Posts in Breach of Contract

Supreme Court Determines Interest Award

Brandywine Smyrna Inc. v. Millennium Builders Inc., No. 53, 201 (December 9, 2011)

 When a prevailing party is entitled to interest on its judgment has sometimes been confusing.  This decision affirming the general right to interest clarifies Delaware law.

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Court Of Chancery Fashions Remedy For Failure To Negotiate

PharmAthene Inc. v. SIGA Technologies Inc.,  C.A. 2627-VCP (September 22, 2011)

This is an important decision for 2 reasons.  First, it clarifies the extent of a duty to negotiate in good faith.  Second, it crafts a remedy for a breach of that duty.  This is important because deal term sheets often provide for further "good faith" negotiations and what that means has been unclear in the past.  Further, it is also common for the mediation of commercial disputes to end with the basic terms set out in a memorandum of understanding with the details to be "negotiated in good faith."

First, it is important to understand when there is a binding obligation to negotiate in good faith.  In this case, 2 formal contracts between the parties required they have such further negotiations. Without a binding contract to do so, it remains doubtful  that just a simple agreement to continue discussions binds anyone.

Second, when the duty to negotiate does arise, what constitutes good faith is hard to define in the abstract.  This decision points out, however, that a refusal to continue to honor past agreements is "bad faith."  In short, you cannot go back on terms already agreed to as a way to get other concessions.

Third, when the duty to negotiate is violated, the remedy is critical.  As this decision points out, specific performance and a damage award of what one side says were its expectation damages may not be available for a variety of reasons.  Here, the Court provided a remedy that gave the non-breaching party what the Court felt were the benefits that the parties had agreed on generally, even if the details were not finalized.  This highlights the importance of reviewing the history of their negotiations to determine what is likely to have been the outcome had they fairly negotiated.

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Supreme Court Clarifies Test Of Pleadings

Central Mortgage Company v. Morgan Stanley Mortgage Capital Holdings LLC, No. 595, 2010 (August 18, 2011)

This important decision clarifies that Delaware courts should apply the "conceivability" test to determine if a complaint states adequate facts to state a claim.  Previously, Delaware's trial courts had applied the "plausibility" test from the United States Supreme Court's Twombly decision.  As the Delaware Supreme Court makes clear, the "conceivability" test is the more liberal test and will result in sustaining more complaints in response to motions to dismiss.

For years, the Chief Justice has cautioned in public statements that Twombly was not Delaware law.  While his opinion in this case may leave that open for a later review,  for now he has the last word.

The decision also significantly liberalizes the scope of a "good faith and fair dealing" claim.  So long as such a claim does not depend on an actual breach of the contract involved, it may survive a motion to dismiss as well.

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Court Of Chancery Permits Innovative Use Of Declaratory Judgment

K&K Screw Products LLC v. Emerick Capital Investments Inc., C.A. 5633-VCP (August 9, 2011)

Sometimes a lingering contract dispute causes problems in obtaining financing or just getting on with a company's business.  Here the Court upheld the use of a declaratory judgment action to establish the parties rights in such a dispute.

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Court Of Chancery Explains Limits To Guaranty

Roseton OL LLC v. Dynegy Holdings Inc., C.A. 6689-VCP (July 29, 2011)

This decision explains the limits on a parent's guaranty of a subsidiary's performance in the context of what the parent can do with its assets and its ability to later honor the guaranty.  It is an illustration of the need to understand the client's business and for careful drafting of such agreements.

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Delaware Superior Court CCLD Interprets Complex Contract

Textron Inc. v. Acument Global Technology Inc., C.A. 10C-07-103-JRJ CCLD (April 6, 2011)

The new Complex Civil Litigation Division of the Delaware Superior Court has attracted over 40 new cases because of its special  treatment of business disputes.  This opinion illustrates that Court will provide the careful treatment of contract disputes that is needed by the parties. Applying settled Delaware law to the issues presented, the Court denied a motion for judgment on the pleadings while providing the litigants guidance that may lead them to resolve their dispute. 

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Court Of Chancery Outlines Remedies For Documentation Mistakes

Great-West Investors LP v. Thomas H. Lee Partners LP , C.A. 5508-VCN (January 14, 2011)

Sometimes a contract cannot have been intended to mean what is says. This decision is an example where the contract read literally would require 1 party's compensation to double every year forever. The opinion contains a good overview of the remedies available in such a situation.

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Court Of Chancery Explains Statutory Construction

Microstrategy Inc. v. Acacia Research Corp., C.A. 5735-VCP (December 30, 2010)

This decision explains the proper role of grammar and punctuation in the interpretation of a contract.  Briefly, grammar and punctuation do not overcome common sense and errors in either may be ignored when appropriate.

Interestingly, the decision relies on the United States Supreme Court Twombly case rule that requires more fact-specifc pleadings in complaints.  Several other Court of Chancery decisions have also cited to Twombly.  However, to date the Delaware Supreme Court has not expressly adopted Twombly and has only cited to it once, in a vague footnote.  Hence, it is not  clear if Delaware really does follow Twombly's pleading rules and some Delaware lawyers doubt that it will if the Supreme Court is called upon to decide that issue.

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Delaware Complex Commercial Litigation Division Off To A Strong Start

In May 2010, the Delaware Superior Court established its Complex Commercial Litigation Division  ( the "CCLD") in response to the growing need for more efficient treatment of complicated commercial litigation.  The Division has special procedures designed to move litigation forward, deal with the problem of electronically stored information and otherwise address issues that have come to plague civil litigation in recent years.  At a seminar on December 7, 2010, one of the judges appointed to the new CCLD, Jan Jurden, reported on its progress.

The CCLD is off to a good start. To date, 30 cases have been filed or transferred to the CCLD and at least 1 trial has been held already.  Judge Jurden confirmed that:

1. The CCLD is prepared to go to trial at almost any time the parties want, even as short as a few months;
2. The Judges assigned to the CCLD are willing to adopt whatever scheduling orders, e-discovery procedures and other case management orders that the parties agree upon to modify the forms of orders that the CCLD would otherwise implement to move matters along efficiently, and
3. The Judges will actively manage cases at a party's request to resolve discovery and other disputes promptly.

In short, the CCLD is well positioned to rival the Delaware Court of Chancery in its ability to provide prompt justice to litigants.

 

 

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Court Of Chancery Explains Essentials Of An Enforceable Contract

Pharmathene Inc. v. SIGA Technologies Inc.,  C.A. 2627-VCP (November 23, 2010)

When is a letter of intent or term sheet an enforceable contract?  Delaware says it is enforceable when the parties intend to be bound and when the agreement contains "all essential terms." Exactly what all that means is often disputed.  This decision summarizes case law in a manner that will help to resolve this important question.

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Supreme Court On Tortious Interference With Contract

 

ASDI, Inc. v. Beard Research, Inc., C.A. Nos. 296/301/308, 2010 (November 23, 2010)

In this decision, the Supreme Court held the Court of Chancery erred in holding plaintiffs had failed to establish a tortious interference with contract claim where a third party had lawfully terminated the contract with plaintiffs.  According to the Supreme Court, the focus of a tortious interference claim is whether the defendant wrongfully induced contractual termination, not whether the termination was legal.  While an unlawful termination will support a tortious interference claim, a plaintiff can also state a tortious interference claim when the defendant's tortious conduct causes a third party to terminate a contract lawfully.

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Court Of Chancery Upholds Notice Requirement In Stockholder Agreement

TR Investors LLC v. Genger, C.A. 3994-VCS (July 23, 2010)

Stockholder agreements frequently provide that notice must be given before any stock subject to the agreement may be transferred.  Usually, the notice triggers a right to buy.  Here the Court, as expected, held that the failure to give the notice does not end the other party's right to buy, but the stock and informal notice is not good enough to comply with the formality required by the agreement.

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Court Of Chancery Enforces Settlement As Written

Cambridge North Point LLC v. Boston & Maine Corporation,  C.A. 3461-VCS (June 17, 2010)

This is another example of the Court of Chancery enforcing the contract the parties wrote despite one party's second thoughts. Saying that you did not read it does not help either.

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Court Of Chancery Explains How To Interpret Indenture

Concord Real Estate CDO 2006-1 Ltd  v. Bank of America N.A., C.A. 5219-VCL (May 14, 2010)

This is an intesting case even though it deals with how to interpret a complicated indenture.  As the Court explains, it will look to the commentary to the Model Debenture Indenture for guidance.  The reason is that there is a need for uniform interpretation of such documents.  It does not follow, necessarily, that the Court will accept "expert" testimony on what other contracts are supposed to mean.

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Supreme Court Divides Over When Fair Dealing Claim Exists

Nemec v. Shrader , C.A. 305, 2009 (April 4, 2010)

In a rare split amongst the Justices, the Delaware Supreme Court has divided over when the duty of good faith and  fair dealing applies. The majority opinion is an example of the views of  Chief Justice Steele who is noted for his stance that  a contract should be held to fix the parties' rights and there is little room to add to those rights under the so-called duty to act in good faith and with fair dealing.  If the circumstances that the plaintiff complains of might have been anticipated when the contract was drafted, it is too bad if the contract does not give the plaintiff what he now wants.

The two Justices in the minority, Justices Jacobs and Berger, are not so sure they want to rely entirely on what the parties put into their contract to define their rights in all circumstances. They are more inclined to expand a party's rights when they feel the other side has acted in a way that would not have been agreed to had they thought about it beforehand.

For now at least, the strict upholding of the contracts limits has won the day.

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