Breach of Contract – Page 3

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

Jan 31 2019

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.

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

Dec 21 2018

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.

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

Dec 11 2018

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.

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

Sep 20 2018

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.

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

Aug 31 2018

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.

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

Aug 27 2018

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.

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

Jun 14 2018

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.

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.

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

May 15 2018

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.

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

May 02 2018

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.

Catagory:Breach of Contract