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In Post-Trial Opinion, Chancery Finds for Defendant, Rejecting Claims Alleging Breach of Purchase Agreement and Right to “Board Packages”

Braga Investment & Advisory, LLC v. Yenni Income Opportunities Fund I, L.P., C.A. No. 2017-0393-AGB (Del. Ch. June 8, 2020)

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.

The Fund entered into the Membership Interest Purchase Agreement (the “Purchase Agreement”) with a Florida LLC (“Oldco”) and Oldco’s principals (the “Sellers”) in connection with the acquisition of Oldco by a Delaware LLC (“Newco”). As part of this transaction, Braga and the Fund entered into an agreement whereby Braga acquired 23.3% of the membership interests in Newco and would be entitled to certain board observer rights, including the right to receive Board packages (the “Co-Investment Agreement”). The Co-Investment Agreement referenced a joinder agreement pursuant to which Braga would be deemed to be a Buyer under the Purchase Agreement entitled to the rights and obligations of the Purchase Agreement (the “Joinder Agreement”). On September 8, 2016, Braga signed the Joinder Agreement which was countersigned on behalf of Newco around the time of closing on September 19, 2016 (the “Closing”). 

Amending the Purchase Agreement required “an agreement in writing signed by the Buyer [the Fund], the Company [Oldco] and the Sellers’ Representative [the Sellers].” nShortly before the Closing, the Fund, the Sellers and Oldco entered into the Side Letter, which they all signed, amending the Purchase Agreement to exclude the transfer of certain Oldco assets to Newco. At trial, Braga argued that by entering into the Side Letter without Braga’s written consent the Fund had breached the Purchase Agreement because Braga had became a “Buyer,” and thus a necessary signatory to the Side Letter, when it entered into the Joinder Agreement. Braga contended that the Joinder Agreement—which was only signed by Newco and Braga—did not require the signatures of the Fund, Oldco and the Sellers because the defendant was estopped from arguing that the Joinder Agreement was invalid and/or the necessary parties had “ratified” the Joinder Agreement.  Braga provided three bases for these arguments: (1) the Fund was precluded from arguing that Braga was not a “Buyer” because doing so would contradict a position taken in its opening brief in support of its motion to dismiss; (2) at trial, the Fund’s managing partner supported the position that Braga was a “Buyer” in connection with the Side Letter; and (3) in an email between counsel for the Fund and counsel for the Sellers a series of documents (including the Joinder Agreement) were listed and there was discussion about who could sign these documents “for Newco.”

The Court rejected all of these arguments. First, the Court found that there was no legal support for the argument that the Fund was not permitted to take a position at trial that might contradict an argument that was made in briefing in connection with its motion to dismiss. Second, the Court held that while testimony by the Fund’s managing partner at trial might provide evidence that the Fund ratified the Joinder Agreement, Braga provided no evidence that the Sellers and Oldco had provided such ratification. Third, the Court held that the email between counsel for the Fund and counsel for the Sellers did not support implicit ratification as it was merely a discussion about who could sign various documents on behalf of Newco and it “could not rationally be interpreted to mean that the Sellers were accepting the terms of the Joinder Agreement on behalf of Oldco.” The Court further noted that Braga was not treated and did not act like a “Buyer,” including in that the Fund negotiated with the seller and took care of all the day-to-day business relating to the transaction.

In connection with the Co-Investment Agreement, Braga argued that the Fund had breached its obligation to ensure that Braga’s board observer rights were honored because it was not provided with “copies of all Board packages prepared for Board members concurrent with receipt thereof.” Braga argued that “Board packages” should be construed broadly to include a sweeping amount of information that the Board conceivably had access to. The Court held, however, that the ordinary and usual meaning of “Board packages” covered a far more discrete set of information and that Braga was simply entitled to (and did) receive the information distributed to Newco’s board members in connection with board meetings that enabled the board members to perform their duties in an informed manner. 

For these reasons, the Court entered judgement in favor of the Fund and against Braga on all counts.

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