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Summaries and analysis of recent Delaware court decisions concerning business-related litigation.
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Showing 18 posts in Merger Agreements.
Merger Agreement’s Preservation of Privilege for Pre-Merger Communications Found to be Adequate, Notwithstanding that the Surviving Company Took Possession of E-Mails
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.
ShareSuperior Court CCLD Holds that Anti-Reliance Clause Clearly Disclaimed Reliance on Extra-Contractual Representations or Implied Warranties
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.
ShareChancery Declines to Extend Rent-A-Center Merger Agreement, But Questions Request for Termination Fee
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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