J. Travis Laster.

The Delaware Court of Chancery on Monday ruled that billionaire William I. Koch could not block a private equity firm from forcing the sale of his Oxbow Carbon energy company, finding gaps in the LLC agreement were being used to scuttle members' attempts to force an exit sale.

In a 178-page post-trial opinion, Vice Chancellor J. Travis Laster said that the implied covenant of good faith and fair dealing allowed Crestview Partners and Load Line Capital to pursue the full-company sale the firms had bargained for when they invested in Oxbow back in 2007.

Laster also rejected Koch's claims that Crestview officials had conspired with Oxbow to oust Koch from the energy company in 2016 in order to force a quick sale. Rather, Laster said, it was Koch who did not follow proper formalities after attracting the investments and later failed to meet his contractual duties to use reasonable efforts to support the sale.

“It would be inequitable for the majority member to benefit now from Oxbow's failure to follow proper formalities then,” Laster wrote

Laster ordered the parties to submit briefs on how to handle the exit sale, dangling the possibility that he might appoint a receiver to oversee the process.

The ruling was the latest development in a bitter two-year fight over the future of Oxbow, one of the world's largest producers of petroleum coke, a valuable by-product of the oil refining process that is used in aluminum production.

In court filings, Koch, the brother of businessmen and conservative political activists Charles and David Koch, said Crestview had made bad faith efforts to sell its minority stake and hurry the company into an exit sale, including planting a “mole” on the Oxbow board to spy on him and to pressure him to resign.

Crestview has countered, accusing Koch of mismanagement and boardroom paranoia.

But the underlying dispute centered on whether the planned exit sale satisfied various terms of Oxbow's LLC agreement, which outlines the conditions for off-loading all of the company's equity securities or assets but intentionally left open the terms on which Oxbow would admit new members.

Oxbow and its board neglected to fill those gaps in 2011 and 2012, when a group of small investors became members in the company.

In 2016, Koch looked to capitalize by relying on a complex set of interlocking contractual provisions to effectively block the sale. But Laster said Koch's position would produce an “extreme and unforeseen” result that would have prevented Crestview from invoking its right to sell the company, which it had negotiated 11 years ago.

“Issues of compelling fairness call for deploying the implied covenant to fill the gap created when the company admitted the small holders,” Laster said. “Without it, the fortuitous admission of the small holders guts the exit sale right and enables the majority member to defeat a commitment he made in 2007 and otherwise would have to fulfill.”

Further, Laster found that Koch had set out to “obstruct, derail and delay” the sale by firing a key executive and then filing his Chancery Court lawsuit. Koch's allegations of conspiracy, he said, were not enough to overcome Crestview's legitimate request to sell Oxbow, and Crestview's officials were “not guilty of unclean hands such that they should be deprived of their right to an exit sale.”

Load Line was not implicated in any wrongdoing, and there was no basis to deny the firm its ability to pursue the sale, he said.

Laster stopped short of offering a final resolution to the dispute, but he did note that the fierce nature of the litigation may warrant the appointment of a receiver to handle the exit sale.

The parties were directed to submit supplemental briefing on a remedy, as well as a joint letter identifying any issues that need to be resolved before completing trial phase.

An attorney from Quinn Emanuel Urquhart & Sullivan, which represented Crestview, said the firm was “pleased” with the ruling. Attorneys for the other parties were not immediately available Monday to comment.

Oxbow is represented by Kenneth J. Nachbar, Thomas W. Briggs Jr. and Richard Li of Morris, Nichols, Arsht & Tunnell and Michael S. Gardener, Breton Leone-Quick and R. Robert Popeo of Mintz, Levin, Cohn, Ferris, Glovsky. Koch is represented by Stephen C. Norman, Jaclyn C. Levy and Daniyal M. Iqbal of Potter Anderson & Corroon and David Hennes and C. Thomas Brown of Ropes & Gray.

Crestview is represented by Kevin G. Abrams, Michael A. Barlow, J. Peter Shindel Jr., Daniel R. Ciarrocki and April M. Ferraro of Abrams & Bayliss; Brock E. Czeschin, Matthew D. Perri and Sarah A. Galetta of Richards, Layton & Finger; and Michael B. Carlinsky, Jennifer J. Barrett, Chad Johnson, Sylvia Simson, Silpa Maruri of Quinn Emanuel.

Load Line is represented by Dale C. Christensen Jr. and Michael B. Weitman of Seward & Kissel and J. Clayton Athey and John G. Day of Prickett, Jones & Elliott.

The case is captioned In re Oxbow Carbon Unitholder Litigation.