By: Scott E. Waxman and Mehreen Ahmed
In Eagle Force Holdings, LLC, and EF Investments, LLC, v. Stanley V. Campbell, 2999991.08000 (Del. Ch. Aug. 29, 2019), the Delaware Court of Chancery (the “Court”) held that Stanley Campbell’s (“Campbell”) conduct and communications with the Plaintiff before and during the signing of the transaction documents did not constitute an overt manifestation of assent to be bound by the documents. Therefore, the breach of contract and breach of fiduciary duty claims failed.
In 2013, Richard Kay (“Kay”) and Stanley Campbell decided to form a business venture to market medical diagnosis and prescription technology that Campbell had developed. The parties outlined the principal terms of the investment through two letter agreements in November 2013 and April 2014. The agreements contemplated that Campbell and Kay would form a new LLC entity, Kay would contribute capital, and Campbell would contribute his intellectual property. After signing the April 2014 letter agreement, Kay continued due diligence, provided funding to the business, and became involved in the operations of the company. The parties eventually began to negotiate an LLC agreement for Eagle Force Holdings, LLC, a Delaware limited liability company, and a contribution agreement (“the Transaction Documents”). These documents provided the basis for the breach of contract claim.
On August 28, 2014, Kay and Campbell signed the Transaction Documents without reading the documents and during a two to five minute meeting. The parties dispute what occurred at the August 28 meeting. Campbell contends that he signed to acknowledge receipt of the latest drafts of the agreements, not to manifest his intent to be bound by the agreements. Kay alleged that the Transaction Documents created a valid contract that should be enforced. According to Delaware law, a valid contract exists when the parties intended the document to bind them, the terms are sufficiently definite, and there is legal consideration. The Court did not need to assess whether the terms of the Transaction Documents are sufficiently definite, as the Supreme Court had previously held that it was when it remanded the case with instructions. In addition, the parties did not dispute whether there was legal consideration. Thus, the Court was presented with one inquiry: whether the Transaction Documents would bind the parties. In resolving this inquiry, the Court considered the evidence of the parties’ prior or contemporaneous agreements and negotiations, signature of the parties, and the circumstances surrounding the execution of the Transaction Documents.
The Court found that Campbell’s conduct and communications did not constitute an overt manifestation of his assent to be bound the Transaction Documents. According to the Court, although signatures are often dispositive evidence of an intent to be bound, in this case, the signature alone was not sufficient. First, the Court observed that trial testimony evidenced a practice of endorsing draft documents to acknowledge receipt, which weakened the presumption of an intent to be bound. Second, the Court explained that conduct and communications between Kay and Campbell before and during the signing appear inconsistent with what one would expect from two business partners finalizing a significant business deal. This is because there was tension and disagreements between the parties. Third, the Court found that the attorneys of both parties did not confirm that the Transaction Documents were final, and the document was signed during a two to five minute meeting, without any of the attorneys present. The Transaction Document also did not appear to be a final agreement with the notation of the word “DRAFT” on the first page, missing dates, and blank schedules. As noted by the Court, Kay was required to prove that a contract existed by a preponderance of the evidence, and although the signatures on the Transaction Documents were Kay’s strongest evidence, the evidence was found to be “equipoise.”