregiously unreasonable” that
it is “essentially inexplicable on any ground other than bad faith.” Allen v. Encore
Energy P’rs, L.P., 72 A.3d 93, 107 (Del. 2013) (quoting Parnes v. Bally Ent. Corp.,
722 A.2d 1243, 1246 (Del. 1999)). Further, bad faith may be inferred where
140 Id. (Nordin) at 390:9–14.
141 Id. at 395:17–24.
142 Id. at 374:14–17.
143 Id. at 327:10–13.
144 Although Plaintiff insists that Benavides and Nordin are untrustworthy, POB at 40–42, I largely found their trial testimony on the Company’s financial position, including the availability of cash to pay Tax Distributions, to be credible. I acknowledge that the parties offer different perspectives on conversations that occurred between them, and I believe the truth of what was said probably lies somewhere in the middle. But on the question of the Company’s finances, I am convinced that Benavides and Nordin subjectively believed the Company did not have sufficient cash to pay a Tax Distribution.
“objective facts indicat[e] that a transaction was not in the best interests of the
[company] and that the directors knew of those facts.” Id.
On the other hand, merely second-guessing the Board’s business judgment
will not support a finding of bad faith. See Chatham Hldgs. VI, LLC v. Hermida,
2024 WL 4929756, at *6 (Del. Ch. Dec. 2, 2024) (“Mere disagreement with the
Board’s ultimate decision . . . does not show bad faith by the Board members.”
(quoting In re Crimson Inc. Expl. S’holder Litig., 2014 WL 5449419, at *23 (Del.
Ch. Oct. 24, 2014))); Flannery v. Genomic Health, Inc., 2021 WL 3615540, at *25
(Del. Ch. Aug. 16, 2021) (finding that “mere disagreements with how the [b]oard
negotiated the [m]erger” did not support “an inference of bad faith conduct”). “The
fact that the plaintiff might object to what the [Board] did or argue that the [Board]
should have proceeded differently w[ill] not undermine the [Board]’s subjective
good faith.” In re El Paso Pipeline P’rs, L.P. Deriv. Litig., 2015 WL 1815846, at
*16 (Del. Ch. Apr. 20, 2015). If the Board “reached a rational decision for
comprehensible reasons,” even an imperfect process will not demonstrate subjective
bad faith. See id.
The objective evidence adduced at trial does not undermine the credibility of
Benavides’ and Nordin’s testimony. As explained below, each of Plaintiff’s
arguments challenging the Board’s good faith determinations that the Company
lacked “cash available after taking into account reasonable reserves” to pay Tax
Distributions fails on the factual record developed at trial. The record does not
support Plaintiff’s theory that the Board withheld Tax Distributions as a pretext to
buy out the Rollover Members’ shares. Plaintiff failed to prove that the Board never
made “predicate” decisions regarding available cash before withholding Tax
Distributions. The Company’s cash position does not support a finding of bad faith,
nor does the Board’s decision not to take on additional debt. Plaintiff failed to prove
that the Board or Benavides treated Section 6.6 as “optional” or applied the wrong
standard when deciding whether to make Tax Distributions. And the OSP Directors’
purported “rewrite” of Board meeting minutes does not show bad faith.
1. Plaintiff Failed To Prove That The Board Withheld Tax Distributions As A Pretext To Force A Buyout.
Plaintiff’s primary theory of bad faith is that the OSP Directors caused the
Board to withhold Tax Distributions as a pretext to force a buyout of the Rollover
Members’ equity. On the pleadings, this theory offered a logical explanation for why
the Board might withhold Tax Distributions otherwise due, but it did not prove up at
trial.
When Plaintiff filed this action, he supported his request for breakneck
expedition by insisting that Benavides was single-handedly causing the Board to
withhold Tax Distributions to “squeeze [him] out,” knowing Plaintiff faced a
“guillotine under which [he] [would] either surrender his equity, or face personal
financial ruin from the tax liability created by the phantom income.”145 But heads
never rolled as Plaintiff largely abandoned this theory at trial. Contrary to Plaintiff’s
earlier narrative, the trial record showed Benavides had no reason to believe Plaintiff
could be pressured into a buyout, given his substantial financial resources from other
sources.146 Plaintiff engaged in extravagant spending throughout 2023 and 2024,147
and still paid his taxes without selling any equity.148
Beyond the insincerity of Plaintiff’s “squeeze” theory, the record does not
support a finding that the Board withheld Tax Distributions as a pretext to force a
buyout. Plaintiff claims that Benavides made lowball offers to purchase his equity
that “became more steeply discounted” as Plaintiff “refused to capitulate” to
Benavides’ overtures.149 The primary support for this theory is Plaintiff’s own self-
145 Compl. ¶¶ 12, 71.
146 Tr. (Bajaj) at 702:2–20. Plaintiff testified that he did not believe Benavides “understood the gravity of the dollar amounts [or the tax burden] and what that meant to [Plaintiff’s] personal financial situation” until “[a]fter the commercial sale,” around mid-2025. Id. at 763:18–765:8. 147 Id. at 758:12–760:21 (testifying that Plaintiff spent millions of dollars on a fleet of luxury cars, including two Rolls-Royces and a Lamborghini; bought a new home in Maryland for almost $10 million in the same town where he already owned an approximately $4 million home; and launched a new investment company called DigiCap, through which Plaintiff invested more than $15 million of his personal funds). Plaintiff took delivery of the Lamborghini, which he described as an “investment,” in January 2026. Id. at 760:19–761:2. 148 Id. at 748:3–8.
149 POB at 14, 36.
serving recollection of oral discussions that Benavides largely disputes. Plaintiff
claims that:
• On an April 2023 phone call, Benavides told Plaintiff that the Company was “not in a position anytime soon to make Tax Distributions” but “could maybe buy [his] stock back at $0.50 on the dollar to help ease the pain,” remarking that “I’ve been squeezed by firms worse in the past” and “I do not feel sorry for you.”150
• On an October 2023 phone call, Benavides told Plaintiff: “I can either pay your tax distributions or I can pay your earnout[,] [b]ut not both[,]” and asked Plaintiff if he would “consider converting [his] earnout into equity.”151
• Plaintiff alleges that Benavides said in a February 2025 meeting with Hanson: “I am the board, and I make all the decisions, and I decide if we want to even have board meetings or not.”152
• On a call in May or June 2025, Benavides told Plaintiff he was “happy to hear . . . you realize that this decision is in my sole discretion and I’m in control,” and Plaintiff should “consider selling [his] stock back at a discount” representing “50 cents on the dollar.”153
I am not convinced that Plaintiff is a reliable narrator when it comes to his
oral conversations with Benavides.154 In one instance, Plaintiff purported to create
150 See supra note 38; JX 420.
151 Tr. (Bajaj) at 684:20–685:6.
152 Compl. ¶ 20.
153 Tr. (Bajaj) at 701:1–703:16.
154 In his Complaint, Plaintiff alleged that Benavides told Hanson at a February 2025 meeting: “I am the board, and I make all the decisions, and I decide if we want to even have board meetings or not.” Compl. ¶ 20. But at trial, Hanson only remembered
an email record of a call two years after it happened.155 He claimed in his pleading
that Benavides made strident comments that the participant in that meeting failed to
corroborate at trial.156 He also grossly exaggerated his need for expedited relief to
avoid “personal financial ruin.”157 I believe there is some kernel of truth in Plaintiff’s
testimony; I am, for instance, convinced that Benavides felt little sympathy for the
plight caused by Plaintiff’s failure to set aside a tax reserve out of the $70 million he
received from the DMI sale. However, I put little stock in Plaintiff’s claim that
Benavides told him Tax Distributions would be made “in [his] sole discretion” in
disregard of the Operating Agreement.
Moreover, even accepting Plaintiff’s testimony, the record does not support
his theory that the Board’s decisions concerning available cash and reserves were
driven by a plan to force a discounted purchase of the Rollover Members’ shares,
rather than a good faith assessment of the Company’s ability to pay a Tax
Distribution. As set forth in detail above, some Rollover Members, including
Plaintiff and Altshuler, asked for a buyout.158 OceanSound internally evaluated the
Benavides “sp[eaking] authoritatively” and did not confirm those statements. Tr. (Hanson) at 26:12–19. 155 See supra note 38; JX 420.
156 See supra pp. 26–27; Tr. (Hanson) at 26:12–19.
157 Compl. ¶ 71.
158 JX 308 at 2; JX 336 at 6.
concept but decided that the Rollover Members would not be interested in its low
valuations.159 As a result, OceanSound never made a formal offer to purchase
Plaintiff’s shares.160
At the same time (and as discussed in more detail below), the record shows
that the OSP Directors were evaluating the Company’s cash position throughout the
period Plaintiff contends they were pursuing a buyout. The OSP Directors worked
closely with management on a daily basis to understand the Company’s cash
position, and the contemporaneous record shows an earnest focus on liquidity,161
liabilities coming due,162 and “cash tightness.”163 Plaintiff therefore did not prove
that the Board’s determinations were a bad faith ruse to force a buyout.
2. The Board Made Determinations Of “Cash Available After Taking Into Account Reasonable Reserves.”
Plaintiff’s next contention is that the Company breached Section 6.6 because
the Board did not hold formal quarterly meetings to determine if the Company had
“cash available after taking into account reasonable reserves” to pay Tax
159 JX 308 at 2; JX 336 at 6; JX 424 at 1 (asking for a recommendation “for offering the [Rollover Members] $1 for their equity to help them w[ith] the tax bill”); see also JX 509– 11 (showing various buyout models purportedly prepared by OceanSound). 160 Tr. (Benavides) at 106:22–24.
161 JX 106 at 4; see supra note 64.
162 JX 105 at 2.
163 JX 242 at 1–2.
Distributions.164 Plaintiff argues that by not making the “predicate” determination
of available cash to pay a distribution, the Board could not have made such a
determination in good faith. This argument fails because the record developed at
trial shows the Board constantly monitored the Company’s cash position and
repeatedly decided that it could not make Tax Distributions.
As the detailed factual recounting above explains, the Board first held a
special meeting on August 7, 2023, at which it determined the Company lacked
available cash to pay Tax Distributions for 2022.165 The Board discussed Tax
Distributions again at a meeting in September.166 In October, Plaintiff asked
“management [to] provide updates to the Board on a monthly basis that address the
Company’s then-current cash position, so that Board members can assess when it
would be appropriate for DMI to resume fulfilling its tax distribution obligations
under the [O]perating Agreement.”167 Management began supplementing its regular
reporting with 13-week cash flow forecasts.168
The Board’s monthly financial reporting packages included “bookings,
backlog, income statement metrics, balance sheet metrics, [and] some employee
164 POB at 28.
165 PTO ¶ 34; JX 119.
166 Tr. (Nordin) at 377:22–378:15.
167 JX 134 at 3.
168 See supra note 64.
headcount information.”169 The OSP Directors, comprising a Board majority, also
received daily cash information from Company management, which they used to
consider Tax Distributions.170
Plaintiff concedes that during this period, he and management “constantly”
asked about Tax Distributions and the OSP Directors (a Board majority) repeatedly
“said no.”171 In August 2024, for instance, Benavides responded to one of Plaintiff’s
requests with a letter that explained the Company’s available cash did not support a
Tax Distribution at that time:
Given that the Company’s liquidity position and indebtedness have deteriorated since July 2023 . . . , the Board has had, and continues to have, ample basis for its discretionary determination that its reasonable cash reserves needed exceed the cash available and that Tax Distributions are therefore not required under the [Operating Agreement].172
Three months later, in November 2024, the OSP Directors, constituting a
majority of the Board, executed the November 1 Written Consent resolving to not
169 Tr. (Nordin) at 315:3–22.
170 Id. at 314:8–19; see also id. (Benavides) at 80:11–16, 81:14–19, 167:7–14, 204:6–12;
id. (Thurston) at 561:10–20. See also PRB at 19 (“The decision-makers had daily cash visibility . . . .”). Plaintiff’s position that the Board was required to make these determinations at formal meetings does not hold water. Section 4.2(a) of the Operating Agreement contemplates that “the Board shall meet at such times and at such places as may be necessary for the Company’s business.” OA § 4.2(a). There is no requirement for the Board to hold formal meetings on any particular schedule. 171 POB at 27.
172 JX 297 at 3–4.
pay Tax Distributions through December 31, 2024.173 The November 1 Written
Consent memorialized that the Board had continually evaluated the Company’s cash
position and concluded that it lacked available cash to pay a distribution, explaining:
[T]he Board ha[d] previously determined in various meetings beginning on August 7, 2023 . . . in its good faith discretion that, after considering the Company’s operating performance and trends, liquidity position, outstanding indebtedness, total leverage ratio, interest and earnout obligations, and cash flow forecasts, among other factors, the Company has historically not had in any fiscal quarter . . . any cash available after taking into account reasonable reserves for purposes of making Tax Distributions.174
The November 1 Written Consent further confirmed that “the Company . . . [did] not
ha[ve] at any time during the fiscal quarters ending March 31, 2022 through
September 30, 2024 and through the present, any cash available after taking into
account reasonable reserves.”175
Plaintiff argues that the Board failed to make a determination of cash available
to pay Tax Distributions in the first quarter of 2025, after closing on the sale of the
Company’s commercial division. To the contrary, the Board constantly evaluated
the Company’s tax position and ability to pay Tax Distributions throughout the sale
process. The Company began considering a sale of the commercial division in early
173 JX 343 at 4.
174 JX 343 at 4.
175 Id.
2024,176 months before the November 1 Written Consent in which the Board
determined the Company would not have cash available to pay a distribution through
December 31.177 A sale agreement was signed in December and closing occurred in
February.178 The Company used the sale proceeds after expenses to pay down
debt.179 After closing, the OSP Directors continued to review the Company’s revised
cash forecasts180 and consider requests for Tax Distributions.181 As the full tax
implications of the commercial division sale crystallized, Carlson, DMI’s CFO, also
told the Rollover Members that the Company had “been hard at work optimizing
DMI’s tax situation.”182 In other words, contrary to Plaintiff’s argument, the Board
continually evaluated the Company’s cash position and concluded that it lacked
available cash to pay a Tax Distribution, including after the sale of the commercial
division.
In short, the trial record refutes Plaintiff’s contention that the Board never
made a “predicate” determination of the Company’s available cash before
withholding Tax Distributions.
176 Tr. (Benavides) at 107:8–11.
177 JX 343 at 4.
178 Tr. (Nordin) at 392:17–20.
179 PTO ¶ 38.
180 JX 386.
181 JX 391.
182 JX 424 at 3.
3. The Company’s Cash Position Does Not Support A Finding Of Bad Faith.
Plaintiff devoted much of his briefing and trial time to arguing that the Board
could not have decided in good faith that the Company lacked “cash available after
taking into account reasonable reserves” to pay Tax Distributions because the
Company did, in fact, have excess cash to pay a distribution at various times
between 2022 and 2025.183 Despite Plaintiff’s disagreement with the Board’s
determination, evidence of the Company’s available cash and reserves supports a
finding that the Board reached a “rational decision for comprehensible reasons.” El
Paso, 2015 WL 1815846, at *16.
As laid out in greater detail above, the evidence adduced at trial shows that in
mid-2023, the OSP Directors worked closely with DMI’s management to assess the
Company’s cash position and make a recommendation on Tax Distributions to the
full Board.184 The OSP Directors studied different cash flow scenarios and
considered partial and full distributions.185 As they worked through the Company’s
cash position, DMI’s CFO, Michael Altshuler, initially encouraged a distribution.
But after sending “more realistic” updated cash flow projections, he instead
183 POB at 23 (arguing that the Board’s good faith must be “tested against actual cash and actual reserves” at the Company). 184 See supra pp. 12–16.
185 JX 87 at 1.
recommended that the Board exercise caution,186 reasoning that the Company would
be “go[ing] into next year with no cash and $13M on the [Revolver]” while owing
“$8M in [employee] bonuses and $9M in earn[-]out” payments.187
On August 7, 2023, the Board met to consider Tax Distributions. Materials
provided in connection with that meeting explained that:
- Due to add-on acquisition expenses, low organic bookings and high restructuring charges, DMI has drawn its [R]evolver to $13.5m (out of $40m capacity) and currently has mid-single digit cash on hand. DMI also has ~$25m of non-operating cash expenses expected to come out of the company over the next 12 months and could further strain liquidity[.]188
At the meeting, the Board—including Plaintiff—unanimously determined that the
Company lacked available cash and voted not to make a Tax Distribution for tax
year 2022.189 Plaintiff does not claim that this determination was made in bad faith.
The Company’s financial position did not markedly improve after the
August 7 meeting. Although Plaintiff claims that “by December 2023[,] cash had
improved $10-15 million,”190 Altshuler reported in January 2024 that the Company
was on track to “miss [its] numbers significantly.”191 The Company continued to
186 Id.
187 JX 105 at 2.
188 JX 106 at 4.
189 JX 119 at 5.
190 POB at 29.
191 JX 194 at 2.
miss its revenue targets throughout 2024,192 and by August 2024, the Company’s
debt exceeded $337 million.193 When the OSP Directors executed the November 1
Written Consent memorializing the Board’s determination that “the Company ha[d]
historically not had in any fiscal quarter . . . any cash available after taking into
account reasonable reserves for purposes of making Tax Distributions,”194 the
Company’s cash position had not materially improved since August 2023.195
Indeed, when the Board voted in August 2023 to not pay Tax Distributions,
the Company’s balance sheet reflected approximately $2 million in cash. As
illustrated in a report submitted by the Company’s expert, Dr. Cliff, the Company’s
forecasted cash balance from September 2023 to October 2025 remained around the
same level.196 Dr. Cliff’s report also showed that if the Board had authorized Tax
Distributions totaling $9.2 million (the Company’s cumulative tax obligation
through 2024), the Company would have had a negative cash balance on several
days between September 2023 and October 2025.197 Declining to approve Tax
Id.; JX 453 at tab “Financial Summary.” The Company missed its revenue targets from 192
September 2023 through October 2025. Cliff Report, Ex. 6. 193 JX 328 (Financial Summary).
194 JX 343 at 4.
195 Tr. (Cliff) at 949:11–14, 952:12–14, 952:24–953:2, 955:8–23, 958:2–5 (“So we have our anchor point of August of 2023 where the company decided it needed to wait for improved liquidity. And this [graph] is basically showing that we’re not there yet.”). 196 Cliff Report ¶ 52; Tr. (Cliff) at 959:5–19.
197 Tr. (Cliff) at 973:22–24.
Distributions that could have resulted in negative cash balances suggests a rational
determination, not bad faith.
Plaintiff argues that the Company could have made a Tax Distribution based
on cash balances of $15.15 million at year-end 2023, $16.6 million at year-end 2024,
and forecasted balance of approximately $17 million at year-end 2025.198 This
argument fails to account for other sizeable obligations for which the Company
maintained reserves, including earnout payments, interest payments on debt, and
employee bonuses.199 As the September Board Deck’s Capital Structure Overview
expressly noted, although the Company expected to end 2025 with over $17 million
in cash, that figure did not factor in several large one-time payments that could bring
the cash balance below zero.200
Plaintiff second-guesses the Board’s decision to use proceeds from the sale of
DMI’s commercial division to pay down debt instead of making Tax Distributions.201
Plaintiff argues that the Company had “approximately $19.7 million of covenant
capacity” at closing that should have been used to make a Tax Distribution instead
of pay debt.202 The Board’s decision to allocate sale proceeds to reduce risk by
198 POB at 28.
199 JX 106 at 5; JX 119 at 4; JX 455 at 27.
200 JX 455 at 27.
201 POB at 16–17.
202 Id. at 20.
deleveraging the Company does not evidence bad faith, i.e., a subjective belief that
the action taken would harm the Company. Similarly, the Board’s decisions to set
aside cash reserves to cover contractually mandated management fees, the Encora
indemnity settlement, and this litigation likewise do not show bad faith. Section 6.6
does not require the Board to set aside a particular sum for reserves, nor does it
dictate approved categories of reserves—the Board must make that determination in
good faith. Plaintiff has not shown that setting aside reserves to pay these expenses
evidences bad faith instead of ordinary business judgment.
Plaintiff’s internal markup and future turnaround arguments are also
unavailing. As recounted by Plaintiff,
[Benavides] characterized DMI as significantly underperforming in 2023—testifying that 2023 profit was expected at approximately $90 million but achieved only in the low $40 million[,] described the bookings miss as a “panic type of moment,” said “we should not be making tax distributions” in light of cash-flow concerns, described the financial circumstances as “not good” and the Company as “in a tunnel with no light at the end,” and repeatedly used the language of “disaster” and “panic.”203
Plaintiff says that position is inconsistent with OceanSound “mark[ing] up its
investment in DMI in the 1.2x to 1.3x range from 2022 through the present.”204
According to Plaintiff, the Board “cannot credibly claim the [Company’s] business
203 Id. at 33 (internal citations omitted).
204 Id. at 32.
was so acutely feeble and liquidity-constrained that mandatory distributions could
not be made” when OceanSound remained bullish on DMI’s prospects.205 But
OceanSound’s internal valuation has little to do with the Company’s available cash
to pay Tax Distributions. Plaintiff emphasizes that the OSP Directors were
optimistic about the Company’s performance and growth prospects,206 but, to state
the obvious, optimism about future growth does not necessarily translate to available
cash to pay a Tax Distribution in the near term.
To summarize, far from demonstrating bad faith, evidence of the Company’s
cash position shows the Board reached a rational decision with respect to available
cash and reserves.
4. The Board’s Decision Not To Take On Additional Debt To Pay Tax Distributions Does Not Show Bad Faith.
Plaintiff next argues that the Board acted in bad faith by failing to take on debt
to fund Tax Distributions.207 According to Plaintiff, “Section 6.6 does not say
‘reasonable cash reserves’; it says ‘reasonable reserves,’” implying the reserves
205 Id.
206 See id. (“On December 9, 2024—the same day OceanSound iterated buyout modeling internally—Nordin told Altshuler that ‘the anxiety he shared with me when I was part of the business is no longer there, and he now feels a lot better about the business, b/c the growth opps are finally real.’ On February 11, 2025, Nordin told Altshuler OceanSound expected a ‘2x return in 5 years.’” (internal citations omitted)). 207 See POB at 17, 21, 26, 28.
could come from debt.208 Plaintiff faults the Board for preserving the Revolver
instead of using it to pay Tax Distributions.209 Plaintiff points out that the Company
“fund[ed] ordinary growth working capital from cash on hand while leaving
substantial revolver capacity undrawn” and “claiming there was no cash for the
[T]ax [D]istributions Section 6.6 mandated.”210
Again, Section 6.6 of the Operating Agreement requires the Board to
determine whether the Company has “cash available after taking into account
reasonable reserves”; the only restriction on the Board’s discretion is that it must
make the decision in good faith. Deciding not to incur additional debt to increase
cash reserves is not indicative of bad faith. Rather, “[t]he decision if, how and when
to take on company debt is a quintessential function of the board of directors.”
Equity-League Pension Tr. Fund v. Great Hill P’rs, L.P., 2021 WL 5492967, at *1
(Del. Ch. Nov. 23, 2021). Second-guessing that decision does not show bad faith.
See In re Novell, Inc. S’holder Litig., 2013 WL 322560, at *8 (Del. Ch. Jan. 3, 2013)
(“Bad faith is also not shown by disagreement with the Board’s decisions . . . .”).
Plaintiff has not shown the Board’s debt strategy was outside the bounds of reason
or otherwise indicative of an intent to harm the Company.
208 Id. at 25 (emphasis added).
209 Id. at 26.
210 Id.
5. Plaintiff Failed To Prove That The Board Treated Section 6.6 As “Optional” Or Applied The Wrong Standard.
Plaintiff also argues that the Board applied the wrong standard for deciding
whether to pay Tax Distributions, acting as if it had “complete flexibility” to
withhold distributions that are mandatory under the Operating Agreement.211
Plaintiff bases this argument in part on a July 6, 2023, email in which
Benavides told his partners at OceanSound that “[a]t DMI, we were fortunate to have
complete flexibility to NOT make the [Tax Distribution] payments.”212 Taken in
context, Benavides’ email summarized PwC’s tax advice and explained why
OceanSound should be cautious in future investments involving a pass-through tax
structure, which had resulted in “a painful situation for the rollover shareholders” at
DMI.213 His email did not purport to describe the standard the Board applied in
determining whether to pay Tax Distributions, but to explain in colloquial terms that
the Operating Agreement preserved the Company’s flexibility to not pay
distributions under the circumstances.214
Plaintiff also claims that Benavides told him that Tax Distributions would be
paid “in [his] sole discretion” and insisted that the Company would not pay Tax
211 POB at 24.
212 Id. (quoting JX 83).
213 JX 83 at 2.
214 Tr. (Benavides) at 94:3–15; id. at 222:24–223:10 (testifying that this email was “poorly phrased”).
Distributions until it achieved $20 million in quarterly EBITDA.215 Plaintiff failed
to prove those statements were made and, as explained above, the Board based its
determinations on available cash.
6. “Rewriting” The August 7, 2023 Minutes Does Not Show Bad Faith.
In a final attempt to establish bad faith, Plaintiff contends that Nordin’s edits
to the minutes of the August 7, 2023 Board meeting evidence bad faith. Plaintiff
claims that Nordin removed descriptions of Plaintiff’s “questions about penalties and
interest, Benavides’ admission that consequences had ‘not been considered,’ and the
CFO’s cash-availability finding,” as well as “language committing the Board to
‘explore potential solutions which would eliminate the need for tax
distributions.’”216 Plaintiff says the markup shows “the Board was not
memorializing a good-faith reserve determination.”217
This argument misses the mark. The parties’ disagreement about what was
discussed at the August 7 meeting, or what level of detail the minutes should include,
does not change the Court’s assessment of the Board’s good faith determination of
“cash available after taking into account reasonable reserves” to pay Tax
Distributions.
215 Tr. (Bajaj) at 682:8–12, 702:21–24.
216 PRB at 21; see also POB at 37.
217 POB at 30–31.
* * *
None of Plaintiff’s theories support a finding that the Board failed to act in
subjective good faith when deciding if the Company had “cash available after taking
into account reasonable reserves” to pay Tax Distributions. As a result, Plaintiff
failed to prove that the Company breached Section 6.6 of the Operating Agreement.
B. The Company Did Not Breach Section 6.6 By Failing To Use Commercially Reasonable Efforts To Ensure The Limited Consent Allowed For Tax Distributions.
Plaintiff also contends that the Company breached Section 6.6 of the
Operating Agreement by failing to “make commercially reasonable efforts to ensure
that any financing documents allow for full Tax Distributions.”218 This contractual
obligation is not conditioned on a good faith determination by the Board.
“Delaware courts have interpreted commercially reasonable efforts provisions
as ‘plac[ing] an affirmative obligation on the parties to take all reasonable steps’ to
achieve a particular end.” Meyers v. Zimmer Biomet Hldgs., Inc., 2026 WL 1194997,
at *9 (Del. Ch. May 1, 2026) (alteration in original) (quoting Williams Cos., Inc. v.
Energy Transfer Equity, L.P., 159 A.3d 264, 273 (Del. 2017)). Plaintiff argues that
218 OA § 6.6. According to Plaintiff, “[t]h[is] clause exists because the parties understood, when they drafted the [Operating] Agreement against OceanSound’s leveraged-buyout capital structure, that the Company would routinely sign new debt instruments, amendments, and consents, and that each carried the risk of choking off the very tax distributions Section 6.6 made mandatory.” POB at 45. Notwithstanding Plaintiff’s colorful description, the Limited Consent cannot be blamed for the suffocation, asphyxiation, or other violent demise of any Tax Distributions.
the Company breached its commercially reasonable efforts obligation when it
negotiated the Limited Consent by failing to raise Tax Distributions with the lender
and negotiate language explicitly permitting them.219
It is true that the Company did not ask the lender to include language in the
Limited Consent expressly permitting Tax Distributions.220 As Plaintiff himself
points out, however, nothing in either the Credit Agreement or the Limited Consent
prohibited the Board from making a Tax Distribution. The Limited Consent raised
the Consolidated Total Net Leverage Ratio from 3.50x to 3.75x; after the sale of the
commercial division, the Company’s actual Consolidated Total Net Leverage Ratio
was 3.24x, below the 3.75x cap.221 In Plaintiff’s own words, “based on actual
EBITDA at the time of closing the [c]ommercial [d]ivision, [the Company] could
have paid $19.7 million in tax distributions at closing without violating the 3.75x
debt covenant level.”222 In other words, the Limited Consent allowed for a full Tax
219 POB at 45. Plaintiff complains that “when [the Company] negotiated lender flexibility for OceanSound’s management fee, it made no parallel request for the mandatory Tax Distribution obligation.” PRB at 2. That fact is legally irrelevant. Additional “flexibility” in the Limited Consent was not needed because the Board determined to not pay Tax Distributions irrespective of the Consolidated Total Net Leverage Ratio. 220 See JX 381; Tr. (Benavides) at 154:1–156:24, 231:23–233:6; id. (Nordin) at 396:13– 18, 478:6–479:4. 221 JX 455 at 27.
222 POB at 20; see also DAB at 60 (“While the Company disagrees with Plaintiff’s argument that it had cash available to make a tax distribution, it does agree that, if the Company had sufficient cash following the sale, nothing in the Limited Consent would have prevented a tax distribution.”).
Distribution; the Board still chose to not pay one. As found above, Plaintiff failed
to prove that determination was not made in good faith.
Even if the Company had breached Section 6.6 by failing to use commercially
reasonable efforts to ensure the Limited Consent allowed for full Tax Distributions,
the record does not support a finding that such a breach caused any harm that could
be remedied by injunctive or monetary relief. The Board’s determinations to not pay
Tax Distributions did not turn on the Limited Consent, and nothing in the record
suggests the Board would have reached a different determination if the Limited
Consent had further increased the Consolidated Total Net Leverage Ratio.
C. The Company Did Not Breach The Implied Covenant Of Good Faith And Fair Dealing.
As an alternative ground for relief, Plaintiff claims that even if the Company
complied with Section 6.6 of the Operating Agreement, it breached the implied
covenant of good faith and fair dealing. This argument arises from Plaintiff’s buyout
theory—he argues that if the parties had “anticipated that the controller would
invoke its Section 6.6 reserve discretion not to manage the Company’s capital
structure but to engineer a coerced acquisition of the Members’ equity at
progressively lower valuations . . . they would have agreed the discretion could not
be deployed for that purpose.”223 As discussed above, the factual premise of this
223 POB at 44.
argument—that OceanSound used Tax Distributions to coerce a buyout of the
Rollover Members’ equity—did not bear out at trial.224 For this reason, the implied
covenant claim fails.
D. Plaintiff’s Request For Specific Performance Is Denied. Plaintiff failed to show that the Company breached Section 6.6 of the
Operating Agreement or the implied covenant of good faith and fair dealing.
Because Plaintiff did not prove his breach of contract claim, his requests for specific
performance and damages are denied.
III. CONCLUSION Judgment is entered for Defendant. The parties are directed to meet and
confer on a proposed form of order.
224 See supra pp. 38–42; POB at 45 (“Because the claim rests on the same record and supports the same remedy, no separate fact-finding is required.”).
Jay Sunny Bajaj v. OSP Razor Holdings LLC (Jay Sunny Bajaj v. OSP Razor Holdings LLC) — published by Counsel Stack Legal Research, free access to 12M+ legal documents.