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Stockholder Lacks Standing to Enforce the Merger Agreement but May Be Able to Recover Lost Premium Through an Action for Damages

Crispo v. Musk, C.A. No. 2022-0666-KSJM (Del. Ch. Oct. 11, 2022)
Stockholders generally have standing as third-party beneficiaries of corporate contracts under only limited circumstances. As this decision notes, whether contractual language gives standing to stockholders can be “a thorny legal issue.”

Here, a Twitter stockholder sued for specific performance and, alternatively, damages against the Twitter acquirers when they refused to move forward as contemplated by the Merger Agreement (the “Agreement”). The Court of Chancery found that the stockholder did not have the standing to enforce the Agreement as an intended beneficiary because the Agreement contained a “customized” provision disclaiming third-party beneficiaries. The Court analyzed the circumstances when stockholders have standing as third-party beneficiaries, which may include (i) when they independently bargained for the provision they are trying to enforce, (ii) when the contract does not disclaim third-party beneficiaries and is styled after a statute that confers direct benefits on stockholders, or (iii) when the contract grants specific and unique rights to them. Even though the Court found here that the stockholder had no standing to specifically enforce the Agreement, the Court instructed the parties to submit supplemental briefing regarding the stockholders’ ability to bring an action for damages. The Court left the door open to the possibility that a provision that defined damages to include stockholders’ lost premium may allow them to bring a direct action for damages.



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