Holmwood Capital Advisors, LLC, and Holmwood Capital, LLC v. HC Government Realty Holdings, L.P.

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE HOLMWOOD CAPITAL ADVISORS, ) LLC, a Delaware limited liability ) company, and HOLMWOOD CAPITAL, ) LLC, a Delaware limited liability ) company, ) ) Plaintiffs/Counterclaim ) Defendants, ) ) v. ) C.A. No. 2020-0373-BWD ) HC GOVERNMENT REALTY ) HOLDINGS, L.P., a Delaware limited ) partnership, and HC GOVERNMENT ) REALTY TRUST, INC., a Maryland ) corporation, ) ) Defendants/Counterclaim ) Plaintiffs. ) POST-TRIAL MEMORANDUM OPINION Date Submitted: October 8, 2026 Date Decided: November 13, 2026 Brett M. McCartney, Elizabeth A. Powers, Sarah T. Andrade, BAYARD, P.A., Wilmington, DE; Attorneys for Holmwood Capital Advisors, LLC and Holmwood Capital, LLC. S. Michael Sirkin and R. Garrett Rice, ROSS ARONSTAM & MORITZ LLP, Wilmington, DE; OF COUNSEL: John T. Floyd and Kaitlin M. Price, MOORE & VAN ALLEN PLLC, Charlotte, NC; Attorneys for HC Government Realty Holdings, L.P. and HC Government Realty Trust, Inc. DAVID, V.C.  Four founders formed a series of companies to acquire commercial real estate properties subject to long-term leases with federal government tenants. Among the entities, the founders formed a real estate investment trust (“REIT”) to own a holding company into which they contributed seven special purpose entities each owning a property leased to the government. They also formed a separate company that, for a time, provided management services to the REIT and its holding company. In 2019, over the objection of some of the founders, the REIT’s board approved a recapitalization transaction with a new investor and terminated the management company. The parties dispute the termination fee the REIT must pay to the management company and raise other claims and counterclaims arising from their fractured relationship. This memorandum opinion follows a three-day trial that centered on the proper calculation of the termination fee. For a reader undeterred by the soporific nature of accounting and contractual definitions of stockholders’ equity, the selection of securities to pay termination and acquisition fees, public offering expense calculations, un-papered loans, and representations and warranties 1 regarding lender consent (among other issues), the five dozen pages that follow are sure to delight.1 I. BACKGROUND The following facts are as the Court finds them following a three-day trial held from May 4 through May 6, 2026.2 A. The Founders Form Holmwood, HCA, HCM, HC REIT, And Holdings. In 2010, Edwin M. Stanton, Robert R. Kaplan, Sr. (“Kaplan, Sr.”), Robert R. Kaplan, Jr. (“Kaplan, Jr.”), and Dr. Philip Kurlander (together, the “Founders”) formed plaintiff Holmwood Capital, LLC (“Holmwood”), a Delaware limited liability company, to acquire commercial real estate properties subject to long-term leases with federal government tenants.3 In June 2014, the Founders formed a new Delaware limited liability company, plaintiff Holmwood Capital Advisors, LLC (“HCA,” and with Holmwood, 1 David L. Goodstein’s textbook States of Matter famously begins: “Ludwig Boltzmann, who spent much of his life studying statistical mechanics, died in 1906, by his own hand. Paul Ehrenfest, carrying on the work, died similarly in 1933. Now it is our turn to study statistical mechanics.” David L. Goodstein, States of Matter 1 (2014). I understand the law clerks who were privileged to inherit this dense post-trial opinion may share in this sentiment. 2 JX 80. The Joint Pre-Trial Stipulation and Order is cited as “PTO ¶ __”. Dkt. 79. Trial testimony is cited as “Tr. (Witness) at __”. See Dkts. 81–83. Joint exhibits are cited as “JX __” unless otherwise defined. Dkt. 73, Ex. 1. 3 PTO ¶¶ 9–10. 2 “Plaintiffs”).4 Each of the Founders owned a one-quarter interest in HCA.5 HCA is the sole member and manager of nonparty Holmwood Capital Management, LLC (“HCM”).6 In March 2016, the Founders formed defendant HC Government Realty Trust, Inc. (“HC REIT”), a Maryland corporation, to acquire, own, and manage government-leased commercial real estate investments.7 Stanton served as HC REIT’s Chief Executive Officer (“CEO”), Kurlander as Treasurer, Kaplan, Sr. as Secretary, and Kaplan, Jr. as Vice President.8 The Founders also formed defendant HC Government Realty Holdings, L.P. (“Holdings”), a Delaware limited partnership, to hold and operate HC REIT’s assets, with HC REIT serving as its general partner.9 B. Holmwood Contributes Properties To Holdings Under A Contribution Agreement. Prior to March 2016, Holmwood owned seven special purpose entities (“SPEs”): GOV Silt, LLC; GOV Ft. Smith, LLC; GOV FBI Johnson City, LLC; 4 Id. ¶ 12. 5 Id. ¶ 13; Tr. (Hale) at 13:1–13. 6 PTO ¶ 16. 7 Id. ¶ 18; JX 350 at 3. 8 PTO ¶ 19; JX 350 at 4. 9 PTO ¶¶ 20–21; JX 350 at 2, 22. 3 GOV CBP Cape Canaveral, LLC; GOV PSL, LLC; GOV Jonesboro, LLC; and GOV Lorain, LLC.10 Each of the SPEs owned a property leased to the federal government.11 The SPEs were parties to property management agreements with HCM (collectively, the “Property Management Agreements”) under which HCM served as property manager.12 HCM charged each SPE expenses related to its management.13 Under the Property Management Agreements, HCM could “subcontract some or all of the property management functions . . . to local property managers and certain other parties,” but the “fees to be paid to [HCM]” covered “fees payable to such third parties.”14 On March 31, 2016, Holmwood and Holdings entered into a Contribution Agreement under which Holmwood agreed to contribute its “complete and entire membership interests” in the seven SPEs (the “Contributed Properties”) to Holdings in exchange for limited partnership units in Holdings (“OP Units”) valued at $10 per unit (the “Exchange Transaction”).15 The Contribution Agreement provided that the total consideration exchanged would be determined when the Exchange Transaction 10 PTO ¶ 26. 11 Id. ¶ 17; Tr. (Stanton) at 302:1–4. 12 PTO ¶ 23; see JX 55; JX 75; JX 109; JX 120. 13 JX 55 §§ 2.5.1–2.5.2; see JX 75; JX 109; JX 120. 14 JX 55 § 2.14; see JX 75; JX 109; JX 120. 15 PTO ¶ 25; JX 71 [hereinafter Contr. Agt.] §§ 1, 3. 4 closed.16 The Contribution Agreement conditioned closing of the Exchange Transaction on the closing of HC REIT’s contemplated initial public offering under Regulation A (the “Offering”).17 The Contribution Agreement also conditioned closing on Holmwood “procur[ing], at the sole cost and expense of [Holdings], any consents required from . . . holders of . . . Existing Loans . . . .”18 When the Contribution Agreement was signed, three of the SPEs—GOV PSL, LLC; GOV Jonesboro, LLC; and GOV Lorain, LLC (the “CMBS Properties”)—were parties to a loan agreement with Starwood Mortgage Capital LLC (the “CMBS Loan Agreement”).19 The CMBS Loan Agreement required “the prior written consent of [the] Lender” before Holmwood could “sell, convey, mortgage, grant, bargain, encumber, pledge, assign or transfer [a CMBS] Property or any part thereof . . . .”20 However, Holmwood did not procure consent from the lender under the CMBS Loan Agreement before consummating the Exchange Transaction.21 16 Contr. Agt., Ex. B (providing that the value of the OP Units would equal “$9,678,471, increased by principal amortization from debt service . . . from January 1, 2016 to the Closing Date”); Tr. (Hale) at 44:17–45:21. 17 Contr. Agt. § 9.A. 18 Id. § 6.A; Tr. (Hale) at 43:4–44:5. 19 JX 402. 20 Id. § 4.2.1. 21 Tr. (Stanton) at 328:10–12, 330:24–331:6. 5  C. HCA Serves As Manager For HC REIT And Holdings Under A Management Agreement. Also on March 31, 2016, HC REIT, Holdings, and HCA entered into an agreement (the “Management Agreement”) under which HC REIT and Holdings retained HCA “to administer the business activities and day-to-day operations of” HC REIT and Holdings.22 The Management Agreement vested HCA with the power to: direct the management, operation and policies of [HC REIT and Holdings] . . . [,] to carry out any and all of the objectives and purposes of [HC REIT and Holdings] and to perform all acts and enter into and perform all contracts and other undertakings that it may in its sole discretion deem necessary, advisable or incidental thereto . . . .23 The Management Agreement also made HCA responsible for “(1) the selection, purchase, sale and disposition of Investments, (2) [HC REIT and Holdings]’s financing activities, and (3) providing [HC REIT and Holdings] with advisory services.”24 In exchange for these services, HC REIT agreed to pay HCA an “Asset Management Fee,” an “Acquisition Fee,” and a “Leasing Fee.”25 22 PTO ¶ 29; JX 70 [hereinafter Mgmt. Agt.] at 2. The Management Agreement defines the “Company” to mean HC REIT and Holdings. Mgmt. Agt. § 1(a). 23 Mgmt. Agt. § 2(b). 24 Id. § 2(c). 25 Id. § 6(a). 6  Asset Management Fee. The Management Agreement defines the “Asset Management Fee” to mean “the annual management fee in an amount equal to 1.5% of the amount of Stockholder[s’] Equity, which will be calculated and paid on a quarterly basis.”26 In turn, the Management Agreement defines “Stockholders’ Equity” to mean: (a) the sum of (1) the net proceeds from (or equity value assigned to) all issuances of the Company’s equity and equity equivalent securities (including Common Stock, Common Stock Equivalents, preferred stock and units of limited partnership interest in the Operating Partnership) since inception (allocated on a pro rata daily basis for such issuances during the fiscal quarter of any such issuance), plus (2) the Company’s retained earnings at the end of the most recently completed calendar quarter (without taking into account any non-cash equity compensation expense incurred in current or prior periods), less (b) any amount that the Company has paid to repurchase the Company’s equity or equity equivalent securities. Stockholders’ Equity also excludes (1) any unrealized gains and losses and other non-cash items (including depreciation and amortization) that have impacted stockholders’ equity as reported in the Company’s financial statements prepared in accordance with GAAP, and (2) one-time events pursuant to changes in GAAP, and certain non-cash items not otherwise described above, in each case after discussions between the Manager and the Independent Directors and approval by a majority of the Independent Directors.27 Acquisition Fee. The Management Agreement defines the “Acquisition Fee” to mean: 1.0% of the Acquisition Cost for each Investment made on behalf of the Company at the closing of the acquisition of such Investment for 26 Id. § 1(a). 27 Id. 7  [HCA’s] services in identifying Investments for purchase, arranging for the purchase of such Investments, coordinating the closing on such Investments and following up on and resolving post-closing transaction issues on behalf of the Company.28 The Management Agreement further provides that: The Acquisition Fee shall be paid in Common Stock, or such other equity securities of the Company, including without limitation LTIP Units, as may be determined by the mutual consent of the [HC REIT] Board (including a majority of the Independent Directors) and [HCA] (the “Acquisition Fee Securities”).29 Further, [U]ntil the earlier of (x) the date on which [HC REIT] engages in a Listing Event with respect to [HC REIT’s] Common Stock or (y) the fourth anniversary of the date of this Agreement (such earlier date, the “Payment Date”), all Acquisition Fees payable to [HCA] shall be accrued but not paid. All Acquisition Fees accrued pursuant to this Section 6(e)(iii) shall be paid to [HCA] in Acquisition Fee Securities as of the Payment Date.30 Termination Fee. The Management Agreement states that it shall “automatically renew” for one-year terms “unless the Company or [HCA] elects not to renew this Agreement in accordance with Section 10(b) or Section 10(c), respectively.”31 To terminate the Management Agreement without cause, HC REIT and Holdings must provide HCA with “180 days’ prior written notice” and pay a 28 Id. § 6(e)(i). 29 Id. § 6(e)(ii). 30 Id. § 6(e)(iii). 31 Id. § 10(a). 8 “Termination Fee” “before or on the last day of the” contract term, the “Effective Termination Date.”32 The Management Agreement defines the “Termination Fee” to mean: a termination fee equal to three (3) times the sum of (i) the Asset Management Fees, (ii) Acquisition Fees, and (iii) Leasing Fees in each case, earned by [HCA] during the 24-month period ending as of the most recently completed fiscal quarter prior to the Effective Termination Date; provided, further that if Acquisition Fees have been accrued in accordance with Section 6(e)(iii) but are unpaid as of the Effective Termination Date, then all such accrued Acquisition Fees (whether accrued in the applicable 24-month period or prior thereto) shall be included in the calculation of the Termination Fee.33 The Termination Fee may be paid in cash, securities, or some combination of the two: Any Termination Fee payable to [HCA] pursuant to Section 10(b), 10(e) or 11(b) hereof shall be payable, at the election of the [HC REIT] Board (including a majority of the Independent Directors) in cash, Termination Fee Securities, or a combination thereof. “Termination Fee Securities” shall mean Common Stock, or such other equity securities of the Company, including without limitation LTIP Units, as may be determined by [HCA] in its reasonable discretion. Termination Fee Securities shall not be subject to any vesting requirements.34 32 Id. § 10(b). 33 Id. § 1(a). 34 Id. § 10(f). 9  D. Holmwood And Holdings Amend The Contribution Agreement And HC REIT Conducts A Regulation A Offering. On September 28, 2016, HC REIT issued a preliminary offering circular to raise up to $30 million in the Offering.35 HC REIT initiated the Offering in November but raised only $3 million over the following six months.36 On May 26, 2017, Holmwood and Holdings amended the Contribution Agreement (the “Amendment”) to change the closing date of the Exchange Transaction from the closing of the Offering to the business day after the Offering raised $3 million.37 The Amendment also amended the Contribution Agreement to provide that only the beneficial economic interest, rather than legal title, to the CMBS Properties would be contributed to Holdings at closing.38 The parties agreed that full legal title to the CMBS Properties would be deemed contributed and transferred to Holdings as follows: On the business day (the “Open Interest Closing Date”) next following the first to occur of: (a) the receipt by [Holmwood] of all Lender Consents to the consummation of the transactions contemplated by the Amended Agreement with respect to the transfer of Open LLC Interests of [a CMBS Property], or (b) the sale or other disposition by [Holmwood] with the written consent of [Holdings] and the receipt of all required Lender Consents of all Open LLC Interests in, or all or 35 PTO ¶ 24; JX 77; Tr. (Stanton) at 357:10–358:15. 36 JX 352; Tr. (Hale) at 32:1–20, 34:16–21. 37 PTO ¶ 28; Contr. Agt. § 9.A; JX 95 [hereinafter Contr. Agt. Am.] § 2; Tr. (Hale) at 48:23–49:4. 38 PTO ¶ 44; Contr. Agt. Am. § 3. 10  substantially all of the assets of, [a CMBS Property], regardless of how structured, including without limitation outright sale for cash or other consideration to, merger or consolidation with, or recapitalization that results in a change of control of the [CMBS Property] from [Holmwood] to, a third party or parties, who or which are unrelated to [Holmwood], [Holdings], the [CMBS Property] or any affiliated company (as defined in Section 19 of the Amended Agreement) of any of the foregoing, or (c) the payment or defeasance in full of all Existing Loans, secured by Existing Mortgage Liens on the assets of any [CMBS Property], without the necessity of any further action, or the execution and delivery of any other instruments or documents on the part of [Holmwood], all of the LLC Interests in the Property LLCs, which in accordance with clause (a), (b), or (c) of this Section 3(b)(iv), as applicable, have ceased to be [CMBS Properties], ipso facto shall be deemed to have been contributed and transferred (the “Open Interest Closing”) to [Holdings] as of the Open Interest Closing Date . . . .39 The Amendment required that, upon the Open Interest Closing, Holmwood and Holdings “shall deliver, each to the other a certificate . . . remaking and republishing as of the Open Interest Closing Date” certain “Bring-Down Representations,” including that “[n]either the entry into nor the performance of, or compliance with, [the Contribution Agreement] by [Holmwood] has resulted, or will result, in any violation of, or default under” any “mortgage indenture, lien agreement, note, [or] contract . . . .”40 The Exchange Transaction closed on May 26, 2017, and Holmwood contributed to Holdings all of the membership interests in four of the SPEs and a 39 Contr. Agt. Am. § 3(b)(iv) (emphasis added). 40 Id. § 6; Contr. Agt. § 11.C. 11 “Profits Interest” in the CMBS Properties.41 At closing, Holmwood received 1,078,416 OP Units in Holdings, valued at $10,784,161.42 The following graphic summarizes the Holmwood entity structure as of May 26, 2017, after closing of the Exchange Transaction: E. HCA, HC REIT, And Holdings Execute A Side Letter. During the Offering, HCA retained Mick Law P.C. (“Mick Law”) to provide “an independent due diligence review” to assess HC REIT’s structure and governance and recommend improvements.43 On June 26, 2017, Mick Law issued 41 PTO ¶¶ 40–41; Contr. Agt. § 1; Contr. Agt. Am. § 3. The Amendment defines “Profits Interest” to mean “all of [Holmwood’s] right, title and interest in and to any and all profits, losses and distributed cash flow, if any, of each [CMBS Property].” Contr. Agt. Am. § 3(b)(ii). 42 PTO ¶¶ 41–42; Contr. Agt. § 1; Contr. Agt. Am. § 3. 43 PTO ¶¶ 34–36; Tr. (Hale) at 35:15–36:3; Tr. (Stanton) at 318:22–319:7; JX 102 at 1. 12 implement at HC REIT.44 Mick Law advised that HCA and HC REIT should “cap [Organization and Offering Expenses (“O&O Expenses”)] at 3.0% of Offering proceeds . . . such that [HCA] would be responsible for covering any O&O expenses exceeding the cap.”45 two terms of the Management Agreement through a side letter (the “Side Letter”), dated November 1, 2017.46 First, the Side Letter modifies the Termination Fee to eliminate the fee if Stockholders’ Equity does not “build” to $15 million, and to reduce the fee by half if Stockholders’ Equity does not “build” to $35 million: (i) if [HC REIT] fails to build Stockholders’ Equity equaling $15 million, the Termination Fee shall be waived in its entirety; (ii) if [HC REIT] builds Stockholders’ Equity equaling or exceeding $15 million but fails to build Stockholders’ Equity equaling $35 million, the Termination Fee shall be capped at an amount which is the quotient when the Termination Fee, as calculated under the Management Agreement, is divided by two; (iii) if [HC REIT] builds Stockholders’ Equity equaling or exceeding $35 million and a Listing Event has not occurred, then, for purposes of calculating the Termination Fee, Stockholders’ Equity will be capped 44 PTO ¶¶ 35–36; Dep. of Edwin Stanton [hereinafter Stanton Dep. Tr.] at 137:6–16, Dkt. 77, Tab D; Tr. (Stanton) at 318:22–319:7; see JX 102. 45 JX 102 at 14. 46 PTO ¶ 37; JX 107 [hereinafter Side Ltr.]; Tr. (Hale) at 39:1–6. 13  at $150 million in determining the Asset Management Fees payable to [HCA] under the Management Agreement . . . .47 Second, the Side Letter limits HCA’s right to reimbursement of O&O Expenses to 15% of the Offering proceeds: Notwithstanding anything contained in the Management Agreement or any term of the Offering, after the termination of the Offering and expiration of the 120 Day Period . . . , [HCA] shall repay a portion of the reimbursements it has received in connection with the Offering (the “Manager Reimbursements”), to the extent that Organization and Offering Expenses exceeds 15% of the gross proceeds received from the Offering. In the event any portion of the Manager’s Reimbursements are repayable to [HC REIT] under this Agreement, the amount to be repaid will equal an amount that when deducted from the Organization and Offering Expenses causes the difference to equal 15% of the gross proceeds received from the Offering.48 F. HC REIT’s Board Approves A Recapitalization Transaction And Terminates The Management Agreement. On March 13, 2019, HC REIT’s board of directors (the “Board”) held a meeting to consider a transaction between HC REIT, Holdings, and Hale Partnership Capital Management (“HPCM”), under which HPCM would purchase up to 2,050,000 shares of HC REIT Series B preferred stock for a maximum aggregate offering amount of $20,500,000; purchase 300,000 shares of HC REIT common stock for $3,000,000; and issue Holdings a secured loan for up to $20,500,000, 47 Side Ltr. § 3(i)–(iii). The Side Letter defines the “Company” to mean HC REIT. Side Ltr. at 1; Mgmt. Agt. § 1(a). 48 Side Ltr. § 1. 14 guaranteed by HC REIT (the “Recapitalization Transaction”).49 A majority of the Board voted to approve the Recapitalization Transaction.50 Stanton voted against the Recapitalization Transaction.51 At the same meeting, a majority of the Board also voted to adopt “Amended Investment Guidelines” requiring that “[n]o investment shall be made for which its investigation, pursuit, negotiation, financing and/or acquisition did not receive prior approval from the [HC REIT] Board”; “[n]o investment shall be sold, exchanged or otherwise disposed of without prior approval of the [HC REIT] Board”; and “[n]o refinancing of any investment nor any negotiation of any refinancing of an investment without prior approval of the [HC REIT] Board.”52 Stanton voted against the Amended Investment Guidelines.53 In addition, a majority of the Board voted to not renew the Management Agreement.54 Stanton voted against termination of the Management Agreement.55 49 PTO ¶ 51; JX 153 at 5–8; id. at Ex. G; JX 161 § 2.1. 50 PTO ¶ 53; JX 153 at 5. 51 JX 153 at 5. 52 Id. at 11, Ex. I. 53 Id. at 11. 54 PTO ¶ 54; JX 153 at 10. 55 JX 153 at 10. 15  The next day, March 14, HC REIT delivered a written notice (the “Termination Notice”) informing HCA that HC REIT would not renew the Management Agreement, effective March 31, 2020 (the “Termination Date”).56 The Recapitalization Transaction closed on March 19, 2019.57 After closing, HC REIT’s investors elected a new board of directors.58 The new board appointed Steve Hale as HC REIT’s CEO and Chairman.59 G. HC REIT’s New CFO Calculates Stockholders’ Equity For Asset Management Fees. After the Recapitalization Transaction, HC REIT installed Jacqlyn Piscetelli as its new Chief Financial Officer (“CFO”).60 Piscetelli became responsible for calculating HCA’s quarterly Asset Management Fee.61 As a starting point for her calculations, Piscetelli used a spreadsheet that HCA provided (the “Workbook”) that contained a framework for calculating Stockholders’ Equity, a component of the Asset Management Fee.62 56 PTO ¶ 55; JX 155. 57 PTO ¶ 57; see JX 161. 58 PTO ¶ 58. 59 Id. 60 Tr. (Piscetelli) at 130:11–131:1. 61 Id. at 186:17–21. 62 Id. at 190:14–191:8, 193:7–12. 16  Using the Workbook, on July 22, 2019, Piscetelli calculated Stockholders’ Equity at $35,916,217 for Q1 2019 and $37,133,134 for Q2 2019.63 Based on that calculation, HC REIT paid HCA $135,643.82 in Asset Management Fees for Q2 2019.64 On September 27, HC REIT filed a Form 1-SA containing its financial statements for the six months ended June 30, 2019.65 To prepare the filing, Piscetelli worked to close the books for the previous six months and ensure their accuracy.66 As a part of that process, Piscetelli and HC REIT’s auditors concluded that U.S. Generally Accepted Accounting Principles (“GAAP”) required HC REIT to report an estimate of the Termination Fee on its financial statements (the “Termination Fee Estimate”) because the Termination Fee was “probable and reasonably estimable” as of March 2019, the month in which HC REIT issued the Termination Notice.67 As such, HC REIT’s Form 1-SA listed an “Accrued management termination fee” 63 JX 170; JX 169 [hereinafter Q2 2019 Workbook] at “Management Fees 1.5%” cells Q33, S33. 64 JX 171; Q2 2019 Workbook at “2019 AMF True Up Calc” cell E27. 65 See JX 175. 66 Tr. (Piscetelli) at 165:8–17. 67 Id. at 166:11–168:3, 212:13–21, 214:23–215:23; JX 155. 17 of $1,750,000 as a liability in HC REIT’s financial statements.68 The Termination Fee Estimate presumed a 1.5x multiplier under the Side Letter.69 On November 1, Piscetelli calculated Stockholders’ Equity at $34,904,007 for Q2 2019.70 Piscetelli told Jason Post, HC REIT’s former CFO and HCA’s then- CFO, that there had been a “small adjustment” to Stockholders’ Equity from Q2 2019, due to the Termination Fee Estimate.71 Based on this calculation, HC REIT paid HCA $129,628.16 in Asset Management Fees for Q3 2019.72 H. HC REIT Acquires New Properties And The Offering Closes. In October 2019, HC REIT acquired three new properties in Fort Lauderdale, Florida; Lawrence, Kansas; and Oklahoma City, Oklahoma for a total price of $17,272,766 (the “Disputed Acquisitions”).73 HC REIT did not pay Acquisition Fees to HCA for these acquisitions.74 68 JX 175 at 6. 69 Tr. (Piscetelli) at 245:15–246:17. 70 JX 327 [hereinafter Q3 2019 Workbook] at “Management Fee 1.5%” cell S33. 71 JX 184; Tr. (Piscetelli) at 256:1–12. 72 JX 184 at “2019 AMF True Up Calc” cell E28. 73 PTO ¶¶ 59, 61; JX 230 at “N10 - Leases” cells B41–E43; Tr. (Hale) at 86:20–87:4. 74 PTO ¶ 60. 18  The Offering expired in November.75 The Offering generated $8,871,660 in gross proceeds and resulted in $2,054,681 in O&O Expenses.76 HC REIT reimbursed HCA $284,279 in “costs for SEC filings.”77 I. The Parties Dispute The Termination Fee. On January 27, 2020, Piscetelli calculated Stockholders’ Equity at $33,958,385 for Q4 2019.78 Based on this calculation, HC REIT paid HCA $125,646.05 in Asset Management Fees for Q4 2019.79 The Management Agreement terminated effective March 31, 2020.80 That day, HC REIT emailed HCA a notice stating: HC Government Realty Trust, Inc. (the “Company”) provides notice of payment of the Termination Fee payable due with respect to Section 10(b) of the HCA Management Agreement for a total amount of $1,645,453. . . . In accordance with Section 10(f) of the HCA Management Agreement, the Company will satisfy the Termination Fee payable with $1,275,000 in cash and $370,453 in shares of common stock of the Company at a per share price of $7.17 for a total of 51,667 shares . . . . A wire transfer has been processed today in the amount noted. Please confirm receipt of the wire transfer at your earliest convenience. The shares of common stock of the Company will be recorded with our stock transfer agent as of the end of the day today.81 75 Id. ¶ 74; JX 274 at 39. 76 PTO ¶ 75. 77 JX 346 at “2. O&O” cells E21–W21, D93–W93. 78 JX 200; JX 199 [hereinafter Q4 2019 Workbook] at “Management Fee 1.5%” cell W33. 79 Q4 2019 Workbook at “2019 AMF True Up Calc” cell E30. 80 PTO ¶ 63; see JX 155. 81 JX 218. 19 HC REIT attached a “summary schedule of the Termination Fee calculation for [HCA’s] reference.”82 HC REIT’s calculation reflected that Stockholders’ Equity did not exceed $35 million and therefore used a 1.5x multiplier for the Termination Fee.83 The same day, HC REIT also informed HCA that it was electing to issue HC REIT common stock to HCA as payment for Acquisition Fees.84 HC REIT sent a wire to HCA for $1,275,000 and noted that the common stock issuances were recorded with its stock transfer agent.85 Separately, HC REIT demanded that HCA repay $723,932 in O&O Expenses and $76,322 in property management fees.86 To offset these payments, HC REIT withheld declared dividends and distributions from Plaintiffs.87 82 Id. 83 PTO ¶ 67; JX 218 at “1. Termination Fee Calc” cell F9. 84 PTO ¶ 71; JX 225. 85 PTO ¶ 70. 86 JX 344; JX 346 at “1. Summary” cells G4, G7–G11. 87 PTO ¶ 79. 20  J. HC REIT’s Lender Claims The Exchange Transaction Caused A Default, And HC REIT Is Forced To Negotiate Consent Six Years After The Initial Closing. In January 2020, HC REIT decided to defease the loans on the CMBS Properties.88 When interest rates declined as a result of the COVID-19 pandemic, however, the defeasance cost was no longer economically advantageous.89 When HC REIT asked the lender to consent to Holmwood contributing its ownership interest in the CMBS Properties to HC REIT, it learned that the lender was never informed of the Exchange Transaction.90 On November 16, 2022, LNR Partners, LLC (“LNR”), the servicer under the CMBS Loan Agreement, issued a notice of default to Holmwood and the CMBS Properties.91 On March 27, 2023, HC REIT and the lender entered into a Consent and Loan Modification Agreement.92 HC REIT spent $517,463.35 pursuing the consent.93 88 Tr. (Hale) at 64:6–65:13. 89 Id. at 65:15–66:4. 90 Id. at 66:5–21. 91 JX 264. 92 JX 273. 93 JX 358; Tr. (Piscetelli) at 160:1–5. 21  K. HC REIT Investigates Management Fees Charged Under the Property Management Agreements. In October 2019, HC REIT terminated the SPEs’ Property Management Agreements with HCM, contracting with local property managers instead.94 During this period, at Piscetelli’s direction, HC REIT reviewed each SPE’s books and records and purportedly discovered “four individual properties where it appeared that [HC REIT] w[as] being charged duplicative fees for similar services.”95 When Piscetelli asked HCA for an explanation, Post responded that the payments HC REIT identified related to “building engineering services,” explaining that subcontracting for such services was separately governed by Section 2.10.1 of the Property Management Agreements.96 L. Plaintiffs Cover HC REIT’s Operating Expense Shortfalls. Between May 2017 and April 2018, Holmwood transferred $408,514 to HC REIT to cover gaps in operating cash needs, including for property acquisitions and distributions to stockholders (the “Shortfall Amounts”).97 94 Tr. (Piscetelli) at 140:14–141:9. 95 Id. at 141:20–143:5, 143:6–11. 96 JX 192 at 2; JX 55 § 2.10.1. 97 JX 353 at “HC REIT Loans” cells B16–F19 (reflecting HPCM payment records); JX 274 at 18; Tr. (Piscetelli) at 183:6–24; Tr. (Stanton) at 321:11–18. 22  Although the parties did not sign contracts memorializing the terms under which the Shortfall Amounts were provided, HC REIT does not deny that it received Shortfall Amounts from Holmwood.98 On May 13, 2019, Holmwood sent HC REIT and Holdings a written demand for repayment of the Shortfall Amounts.99 On April 27, 2023, HC REIT filed a Form 1-K with the SEC acknowledging that “[HC REIT] has outstanding payables to our predecessor for various expenses paid on our behalf by our predecessor in the amount of $408,514.”100 The Shortfall Amounts remain outstanding.101 M. Procedural History On May 14, 2020, Plaintiffs initiated this action through the filing of a Verified Complaint (the “Complaint”), alleging claims against Holdings and HC REIT (together, “Defendants”) for breaches of the Management Agreement and alleged loan agreements.102 Plaintiffs also seek an order compelling Defendants to specifically perform their obligations under the Management Agreement and 98 Tr. (Stanton) at 321:19–322:8; id. (Piscetelli) at 286:2–8. 99 JX 165. 100 JX 274 at 18. 101 PTO ¶¶ 45–48. 102 Verified Compl. [hereinafter Compl.] ¶¶ 71–78, Dkt. 1. 23 declaring that HC REIT is not entitled to repayment of O&O Expenses or management fees.103 On January 8, 2024, Defendants answered the Complaint and filed amended counterclaims (the “Counterclaims”) alleging claims against Plaintiffs for breaches of the Management Agreement and Contribution Agreement and for unjust enrichment.104 Defendants also seek an order declaring that HC REIT is entitled to repayment of O&O Expenses and management fees.105 On September 12, 2025, the parties cross-moved for summary judgment on all claims and counterclaims,106 which the Court granted in part and denied in part on November 3.107 103 Compl. ¶¶ 85–96. 104 Defs.’ Answer to Pls.’ Verified Compl., Affirmative Defenses, and Verified Suppl. Countercl. [hereinafter Countercl.] ¶¶ 93–109, Dkt. 12. 105 Id. ¶¶ 110–13. 106 Pls. Holmwood Capital Advisors, LLC and Holmwood Capital, LLC’s Cross-Mot. for Summ. J., Dkt. 46; Defs./Countercl. Pls. HC Government Realty Holdings, L.P. and HC Government Realty Trust, Inc.’s Mot. for Summ. J. as to Pls.’ Claims, Dkt. 50. 107 Dkt. 65. 24  The Court held a three-day trial from May 4 to May 6, 2026.108 The parties completed post-trial briefing on September 14.109 The Court heard post-trial oral argument on October 8.110 II. ANALYSIS The parties proceeded to trial on Plaintiffs’ claims for breach of contract and declaratory judgment and Defendants’ counterclaims for breach of contract, unjust enrichment, and declaratory judgment. To prove a claim for breach of contract, a claimant must show: “(1) the existence of a contract; (2) a breach of an obligation imposed by that contract; and (3) resultant damages.” Thomas v. Am. Midstream GP, LLC, 2024 WL 5135828, at *5 (Del. Ch. Dec. 17, 2024) (quoting Wenske v. Blue Bell Creameries, Inc., 2018 WL 3337531, at *9 (Del. Ch. July 6, 2018)), appeal refused, 339 A.3d 752 (Del. 2025). “Plaintiffs, as well as Counterclaim-Plaintiffs, have the burden of proving each element, including damages, of each of their causes of action against each Defendant or Counterclaim-Defendant . . . by a preponderance of the evidence.” 108 Dkt. 80. 109 Pls. Holmwood Capital Advisors, LLC and Holmwood Capital, LLC’s Opening Post- Trial Br. [hereinafter POB], Dkt. 87; Defs.’ Post-Trial Br. [hereinafter DAB], Dkt. 89; Pls. Holmwood Capital Advisors, LLC and Holmwood Capital, LLC’s Answering/Reply Post- Trial Br. [hereinafter PRB], Dkt. 90; Defs.’ Post-Trial Sur-Reply Br. [hereinafter DRB], Dkt. 92. 110 Dkt. 96. 25 Revolution Retail Sys., LLC v. Sentinel Techs., Inc., 2015 WL 6611601, at *9 (Del. Ch. Oct. 30, 2015). “Proof by a preponderance of the evidence means proof that something is more likely than not.” Id. “Delaware adheres to the ‘objective’ theory of contracts, i.e. a contract’s construction should be that which would be understood by an objective, reasonable third party.” Osborn ex rel. Osborn v. Kemp, 991 A.2d 1153, 1159 (Del. 2010) (quoting NBC Universal v. Paxson Commc’ns Corp., 2005 WL 1038997, at *5 (Del. Ch. Apr. 29, 2005)). A “contract must . . . be read as a whole, giving meaning to each term and avoiding an interpretation that would render any term ‘mere surplusage.’” Sunline Com. Carriers, Inc. v. CITGO Petroleum Corp., 206 A.3d 836, 846 (Del. 2019) (quoting Osborn, 991 A.2d at 1159). “When the contract is clear and unambiguous, [Delaware courts] will give effect to the plain-meaning of the contract’s terms and provisions.” Osborn, 991 A.2d at 1159–60. “Language is ambiguous if it is susceptible to more than one reasonable interpretation.” Manti Hldgs., LLC v. Authentix Acq. Co., Inc., 261 A.3d 1199, 1208 (Del. 2021). The following analysis begins with the crux of the parties’ dispute— calculation of the Termination Fee. It then addresses numerous other claims and issues raised concerning (among others) the value of the Contributed Properties, the form of consideration for Acquisition Fees