Topic: Breach of Contract

CHANCERY COURT DENIES MOTION TO DISMISS CLAIM FOR BREACH OF MERGER AGREEMENT EARN-OUT EFFORTS PROVISION

By: Remsen Kinne and Greyson Blue

In Himawan, et al. v. Cephalon, Inc., et al., C.A. No. 2018-0075-SG (Del. Ch. Dec. 28, 2018), the Delaware Court of Chancery in a Memorandum Opinion denied a motion to dismiss a breach of contract claim brought against defendants Cephalon, Inc. (“Cephalon”), Teva Pharmaceutical Industries Ltd. (“Teva”) and Teva’s affiliate Teva Pharmaceuticals USA, Inc. (“Teva USA”) by former shareholders of Ception, Inc. (“Ception”), a biotech company acquired by Cephalon in a merger transaction. The case concerns a dispute over the phrase “commercially reasonable efforts” as used in an earn-out provision in the merger agreement. The decision highlights pleadings requirements for supporting an initial claim for breach of an objective contractual standard.

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Delaware Chancery Court Rejects Fraud-Based and Uncapped Indemnification Claims of Great Hill Partners Against the Founders of Plimus

By:  Peter N. Flocos and Joanna Diakos

In a case arising out of the purchase by Great Hill Partners of Plimus (now known as BlueSnap, Inc.), the Delaware Court of Chancery, after a 10-day trial and extensive post-trial briefing and oral argument, recently rejected all of the fraud-based claims made by Great Hill against the two founders of Plimus, Messrs. Daniel Kleinberg and Tomer Herzog (the “founders”), who were also directors and major shareholders of Plimus at the time of the transaction. The Court’s decision in Great Hill Equity Partners IV, LP v. SIG Growth Equity Fund I, LLLP, No. 7906-VCG, 2018 WL 6311829 (Del. Ch. Dec. 3, 2018), is notable for its rejection of several claims Great Hill pressed for years after initiating the litigation in September 2012.

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Chancery Court Holds that Party Seeking Indemnification under Contract Procedure Loses Ability to Claim Excused Performance due to Material Breach

By Christopher J. Voss and Michael C. Payant

In Post Holdings, Inc., et al. v. NPE Seller Rep LLC, et al., Chancellor Andre G. Bouchard granted defendant NPE Seller Rep LLC’s (“Seller Representative”) motion for judgment on the pleadings on its counterclaim seeking payment of tax refunds and insurance proceeds allegedly owing under a stock purchase agreement (the “Agreement”). In rendering its decision, the Court concluded that once a party has made a contractual indemnification demand based on a counterparty’s alleged material breach, such party cannot rely on the same breach to excuse non-performance of its own obligations under the contract. The Court also found that unliquidated indemnification claims could not be the basis for an offset of amounts owed in the absence of contract language to the contrary.

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Court of Chancery Dismisses Fraud Claim for Alleged Extra-Contractual Misrepresentations Based on Anti-Reliance Clause

By: Claire S. White and Rachel P. Worth

In ChyronHego Corporation, et al., v. Cliff Wight and CFX Holdings, Inc., C.A. No. 2017-0548-SG (Del. Ch. July 31, 2018), the Delaware Court of Chancery granted the defendants’ motion to dismiss the plaintiffs’ claim for extra-contractual fraud on the basis that the stock purchase agreement contained an effective anti-reliance clause that precluded such claim. The Court found that the anti-reliance clause rebutted the common law fraud element of reliance on any extra-contractual representations, as described further below.  At the same time, the Court dismissed the defendants’ motion to dismiss claims for fraud and breaches of express representations and warranties under the stock purchase agreement, finding that the plaintiffs had sufficiently pleaded the elements of these claims.

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Chancery Court Denies Motion to Dismiss a Breach of Contract Claim Based on Language in Limited Partnership Agreement

By: Scott E. Waxman and Stephanie S. Liu

In Ms. Mary Giddings Wenske, et al. v. Blue Bell Creameries, Inc., et al., the Delaware Chancery Court denied Defendants’ motion to dismiss a breach of contract claim, finding that Plaintiffs had pled a set of facts that allow a reasonable inference that Defendants breached the standards set forth in its partnership agreement.

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Chancery Court Denies In Part Motion to Dismiss Breach of Contract and Breach of Fiduciary Duties Claims

By Shoshannah Katz and Priya Chadha

In Feldman v. Soon-Shiong, et al. (C.A No. 2017-0487-AGB), the Delaware Court of Chancery denied in part and granted in part a motion to dismiss claims involving, among other things, breach of contract and breach of the fiduciary duty of loyalty, following a defendant’s withdrawal of $47 million from a company bank account.

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Court of Chancery Dismisses Breach of Fiduciary Duty Claim as Duplicative of Breach of Contract Claim

By: Scott Waxman and Zack Sager

In MHS Capital LLC v. Goggin, the Delaware Court of Chancery granted a motion to dismiss a breach of fiduciary duty claim against the manager of a Delaware limited liability company because all of the manager’s conduct that could have formed the basis of such claim was covered by the duties of the manager delineated in the limited liability company agreement.  The Court also analyzed and dismissed claims for, among other things, fraud, breach of the implied contractual covenant of good faith and fair dealing, unjust enrichment, and misappropriation of trade secrets.

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Court of Chancery Holds That Plaintiff Failed to Meet Burden of Proof With Respect to Mistake-Based Reformation Claim

By: Scott Waxman and Tami Mack

In Richard B. Gamberg 2007 Family Trust v. United Restaurant Group, L.P., C.A. No. 10994-VCMR (Del. Ch. January 26, 2018), the Court of Chancery held that limited partner, Richard B. Gamberg 2007 Family Trust (the “Plaintiff”), failed to meet its burden of proof with respect to various claims against United Restaurant Group L.P. (the “Partnership”), Atlantic Coast Dining, Inc. (the “General Partner”), and the directors/shareholders of the General Partner (the “Shareholder Defendants”; together with the Partnership and the General Partner, the “Defendants”), which included a mistake-based reformation claim, among other breach of contract and breach of fiduciary duty claims.

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CHANCERY COURT NULLIFIES DISSOLUTION OF LIMITED LIABILITY COMPANIES FOR FAILURE TO SET ASIDE A RESERVE TO SATISFY KNOWN CLAIMS

By: Scott E. Waxman and Calvin D. Kennedy

In Kevin Capone and Steven Scheinman v. LDH Management Holdings LLC, et al., C.A. No. 11687-VCG (Del. Ch. April 25, 2018), the plaintiffs, Kevin Capone (“Capone”) and Steven Scheinman (“Scheinman”), and the defendants, LDH Management Holdings LLC (“Management Holdings”), LDHMH MM, LLC (together with Management Holdings, the “LLCs”), Castleton Commodities International LLC (f/k/a Louis Dreyfus Highbridge Energy LLC (“LDH”)) and certain members of the Board of Directors of LDH, each moved for summary judgment regarding the plaintiffs’ claim that the defendants violated Delaware law by cancelling the LLCs without setting aside a reserve for the plaintiffs’ breach of contract claims.  The court granted the plaintiffs’ motion for summary judgment and held that the defendants were aware of the plaintiffs’ non-frivolous claims for breach of contract against the LLCs and, therefore, the defendants acted in violation of Delaware law when they failed to create a reserve to cover the plaintiffs’ claims when the LLCs were dissolved.

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CHANCERY COURT FINDS ORAL AGREEMENT TO SETTLE PROXY CONTEST BINDING AND ORDERS SPECIFIC PERFORMANCE OF THE SETTLEMENT AGREEMENT

By Josh Gaul and Caitlin Velasco

In Sarissa Capital Domestic Fund LP, et al. v. Innoviva, Inc., C.A. No. 2017-0309-JRS (Del. Ch. Dec. 8, 2017), the Delaware Court of Chancery ruled in favor of dissident stockholder plaintiffs, Sarissa Capital Domestic Fund LP, et al. (“Sarissa”) of Innoviva, Inc. (“Innoviva”), concluding that Sarissa and Innoviva entered into a binding, oral settlement agreement to resolve a proxy contest prior to Innoviva’s 2017 annual stockholder meeting and specific performance of the settlement agreement was warranted. Read More

CHANCERY COURT DISMISSES BREACH OF CONTRACT AND FIDUCIARY DUTY CLAIMS BROUGHT UNDER AN UNENFORCEABLE CONTRACT

By Scott E. Waxman and Michael Bill

In Eagle Force Holdings, LLC v. Campbell, No. 10803-VCMR (Del. Ch. Ct. September 1, 2017), the Court of Chancery dismissed plaintiffs’ breach of contract and fiduciary duty claims against the defendant due to a lack of personal jurisdiction over the defendant. Plaintiffs argued the defendant consented to personal jurisdiction in Delaware by entering into the (1) Contribution and Assignment Agreement (the “Contribution Agreement) and (2) Amended and Restated Limited Liability Company Agreement (the “LLC Agreement,” and together with the Contribution Agreement, the “Transaction Documents”), but the Chancery Court found the Transaction Documents to be missing material terms and, thus, held them to be unenforceable.

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CHANCERY COURT DISMISSES BREACH OF CONTRACT CLAIM DUE TO PLAINTIFF’S FAILURE TO PROFFER A REASONABLE CONSTRUCTION OF MERGER AGREEMENT PROVISION

By: Christopher H. Cunningham and Joseph Phelps

In Fortis Advisors LLC v. Shire US Holdings, Inc., No. 12147-VCS (Del. Ch. Aug. 9, 2017), the plaintiff, Fortis Advisors LLC, which was acting as representative (the “Representative”) for the former stockholders of SARcode Bioscience Inc., a private biopharmaceutical company (the “Target”), pursuant to a merger agreement, alleged that the acquiror Shire US Holdings, Inc., a Delaware subsidiary of a global biopharmaceutical company (the “Acquiror”), breached the provisions of a merger agreement by refusing to pay certain milestone payments that were due.  The Court of Chancery granted the Acquiror’s motion to dismiss for failure to state a breach of contract claim, concluding that, while the Acquiror’s interpretation of the operative provision at issue was reasonable based on its plain and unambiguous language, the Representative failed to proffer a competing reasonable construction of such provision and thus the Court was required to grant the motion to dismiss.

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