CONTRACT LANGUAGE MUST BE UNAMBIGUOUS FOR CHANCERY COURT TO GRANT DISMISSAL AS MATTER OF LAW

By: Scott E. Waxman and Douglas A. Logan

In Fortis Advisors LLC v. Stora Enso AB letter opinion 180810, Stora Enso AB (the “Defendant”) filed a motion to dismiss the claims by Fortis Advisors LLC (the “Plaintiff”), alleging the merger agreement (the “Merger Agreement”) entered into by each of the parties unambiguously did not obligate the Defendant to make further payments to the Plaintiff. The Chancery Court disagreed, finding the language of the Merger Agreement ambiguous, therefore denying the Defendant’s motion.

The Plaintiff and Defendant entered into the Merger Agreement where the Defendant acquired Virdia, Inc. upon payment of $25.27 million paid at closing and two post-closing payments to be paid only upon the achievement of designated milestones (the “Milestone Payments”). Plaintiff filed a complaint which alleged Defendant breached the Merger Agreement by not making the Milestone Payments. Further, Plaintiff alleged that specific performance on the agreed upon timeline was required under the Merger Agreement. Defendant moved to dismiss Plaintiff’s claim on the ground that the Merger Agreement unambiguously did not obligate Defendant to perform under any set timeline. The Defendant argued because the milestones were not achieved as prescribed in the Merger Agreement, it had no obligation, contractual or otherwise, to make the Milestone Payments.

At the center of the dispute were three separate provisions of the Merger Agreement. Plaintiff argued that the language of these provisions supported its allegations the Defendant breached the Merger Agreement, while Defendant contended just the opposite, interpreting the provisions to support its non-payment.

The Defendant’s motion to dismiss was denied by the Court. Generally, the interpretation of a contract is a question of law that is suitable for determination on a motion to dismiss, however, the Court may only grant a motion to dismiss if the contractual language is unambiguous. To prevail on its motion, Defendant must demonstrate that its proffered interpretation of the Merger Agreement is the only reasonable interpretation. In analyzing the Plaintiff’s and Defendant’s interpretation of the three key provisions of the Merger Agreement the Court found that both of the parties offered reasonable interpretations, meaning the language was ambiguous. Thus the Court could not grant the Defendant’s motion to dismiss.