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Summaries and analysis of recent Delaware court decisions concerning business-related litigation.
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Showing 253 posts in Breach of Contract.
Claims Alleging that Icahn Entities Schemed to Buy Out Minority Unitholders on the Cheap Survive Motion to Dismiss
The Court of Chancery declined at the pleadings stage to dismiss claims for breach of a governing limited partnership agreement (the “Agreement”) and tortious interference alleging that entities controlled by Carl Icahn (the “Icahn Entities”) engaged in a multi-step scheme designed to artificially deflate the market price of CVR Refining L.P.’s (the “Partnership”) common units and facilitate an involuntary buyout that conferred a windfall on the Icahn Entities. More ›
Co-Founder Squeezed Out in Conversion from LLC to Corporation Adequately Pled Claims for Fraud, Breach of Fiduciary Duties, Aiding and Abetting, and Civil Conspiracy
Simon Ogus was a co-founder of a sports-technology news company. He owned 44.5 percent of the LLC’s units, held veto power over major decisions of the company, and had employment protection based on a requirement that the company could only terminate his employment for cause. After outside investors began making large investments in the company, several officers and directors persuaded Mr. Ogus to: (1) approve a conversion of the LLC to a corporation; (2) sign a written consent of stockholders to expand the size of the board of directors; and (3) execute a shareholders agreement that gave the company the option to purchase Mr. Ogus’ shares if his employment was terminated for any reason, at fair market value, as determined in good faith by the board. One month later, the company terminated Mr. Ogus without cause and proposed to purchase his shares. Mr. Ogus brought suit, claiming that the officers and directors conspired to remove him from the company and eliminate his 44.5% interest to enrich themselves, and transfer control of the company to Oak View Group, a private equity & venture fund. Defendants moved to dismiss his suit. More ›
Chancery Construes Sellers’ APA Contractual Representations Concerning Customer Relationships and Changes in the Business, Finds No Breach
This case serves as a cautionary tale when sellers’ representations in a purchase agreement fail to fully protect against the business risks in question. According to the Court, this approach encourages contracting parties to allocate risks and draft agreements with precision. This principle also aligns with Delaware’s pro-contractarian policy to enforce strictly the terms of parties’ agreements, especially when sophisticated parties at arm’s-length negotiate those agreements. More ›
Court of Chancery Finds Agreements Unenforceable for Lack of Assent, Dismisses Remaining Claims for Lack of Personal Jurisdiction
Parties to a contract must provide evidence of an overt manifestation of assent for a contract to be enforceable under Delaware law. Upon remand from the Delaware Supreme Court, the Court of Chancery found such assent to be lacking and dismissed the remaining claims for lack of personal jurisdiction. More ›
Chancery Offers Guidance on When the Limitations Periods Begin to Run For Claims Concerning Breaches of Representations and Warranties and Related Indemnification
Delaware law provides for a default three-year statute of limitations period for breaches of contract, generally applicable to claims for breaches of representation and warranties and related claims for indemnification concerning stock purchase agreements or assets sales. More ›
Chancery Denies Motion to Dismiss Claim for Breach of Earn-Out When Unable to “Divine any Meaning” From Provision
Defendant Pangea acquired BancTec through a merger agreement that provided for an earn-out to former BancTec stockholders in the event that Pangea’s controlling stockholder realized certain returns on its post-merger stock. Plaintiff alleged that the earn-out was triggered when Pangea’s parent company became a wholly owned subsidiary of another company through a stock-for-stock transaction. More ›
As this case illustrates, Delaware courts generally respect and enforce forum selection clauses, even those excluding Delaware, when, under the law governing the parties’ agreement, the parties validly choose another jurisdiction. Plaintiffs, a Swiss holding company and its largest equity owner, Richard Herrling (“Herrling”), brought an action in the Delaware Court of Chancery to enforce a Restructuring and Loan Agreement (“R&L Agreement”) entered into with defendants, Allomet Corporation and Yanchep LLC (jointly “Defendants”). The R&L Agreement contemplated the formation of a new Austrian holding company to implement a joint venture between Plaintiffs and Defendants to carry out the business of Allomet. Under the R & L Agreement, Herrling had advanced certain loans to keep the Allomet Corporation solvent while the parties completed negotiations for the joint venture. After the parties could not agree on the terms for the full legal implementation of the joint venture, Herrling walked away from the negotiations. He and the Swiss holding company to which he had transferred his interest in the Austrian holding company then filed a complaint for breach of contract in the Court of Chancery seeking specific performance of the R&L Agreement. More ›
Plaintiff P&TI Acquisition Co. brought a breach of contract action asserting that Defendants violated a 2012 stock purchase agreement (“SPA”). The SPA governed various assets Defendants, including PhilTem Holdings, Inc. and a PhilTem subsidiary (collectively “PhilTem”), sold to the Plaintiff. It prohibited Defendants and their “Affiliates” from soliciting or employing any PhilTem employees before February 2017. The SPA defined “Affiliate” as a party that controls, is controlled by, or is under common control with any defendant, and “Control” was defined as the power to direct or cause the direction of the management and policies of an Affiliate. Plaintiff alleged that the Defendants caused an affiliate to solicit for employment a PhilTem CEO and a CFO as early as 2014. More ›
High Court Holds that Conflicting Contract Provisions Governing Agreement’s “Term” Create Ambiguity and Require Denial of Summary Judgment
The parties disputed the termination date of two related agreements through which CITGO agreed to ship oil using the plaintiff trucking company, with CITGO arguing for an earlier termination date. On appeal from a decision granting summary judgment in CITGO’s favor, the Delaware Supreme Court reversed and remanded the matter. Applying de novo review, the high court found that the two related contracts governing the transaction had conflicting terms and therefore were ambiguous with respect to the termination date. Although a provision in one agreement clearly set a one-year term – which the lower court found dispositive – the agreements read as a whole were ambiguous. In particular, the same contract with a one-year term (i) contemplated renewals, (ii) required 60 days’ notice for a termination and (iii) also provided for a review of pricing terms 60 days prior to the one-year period. That contract also provided (confusingly) that it would remain in effect until the termination of the second, related contract, which had a later default termination date. The Supreme Court also observed that avoiding an abrupt termination made sense in the commercial circumstances given the magnitude of the endeavor. In light of the resulting ambiguity, the Supreme Court reasoned it was appropriate to consider extrinsic evidence, which included internal CITGO emails indicating that it understood the contract to continue beyond the one-year term. The Court accordingly reversed and remanded the case for a trial on the issue of the agreements’ disputed term. More ›
This is an interesting decision because it deals with the rare instance when a party can prove a mutual mistake as to a contract’s terms so as to avoid having to comply with those terms. Here both a borrower and a loan officer clearly agreed a loan could be repaid without penalty. The actual loan documents had a prepayment penalty that the borrower did not read before signing. The Court held the borrower was excused from catching that penalty clause given the assurance he had there was no prepayment penalty.
While every contract has an implied covenant requiring the parties to act fairly and in good faith, it is not always easy to know how that applies in a given case. This decision is a good example of how the court will approach that issue. It finds that the contract impliedly limited the right of a party to compete with an entity it had formed with another party to exploit a business opportunity.
This decision on a undisputed factual record interpreted a contractual right to put stock by rejecting one side’s argument as “commercially irrational.” It also held that the valid exercise of the put made the holder a creditor of the company entitled to enforce the put against the surviving party of a merger.
How to interpret the provisions of preferred stock is often a difficult task. Any preference must be spelled out and any doubts resolved against preferring one class of stock over common stock. This decision holds that the preferred stock must show evidence it was intended to a preference at least when the authorization for that stock is ambiguous. The decision also affirms that stockholder rights to inspect records cannot be taken away by a certificate of incorporation.
Court of Chancery Enforces Redemption Rights and Addresses the Potential Effect of a Merger on Previously-Exercised Put Rights
This decision is necessary reading for drafters of redemption rights. It involves the interpretation of a redemption rights agreement granting a stockholder the right to force the company to buy back its shares and some interplay between those put rights and the DGCL in the event of a merger. More ›
This drama arises from a dispute involving the Curran Theatre in San Francisco. The decision mostly deals with when alleged conversations are not enough to constitute an enforceable contract, exhaustively reviewing the applicable law. Basically, if you want to enforce a promise, reduce it to a writing including all essential terms. Contemporaneous evidence of a sufficiently detailed promise is a potential fallback, but conflicting testimony about vague terms is not. More ›