Topic: Contract Interpretation

If a Contract Claim Walks and Talks like a Contract Claim, It is a Contract Claim

By Scott E. Waxman and Terrina G. LaVallee

In Transdev on Demand, Inc. v. Blackstreet Investment Holdings, LLC, C.A. No. 2019-0912-SG (Del. Ch. 2020), the Delaware Court of Chancery granted in part and denied in part the plaintiff’s motion to dismiss the defendant’s counterclaims. The court denied two counts of the plaintiff’s motion to dismiss because it held it was inappropriate at this pleading stage to determine whether the agreement compelled specific performance and whether a breach of contract claim should have been an indemnification claim. In contrast, the court granted the plaintiff’s motion to dismiss one counterclaim because the defendant attempted to “bootstrap” a claim seeking damages for breach of contract, which was contractually prohibited, to a tort claim for fraud.

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Interpretation of an LLC Agreement with Respect to the Appointment and Removal of Board Members Is Strictly Based on the Plain Language Contained in the Four Corners of the LLC Agreement

By Scott E. Waxman and Jennifer J. Yeung

Where one fifty-percent owner of a single member LLC wished to remove the existing tiebreaker director, the Delaware Court of Chancery held that he could not do so.  A governing LLC agreement’s plain language must be strictly construed; and in this case, it did not provide for unilateral removal of a board member.

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FAILED BREACH OF CONTRACT CLAIMS UNDERSCORE CHANCERY COURT’S FOCUS ON CONTRACTUAL PLAIN LANGUAGE OVER OUTSIDE EVIDENCE

By: Scott Waxman and Adam Heyd

In Braga Investment & Advisory, LLC v. Yenni Income Opportunities Fund I, L.P., C.A. No. 2017-0393-AGB (Del. Ch. June 8, 2020), Braga Investment & Advisory, LLC (“Braga”), a minority investor in Steven Feller, P.E., LLC (“Newco”) alleged that Yenni Income Opportunities Fund I, L.P. (the “Fund”), the majority investor in Newco, had breached a purchase agreement for interests in Newco when the Fund amended it without Braga’s consent. Braga also contended that the Fund breached its co-investment agreement with Braga when it revoked Braga’s right to receive board packages under that agreement. The Delaware Court of Chancery (the “Court”) concluded that the Fund’s amendment of the purchase agreement did not require Braga’s consent, and that the Fund did not breach Braga’s right to receive board packages based on the ordinary use of that term.

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Court Relies on Canons of Construction to find LLC Agreement Consent Right Inapplicable to Contemplated Sale of Subsidiary Stock

By: Scott E. Waxman and Michael C. Payant

In AM General Holdings LLC v. The Renco Group, Inc., et al., CA. No. 7639 and The Renco Group, Inc. v. MacAndrews AMG Holdings, LLC, et al., C.A. No. 7668-VCS (Del. Ch. June 26, 2020), the Delaware Court of Chancery (the “Court”) considered the latest dispute in a nearly decade-long litigation between The Renco Group, Inc. (“Renco”) and MacAndrews AMG Holdings LLC (“MacAndrews”), regarding interpretation of the Limited Liability Company Agreement (the “Agreement”) for AM General Holdings LLC (“Holdco”). Relying on canons of construction, the Court determined the Agreement did not provide Renco a consent right with respect to a contemplated subsidiary sale, and granted MacAndrews’ motion for judgment on the pleadings.

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COURT OF CHANCERY DISMISSES BREACH OF CONTRACT CLAIMS AGAINST MANUFACTURER OF BOEING AIRPLANE PARTS

By: Scott E. Waxman and Marissa Leon

In Bradley E. Julius v. Accurus Aerospace Corporation, C.A. No. 2017-0632-MTZ (Del. Ch. 2019), the Delaware Court of Chancery (the “Court”) granted summary judgment on behalf of a target company dismissing the purchaser’s breach of contract claims in connection with an asset purchase agreement and on behalf of the purchaser dismissing the target company’s breach of contract claims in connection with the asset purchase agreement and related escrow agreement. The Court found that the contracts were unambiguous and the language in the contracts was clear and therefore there were no genuine disputes of material fact to litigate.

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Delaware Court of Chancery Dismisses Derivative Claims in Reliance on Exculpatory Language in Limited Liability Company Agreement

By Scott E. Waxman and Frank J. Mazzucco

In MKE Holdings, Ltd. and David Bergevin v. Kevin Schwartz, et al. and Verdesian Life Sciences, LLC, C.A. No. 2018-0729-SG (Del. Ch. Sept. 26, 2019), the Delaware Court of Chancery relied on exculpatory language in a Limited Liability Company  Agreement to grant a defendant’s motion to dismiss a derivative claim alleging breach of duty by the company’s managers.

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Settlement Agreement Violates Preferred Stockholder Consent Rights

By: Jill B. Louis and Pouya D. Ahmadi

In PWP Xerion Holdings III LLC v. Red Leaf Resources Inc., C.A. No. 2017-0235-JTL (Del. Ch. Oct. 23, 2019), the Delaware Court of Chancery (the “Court”) granted Xerion Holdings III LLC’s (“Xerion”) motion for partial summary judgement on a breach of contract claim, holding that the Red Leaf Resources, Inc. (“Red Leaf” or the “Company”) breached Xerion’s contractual right to consent as the holder of a majority of the shares of the Company’s Series A preferred stock.

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earn-out provision of merger agreement requires extrinsic evidence to aid interpretation

By Scott E. Waxman and Pouya D. Ahmadi

In Western Standard, LLC, v. SourceHOV Holdings, Inc. and Pangea Acquisitions, Inc., C.A. No. 2018-0280-JRS (Del. Ch. July 24, 2019), the Delaware Court of Chancery (the “Court”) refused to the grant SourceHOV Holdings, Inc. (“SourceHOV”) and Pangea Acquisitions, Inc.’s (“Pangea”) motion to dismiss, holding that more extrinsic evidence was needed for the Court to be able to interpret the terms of the merger agreement (the “Merger Agreement”) among Pangea and BancTec, Inc. (“BancTec”) and decide whether there was a valid breach of a contract claim.

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COURT OF CHANCERY FIND PROVISIONS OF MERGER AGREEMENT AMBIGUOUS AND DENIES TELECOMMUNICATIONS GIANT’S MOTION TO DISMISS

By: Scott E. Waxman and Rachel Cheasty Sanders

In Charles F. Dolan v. Altice USA, Inc. et al., Case No. 2018-0651-JRS (Del. Ch. June 27, 2019), the Delaware Court of Chancery address Defendants’ 12(b)(6) motion to dismiss filed in response to the Plaintiff’s complaint containing the following six causes of action: (i) breach of contract, (ii) breach of implied covenant of good faith and fair dealing, (iii) equitable fraud, (iv) promissory estoppel, (v) negligent misrepresentation, and (vi) declaratory relief. Defendants include telecommunications and media companies Altice USA, Inc. and Altice Europe N.V. (collectively, “Altice”). Additionally, Plaintiffs named as nominal defendants Cablevision Systems Corporation (“Cablevision”) and News 12 Networks, LLC (“News12”). Plaintiffs include members of the Dolan family, the controlling shareholders of Cablevision and News12 prior to the sale of those companies to Altice. The Court denied Defendants’ motion to dismiss on the Dolan family’s claims for breach of contract, promissory estoppel, and declaratory relief and granted the motion pertaining to the claims for breach of implied covenant of good faith and fair dealing, equitable fraud, and negligent misrepresentation. (1)

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Words Matter: Chancery Court Holds that Indemnification Provision in Equity Purchase Agreement Does Not Cover Advancement of Expenses for Officer Conduct Unauthorized by the Board

By: Annette Becker and Adrienne Wimberly

In Computer Science Corporation v. Eric Pulier, et al., C.A. No. 11011-CB (Del. Ch. June 27, 2019), the Delaware Court of Chancery denied Plaintiff Computer Sciences Corporation’s (“CSC”) motion for partial summary judgement seeking to recover a portion of funds advanced to a former officer of ServiceMesh, Inc. (an entity CSC had acquired) for legal expenses incurred in defending a separate action. The Court held that based on its interpretation of the plain language of the indemnification provision in the relevant acquisition agreement that the indemnification provision was not broad enough to encompass the advancement of legal expenses in question.

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CHANCERY COURT FINDS THAT LANGUAGE IN AN LLC AGREEMENT THAT STATES AN ASSIGNMENT IS “NULL AND VOID” TRUMPS THE COMMON LAW AND RENDERS EQUITABLE DEFENSES INEFFECTIVE

By: Scott Waxman and Calvin Kennedy

In Absalom Absalom Trust f/k/a Anne Deane 2013 Revocable Trust v. Saint Gervais LLC, C.A. No. 2018-0452-TMR (Del. Ch. June 27, 2019), the Court of Chancery found that the transfer of membership interests in an LLC was void, rather than voidable as it ordinarily would be at common law, due to the plain language of the Company’s LLC agreement (the “LLC Agreement”). Further, the Court held that equitable defenses were unavailable to the plaintiff with regards to the transfer because the contractual language of the LLC Agreement trumped common law. Lastly, the Court found that the unambiguous contractual language controlled despite the flexibility of LLCs and the alleged purpose of the provision.

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Chancery Court finds Commission under Sales Agreement was not “Required” such that entry into Sales Agreement Required Additional Approvals

By Scott E. Waxman and Michael C. Payant

In CompoSecure, L.L.C. v. CardUX, LLC f/k/a Affluent Card, LLC, C.A. No. 12524-VCL (Del. Ch. June 5, 2019), the Delaware Court of Chancery (the “Court”) concluded in a Report on Remand from the Delaware Supreme Court that a Sales Agreement (“Agreement”) entered into by CompoSecure, L.L.C. (“CompoSecure”) and CardUX, LLC (“CardUX”) was not subject to the heightened approval requirements contained in the CompoSecure LLC Agreement because the Agreement did not require CompoSecure to expend more than $500,000 in any fiscal year.

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