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Showing 15 posts in Merger Agreements.

Court of Chancery Holds That Exclusive Remedy Provisions Alone Are Not Enough To Bar Fraud Claims Based On Extra-Contractual Statements


Fortis Advisors LLC v. Johnson & Johnson, C.A. No. 2020-0881-LLW(Del. Ch. Dec. 13, 2021)
Delaware public policy respects freedom of contract, but
it is also intolerant of fraud. These dueling policy aims are often pitted against one another in the context of complex commercial transactions, where the contracting parties agree to allocate risk – including limitations on the information relied on in entering the transaction. Delaware courts have struck a balance: contractual disclaimers of reliance are permitted, but they must be express and limited to the other party’s extra-contractual statements. Here, the Court of Chancery considered whether an exclusive remedies provision was alone sufficient to disclaim reliance on extra-contractual statements. More ›

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Delaware Supreme Court Affirms that Seller’s Change of Business Operations in Response to the COVID-19 Pandemic Excused Buyer’s Obligation to Close

Posted In Delaware Supreme Court, M&A, Merger Agreements


AB Stable VIII LLC v. Maps Hotels and Resorts One LLC, No. 71-2021 (Del. Dec. 8, 2021)
This Supreme Court decision affirms the Court of Chancery’s decision below (reported here) that a buyer’s obligation to purchase a $5.8 billion group of hotel properties was excused due to the seller’s failure to comply with a covenant that, between signing and closing, it would operate “only in the ordinary course of business, consistent with past practice in all material respects.”  More ›

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Chancery Strictly Applies Statutory Standing Requirement to Dismiss Books and Records Action by Former Stockholder Who Filed Hours After Effective Time of Merger

Posted In Books and Records, Chancery, Merger Agreements


(Previously published in ABA's Business Law Today) 
Swift v. Houston Wire & Cable Co., C.A. No. 2021-0525-LWW (Del. Ch. Dec. 3, 2021)
In this decision, the Delaware Court of Chancery applied Section 220(c) of the Delaware General Corporation Law to dismiss a books and records complaint filed shortly after an event that, under the terms of a merger agreement, caused the plaintiff’s shares to be canceled.  More ›

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Chancery Applies Plain Language of a Merger Covenant To Dismiss Acquirer’s Untimely Indemnification Claim and Deny Sellers’ Request for Detailed Annual Reports

Posted In Breach of Contract, Chancery, M&A, Merger Agreements


Supernus Pharms., Inc. v. Reich Consulting Grp., Inc., C.A. No. 2020-0217-MTZ (Del. Ch. Oct. 29, 2021)
Supernus Pharmaceuticals, Inc. acquired biotech startup Biscayne Neurotherapeutics, Inc. pursuant to a 2018 merger agreement. In 2019, Supernus submitted indemnification claim notices to Reich Consulting Group, Inc., the security holder representative for Biscayne. Subsequently, Supernus filed an indemnification action against Reich in the Court of Chancery. Following trial, plaintiff Supernus’s only remaining indemnification claim was based on a provision in the merger agreement that required Biscayne to operate in the ordinary course of business during a specific period of time (“Ordinary Course Covenant”). More ›

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Chancery Dismisses Implied Covenant Claim For Former Stockholders’ Alleged Improper Demands That Company Take Actions To Achieve Earn-out Milestones


Pacira Biosciences, Inc. v. Fortis Advisors LLC, C.A. No. 2020-0694-PAF (Del. Ch. Oct. 25, 2021)
There generally cannot be a claim under the implied covenant of good faith and fair dealing for conduct that is addressed by the plain language of an agreement. Even when a contract is silent, the Court will not use the covenant to rewrite the contract to imply contractual provisions that a party failed to obtain at the bargaining table. More ›

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Chancery Enforces Parties’ Merger Agreement That Barred Claims Upon Termination of the Agreement

Posted In Breach of Contract, Chancery, M&A, Merger Agreements


Yatra Online, Inc. v. Ebix, Inc., C.A. No. 2020-0444-JRS (Del. Ch. Aug. 30, 2021)

Agreements frequently specify how the termination of the agreement affects the parties’ rights and obligations. This case illustrates that Delaware courts generally enforce “effect of termination” provisions in merger agreements as readily as any other contract provision. More ›

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Chancery Holds That Claim Based on Purposeful Tanking of Merger Agreement Earnout Is Breach of Contract Claim

Posted In Breach of Contract, Chancery, Earn-Out, Merger Agreements


Shareholder Representative Services LLC v. Albertson’s Companies, C.A. No. 2020-0710-JRS (Del. Ch. June 7, 2021)

Many merger agreements include earnout provisions under which the stockholders in the acquired company are entitled to additional consideration upon the occurrence of certain financial milestones. In this case, the Court of Chancery analyzed and considered the appropriate way to plead claims that the acquirer purposefully operated the company to miss earnout milestones. More ›

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Chancery Orders Specific Performance of Deal, Despite Lack of Debt Financing, Finding that COVID-Related Business Decline Was Not an MAE and Seller’s Cost-Cutting Efforts Were Not Breaches of the “Ordinary Course” Covenant

Posted In Breach of Contract, Chancery, M&A, Merger Agreements


Snow Phipps Grp., LLC v. KCake Acquisition, Inc., 2020-0282-KSJM (Del. Ch. Apr. 30, 2021)
In Snow Phipps, the Court of Chancery refused to allow a private equity buyer with pandemic-related cold feet to back out of its bargained for agreement to purchase DecoPac, a cake decorating company. In ordering specific performance, the Court found: (1) the durationally insignificant COVID-related business decline did not constitute a material adverse effect (“MAE”); (2) the seller had not violated any of its covenants to operate in the ordinary course by attempting to mitigate business losses; and (3) the condition to closing that the buyer secure debt financing was excused under the prevention doctrine, because the buyer’s actions caused the condition not to be satisfied. More ›

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Chancery Construes Sellers’ APA Contractual Representations Concerning Customer Relationships and Changes in the Business, Finds No Breach

Posted In Breach of Contract, M&A, Merger Agreements

Julius v. Accurus Aerospace Corp., C.A. No. 2017-0632-MTZ (Del. Ch. Oct. 31, 2019).

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 ›

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Chancery Finds Prospective Purchaser May Pursue Breach Claims Against Target Despite Termination Fee Payment

Posted In Damages, M&A, Merger Agreements

Genuine Parts Company v. Essendant Inc., C.A. No. 2018-0730-JRS (Del. Ch. Sept. 9, 2019).

Termination fee provisions are commonplace buy-side protection in M&A transactions intended to recoup a failed prospective purchaser’s otherwise sunk costs.  They can also provide substantial sell-side protection when drafted as an exclusive remedy.  But, as this decision illustrates, the level of protection depends on each contract’s specific terms.        More ›

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Chancery Upholds Adequacy of Description of Buyer’s Indemnification Claims but Finds Indemnification Request for Pending Litigation Unripe Because Buyer Failed to Allege it Had “Incurred” Losses

Posted In Indemnification, M&A, Merger Agreements

Horton v. Organogenesis Inc.,C.A. No. 2018-0537-KSJM (Del. Ch. July 22, 2019).

Sellers in merger agreements generally agree to indemnify buyers for certain “Losses” but require the buyers to provide timely notice of claims.  Whether an indemnification claim succeeds depends on the language the parties use to define the indemnification obligation. In Horton, the seller agreed that indemnification claims would survive if the buyer provided by June 24, 2018 written notice “stating in sufficient detail the nature of, and factual and legal basis for, any such claim for indemnification” and an estimate and calculation of the amount of Losses, if known, resulting therefrom. The buyer timely sent a notice of indemnification with one-paragraph descriptions of the factual and legal basis of each of its five claims, which it said “may involve breaches of representations and warranties in the Merger Agreement.” It also sought a second category of indemnification for Losses arising out of pending litigation. As to the first category, the Court found the buyer’s one-paragraph descriptions sufficient even though the buyer did not specify the specific sections of the merger agreement it claimed were breached. This was because “sellers are charged with knowledge of their representations and warranties in the Merger Agreement.” As to the second category, the Court granted the seller’s motion to dismiss without prejudice, because the buyer had not adequately pleaded that it had incurred any costs, fees or adverse judgments in the litigation.

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Chancery Holds Tension Between “Bespoke” Provision Governing Post-Closing Conduct and a Boilerplate Survival Clause Requires Consideration of Parol Evidence

Posted In Contract, Merger Agreements

Dolan v. Altice USA, Inc., C.A. No. 2018-0651-JRS (Del. Ch. Jun. 27, 2019).

The founders of Cablevision Systems Corp., the Dolan family, in connection with a $17.7 billion acquisition of that entity by Altice Europe N.V. and Altice USA Inc., obtained a commitment in the Merger Agreement affirming that Altice would operate a particular group of regional cable news channels (News12 Networks LLC) “substantially in accordance with the existing News12 business plan … through at least the end of plan year 2020[.]”  When Altice proceeded to lay off News12 employees after the merger, the Dolan family filed an action in the Court of Chancery for specific performance.  More ›

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Merger Agreement’s Preservation of Privilege for Pre-Merger Communications Found to be Adequate, Notwithstanding that the Surviving Company Took Possession of E-Mails

Posted In Attorney Client Privilege, Cases, M&A, Merger Agreements

Shareholder Representative Services LLC v. RSI Holdco, LLC, C.A. No. 2018-0517-KSJM (Del. Ch. May 29, 2019).

This decision confirms that, in a post-merger dispute between an acquirer and the selling stockholders, broad contractual language can prevent a waiver of the acquired company's privileged pre-merger communications, even if the surviving company takes physical possession of the communications. RSI Holdco, LLC acquired Radixx Systems International, Inc. in 2016, and the merger agreement designated Shareholder Representative Services LLC as representative of Radixx's selling shareholders. As part of the merger, RSI Holdco acquired Radixx’s computers and email servers, which contained 1200 pre-merger emails between Radixx and its counsel; Radixx had not excised or segregated the communications from other data. However, the merger agreement contained a detailed provision that (1) preserved Radixx’s privilege, (2) assigned it the representative of selling stockholders, (3) required the parties to take steps to ensure that the privilege remained in effect, and (4) prevented RSI Holdco from relying on the privileged communications in post-merger litigation. In Great Hill Equity Partners IV, LP v. SIG Growth Equity Fund I, LLLP, 80 A.3d 155 (Del. Ch. 2013), the Court had found that privilege transferred to the surviving company in a merger as a matter of law pursuant to section 259 of the DGCL because (i) the parties did not address privilege in the merger agreement, and (ii) because the at-issue communications were turned over. Great Hill cautioned future parties to "use their contractual freedom" to exclude privileged communications from the transferred assets. Here, the Court rejected RSI Holdco's argument that the failure to excise the communications waived privilege in this circumstance, and the Court noted that even if the privilege had been waived, the merger agreement still prevented RSI Holdco from relying on the communications in the litigation. Thus, the Court concluded that the sellers "heeded the Great Hill court's advice" and found the detailed provision in the merger agreement preserved the privilege attached to the pre-merger communications.

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Superior Court CCLD Holds that Anti-Reliance Clause Clearly Disclaimed Reliance on Extra-Contractual Representations or Implied Warranties

Posted In CCLD, Merger Agreements

Affy Tapple, LLC v. ShopVisible, LLC, C.A. No. N18C-07-216 (MMJ) (CCLD) (Del. Super Mar. 7, 2019).

In agreements governed by Delaware law, a standard integration or merger clause will not bar claims for misrepresentations made to induce entry into the contract.  In order to bar such claims, the agreement must include language expressly disclaiming any reliance upon extra-contractual statements.  While there are no “magic words” that are required, the language at issue must add up to a clear disclaimer.  Here, the Complex Commercial Litigation Division of Delaware’s Superior Court considered a clause stating the plaintiff agreed “that the limited express warranties set forth in this section … are exclusive” and that the defendant “specifically disclaimed all other representations and warranties, express or implied[.]”  The Court stated this was “more than a standard integration clause.”  Reasoning that “[l]anguage indicating a clear understanding of the parties’ intent is all that is required[,]” the Court concluded this section was “drafted with sufficient clarity to establish that there was an understanding that [the claimant] could not rely upon any implied warranties, or any express warranties outside of the [agreement].”  Therefore, the Court dismissed the plaintiff’s claim for fraud in the inducement based on alleged extra-contractual representations. 

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Chancery Declines to Extend Rent-A-Center Merger Agreement, But Questions Request for Termination Fee

Posted In Merger Agreements

Vintage Rodeo Parent, LLC v. B. Riley Financial, Inc., C.A. No. 2018-0927-SG (Del. Ch. Mar. 14, 2019).

The merger agreement at issue in this case included provisions permitting extensions or terminations to account for potential closing delays.  Relevant here, the agreement allowed either party to terminate after a particular deadline if the other party had not timely exercised its right to extend the contract.  The target exercised that right to terminate after the acquirer inadvertently failed to extend.  This litigation ensued, with the acquirer making various equity-based arguments to prevent the target’s termination. More ›

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