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Summaries and analysis of recent Delaware court decisions concerning business-related litigation.
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Showing 300 posts in Breach of Contract.
Chancery Finds After Trial That $10 Billion Unit-for-Unit Merger Was “Fair and Reasonable” Under Partnership Agreement
Dieckman v. Regency GP LP, C.A. No. 11130-CB (Del. Ch. Feb. 15, 2021)
This matter concerned limited partners’ challenge under the governing limited partnership agreement to an acquisition of the partnership by another entity controlled by the partnership’s ultimate owner. A member of a conflicts committee, which had approved the $10 billion unit-for-unit controlling unitholder merger, also served the board of another company ultimately controlled by the same owner, contrary to the terms of the partnership agreement. After considering this issue, the Court of Chancery nevertheless held after a five-day trial that the merger was “fair and reasonable to the Partnership” under a contractual safe harbor, and that the plaintiffs failed to prove damages. More ›
ShareSuperior Court Applies Affiliate Privilege Doctrine To Dismiss Tortious Interference Claim Against Controller, While Sustaining Fraud Claims Against LLC Managers
In adjudicating a dispute over a scuttled deal in the music festival industry, the Delaware Superior Court applied the so-called affiliate privilege doctrine, which can immunize a controller from tort liability for its affiliates’ contractual breaches, and addressed the viability of fraud claims against individual managers of certain LLCs. More ›
ShareChancery Declines to Order Specific Performance of $5.8 Billion Luxury Hotel Deal Scuttled by COVID-19 Changes to Hotel Business Operations
AB Stable VIII LLC v. MAPS Hotels and Resorts One LLC, C.A. No. 2020-0310-JTL (Del. Ch. Nov. 30, 2020)
Parties to a sale and purchase agreement (“SPA”) had planned to close a deal to sell fifteen luxury hotels for $5.8 billion. As the COVID-19 pandemic spread across the globe in early 2020 and battered the hotel industry, the buyer terminated the SPA. Seller sought specific performance in the Court of Chancery. After trial, the Court denied seller’s request for relief. More ›
Chancery Dismisses Action For Plaintiffs’ Failure to Join Indispensable Parties
Under Court of Chancery Rule 12(b)(7), a defendant may move for dismissal because of a failure to join an indispensable party as described in Rule 19. Rule 19 provides that such parties include persons who, “(1) in the person’s absence complete relief cannot be accorded among those already parties, or (2) the person claims an interest relating to the subject of the action and is so situated that the disposition of the action in the person’s absence may (i) as a practical matter, impair or impede the person’s ability to protect that interest or (ii) leave any of the persons already parties subject to a substantial risk of incurring double, multiple, or otherwise inconsistent obligations by reason of the claimed interest.” If such a person exists in the controversy, the Court may join the person if feasible. If joinder is not feasible, Rule 19(b) requires the Court to “determine whether in equity and good conscience the action should proceed among the parties before it, or should be dismissed, the absent person being thus regarded as indispensable.” Rule 19(b) offers a nonexclusive list of factors to consider when determining whether the action can proceed without the absent party’s involvement. Under Rule 12(h)(2), motions to dismiss for failure to join indispensable parties may be raised up to and including trial, and are not automatically waived as a result of not raising the argument in the first instance. More ›
ShareCCLD Holds Indemnification Provision Does Not Cover First-Party Claims
This case illustrates that Delaware courts will follow the “American Rule” that parties must pay their own legal fees unless they otherwise agree. In this case, the parties’ Stock Purchase Agreement (“SPA”) required defendants to indemnify against “Losses” – which was defined to include reasonable attorneys’ fees and expenses. The Court previously had found that the defendants breached a section of the SPA. Plaintiff then sought to recover as “Losses” its attorneys’ fees and expenses in proving the breach. The Court reasoned that indemnification provisions are presumed not to provide for fee-shifting in claims between the parties (first-party claims) absent a clear and unequivocal articulation of that intent. While there is no specific language that must be used, the SPA here contained a separate, relatively straightforward and narrower prevailing party fee-shifting provision, which did not apply to the claims at issue. Because the indemnification provision did not clearly support fee-shifting for first-party claims, and because the plaintiff was not entitled to attorneys’ fees based on the straightforward fee-shifting provision to which the parties had agreed, the Court granted defendants’ motion for summary judgment that plaintiff was not entitled to recover its attorneys’ fees and expenses under the indemnification provision.
ShareEnforcing a “Draconian” Bargain, Chancery Grants Motion to Dismiss Claims Arising from Right to Repurchase Interest Upon Termination
Moscowitz v. Theory Entertainment LLC, C.A. No. 2019-0780-MTZ (Del. Ch. Oct. 28, 2020)
This case illustrates that the Court will enforce parties’ agreements even if they reflect a bad bargain for one party. Plaintiff Todd Moscowitz, a co-founder of Theory Entertainment LLC (“Theory” or the “Company”), resigned from Theory without giving prior notice, which triggered a “for cause” termination provision under agreements he had entered into with the Company. The termination provision allowed Theory to repurchase Moscowitz’s entire equity stake for a fraction of its value. To avoid that potential outcome, Plaintiff’s resignation notice contained language purporting to preserve his membership interest in Theory and to render his resignation void ab initio if a court were later to determine otherwise. More ›
Chancery Enters Judgment for Seller On Post-Closing Milestone Payment Claim Because Buyer Failed to Establish Occurrence of Condition Subsequent
Shareholder Representative Services LLC v. Shire US Holdings, Inc., et al., C.A. No. 2017-0863 KSJM (Del. Ch. Oct. 12, 2020)
After the purchaser of a drug manufacturer failed to make a post-closing milestone payment required under the applicable merger agreement, the seller filed a two count complaint in the Court of Chancery for breach of contract and attorneys’ fees. In a post-trial opinion, Vice Chancellor Kathaleen St. Jude McCormick concluded that a condition subsequent that would have relieved the buyer of its milestone payment obligation had not, in fact, occurred. The Vice Chancellor entered judgment for the seller and awarded attorneys’ fees based upon a prevailing party provision of the merger agreement. More ›
Chancery Applies Contractual Shortening of Limitations Period for Breaches of Representations, Finds it Inapt to Fraud Claims and Enforces Clear Anti-Reliance Clause
Pilot Air Freight, LLC v. Manna Freight Systems, Inc., C.A. No. 2019-0992-JRS (Del. Ch. Sept. 18, 2020)
In a familiar fact pattern, an acquirer of a business brought suit against sellers claiming, inter alia, that the representations and warranties in the asset purchase agreement were untrue and, indeed, fraudulent when made. The sellers moved to dismiss on the basis of a provision they claimed shortened the limitations period for breaches of representations and warranties and an anti-reliance clause they claimed eliminated any potential claims for misrepresentations or omissions outside of the written agreement. More ›
Superior Court Dismisses Successor-by-Merger’s Claims Where Underlying Contract Contained Anti-Assignment Clause
MTA Royalty Corp. v. Compania Minera Pangea, S.A. DE C.V., C.A. No. N19C-11-228 AML CCLD (Del. Super. Sept. 16, 2020)
Plaintiff’s predecessor-in-interest conveyed mineral rights to Defendant. Under the agreement, Defendant owed a conditional additional $1 million at a future date. Before the payments became due, the predecessor was merged out of existence. As a result, Defendant asserted it had no obligation to pay the additional amount because the sale agreement included an anti-assignment provision that barred assignment absent Defendant’s consent, which was lacking. More ›
Chancery Awards No Damages to Either Party After the Break-Up of the Anthem/Cigna Merger
In re Anthem-Cigna Merger Litigation, C.A. No. 2017-0114- JTL (Del. Ch. August 31, 2020)
This action arose out of a failed merger transaction involving the second and third largest health insurers in the United States, Anthem, Inc. and Cigna Corporation (“the Merger”). The parties had entered into a merger agreement on July 23, 2015 (“Merger Agreement”). Either party could terminate if the transaction did not close by January 31, 2017, a date later extended to April 30, 2017. The parties each agreed to covenants to cooperate and to use their best efforts to accomplish the Merger (“Efforts Covenants”). Specifically, they agreed to take all reasonable steps to consummate the Merger (the “Reasonable Best Efforts Covenant”) and to take “any and all actions” necessary to avoid impediments to the Merger from government entities (the “Regulatory Efforts Covenant”). The parties authorized Anthem to take the lead in working with government entities to facilitate the Merger, but the parties were required to cooperate to obtain regulatory approval (the “Regulatory Cooperation Covenant”). The parties’ obligations to close the Merger were subject to the condition that no governmental entity or court had acted to enjoin the consummation of the Merger (the “No Injunction Condition”). More ›
ShareSuperior Court Reinforces Established Delaware Insurance Coverage Law that Settlement of a Claim for Less than Policy Limits Attaches to Excess Policies
Pfizer, Inc. v. U.S. Specialty Insurance Company, C.A. No. N18C-01-310 PRW CCLD (Del. Super. Aug. 28, 2020)
On cross-motions for summary judgment in a director and officer insurance coverage dispute, the Superior Court of Delaware, Complex Commercial Litigation Division, reaffirmed the Delaware principle, also known as a the Stargatt Rule, that a settlement of a policy between an insured and an insurer for less than the policy limit amounts to satisfaction of such policy. Thus, excess policies attach irrespective of whether the insured collected the full amount of the primary policies. More ›
Alleged Third-Party Beneficiary’s Contract and Alternate Unjust Enrichment Claims Survive Dismissal at the Pleadings Stage Based on Ambiguous Contract Language
A claim for unjust enrichment will not lie where there is a contract that governs the relationship between parties. Both types of claims may survive a motion to dismiss, however, if there exists a contractual ambiguity that prevents the Court of Chancery from interpreting the meaning of contract at the pleadings stage. More ›
ShareChancery Rejects Implied Covenant Claim for Failure to Prove that, Had the Issue Been Negotiated, Both Parties Would Have Agreed
Roundpoint Mortgage Servicing Corp. v. Freedom Mortgage Corp., C.A. No. 2020-0161-SG (Del. Ch. July 22, 2020)
To establish an implied contractual obligation pursuant to the implied covenant of good faith and fair dealing, a party must prove that, even though the contract does not state the term at issue, the parties would have agreed to it had they thought to negotiate it at the time of contracting. Here, the Court of Chancery post-trial denied an acquirer’s implied covenant claim even though the result arguably resulted in unfairness from a financial point of view to the acquirer. As illustrated by this case, unfairness alone to one party does not necessarily prove that both parties would have agreed to the implied term had they thought to negotiate about it. More ›
Delaware Superior Court Allows Statutory Tort Claims for Computer Crimes to Proceed Alongside Breach of Contract Claims
Work Capital, LLC v. AlphaOne Capital Partners, LLC, C.A. No. N19C-08-036 PRW CCLD (Del. Super. June 25, 2020)
Delaware law may provide statutory tort remedies in addition to contractual remedies for actions involving computer system misuse, as demonstrated by a recent Delaware Superior Court opinion. In Work Capital v. AlphaOne Capital Partners, plaintiff Work Capital brought an action in the Superior Court initially alleging only three counts for breach of contract. Plaintiff later amended the complaint, adding one count for violation of Delaware’s Computer Related Offenses Act, 11 Del. C. §§ 931-941 (the “Act”). More ›
In Post-Trial Opinion, Chancery Finds for Defendant, Rejecting Claims Alleging Breach of Purchase Agreement and Right to “Board Packages”
In this post-trial opinion, the Court of Chancery held in favor of defendant Yenni Income Opportunities Fund I, L.P. (the “Fund”) finding that the Fund was not required to obtain the signature of Braga Investment & Advisory, LLC (“Braga”) as a “Buyer” when it executed a side letter agreement (the “Side Letter”), nor had the Fund breached a co-investment agreement by denying Braga access to certain materials in connection with its position as a board observer. More ›
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