Posts tagged Breach of Contract

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.

Share

Court of Chancery Explains Beneficial Ownership

Mangano v. Pericor Therapeutics Inc., C.A. 3777-VCN (December 1, 2009)

This decision illustrates another loop hole in a stockholder agreement designed to restrict voting rights. Briefly, the agreement provided that an otherwise controlling stockholder would place his stock in a voting trust that would then vote his stock as did the other stockholders. However, there was a provision that permitted the otherwise majority stockholder to transfer his stock to a family member and another provision that terminated the trust if the majority stockholder's stock in trust fell below 45% of the stock outstanding.

Of course, what the majority stockholder did was transfer enough stock to his sister to make him own less than 45% and thereby terminated the trust. His sister then voted with him, and they took control of the corporation.

The Court held that the stockholder did not have a beneficial ownership in the sister's stock as she had no obligation to vote with him or give him any benefit from her ownership of the stock.  To be a beneficial owner you have to have some interest in the stock.

Share

Court of Chancery Explains Duty of Good Faith and Fair Dealing

Amirsaleh v. Board of Trade of The City of New York, Inc., C.A.2822-CC (November 9, 2009)

The law of good faith and fair dealing in contracts is a “judicial tool used to imply terms in a contract that protect the reasonable expectations of the parties." This decision clearly explains Delaware law in this area, including the point that not acting in good faith involves bad faith and that is proved by showing an improper motive.

Share

District Court Finds Late Fee is Not Liquidated Damages

Leeseberg v. Converted Organics Inc., C.A. No. 08-926-GMS (D. Del. Oct. 7, 2009).

Applying Delaware law, the district court concluded that a late fee provision was not a liquidated damages clause and dismissed the defendant’s motion to dismiss the plaintiff’s claim for actual damages. The late fee provision did not bear the label liquidated damages and there was no explicit evidence in the contract indicating that the late fee was the plaintiff’s sole damages in the event of a breach.
 

Share

Explicit Promise of Favorable Financing Not An Implied Obligation

Southern Track & Pump Inc. v. Terex Corp., C.A. No. 08-543-JJF (D. Del. June 9, 2009)

By granting, in part, the defendant’s motion to dismiss its claim for breach of the implied covenant of good faith and fair dealing, the district court found that financing promises may not be regarded as an implied contractual obligation when there is no explicit reference in the agreement.

This dispute arose out of a distributing agreement, whereby the plaintiff agreed to distribute the defendant’s products. By the plaintiff’s account, the defendant represented that it had a relationship with a financier and could leverage this relationship to secure favorable financing. The plaintiff obtained financing and, thereafter, defaulted on its obligation. When the defendant refused to intervene on the plaintiff’s behalf, the plaintiff brought suit for an implied breach. The district court dismissed the plaintiff’s claim to the extent it was based on the alleged explicit promise regarding financing.

Share

Superior Court: Action May Proceed Against Licensor Despite First-Filed Actions

STMicroelectronics N.V. v. Agere Sys., Inc., C.A. No. 08C-09-099 MMJ (Del. Super. May 19, 2009) (applying New York law per choice of law provision)

This case illustrates the series of events that may arise when a subsidiary is party to a licensing agreement, but its parent is not.

Here, the licensor sued the parent company for patent infringement in the Eastern District of Texas and before the International Trade Commission.  In response, the parent and subsidiary brought this action in Delaware, claiming that the filing of the patent infringement actions, though only naming the non-signatory parent, violated the licensing agreement’s covenant not to sue.

The Superior Court permitted the claim to move forward, denying the defendant-licensors’ McWane motion on the basis that the Delaware action did not present the same legal and factual issues as the first-filed proceedings.  Further, the Court denied the defendants’ motion to dismiss for failure to state a claim and for lack of standing on the basis that additional discovery was necessary to resolve those issues.

Share

Licensor's Action to Recover Royalties Overcomes Motion to Dismiss in Superior Court

Boyce Thompson Institute For Plant Research v. MedImmune, Inc., C.A. No. 07C-11-217 JRS (Del. Super. May 19, 2009) (applying New York law per choice of law provision)

This opinion discusses some interesting contractual interpretation and jurisdictional issues arising out of a licensing agreement.  The dispute arose because the licensees denied any obligation to pay royalties to the licensor for products they are manufacturing in a country where, they claim, the licensor does not hold a patent.

The Superior Court found that the contract was ambiguous on whether “covered” products included those that were protected by the licensor anywhere or only those that were protected by a patent in the locations where they were manufactured.  In any case, the Court denied the licensees’ motion to dismiss on the basis that there was no evidence presented to rule out the possibility that the licensees are, in fact, infringing on the patent by their acts in this other country.

The Court also raised the issue of whether it had subject matter jurisdiction to decide the case.  While the Court deferred resolution of the issue, it noted that, if the contract claim requires the Court to determine whether the patent was infringed, then it would likely follow that patent law is a “necessary element” of the breach of contract claim and the federal courts have exclusive subject matter jurisdiction.

Share

"Handshake Agreement" Overcomes Motion to Dismiss in Superior Court

Sunstar Ventures, LLC v. Tigani, C.A. No. 08C-04-042 JAP (Del. Super. April 30, 2009)

This case illustrates the exception to the statute of frauds of "substantial part performance."

The seller of a $5MM home, and other items, brought a breach of contract action, because the buyer backed away.   The buyer moved to dismiss on the grounds that there was no meeting of the minds, and, in any case, the statute of frauds bars enforcement of such a handshake agreement.

But the Superior Court denied the motion to dismiss, holding, among other things, that the fact that the buyer took possession and began making modifications to the home supported an inference that there was substantial part performance, an exception to the statute of frauds.

Share

Court of Chancery Limits Turning Contracts Into Fiduciary Duties

Nemec v. Shrader, C.A. 3878-CC (April 30, 2009)

A contract right does not create a fiduciary duty. Here the plaintiffs had a contract that gave their former employer the right to buy back company stock at book value. The employer did so on the eve of a big transaction, greatly increasing the company's book value. The Court held that plaintiffs' contract did not give them the right to insist that the company hold off on stock redemption until the big deal was done.

Share

Court of Chancery Explains Scope of Representation Clauses

Ivize of Milwaukee, LLC v. Compex Litigation Support LLC, C.A. 3158-VCL (April 22, 2009)

While a statement may not be a lie unless the speaker knows he has failed to tell the truth, a contractual representation does not require knowledge that it is false for it to be actionable if untrue. This decision then puts to rest the argument that scienter is needed to prove a breach of a contractual representation.

Share

District Court Denies Motion for Summary Judgment Based on Void Ab Initio Defense

Lynch v. Coinmaster USA, Inc., C.A. No. 06-365-JJF (D. Del. Mar. 30, 2009)

In this opinion, the court denied a broad application of the ultra vires doctrine. Seeking damages for breach of an employment agreement with Coinmaster USA, Inc., the plaintiff claimed that he was owed outstanding monthly pay, a termination fee, profits, and stock options. Moving for summary judgment, the defendants argued, inter alia, that the agreement was void ab initio in light of the plaintiff’s pre-existing employment agreement with Coinmaster Gaming PLC, a company related to Coinmaster USA, Inc. The defendants cited Solomon v. Armstrong, 747 A.2d 1098 (Del. Ch. 1999), noting that ultra vires acts are void ab initio. Although the court was not entirely clear on the defendants’ position, the court ascertained that the defendants were arguing that the plaintiff, by contracting with Coinmaster USA, Inc. for additional compensation, breached the Coinmaster Gaming PLC agreement and, hence, breached a fiduciary duty to Coinmaster PLC. Under Solomon, the defendants claimed that such a contract is ultra vires and, therefore, void ab initio.     

Rejecting the defendants' argument, the court found that the Coinmaster USA, Inc. agreement was not void ab initio. Delaware law severely restricts the categories of claimants who can raise the ultra vires defense. The defendants cited no cases, and the court could not identify any authority, suggesting that such a contract was ultra vires and, hence, void ab initio merely because it conflicts with a contract involving a third party. Finding that Solomon does not stand for this proposition, the court denied the defendants’ motion for summary judgment with respect to the plaintiff’s breach of contract claim.  

Share

District Court Denies Partial Summary Judgment on Breach of Implied Covenant of Good Faith and Fair Dealing Claim

Zwanenberg Food Group (USA) Inc. v. Tyson Refrigerated Processed Meats, Inc., Civ. No. 08-329-LPS (D. Del. Feb. 27, 2009).

United States Magistrate Judge Leonard P. Stark denied Tyson Refrigerated Processed Meats, Inc.’s (“Tyson”) motion for partial summary judgment of Zwanenberg Food Group (USA) Inc.’s (“ZFG”) contract-based claim that Tyson breached the implied covenant of good faith and fair dealing.

Both Tyson and ZFG are producers and manufacturers of canned meats and other food products. Pursuant to the contract at issue, ZFG purchased from Tyson inventory and equipment used to manufacture canned luncheon meat for private label customers. Wal-Mart Stores, Inc. (“Wal-Mart”) was Tyson’s largest customer for the goods it produced using the assets that were sold to ZFG. Tyson and ZFG, without the involvement of Wal-Mart, executed an Asset Purchase Agreement (“APA”) and the deal closed. More ›

Share

Court of Chancery Clarifies when there is a Contract

BAE Systems Information and Electronic Systems Integration, Inc. v. Lockheed Martin Corp., C.A. 3099-VCN (Del. Ch. Feb. 3, 2009)

 

It is sometimes difficult to decide when a writing is an enforceable contract or merely an agreement to agree. This decision sets out the methodology to decide that question. Particularly important is the way that other businesses operate in the same field for that may provide guidance on how to “fill in the blanks.”

Share

District Court Awards Punitive Damages Based in Part on Discovery Abuse, Denies Attorneys' Fees for Inadequate Proof

Christ v. Cormick, 2008 WL 4889127 (D. Del. Nov. 10, 2008)

In this opinion the Court sanctioned the defendant’s conduct, including discovery abuse, by awarding punitive damages. The Court first entered default judgment against the defendant after his “repeated dilatory discovery conduct and his refusal to appear for deposition.” The plaintiff sought punitive damages in addition to compensatory damages, and the Court found that the entry of default did not preclude awarding punitive damages. The failure to appear for deposition was “but one example of the kind of willful conduct that requires an award of punitive damages.” The plaintiff also sought attorneys’ fees and expenses both for the Delaware action and proceedings in South Africa. The Court, however, denied this claim, finding that an award for fees in the South African litigation was unsupported by law, and the summary information submitted for fees for the Delaware proceeding was inadequate as a matter of law because it did not allow the Court to make a thorough analysis of the time records. 

Share

District Court Finds Indemnity Provision Repugnant to Delaware Public Policy, Refuses to Enforce

Kempski v. Toll Bros., Inc., 2008 WL 4642633 (D. Del. Oct. 21, 2008)

In this opinion, the District Court reinforced Delaware’s law that indemnity provisions that require one party to indemnify another party for the second party’s own negligence are void as against Delaware’s public policy. Here the Defendant, Toll Brothers, Inc., contracted with Delaware Heating and Air Conditioning Services, Inc. (“DHAC”), to perform HVAC work on Defendant’s housing developments. One of DHAC’s employees was injured while performing the work, and sued Defendant. Defendant sought indemnification from DHAC pursuant to their contract. Both Defendant and DHAC sought summary judgment on the indemnification claim. The Court found that under Delaware law, the contractual indemnification provision that Defendant sought to invoke was against Delaware public policy, and granted summary judgment for DHAC. More ›

Share