Contract Interpretation – Page 2

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

Jul 15 2019

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.

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

Jul 13 2019

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.

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

Jul 08 2019

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.

COURT OF CHANCERY HOLDS THAT MEMBER OF LIMITED LIABILITY COMPANY IS ENTITLED TO ADVANCEMENT WHILE DEFENDING A LAWSUIT IN ITS “OFFICIAL CAPACITY”

Jul 08 2019

By Scott E. Waxman and Frank J. Mazzucco

In Freeman Family LLC v. Park Avenue Landing LLC, C.A. No. 2018-0683-TMR (Del. Ch. April 30, 2019), the Delaware Court of Chancery (the “Court”) held that a member of a limited liability company, in defending a lawsuit in its “official capacity” brought by the company’s managing member, was entitled to advancement of litigation expenses under the company’s operating agreement.

It’s Not What You Thought You Signed That Counts: Chancery Court Rejects Plaintiffs’ Claims For Breach of Contract Plaintiffs Thought They Had Made

Jul 01 2019

By: Remsen Kinne and Alidad Vakili

In Concerned Citizens of the Estates of Fairway Village, et al, v. Fairway Cap, LLC and Fairway Village Construction Inc., C.A. No. 2017-0924-JRS (Del. Ch. March 6, 2019), homeowners resident in Fairway Village, a residential planned community (“Plaintiffs”) claimed that plans and actions taken by one of the community’s developers, defendant Fairway Cap, LLC (“Fairway Cap”), to construct, own and lease townhouse condominiums in the community for use as rental apartments breached contractual provisions of Fairway Village’s governing documents. In its verdict for defendants, the Court of Chancery (the “Court”) rejected those claims, and concluded that Plaintiffs failed to prove a breach of contract and denied Plaintiffs’ motion for summary judgment.

Chancery Court Enforces Privileged Communications Provision to Protect Seller Following Merger

Jun 21 2019

By David Forney and Mark Hammes

In Shareholder Representative Services LLC v. RSI Holdco, LLC, C.A. No. 2018-0517-KSJM (Del Ch. May 29, 2019) the Court of Chancery held that a privileged communications provision in a merger agreement protected the pre-merger communications between the seller and the seller’s legal counsel in spite of the buyer’s insistence that the privilege had transferred in the merger or had been waived.

CHANCERY COURT DISMISSES COMPLAINT, FINDING THAT THE PARTIES’ FORUM SELECTION CLAUSE IS MANDATORY AND ENFORCEABLE

Jun 07 2019

By: Elisabeth Yandell McNeil, Adrienne Wimberly, and Jeremy Crites

In Germaninvestments AG v. Allomet Corp., C.A. No. 2018-0666-JRS (Del. Ch. May 23, 2019), the Delaware Court of Chancery (the “Court”) granted the defendants’ motion to dismiss the action brought to determine the appropriate venue for dispute resolution, finding that the forum selection clause agreed upon by the parties in the agreement that was the subject of the dispute was both mandatory and enforceable, meaning that the action must be brought exclusively in Vienna, Austria.

Court Refuses to Reform Contract Failing to Find a Scrivener’s Error

Apr 11 2019

By: Scott E. Waxman and Douglas A. Logan

In, In re 11 West Partners, LLC, the Delaware Court of Chancery (the “Court”) refused to reform a contract with clear language, finding the argument of a scrivener’s error unconvincing. While the Court noted that it found all of the parties’ testimony believable, the Court did not find clear and convincing evidence that a mistake was made in drafting the contract in question.

CHANCERY COURT GRANTS DEFENDANT’S MOTION ON THE PLEADINGS WHERE NAMED DEFENDANTS DID NOT OWE ANY OF THE CONTRACTUAL OR FIDUCIARY OBLIGATIONS PLAINTIFF TRIED TO ENFORCE

Mar 29 2019

By: Scott Waxman and Samantha Beatty

In Ross v. Institutional Longevity Assets LLC, C.A. No. 2017-0186-TMR (Del. Ch. Feb. 26, 2019), the Chancery Court, in a motion for judgement on the pleadings, found that the plain language of a limited liability company’s operating agreement was sufficient to affirm the notion that the plaintiff had failed to establish a set of facts to support his breach of contract and breach of fiduciary duty claims. The Court found that (i) where the language of a contract is clear, the parties’ disagreement will not render a contract ambiguous; (ii) where a plaintiff has not identified gaps in the language of a contract, there can be no evidence that an implied covenant of good faith has been breached, and (iii) where a fiduciary duty claim arises out of the same conduct as a contract claim, the fiduciary claim is superfluous.

COURT OF CHANCERY FINDS NO BUYER DUTY TO MAXIMIZE CONTINGENT SALE CONSIDERATION OWED TO SELLER

Mar 28 2019

By Scott E. Waxman and Thomas F. Meyer

In Glidepath Ltd. v. Beumer Corp., C.A. No. 12220-VCL (Del. Ch. February 21, 2019), the Delaware Court of Chancery held that the buyer of a company did not breach transaction documents or violate the implied covenant of good faith and fair dealing in maximizing the long-term value of the company at the expense of short-term profits that would have resulted in greater contingent consideration being paid to the seller plaintiffs (the “Sellers”).

Catagory:Contract Interpretation