Tag: contract interpretation

DISPUTE OVER PUT RIGHT ILLUSTRATES THE POTENTIAL PITFALLS OF AMBIGUOUS CONTRACT LANGUAGE

By: David Forney and Adam Heyd

In QC Holdings, Inc. v. Allconnect, Inc., C.A. No. 2017-0715-JTL (Del. Ch. August 28, 2018), plaintiff QC Holdings, Inc. (“QC Holdings”), a former stockholder of defendant Allconnect, Inc. (the “Company”), brought a claim against the Company to enforce its right (the “Put Right”) under a Put Agreement to sell its Company shares (the “Put Shares”) to the Company in exchange for $5 million (the “Put Price”).  The Company had refused to pay the Put Price on the basis that it was contractually restricted from doing so on the date required under the Put Agreement, and therefore the Put Right was extinguished and never survived a subsequent merger of the Company when those restrictions arguably lifted. The Delaware Court of Chancery  held that the Company’s arguments would have resulted in an improper forfeiture of QC Holdings’ contractual rights to the Put Price and that the exercise of the Put Right constituted a redemption of the Put Shares prior to the merger and a continuing contractual obligation by the Company to pay the Put Price.  The Court ordered the Company to pay the Put Price to QC Holdings out of an escrow set up at the merger closing for this purpose.

Read More

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.

Read More

COURT OF CHANCERY HOLDS THERE MUST BE A GAP IN AGREEMENT FOR AN IMPLIED COVENANT OF GOOD FAITH AND FAIR DEALING

By: Scott E. Waxman and Douglas A. Logan

In Christopher Miller, et al., v. HCP & Company, et al., memorandum opinion 180201, the Court of Chancery granted a motion to dismiss because the underlying Limited Liability Company Agreement did not contain a “gap” for an implied covenant of good faith and fair dealing to fill. Rather, the Court of Chancery held that the Limited Liability Company Agreement contained negotiated investor favorable provisions regarding good faith and fair dealing, thus undercutting any argument that the Court of Chancery should read an implied covenant into the operating agreement.

Read More

Director’s Breach of Contract Lawsuit Found to Violate the Underlying Contract’s Confidentiality Clause

By: David Forney and Benjamin Kendall

In Cappella Holdings, LLC v. Anderson, C.A. No. 9809-VCS (Del. Ch. Nov. 29, 2017), the Chancery Court dismissed a director’s breach of contract claims against his former employer relating to alleged violations of an anti-dilution provision in his employment agreement.  The Court instead found that the director’s initial complaint, which included highly sensitive information about the company, violated the confidentiality provision of the underlying contract on which his claims were based.

Read More

Chancery Court Denies Cross-Motions for Partial Summary Judgment Due to Ambiguities in Contract Language of LLC Agreement Governing Joint Venture

By Scott E. Waxman and Rachel Cheasty Sanders

In AM General Holdings LLC v. The Renco Group, Inc., C.A. No. 7639-VCS  and The Renco Group, Inc. v. MacAndrews AMG Holdings LLC, C.A. No. 7668-VCS (Del. Ch. May 17, 2017), the Delaware Court of Chancery denied cross-motions for partial summary judgment after reviewing the LLC Agreement of AM General Holdings LLC, which governs the joint venture relationship between Plaintiff, The Renco Group, Inc. (“Renco”), and Defendant, MacAndrews AMG Holdings LLC (“MacAndrews”), both members of AM General Holdings LLC (the “Company”).  Renco brought suit against MacAndrews alleging that MacAndrews, the managing member of the Company, caused the Company to distribute $72.8 million to MacAndrews in breach of the Company’s LLC Agreement.  Renco contended that, according to the LLC Agreement, the $72.8 million should have been distributed to Renco instead.  Both parties pointed to several provisions of the LLC Agreement governing the distribution at issue, and both parties contended that these provisions were clear and unambiguous.  After reviewing the provisions, however, the Court determined that the provisions were, in fact, ambiguous and thus, the case could not be disposed of through summary judgment proceedings.

Read More

Chancery Court Rules Against Enforcement of a Call Right Due to Failure to Tender the Contractual Consideration

By: Jill B. Louis and Gilbert A. Perales

In Simon-Mills II, LLC, et al., v. KanAm USA XVI Limited Partnership, et al., C.A. No. 8520-VCG (Del. Ch. March 30, 2017), the Court of Chancery denied Plaintiffs’ request to enforce its call right and granted Defendants’ request for declaratory judgment when the contracted consideration for the call right could not be tendered.

Read More

Chancery Court Cites Inelegant Drafting When Allowing an Indemnification Claim to Proceed

By Whitney Smith and Dean Brazier

In EMSI Acquisition, Inc. v. Contrarian Funds, LLC, et al., C.A. No. 12648-VCS (Del. Ch. May 3, 2017) the Delaware Chancery Court denied a motion to dismiss brought by defendants who were sellers (“Sellers”) in the acquisition of EMSI Holding Company (“EMSI”) by an affiliate of private equity firm Beecken Petty O’Keefe & Company where “inelegant drafting” created an ambiguity that may make the Sellers liable for EMSI’s fraudulent representations and warranties.  To reach this conclusion, the Court considered whether the provisions of the Stock Purchase Agreement (“SPA”) permitted the plaintiff (“Buyer”) to seek indemnification beyond the cap on liability and, if so, whether the Sellers could be liable for the allegedly fraudulent representations and warranties from EMSI.  The Court concluded that the SPA contained conflicting provisions with interpretations that could reasonably support either party’s claims and the conflicts could not be resolved on a motion to dismiss.

Read More

Court of Chancery Upholds Validity of General Release Between Company and Former President, Grants Summary Judgment in Former President’s Favor

By: David Forney and Tami Mack

In Seiden v. Kaneko, C.A. No 9861-VCS (Del. Ch. March 22, 2017), the Court of Chancery held that the general release that Southern China Livestock, Inc. (the “Company”) had entered into with former President Shu Kaneko (“Kaneko”) in exchange for Kaneko’s assistance in recovering certain Company shares was binding and enforceable.  Thus, the Court held that Kaneko had been released from all claims asserted against him by the Company’s receiver (the “Receiver”) and granted summary judgment in Kaneko’s favor.

Read More

Delaware Chancery Court Rules Seller is Entitled to Tax Savings by Applying Extrinsic Evidence of the Parties’ Negotiations and Interpretation of the Redemption and Stock Purchase Agreement in Question

By: Cartwright Bibee and Trevor Belton

In Cyber Holding LLC v. CyberCore Holding, Inc. (C.A. No. 7369-VCN), the Delaware Court of Chancery (Noble, J.) ruled on a contract dispute over which party is entitled to tax savings in the amount of $1,557,171, resulting from deductions of various transaction expenses during the stub year. In its opinion, the Court reached its conclusion by applying the objective theory of contract construction combined with the consideration of extrinsic evidence in an effort “to ascertain the shared intentions of the parties.”  After considering the limited extrinsic evidence available and conducting its analysis of the Agreement, the Court ruled in favor of the seller and held that the Buyer would have to remit the tax savings plus post-judgment interest.  The Court rejected the seller’s request for prejudgment interest as the Agreement’s exclusive remedy provision controlled over the default of awarding prejudgment interest.

Read More

Copyright © 2017, K&L Gates LLP. All Rights Reserved.